<PAGE> 1
As filed with the Securities and Exchange Commission on August 28, 1996
REGISTRATION STATEMENT NO. 33-57407
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 3
TO
FORM S-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------
TOWN & COUNTRY CORPORATION
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
MASSACHUSETTS 04-2384321
(State or other jurisdiction of incorporation (I.R.S. Employer Identification Number)
or organization)
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C. WILLIAM CAREY
PRESIDENT
TOWN & COUNTRY CORPORATION
25 UNION STREET 25 UNION STREET
CHELSEA, MASSACHUSETTS 02150 CHELSEA, MASSACHUSETTS 02150
(617) 884-8500 (617) 884-8500
(Address, including zip code, and telephone (Name, address, including zip code, and
number, including area code, of registrant's and telephone, including area code of
principal executive offices) agent for service)
</TABLE>
Copies to:
RICHARD E. FLOOR, P.C.
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
(617) 570-1000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. X
---
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this form, 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.
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<PAGE> 2
TOWN & COUNTRY CORPORATION
<TABLE>
CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
Showing Location in Prospectus
of Information Required by Items of Form S-2
<S> <C>
FORM S-2 ITEM NUMBER OF CAPTION LOCATION OR HEADING IN PROSPECTUS
- ------------------------------- ---------------------------------
1. Forepart of Registration Statement
and Outside Front Cover Page of Prospectus ..... Outside Front Cover Page
2. Inside Front and Outside Back
Cover Pages of Prospectus ...................... Available Information; Inside Front and Outside Back
Cover Pages of Prospectus; Table of Contents
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed Charges ......... Risk Factors; Selected Historical and Supplemental
Consolidated Financial Data
4. Use of Proceeds ................................. Selling Shareholders
5. Determination of Offering Price ................. *
6. Dilution ........................................ *
7. Selling Security Holders ........................ Selling Shareholders
8. Plan of Distribution ............................ Plan of Distribution
9. Description of Securities to be Registered ...... Description of the Convertible Preferred Stock;
Description of Capital Stock
10. Interests of Named Experts and Counsel .......... Legal Opinions; Experts
11. Information With Respect to the Registrant ...... The Company
12. Incorporation of Certain Information by
Reference ....................................... Incorporation of Certain Documents by Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities .. *
<FN>
- ----------------
* Omitted since the Item is not applicable.
</TABLE>
<PAGE> 3
PROSPECTUS
Town & Country Corporation
4,000,000 Shares of Convertible Preferred Stock
and
8,000,000 Shares of Class A Common Stock
----------------------
This Prospectus relates to the sale by certain shareholders (the "Selling
Shareholders") of Town & Country Corporation (the "Company") of (i) up to
4,000,000 shares of the Company's convertible redeemable preferred stock, par
value $1.00 per share (the "Convertible Preferred Stock") and (ii) up to
8,000,000 shares of the Company's Class A Common Stock, par value $0.01 per
share (the "Class A Common Stock"), issuable upon conversion of the Convertible
Preferred Stock. In a private placement completed on November 23, 1994 (the
"Issuance Date"), an aggregate of 2,381,038 shares of Convertible Preferred
Stock were issued to the Selling Shareholders to induce them to exercise their
right to exchange their shares of the Company's exchangeable preferred stock,
par value $1.00 per share (the "Exchangeable Preferred Stock"), for shares of
common stock, par value $0.01 per share, of Little Switzerland, Inc. (the
"Little Switzerland Common Stock") held in a trust for the benefit of the
holders of the Exchangeable Preferred Stock. As of August 23, 1996, an aggregate
of 1,366,631 shares of Convertible Preferred Stock were issued and outstanding.
Because additional shares of Convertible Preferred Stock may be issued by the
Company in lieu of the payment of cash dividends on such stock, this Prospectus
covers the resale both of shares of Convertible Preferred Stock issued to the
Selling Shareholders on the Issuance Date and shares of Convertible Preferred
Stock which may be issued in the future in lieu of cash dividend payments, as
well as the shares of Class A Common Stock into which all such shares of
Convertible Preferred Stock are convertible (all such shares of Convertible
Preferred Stock together with the shares of Class A Common Stock issuable upon
conversion thereof are hereinafter referred to as the "Securities").
----------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS."
----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------------
The date of this Prospectus is August 28, 1996
(Cover continued on next page)
<PAGE> 4
THE RECAPITALIZATION
As a result of financial difficulties which the Company experienced during
its fiscal years ended February 29, 1992 and February 28, 1993, the Company
proposed a recapitalization (the "Recapitalization") which was consummated on
May 14, 1993. The Recapitalization consisted of the following components: (i)
the execution of a revolving credit agreement with Foothill Capital Corporation
("Foothill") which provided the Company with senior secured financing in an
amount of up to $30,000,000 (the "1993 Credit Agreement"); (ii) the execution of
new gold consignment agreements (the "1993 Gold Agreements" and together with
the 1993 Credit Agreement, the "1993 Debt Agreements") with its gold suppliers
(the "Gold Suppliers") which provided the Company with an aggregate gold
consignment availability of up to 100,000 troy ounces; (iii) the sale (the
"Secured Debt Offering") of $30 million principal amount of the Company's 11
1/2% Senior Secured Notes due September 15, 1997 (the "1993 Senior Secured
Notes") for cash to holders of the Company's 13% Senior Subordinated Notes due
December 15, 1998 (the "Old 13% Notes") and the Company's 10 1/4% Subordinated
Notes due July 1, 1995 (the "Old 10 1/4% Notes" and together with the Old 13%
Notes, the "Old Notes"); (iv) the offer to exchange (a) $478.96 principal amount
of the Company's 13% Senior Subordinated Notes due May 31, 1998 (the "1993
Senior Subordinated Notes"), $331.00 of Exchangeable Preferred Stock, and 89.49
shares of the Company's Class A Common Stock, for each $1,000 principal amount
of outstanding Old 13% Notes and (b) $408.11 principal amount of 1993 Senior
Subordinated Notes, $282.04 of Exchangeable Preferred Stock and 76.25 shares of
Class A Common Stock for each $1,000 principal amount of outstanding Old 10 1/4%
Notes (the "Exchange Offers"); (v) the solicitation of consents to amend certain
terms of the indentures pursuant to which the Old 13% Notes and the Old 10 1/4%
Notes were issued; (vi) the amendment of certain provisions of the Industrial
Revenue Bonds (the "IRBs") related to the Company's manufacturing facility in
New York, New York and (vii) the approval by the Company's stockholders of (x)
an amendment to the Company's Articles of Organization to increase the number of
authorized shares of Class A Common Stock from 20,000,000 to 40,000,000, (y)
pursuant to the requirements of the American Stock Exchange ("AMEX") on which
the Class A Common Stock is listed, the issuance of up to 11,399,905 shares of
Class A Common Stock as part of the Recapitalization and (z) the issuance by the
Company of options to purchase an aggregate of 1,500,000 shares of Class A
Common Stock at an exercise price of $2.75 per share to members of senior
management in connection with the consummation of the Recapitalization as
required by the AMEX rules. Holders of $89,590,000 or 92.8% of the aggregate
principal amount of Old 13% Notes and holders of $25,905,000 or 98.3% of the
aggregate principal amount of Old 10 1/4% Notes tendered their notes pursuant to
the Exchange Offers. Thus, in connection with the Exchange Offers, the Company
issued $53,480,900 of 1993 Senior Subordinated Notes, $36,960,190.45 (2,533,255
shares) of Exchangeable Preferred Stock and 9,992,648 shares of Class A Common
Stock to holders of Old Notes.
On July 3, 1996, the Company amended and restated the 1993 Credit Agreement
with Foothill (as amended and restated, the "1996 Credit Agreement"). The 1996
Credit Agreement provides senior secured financing consisting of a $40 million
revolving credit facility and a $30 million letter of credit in support of a
gold consignment facility provided by Fleet Precious Metals ("Fleet"); however
the aggregate amount of the combined facilities which may be outstanding at any
date is $65 million. The 1996 Credit Agreement is for a period of two years and
provides Foothill with an option to renew for three additional years. The loans
bear interest at a rate per annum equal to the greater of (a) 2% above the
reference rate announced by an identified group of major banks selected by
Foothill or (b) 8%. See "The 1996 Credit Agreement."
THE PRIVATE PLACEMENT
In the third quarter of fiscal 1995, management determined that it was in
the best interests of the Company and its stockholders to reduce its exposure to
the financial and market performance of Little Switzerland. To reduce its
exposure to Little Switzerland, the Company believed that it had to encourage
holders of Exchangeable Preferred Stock to exercise their exchange rights for
shares of Little Switzerland Common Stock. Accordingly, on November 4, 1994, the
Company made an offer to certain holders of Exchangeable Preferred Stock to
issue to such holders one share of Convertible Preferred Stock for each share of
Exchangeable Preferred Stock which they exchanged for shares of Little
Switzerland Common Stock. Holders of 2,381,038 shares of Exchangeable Preferred
Stock, representing approximately 94% of the outstanding shares of Exchangeable
Preferred Stock, accepted this offer and exchanged their shares of Exchangeable
Preferred Stock for an aggregate of 2,381,038 shares of Little Switzerland
Common Stock. In connection with such exchange, the Company issued to such
holders an aggregate of 2,381,038 shares of Convertible Preferred Stock in a
private placement (the "Private Placement") pursuant to Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act"), and Rule 506
promulgated thereunder. The Private Placement and the exchange of Exchangeable
Preferred Stock for Little Switzerland Common Stock resulted in a noncash,
nonrecurring gain of approximately $17 million, net of the estimated fair value
of the Convertible Preferred Stock issued by the Company.
(Cover continued on next page)
(ii)
<PAGE> 5
Pursuant to a registration rights agreement (the "Registration Rights
Agreement") entered into in connection with the Private Placement, the Company
agreed to file a registration statement under the Securities Act with respect to
the shares of Convertible Preferred Stock (and the shares of Class A Common
Stock into which such shares are convertible) issued to the Selling
Shareholders. Accordingly, the Company filed a registration statement on Form
S-2 (No. 33-57407), dated January 23, 1995 (the "Registration Statement"), with
the Securities and Exchange Commission (the "Commission"). On March 28, 1996,
the Company suspended effectiveness of the Registration Statement as
contemplated by Section 5 of the Registration Rights Agreement because of
certain inchoate material transactions described herein involving the Company.
See "The Company--The Asset Sale" and "The 1996 Credit Agreement."
THE CONVERTIBLE PREFERRED STOCK
Pursuant to the certificate of vote of directors establishing the
Convertible Preferred Stock (the "Certificate of Designation"), the Board of
Directors of the Company is authorized initially to issue up to 2,533,255 shares
of Convertible Preferred Stock and thereafter may issue additional shares of
Convertible Preferred Stock solely as payment in lieu of cash dividends payable
thereon. Each share of Convertible Preferred Stock has a liquidation preference
of $6.50, plus accrued and unpaid dividends (the "Liquidation Value"), as
adjusted to reflect subdivisions, combinations, reclassifications, stock
dividends, stock splits or similar events relating to the Convertible Preferred
Stock. The Convertible Preferred Stock is senior to all Junior Stock (i.e.,
Class A Common Stock, Class B Common Stock and any other class of capital stock
of the Company now or hereafter issued and outstanding that ranks junior as to
dividends or liquidation to the Convertible Preferred Stock or the Exchangeable
Preferred Stock, as the case may be) including Class A Common Stock and the
Company's Class B Common Stock, par value $0.01 per share, is junior to the
Exchangeable Preferred Stock and is subordinate in right of payment to all
indebtedness of the Company. As of August 23, 1996, there were 152,217 shares of
Exchangeable Preferred Stock outstanding. As of May 26, 1996, the Convertible
Preferred Stock was subordinate to approximately $89 million of indebtedness of
the Company (excluding indebtedness to trade creditors and outstanding
indebtedness under the 1993 Credit Agreement and the 1993 Gold Agreements). As
of May 26, 1996, the amount of such outstanding indebtedness to trade creditors
was approximately $17 million. The Convertible Preferred Stock, as of May 26,
1996, also was subordinate to additional indebtedness of up to $30 million
under the 1993 Credit Agreement and of up to approximately 63,000 troy ounces
under the 1993 Gold Agreements. As of that date, the actual amount of
indebtedness outstanding under the 1993 Credit Agreement and 1993 Gold
Agreements was approximately $24 million and approximately 63,000 troy ounces
(valued at approximately $24 million), respectively. See "Description of the
Convertible Preferred Stock--Ranking."
Holders of the shares of Convertible Preferred Stock are entitled to
receive, when and as declared by the Board of Directors of the Company,
cumulative cash dividends at the rate of 6% per annum of the Liquidation Value
thereof. Dividends on the Convertible Preferred Stock are payable semiannually
on each March 1st and September 1st after the issuance date. The amount of
accrued and unpaid dividends is added to the Liquidation Value. Because the
Company is prohibited from paying cash dividends on the Convertible Preferred
Stock by the terms of the 1996 Credit Agreement, the 1993 Senior Secured Notes,
the 1993 Senior Subordinated Notes, the Old Notes, and the Exchangeable
Preferred Stock, the Company shall issue additional shares of Convertible
Preferred Stock in lieu of cash dividends. See "Risk Factors--Dividend
Restrictions" and "Description of the Convertible Preferred Stock--Dividends."
During the year ended February 25, 1996 ("fiscal 1996"), dividends of
approximately $713,000 were paid with the issuance of approximately 110,000 new
shares of Convertible Preferred Stock. At May 26, 1996, cumulative unpaid
dividends amounted to approximately $620,000.
The Company may redeem the Convertible Preferred Stock, in whole at any
time or in part from time to time, at a price equal to 104% of Liquidation
Value, if redeemed during the twelve month period beginning on November 23, 1995
(the "First Anniversary Date"), and thereafter at prices declining annually to
100% of Liquidation Value on or after November 23, 1997. The Company shall pay
the redemption price by delivering cash, but may elect to pay accrued but unpaid
dividends on shares of Convertible Preferred Stock to be redeemed by delivering
additional shares of Convertible Preferred Stock in lieu of cash dividends,
which shares automatically shall be converted into shares of Class A Common
Stock. The 1996 Credit Agreement, the 1993 Senior Secured Notes, the 1993 Senior
Subordinated Notes, the Old Notes, and the Exchangeable Preferred Stock place
restrictions on the Company's ability to redeem shares of Convertible Preferred
Stock. See "Description of the Convertible Preferred Stock--Redemption."
Each holder of a share of Convertible Preferred Stock shall be entitled to
receive two shares of Class A Common Stock for each share of Convertible
Preferred Stock surrendered for conversion, subject to adjustment to reflect a
subdivision, combination, reclassification, stock dividend, stock option, or
similar event relating to the Convertible Preferred Stock or the Class A Common
Stock (the "Conversion Rate"). Through August 23, 1996, approximately 1,187,512
shares of Convertible Preferred Stock were converted into Class A Common Stock.
In the
(Cover continued on next page)
(iii)
<PAGE> 6
event that the sale price of Class A Common Stock shall equal or exceed $3.25
per share for 30 consecutive trading days, the Company may require that all
outstanding shares of Convertible Preferred Stock be converted into shares of
Class A Common Stock at the then-applicable Conversion Rate. See "Description of
the Convertible Preferred Stock--Conversion."
A holder of a share of Convertible Preferred Stock is entitled to vote on
all matters on which the holders of Class A Common Stock are entitled to vote.
Each share of Convertible Preferred Stock shall have the number of votes equal
to the number of shares of Class A Common Stock into which such share is then
convertible. See "Description of the Convertible Preferred Stock--Voting
Rights."
HOLDING COMPANY STRUCTURE
The 1993 Senior Secured Notes, the 1993 Senior Subordinated Notes, the Old
Notes, the Exchangeable Preferred Stock and the Convertible Preferred Stock are
obligations of the Company. Because a significant portion of the operations of
the Company are, and in the future are likely to be, conducted through
subsidiaries, the cash flow and the consequent ability to service debt of the
Company, including the 1993 Senior Secured Notes, the 1993 Senior Subordinated
Notes, the Old Notes, the Exchangeable Preferred Stock and the Convertible
Preferred Stock, will be dependent upon the earnings of the Company or the
payment of dividends to the Company by its subsidiaries. The payment of
dividends and the making of loans and advances to the Company by its
subsidiaries may be subject to statutory or contractual restrictions, are
contingent upon the earnings of those subsidiaries and are subject to various
business considerations.
The Convertible Preferred Stock is subordinate in all respects (including
upon any voluntary or involuntary bankruptcy, liquidation, dissolution, or
winding up of the Company) to all existing and future indebtedness of the
Company. See "Description of the Convertible Preferred Stock--Ranking."
(iv)
<PAGE> 7
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended. The Company's actual
results could differ materially from those set forth in the forward-looking
statements. Certain factors that might cause such a difference are
discussed in the section entitled "Risk Factors" that begins on page eight
of this Prospectus.
AVAILABLE INFORMATION
The Company has filed a registration statement on Form S-2 (the
"Registration Statement") with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the securities offered hereby. As permitted by the rules
and regulations of the Commission, this Prospectus which constitutes part of the
Registration Statement, omits certain information, exhibits and undertakings
contained (or to be contained) in the Registration Statement. Such additional
information, exhibits and undertakings can be inspected at and obtained from the
Commission in the manner set forth below. For further information with respect
to the securities offered hereby and the Company, reference is made to the
Registration Statement, and the financial schedules and exhibits filed as a part
thereof. Statements contained in this Prospectus as to the terms of any contract
or other document are not necessarily complete, and, in each case, reference is
made to the copy of each such contract or other document that has been filed as
an exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference.
The Company is subject to the informational and reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files periodic reports, proxy and information statements
and other information with the Commission. Such reports, proxy and information
statements and other information filed with the Commission, as well as the
Registration Statement, and the exhibits thereto, can be inspected and copied at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, and at the Commission's
regional offices located at Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, and 7 World Trade Center, New York, New
York 10048. Copies of such material also can be obtained from the Public
Reference Section of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Commission also maintains a Web
site at http://www.sec.gov containing reports, proxy and information statements
and other information regarding registrants, including the Company, that file
electronically with the Commission. The shares of the Company's Class A Common
Stock are listed and traded on the American Stock Exchange under the symbol
"TNC". Thus, such reports, proxy and information statements and other
information concerning the Company also can be inspected at the American Stock
Exchange offices at 86 Trinity Place, New York, NY 10006-1881. Such reports,
proxy and information statements, and other information may also be obtained
from the Company, 25 Union Street, Chelsea, Massachusetts 02150, telephone
number (617) 884-8500; Attention: Manager of Corporate Communications.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended February
25, 1996 ("fiscal 1996"), the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended May 26, 1996 and all other reports filed by the Company
pursuant to Section 13(a) or 15(d) of the Exchange Act since February 25, 1996,
are hereby incorporated by reference into this Prospectus.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which is incorporated by reference
herein modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of any such
person, a copy of any or all of the documents referred to above which have been
incorporated into this Prospectus by reference (other than exhibits to such
documents). Requests for such copies should be directed to the Company, 25 Union
Street, Chelsea, Massachusetts 02150, Attention: Manager of Corporate
Communications, telephone number (617) 884-8500.
<PAGE> 8
TABLE OF CONTENTS
Page
THE COMPANY..............................................................4
RISK FACTORS.............................................................8
Financial Considerations.............................................8
Certain Bankruptcy Law Considerations................................9
Lack of Established Market...........................................9
Dividend Restrictions................................................9
Ranking of Convertible Preferred Stock..............................10
Holding Company Structure...........................................10
SELECTED HISTORICAL AND SUPPLEMENTAL
CONSOLIDATED FINANCIAL DATA.........................................11
DESCRIPTION OF THE CONVERTIBLE PREFERRED STOCK..........................14
General.............................................................14
Ranking.............................................................14
Certain Bankruptcy Limitations......................................14
Dividends...........................................................15
Liquidation Rights..................................................15
Redemption..........................................................15
Conversion..........................................................16
Consolidation, Merger, and Sale of Assets...........................17
Voting Rights.......................................................17
Other Miscellaneous Matters.........................................18
THE 1996 CREDIT AGREEMENT...............................................19
DESCRIPTION OF OUTSTANDING DEBT SECURITIES..............................19
1993 Senior Secured Notes...........................................19
1993 Senior Subordinated Notes......................................20
Exchangeable Preferred Stock........................................21
SELLING SHAREHOLDERS....................................................23
PLAN OF DISTRIBUTION....................................................25
DESCRIPTION OF CAPITAL STOCK............................................26
Preferred Stock.....................................................26
Common Stock........................................................26
Registration Rights.................................................27
Massachusetts Anti-Takeover Laws and Certain Provisions
of the Articles and By-Laws......................................27
Indemnification; Limitation of Liability............................28
MATERIAL FEDERAL INCOME TAX CONSEQUENCES................................29
General.............................................................29
Tax Consequences of Holding Stock...................................29
LEGAL OPINIONS..........................................................33
EXPERTS ................................................................33
2
<PAGE> 9
--------------
No person is authorized to give any information or to make any
representation in connection with the Recapitalization other than those
contained in this Prospectus and, if given or made, such information or
representation must not be relied upon. This Prospectus does not constitute an
offer to sell or an offer to exchange or a solicitation of an offer to sell or
exchange any securities, other than the securities covered by this Prospectus,
by the Company or any other person or any offer to sell, or an offer to exchange
or solicitation of an offer to sell or exchange such securities, or the
solicitation of any consent, in any jurisdiction to or from any person to whom
it is unlawful to make such offer or solicitation. Neither the delivery of this
Prospectus nor any sale or exchange made hereunder shall, under any
circumstances, create an implication that there has been no change in the
affairs of the Company or in the information set forth herein since the date
hereof.
3
<PAGE> 10
THE COMPANY
Town & Country Corporation, a Massachusetts corporation (collectively with
its consolidated subsidiaries unless the context otherwise requires, the
"Company"), designs, manufactures, and markets an extensive collection of fine
jewelry and recognition products in the United States and internationally. The
Company consists of six operating entities: the parent company, Town & Country
Corporation, headquartered in Chelsea, Massachusetts; its majority-owned
subsidiary, Essex International Company Limited, a Thailand company, and its
affiliates ("Essex"); and the Company's wholly-owned subsidiaries, Anju Jewelry
Limited, a Hong Kong company and its subsidiaries ("Anju"); Gold Lance, Inc.
("Gold Lance"), located in Houston, Texas; L.G. Balfour Company, Inc.
("Balfour"), headquartered in North Attleboro, Massachusetts; and Town & Country
Fine Jewelry Group, Inc. ("T&C Fine Jewelry"), located in Chelsea,
Massachusetts. The Company was incorporated under the laws of the Commonwealth
of Massachusetts in 1965 and has been a public company since 1985. Its principal
executive offices are located at 25 Union Street, Chelsea, Massachusetts 02150,
and its telephone number at that location is (617) 884-8500.
Additional information with respect to the Company, including audited
financial statements for the fiscal year ended February 25, 1996, may be found
in the Company's Annual Report on Form 10-K for the fiscal year ended February
25, 1996 and in the Company's Quarterly Reports on Form 10-Q for the fiscal
quarters ended May 28, August 27, November 26, 1995 and May 26, 1996.
THE RECAPITALIZATION
Commencing in the fiscal year ended February 28, 1991 ("fiscal 1991"), the
operations and financial results of the Company were materially and adversely
affected by factors influencing the jewelry industry in general and the Company
in particular. The decline in the Company's net sales from fiscal 1991 through
the fiscal year ended February 28, 1993 ("fiscal 1993"), was due primarily to
the economic recession, which had a negative impact on the retail sector of the
jewelry industry that the Company supplies. During that period, several of the
Company's important customers experienced financial difficulties, including the
Company's largest customer, Zale Corporation (together with its subsidiaries and
affiliates, the "Zale Companies"), which filed for bankruptcy in January 1992.
As a result of the foregoing factors, the Company experienced declining net
sales and operating results during fiscal 1991, the fiscal year ended February
29, 1992 ("fiscal 1992"), and fiscal 1993. In this regard, the Company
experienced a net loss of approximately $19 million for fiscal 1992 and a net
loss of approximately $47 million for fiscal 1993.
The Company's financial performance for fiscal 1992 and fiscal 1993 and the
requirement to reclassify and revalue its exposure to the Zale Companies as a
result of the Zale Companies' bankruptcy caused the Company to be in default
under its then existing revolving credit agreement (the "Old Credit Agreement")
and its then existing gold consignment agreements (the "Old Gold Agreements").
In addition, as a result of its financial difficulties, the Company did not make
the interest payments due on December 15, 1992 on its 13% Senior Subordinated
Notes due December 15, 1998 (the "Old 13% Notes") and on January 1, 1993 on its
10 1/4% Subordinated Notes due July 1, 1995 (the "Old 10 1/4% Notes," together
with the Old 13% Notes, the "Old Notes"), and was thus in default under the
indentures for the Old Notes.
As a result of the financial difficulties which the Company experienced
during fiscal 1992 and fiscal 1993, the Company proposed a recapitalization (the
"Recapitalization") which was consummated on May 14, 1993. The Recapitalization
consisted of the following components: (i) the execution of a new revolving
credit agreement with Foothill Capital Corporation ("Foothill") which provided
the Company with senior secured financing in an amount of up to $30,000,000 (the
"1993 Credit Agreement"); (ii) the execution of new gold consignment agreements
(the "1993 Gold Agreements," together with the 1993 Credit Agreement, the "1993
Debt Agreements") with its gold consignors (the "Gold Suppliers") which provided
the Company with an aggregate gold consignment availability of up to 100,000
troy ounces; (iii) the sale of $30 million principal amount of the Company's 11
1/2% Senior Secured Notes due September 15, 1997 (the "1993 Senior Secured
Notes") for cash to holders of Old Notes (the "Secured Debt Offering"); (iv) the
offer to exchange (a) $478.96 principal amount of the Company's 13% Senior
Subordinated Notes due May 31, 1998 (the "1993 Senior Subordinated Notes"),
$331.00 of the Company's exchangeable preferred stock, par value $1.00 per share
(the "Exchangeable Preferred Stock"), and 89.49 shares of the Company's Class A
Common Stock, par value $0.01 per share (the "Class A Common Stock"), for each
$1,000 principal amount of outstanding Old 13% Notes and
4
<PAGE> 11
(b) $408.11 principal amount of 1993 Senior Subordinated Notes, $282.04 of
Exchangeable Preferred Stock and 76.25 shares of Class A Common Stock for each
$1,000 principal amount of outstanding Old 10 1/4% Notes (the "Exchange
Offers"); (v) the solicitation of consents to amend certain terms of the
indentures pursuant to which the Old 13% Notes and the Old 10 1/4% Notes were
issued; (vi) the amendment (the "IRB Amendments") of certain provisions of the
Industrial Revenue Bonds (the "IRBs") related to the Company's manufacturing
facility in New York, New York; and (vii) the approval by the Company's
stockholders of (x) an amendment to the Company's Articles of Organization to
increase the number of authorized shares of Class A Common Stock from 20,000,000
to 40,000,000, (y) pursuant to the requirements of the American Stock Exchange
(the "AMEX") on which the Class A Common Stock is listed, the issuance of up to
11,399,905 shares of Class A Common Stock as part of the Recapitalization, and
(z) the issuance by the Company of options to purchase an aggregate of 1,500,000
shares of Class A Common Stock at an exercise price of $2.75 per share to
members of senior management in connection with the consummation of the
Recapitalization as required by the AMEX rules. Holders of $89,590,000 or 92.8%
of the aggregate principal amount of Old 13% Notes and holders of $25,905,000 or
98.3% of the aggregate principal amount of Old 10 1/4% Notes tendered their
notes pursuant to the Exchange Offers. Thus, in connection with the Exchange
Offers, the Company issued $53,480,900 of 1993 Senior Subordinated Notes,
$36,960,190.45 (2,533,255 shares) of Exchangeable Preferred Stock, and 9,992,648
shares of Class A Common Stock to holders of Old Notes.
Pursuant to the terms of the 1993 Senior Secured Notes, the Company has
redeemed an aggregate of $17 million principal amount of 1993 Senior Secured
Notes since their issuance on May 14, 1993. At May 26, 1996, approximately $13
million in aggregate principal amount of 1993 Senior Secured Notes were
outstanding. See "Description of Outstanding Debt Securities--1993 Senior
Secured Notes." Pursuant to the terms of the 1993 Senior Subordinated Notes, the
Company has paid the first four semiannual installments of interest on the 1993
Senior Subordinated Notes through the issuance of additional 1993 Senior
Subordinated Notes. At May 26, 1996, approximately $69 million in aggregate
principal amount of 1993 Senior Subordinated Notes were outstanding. See
"Description of Outstanding Debt Securities--1993 Senior Subordinated Notes."
THE REFINANCING
On July 3, 1996, the Company amended and restated the 1993 Credit Agreement
with Foothill (as amended and restated, the "1996 Credit Agreement"). The 1996
Credit Agreement provides senior secured financing consisting of a $40 million
revolving credit facility and a $30 million letter of credit in support of a
gold consignment facility provided by Fleet Precious Metals ("Fleet"); however
the aggregate amount of the combined facilities which may be outstanding at any
date is $65 million. The 1996 Credit Agreement is for a period of two years and
provides Foothill with an option to renew for three additional years. The loans
bear interest at a rate per annum equal to the greater of (a) 2% above the
reference rate announced by an identified group of major banks selected by
Foothill or (b) 8%. The 1996 Credit Agreement contains standard covenants for
facilities of this type including financial covenants relating to interest
coverage, minimum net worth, minimum working capital, debt to net worth and
current ratios and limitations on dividends, distributions and capital
expenditures. Advances under the 1996 Credit Agreement are based on eligible
accounts receivables and inventory. Foothill has first security priority
interest in receivables, inventory and substantially all real estate and fixed
assets owned by the Company and its domestic subsidiaries subject to Fleet's
first position as gold consignor, supported by the letter of credit.
THE PRIVATE PLACEMENT
On November 4, 1994, the Company made an offer to certain holders of the
Exchangeable Preferred Stock to issue to such holders one share of the Company's
convertible preferred stock, par value $1.00 per share (the "Convertible
Preferred Stock"), for each share of Exchangeable Preferred Stock which they
exchanged for shares of common stock of Little Switzerland, Inc. (the "Little
Switzerland Common Stock"). Holders of 2,381,038 shares of Exchangeable
Preferred Stock, representing approximately 94% of the outstanding shares of
Exchangeable Preferred Stock, accepted this offer and exchanged their shares of
Exchangeable Preferred Stock for an aggregate of 2,381,038 shares of Little
Switzerland Common Stock. In connection with such exchange, the Company issued
to such holders (the "Selling Shareholders") an aggregate of 2,381,038 shares of
Convertible Preferred Stock in a private placement (the "Private Placement")
pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act"), and Rule 506 promulgated thereunder. As part of this private
placement, the Company agreed to file a registration statement under the
5
<PAGE> 12
Securities Act with respect to the shares of Convertible Preferred Stock and the
shares of Class A Common Stock into which such shares are convertible
(collectively, the "Securities") issued to the Selling Shareholders.
The Private Placement was completed for two reasons. First, the Company
wanted to reduce its exposure to the financial and market performance of Little
Switzerland. The holders of Exchangeable Preferred Stock had the right to
exchange such shares for shares of Little Switzerland Common Stock held in a
trust for the benefit of such holders and the Company. The Company, however, had
the right to vote and receive cash dividends on such shares. See "Description of
Outstanding Debt Securities -- Exchangeable Preferred Stock." To reduce its
exposure to Little Switzerland, the Company believed that it had to encourage
holders of Exchangeable Preferred Stock to exercise their exchange rights.
Second, because the carrying value of the Company's investment in Little
Switzerland was substantially less than the recorded value of the Exchangeable
Preferred Stock, the retirement of a substantial portion of such stock resulted
in a nonrecurring, noncash gain of approximately $17 million, net of the
estimated fair value of the Convertible Preferred Stock issued by the Company as
an inducement.
THE ASSET SALE
On May 20, 1996, the Company entered into an agreement to sell assets and
liabilities of its Balfour and Gold Lance subsidiaries constituting
substantially all of the operations of Balfour and Gold Lance to Class Rings,
Inc. ("CRI"), a new company formed by Castle Harlan Partners II, L.P. and the
Company. Separately, CRI entered into an agreement with CJC Holdings, Inc.
("CJC") to acquire its school ring business.
The Company's agreement with CRI is subject to a number of significant
contingencies including approval by the Federal Trade Commission and CRI's
ability to raise sufficient capital to consummate the acquisition of Balfour and
Gold Lance and the acquisition of CJC's school ring business.
Under the Company's agreement with CRI, the Company will receive cash of
$55 million, adjustable for the fluctuation in working capital as of the date of
closing, 8% of the common stock of CRI and the cash equivalent to the value of
gold on hand as of the date of closing. In addition, the Company may receive
additional shares of common stock of CRI based on CRI's exceeding certain
defined levels of profitability. Under this contingent earnout arrangement, the
Company can earn up to an additional 10% interest in the common stock of CRI.
OTHER EVENTS
Executive Employment Agreement. In July 1996, the Company entered into an
Amended and Restated Executive Employment Agreement with C. William Carey, the
Company's Chairman of the Board, President and Chief Executive Officer. The
amended agreement extends Mr. Carey's existing employment agreement with the
Company, entered into in 1994, for an additional two years. It continues Mr.
Carey's base salary at $975,000, and provides him with an annual bonus, based on
increasing earnings per share targets, of up to 150% of his salary. In 1996, Mr.
Carey agreed to voluntarily reduce his annual salary to $750,000; pursuant to
his amended employment agreement, Mr. Carey has agreed to continue that
voluntary reduction into 1997. In any year in which Mr. Carey voluntarily agrees
to reduce his annual salary from $975,000, Mr. Carey will receive, for each
twelve-month period during which such reduction is in effect, an option to
purchase shares of the Company's Class A Common Stock the terms of which are
calculated pursuant to a formula in the amended employment agreement. Mr. Carey
is eligible to receive a bonus if the Company's net income per common share
(excluding extraordinary items and material capital transactions and after
provision for the payment of any such bonus) equals or exceeds certain targeted
earnings per share levels. These levels increase over the term of the amended
employment agreement so that the target in each year is higher than the previous
year's target. If the applicable target is not achieved, no bonus will be paid.
Mr. Carey's prior employment agreement provided that he would receive an option
to purchase 2.5% of the equity of Balfour at the 1994 Book Value thereof (as
therein defined); his amended agreement provides, in lieu thereof, that, upon
the sale or merger of all or substantially all of the assets or stock of
Balfour, the Company shall pay to Mr. Carey a transaction fee (the "Transaction
Fee"). The Transaction Fee will be an amount equal to 2.5% of any Profit (as
therein defined) over Book Value received in connection with such sale or
merger.
6
<PAGE> 13
Fine Jewelry Division. In July 1996, the Board of Directors of the Company
confirmed the appointment of Francis X. Correra as President of the Fine Jewelry
Division of the Company. As a result of Mr. Correra's appointment, the Company
has commenced a search for a new Chief Financial Officer to replace Mr. Correra,
who will hold the position of Chief Financial Officer until a suitable
replacement is found.
7
<PAGE> 14
RISK FACTORS
The purchase of Convertible Preferred Stock and Class A Common Stock is
subject to a number of material risks, including those enumerated below. Before
purchasing any shares of Convertible Preferred Stock or Class A Common Stock, a
person should carefully consider the following risk factors, together with all
of the other information set forth in this Prospectus.
FINANCIAL CONSIDERATIONS
Changing Industry.
In recent years, the jewelry industry has undergone numerous changes. The
number of traditional retail jewelry outlets, such as mall-based stores, is
being reduced as alternative distribution channels (e.g., television shopping
networks, warehouse clubs, and discount department stores) have gained market
share. In addition, the jewelry industry is sensitive to general economic
conditions and has been materially and adversely affected by the recent economic
recession. This recession led to a decrease in consumer spending for jewelry and
reduced purchases by large jewelry retailers and other customers of the Company.
Several of the Company's important customers have experienced severe financial
difficulties due to the economic recession and sought to reduce inventory
purchases in an effort to conserve cash. In addition, a significant portion of
the Company's business is with companies with high debt to equity ratios. These
factors have adversely affected the Company's business and results of operations
during recent years and may continue to do so in the future.
Operating Results.
Net sales were approximately $58 million for the fiscal quarter ended May
26, 1996 compared to $69 million and $71 million for the corresponding periods
in fiscal 1996 and in the year ended February 26, 1995 ("fiscal 1995"),
respectively. The decrease in sales is primarily due to the Company's decision
to scale back the consumer products business and to decreases in sales of fine
jewelry which the Company believes are being affected by a general softening of
demand for colored stone products. Gross profit for the fiscal quarter ended
May 26, 1996, was $20 million compared with $22 million for the first quarter
of fiscal 1996 and $25 million for the first quarter of fiscal 1995. The
decrease in gross profit is primarily the result of lower sales volume and a
change in product mix. Lower sales of lower margin fine jewelry products coupled
with level sales of higher margin scholastic products have resulted in a change
in product mix. This change combined with modest margin improvements at the
Company's Balfour subsidiary have resulted in an improvement in gross profit
margin to 34.6% for the quarter ended May 26, 1996 compared to 31.7% for the
quarter ended May 28, 1995.
Net sales were $251 million in fiscal 1996, as compared to $288 million and
$278 million in fiscal 1995 and the year ended February 27, 1994 ("fiscal
1994"), respectively. The Company believes that fiscal 1996 sales were affected
by a general softening of demand for colored-stone products and that in the
highly competitive colored-stone and diamond product categories, the Company
needs to improve its ability to meet customer expectations. Gross profit
decreased to $77 million in fiscal 1996 from $88 million in fiscal 1995 and $97
million in fiscal 1994. Decreases in gross profit in fiscal 1996 were primarily
associated with the lower volume of sales in the consumer products and fine
jewelry lines of business. Gross profit margin was 31% in fiscal 1996 compared
to 30% in fiscal 1995 and 35% in fiscal 1994. Fiscal 1996 improvements in margin
in fine jewelry were offset by lower margins in the scholastic and consumer
products lines of business. Decreases in gross profit and profit margin from
fiscal 1994 to fiscal 1995 were primarily associated with product mix changes
in fine jewelry sales and reduced sales of consumer products, along with
increased provisions to dispose of inventory. Income from operations was $11
million in fiscal 1996 compared to a loss from operations of $3 million and
income from operations of $17 million for the corresponding periods in fiscal
1995 and fiscal 1994. In fiscal 1996, the Company had a net loss of $2 million
compared with net income of $1 million and $3 million in fiscal 1995 and 1994,
respectively. In addition to lower volume of sales of fine jewelry, the
Company's operations in fiscal 1996 were adversely affected by management's
continuing efforts to manage the credit extended to certain customers and
eliminate low margin contributors from the sales mix. Net income in fiscal 1995
includes the benefit of a $17 million gain from the exchange of Exchangeable
Preferred Stock for shares of Little Switzerland, Inc. Common Stock and the
issuance of Convertible Preferred Stock.
8
<PAGE> 15
Zale Bankruptcy.
The Company's largest customer for a number of years has been the Zale
Corporation and its affiliated companies (collectively, the "Zale Companies").
In fiscal 1996, consolidated net sales to the Zale Companies were approximately
$22 million, or 9% of consolidated net sales, compared to $29 million or 10% of
consolidated net sales in fiscal 1995 and $33 million or 12% of consolidated net
sales in fiscal 1994.
The Company's Consolidated Financial Statements at February 28, 1992
originally reflected a net valuation, related to Zale Corporation's bankruptcy
filing under Chapter 11 of the United States Bankruptcy Code, of approximately
$13 million, which was classified as other assets in the Consolidated Balance
Sheets due to the uncertainty of the timing of a final settlement. The Company
has subsequently received proceeds from the reorganized Zale Companies and from
the liquidation of claim assets of approximately $14.5 million, and recognized
benefits of approximately $1.5 million in fiscal 1996.
CERTAIN BANKRUPTCY LAW CONSIDERATIONS
If the Company were to seek protection or become the subject of a filing of
an involuntary petition for relief under the Bankruptcy Code, the ability of the
holders of Convertible Preferred Stock and Class A Common Stock to recover their
investment could be significantly impaired. Given the risks inherent in the
bankruptcy process, including the potential deterioration of the business of a
company during a bankruptcy case and the additional administrative expenses
associated with a bankruptcy case, it is not possible to determine what
percentage, if any, of their investment holders of the various securities would
be likely to recover in a bankruptcy case. Ultimate recovery would depend, among
other things, on whether the Company is reorganized or liquidated, the impact of
a bankruptcy case upon the business of the Company, the treatment of the debt
and preferred stock in a plan of reorganization, and the length of time
necessary to complete the reorganization process or the liquidation.
The Convertible Preferred Stock and the Class A Common Stock, as with all
other classes and series of capital stock of the Company, are subordinate with
respect to the distribution of assets of the Company upon any voluntary or
involuntary bankruptcy, liquidation, dissolution or winding up of the Company,
to all existing and future indebtedness of the Company, and its subsidiaries,
including indebtedness under the 1996 Credit Agreement, the 1993 Senior Secured
Notes, the 1993 Senior Subordinated Notes, and the Old Notes, and are
subordinate to the Exchangeable Preferred Stock.
LACK OF ESTABLISHED MARKET
The Convertible Preferred Stock is not listed on any securities exchange,
and there can be no assurance that a market will develop for the Convertible
Preferred Stock or, if a market develops, that such market will be liquid. To
the knowledge of the Company, no person intends to make a market in the
Convertible Preferred Stock. In addition, no person is obligated to do so, and
any person who does so may discontinue such activity at any time without notice.
Accordingly, no assurance can be given that a holder of the Convertible
Preferred Stock will be able to sell such stock in the future or as to the price
at which such sale may occur. Moreover, to the extent that it trades at all, the
Convertible Preferred Stock may trade at a substantial discount from its
liquidation value. The extent to which the Convertible Preferred Stock trades at
a discount from its liquidation value will depend on, among other things, the
financial performance of the Company. In addition, because the Convertible
Preferred Stock is convertible under certain circumstances for shares of Class A
Common Stock, the prices at which the Convertible Preferred Stock may trade in
the market, if it trades at all, is likely to be affected by the market price
from time to time of Class A Common Stock.
DIVIDEND RESTRICTIONS
The payment of cash dividends on the Convertible Preferred Stock is
prohibited by the 1996 Credit Agreement, the 1993 Senior Secured Notes, the 1993
Senior Subordinated Notes, the Old Notes, and the Exchangeable Preferred Stock.
In lieu of the payment of cash dividends on the Convertible Preferred Stock,
the Company is authorized to issue additional shares of Convertible Preferred
Stock having an aggregate liquidation value equal to the amount of such cash
dividends. See "Description of the Convertible Preferred Stock--Dividends."
The payment of dividends on the Company's Class A Common Stock and Class B
Common Stock, par value $0.01 per share (the "Class B Common Stock" and,
together with the Class A Common Stock, the "Common Stock"), is prohibited by
the 1996 Credit Agreement, the 1993 Senior Secured
9
<PAGE> 16
Notes, the 1993 Senior Subordinated Notes, the Old Notes, the Exchangeable
Preferred Stock, and the Convertible Preferred Stock. No dividends have ever
been declared on shares of Common Stock, and as a result of the foregoing
restrictions and the Company's financial condition, the Company does not
anticipate paying cash dividends on shares of Common Stock in the foreseeable
future.
RANKING OF CONVERTIBLE PREFERRED STOCK
The Convertible Preferred Stock is subordinate to the prior payment when
due of the principal and premium, if any, and interest on all future and
existing indebtedness of the Company and is subordinate, with respect to payment
of dividends and distribution of assets on liquidation, to the Exchangeable
Preferred Stock. As of May 26, 1996, the Convertible Preferred Stock was
subordinate to approximately $89 million of indebtedness (excluding
indebtedness to trade creditors and outstanding indebtedness under the 1993
Credit Agreement and the 1993 Gold Agreements) of the Company. As of May 26,
1996, the amount of indebtedness to trade creditors outstanding was
approximately $17 million. As of May 26, 1996, the Convertible Preferred Stock
also was subordinate to additional indebtedness of up to $30 million and of up
to approximately 63,000 troy ounces under the 1993 Credit Agreement and the 1993
Gold Agreements, respectively. As of that date, the amount of actual
indebtedness outstanding under the 1993 Credit Agreement and the 1993 Gold
Agreements was approximately $24 million and 63,000 troy ounces (valued at
approximately $24 million), respectively. As of August 23, 1996, there were
152,217 shares of Exchangeable Preferred Stock outstanding. See "Description of
the Convertible Preferred Stock--Ranking."
Upon any bankruptcy, liquidation, dissolution, or winding up of the
Company, the holders of any indebtedness and the holders of Exchangeable
Preferred Stock are entitled to receive payment in full of all amounts due
before the holders of Convertible Preferred Stock are entitled to receive any
payment. In such circumstances, by reason of such subordination, holders of
Convertible Preferred Stock may receive substantially less than the face amount
of their securities.
HOLDING COMPANY STRUCTURE
The 1993 Senior Secured Notes, the 1993 Senior Subordinated Notes, the
Exchangeable Preferred Stock and the Convertible Preferred Stock are obligations
of the Company. Because a significant portion of the operations of the Company
are, and in the future are likely to be, conducted through subsidiaries, the
cash flow and the consequent ability to service debt of the Company, including
the 1993 Senior Secured Notes, the 1993 Senior Subordinated Notes, the Old
Notes, the Exchangeable Preferred Stock and the Convertible Preferred Stock,
will be dependent upon the earnings of the Company or the payment of dividends
to the Company by its subsidiaries. The payment of dividends and the making of
loans and advances to the Company by its subsidiaries may be subject to
statutory or contractual restrictions, are contingent upon the earnings of
those subsidiaries and are subject to various business considerations.
10
<PAGE> 17
SELECTED HISTORICAL AND SUPPLEMENTAL
CONSOLIDATED FINANCIAL DATA
<TABLE>
The selected historical summary consolidated financial information presented below for each of the five years in the period
ended February 25, 1996, has been derived from the Company's Consolidated Financial Statements which have been audited by Arthur
Andersen LLP, independent public accountants. The historical information includes the consolidated results of the Company as
reported in the audited financial statements. The selected consolidated financial data as of May 28, 1995 and May 26, 1996 and for
the three months ended May 28, 1995 and May 26, 1996 have been derived from the Company's unaudited Consolidated Financial
Statements. In the opinion of management of the Company, the unaudited Consolidated Financial Statements have been prepared on the
same basis as the audited Consolidated Financial Statements and include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial position and the results of operations for those periods. Operating
results for the three months ended May 26, 1996 are not necessarily indicative of the results to be expected for the entire year.
The selected consolidated financial data set forth below should be read in conjunction with the Consolidated Financial Statements
and Notes thereto, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and other financial
information incorporated by reference in this Prospectus.
<CAPTION>
Fiscal Year Ended Quarter Ended
------------------------------------------------------------- -----------------------
Feb. 29, Feb. 28, Feb. 27, Feb. 26, Feb. 25, May 28, May 26,
1992 (1) 1993 1994 1995 1996 1995 1996
-------- -------- -------- -------- -------- ------- -------
(In thousands, except per share data,
ratios, and percentages)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Sales............................... $272,194 $270,364 $277,750 $288,115 $250,578 $68,971 $58,264
Cost of sales........................... 185,446 179,834 180,356 200,534 173,141 47,075 38,066
-------- -------- -------- -------- -------- ------- -------
Gross profit....................... 86,748 90,530 97,394 87,581 77,437 21,896 20,198
Selling, general and
administrative expenses............ 92,456 85,250 80,221 90,408 65,990 19,101 18,975
Restructuring and Zale Bankruptcy
charges(2)......................... 43,619 5,000 -- -- -- -- --
-------- -------- -------- -------- -------- ------- -------
Income (loss) from operations........... (49,327) 280 17,173 (2,827) 11,447 2,795 1,223
Interest expense, net................... (21,810) (19,412) (13,346) (11,935) (12,476) (2,972) (3,026)
Loss on assets held for sale or
disposal(10)....................... -- (14,500) -- -- -- --
Recapitalization costs(6)............... -- (14,440) -- -- -- --
Net gain on nonrecurring items(3)....... 50,872 -- -- -- -- --
Equity and investment income, net....... 3,773 1,732 321 (186) (673) (122) 29
Gain on Little Switzerland, Inc.
Exchange(11)....................... -- -- -- 17,278 -- --
-------- -------- -------- -------- -------- ------- -------
Income (loss) before income
taxes and extraordinary gain....... (16,492) (46,340) 4,148 2,330 (1,702) (299) (1,774)
Provision for income taxes.............. 3,252 956 1,010 1,758 164 216 80
-------- -------- -------- -------- -------- ------- -------
Income (loss) before extraordinary gain. $(19,744) $(47,296) $ 3,138 $ 572 $ (1,866) $ (515) $(1,854)
Extraordinary gain from debt
extinguishment..................... 726 -- -- -- -- -- --
-------- -------- -------- -------- -------- ------- -------
Net income (loss)....................... $(19,018) $(47,296) $ 3,138 $ 572 $ (1,866) $ (515) $(1,854)
Accretion of discount and dividends on
preferred stocks................... -- -- 1,454 1,688 1,040 244 223
-------- -------- -------- -------- -------- ------- -------
Net income (loss) attributable to
common stock....................... $(19,018) $(47,296) $ 1,684 $ (1,116) $ (2,906) (759) (2,077)
======== ======== ======== ======== ======== ======= =======
Net income (loss) per common
share(4)........................... $ (1.58) $ (3.80) $ 0.08 (0.05) $ (0.12) $ (0.03) $ (0.09)
</TABLE>
11
<PAGE> 18
<TABLE>
<CAPTION>
Fiscal Year Ended Quarter Ended
-------------------------------------------------------- --------------------
Feb. 29, Feb. 28, Feb. 27, Feb. 26, Feb. 25, May 28, May 26,
1992 (1) 1993 1994 1995 1996 1995 1996
-------- -------- -------- -------- -------- ------- -------
(In thousands, except per share data,
ratios, and percentages)
<S> <C> <C> <C> <C> <C> <C> <C>
Weighted average common and common
equivalent shares outstanding(4).... 12,006 12,450 21,206 23,433 23,769 23,576 24,317
Ratio of earnings to fixed charges(5).... .29x -- 1.21x 1.23x .88x .91x .47x
BALANCE SHEET DATA:
Working capital.......................... $ 87,602 $ 84,646 $102,919 $ 94,760 $ 97,230 $ 99,202 $ 95,379
Total assets............................. 262,288 246,858 223,921 206,623 211,129 213,833 209,001
Current portion of long-term debt(6)..... 737 3,668 1,480 1,235 245 1,046 251
Notes payable to banks(6)................ 17,000 7,250 -- 11,118 15,193 19,750 24,413
Long-term debt(6):
Senior.............................. 5,687 32,021 20,542 14,340 13,408 14,287 13,343
New 13% Notes....................... -- -- 63,948 70,186 72,843 74,023 72,440
Old 13% Notes....................... 95,516 95,633 6,903 6,912 6,923 6,915 6,926
Old 10 1/4 Notes.................... 23,981 24,652 434 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total subordinated debt............. 119,497 120,285 71,285 77,098 79,766 80,938 79,366
-------- -------- -------- -------- -------- -------- --------
Total long-term debt, less current
portion............................. 125,184 152,306 91,827 91,438 93,174 95,225 92,709
Stockholders' equity..................... $ 70,709 $ 24,744 $ 55,334 $ 59,835 $ 57,871 $ 59,291 $ 56,017
Book value per common share(7)........... $ 5.87 $ 1.95 $ 2.36 $ 2.32 $ 2.21 $ 2.28 $ 2.11
OTHER DATA:
Ratio of EBITDA to interest expense(8)... .16x .63x 1.67x .28x 1.28x 1.38x 0.74x
Ratio of EBITDA to cash interest
expense(8).......................... .17x 1.44x 3.85x .69x 1.36x 4.34x 1.44x
Depreciation and amortization............ $ 10,936 $ 8,668 $ 5,628 $ 4,846 $ 3,929 $ 1,205 $ 709
Capital expenditures..................... $ 3,053 $ 3,519 $ 4,056 $ 2,759 $ 2,734 $ 536 $ 630
Long-term debt as a percentage
of capitalization(9).................. 64% 85% 61% 61% 62% 62% 62%
</TABLE>
12
<PAGE> 19
NOTES TO SELECTED HISTORICAL AND SUPPLEMENTAL
CONSOLIDATED FINANCIAL DATA
(1) See Note 3 to fiscal 1996 Consolidated Financial Statements for
information regarding the Company's recapitalization and see Note 5 to
fiscal 1996 Consolidated Financial Statements for a discussion regarding
the deconsolidation of Little Switzerland.
(2) See Notes 9 and 11 to fiscal 1996 Consolidated Financial Statements and
Notes 3 and 6 to fiscal 1994 Consolidated Financial Statements.
(3) See Note 6 to fiscal 1994 Consolidated Financial Statements.
(4) Net income (loss) per common share is computed based on the weighted
average number of common and common equivalent shares outstanding, where
dilutive, during each period. See Notes 12 and 14 to fiscal 1996
Consolidated Financial Statements.
(5) Earnings used in the computation of the ratio of earnings to fixed charges
consist of income (loss) before income taxes, extraordinary gains and
equity in net income of Little Switzerland, plus fixed charges. Fixed
charges are defined as interest expense plus amortization of deferred
financing costs plus one third of operating lease rental expense.
(6) See Note 3 to fiscal 1996 Consolidated Financial Statements.
(7) Historical and supplemental book value per share were computed based on
total consolidated stockholders' equity at the end of each period divided
by the total shares of Common Stock outstanding at the end of each period.
The computation does not include the potential effect of outstanding stock
options or warrants for any of the periods presented. As of February 25,
1996, the Company had outstanding stock options for 5,023,700 shares of
Class A Common Stock and outstanding warrants for 125,000 shares of Class A
Common Stock.
(8) The ratios of earnings before interest, taxes, depreciation, and
amortization ("EBITDA") to interest expense and cash interest expense are
computed by dividing EBITDA by interest expense and cash interest expense,
respectively. EBITDA is defined as income (loss) from operations before
recapitalization and other charges plus depreciation, and amortization,
excluding amortization of original issue discount and deferred financing
costs. EBITDA for fiscal 1992 excludes the nonrecurring restructuring and
Zale bankruptcy charges of approximately $44 million. EBITDA to cash
interest expense for the twelve months ended February 28, 1993, excludes
approximately $10.0 million of interest expense related to the Old Notes
that will not be paid due to the fact that such interest has been included
as part of the consideration in the Recapitalization.
(9) Long-term debt as a percentage of capitalization is computed by dividing
total long-term debt (including current portion), by total long-term debt
(including current portion) plus stockholders' equity.
(10) See Note 8 to fiscal 1996 Consolidated Financial Statements.
(11) See Note 4 to fiscal 1996 Consolidated Financial Statements.
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<PAGE> 20
DESCRIPTION OF THE CONVERTIBLE PREFERRED STOCK
GENERAL
In the Private Placement, the Company issued 2,381,038 shares of
Convertible Preferred Stock to holders of Exchangeable Preferred Stock who
exercised their right to exchange their shares of Exchangeable Preferred Stock
for shares of Little Switzerland Common Stock. The following is a summary of
certain provisions of the Convertible Preferred Stock. This summary does not
purport to be complete and is subject to, and qualified in its entirety by, the
provisions of the Company's Articles of Organization and the certificate of
designation for the Convertible Preferred Stock (the "Certificate of
Designation"). Copies of the Articles of Organization and the Certificate of
Designation, which have been filed as exhibits to the Registration Statement of
which this Prospectus forms a part, are available from the Company, 25 Union
Street, Chelsea, Massachusetts 02150, telephone number (617) 884-8500;
Attention: Manager of Corporate Communications.
Each share of Convertible Preferred Stock has a liquidation preference of
$6.50, plus accrued and unpaid dividends (the "Liquidation Value"), as adjusted
to reflect subdivisions, combinations, reclassifications, stock dividends, stock
splits or similar events relating to the Convertible Preferred Stock. The
Convertible Preferred Stock is available only in registered form, without
coupons.
RANKING
The Convertible Preferred Stock, as with all other classes and series of
capital stock of the Company, is subordinated with respect to the payment of
dividends, if any, and to the distribution of assets of the Company upon any
voluntary or involuntary bankruptcy, liquidation, dissolution or winding up of
the Company to all existing and future indebtedness of the Company and its
subsidiaries, including, without limitation, indebtedness under the 1996 Credit
Agreement, the 1993 Senior Secured Notes, the 1993 Senior Subordinated Notes,
and the Old Notes, and is likewise subordinated to the Exchangeable Preferred
Stock. As of May 26, 1996, the Convertible Preferred Stock was subordinate to
approximately $89 million of indebtedness (excluding indebtedness to trade
creditors and outstanding indebtedness under the 1993 Credit Agreement and the
1993 Gold Agreements) of the Company. As of May 26, 1996, the amount of
indebtedness to trade creditors outstanding was approximately $17 million. As
of May 26, 1996, the Convertible Preferred Stock also was subordinate to
additional indebtedness of up to $30 million under the 1993 Credit Agreement
and of up to approximately 63,000 troy ounces under the 1993 Gold Agreements.
As of that date, the actual amount of indebtedness under the 1993 Credit
Agreement and 1993 Gold Agreements was approximately $24 million and
approximately 63,000 troy ounces (valued at approximately $24 million),
respectively. In addition, as of August 23, 1996, there were 152,217 shares of
Exchangeable Preferred Stock outstanding. The Convertible Preferred Stock ranks
senior to the Company's Class A Common Stock, Class B Common Stock and all
other Junior Stock (i.e., Class A Common Stock, Class B Common Stock and any
other class of capital stock of the Company now or hereafter issued and
outstanding that ranks junior as to dividends or liquidation to the Convertible
Preferred Stock or the Exchangeable Preferred Stock, as the case may be) with
respect to dividends and to the distribution of assets of the Company upon any
voluntary or involuntary bankruptcy, liquidation, dissolution or winding up of
the Company.
While any shares of Convertible Preferred Stock are outstanding, the
Company may not authorize or create any class or series of stock that is senior
to or pari passu with the Convertible Preferred Stock with respect to dividends
or liquidation without the consent of the holders of 75% of the outstanding
shares of Convertible Preferred Stock voting together as a separate class.
CERTAIN BANKRUPTCY LIMITATIONS
The Convertible Preferred Stock and the Class A Common Stock, as with all
other classes and series of capital stock of the Company, are subordinate with
respect to the distribution of assets of the Company upon any voluntary or
involuntary bankruptcy, liquidation, dissolution or winding up of the Company,
to all existing and future indebtedness of the Company, and its subsidiaries,
including indebtedness under the 1996 Credit Agreement, the 1993 Senior Secured
Notes, the 1993 Senior Subordinated Notes, and the Old Notes, and are
subordinate to the Exchangeable Preferred Stock. See "Risk Factors--Certain
Bankruptcy Law Considerations."
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<PAGE> 21
DIVIDENDS
Holders of the shares of Convertible Preferred Stock are entitled to
receive when and as declared by the Board of Directors of the Company,
cumulative cash dividends at the rate of 6% per annum of the Liquidation Value
thereof. Dividends on the Convertible Preferred Stock are payable semiannually
on each March 1st and September 1st after November 23, 1994 (the "Issuance
Date"). Each such dividend will be payable to holders of record as they appear
on the stock records of the Company at the close of business on the record date,
not exceeding 60 days preceding the payment date, as shall be fixed by the Board
of Directors of the Company. Dividends shall accrue from the Issuance Date and
will be cumulative from such date, whether or not in any dividend period or
periods there shall be funds of the Company legally available for the payment of
such dividends. Dividends payable on the Convertible Preferred Stock shall be
computed on the basis of a 360-day year consisting of twelve 30-day months.
Because the 1996 Credit Agreement, the 1993 Senior Secured Notes, the
1993 Senior Subordinated Notes, the Old Notes, and the Exchangeable Preferred
Stock prohibit the payment of cash dividends on the Convertible Preferred
Stock, the Company shall pay such dividends by issuing additional shares of
Convertible Preferred Stock having an aggregate Liquidation Value equal to the
amount of such dividend payments. The issuance of additional shares of
Convertible Preferred Stock in lieu of cash dividends shall be deemed to have
satisfied for all purposes the Company's obligation to pay such dividends and
such dividends shall cease to accrue upon the issuance of such additional
shares of Convertible Preferred Stock. If at any time the Company pays a
portion of any dividends in cash and a portion in additional shares of
Convertible Preferred Stock, the cash portion and the share portion of such
dividend payment shall be distributed ratably among the holders of Convertible
Preferred Stock based upon the aggregate dividends payable on the shares of
Convertible Preferred Stock held by such holders.
During fiscal 1996, dividends of approximately $713,000 were paid with the
issuance of approximately 110,000 new shares of Convertible Preferred Stock. At
May 26, 1996, cumulative unpaid dividends amounted to approximately $620,000.
The Company shall not declare, pay or set apart for payment any dividend or
other distribution with respect to any Junior Stock unless the Company shall
have deposited with its transfer agent sufficient funds to pay the
then-applicable redemption price for all outstanding shares of Convertible
Preferred Stock plus all accrued but unpaid dividends thereon. As long as shares
of Convertible Preferred Stock are outstanding, the Company also shall not
redeem, retire, purchase or otherwise acquire any shares of Junior Stock.
As used herein, the term "dividend" does not include dividends payable
solely in shares of Junior Stock, or options, warrants or rights to holders of
Junior Stock to subscribe for or purchase any Junior Stock.
LIQUIDATION RIGHTS
In the event of any liquidation, dissolution or winding up of the Company,
a holder of Convertible Preferred Stock will be entitled to receive the
Liquidation Value thereof before the distribution of any assets to the holders
of Junior Stock.
REDEMPTION
<TABLE>
Shares of Convertible Preferred Stock may be redeemed at the option of the
Company, in whole at any time or in part from time to time, at the redemption
price (expressed as a percentage of the Liquidation Value) set forth below if
redeemed during the twelve-month period beginning on November 23 of the year
indicated below:
<CAPTION>
Year Percentage
---- ----------
<S> <C>
1995............................... 104%
1996............................... 102
1997 and thereafter................ 100
</TABLE>
The Company shall pay such redemption price by delivering cash. The Company
may pay cash in respect of any accrued and unpaid dividends on shares of
Convertible Preferred Stock which are being redeemed
15
<PAGE> 22
or, in lieu of cash, the Company may pay such dividends by issuing additional
shares of Convertible Preferred Stock having an aggregate Liquidation Value
equal to the amount of such accrued but unpaid dividends. In the event that the
Company elects to pay such accrued but unpaid dividends with shares of
Convertible Preferred Stock, immediately upon issuance, each such share
automatically shall be converted into two shares of Class A Common Stock,
subject to certain adjustments. See "--Conversion."
If Convertible Preferred Stock is called for redemption, the holder may
convert it into shares of Class A Common Stock at any time before the close of
business on the redemption date.
If less than all of the shares of Convertible Preferred Stock are to be
redeemed, the number of shares of Convertible Preferred Stock to be redeemed
from each holder shall be the number of shares determined by multiplying the
total number of shares of Convertible Preferred Stock to be redeemed by a
fraction, the numerator of which shall be the total number of shares of
Convertible Preferred Stock held by such holder and the denominator of which
shall be the total number of shares of Convertible Preferred Stock then
outstanding. Notice of redemption will be mailed not less than 45 days nor more
than 60 days before the redemption date to each holder of record of shares of
Convertible Preferred Stock to be redeemed at the address shown on the books of
the Company. Each notice of redemption will specify, among other things, the
date of redemption, the redemption price, and the type of consideration being
paid in connection with the redemption. On and after the date fixed for
redemption, provided that the redemption price has been duly paid or provided
for, dividends shall cease to accrue on the Convertible Preferred Stock called
for redemption, such shares shall no longer be deemed to be outstanding, and all
rights of the holders of such shares as stockholders of the Company shall cease
except the right to receive the consideration payable upon such redemption upon
surrender of the certificates evidencing such shares.
The 1996 Credit Agreement, the 1993 Senior Secured Notes, the 1993 Senior
Subordinated Notes, the Old Notes, and the Exchangeable Preferred Stock place
restrictions on the Company's ability to redeem the Convertible Preferred Stock.
CONVERSION
Conversion at the Option of the Holder. Each holder of a share of
Convertible Preferred Stock shall be entitled to receive two shares of Class A
Common Stock for each share of Convertible Preferred Stock surrendered for
conversion, subject to adjustment to reflect a subdivision, combination,
reclassification, stock dividend, stock option, or similar event relating to the
Convertible Preferred Stock or the Class A Common Stock (the "Conversion Rate").
A holder of Convertible Preferred Stock may convert such stock into shares of
Class A Common Stock at any time at the Conversion Rate (a "Holder Optional
Conversion"). Through August 23, 1996, approximately 1,187,512 shares of
Convertible Preferred Stock were converted into shares of Class A Common Stock.
In order to convert shares of Convertible Preferred Stock, a holder must
surrender such shares of Convertible Preferred Stock to the Company's transfer
agent by physical delivery, duly assigned or endorsed for transfer to the
Company, accompanied by written notice of conversion (the "Conversion Notice")
and, if required, payment for all transfer or similar taxes. The Conversion
Notice shall specify (i) the number of shares of Convertible Preferred Stock to
be converted, (ii) the name or names in which the holder wishes the certificate
or certificates for Class A Common Stock and for any Convertible Preferred Stock
not to be converted to be issued and (iii) the address to which the holder
wishes delivery of such new certificates to be issued upon such conversion.
Pursuant to the Certificate of Designation, the date on which the Conversion
Notice and the Convertible Preferred Stock shall have been received by the
Company's transfer agent is the conversion date. Such Conversion Notice shall be
irrevocable and may not be withdrawn by a holder for any reason.
In connection with a Holder Optional Conversion, the Company shall be
required to pay any accrued and unpaid dividends on the shares of Convertible
Preferred Stock so converted. Such dividends may be paid in cash or in shares of
Convertible Preferred Stock having an aggregate Liquidation Value equal to the
amount of such accrued but unpaid dividends. In the event that the Company
elects to pay such accrued but unpaid dividends with shares of Convertible
Preferred Stock, immediately upon issuance such shares automatically and without
further action by the Company or a holder shall be converted into shares of
Class A Common Stock at the then-applicable Conversion Rate.
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<PAGE> 23
Conversion at the Option of the Company. In the event that at any time
after the Issuance Date, the sale price of Class A Common Stock equals or
exceeds $3.25 per share for 30 consecutive trading days, the Company may require
the holders of the Convertible Preferred Stock, in whole but not in part, to
convert their shares of Convertible Preferred Stock into shares of Class A
Common Stock at the then-applicable Conversion Rate (a "Company Optional
Conversion").
In the event of a Company Optional Conversion, the Company shall provide
written notice (the "Company Optional Conversion Notice") to the holders that
the requirements for a Company Optional Conversion have been met and that the
Company is requiring the conversion of all outstanding shares of Convertible
Preferred Stock. The Company Optional Conversion Notice shall be accompanied by
a letter of transmittal describing the procedures by which the holders shall
deliver all of their shares of Convertible Preferred Stock for conversion into
Class A Common Stock. As of the date of the Company Optional Conversion Notice,
(i) all outstanding shares of Convertible Preferred Stock shall be deemed to
have been converted into shares of Class A Common Stock, dividends on the
Convertible Preferred Stock shall cease to accrue, and (iii) all rights of the
holders of Convertible Preferred Stock (except the right to receive from the
Company shares of Class A Common Stock) shall cease.
In connection with a Company Optional Conversion, the Company shall pay the
amount of any accrued and unpaid dividends on the shares of Convertible
Preferred Stock so converted in shares of Convertible Preferred Stock having an
aggregate Liquidation Value equal to the amount of such accrued but unpaid
dividends. Immediately upon issuance, such shares automatically and without
further action by the Company or a holder shall be converted into shares of
Class A Common Stock at the then-applicable Conversion Rate.
The shares of Class A Common Stock into which shares of Convertible
Preferred Stock are convertible have been registered under the Securities Act
pursuant to the Registration Statement of which this Prospectus forms a part.
The Company has agreed to use its best efforts to keep such registration
statement effective until the date on which the Selling Shareholders no longer
own any of the Securities or all holders can sell their shares of Convertible
Preferred Stock or Class A Common Stock pursuant to Rule 144(k) promulgated
under the Securities Act.
CONSOLIDATION, MERGER, AND SALE OF ASSETS
The Company may not consolidate with or merge into, or transfer all or
substantially all of its assets to, another corporation, person or entity
(unless it is the surviving entity and the Convertible Preferred Stock is
unchanged) unless (i) the surviving entity is a corporation organized under the
laws of the United States, any state thereof or the District of Columbia, or a
corporation or comparable legal entity organized under the laws of a foreign
jurisdiction and whose equity securities are listed on a national securities
exchange in the United States or authorized for quotation on NASDAQ, and (ii)
the Company shall make effective provision such that the holders of the
Convertible Preferred Stock shall receive upon the consummation of such
transaction convertible preferred stock of the surviving entity having
substantially identical terms (including as to conversion) as the Convertible
Preferred Stock.
VOTING RIGHTS
A holder of a share of Convertible Preferred Stock is entitled to vote on
all matters on which the holders of Class A Common Stock are entitled to vote.
Each share of Convertible Preferred Stock shall have the number of votes equal
to the number of shares of Class A Common Stock into which such share is then
convertible.
The affirmative vote of the holders of 100% of the outstanding shares of
Convertible Preferred Stock, voting together as a separate class, is required in
order to change (i) the amount of the Liquidation Value or the dividend rate of,
or other provisions relating to the calculation of the dividend on, the
Convertible Preferred Stock, (ii) any provision relating to the optional
redemption of the Convertible Preferred Stock; (iii) any provision relating to
the conversion of Convertible Preferred Stock into Class A Common Stock; and
(iv) any provisions relating to the voting rights of the Convertible Preferred
Stock. The affirmative vote of the holders of at least 75% of the outstanding
shares of Convertible Preferred Stock, voting together as a separate class, is
required in order (i) to change, by amendment to the Company's Articles of
Organization or otherwise, any other term or provision of the Convertible
Preferred Stock so as to affect adversely any right, preference or
17
<PAGE> 24
voting power of the holders thereof or (ii) authorize the issuance of any class
or series of stock of the Company that is senior to or pari passu with the
Convertible Preferred Stock with respect to dividends or liquidation.
OTHER MISCELLANEOUS MATTERS
To the knowledge of the Company, no person presently is making a market in
the Convertible Preferred Stock. No person will be obligated to make a market in
the Convertible Preferred Stock and any market making activity undertaken by any
person may be discontinued at any time. There can be no assurance that an active
public market for the Convertible Preferred Stock will develop and continue. See
"Risk Factors--Lack of Established Market."
Because the Convertible Preferred Stock is convertible into shares of Class
A Common Stock, the prices at which the Convertible Preferred Stock may trade in
the market, if it trades at all, will likely be affected by the market price
from time to time of Class A Common Stock.
18
<PAGE> 25
THE 1996 CREDIT AGREEMENT
On July 3, 1996, the Company entered into the 1996 Credit Agreement with
Foothill. The 1996 Credit Agreement provides senior secured financing consisting
of a $40 million revolving credit facility and a $30 million letter of credit in
support of a gold consignment facility provided by Fleet; however the aggregate
amount of the combined facilities which may be outstanding at any date is $65
million. The 1996 Credit Agreement is for a period of two years and provides
Foothill with an option to renew for three additional years. The loans bear
interest at a rate per annum equal to the greater of (a) 2% above the reference
rate announced by an identified group of major banks selected by Foothill or (b)
8%. The 1996 Credit Agreement contains standard covenants for facilities of this
type including financial covenants relating to interest coverage, minimum net
worth, minimum working capital, debt to net worth and current ratios and
limitations on dividends, distributions and capital expenditures. Advances under
the 1996 Credit Agreement are based on eligible accounts receivables and
inventory. Foothill has first security priority interest in receivables,
inventory and substantially all real estate and fixed assets owned by the
Company and its domestic subsidiaries subject to Fleet's first position as gold
consignor, supported by the letter of credit.
DESCRIPTION OF OUTSTANDING DEBT SECURITIES
1993 SENIOR SECURED NOTES
In connection with the consummation of the Recapitalization, the Company
sold $30,000,000 of 1993 Senior Secured Notes to holders of Old Notes for cash.
These funds were used to repay indebtedness under the Old Credit Agreement. At
May 26, 1996, approximately $13 million in aggregate principal amount of 1993
Senior Secured Notes were outstanding. At May 26, 1996, the aggregate amount of
all other outstanding indebtedness of the Company (excluding indebtedness to
trade creditors, the 1993 Senior Secured Notes and indebtedness under the 1993
Credit Agreement and the 1993 Gold Agreements) was approximately $76 million.
The 1993 Senior Secured Notes are senior secured obligations of the Company
which mature on September 15, 1997, and bear interest from May 14, 1993 (the
"Recapitalization Date"), to maturity at the rate of 11 1/2% per annum. The 1993
Senior Secured Notes are secured by security interests of varying priority in
substantially all of the assets of each of the Borrowers. The 1993 Senior
Secured Notes are senior in right of payment to the 1993 Senior Subordinated
Notes and the Old Notes. The obligations of the Company under the 1993 Senior
Secured Notes are fully and unconditionally and jointly and severally guaranteed
by each of the Subsidiary Guarantors, as defined therein.
The 1993 Senior Secured Notes may be redeemed at the option of the Company,
in whole at any time or in part from time to time, at a redemption price of 100%
of the principal amount thereof, together with accrued interest thereon.
Following receipt by the Company of certain payments from the Company's
investment in Solomon Brothers, Inc. and/or from the Zale Companies with respect
to its bankruptcy claim, the Company is required to redeem an amount of the 1993
Senior Secured Notes equal to the amount of such cash payments at a redemption
price equal to 100% of the principal amount thereof plus accrued interest, if
any. The Company also is required to use its excess cash flow to fund
redemptions of 1993 Senior Secured Notes at a redemption price equal to 100% of
the principal amount thereof plus accrued interest, if any. In the event that
the Company's consolidated net worth declines below certain specified amounts,
the Company is required to make an offer to redeem 7.5% of the aggregate
principal balance of the then outstanding 1993 Senior Subordinated Notes and
1993 Senior Secured Notes, at a redemption price equal to 100% of the principal
amount thereof plus accrued interest, if any. As of May 26, 1996, approximately
$17 million in aggregate principal amount of 1993 Senior Secured Notes had been
redeemed.
Upon the occurrence of a change of control of the Company, each holder of
1993 Senior Secured Notes will have the right to require the Company to purchase
all or any part, at such holder's option, of such holder's 1993 Senior Secured
Notes at a purchase price in cash equal to 100% of the principal amount thereof,
together with accrued interest thereon.
The 1993 Senior Secured Notes are obligations of the Company. Because a
significant portion of the operations of the Company are or may in the future be
conducted through subsidiaries, the Company's cash flow and its consequent
ability to service its indebtedness, including the 1993 Senior Secured Notes,
will be dependent upon the earnings of its subsidiaries and the distribution of
those earnings to the Company or upon
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<PAGE> 26
loans or other payments by those subsidiaries to the Company. The payment of
dividends and the making of loans and advances to the Company by its
subsidiaries may be subject to statutory or contractual restrictions, are
contingent upon the earnings of those subsidiaries and are subject to various
business considerations. See "Risk Factors--Holding Company Structure."
The 1993 Senior Secured Notes contain various covenants, including, without
limitation, limitations on dividends and distributions, indebtedness,
dispositions of assets, and transactions with affiliates.
1993 SENIOR SUBORDINATED NOTES
In connection with the consummation of the Recapitalization, the
Company issued $53,480,900 of 1993 Senior Subordinated Notes. The 1993 Senior
Subordinated Notes are senior subordinated obligations of the Company which
mature on May 31, 1998, and bear interest from May 14, 1993 (the
"Recapitalization Date") to maturity at the rate of 13% per annum. At the
Company's option, any of the first four semiannual installments of interest on
the 1993 Senior Subordinated Notes may be paid through the issuance of
additional 1993 Senior Subordinated Notes in an original principal amount equal
to such interest, dated and accruing interest from the applicable interest
payment date, and otherwise generally having the same terms as the 1993 Senior
Subordinated Notes issued on the Recapitalization Date. The Company has paid
the first four semiannual installments of interest on the 1993 Senior
Subordinated Notes through the issuance of such additional 1993 Senior
Subordinated Notes. On November 15, 1995, the Company made a cash interest
payment of approximately $4.5 million. At May 26, 1996, approximately $69
million in aggregate principal amount of 1993 Senior Subordinated Notes were
outstanding.
The 1993 Senior Subordinated Notes are secured by security interests of
varying priority in substantially all of the assets of each of the Borrowers.
The 1993 Senior Subordinated Notes are subordinate in right of payment to all
indebtedness of the Company under the 1996 Credit Agreement and the 1993 Senior
Secured Notes. The obligations of the Company under the 1993 Senior Subordinated
Notes are fully and unconditionally and jointly and severally guaranteed on a
subordinated basis by each of the Subsidiary Guarantors, as defined therein.
The 1993 Senior Subordinated Notes are obligations of the Company. Because
a significant portion of the operations of the Company are or may in the future
be conducted through subsidiaries, the cash flow and the consequent ability to
service debt of the Company, including the 1993 Senior Subordinated Notes, will
be dependent upon the earnings of its subsidiaries and the distribution of those
earnings to the Company or upon loans or other payments of funds by those
subsidiaries to the Company. The payment of dividends and the making of loans
and advances to the Company by its subsidiaries may be subject to statutory or
contractual restrictions, are contingent upon the earnings of those subsidiaries
and are subject to various business considerations. See "Risk Factors--Holding
Company Structure."
The 1993 Senior Subordinated Notes are redeemable after the third
anniversary of the Recapitalization Date at the option of the Company, in whole
at any time or in part from time to time, at a price equal to 106% of the
principal amount of the 1993 Senior Subordinated Notes, if redeemed during the
twelve months beginning on May 14, 1996, and thereafter at prices declining
annually to 100% of principal amount on or after May 14, 1998, in each case
together with accrued interest to the redemption date. In the event that the
Company's consolidated net worth declines below certain specified amounts, the
Company is required to make an offer to redeem an aggregate principal amount of
1993 Senior Subordinated Notes equal to the sum of (i) 7.5% of the aggregate
principal amount of the then outstanding 1993 Senior Secured Notes and 1993
Senior Subordinated Notes, minus (ii) the aggregate principal amount of 1993
Senior Secured Notes redeemed by the Company as a result of such decline in
consolidated net worth at a redemption price equal to 100% of the principal
amount thereof plus accrued interest, if any.
The 1996 Credit Agreement, the 1993 Senior Secured Notes and the Old Notes
place restrictions on the Company's ability to redeem the 1993 Senior
Subordinated Notes prior to their maturity.
Upon the occurrence of a change of control of the Company and subject to
compliance by the Company with its requirements under the 1996 Credit Agreement,
and the 1993 Senior Secured Notes and the Old Notes, each holder of 1993 Senior
Subordinated Notes will have the right to require the Company to purchase all or
any part, at such holder's option, of such holder's 1993 Senior Subordinated
Notes at a purchase price in cash equal to 100% of the principal amount thereof,
together with accrued interest thereon.
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<PAGE> 27
The 1996 Credit Agreement, the 1993 Senior Secured Notes and the Old Notes
place restrictions on the Company's ability to purchase the 1993 Senior
Subordinated Notes upon a change of control of the Company.
The 1993 Senior Subordinated Notes contain various covenants, including,
without limitation, limitations on dividends and distributions, indebtedness,
dispositions of assets, and transactions with affiliates.
EXCHANGEABLE PREFERRED STOCK
In connection with the consummation of the Recapitalization, the Company
issued 2,533,255 shares of Exchangeable Preferred Stock to holders of Old Notes
who tendered their Old Notes pursuant to the Exchange Offers. The Company also
established a trust (the "Little Switzerland Trust") for the benefit of the
Company and the holders of the Exchangeable Preferred Stock to secure the
performance of the Company's obligations under the certificate of designation
for the Exchangeable Preferred Stock. In connection with the establishment of
the Little Switzerland Trust, the Company entered into a Trust Agreement with
BayBank, N.A., as Trustee, pursuant to which the Company conveyed to the Little
Switzerland Trust the shares of Little Switzerland Common Stock which are being
held solely for the use and benefit of the Company and the holders of
Exchangeable Preferred Stock. Shares of Exchangeable Preferred Stock are
exchangeable, at the option of the holder, for shares of Little Switzerland
Common Stock and other property, if any, held in the Little Switzerland Trust.
As of August 23, 1996, holders of 2,381,038 shares of Exchangeable Preferred
Stock had exercised their right to exchange such shares for shares of Little
Switzerland Common Stock held in the Little Switzerland Trust, and there were
152,217 shares of Exchangeable Preferred Stock outstanding.
Each share of Exchangeable Preferred Stock has a liquidation preference of
$14.59, plus accrued and unpaid dividends, as adjusted to reflect subdivisions,
combinations, reclassifications, stock dividends, stock splits or similar events
relating to the Exchangeable Preferred Stock (the "Liquidation Preference").
The Exchangeable Preferred Stock, as with all other classes and series of
capital stock of the Company, is subordinated with respect to the payment of
dividends, if any, and to the distribution of assets of the Company upon any
voluntary or involuntary bankruptcy, liquidation, dissolution or winding up of
the Company to all existing and future indebtedness of the Company and its
subsidiaries, including, without limitation, indebtedness under the 1996 Credit
Agreement, the 1993 Senior Secured Notes, the 1993 Senior Subordinated Notes,
and the Old Notes. The Exchangeable Preferred Stock ranks senior to the
Convertible Preferred Stock, Class A Common Stock, Class B Common Stock and all
other Junior Stock with respect to dividends and to the distribution of assets
of the Company upon any voluntary or involuntary bankruptcy, liquidation,
dissolution or winding up of the Company. In the event of any liquidation,
dissolution or winding up of the Company, a holder of Exchangeable Preferred
Stock will be entitled to receive the Liquidation Preference thereof before the
distribution of any assets to the holders of Junior Stock.
While any shares of Exchangeable Preferred Stock are outstanding, the
Company may not authorize or create any class or series of stock that is senior
to or pari passu with the Exchangeable Preferred Stock with respect to dividends
or liquidation without the consent of the holders of 75% of the outstanding
shares of Exchangeable Preferred Stock voting together as a separate class.
Holders of the shares of Exchangeable Preferred Stock as of May 14, 1995
are entitled to receive when and as declared by the Board of Directors of the
Company, cumulative cash dividends at the rate of 6% per annum of the
Liquidation Preference thereof, payable semiannually. Dividends shall accrue
from May 15, 1995 and will be cumulative from such date. Since May 15, 1995 and
through May 26, 1996, the Company has made dividend payments of approximately
$195,000 to holders of the Exchangeable Preferred Stock.
The Company shall not declare, pay or set apart for payment any dividend or
other distribution with respect to any Junior Stock, unless (A) all accrued
dividends with respect to the Exchangeable Preferred Stock at the time such
dividends are payable have been paid or funds have been set apart for payment of
such dividends and (B) sufficient funds have been set apart for the payment of
the dividends for the current dividend period with respect to the Exchangeable
Preferred Stock. As long as shares of Exchangeable Preferred Stock are
outstanding, the Company also shall not (i) issue or authorize the issuance of
any shares of Exchangeable Preferred Stock other than those issued on the date
of issuance; (ii) create or issue any class of capital stock which is
exchangeable into shares of Little Switzerland Common Stock; or (iii) redeem,
retire, purchase or otherwise acquire any shares of Junior Stock.
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<PAGE> 28
As used herein, the term "dividend" does not include dividends payable
solely in shares of Junior Stock, or options, warrants or rights to holders of
Junior Stock to subscribe for or purchase any Junior Stock.
The 1996 Credit Agreement, 1993 Senior Secured Notes, 1993 Senior
Subordinated Notes and the Old Notes place restrictions on the Company's
ability to pay dividends on the Exchangeable Preferred Stock.
The Company is required to redeem all outstanding shares of Exchangeable
Preferred Stock on December 31, 2000 at a price per share equal to the
Liquidation Preference thereof. Exchangeable Preferred Stock may be redeemed at
the option of the Company, in whole at any time or in part from time to time, at
a price equal to 106% of the Liquidation Preference if redeemed during the
twelve-month period beginning on May 15, 1995, and thereafter at prices
declining annually to 100% of Liquidation Preference on or after May 14, 1998.
In the event that during the period from the Recapitalization Date until the
second anniversary thereof, the closing sale price for Little Switzerland Common
Stock equals or exceeds $18.75 per share for 30 consecutive trading days, the
Company may redeem the Exchangeable Preferred Stock in whole at a price per
share equal to 100% of the Liquidation Preference.
The 1996 Credit Agreement, 1993 Senior Secured Notes, 1993 Senior
Subordinated Notes and the Old Notes place restrictions on the Company's
ability to redeem the Exchangeable Preferred Stock.
Upon the occurrence of a change of control of the Company and subject
to compliance by the Company with its requirements under the 1996 Credit
Agreement, the 1993 Senior Secured Notes, the 1993 Senior Subordinated Notes
and the Old Notes, each holder of Exchangeable Preferred Stock will have the
right to require the Company to purchase all or any part, at such holder's
option, of such holder's Exchangeable Preferred Stock at a purchase price in
cash equal to the Liquidation Preference thereof.
The 1996 Credit Agreement, the 1993 Senior Secured Notes, the 1993 Senior
Subordinated Notes and the Old Notes place restrictions on the Company's
ability to purchase shares of Exchangeable Preferred Stock upon a change of
control of the Company.
Except under the limited circumstances described below and as required by
applicable law, the holders of Exchangeable Preferred Stock have no voting
rights. If and whenever two semi-annual dividend payments on the Exchangeable
Preferred Stock are in arrears, then during the period (hereinafter called the
"Class Voting Period") commencing with such time and ending when all arrearages
in dividends on the Exchangeable Preferred Stock shall have been paid, the
holders of the Exchangeable Preferred Stock, voting together as a separate
class, are entitled to elect one or more additional directors equal to 30% of
the entire Board of Directors and each share of Exchangeable Preferred Stock is
entitled to one vote in such election of directors. The term of any director so
elected shall expire at the end of the Class Voting Period.
22
<PAGE> 29
SELLING SHAREHOLDERS
<TABLE>
The following table provides certain information with respect to the Securities held and to be offered under this Prospectus
(the "Offering") from time to time by each Selling Shareholder. Because the Selling Shareholders may sell all or part of their
Securities pursuant to this Prospectus, no estimate can be given as to the number and percentage of shares of Convertible Preferred
Stock and Class A Common Stock that will be held by each Selling Shareholder upon termination of the Offering.
<CAPTION>
Shares of Shares of Shares of
Convertible Preferred Class A Common Class A Common
Stock Offered Stock Offered Stock Beneficially
Pursuant to this Pursuant to this Owned Prior
Selling Shareholder Prospectus1 Prospectus to Offering2
- ------------------- ----------- ---------- ------------
<S> <C> <C> <C>
International Nederlanden (U.S.)
Finance Corporation 119 238 0
E. Mark Noonan 5,393 10,786 0
Lehman Brothers, Inc. 2,190 4,380 0
Corporate Rebuilding Managers, L.P. 19,331 38,662 0
Scraggy Neck Investors, L.P. 23,197 46,394 0
The SC Fundamental Value Fund, L.P. 4 8 0
SC Fundamental Value BVI, LTD. 1,455 2,910 0
Mary Ross Gilbert 2,060 4,120 0
Dunlap-Swain Tire 1,224 2,448 0
First Boston Corp. 55,000 110,000 0
Bell Atlantic MPT-Restructuring A/C 75,478 150,956 0
Atwell & Co. 10,005 20,010 0
Auer & Co. 1,187 2,374 0
Baylane & Co. 98,678 197,356 0
Blackstone Partners 6 12 288
Cede & Co. 758,068 1,516,136 19,478,464
Charles Schwab & Co. 113 226 0
CNOM & Co. 1,147 2,294 0
CUDD & Co. 23,057 46,114 0
</TABLE>
23
<PAGE> 30
<TABLE>
<CAPTION>
Shares of Shares of Shares of
Convertible Preferred Class A Common Class A Common
Stock Offered Stock Offered Stock Beneficially
Pursuant to this Pursuant to this Owned Prior
Selling Shareholder Prospectus1 Prospectus to Offering2
- ------------------- ----------- ---------- ------------
<S> <C> <C> <C>
Investors Bank & Trust Company 286,473 572,946 0
Philadep & Co. 97 194 154,741
Salkeld & Co. 2,104 4,208 0
Stifel Nicolaus & Co., Inc. 245 490 0
--------- ---------
Total 1,366,631 2,733,262
========= =========
<FN>
- ------------------------
1 All shares of Convertible Preferred Stock offered pursuant to this Prospectus were owned by the respective
Selling Shareholders prior to the Offering.
2 Does not include shares of Class A Common Stock offered pursuant to this Prospectus.
The Company will not receive any of the proceeds from the sale of the Securities by the Selling Shareholders.
</TABLE>
24
<PAGE> 31
PLAN OF DISTRIBUTION
The Securities may be sold from time to time to purchasers directly by any
of the Selling Shareholders. Alternatively, any of the Selling Shareholders may
from time to time offer the Securities through underwriters, dealers or agents
who may receive compensation in the form of underwriting discounts, concessions
or commissions from the Selling Shareholders and/or the purchasers of the
Securities for whom they may act as agent. The Selling Shareholders and any such
underwriters, dealers or agents who participate in the distribution of the
Securities may be deemed to be underwriters, and any profits on the sale of the
Securities by them and any discounts, commissions or concessions received by any
such underwriters, dealers or agents might be deemed to be underwriting
discounts and commissions under the Securities Act.
The Company has been advised by each Selling Shareholder that the Selling
Shareholders may sell their Securities from time to time in transactions on the
American Stock Exchange, in negotiated transactions, by writing options on the
Securities or by a combination of these methods, at fixed prices which may be
changed, at varying prices determined at the time of sale, at market prices at
the time of sale, at prices related to market prices or at negotiated prices.
Such prices will be determined by the Selling Shareholders or by agreement
between the Selling Shareholders and underwriters or dealers. The Selling
Shareholders may effect these transactions by selling the Securities to or
through broker-dealers, who may receive compensation in the form of discounts,
concessions or commissions from the Selling Shareholders or the purchasers of
the Securities for whom the broker-dealer may act as an agent or to whom they
may sell the Securities as a principal, or both. The compensation to a
particular broker-dealer may be in excess of customary commissions.
In connection with the Private Placement, the Company entered into a
Registration Rights Agreement with the Selling Shareholders. Pursuant to this
agreement, the Company agreed to use its best efforts (i) to file a registration
statement covering the resale of the Securities held by the Selling Shareholders
within 60 days after the Issuance Date and (ii) to keep such registration
statement effective until the earlier of (a) the date on which the Selling
Shareholders notify the Company that they may dispose of the Securities which
were acquired pursuant to the Private Placement pursuant to rule 144(k) under
the Securities Act or (b) the date on which the Selling Shareholders no longer
own any of such Securities. Under this agreement, if such registration statement
is not continuously effective for 120 days during any six month period, the
Company will make a cash payment to the Selling Shareholders equal to the
product of (x) .00125 and (y) the aggregate liquidation value of the Securities
owned by the Selling Shareholders as of the date of such payment which were
acquired pursuant to the Private Placement (the "Illiquidity Payment"). In the
event that the Company fails to satisfy this test for four consecutive months,
the amount of the cash payment required to be made by the Company will be
increased by 100% of the Illiquidity Payment for such calendar month and for
each consecutive calendar month thereafter in which the Company is obligated to
make an Illiquidity Payment.
Pursuant to the Registration Rights Agreement, the Company has agreed to
indemnify each Selling Shareholder against all liabilities, including
liabilities under the Securities Act, caused by any untrue statement of a
material fact in this Prospectus or by any omission to state a material fact
required to be stated in this Prospectus or necessary to make any statement in
this Prospectus not misleading, except insofar as such liabilities are caused by
any untrue statement or omission in any written information furnished to the
Company by the Selling Shareholder for use in this Prospectus.
In order to comply with certain states' securities laws, if applicable, the
Securities will be sold in such jurisdictions only through registered or
licensed brokers or dealers. In certain states the Securities may not be sold
unless the Securities have been registered or qualified for sale in such state,
or unless an exemption from registration or qualification is available and is
obtained.
25
<PAGE> 32
DESCRIPTION OF CAPITAL STOCK
PREFERRED STOCK
The Company is currently authorized to issue up to 5,000,000 shares of
preferred stock, par value $1.00 per share (the "Preferred Stock"). Pursuant to
the Company's Articles of Organization, the Board of Directors is authorized,
without further stockholder approval, to issue shares of Preferred Stock in one
or more series. Each such series of Preferred Stock shall have such rights,
preferences, privileges and restrictions, including voting rights, dividend
rights, conversion rights, redemption privileges and liquidation preferences, as
determined by the Board of Directors. Any such Preferred Stock issued by the
Company may rank prior to the Common Stock as to dividend rights, liquidation
preference or both. In connection with the consummation of the Recapitalization,
the Company filed a certificate of designation authorizing the issuance of up to
2,700,000 shares of Exchangeable Preferred Stock and issued 2,533,255 shares of
such stock. On November 23, 1994, holders of 2,381,038 shares of Exchangeable
Preferred Stock exchanged such stock (the "Exchange") for an aggregate of
2,381,038 shares of Little Switzerland Common Stock. Pursuant to the certificate
of designation for the Exchangeable Preferred Stock, all such shares of
Exchangeable Preferred Stock which were exchanged for shares of Little
Switzerland Common Stock were restored to the status of authorized but unissued
shares of Preferred Stock, without designation as to series. Subsequent to the
Exchange and prior to the issuance of the Convertible Preferred Stock, the
Company filed the Certificate of Designation authorizing the issuance of up to
2,533,255 shares of Convertible Preferred Stock.
The issuance of Preferred Stock, while providing desirable flexibility in
connection with a possible investment in the Company, possible acquisitions by
the Company and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from acquiring the Company.
As of August 23, 1996, there were two holders of record of Exchangeable
Preferred Stock and 24 holders of record of Convertible Preferred Stock. The
transfer agent for the Exchangeable Preferred Stock and the Convertible
Preferred Stock is State Street Bank and Trust Company.
COMMON STOCK
The Company is authorized to issue up to 40,000,000 shares of Class A
Common Stock and 8,000,000 shares of Class B Common Stock. Except as noted
below, holders of both classes of Common Stock are entitled to receive ratably
such dividends as may be declared by the Board of Directors. In the event of a
liquidation, dissolution or winding up of the Company, holders of both classes
of Common Stock have the right to a ratable portion of assets remaining after
payment of liabilities and distribution of liquidation preferences to holders of
any outstanding shares of Preferred Stock. See "--Preferred Stock." The holders
of Common Stock have no preemptive rights or, except in the case of the Class B
Common Stock, rights to convert their Common Stock into any other securities and
such holders are not subject to future calls or assessments by the Company. All
outstanding shares of Common Stock are fully paid and non-assessable. The
transfer agent for the Common Stock is State Street Bank and Trust Company.
Class A Common Stock
Each share of Class A Common Stock entitles the holder thereof to one vote
on all matters submitted to the stockholders of the Company generally. All
actions submitted to a vote of stockholders will be voted on by holders of Class
A Common Stock and of Class B Common Stock voting together, provided, however,
that twenty-five percent (25%) of the Directors of the Company are Class A
Directors and are elected by a majority vote of the holders of Class A Common
Stock voting separately as a class. Except for the aforementioned election of
Directors and as otherwise provided by law, there is no separate class voting on
any matters. The Class A Common Stock also is entitled to a dividend preference
over the Class B Common Stock. See "--Class B Common Stock." As of August 23,
1996, there were approximately 971 record holders of the Class A Common Stock.
26
<PAGE> 33
Class B Common Stock
Each share of Class B Common Stock entitles the holder thereof to ten (10)
votes on all matters submitted to stockholders. All actions submitted to a vote
of stockholders will be voted on by holders of Class A Common Stock and of Class
B Common Stock voting together except as noted above. See "--Class A Common
Stock." Except for the aforementioned election of Directors and as otherwise
provided by law, there is no separate class voting on any matters.
As of August 23, 1996, the Class B Common Stock represents 9.3% of the
Company's outstanding equity, but has 50.6% of the combined voting power of the
Company's outstanding Class A Common Stock, and Class B Common Stock and
Convertible Preferred Stock (voting on an as-converted basis). Holders of the
Class B Common Stock will be able to elect 75% of the directors of the Company
as long as they hold at least 9.09% of the Company's outstanding equity
(assuming no change in the total number of outstanding shares of Common Stock).
In addition, such holders of Class B Common Stock will have the ability to
approve or disapprove acquisitions, mergers, consolidations and similar
extraordinary transactions requiring a vote of stockholders. See
"--Massachusetts Anti-Takeover Laws and Certain Provisions of the Articles of
Organization and By-Laws."
Cash dividends may be declared and paid on Class B Common Stock only if a
dividend of an amount of cash at a quarterly rate no less than $.025 per share
in excess of the dividend on Class B Common Stock will be paid on Class A Common
Stock. The Board in its discretion also may declare and pay a dividend in stock
of the Company, provided, however, that such dividend shall be declared pro rata
on both Class A Common Stock and Class B Common Stock.
Each share of Class B Common Stock is convertible at any time, at the
option of the holder, into one share of Class A Common Stock.
As of August 23, 1996, there were 29 record holders of the Class B Common
Stock.
REGISTRATION RIGHTS
The warrants (the "Warrants") granted to the Financial Advisors in
connection with the Recapitalization provide the Financial Advisors with the
right to have the shares of Class A Common Stock issued upon exercise of the
Warrants registered by the Company in certain circumstances. Capitalized terms
used in this paragraph and not otherwise defined herein are defined in the
Warrants. Pursuant to the Warrants, if, at any time after the date on which the
Warrants are granted, the Company proposes to register any Class A Common Stock
under the Securities Act in connection with the public offering of such
securities for its own account or the account of a security holder or holders
exercising their respective demand rights, other than certain offerings, the
holders of Registerable Securities shall be entitled to include such
Registerable Securities in such registration. If such registration is an
underwritten public offering, the underwriter may exclude from registration some
or all of the Registerable Securities if the underwriter determines that
marketing factors so require. The Company generally is required to bear all
expenses of any registration pursuant to the Warrants, other than certain
expenses of the holders of Registerable Securities.
MASSACHUSETTS ANTI-TAKEOVER LAWS AND CERTAIN PROVISIONS OF THE ARTICLES AND
BY-LAWS
A number of provisions of the Articles of Organization and By-Laws deal
with matters of corporate governance and the rights of stockholders. Certain of
these provisions, as well as certain sections of the Massachusetts General Laws,
the Company's two classes of Common Stock, which have unequal voting rights, and
the ability of the Board of Directors to issue shares of Preferred Stock and to
set the voting rights, preferences and other terms thereof, may be deemed to
have an anti-takeover effect and may discourage takeover attempts not first
approved by the Board of Directors (including takeovers which certain
stockholders may deem to be in their best interests). To the extent takeover
attempts are discouraged, temporary fluctuations in the market price of Class A
Common Stock, which may result from actual or rumored takeover attempts, may be
inhibited. These provisions, together with the classified Board of Directors,
the two classes of Common Stock and the ability of the Board to issue Preferred
Stock without further stockholder action, also could delay or frustrate the
removal of incumbent Directors or the assumption of control by stockholders,
even if such removal or assumption would be beneficial to stockholders of the
Company. These provisions also could discourage or make more difficult a merger,
tender offer or proxy contest, even if they could be favorable to
27
<PAGE> 34
the interests of stockholders, and could potentially depress the market price of
Class A Common Stock. The Board of Directors of the Company believes that these
provisions are appropriate to protect the interests of the Company and all of
its stockholders. The Board of Directors has no present plans to adopt any other
measures or devices which may be deemed to have an "anti-takeover effect."
Under Chapter 110F of the Massachusetts General Laws, a Massachusetts
corporation like the Company with more than 200 stockholders may not engage in a
"business combination" (as defined below) with an "interested stockholder" (as
defined below) for a period of three years after the date of the transaction in
which the person becomes an interested stockholder, unless (i) the interested
stockholder obtains the approval of the Board of Directors prior to becoming an
interested stockholder, (ii) the interested stockholder acquires 90% of the
outstanding voting stock of the corporation (excluding shares held by certain
affiliates of the corporation) at the time it becomes an interested stockholder
or (iii) the business combination is approved by both the Board of Directors and
the holders of two-thirds of the outstanding voting stock of the corporation
(excluding shares held by the interested stockholder). An "interested
stockholder" generally is a person who, together with affiliates and associates,
owns (or at any time within the prior three years did own) 5% or more of the
outstanding voting stock of the corporation. A "business combination" includes a
merger, a stock or asset sale, and certain other specified transactions
resulting in a financial benefit to the interested stockholder.
Under Chapter 110D of the Massachusetts General Laws, any person
(hereinafter, the "acquirer") who makes a bona fide offer to acquire, or
acquires, shares of stock of a Massachusetts corporation, like the Company, that
when combined with shares already owned would increase the acquirer's ownership
to at least 20%, 33 1/3%, or a majority of the voting stock of such company,
must obtain the approval of a majority of shares held by all stockholders except
the acquirer and the officers and inside Directors of the corporation in order
to vote the shares acquired.
The Articles of Organization contain a super majority voting provision,
pursuant to which 90% of the votes entitled to be voted thereon are required for
the approval of certain business combinations (including mergers,
consolidations, sale of substantially all of the Company's assets, and
liquidations) if the business combination has not been approved by a majority of
the Directors then in office.
The Articles of Organization contain a super majority voting provision,
pursuant to which 90% of the votes entitled to be voted thereon are required for
the approval by the stockholders of any amendments, alterations, change, or
repeal of the Articles of Organization and By-Laws if such action has not been
first approved by the Company's Board of Directors then in office.
In addition to the above-described provisions, the Articles of Organization
provide that Directors may not be removed, with or without cause, except by vote
of 90% of the votes entitled to be voted thereon, or by vote of a majority of
the members of the Board of Directors then in office. The Articles of
Organization divide the Board of Directors into three equal classes, with
members of each class to serve for three years. In addition, the By-Laws set
forth certain notice and informational requirements and time limitations on any
Director nomination which a stockholder wishes to propose for consideration at
an annual or special meeting of stockholders.
INDEMNIFICATION; LIMITATION OF LIABILITY
The By-Laws provide that the Directors and officers of the Company shall be
indemnified by the Company to the fullest extent authorized by Massachusetts
law, as it now exists or may in the future be amended, against all expenses and
liabilities reasonably incurred in connection with service for or on behalf of
the Company. In addition, the Articles of Organization provide that the
Directors of the Company will not be personally liable for monetary damages to
the Company for certain breaches of their fiduciary duty as Directors, unless
they violated their duty of loyalty to the Company or its stockholders, acted in
bad faith, knowingly or intentionally violated the law, authorized illegal
dividends or redemptions or derived an improper personal benefit from their
actions as Directors.
28
<PAGE> 35
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The discussion set forth below is a summary of the material federal income
tax consequences associated with the ownership and disposition of Convertible
Preferred Stock and Class A Common Stock. The following discussion represents
the opinion of Goodwin, Procter & Hoar LLP, counsel to the Company ("Tax
Counsel"), on the matters associated with such consequences that are material.
The federal income tax discussion set forth below does not purport to be a
complete analysis or listing of all potential tax considerations that may be
relevant to a decision to purchase Convertible Preferred Stock or Class A Common
Stock. The discussion is applicable only to investors who will hold the
Convertible Preferred Stock and Class A Common Stock as "capital assets"
(generally property held for investment within the meaning of Section 1221 of
the Internal Revenue Code of 1986, as amended (the "Code")). It does not address
either the tax consequences that may be relevant to particular categories of
investors subject to special treatment under certain federal income tax laws,
such as dealers in securities, banks, insurance companies, mutual funds,
tax-exempt organizations and foreign investors, or any tax consequences arising
under the laws of any state, locality or foreign jurisdiction. The discussion is
based upon currently existing provisions of the Code, existing Treasury
Regulations promulgated thereunder and current administrative rulings and court
decisions. All of the foregoing are subject to change, and any such change could
affect the continuing validity of this discussion.
TAX CONSEQUENCES OF HOLDING STOCK
Dividends
Dividends paid to holders of Convertible Preferred Stock or Class A Common
Stock in cash or in additional shares of Convertible Preferred Stock will be
taxable as ordinary income to the extent of the Company's current or accumulated
earnings and profits for tax purposes. In the case of dividends paid in
additional shares of Convertible Preferred Stock, the amount of the distribution
recognized by a holder will be the fair market value of such additional shares
on the date of distribution. The holder's tax basis in such additional shares of
Convertible Preferred Stock will be the fair market value of the shares on the
distribution date.
To the extent that the amount of any distribution on the Convertible
Preferred Stock or Class A Common Stock, in cash or additional shares of
Convertible Preferred Stock (the amount of such stock distribution being equal
to the fair market value of such stock on the date of distribution), exceeds the
Company's current accumulated earnings and profits for tax purposes, such
distribution will be treated as a return of capital (rather than as ordinary
income) and will be applied against and reduce the adjusted basis of the stock
in the hands of the holder, thus increasing the amount of gain (or reducing the
amount of loss) which may be realized by such holder upon the sale of such
stock. The amount of any distribution which exceeds the adjusted basis of the
stock in the hands of the holder as of the distribution date will be taxed as
capital gain (provided the stock is held as a capital asset).
Under Section 243 of the Code, distributions received by corporate holders
on the Convertible Preferred Stock or Class A Common Stock, to the extent of the
Company's current or accumulated earnings and profits, will qualify for the 70%
dividends received deduction (which increases to 80% in the case of 20% or more
corporate shareholders). However, under Section 246A of the Code, to the extent
that a holder incurs indebtedness "directly attributable" to the purchase of
stock, the deduction for dividends received on such stock is proportionately
disallowed. In addition, under Section 246(c) of the Code, the dividends
received deduction will not be available with respect to stock which is held for
45 days or less (90 days or less in the case of a dividend on Convertible
Preferred Stock attributable to a period or periods aggregating more than 366
days). A taxpayer's holding period for these purposes is reduced by periods
during which the taxpayer has an option to sell, is under a contractual
obligation to sell, has made (but not closed) a short sale of substantially
identical stock or securities or is the grantor of an option to purchase
substantially identical stock or securities. A taxpayer's holding period also is
reduced where the taxpayer's risk of loss with respect to the stock is
considered diminished by reason of the taxpayer holding one or more positions in
substantially similar or related property, as determined in accordance with
applicable regulations. Further, the dividends received deduction will also not
be available if the taxpayer is under an obligation to make related payments
with respect to positions in substantially similar or related property.
Potential corporate purchasers of the Convertible Preferred Stock should consult
their tax advisors to determine how these limitations might apply to them.
29
<PAGE> 36
Special rules may apply to a corporate holder of Convertible Preferred
Stock or Class A Common Stock who receives a dividend with respect to such stock
that is considered to be an "extraordinary dividend" within the meaning of
Section 1059 of the Code. If a corporate holder receives such an extraordinary
dividend with respect to the Convertible Preferred Stock or Class A Common
Stock, and if the holder has not held such stock for more than two years before
the Company declares, announces, or agrees to the amount or payment of such
dividend, whichever is earliest, then the holder's basis in the stock will be
reduced (but not below zero) by any nontaxed portion of the dividend, which
generally is the amount of the dividends received deduction. For purposes of
determining if the Convertible Preferred Stock or Class A Common Stock has been
held for more than two years, rules similar to those that are applicable to
determining how long such stock has been held for purposes of the dividends
received deduction will apply. Upon the sale or disposition of the Convertible
Preferred Stock or Class A Common Stock, any part of the nontaxed portion of an
extraordinary dividend that has not been applied to reduce basis because of the
limitation on reducing basis below zero will be treated as gain from the sale or
exchange of such stock.
An "extraordinary dividend" on the Convertible Preferred Stock or Class A
Common Stock generally will include a dividend received by a holder that: (i)
equals or exceeds either five percent (for preferred stock) or ten percent (for
common stock) of the holder's adjusted basis in the stock, treating all
dividends having ex-dividend dates within an 85-day period as one dividend; or
(ii) exceeds 20 percent of the holder's adjusted basis in the stock (determined
without regard to any reduction for the nontaxed portion of other extraordinary
dividends), treating all dividends having ex-dividend dates within a 365-day
period as one dividend. A holder may elect to use the fair market value of the
stock, rather than its adjusted basis, for purposes of applying the five or ten
percent and 20 percent limitations, if the holder is able to establish such fair
market value to the satisfaction of the IRS. An "extraordinary dividend" will
also include any amount treated as a dividend upon a redemption of the
Convertible Preferred Stock or Class A Common Stock that is either part of a
partial liquidation of the Company under Section 302(e) of the Code or not pro
rata as to all shareholders, and the basis reduction and gain recognition rules
described in the preceding paragraph will apply to such an extraordinary
dividend without regard to the period the holder held the stock.
A dividend on the Convertible Preferred Stock received by a holder
generally will be a "qualified preferred dividend" if: (i) the stock was not in
arrears as to dividends when acquired by the holder; and (ii) the holder's
actual rate of return on such stock, as determined under Section 1059(e)(3) of
the Code, does not exceed 15 percent. Where a qualified preferred dividend
received with respect to the Convertible Preferred Stock would otherwise be
treated as an extraordinary dividend: (x) the rules generally applicable to
extraordinary dividends will not apply if the holder holds the stock for more
than five years; and (y) if the holder disposes of the stock before it has been
held for more than five years, the aggregate reduction in basis under the basis
reduction rules will not exceed the excess of the qualified preferred dividends
paid on such stock during the period held by the taxpayer over the qualified
preferred dividends which would have been paid during such period on the basis
of the stated rate of return on such stock as determined under Section
1059(e)(3) of the Code. For purposes of determining if the Convertible Preferred
Stock has been held for more than five years, rules similar to those that are
applicable to determining how long such stock has been held for purposes of the
dividends received deduction will apply.
In addition to the foregoing rules which limit the dividends received
deduction, a corporate holder of the Convertible Preferred Stock in general may,
for purposes of computing its alternative minimum tax liability, be required to
include in its alternative minimum taxable income the amount of any dividends
received deduction allowed in computing regular taxable income.
Adjustment of Conversion Price
Holders of the Convertible Preferred Stock may be deemed to have received a
constructive distribution of stock that is taxable as a dividend if, among other
things, the conversion price of the Convertible Preferred Stock is adjusted to
reflect a cash or property distribution with respect to outstanding common
stock. However, an adjustment to the conversion price made pursuant to a bona
fide reasonable adjustment formula which has the effect of preventing the
dilution of the interests of the holders generally will not be considered to
result in a constructive stock dividend. If a nonqualifying adjustment were
made, the holders of the Convertible Preferred Stock, as indicated above, might
be deemed to have received a taxable stock dividend.
30
<PAGE> 37
Any constructive dividends may constitute (and cause other dividends to
constitute) "extraordinary dividends" to corporate holders. Any such
extraordinary dividends would be subject to the rules relating to such dividends
described above.
Redemption Premium
If the redemption price of redeemable preferred stock exceeds its issue
price, all or a portion of the excess may constitute an unreasonable redemption
premium, taxable as a dividend to the extent of the issuing corporation's
current or accumulated earnings and profits. In the case of redeemable preferred
stock issued before December 20, 1995 that the issuer is not required to redeem
at a specified time and where the holder may not require redemption, a premium
is considered to be reasonable if it is in the nature of a penalty for a
premature redemption and if the premium does not exceed the amount the issuer
would be required to pay for the redemption right under market conditions
existing at the time of issuance of the preferred stock. If the redemption price
of the Convertible Preferred Stock exceeds its issue price (which generally
equals fair market value at the time of issuance in the case of preferred stock
not issued for cash), and if the resulting premium (if any) is considered
unreasonable under the foregoing rules, a holder of Convertible Preferred Stock
issued before December 20, 1995 would take the amount of such premium into
income over the period during which the stock cannot be called for redemption
under an economic accrual method.
The Revenue Reconciliation Act of 1990 authorized the Treasury Department
to promulgate new regulations to govern the federal income tax treatment of
redemption premiums on preferred stock. The resulting regulations (the "Section
305 Regulations") apply to stock issued on or after December 20, 1995, and thus
by their terms would apply to any shares of Convertible Preferred Stock issued
with a redemption premium (i.e., a redemption price that exceeds the issue
price) after such date. In the case of redeemable preferred stock that the
issuer is not required to redeem at a specified time and that is not puttable by
the holder, the Section 305 Regulations provide that the premium may be taxable
as a dividend only if redemption pursuant to the issuer's call right is more
likely than not to occur. In such case, if the premium exceeds a certain DE
MINIMIS amount, the premium is taken into income under an economic accrual
method over the period ending with the date the stock is deemed to be called
(with certain adjustments if the stock is not actually called on such date). The
Section 305 Regulations provide that a redemption is not treated as more likely
than not to occur if (i) the issuer and the holder are not "related" within the
meaning of the regulations (which generally require more than 20% cross or
common ownership), (ii) there are no arrangements that effectively required the
issuer to redeem the stock, and (iii) the exercise of the right to redeem would
not reduce the yield of the stock. Even if the redemption is more likely than
not to occur, the premium will not be taxable as a dividend if the premium is
solely in the nature of a penalty for premature redemption. A premium is not a
penalty for premature redemption unless it is a premium paid as a result of
changes in economic or market conditions over which neither the issuer nor the
holder has control.
The Section 305 Regulations also provide that the issuer's determination as
to whether there is a constructive distribution (i.e., a taxable redemption
premium) under the rules summarized above is binding on all holders of the stock
except holders that disclose in the manner prescribed by the regulations that
the holder is taking a contrary position. In addition, the regulations require
the issuer to provide relevant information to the holder in a reasonable manner.
In this regard, the Company believes that shares of Convertible Preferred Stock
issued after December 20, 1995 should not be treated as more likely than not to
be redeemed within the meaning of the Section 305 Regulations and that any
redemption premium with respect to such shares should not be taxable under such
regulations. Holders seeking additional information may contact Robert MacCready
(617 - 884-8500) at the Company.
Redemption
A redemption of Convertible Preferred Stock for cash will be treated as a
distribution that is taxable as a dividend to the extent of the Company's
current or accumulated earnings and profits unless the redemption (a) is "not
essentially equivalent to a dividend" with respect to the holder under Section
302(b)(1) of the Code; (b) is "substantially disproportionate" with respect to
the holder under Section 302(b)(2) of the Code; or (c) results in a "complete
redemption" of the holder's stock interest in the Company under Section
302(b)(3) of the Code. In determining whether any of these tests have been met,
ownership of all shares of stock of the Company (including common stock and
other equity interests actually owned, as well as shares considered to be owned
by the holder by reason of certain constructive ownership rules set forth in
Section 318 of the Code) must generally be taken into account. If any of the
foregoing tests is met, then, except with respect to declared
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<PAGE> 38
and unpaid dividends, if any, the redemption of shares of Convertible Preferred
Stock for cash will result in taxable capital gain or loss equal to the
difference between the amount of cash received and the holder's tax basis in the
redeemed shares. Any capital gain or loss will be long-term capital gain or loss
if the shareholder's holding period exceeds one year. Based on a published IRS
ruling, the redemption of a shareholder's Convertible Preferred Stock for cash
should be treated as "not essentially equivalent to a dividend" if, taking into
account the constructive ownership rules, (a) the shareholder's relative stock
interest in the Company is minimal, (b) the shareholder exercises no control
over the company's affairs, and (c) there is a reduction in the holder's
proportionate interest in the company.
If a cash redemption of Convertible Preferred Stock is treated as
distribution that is taxable as a dividend, as opposed to consideration received
in a sale or exchange, the amount of the distribution will be measured by the
amount of cash received by the holder. The holder's adjusted tax basis in the
Convertible Preferred Stock will be transferred to any remaining stock holdings
in the Company. If the holder does not retain any stock ownership in the
Company, it is unclear whether the holder will lose the basis entirely. Under
Section 1059 of the Code, the term "extraordinary dividend" includes any
redemption of stock that is treated as a dividend and that is non-pro rata as to
all stock, including holders of common stock, irrespective of holding period.
Consequently, to the extent an exchange of Convertible Preferred Stock for cash
constitutes a distribution taxable as a dividend, it may constitute an
"extraordinary dividend" to a corporate shareholder. Each prospective investor
should consult with his tax advisor as to whether a redemption for cash will be
treated as a dividend.
If the Company elected to pay any accrued, undeclared and unpaid dividends
on redeemed shares of Convertible Preferred Stock with additional shares of
Convertible Preferred Stock (which would automatically convert to shares of
Class A Common Stock), the holder of the redeemed shares would recognize any
gain (but not loss) on the exchange to the extent of the cash received (which
gain would be taxed as a dividend to the extent of accumulated earnings and
profits or capital gain based on the application of the principles of Section
302 of the Code described above). In general, such shares of Class A Common
Stock would take a tax basis equal to the basis of the shares redeemed,
decreased by the amount of money received and increased by the amount of gain
recognized. Additionally, if the fair market value of such Class A Common Stock
exceeded the issue price of the Convertible Preferred Stock surrendered, a
portion of the Class A Common Stock (up to the amount of such unpaid dividends)
would be treated as a taxable distribution (and would take a fair market value
tax basis).
If any cash redemptions of Convertible Preferred Stock were treated as part
of a plan to periodically increase other shareholders' proportionate interests
in the Company, holders of Class A Common Stock might be deemed to have received
taxable stock distributions at such time.
Conversion of Convertible Preferred Stock into Class A Common Stock
No gain or loss generally will be recognized upon conversion of shares of
Convertible Preferred Stock into shares of Class A Common Stock, except with
respect to any cash paid in lieu of fractional shares of Class A Common Stock,
which generally will be capital gain. Additionally, if the conversion takes
place when there is a dividend arrearage on the Convertible Preferred Stock and
the fair market value of the Class A Common Stock exceeds the issue price of the
Convertible Preferred Stock, a portion of the Class A Common Stock received
(equal to the lesser of such excess or the amount of dividends in arrears) would
be treated as a dividend distribution, taxable as ordinary income. The tax basis
of the Class A Common Stock received upon conversion will be equal to the tax
basis of the shares of Convertible Preferred Stock (assuming the conversion is
not treated as resulting in the payment of a dividend) converted, and the
holding period of the Class A Common Stock will include the holding period of
the shares of Convertible Preferred Stock converted. The tax basis of any Class
A Common Stock treated as a dividend will be equal to its fair market value on
the date of the distribution.
If any accrued, unpaid and undeclared dividends on shares of Convertible
Preferred Stock surrendered for conversion were paid in cash, rather than
through the issuance of additional shares of Convertible Preferred Stock, the
holder would recognize gain on the exchange to the extent of the cash received
(which would be taxed as dividend income to the extent of accumulated earnings
and profits or capital gain under the principles that apply to redemptions
described above). In such case, in general, the tax basis of the Class A Common
Stock received in the conversion (other than shares treated as a dividend) would
be decreased by the amount of money received and increased by the amount of gain
recognized.
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<PAGE> 39
Other Disposition of Convertible Preferred Stock or Class A Common Stock
Upon the sale of shares of Convertible Preferred Stock or Class A Common
Stock to or with a person other than the Company, a holder will recognize
capital gain or loss equal to the difference between the amount realized on such
sale and the holder's adjusted basis in such stock. Any capital gain or loss
recognized will generally be treated as long-term capital gain or loss if the
holder held such stock for more than one year. For this purpose, the period for
which the Convertible Preferred Stock was held would be included in the holding
period of the Class A Common Stock received upon conversion.
Backup Withholding
Under Section 3406 of the Code and applicable regulations thereunder, a
holder of the Convertible Preferred Stock or Class A Common Stock may be subject
to backup withholding at the rate of 31% with respect to dividends paid on, or
the proceeds of a sale or redemption of, the Convertible Preferred Stock or
Class A Common Stock. If (i) the holder ("payee") fails to furnish or certify a
taxpayer identification number to the payor, (ii) the Service notifies the payor
that the taxpayer identification number furnished by the payee is incorrect,
(iii) there has been a "notified payee underreporting" described in Section
3406(c) of the Code, or (iv) there has been a "payee certification failure"
described in Section 3406(d) of the Code, then the Company generally will be
required to withhold an amount equal to 31% of any dividend or redemption
payment made with respect to the Convertible Preferred Stock or Class A Common
Stock. Any amounts withheld under the backup withholding rules from a payment to
a holder will be allowed as a credit against the holder's federal income tax
liability or as a refund.
THE FOREGOING SUMMARY OF THE MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF
THE ACQUISITION AND DISPOSITION OF CONVERTIBLE PREFERRED STOCK AND CLASS A
COMMON STOCK IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING ON AN
INDIVIDUAL BASIS. A PARTICULAR HOLDER'S DECISION TO ACQUIRE CONVERTIBLE
PREFERRED STOCK AND CLASS A COMMON STOCK MAY REQUIRE CONSIDERATION OF FEDERAL
INCOME TAX CONCERNS OR ISSUES WHICH ARE NOT DISCUSSED ABOVE. MOREOVER, IN
ADDITION TO THE FEDERAL INCOME TAX CONSEQUENCES DISCUSSED ABOVE, THE ACQUISITION
AND DISPOSITION OF CONVERTIBLE PREFERRED STOCK AND CLASS A COMMON STOCK MAY HAVE
SIGNIFICANT STATE, LOCAL OR FOREIGN INCOME TAX CONSEQUENCES WHICH ARE NOT
DISCUSSED ABOVE. ACCORDINGLY, PROSPECTIVE PURCHASERS OF CONVERTIBLE PREFERRED
STOCK AND CLASS A COMMON STOCK ARE URGED TO CONSULT THEIR OWN TAX ADVISOR
CONCERNING THE TAX CONSEQUENCES OF SUCH PURCHASE TO SUCH HOLDER, WITH SPECIFIC
REFERENCE TO THE EFFECT OF ITS OWN PARTICULAR FACTS AND CIRCUMSTANCES ON THE
MATTERS DISCUSSED HEREIN.
LEGAL OPINIONS
The legality of the Convertible Preferred Stock, and the shares of Class A
Common Stock issuable upon conversion thereof, has been passed upon for the
Company by Goodwin, Procter & Hoar LLP, Boston, Massachusetts. All material
federal income tax consequences associated with the purchase, ownership and
disposition of the Convertible Preferred Stock has been passed upon by Goodwin,
Procter & Hoar LLP. As of August 23, 1996, Richard E. Floor, a Director and
Clerk of the Company, was the beneficial owner of 116,000 shares of Class A
Common Stock and his professional corporation is a partner in the firm of
Goodwin, Procter & Hoar LLP. Mr. Floor is also co-trustee of certain trusts for
the benefit of Mr. Carey's children which owned, as of August 23, 1996, in the
aggregate, 254,571 shares of Class A Common Stock and 140,253 shares of Class B
Common Stock.
EXPERTS
The audited financial statements and schedules included (incorporated by
reference) in this Prospectus and elsewhere in the Registration Statement, to
the extent and for the periods indicated in their reports, have been audited by
Arthur Andersen LLP, independent public accountants, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
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<PAGE> 40
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an itemized statement of all expenses
expected to be incurred in connection with the issuance and distribution of the
securities being registered (all of which are estimated).
<TABLE>
All expenses in connection with the registration and distribution of the
securities shall be borne by the Company.
<S> <C>
Securities and Exchange Commission
filing fee................................ $ 2,311
American Stock Exchange filing fee 17,500
Legal fees and expenses..................... 40,000
Accounting fees and expenses................ 12,500
Blue sky fees and expenses.................. 2,000
Miscellaneous............................... 1,000
=======
$75,331
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 67 of the Business Corporation Law of the Commonwealth of
Massachusetts provides that indemnification of directors, officers, employees or
other agents may be provided by a corporation. Section 13(b)(1 1/2) of the
Business Corporation Law of the Commonwealth of Massachusetts provides that a
certificate of incorporation may contain a provision eliminating or limiting the
personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director provided that such
provision shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Sections 61 or 62 of the
Massachusetts Business Corporation Law, or (iv) for any transaction from which
the director derived an improper personal benefit.
The Company's Articles of Organization contain a provision which limits the
personal liability of directors to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director to the extent permitted
above.
Article 9 of the Company's By-Laws provides:
(1) Indemnification. Definitions, for purposes of this section:
(a) A "Director" or "Officer" means any person serving as a
director of the corporation or in any other office filled by
appointment or election by the directors or the stockholders and also
includes (i) a Director or Officer of the corporation serving at the
request of the corporation as a director, officer, employee, trustee,
partner or other agent of another organization, and (ii) any person
who formerly served as a Director or Officer;
(b) "Expenses" means (i) all expenses (including attorneys' fees
and disbursements) actually and reasonably incurred in defense of a
Proceeding, in being a witness in a Proceeding, or in successfully
seeking indemnification under this Article, (ii) such expenses
incurred in connection with a Proceeding initiated by a Director or
Officer as may be approved by the Board of Directors, and (iii) any
judgments, awards, fines or penalties paid by a Director or Officer in
connection with a Proceeding or reasonable amounts paid in settlement
of a Proceeding; and
(c) A "Proceeding" means any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, and any claim which could be the subject of a
Proceeding.
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<PAGE> 41
(2) Right to Indemnification. Except as limited by law, the corporation
shall indemnify its Directors and Officers against all Expenses
incurred by them in connection with any Proceedings in which they are
involved as a result of their service as a Director or Officer, except
that (i) no indemnification shall be provided for any Director or
Officer regarding a matter as to which it shall be determined pursuant
to Section 5 of this Article or adjudicated that he did not act in
good faith and in the reasonable belief that his action was in the
best interests of the corporation, or with respect to a criminal
matter, that he had reasonable cause to believe that his conduct was
unlawful, and (ii) no indemnification shall be provided for any
Director or Officer with respect to any Proceeding by or in the right
of the corporation or alleging that a Director or Officer received an
improper personal benefit if he is adjudged liable to the corporation
in such Proceeding or, in the absence of such an adjudication, if he
is determined to be ineligible for indemnification under the
circumstances pursuant to Section 5 of this Article; provided,
however, that indemnification of Expenses incurred by a Director or
Officer in successfully defending a Proceeding alleging that he
received an improper personal benefit as a result of his status as
such may be paid if and to the extent authorized by the Board of
Directors.
(3) Settled Proceedings. If a Proceeding is compromised or settled in a
manner which imposes any liability or obligation upon a Director or
Officer, (i) no indemnification shall be provided to him with respect
to a Proceeding by or in the right of the corporation unless a court
having jurisdiction determines that indemnification is reasonable and
proper under the circumstances, and (ii) no indemnification shall be
provided to him with respect to any other type of Proceeding if it is
determined pursuant to Section 5 of this Article on the basis of the
circumstances known at that time (without further investigation) that
said Director or Officer is ineligible for indemnification.
(4) Advance Payments. Except as limited by law, Expenses incurred by a
Director or Officer in defending any Proceeding, including a
Proceeding by or in the right of the corporation, shall be paid by the
corporation to said Director or Officer in advance of final
disposition of the Proceeding upon receipt of his written undertaking
to repay such amount if he is determined pursuant to Section 5 of this
Article or adjudicated to be ineligible for indemnification, which
undertaking shall be an unlimited general obligation but need not be
secured and may be accepted without regard to the financial ability of
such person to make repayment; provided, however, that no such advance
payment of Expenses shall be made if it is determined pursuant to
Section 5 of this Article on the basis of the circumstances known at
that time (without further investigation) that said Director or
Officer is ineligible for indemnification.
(5) Determinations; Payments. The determination of whether a Director or
Officer is eligible or ineligible for indemnification under this
Article shall be made in each instance by (a) a majority of the
Directors or a committee thereof who are not parties to the Proceeding
in question, (b) independent legal counsel appointed by a majority of
such Directors, or if there are none, by a majority of the Directors
in office, or (c) a majority vote of the stockholders who are not
parties to the Proceeding in question. Notwithstanding the foregoing,
a court having jurisdiction (which need not be the court in which the
Proceeding in question was brought) may grant or deny indemnification
in each instance under the provisions of law and this Article. The
corporation shall be obliged to pay indemnification applied for by a
Director or Officer unless there is an adverse determination (as
provided above) within 45 days after the application. If
indemnification is denied, the applicant may seek an independent
determination of his right to indemnification by a court, and in such
event the corporation shall have the burden of proving that the
applicant was ineligible for indemnification under this Article.
(6) Insurance. The corporation shall have power to purchase and maintain
insurance on behalf of any agent, employee, director or officer
against any liability or cost incurred by him in any such capacity or
arising out of his status as such, whether or not the corporation
would have power to indemnify him against such liability or cost.
(7) Responsibility With Respect to Employee Benefit Plan. If the
corporation or any of its Directors or Officers sponsors or undertakes
any responsibility as a fiduciary with respect to
II-2
<PAGE> 42
an employee benefit plan, then for purposes of indemnification of such
persons under this Article (i) a "Director" or "Officer" shall be
deemed to include any Director or Officer of the corporation who
serves at its request in any capacity with respect to said plan, (ii)
such Director or Officer shall not be deemed to have failed to act in
good faith in the reasonable belief that his action was in the best
interests of the corporation if he acted in good faith in the
reasonable belief that his action was in the best interests of the
participants or beneficiaries of said plan, and (iii) "Expenses" shall
be deemed to include any taxes or penalties imposed on such Director
or Officer with respect to said plan under applicable law.
(8) Heirs and Personal Representatives. The indemnification provided by
this Article shall inure to the benefit of the heirs and personal
representatives of a Director or Officer.
(9) Non-Exclusivity. The provisions of this Article shall not be construed
to limit the power of the corporation to indemnify its Directors or
Officers to the full extent permitted by law or to enter into specific
agreements, commitments or arrangements for indemnification permitted
by law. In addition, the corporation shall have power to indemnify any
of its agents or employees who are not Directors or Officers on any
terms not prohibited by law which it deems to be appropriate. The
absence of any express provision for indemnification herein shall not
limit any right of indemnification existing independently of this
Article.
(10) Amendment. The provisions of this Article may be amended or repealed
by the stockholders; however, no amendment or repeal of such
provisions which adversely affects the rights of a Director or Officer
under this Article with respect to his acts or omissions at any time
before or after such amendment or repeal, shall apply to him without
his consent.
<TABLE>
<CAPTION>
ITEM 16. EXHIBITS
<S> <C> <C>
4.1 Certificate of Vote of Directors Establishing the Convertible *10*(4.8)
Preferred Stock, par value $1.00 per share, dated as
of November 23, 1994.
4.2 Indenture governing 13% Senior Subordinated Notes due #3#(4.2)
December 15, 1998 (the "Old 13% Notes"), dated as of December 16,
1988, from Town & Country Corporation to Bank of New England, N.A.,
as Trustee.
4.3 Supplemental Indenture relating to the Old 13% Notes, dated as *9*(4.4)
of May 14, 1993, from Town & Country Corporation to State Street
Bank and Trust Company, as Trustee.
4.4 Amended and Restated Indenture governing the Old 13% Notes, *9*(4.2)
dated as of May 14, 1993, from Town & Country Corporation to
State Street Bank and Trust Company, as Trustee.
4.5 Indenture governing 11 1/2% Senior Secured Notes due *9*(4.5)
September 15, 1997 dated as of May 14, 1993, from Town &
Country Corporation to Shawmut Bank, N.A., as Trustee, including
form of New Senior Secured Note due September 15, 1997.
4.6 Indenture governing 13% Senior Subordinated Notes due *9*(4.6)
May 31, 1997, dated as of May 14, 1993, from Town & Country
Corporation to Bankers Trust Company, as Trustee, including
form of 13% Senior Subordinated Note due May 31, 1998.
4.7 Certificate of Vote of Directors Establishing the Exchangeable *9*(4.7)
Preferred Stock, par value $1.00 per share, dated as of May 14, 1993.
5. Opinion of Goodwin, Procter & Hoar LLP. Previously
Filed
</TABLE>
II-3
<PAGE> 43
<TABLE>
<S> <C> <C>
10.1 1989 Employee Stock Purchase Plan of Town & Country Corporation #1#(10.21)
10.2 Executive Employment Agreement between Town & Country #4#(10.20)
Corporation and C. William Carey effective as of February 28, 1994.
10.3 Executive Employment Agreement between Town & Country #4#(10.21)
Corporation and Francis X. Correra effective as of February 28, 1994.
10.4 Key Man Life Insurance Policy for C. William Carey. #5#(10.22)
10.5 Form of 1993 Management Option. #6#(10.23)
10.6 Trust Agreement dated as of May 14, 1993, by and between *9*(10.22)
Town & Country Corporation and BayBank.
10.7 Amended and Restated Consignment Agreement dated as of *9*(10.9)
May 14, 1993, by and among Town & Country Corporation, L.G. Balfour
Company, Inc., Gold Lance, Inc., and Town & Country Fine Jewelry
Group, Inc. and Fleet Precious Metals, Inc.
10.8 Amended and Restated Consignment Agreement dated as of *9*(10.10)
May 14, 1993, by and among Town & Country Corporation, L.G. Balfour
Company, Inc., Gold Lance, Inc., and Town & Country Fine Jewelry
Group, Inc. and Rhode Island Hospital Trust National Bank.
10.9 Amended and Restated Consignment Agreement dated as of *9*(10.11)
May 14, 1993, by and among Town & Country Corporation, L.G.
Balfour Company, Inc., Gold Lance, Inc., and Town & Country Fine
Jewelry Group, Inc. and ABN Amro Bank, N.V.
10.10 Amended and Restated Consignment Agreement dated as of *9*(10.12)
May 14, 1993, by and among Town & Country Corporation, L.G. Balfour
Company, Inc., Gold Lance, Inc. and Town & Country Fine Jewelry
Group, Inc. and Republic National Bank of New York.
10.11 Loan Agreement dated as of May 14, 1993, by and among Town & *9*(10.15)
Country Corporation, L.G. Balfour Company, Inc., Gold Lance, Inc., and
Town & Country Fine Jewelry Group, Inc. and Foothill Capital Corporation.
10.12 Form of letter dated as of November 4, 1994, to Certain Holders of Town Previously
& Country Exchangeable Preferred Stock from Town & Country Filed
relating to the offer by Town & Country to issue shares
of Convertible Preferred Stock.
10.13 Form of Registration Rights Agreement dated as of November 23, 1994 Previously
between Town & Country Corporation and the holders of Town & Filed
Country Convertible Preferred Stock signatory thereto.
10.14 Letter Agreement dated as of November 15, 1994 by and among Previously
Town & Country Corporation, L.G. Balfour Company, Inc., Gold Lance, Filed
Inc. and Town & Country Fine Jewelry Group, Inc. and Fleet Precious
Metals, Inc., Rhode Island Hospital Trust National Bank, ABN-AMRO Bank,
N.V. and Republic National Bank of New York.
10.15 Registration Effectiveness Agreement dated as of May 14, 1993, *9*(10.23)
between Town & Country Corporation and Certain Funds managed
by Fidelity Management & Research Company.
II-4
</TABLE>
<PAGE> 44
<TABLE>
<S> <C> <C>
10.16 Collateral Agency and Intercreditor Agreement dated as of *9*(10.16)
May 14, 1993, between Town & Country Corporation, Town &
Country Fine Jewelry Group, Inc., Gold Lance, Inc., L.G. Balfour
Company, Inc., Foothill Capital Corporation, Fleet Precious Metals,
Inc., Rhode Island Hospital Trust National Bank, Republic National
Bank, ABN AMRO Bank, N.V., Bankers Trust Company, Shawmut
Bank, N.A., and Chemical Bank.
10.17 1994 Non-Employee Directors' Non-Qualified Stock Option Plan of *10*(10.44)
Town & Country Corporation.
10.18 1995 Stock Option and Incentive Plan of Town & Country Corporation *11*(8)
10.19 Fourth Amendment to the Amended and Restated Consignment *12*(10.1)
Agreement dated as of August 27, 1995 by and between Town & Country
Corporation, L.G. Balfour Company, Inc., Gold Lance, Inc. and
Town & Country Fine Jewelry Group, Inc. and Rhode Island Hospital Trust
National Bank.
10.20 Amendment Number Five to Loan Agreement dated as of November 1, 1995 *12*(10.2)
by and between Town & Country Corporation, L.G. Balfour Company, Inc.,
Gold Lance, Inc. and Town & Country Fine Jewelry Group, Inc. and
Foothill Capital Corporation.
10.21 Assignment, Consolidation, Amendment and Restatement to the Lease *13*(10.4)
Agreement between Town & Country Corporation, Fine Jewelry Group,
Inc. and Carey Realty Trust dated as of March 1, 1996.
10.22 Loan Agreement among Town & Country Corporation, Town & Country *14*(10.1)
Fine Jewelry Group, Inc., Gold Lance, Inc., L.G. Balfour Company Inc.
and Foothill Capital Corporation dated July 3, 1996.
10.23 Second Amended and Restated Consignment Agreement by and *14*(10.2)
between Fleet Precious Metals Inc. and Town & Country Corporation,
Town & Country Fine Jewelry Group, Inc., L.G. Balfour Company and
Gold Lance, Inc. dated July 3, 1996.
10.24 Creditor Agreement by and between Foothill Capital Corporation and *14*(10.3)
Fleet Precious Metals, Inc. dated July 3, 1996.
10.25 Amended and Restated Executive Employment Agreement by and between Filed
Town & Country Corporation and C. William Carey dated July 24, 1996. Herewith
11 Earnings Per Share Computations. Previously
Filed
12.1 Historical Ratios of Earnings to Fixed Charges. Filed
Herewith
12.2 Historical Ratio of Earnings to Fixed Charges and Exchangeable Filed
Preferred Stock Dividends and Accretion. Herewith
13.1 Annual Report on Form 10-K for the fiscal year ended Previously
February 25, 1996. Filed
13.2 Annual Report on Form 10-K for the fiscal year ended Previously
February 26, 1995. Filed
</TABLE>
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<PAGE> 45
<TABLE>
<S> <C> <C>
13.3 Quarterly Report on Form 10-Q for the fiscal quarter ended Previously
May 26, 1996. Filed
13.4 Quarterly Report on Form 10-Q for the fiscal quarter ended Previously
November 26, 1995. Filed
13.5 Quarterly Report on Form 10-Q for the fiscal quarter ended Previously
August 27, 1995. Filed
13.6 Quarterly Report on Form 10-Q for the fiscal quarter ended Previously
May 28, 1995. Filed
23.1 Consent of Goodwin, Procter & Hoar LLP (included as part of Previously
Exhibit 5 hereto). Filed
23.2 Consent of Arthur Andersen LLP relating to Town & Country Filed
Corporation. Herewith
23.3 Consent of Goodwin, Procter & Hoar LLP regarding certain tax matters. Previously
Filed
24.1 Power of Attorney for Town & Country Corporation (included in Previously
Part II of this Registration Statement). Filed
27 Financial Data Schedule Filed
Herewith
99 Specimen Stock Certificate for Convertible Preferred Stock. Previously
Filed
</TABLE>
- --------------
*1* Incorporated by reference to the designated exhibit of the Registration
Statement on Form S-1 No. 2-97557 filed June 21, 1985.
*2* Incorporated by reference to the designated exhibit in the Annual Report on
Form 10-K, Commission File number 0-14394 filed May 26, 1987.
*3* Incorporated by reference to the designated exhibit in the Annual Report on
Form 10-K, Commission File number 0-14394 filed May 18, 1988.
*4* Incorporated by reference to the designated exhibit in the Annual Report on
Form 10-K, Commission File number 0-14394 filed May 26, 1989.
*5* Incorporated by reference to the designated exhibit in the Annual Report on
Form 10-K, Commission File number 0-14394 filed May 25, 1990.
*6* Incorporated by reference to the designated exhibit in the Annual Report on
Form 10-K, Commission File number 0-14394 filed June 13, 1991.
*7* Incorporated by reference to the designated exhibit in the Current Report
on Form 8-K, Commission File number 0-14394 filed November 21, 1991.
*8* Incorporated by reference to the designated exhibit of the Annual Report on
Form 10-K, Commission File number 0-14394 filed July 6, 1992.
*9* Incorporated by reference to the designated exhibit of the Annual Report on
Form 10-K, Commission File number 0-14394 filed May 28, 1993.
II-6
<PAGE> 46
*10* Incorporated by reference to the designated exhibit of the Annual Report on
Form 10-K, Commission File number 0-014394 filed May 25, 1995.
*11* Incorporated by reference to the designated exhibit of the Annual Proxy on
Form 14-A, Commission File number 0-014394 filed June 26, 1995.
*12* Incorporated by reference to the designated exhibit of the Quarterly Report
on Form 10-Q, Commission File number 0-014394 filed January 11, 1996.
*13* Incorporated by reference to the designated exhibit of the Annual Report on
Form 10-K, Commission File number 0-014394 filed June 14, 1996.
*14* Incorporated by reference to the designated exhibit of the Quarterly Report
on Form 10-Q, Commission File number 0-014394 filed July 9, 1996.
#1# Incorporated by reference to the designated exhibit of the Registration
Statement on Form S-2 No. 33-25092 filed October 20, 1988.
#2# Incorporated by reference to the designated exhibit of Amendment No. 1 to
the Registration Statement on Form S-2 No. 33-25092 filed November 8, 1988.
#3# Incorporated by reference to the designated exhibit of Amendment No. 2 to
the Registration Statement on Form S-2 No. 33-25437 filed December 12,
1988.
#4# Incorporated by reference to the designated exhibit of Post-Effective
Amendment No. 2 to the Registration Statement on Form S-2 No. 33-49028
filed July 26, 1994.
#5# Incorporated by reference to the designated exhibit of Amendment No. 2 to
the Registration Statement on Form S-4 No. 33-49028 filed September 15,
1992.
#6# Incorporated by reference to the designated exhibit of Amendment No. 6 to
the Registration Statement on Form S-4 No. 33-49028 filed March 12, 1993.
II-7
<PAGE> 47
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes as follows:
(a) The undersigned registrant hereby undertakes:
(i) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(A) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(B) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement.
(C) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(ii) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(iii) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
(iv) If the registrant is a foreign private issuer, to file a
post-effective amendment to the registration statement to include any
financial statements required by Rule 3-19 of Regulation S-X at the
start of any delayed offering or throughout a continuous offering.
Financial statements and information otherwise required by Section
10(a)(3) of the Act need not be furnished, provided, that the
registrant includes in the prospectus, by means of a post-effective
amendment, financial statements required pursuant to this paragraph
(a)(iv) and other information necessary to ensure that all other
information in the prospectus is at least as current as the date of
those financial statements.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-8
<PAGE> 48
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Chelsea, State of
Massachusetts, on August 28, 1996.
TOWN & COUNTRY CORPORATION
By:
/s/ Francis X. Correra
-----------------------------------
Francis X. Correra
Senior Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities of 1933, this Amendment No.
3 to Registration Statement has been duly signed by the following persons in the
capacities and on the date set forth above.
Signature Title
--------- -----
* President, Treasurer, and August 28, 1996
- ---------------------- Director (Principal Executive
C. William Carey Officer)
/s/ Francis X. Correra Senior Vice President and August 28, 1996
- ---------------------- Chief Financial Officer
Francis X. Correra (Principal Financial and
Accounting Officer)
* Director August 28, 1996
- ----------------------
Richard E. Floor
* Director August 28, 1996
- ----------------------
Charles Hill
* Director August 28, 1996
- ----------------------
William Schawbel
* Director August 28, 1996
- ----------------------
Marcia C. Morris
*By: /s/ Francis X. Correra
----------------------
Francis X. Correra,
Attorney-in-Fact
II-9
<PAGE> 49
<TABLE>
INDEX TO EXHIBITS
-----------------
<S> <C> <C>
4.1 Certificate of Vote of Directors Establishing the Convertible *10*(4.8)
Preferred Stock, par value $1.00 per share, dated as
of November 23, 1994.
4.2 Indenture governing 13% Senior Subordinated Notes due #3#(4.2)
December 15, 1998 (the "Old 13% Notes"), dated as of December 16,
1988, from Town & Country Corporation to Bank of New England, N.A.,
as Trustee.
4.3 Supplemental Indenture relating to the Old 13% Notes, dated as *9*(4.4)
of May 14, 1993, from Town & Country Corporation to State Street
Bank and Trust Company, as Trustee.
4.4 Amended and Restated Indenture governing the Old 13% Notes, *9*(4.2)
dated as of May 14, 1993, from Town & Country Corporation to
State Street Bank and Trust Company, as Trustee.
4.5 Indenture governing 11 1/2% Senior Secured Notes due *9*(4.5)
September 15, 1997 dated as of May 14, 1993, from Town &
Country Corporation to Shawmut Bank, N.A., as Trustee, including
form of New Senior Secured Note due September 15, 1997.
4.6 Indenture governing 13% Senior Subordinated Notes due *9*(4.6)
May 31, 1997, dated as of May 14, 1993, from Town & Country
Corporation to Bankers Trust Company, as Trustee, including
form of 13% Senior Subordinated Note due May 31, 1998.
4.7 Certificate of Vote of Directors Establishing the Exchangeable *9*(4.7)
Preferred Stock, par value $1.00 per share, dated as of May 14, 1993.
5. Opinion of Goodwin, Procter & Hoar LLP. Previously
Filed
10.1 1989 Employee Stock Purchase Plan of Town & Country Corporation #1#(10.21)
10.2 Executive Employment Agreement between Town & Country #4#(10.20)
Corporation and C. William Carey effective as of February 28, 1994.
10.3 Executive Employment Agreement between Town & Country #4#(10.21)
Corporation and Francis X. Correra effective as of February 28, 1994.
10.4 Key Man Life Insurance Policy for C. William Carey. #5#(10.22)
10.5 Form of 1993 Management Option. #6#(10.23)
10.6 Trust Agreement dated as of May 14, 1993, by and between *9*(10.22)
Town & Country Corporation and BayBank.
10.7 Amended and Restated Consignment Agreement dated as of *9*(10.9)
May 14, 1993, by and among Town & Country Corporation, L.G. Balfour
Company, Inc., Gold Lance, Inc., and Town & Country Fine Jewelry
Group, Inc. and Fleet Precious Metals, Inc.
10.8 Amended and Restated Consignment Agreement dated as of *9*(10.10)
May 14, 1993, by and among Town & Country Corporation, L.G. Balfour
Company, Inc., Gold Lance, Inc., and Town & Country Fine Jewelry
Group, Inc. and Rhode Island Hospital Trust National Bank.
10.9 Amended and Restated Consignment Agreement dated as of *9*(10.11)
May 14, 1993, by and among Town & Country Corporation, L.G.
Balfour Company, Inc., Gold Lance, Inc., and Town & Country Fine
Jewelry Group, Inc. and ABN Amro Bank, N.V.
10.10 Amended and Restated Consignment Agreement dated as of *9*(10.12)
May 14, 1993, by and among Town & Country Corporation, L.G. Balfour
Company, Inc., Gold Lance, Inc. and Town & Country Fine Jewelry
Group, Inc. and Republic National Bank of New York.
10.11 Loan Agreement dated as of May 14, 1993, by and among Town & *9*(10.15)
Country Corporation, L.G. Balfour Company, Inc., Gold Lance, Inc., and
Town & Country Fine Jewelry Group, Inc. and Foothill Capital Corporation.
10.12 Form of letter dated as of November 4, 1994, to Certain Holders of Town Previously
& Country Exchangeable Preferred Stock from Town & Country Filed
relating to the offer by Town & Country to issue shares
of Convertible Preferred Stock.
10.13 Form of Registration Rights Agreement dated as of November 23, 1994 Previously
between Town & Country Corporation and the holders of Town & Filed
Country Convertible Preferred Stock signatory thereto.
10.14 Letter Agreement dated as of November 15, 1994 by and among Previously
Town & Country Corporation, L.G. Balfour Company, Inc., Gold Lance, Filed
Inc. and Town & Country Fine Jewelry Group, Inc. and Fleet Precious
Metals, Inc., Rhode Island Hospital Trust National Bank, ABN-AMRO Bank,
N.V. and Republic National Bank of New York.
10.15 Registration Effectiveness Agreement dated as of May 14, 1993, *9*(10.23)
between Town & Country Corporation and Certain Funds managed
by Fidelity Management & Research Company.
10.16 Collateral Agency and Intercreditor Agreement dated as of *9*(10.16)
May 14, 1993, between Town & Country Corporation, Town &
Country Fine Jewelry Group, Inc., Gold Lance, Inc., L.G. Balfour
Company, Inc., Foothill Capital Corporation, Fleet Precious Metals,
Inc., Rhode Island Hospital Trust National Bank, Republic National
Bank, ABN AMRO Bank, N.V., Bankers Trust Company, Shawmut
Bank, N.A., and Chemical Bank.
10.17 1994 Non-Employee Directors' Non-Qualified Stock Option Plan of *10*(10.44)
Town & Country Corporation.
10.18 1995 Stock Option and Incentive Plan of Town & Country Corporation *11*(8)
10.19 Fourth Amendment to the Amended and Restated Consignment *12*(10.1)
Agreement dated as of August 27, 1995 by and between Town & Country
Corporation, L.G. Balfour Company, Inc., Gold Lance, Inc. and
Town & Country Fine Jewelry Group, Inc. and Rhode Island Hospital Trust
National Bank.
10.20 Amendment Number Five to Loan Agreement dated as of November 1, 1995 *12*(10.2)
by and between Town & Country Corporation, L.G. Balfour Company, Inc.,
Gold Lance, Inc. and Town & Country Fine Jewelry Group, Inc. and
Foothill Capital Corporation.
10.21 Assignment, Consolidation, Amendment and Restatement to the Lease *13*(10.4)
Agreement between Town & Country Corporation, Fine Jewelry Group,
Inc. and Carey Realty Trust dated as of March 1, 1996.
10.22 Loan Agreement among Town & Country Corporation, Town & Country *14*(10.1)
Fine Jewelry Group, Inc., Gold Lance, Inc., L.G. Balfour Company Inc.
and Foothill Capital Corporation dated July 3, 1996.
10.23 Second Amended and Restated Consignment Agreement by and *14*(10.2)
between Fleet Precious Metals Inc. and Town & Country Corporation,
Town & Country Fine Jewelry Group, Inc., L.G. Balfour Company and
Gold Lance, Inc. dated July 3, 1996.
10.24 Creditor Agreement by and between Foothill Capital Corporation and *14*(10.3)
Fleet Precious Metals, Inc. dated July 3, 1996.
10.25 Amended and Restated Executive Employment Agreement by and between Filed
Town & Country Corporation and C. William Carey dated July 24, 1996. Herewith
11 Earnings Per Share Computations. Previously
Filed
12.1 Historical Ratios of Earnings to Fixed Charges. Filed
Herewith
12.2 Historical Ratio of Earnings to Fixed Charges and Exchangeable Filed
Preferred Stock Dividends and Accretion. Herewith
13.1 Annual Report on Form 10-K for the fiscal year ended Previously
February 25, 1996. Filed
13.2 Annual Report on Form 10-K for the fiscal year ended Previously
February 26, 1995. Filed
13.3 Quarterly Report on Form 10-Q for the fiscal quarter ended Previously
May 26, 1996. Filed
13.4 Quarterly Report on Form 10-Q for the fiscal quarter ended Previously
November 26, 1995. Filed
13.5 Quarterly Report on Form 10-Q for the fiscal quarter ended Previously
August 27, 1995. Filed
13.6 Quarterly Report on Form 10-Q for the fiscal quarter ended Previously
May 28, 1995. Filed
23.1 Consent of Goodwin, Procter & Hoar LLP (included as part of Previously
Exhibit 5 hereto). Filed
23.2 Consent of Arthur Andersen LLP relating to Town & Country Filed
Corporation. Herewith
23.3 Consent of Goodwin, Procter & Hoar LLP regarding certain tax matters. Previously
Filed
24.1 Power of Attorney for Town & Country Corporation (included in Previously
Part II of this Registration Statement). Filed
27 Financial Data Schedule Filed
Herewith
99 Specimen Stock Certificate for Convertible Preferred Stock. Previously
Filed
<FN>
- --------------
*1* Incorporated by reference to the designated exhibit of the Registration
Statement on Form S-1 No. 2-97557 filed June 21, 1985.
*2* Incorporated by reference to the designated exhibit in the Annual Report on
Form 10-K, Commission File number 0-14394 filed May 26, 1987.
*3* Incorporated by reference to the designated exhibit in the Annual Report on
Form 10-K, Commission File number 0-14394 filed May 18, 1988.
*4* Incorporated by reference to the designated exhibit in the Annual Report on
Form 10-K, Commission File number 0-14394 filed May 26, 1989.
*5* Incorporated by reference to the designated exhibit in the Annual Report on
Form 10-K, Commission File number 0-14394 filed May 25, 1990.
*6* Incorporated by reference to the designated exhibit in the Annual Report on
Form 10-K, Commission File number 0-14394 filed June 13, 1991.
*7* Incorporated by reference to the designated exhibit in the Current Report
on Form 8-K, Commission File number 0-14394 filed November 21, 1991.
*8* Incorporated by reference to the designated exhibit of the Annual Report on
Form 10-K, Commission File number 0-14394 filed July 6, 1992.
*9* Incorporated by reference to the designated exhibit of the Annual Report on
Form 10-K, Commission File number 0-14394 filed May 28, 1993.
*10* Incorporated by reference to the designated exhibit of the Annual Report on
Form 10-K, Commission File number 0-014394 filed May 25, 1995.
*11* Incorporated by reference to the designated exhibit of the Annual Proxy on
Form 14-A, Commission File number 0-014394 filed June 26, 1995.
*12* Incorporated by reference to the designated exhibit of the Quarterly Report
on Form 10-Q, Commission File number 0-014394 filed January 11, 1996.
*13* Incorporated by reference to the designated exhibit of the Annual Report on
Form 10-K, Commission File number 0-014394 filed June 14, 1996.
*14* Incorporated by reference to the designated exhibit of the Quarterly Report
on Form 10-Q, Commission File number 0-014394 filed July 9, 1996.
#1# Incorporated by reference to the designated exhibit of the Registration
Statement on Form S-2 No. 33-25092 filed October 20, 1988.
#2# Incorporated by reference to the designated exhibit of Amendment No. 1 to
the Registration Statement on Form S-2 No. 33-25092 filed November 8, 1988.
#3# Incorporated by reference to the designated exhibit of Amendment No. 2 to
the Registration Statement on Form S-2 No. 33-25437 filed December 12,
1988.
#4# Incorporated by reference to the designated exhibit of Post-Effective
Amendment No. 2 to the Registration Statement on Form S-2 No. 33-49028
filed July 26, 1994.
#5# Incorporated by reference to the designated exhibit of Amendment No. 2 to
the Registration Statement on Form S-4 No. 33-49028 filed September 15,
1992.
#6# Incorporated by reference to the designated exhibit of Amendment No. 6 to
the Registration Statement on Form S-4 No. 33-49028 filed March 12, 1993.
</TABLE>
<PAGE> 1
EXHIBIT 10.25
AMENDED AND RESTATED
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
This Executive Employment Agreement (the "Agreement") is effective as of
March 1, 1996 and is made between TOWN & COUNTRY CORPORATION, a Massachusetts
corporation (the "Company"), TOWN & COUNTRY FINE JEWELRY GROUP, INC., a wholly
owned subsidiary of the Company, and C. WILLIAM CAREY (the "Employee"). This
Agreement amends and restates the Executive Employment Agreement dated as of
February 28, 1994 between the Company and the Employee.
I. EMPLOYMENT
----------
The Company agrees to employ the Employee and the Employee agrees to
continue to serve the Company upon the terms and conditions set forth in this
Agreement for the period commencing on February 28, 1994 and ending on February
28, 2001 (the "Term"). The Employee agrees during the Term to devote
substantially all of his time and best efforts to the business and affairs of
the Company and to the performance of his duties under this Agreement provided,
however, that this Agreement shall not prevent the Employee from acting as a
consultant to other business entities from time to time, including for the
entities specifically identified in Section VI(f), so long as such consulting
activities do not require the Employee to devote more than ten percent (10%) of
his actual working time during the Company's normal business hours to said
consulting activities. The Employee may devote as much time as he desires to
consulting activities during off hours, weekends, holidays and vacations.
The Employee shall serve, during the Term, as Chairman of the Board,
President and Chief Executive Officer and in such other senior executive
management position(s) with the Company and any subsidiary of the Company as the
Board of Directors of the Company may determine from time to time. The Employee
shall report to the Board of Directors of the Company.
II. COMPENSATION
------------
(a) BASE SALARY. The Company agrees to pay the Employee an annual base
salary (the "Base Salary") of Nine Hundred Seventy-Five Thousand Dollars
($975,000) for the Company's 1997 fiscal year and each fiscal year thereafter
during the Term, provided, however, that the Company's Board of Directors may
request that the Employee voluntarily reduce his Base Salary. The Employee
hereby agrees to voluntarily reduce his Base Salary for fiscal year 1997 to
Seven Hundred and Fifty Thousand Dollars ($750,000).
(b) COMPANY STOCK OPTIONS. If the Employee voluntarily agrees to reduce his
Base Salary from Nine Hundred Seventy Five Thousand Dollars ($975,000), then for
each twelve month period during which such reduction is in effect the Employee
will receive a non-qualified stock option for the purchase of shares of common
stock $.01, par value, of the Company (the "Common Stock"), in the amount of
shares equal to the quotient of (i) the amount of the
<PAGE> 2
reduction, divided by (ii) the fair market value of the Common Stock at the time
that such reduction becomes effective. With respect to each salary reduction
that continues from a preceding fiscal year, such salary reduction shall be
deemed effective as of the first day of each fiscal year during such
continuation. The Company acknowledges that the Employee has voluntarily reduced
his salary for periods prior to the effective date of this Agreement, as set for
on EXHIBIT A attached hereto, and the Company agrees to grant the Employee stock
options, for each such period, based on the preceding formula. All stock options
granted to the Employee by the Company pursuant to this Section II(b) will be
wholly contingent on the approvals, if required, of the Company's shareholders
and will be immediately exercisable by the Employee in full.
(c) ANNUAL BONUS. During the Term, the Employee shall receive an annual
bonus payment of up to a maximum of one-hundred and fifty percent (150%) of his
base salary.
The annual bonus shall be determined for each year of the Term in
accordance with the guidelines set forth in EXHIBIT B hereto. The annual bonus
or any proration thereof shall be paid at the earlier of: (a) completion of the
audit of the Company's financial statements with respect to the bonus period by
its independent accounting firm, or (b) May 15 of the following fiscal year.
(d) TRANSACTION FEE. Upon the sale or merger of all or substantially all of
the assets or stock of L.G. Balfour Company, Inc. the Company shall pay to the
Employee a transaction fee (the "Transaction Fee"). The Transaction Fee will be
an amount equal to two and one-half percent (2.5%) of any Profit (as hereafter
defined) over Book Value (as hereafter defined) received in connection with such
sale or merger. "Profit" shall mean the gross sales proceeds less direct out of
pocket transaction costs (such as legal and accounting costs and institutional
banking fees); provided that any non-cash proceeds shall be valued at the fair
market value of such proceeds, as determined in good faith by the investment
banking firm involved in such transaction, or, if no investment banking firm is
involved, by the Company's Board of Directors. "Book Value" shall mean
$23,134,922, which is the book value of L.G. Balfour Company, Inc., as of the
end of the Company's 1994 fiscal year.
(e) EXPENSES. During the Employee's employment pursuant to this Agreement,
the Employee is authorized to incur reasonable expenses in accordance with the
policies and procedures established by the Company from time to time generally
for its senior executive officers in connection with and for the promotion of
the business of the Company (including, but not limited to, expenses for meals,
lodging, transportation, telephone and entertainment) as are incurred from time
to time by Employee. The Company shall reimburse the Employee for all such
expenses upon proper accounting therefor in accordance with Company policy.
(f) AUTOMOBILE. The Company shall provide Employee with the sole and
exclusive use of an automobile. The automobile provided at the commencement of
the Term shall be a new automobile of make and model equivalent to the Company
automobile which was provided to Employee for his use immediately preceding
commencement of this Agreement. On or before three (3) years thereafter, the
Company shall provide a new automobile of equivalent grade. Employee shall have
the right to purchase the automobile provided at the commencement of the Term
from the Company upon its replacement at its then depreciated book value, or if
a leased
Pg 2
<PAGE> 3
automobile the depreciated book value as if the Company had purchased it at the
beginning of the lease term.
(g) EMPLOYEE BENEFIT PLANS. The Employee shall be eligible to participate
in all employee benefits plans maintained generally by the Company from time to
time for the benefit of its senior executive officers.
(h) VACATION. The Employee shall be entitled to paid vacations of such
duration and at such time or times as shall be deemed reasonable by the Board,
but not less than six (6) weeks per fiscal year. In addition, the Employee shall
be entitled to all paid holidays given by the Company generally to its senior
executive officers.
(i) PERQUISITES. The Employee shall be entitled to receive all perquisites
and fringe benefits consistent with the practice of the Company generally for
senior executive officers, and including a continuation of the existing
split-dollar life insurance policy in the face amount of Two Million Dollars
($2,000,000).
(j) RESPONSIBLE PARTY. The parties to this Agreement expressly acknowledge
and agree that Town and Country Fine Jewelry Group, Inc., the Company's wholly
owned subsidiary, shall be responsible for paying to the Employee the
compensation set forth in this Section II and in Section III and that it shall
also be responsible for the costs of the benefits to be provided to the Employee
as set forth in this Section II and in Section III.
III. TERMINATION
-----------
(a) TERMINATION WITH CAUSE. The Company may terminate Employee's employment
pursuant to this Agreement upon written notice "With Cause."
(1) Definition. "With Cause" shall be defined as follows:
----------
(i) The Employee's deliberate and continued failure to
substantially perform his duties under this Agreement after
written demand for substantial performance is delivered by
the Company specifically identifying the manner in which the
Company believes the Employee has not substantially
performed his duties and the Employee fails to correct or
cure the situation after being given a reasonable time (not
to exceed thirty (30) days) to do so; or
(ii) The Employee's willful misconduct which is materially
injurious to the Company, monetarily or otherwise (which
includes but is not limited to any act of willful dishonesty
by the Employee to the Board of Directors or any committee
of the Board of Directors or the conviction of the Employee
for any felony). For purposes of this subparagraph (ii), an
act or failure to act on the Employee's part shall be
considered "willful" only if done, or omitted to be done, by
him in bad faith and with reasonable belief that his actions
or omission was not in the best interests of the Company.
Pg 3
<PAGE> 4
(2) NOTICE. The Employee shall not be deemed to have been terminated
With Cause unless and until there shall have been delivered to the Employee
a copy of a resolution, duly adopted by the affirmative vote of not less
than three-quarters (3/4) of the entire membership of the Board of
Directors. The Board of Directors shall provide reasonable notice to the
Employee and an opportunity for him, together with his counsel, to be heard
before the Board of Directors prior to the Board's final decision regarding
termination With Cause.
(3) COMPENSATION. Upon termination of the Employee's employment by the
Company With Cause, the Company shall have no further obligations under
Section II, except that:
(i) The Company shall pay the Employee his Base Salary and
accrued vacation through the date of termination and any
benefits under Section II(e), (f), (g) or (i) accrued but
unpaid as of the date of termination; and
(ii) The Company shall pay the Employee a pro rata allocation of
any annual bonus earned prior to the effective date of
termination, determined, calculated and paid in accordance
with the requirements of Section II(c).
(iii) The Company shall eliminate the collateral assignment on
the split-dollar life insurance policy (II(i) above), and
transfer to the employee the company's portion of the
policy's of cash surrender value.
(b) TERMINATION WITHOUT CAUSE. The Company may terminate the Employee's
employment upon written notice for reasons other than With Cause. Upon
termination of the Employee's employment by the Company for other than With
Cause, the Company shall have no further obligations under Section II, except
that:
(i) The Company shall pay the Employee his Base Salary and accrued
vacation through the date of termination and any benefits under
Section II(e), (f), (g) or (i) accrued but unpaid as of the date
of termination;
(ii) The Company shall pay the Employee a pro rata allocation of any
annual bonus earned prior to the effective date of termination,
determined, calculated and paid in accordance with the
requirements of Section II(c);
(iii) in lieu of any further payment of salary or annual bonus, the
Company shall pay as severance an amount equal to the product of
(A) an amount equal to the sum of the annual base salary then in
effect plus fifty percent (50%) of the highest annual bonus
compensation paid to the Employee or accrued by the Employee
Pg 4
<PAGE> 5
during the Term multiplied by (B) the greater of three (3) years
or the number of years (including a fraction for that portion of
any partial year remaining) that would remain in the Term if the
Agreement had not been terminated. The severance payments shall,
at the option of the Employee, be paid: (1) in equal monthly
installments over the remaining Term of the Agreement; or (2) be
paid in a lump sum upon the effective date of termination, in an
amount discounted to present value;
(iv) The Company shall provide the Employee with the opportunity to
purchase the automobile provided pursuant to Section II(f) at its
depreciated book value as of the date of termination; and
(v) The Company shall continue to maintain for the benefit of
Employee and his family at Company expenses the same health
insurance coverage in effect for the Company's employees as of
the termination date, and shall keep in force at its own expense
any life insurance previously provided by the Company on the life
of the Employee for which the Employee has the right to designate
the beneficiary, which health and life insurance coverage shall
be maintained until the earlier to occur of the expiration of the
Term of this Agreement or Employee obtaining other employment
through which he is entitled to obtain equivalent health and life
insurance benefits without additional cost to himself.
(vi) All stock options granted pursuant to the Option Agreement shall,
at the Employee's election, be accelerated to and fully vested as
of the date of termination.
(vii) The Company shall eliminate the collateral assignment on the
split-dollar life insurance policy (II(i) above), and transfer to
the employee the company's portion of the policy's of cash
surrender value.
(c) TERMINATION OF EMPLOYMENT BY EMPLOYEE WITH GOOD REASON.
The Employee may terminate his employment With Good Reason at any time.
(1) DEFINITION. For purposes of this Agreement, "With Good Reason"
shall be defined as:
(i) Any change in control of the Company, including the sale of
substantially all of the assets or stock of the Company to a
third party;
Pg 5
<PAGE> 6
(ii) The Employee's removal as Chairman of the Board of Directors
or any other change in the composition of the Board of
Directors of the Company which results in the removal,
resignation or replacement of twenty-five percent (25%) or
more of the directors, unless previously approved by the
Board of Directors then in office;
(iii) Any assignment to the Employee of any duties other than
those reasonably requested by the Board of Directors and
other than those consistent with the duties normally
associated with the positions described in Section I hereof;
(iv) Any reduction in the Employee's base salary, or any other
failure by the Company to provide the compensation agreed to
pursuant to Section II of this Agreement, except as provided
herein, approved by the employee, or required by the lenders
in writing; or
(v) Any material breach of this Agreement by the Company.
(2) NOTICE. The Employee shall provide sixty (60) days' prior written
notice to the Company of termination With Good Reason. Before a termination With
Good Reason can occur, the Employee must deliver notice to the Company
specifically identifying the manner in which the Employee believes the Company
has acted as described in Section III(c) (1) (i), (ii), (iii) or (iv), above and
the Company either (a) fails to correct or cure the situation after being given
a reasonable time to do so or (b) accelerated the date of termination. After
receiving a notice from the Employee of termination With Good Reason, the
Company may, at its option, accelerate the Employee's date of termination. Such
acceleration shall not be deemed a termination of the Employee by the Company.
"Reasonable time" for cure as used in this paragraph shall not exceed thirty
(30) days unless the Company disputes the Employee's contention that the Company
has acted as described in Section III(c) (1) (i), (ii), (iii) or (iv). In the
event that the Company disputes the Employee's contention as aforesaid, the
Company shall have the right to submit the dispute for resolution to the AAA
pursuant to Section VIII hereof, provided that the Company file its claim within
the thirty (30) day cure period. Reasonable time to correct or cure the
situation which the Employee contends falls within Section III(c) (1) (i), (ii),
(iii) or (iv) shall, if a timely claim is filed, extend up to and through the
decision of the AAA (as hereinafter defined) and for fifteen (15) days
thereafter.
(3) COMPENSATION. Upon termination of his employment With Good Reason,
the Employee shall receive the same compensation provided for in Section
III(b) herein above.
(d) TERMINATION OF AGREEMENT BY EMPLOYEES WITHOUT GOOD REASON. Employee may
terminate his employment Without Good Reason.
(1) DEFINITION. "Without Good Reason" shall be defined as any
termination other than one which is With Good Reason as defined in Section
III (c) (1) herein above, and
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<PAGE> 7
other than a termination which results from the Employee's disability, as
defined in Section III(e) hereinafter.
(2) NOTICE. The Employee shall provide the Company with six (6)
months' prior written notice of termination Without Good Reason. After
receiving a notice from the Employee of termination Without Good Reason,
the Company may, at its option, accelerate the Employee's date of
termination. Such acceleration shall not be deemed a termination of the
Employee by the Company.
(3) COMPENSATION. Upon termination of his employment Without Good
Reason, the Employee shall receive the same compensation provided for in
Section III(a)(3).
(e) CONTINUATION OF MEDICAL BENEFITS. With respect to any termination of
the Employee's employment other than for gross misconduct, the Employee shall be
eligible to continue to participate at the Employee's expense in the Company's
health insurance plan for a period of sixty (60) months from the date of
termination.
(f) DISABILITY. In the event that the Employee shall become disabled (as
hereinafter defined), the Company shall have the right to terminate the
Employee's employment upon written notice. In such event, the Company shall pay
the Employee twelve (12) months' salary at the rate then applicable to the
Employee and the Company shall continue to participate in all employee benefit
plans on the same basis as if he were employed for that twelve (12) month
period, to the extent permitted by the applicable health and life plan and the
applicable law, and the Company shall continue to provide at its expense the
insurance called for in Section II(g) and (i) hereof. For purposes of this
Agreement, the Employee shall be considered disabled on the date when any
physical or mental illness or other incapacity shall, in the judgment of a
majority of the members (other than the Employee) of the Board of Directors,
after consulting with or being advised by one or more physicians (it being
understood that one of such physicians may be the Employee's physician but that
the Board shall not be bound by his views), have prevented the performance in a
manner reasonably satisfactory to the Company of the Employee's duties under
this Agreement for a period of twelve (12) consecutive months. The Employee
shall provide to the Company or to a physician designated by the Company such
evidence of disability or incapacity as the Company shall reasonably request.
(g) DEATH. This Agreement shall automatically terminate upon the death of
the Employee. The Company shall have no further obligations under Section II,
except that the Company shall pay to the Employee's estate any salary and
accrued vacation and all benefits accrued but unpaid as of the date of
Employee's death, all benefits established for or concerning the death of the
Employee, and all stock options previously vested in Employee.
(h) SEVERANCE UPON EXPIRATION OF THIS AGREEMENT. Upon expiration of this
Agreement, or extension hereof, if the parties do not agree upon a new
employment contract within 30 days of the expiration, or if company does not
agree to extend an equivalent contract on a year-to-year basis, within 30 days
of the expiration, and if the Employee's employment with the
Pg 7
<PAGE> 8
Company subsequently terminates the Company shall provide the following
severance package to the Employee:
(1) An amount which is equal to twice the average of the total
base salary, in the amounts set forth herein prior to any salary reduction, and
bonus compensation earned by Employee in the two fiscal years immediately
preceding termination; payable at the option of Employee in twenty-four (24)
equal monthly installments commencing on the termination date or in a lump sum
(discounted to present value) payable on the termination date; and
(2) Continuation of medical benefits at the Company's expense
until the earlier to occur of Employee's employment with another person or
entity or the expiration of five (5) years from the termination date.
IV. REPRESENTATION OF THE EMPLOYEE
------------------------------
The Employee represents and warrants to the Company that this Agreement
constitutes a valid and binding obligation enforceable to the best of his
knowledge against him in accordance with its terms, that his obligations under
this Agreement are not in conflict with his obligations and liabilities to any
other person, firm or corporation, and that there are no liabilities or claims
pending or threatened against him which might prevent him from performing any of
his obligations under this Agreement in any material respect.
V. NON-DISCLOSURE COVENANT
-----------------------
The Company and the Employee understand and acknowledge that in order to
enable the Employee to properly perform his duties under this Agreement, the
Company must and will necessarily entrust the Employee with trade secrets and
confidential information including, without limitation, trade secrets and
confidential information relating to product technology engineering and
production methods, processes and techniques, know-how, pricing policies, market
studies and strategies, customer lists, special needs and characteristics of the
Company's customers, and other aspects of the Company's business. The Company
and the Employee understand and acknowledge that the development and/or
acquisition of trade secrets and confidential information are the results of
great effort and expense on the part of the Company, that trade secrets and
confidential information are critical to the success and survival of the Company
and that the disclosure or use of trade secrets and confidential information
would cause the Company irreparable harm and that the Employee, in entering this
Agreement, is fully aware of the Company's need to protect trade secrets and
confidential information.
Employee agrees that, both during the Term and thereafter, he will not use
for his own benefit nor disclose to third persons any trade secrets and/or
confidential information, except to the extent that such trade secrets and/or
confidential information (a) were known to Employee prior to his employment by
the Company, (b) are authorized in writing by the Company to be used or
disclosed, (c) were in or became part of the public domain (other than through
the Employee in breach of this provision), or (d) were required to be disclosed
by a court or governmental agency.
Pg 8
<PAGE> 9
The Employee acknowledges and agrees that the Company's remedies at law
will be inadequate in case of any breach by the Employee of his obligations
under this Section V, that any breach will cause irreparable injury to the
Company within a short period of time, and that the Company shall therefore be
entitled to preliminary injunctive relief and other injunctive relief against
any such breach, in addition to such other legal and equitable remedies which
the Company may have.
VI. NONCOMPETITION AGREEMENT
------------------------
(a) NONCOMPETITION. During the Employee's employment with the Company under
this Agreement or otherwise, and for a period of two (2) years after the date of
termination of such employment (the "Termination Date"), the Employee will not,
anywhere in the United States or any territory or possession thereof or in any
foreign country in which the Company was active as of the date of the
termination of such employment: (a) compete with the Company, or any other
entity controlled by the Company (each, an "affiliate"), in the Jewelry Business
(as hereinafter defined); or (b) otherwise interfere with, disrupt or attempt to
interfere with or disrupt the relationship between the Company or any affiliate
and any customer, supplier, lessor, licensor, manufacturer, contractor, designer
or employee of the Company or any affiliate on or within two years prior to the
Termination Date. This Section VI shall have no effect if the employment of the
Employee is terminated by the Company during the Term Without Cause or is
terminated by the Employee with Good Reason.
(b) "COMPETE". The term "compete" as used in this Section VI means directly
or indirectly, or by association with any entity or business, either as a
proprietor, partner, employee, agent, consultant, director, officer, stockholder
(other than of a corporation whose stock is listed on a national securities
exchange, provided that the Employee at no time owns directly or indirectly more
than nine and nine-tenths percent (9.9%) of the outstanding voting securities of
any class of any such corporation).
(c) "JEWELRY BUSINESS". The term "Jewelry Business" as used in the Section
VI means (i) any business in which the Company or any affiliate or subsidiary is
engaged on the Termination Date and (ii) any business in which the Company or
any affiliate is actively planning to become engaged on the Termination Date and
in connection with the planning of which the Employee has had significant
involvement provided, however, that the Jewelry Business shall not include any
business that does not conduct its business primarily through the same channels
of distribution as does the Company on the Termination date.
(d) ENFORCEMENT. The Employee acknowledges that the Company will suffer
irreparable harm and substantial damages not readily ascertainable or
compensable in terms of money in the event of the breach of any of the
Employee's obligations under this Section VI. The Employee therefore agrees that
the Company shall be entitled (in addition to and not in lieu of any other
rights or remedies otherwise available to the Company) to obtain an injunction
from any court of competent jurisdiction prohibiting the breach of this Section,
and the Employee
Pg 9
<PAGE> 10
specifically submits himself to the jurisdiction and venue of the courts of The
Commonwealth of Massachusetts for the purposes of any such action.
(e) TERMINATION OF OBLIGATION. If the Company fails to make any material
payment called for under this Agreement within (30) days of the date on which
payment is due, and further fails to cure the non-payment within fourteen (14)
days thereafter upon receipt of written notice and demand, the Employee's
obligations under Section VI shall terminate, and Employee shall thereafter be
free to work, conduct business or otherwise render services with any person or
organization.
(f) Notwithstanding any of the foregoing provisions contained in this
Section VI, the Company expressly acknowledges and agrees that the Employee
shall be permitted to act as a consultant to Little Switzerland, Inc., L.S.
Wholesale, Inc. and L.G. Balfour Company, Inc., both during and at any time
following his employment by the Company pursuant to this Agreement, without
being in violation of the provisions of this Section VI.
VII. KEY MAN INSURANCE
-----------------
The Employee agrees to take such actions as may be reasonably required to
permit the Company to maintain key person life insurance on the Employee's life
in such amounts and for such periods of time as the Company deems appropriate,
with all benefits being payable to the Company. Upon payment by the Employee of
the cash surrender value, if any, of such policy and any paid but unearned
premiums for such policy, the Company will assign such policy to the Employee
upon termination of the Employee's employment with the Company.
VIII. ARBITRATION
-----------
Any and all disputes arising out of this Agreement shall be resolved by the
American Arbitration Association ("AAA"). Such arbitration shall take place in
Boston, Massachusetts, and shall be conducted by three arbitrators in accordance
with the then existing Rules of the American Arbitration Association. The costs
of such arbitration (excluding each party's legal fees and expenses) shall be
shared equally by the parties thereto unless the arbitrators shall expressly
determine otherwise.
IX. MISCELLANEOUS.
-------------
(a) ASSIGNMENT. This Agreement involves the rendering of unique personal
services by the Employee and may not be assigned by the Company or the Employee,
except that, in case of any merger or consolidation involving the Company or the
sale or exchange by the Company of all or a substantial part of its business or
assets, the Company shall have the right to assign this Agreement to the
surviving, resulting or transferee corporation, in case of a merger or
consolidation or to the transferee corporation in case of a sale or exchange,
subject to the requirements of Section IX(b) of this Agreement. This Agreement
and all the rights and benefits due to the Employee hereunder shall inure to the
benefit of, and be enforceable by, the Employee's personal or legal
representatives, executors, administrators, successors, heirs, distributee,
devisees and legatees.
Pg 10
<PAGE> 11
(b) SUCCESSORS. In connection with any successor transaction, the Company
shall cause any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets, the Company, to assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain the
successor's agreement specified in this paragraph shall be a breach of this
Agreement and shall entitle the Employee to all compensation, stock options and
other benefits from the Company in the same amount and on the same terms he
would be entitled to hereunder if he terminated his employment With Good Reason.
For purposes or implementing the foregoing, a date of at least seven (7) days
prior to the date on which any such succession becomes effective shall be deemed
the date of termination in the event that the Company fails to comply with its
obligation to obtain an agreement from its successor prior to that date as
specified herein.
(c) MODIFICATION. This Agreement shall not be modified or amended except in
writing signed by both the Company and the Employee.
(d) NOTICES. Any notices required to be given hereunder shall be deemed
sufficiently given when sent by registered mail or certified mail to the Company
at 25 Union Street, Chelsea, Massachusetts 02150 and to the Employee at Town &
Country Corporation, 25 Union Street, Chelsea, Massachusetts 02150 or as either
party may hereafter communicate to the other by notice given as herein
prescribed.
(e) SEVERABILITY. If any provision of this Agreement or its application to
any person or circumstance is invalid or unenforceable, then the remainder of
this Agreement or the application of such provision to other persons or
circumstances shall not be affected thereby.
(f) INTEGRATION. This Agreement constitutes the entire agreement between
the parties with respect to the subject matter hereof and supersedes all prior
agreements with respect to such subject matter between the parties.
(g) GOVERNING LAW. This Agreement shall be interpreted and enforced in
accordance with, and shall be governed in all respects by, the laws of The
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date(s) set forth below.
TOWN & COUNTRY CORPORATION
By:
---------------------------------
Title:
TOWN & COUNTRY FINE JEWELRY
GROUP, INC.
By:
---------------------------------
Title:
---------------------------------
C. William Carey
Pg 11
<PAGE> 1
EXHIBIT 12.1
TOWN & COUNTRY CORPORATION AND SUBSIDIARIES
<TABLE>
HISTORICAL RATIOS OF EARNINGS TO FIXED CHARGES
Historical Ratio of Earnings to Fixed Charges
(in thousands)
<CAPTION>
Fiscal Year Ended Three Months Ended
(Unaudited) (Unaudited)
--------------------------------------------------- ------------------
2/29/92 2/28/93 2/27/94 2/26/95 2/25/96 5/28/95 5/26/96
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed charges:
Interest expense (including
amortization of debt
discount and expense).. $ 25,067 $ 20,093 $14,045 $12,170 $13,154 $3,156 $ 3,159
Interest element of
rental expense......... 338 430 363 528 640 137 183
-------- -------- ------- ------- ------- ------ -------
Total....................... $ 25,405 $ 20,523 $14,408 $12,698 $13,794 $3,293 $ 3,342
======== ======== ======= ======= ======= ====== =======
Earnings:
Net income (loss)........... $(19,018) $(47,296) $ 3,138 $ 572 (1,866) $ (514) $(1,854)
Extraordinary gain.......... (726) -- -- -- -- -- --
Equity in net income of
Little Switzerland(1).. (1,487) (1,914) (1,106) 588 -- -- --
Provision for income
taxes.................. 3,252 956 1,010 1,758 164 216 80
Fixed charges............... 25,405 20,523 14,408 12,698 13,794 3,293 3,342
-------- -------- ------- ------- ------- ------ -------
Total....................... $ 7,426 $(27,731) $17,450 $15,616 $12,092 $2,995 $ 1,568
======== ======== ======= ======= ======= ====== =======
Ratio of earnings to
fixed charges(2)....... .29x -- 1.21x 1.23x .88x .91x .47x
<FN>
- --------------------------
(1) Reflects equity in net income of Little Switzerland, Inc. subsequent to the
sale by the Company of 68% of its ownership interest. (See Note 5 of Notes
to fiscal 1996 Consolidated Financial Statements.)
(2) Calculated by dividing total earnings by total fixed charges for the
period. For the years ended February 29, 1992, February 28, 1993 and
February 25, 1996, the Company's earnings before fixed charges were
insufficient to cover fixed charges by approximately $18.0 million, $48.3
million and $1.7 million, respectively. For the three months ended May 28,
1995 and May 26, 1996, the Company's earnings before fixed charges were
insufficient to cover fixed charges by approximately $300,000 and $1.8
million, respectively.
</TABLE>
<PAGE> 1
EXHIBIT 12.2
TOWN & COUNTRY CORPORATION AND SUBSIDIARIES
<TABLE>
HISTORICAL RATIO OF EARNINGS TO FIXED CHARGES,
EXCHANGEABLE PREFERRED STOCK DIVIDENDS AND ACCRETION
AND CONVERTIBLE PREFERRED STOCK DIVIDENDS
<CAPTION>
Historical
----------
Fiscal Year Ended Three Months Ended
February 25, 1996 May 26, 1996
(Unaudited) (Unaudited)
----------------- ------------------
<S> <C> <C>
Fixed charges:
Interest expense (including amortization of
debt discount and expense).................. $ 13,154 $ 3,159
Interest element of rental expense.............. 640 183
-------- -------
Total fixed charges............................. 13,794 3,342
Dividends on Convertible Preferred Stock........ -- --
Accretion of discount and dividends on
Exchangeable Preferred Stock................ 1,040 223
-------- -------
Total fixed charges and preferred stock
accretion of discount and dividends......... $ 14,834 $ 3,565
======== =======
Earnings:
Net loss attributable to common stockholders.... $ (2,906) $(2,078)
Provision for income taxes...................... 164 80
Fixed charges and preferred stock dividends..... 14,834 3,565
-------- -------
Total $ 12,092 $ 1,567
======== =======
Ratio of total earnings to fixed charges and
preferred stock dividends(1)................ .82x .44x
<FN>
- ---------------
(1) Calculated by dividing total earnings by total fixed charges and preferred
stock accretion of discount and dividends for the period. For the year
ended February 25, 1996, the Company's earnings before fixed charges and
preferred stock accretion of discount and dividends were insufficient to
cover fixed charges by approximately $2.7 million. For the three months
ended May 26, 1996, the Company's earnings before fixed charges and
preferred stock accretion of discount and dividends were insufficient to
cover fixed charges by approximately $2 million. The Company assumed no tax
provision on the preferred stock dividends.
</TABLE>
<PAGE> 1
EXHIBIT 23.2
TOWN & COUNTRY CORPORATION AND SUBSIDIARIES
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement of our reports dated May 17, 1996
included in Town & Country Corporation's Form 10-K for the year ended February
25, 1996 and to all references to our Firm included in this registration
statement.
Arthur Andersen LLP
Boston, Massachusetts
August 28, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000768608
<NAME> ROBERT C. MACCREADY
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-23-1997
<PERIOD-START> FEB-26-1996
<PERIOD-END> MAY-26-1996
<EXCHANGE-RATE> 1
<CASH> 4,502,093
<SECURITIES> 0
<RECEIVABLES> 58,216,594
<ALLOWANCES> 2,231,000
<INVENTORY> 83,719,033
<CURRENT-ASSETS> 147,025,436
<PP&E> 84,684,583
<DEPRECIATION> 44,847,311
<TOTAL-ASSETS> 209,000,891
<CURRENT-LIABILITIES> 51,645,747
<BONDS> 92,708,986
<COMMON> 2,283,132
1,977,905
245,930
<OTHER-SE> 53,793,487
<TOTAL-LIABILITY-AND-EQUITY> 209,000,891
<SALES> 58,264,124
<TOTAL-REVENUES> 58,264,124
<CGS> 38,065,900
<TOTAL-COSTS> 38,065,900
<OTHER-EXPENSES> 18,705,357
<LOSS-PROVISION> 270,169
<INTEREST-EXPENSE> 3,026,151
<INCOME-PRETAX> (1,774,418)
<INCOME-TAX> 80,025
<INCOME-CONTINUING> (1,854,443)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,077,571)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
