<PAGE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period Commission File
ended July 4, 1998 Number 0-20001
NATIONAL VISION ASSOCIATES, LTD.
(Exact name of registrant as specified in its charter)
GEORGIA 58-1910859
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
296 Grayson Highway 30045
Lawrenceville, Georgia (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (770) 822-3600
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
----- -----
The number of shares of Common Stock of the registrant outstanding as
of July 16, 1998 was 21,141,610.
The Exhibit Index is located at page 14.
Page 1 of 15
<PAGE>
<PAGE>
NATIONAL VISION ASSOCIATES, LTD.
FORM 10-Q INDEX
Page of
Form 10-Q
---------
PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets -
January 3, 1998 and July 4, 1998 3
Condensed Consolidated Statements of Operations -
Three Months Ended June 28, 1997 and July 4, 1998,
and Six Months Ended June 28, 1997 and July 4, 1998 4
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 28, 1997 and July 4, 1998 5
Notes to Condensed Consolidated Financial Statements - 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9
PART II - OTHER INFORMATION
- ---------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
Page 2 of 15<PAGE>
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
January 3, 1998 and July 4, 1998
(000's except share information)
<TABLE>
<CAPTION>
January 3, July 4,
1998 1998
------------ ---------
(unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,559 $ 2,364
Accounts receivable (net of allowance: 1997-$762; 1998-$912) 6,066 8,028
Inventories 23,271 23,070
Other current assets 759 1,250
------- -------
Total current assets 32,655 34,712
------- -------
PROPERTY AND EQUIPMENT:
Equipment 44,070 46,879
Furniture and fixtures 20,366 21,090
Leasehold improvements 15,005 16,388
Construction in progress 893 1,945
------- -------
80,334 86,302
Less accumulated depreciation (36,692) (42,937)
------- -------
Net property and equipment 43,642 43,365
------- -------
OTHER ASSETS AND DEFERRED COSTS (net of accumulated amortization:
1997-$846; 1998-$954) 1,015 910
ASSIGNMENT AGREEMENT AND INTANGIBLE ASSETS (net of accumulated
amortization: 1997-$733; 1998-$1,172) 5,938 5,499
------- -------
$83,250 $84,486
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 7,252 $ 7,371
Accrued expenses and other current liabilities 12,754 9,637
Current portion long-term debt 478 483
------- -------
Total current liabilities 20,484 17,491
------- -------
REVOLVING CREDIT FACILITY - LONG TERM 19,500 16,500
LONG-TERM NOTES PAYABLE, LESS CURRENT PORTION 4,225 3,889
DEFERRED INCOME TAX LIABILITIES 2,673 2,089
<PAGE>
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $1 par value; 5,000,000 shares authorized, none issued -- --
Common stock, $.01 par value; 100,000,000 shares authorized,
20,819,955 and 21,141,610 shares issued and outstanding as
of January 3, 1998 and July 4, 1998, respectively 208 211
Additional paid-in capital 43,053 46,591
Retained Earnings (deficit) (2,820) 1,788
Cumulative foreign currency exchange rate translation (4,073) (4,073)
------- -------
Total shareholders' equity 36,368 44,517
------- -------
$83,250 $84,486
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
Page 3 of 15<PAGE>
<PAGE>
<TABLE>
<CAPTION>
NATIONAL VISION ASSOCIATES, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(000's except per share information)
(Unaudited)
Three Months Ended Six Months Ended
------------------------ -------------------------
June 28, July 4, June 28, July 4,
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $44,512 $51,037 $88,874 $105,445
COST OF GOODS SOLD 20,654 23,890 40,797 48,355
------- ------- ------- --------
GROSS PROFIT 23,858 27,147 48,077 57,090
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES 20,793 23,286 41,764 48,843
------- ------- ------- --------
OPERATING INCOME 3,065 3,861 6,313 8,247
OTHER EXPENSE, NET 391 235 879 512
------- ------- ------- --------
INCOME BEFORE PROVISION FOR
INCOME TAXES 2,674 3,626 5,434 7,735
PROVISION FOR INCOME TAXES 1,054 1,483 2,161 3,140
------- ------- ------- --------
NET INCOME $ 1,620 $ 2,143 $ 3,273 $ 4,595
======= ======= ======= ========
BASIC EARNINGS PER COMMON SHARE $ .08 $ .10 $ .16 $ .22
======= ======= ======= ========
DILUTED EARNINGS PER COMMON SHARE $ .08 $ .10 $ .16 $ .22
======= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
Page 4 of 15<PAGE>
<PAGE>
<TABLE>
<CAPTION>
NATIONAL VISION ASSOCIATES, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(000's)
Six Months Ended
-----------------------
June 28, July 4,
1997 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,273 $ 4,595
------- -------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 5,197 6,934
Provision for deferred income tax expense 639 2,711
Other (364) 29
Changes in operating assets and liabilities,
net of effects of acquisitions:
Receivables (1,261) (1,962)
Inventories 924 201
Other current assets 253 (651)
Accounts payable, accrued expenses and other current liabilities 2,348 (2,999)
------- -------
Total adjustments 7,736 4,263
------- -------
Net cash provided by operating activities 11,009 8,858
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (2,985) (5,968)
Payment for non-competition agreement (484)
Purchase of Assignment Agreement (500)
------- -------
Net cash used in investing activities (3,969) (5,968)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances on revolving credit facility 500 1,000
Repayments on revolving credit facility (7,000) (4,000)
Repayments on notes payable (331)
Proceeds from issuance of common stock 19 246
------- -------
Net cash used in financing activities (6,481) (3,085)
------- -------
NET INCREASE (DECREASE) IN CASH 559 (195)
CASH, beginning of period 1,110 2,559
------- -------
CASH, end of period $ 1,669 $ 2,364
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
Page 5 of 15<PAGE>
<PAGE>
NATIONAL VISION ASSOCIATES, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 4, 1998
(Unaudited)
(1) BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared by National Vision Associates, Ltd. (the "Company")
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations. Although management believes that the disclosures are
adequate to make the information presented not misleading, it is suggested
that these interim condensed consolidated financial statements be read in
conjunction with the Company's most recent audited consolidated financial
statements and notes thereto. In the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary for a fair
presentation of the financial position, results of operations, and cash
flows for the interim periods presented have been made. Operating results
for the interim periods presented are not necessarily indicative of the
results that may be expected for the year ending January 2, 1999. Certain
amounts in the June 28, 1997 condensed consolidated financial statements
have been reclassified to conform to the July 4, 1998 presentation.
(2) TAX SETTLEMENT
In the first quarter of 1998, the Company and the Internal Revenue
Service executed a definitive settlement agreement to settle litigation in
the U.S. Tax Court arising out of the grant and exercise of certain stock
options and a tax deduction claimed by the Company in connection therewith.
The settlement provides that the Company will receive substantially
all of the deduction it has claimed. As a result of the settlement, the
Company has reassessed the realizability of related net operating loss
carryforwards and, accordingly, reduced the related valuation allowance in
the first quarter. An after-tax benefit of $3.3 million has been recorded
as a contribution to capital and will have no impact on earnings for
financial reporting purposes.
(3) PROVISION FOR INCOME TAXES
The effective income tax rate on consolidated pre-tax income in the
second quarter of 1998 is 40.9%, which represents a tax provision of 40% on
domestic earnings. Due to the Company's current tax net operating loss
carryforward position, current year earnings will not be subject to regular
Federal Income Tax. However, the Company will be subject to Federal
Alternative Minimum Tax and state income tax, which will result in the
Company making cash payments approximating 30% of consolidated pre-tax
earnings.
Page 6 of 15<PAGE>
<PAGE>
(4) EARNINGS PER COMMON SHARE
Basic earnings per common share were computed by dividing net income
by the weighted average number of common shares outstanding during the year.
Diluted earnings per common share were computed as basic earnings per
common share, adjusted for outstanding stock options that are dilutive. The
computation for basic and diluted earnings per share may be summarized as
follows (amounts in 000's except per share information):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------ ----------------------
June 28, July 4, June 28, July 4,
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income $ 1,620 $ 2,143 $ 3,273 $ 4,595
Weighted Shares Outstanding 20,649 20,921 20,649 20,846
Basic Earnings per Share $ 0.08 $ 0.10 $ 0.16 $ 0.22
Weighted Shares Outstanding 20,649 20,921 20,649 20,846
Net Options Issued to Employees 124 547 127 396
Aggregate Shares Outstanding 20,773 21,468 20,776 21,242
Diluted Earnings per Share $ 0.08 $ 0.10 $ 0.16 $ 0.22
</TABLE>
Outstanding options with an exercise price below the average price
of the Company's common stock have been included in the computation of
diluted earnings per common share, using the treasury stock method.
(5) RELATED-PARTY TRANSACTIONS
During the three months ended June 28, 1997 and July 4, 1998, the
Company purchased its business and casualty insurance policies through an
insurance agency in which a shareholder/director has a substantial ownership
interest. Total premiums paid for policies acquired through the insurance
company during the second quarter 1997 and 1998 were approximately $0
and $8,000, respectively.
(6) RECENT ACCOUNTING PRONOUNCEMENTS
Effective in 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive
Income". The objective of SFAS 130 is to report a measure of all
changes in "Shareholders' Equity" that result from transactions and other
economic events other than transactions with owners. During 1997 and 1998,
there were no transactions or other economic events involving the Company
that would affect nonowner changes in equity.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The Statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in
Page 7 of 15<PAGE>
<PAGE>
the balance sheet as either an asset or liability measured at its fair value.
The Statement requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria
are met. Special accounting for qualifying hedges allows a derivative's
gains and losses to offset related results on the hedged item in the income
statement, and requires that a company must formally document, designate, and
assess the effectiveness of transactions that receive hedge accounting.
Statement 133 is effective for fiscal years beginning after June 15, 1999.
A company may also implement the Statement as of the beginning of any fiscal
quarter after issuance (that is, fiscal quarters beginning June 16, 1998 and
thereafter). Statement 133 cannot be applied retroactively. Statement 133
must be applied to (a) derivative instruments and (b) certain derivative
instruments embedded in hybrid contracts that were issued, acquired, or
substantively modified after December 31, 1997.
The Company has not yet quantified the impacts of adopting Statement 133
on its financial statements and has not determined the timing of or method of
its adoption of Statement 133. Management does not anticipate a material
impact on earnings once the statement is adopted.
(7) SUPPLEMENTAL DISCLOSURE INFORMATION
Inventory balances, by classification, may be summarized as follows:
January 3, July 4,
1998 1998
---- ----
Raw Material $15,646 $16,185
Finished Goods 7,003 6,234
Supplies 622 651
------ ------
$23,271 $23,070
====== ======
The components of other expense, net, may be summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------- ----------------------
June 28, July 4, June 28, July 4,
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest expense on debt
and capital leases $ 462 $ 357 $1,005 $ 767
Purchase discounts on invoice
payments (120) (153) (220) (298)
Fees, amortization of hedge and
swap agreements, and other 49 31 94 43
----- ----- ----- -----
$ 391 $ 235 $ 879 $ 512
===== ===== ===== =====
</TABLE>
Page 8 of 15<PAGE>
<PAGE>
(8) SUBSEQUENT EVENTS
On June 10, 1998, the Company signed a definitive agreement to acquire
all of the issued and outstanding capital stock of Frame-n-Lens Optical,
Inc. (Frame-n-Lens), which operates approximately 160 freestanding retail
vision centers as well as approximately 130 retail vision centers located
primarily in Sam's Clubs. Frame-n-Lens also operates an optical laboratory
and has its administrative offices in Fullerton, California. The purchase
price is approximately $37 million consisting of cash and the assumption of
debt. The transaction will be financed through the Company's revolving
credit facility. Unaudited annual sales for Frame-n-Lens for 1997 were
$78.4 million. The transaction is expected to close in July 1998.
On July 14, 1998, the Company announced the signing of a definitive
agreement to acquire all of the outstanding stock of New West Eyeworks, Inc.
(NASDAQ: NEWI) for $13.00 per share of common stock or approximately
$77 million in the aggregate (including approximately $2 million of
indebtedness).
New West Eyeworks, Inc., headquartered in Tempe, Arizona, operates 176
retail optical locations throughout 13 states, including 52 vision centers
located in Fred Meyer stores. In 1997, NEWI reported net sales of $49.2
million.
To effect the transaction, the Company agreed to make a tender
offer for all shares of NEWI. As part of the definitive agreement, certain
insiders (representing 40.3% of the common stock of NEWI on a fully diluted
basis exclusive of outstanding stock options) agreed to tender their
shares into the offer. The closing of the tender offer is subject to
customary conditions, including regulatory filings, as well as completion
by the Company of a high-yield debt offering to finance the acquisition.
The agreement also provides for certain break-up fees in certain circumstances
if the transaction is not consummated. The Company expects that the
tender offer will be completed in September 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's results of operations in any period are significantly
affected by the number and mix of vision centers opened and operating during
such period. As a result of two recently announced acquisitions (see Note 8
to condensed consolidated financial statements), the number of the Company's
vision centers is expected to increase by approximately 466 units in the
third quarter of 1998. Financial results for the first half of 1998 may
therefore be dramatically different from the results achieved by the Company
after the acquisitions are consummated. In this regard, the Company expects
that, in the remainder of 1998, these acquisitions will jointly dilute
earnings by approximately $0.12 to $0.16 per share. At July 4, 1998, the
Company operated 453 vision centers, versus 357 vision centers at June 28,
1997.
Page 9 of 15<PAGE>
<PAGE>
THREE MONTHS ENDED JULY 4, 1998 (THE "CURRENT PERIOD") COMPARED TO
THREE MONTHS ENDED JUNE 28, 1997 (THE "PRIOR PERIOD")
CONSOLIDATED RESULTS
NET SALES. Net sales during the Current Period increased to $51.0
million from $44.5 million for the Prior Period due in part to the increase
in the number of operating vision centers. Average weekly net sales per
vision center decreased from $9,720 in the Prior Period to $8,780 in the
Current Period. The decrease is due primarily to averaging the effect of
Midwest Vision stores, which have a lower average weekly net sales per store
and the impact of new store openings. The domestic host store business
achieved a comparable store sales increase of 1.5% in the second quarter,
which is down slightly from the Company's historical trend. This decline can
be traced to two factors. First, severe price competition in the disposable
contact lens market has negatively affected comparable store sales growth;
management expects this trend to continue through the remainder of 1998. The
Company continues to reposition its contact lens offering competitive with the
market. Second, the Company experienced a downward trend in spectacle
comparable store sales from January through April; a refocus on spectacle
sales units coupled with improved merchandising support toward spectacle unit
sales reversed this trend in May and June. The Company anticipates continued
success with this program, which should favorably impact comparable store
sales the remainder of the year. In addition, sales under managed care
programs increased from the Prior Period. Net sales from international
operations decreased to $859,000 in the three-month period ended May 31,
1998 from $1 million in the comparable period a year ago. The decrease is
due primarily to the disposition of the Czech vision centers at the end of
the first quarter 1998.
GROSS PROFIT. In the Current Period, gross profit increased to
$27.1 million from $23.9 million in the Prior Period. This increase was
primarily due to the increased net sales described above. Gross profit as
a percent of sales decreased to 53.2% from 53.6% in the Prior Period largely
as a result of lower margins generated by the Company's vision centers,
coupled with a reduction in fees realized by independent optometrists
operating in the vision centers. The Company has achieved cost reductions
for its contact lens disposable products; consequently, the price
repositioning on the contact lens disposable business has not had a
significant impact on gross profit margins.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES ("SG&A expense").
SG&A expense (which includes both store operating expenses and home office
overhead) increased to $23.3 million in the Current Period from $20.8 million
for the Prior Period, reflecting operating expenses of the additional vision
centers. As a percentage of net sales, SG&A expense was 45.6% in the Current
Period, compared to 46.7% for the Prior Period. The percentage decrease was
due primarily to improved efficiencies at store level.
OPERATING INCOME. Operating income for the Current Period increased
to $3.9 million from $3.1 million in the Prior Period. The Company's
international operations (26 vision centers as of May 31, 1998) generated
an operating loss of $63,000 in the three months ended May 31, 1998, as
opposed to an operating profit of $7,000 in the comparable period a year
ago. The change in results was due to operating losses from the Mexico
operation. The international operating results do not include allocated
corporate overhead, interest, and taxes.
Page 10 of 15<PAGE>
<PAGE>
OTHER EXPENSE. The decrease in other expense to $235,000, compared
to $391,000 in the Prior Period, is due to lower interest costs. The
decrease in interest costs results from a decrease in average borrowings
by the Company under its credit facility, offset in part by increased debt
related to the Company's acquisition of Midwest Vision, Inc. in the fourth
quarter 1997.
PROVISION FOR INCOME TAXES. The effective income tax rate on
consolidated pre-tax income in the Current Period is 40.9%, which represents
a tax provision of 40% on domestic earnings. Due to the Company's current
tax net operating loss carryforward position, current year earnings will
not be subject to regular Federal Income Tax. However, the Company will
be subject to Federal Alternative Minimum Tax and state income tax, which
will result in the Company making cash payments approximating 30% of
consolidated pre-tax earnings.
NET INCOME. Net income was $2.1 million, or $0.10 per share, as
compared to net income of $1.6 million, or $0.08 per share, in the Prior
Period.
Six Months Ended July 4, 1998 (the "Current Period") Compared to
Six Months Ended June 28, 1997 (the "Prior Period")
CONSOLIDATED RESULTS
NET SALES. Net sales during the Current Period increased to
$105.4 million from $88.9 million for the Prior Period. Average
weekly net sales per vision center decreased from $9,800 during
the Prior Period to $9,080 during the Current Period. The decrease
is due primarily to averaging the effect of Midwest Vision stores,
which have a lower average weekly net sales per store. The average weekly
net sales for the domestic host store business decreased due to lower than
expected comparable store sales of 3.5% coupled with a reduction in unit
weekly sales for stores open less than a year. The decline can be traced to
two factors. First, severe price competition in the market on disposable
contact lens sales has negatively affected comparable store sales growth;
management expects this trend to continue through the remainder of 1998.
Second, the Company experienced a downward trend in spectacle comparable
store sales from January through April; a refocus on spectacle unit sales
reversed this trend in May and June. The Company anticipates continued
success with this program, which should favorably impact comparable store
sales the remainder of the year. In addition, sales under managed care
programs increased from the Prior Period.
Net sales from international operations remained constant in the six-
month period ended May 31, 1998 at $2 million, the same as the comparable
period ended May 31, 1997, despite the disposition of the Czech operations
at the end of the first quarter 1998.
GROSS PROFIT. For the Current Period, gross profit increased
to $57.1 million from $48.1 million in the Prior Period. This
increase was primarily due to the increased net sales described
above. Gross profit as a percentage of sales was 54.1% in the
Prior Period and remained at 54.1% in the Current Period. The Company
has achieved cost reductions for its contact lens disposable products;
consequently, the price repositioning on the contact lens disposable
business has not had a significant impact on gross profit margins.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES ("SG&A expense").
SG&A expense (which includes both store operating expenses and
home office overhead) increased to $48.8 million in the Current
Period from $41.8 million for the Prior Period, reflecting
Page 11 of 15<PAGE>
<PAGE>
operating expenses of the additional vision centers. As a
percentage of net sales, SG&A expense was 46.3% in the Current
Period, compared to 47.0% for the Prior Period. The percentage
decrease was due primarily to improved efficiencies at store level.
OPERATING INCOME. Operating income for the Current Period
increased to $8.2 million, a 30.6% increase over $6.3 million in the
Prior Period. International operations generated an operating loss
(which excludes allocated corporate overhead, interest, and taxes)
of $80,000 for the six months ended May 31, 1998 as opposed to
an operating profit of $32,000 in the comparable period a year ago.
OTHER EXPENSE. The decrease in other expense to $512,000, compared
to $879,000 in the Prior Period, is due to lower interest expense.
The decrease in interest expense results primarily from reduced
borrowings under the Company's credit facility.
PROVISION FOR INCOME TAXES. The effective income tax rate on
consolidated pre-tax income in the Current Period is 40.6%, which represents
a tax provision of 40% on domestic earnings. Due to the Company's current
tax net operating loss carryforward position, current year earnings will
not be subject to regular Federal Income Tax. However, the Company will
be subject to Federal Alternative Minimum Tax and state income tax, which
will result in the Company making cash payments approximating 30% of
consolidated pre-tax earnings.
NET INCOME. Net income was $4.6 million, or $0.22 per share,
as compared to net income of $3.3 million, or $0.16 per share, in the
Prior Period.
LIQUIDITY AND CAPITAL RESOURCES
As of July 4, 1998, the Company plans to open (exclusive of any vision
centers purchased through acquisitions) approximately eight vision centers in
the domestic host environment and approximately two Mexican vision centers
during the last two quarters of 1998. Consistent with prior years, the
actual number of openings is dependent on the construction schedules of the
host store. Average costs for opening domestic vision centers have
approximated $140,000 for fixed assets and $35,000 for inventory. Capital
for leasehold improvements and other fixed assets in Mexican vision centers
is expected to approximate $75,000 per vision center.
At July 4, 1998, the Company had borrowed $16.5 million under its
credit facility versus outstanding borrowings of $19.5 million as of
January 3, 1998. The Company anticipates that internally generated funds,
as well as funds available under the Company's revolving credit facility,
will be sufficient to fund ongoing operating costs associated with its
current vision centers and vision centers currently scheduled to be opened
during 1998.
In June, the Company announced its intent to acquire Frame-n-Lens
Optical, Inc. for approximately $37 million. (See Note 8 to condensed
consolidated financial statements.) On July 14, 1998, the Company
announced that it had agreed to acquire New West Eyeworks, Inc. for
approximately $77 million. The closing of the New West transaction is
conditional upon the Company's obtaining financing through the issuance of
high-yield debt ranging from $110 to $120 million. In connection with this
financing, the Company will enter into a new revolving debt facility for
an additional amount ranging from $30 to $40 million. The Company intends
to utilize funds from the offering and under the new credit facility to pay
off the balance outstanding on the existing credit facility, close on the
Page 12 of 15<PAGE>
<PAGE>
New West acquisition and fund capital requirements for the combined companies
through the remainder of 1998. Although the Company believes that each of
these transactions will close in the third quarter of 1998, no assurances
can be given as to whether or when the transactions will be consummated.
In this regard, the definitive agreement for New West provides for breakup
fees to be paid by the Company if the transaction does not timely close
as a result of the Company's inability to obtain financing.
In general, the Company will slow down its efforts to complete
acquisitions going forward and focus the Company's efforts on the integration
of the Frame-n-Lens and New West acquisitions. Consequently, a majority of
the cash expenditures during 1998 will relate to new store openings and
capital improvements related to the Company's existing businesses and the
Frame-n-Lens and New West acquisitions. No assurances can be given as to
whether or when the Company will consummate any additional acquisition
transactions.
RISK FACTORS
Any expectations, beliefs, and other non-historical statements contained
in this 10-Q are forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements made in
this Form 10-Q concern the following matters: planned opening of vision
centers, the funding of expansion through internal cash flow, and the issuance
of high-yield debt. With respect to such forward-looking statements and
others which may be made by, or on behalf of, the Company, the inability
of the Company to obtain the financing for the New West acquisition, or
otherwise to consummate the planned transactions discussed in this Form 10-Q,
along with factors listed in the Company's Reports on Form 10-K for 1997 and
Form 10-Q for the first quarter of 1998, could materially affect the
Company's actual results.
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
At the 1998 Annual Meeting of Shareholders (held on April 21,
1998), the shareholders voted upon and approved management's
nominees for directors. The voting was as follows:
<TABLE>
<CAPTION>
DIRECTORS VOTES FOR VOTES VOTES WITHHELD ABSTENTIONS BROKER
AGAINST NON-VOTES
<S> <C> <C> <C>
David I. Fuente 15,649,561 34,765
Ronald J. Green 15,619,561 34,765
Campbell B. Lanier, III 15,645,661 38,665
J. Smith Lanier, II 15,646,541 37,785
James W. Krause 15,649,786 34,540
</TABLE>
Page 13 of 15<PAGE>
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The following exhibits are filed herewith or incorporated by reference:
<TABLE>
<CAPTION>
Exhibit
Number
-------
<S> <C>
Amended and Restated By-Laws of the Company 3.2*
Form of Common Stock Certificate 4.1**
Amended and Restated Articles of Incorporation of the Company 4.2***
Stock Purchase Agreement dated as of June 9, 1998 by and among
Frame-n-Lens Optical, Inc., the Company, and the sellers named therein 10.56****
Statement Regarding Computation of Per Share Earnings 11****
Financial Data Schedule 27****
*Incorporated by reference to the Company's Registration Statement on Form S-1,
registration number 33-46645, filed with the Commission on March 25, 1992, and
amendments thereto.
**Incorporated by reference to the Company's Registration Statement on Form 8-A
filed with the Commission on January 17, 1997.
***Incorporated by reference to the Company's Form 8-K filed with the Commission
on January 17, 1997.
****Filed with this Form 10-Q.
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the three months ended
July 4, 1998.
</TABLE>
Page 14 of 15<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NATIONAL VISION ASSOCIATES, LTD.
By: /s/ Angus C. Morrison
Angus C. Morrison
Senior Vice President
Chief Financial Officer
July 22, 1998
Page 15 of 15
<PAGE>
SHARE PURCHASE AGREEMENT
BY AND AMONG
FRAME-N-LENS OPTICAL, INC.,
a California corporation,
NATIONAL VISION ASSOCIATES, LTD.
a Georgia corporation
AND
THE SELLERS NAMED HEREIN
DATED AS OF JUNE 9, 1998
<PAGE>
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2. SALE OF SHARES; CLOSING. . . . . . . . . . . . . . . . . . 7
Section 2.1 Purchase and Sale. . . . . . . . . . . . . . . . . . 7
Section 2.2 Purchase Price . . . . . . . . . . . . . . . . . . . 7
Section 2.3 Delivery of Corporation Shares; Payment. . . . . . . 8
Section 2.4 Time and Place of Closing. . . . . . . . . . . . . . 9
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF CORPORATION . . . . . . .10
Section 3.1 Organization, Etc. . . . . . . . . . . . . . . . . .10
Section 3.2 Authorization: Execution: Binding Effect . . . . . .10
Section 3.3 Capitalization; Share Ownership. . . . . . . . . . .11
Section 3.4 Subsidiaries . . . . . . . . . . . . . . . . . . . .11
Section 3.5 No Conflicting Agreements or Articles Provisions . .12
Section 3.6 Consents, Approvals, Licenses, Etc.. . . . . . . . .12
Section 3.7 Litigation . . . . . . . . . . . . . . . . . . . . .13
Section 3.8 Financial Statements . . . . . . . . . . . . . . . .13
Section 3.9 No Undisclosed Liabilities . . . . . . . . . . . . .13
Section 3.10 Compliance with Laws: Permits . . . . . . . . . . .13
Section 3.11 No Adverse Changes . . . . . . . . . . . . . . . . .13
Section 3.12 Certain Transactions . . . . . . . . . . . . . . . .14
Section 3.13 Benefit Plans. . . . . . . . . . . . . . . . . . . .14
Section 3.14 Tax Matters. . . . . . . . . . . . . . . . . . . . .16
Section 3.15 Contracts. . . . . . . . . . . . . . . . . . . . . .17
Section 3.16 Leased Property. . . . . . . . . . . . . . . . . . .18
Section 3.17 Intellectual Property. . . . . . . . . . . . . . . .18
Section 3.18 Compliance with Environmental Laws . . . . . . . . .18
Section 3.19 No Brokers . . . . . . . . . . . . . . . . . . . . .19
Section 3.20 Books and Records. . . . . . . . . . . . . . . . . .19
Section 3.21 Title to Properties; Encumbrances. . . . . . . . . .19
Section 3.22 Condition and Sufficiency of Assets. . . . . . . . .20
Section 3.23 Accounts Receivable. . . . . . . . . . . . . . . . .20
Section 3.24 Inventory. . . . . . . . . . . . . . . . . . . . . .20
Section 3.25 Insurance. . . . . . . . . . . . . . . . . . . . . .20
Section 3.26 Labor Relations; Compliance. . . . . . . . . . . . .20
Section 3.27 Certain Payments . . . . . . . . . . . . . . . . . .21
Section 3.28 Disclosure . . . . . . . . . . . . . . . . . . . . .21
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF THE SELLERS . . . . . . .21
Section 4.1 Capacity; Execution; Validity; Binding Effect. . . .22
-i-<PAGE>
<PAGE>
Section 4.2 Share Ownership. . . . . . . . . . . . . . . . . . .22
Section 4.3 No Other Rights. . . . . . . . . . . . . . . . . . .22
Section 4.4 No Conflicting Agreements. . . . . . . . . . . . . .22
Section 4.5 Consents, Approvals, Licenses, Etc.. . . . . . . . .23
Section 4.6 Litigation . . . . . . . . . . . . . . . . . . . . .23
Section 4.7 No Brokers . . . . . . . . . . . . . . . . . . . . .23
Section 4.8 Satisfaction of Fiduciary Obligations. . . . . . . .23
Section 4.9 Representation of the ESOP Trustee . . . . . . . . .23
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . .24
Section 5.1 Organization, Etc. . . . . . . . . . . . . . . . . .24
Section 5.2 Authorization; Execution; Binding Effect . . . . . .24
Section 5.3 No Conflicting Agreements or Charter Provisions. . .24
Section 5.4 Litigation . . . . . . . . . . . . . . . . . . . . .25
Section 5.5 Investment Intent. . . . . . . . . . . . . . . . . .25
Section 5.6 No Brokers . . . . . . . . . . . . . . . . . . . . .25
ARTICLE 6. COVENANTS OF SELLERS, BUYER AND CORPORATION . . . . . . . .25
Section 6.1 Investigation of Business; Access to Properties
and Records. . . . . . . . . . . . . . . . . . . . .25
Section 6.2 Regulatory and Other Authorizations. . . . . . . . .26
Section 6.3 Reasonable Efforts; Consents and Notifications . . .27
Section 6.4 Further Assurances . . . . . . . . . . . . . . . . .27
Section 6.5 Conduct of Business of the Corporation and
Subsidiaries . . . . . . . . . . . . . . . . . . . .27
Section 6.6 Preservation of Business . . . . . . . . . . . . . .29
Section 6.7 Announcements. . . . . . . . . . . . . . . . . . . .29
Section 6.8 No Solicitation. . . . . . . . . . . . . . . . . . .29
Section 6.9 Right to Update and Cure . . . . . . . . . . . . . .30
Section 6.10 Indemnification of Directors and Officers. . . . . .30
Section 6.11 Administration of the ESOP.. . . . . . . . . . . . .31
ARTICLE 7. CONDITIONS TO BUYER'S OBLIGATION TO CLOSE . . . . . . . . .32
Section 7.1 Representations; Warranties and Covenants of
the Corporation and the Sellers. . . . . . . . . . .32
Section 7.2 Filings; Consents; Waiting Periods . . . . . . . . .32
Section 7.3 No Injunction. . . . . . . . . . . . . . . . . . . .33
Section 7.4 Closing Deliveries . . . . . . . . . . . . . . . . .33
Section 7.5 Absence of Litigation. . . . . . . . . . . . . . . .34
Section 7.6 No Claim Regarding Stock Ownership or
Sale Proceeds. . . . . . . . . . . . . . . . . . . .34
Section 7.7 Opinion of the Corporation and ESOP Counsel. . . . .34
Section 7.8 No Material Adverse Effect . . . . . . . . . . . . .34
Section 7.9 Environmental Assessment . . . . . . . . . . . . . .35
Section 7.10 General Release. . . . . . . . . . . . . . . . . . .35
Section 7.11 Due Diligence. . . . . . . . . . . . . . . . . . . .35
Section 7.12 Tax Return Filing. . . . . . . . . . . . . . . . . .35
ARTICLE 8. CONDITIONS TO SELLERS' OBLIGATIONS TO CLOSE . . . . . . . .35
-ii-<PAGE>
<PAGE>
Section 8.1 Representations, Warranties and Covenants
of the Buyer . . . . . . . . . . . . . . . . . . . .35
Section 8.2 Filings; Consents; Waiting Periods . . . . . . . . .36
Section 8.3 No Injunction. . . . . . . . . . . . . . . . . . . .36
Section 8.4 Closing Deliveries . . . . . . . . . . . . . . . . .36
Section 8.5 Absence of Litigation. . . . . . . . . . . . . . . .36
ARTICLE 9. SURVIVAL; SELLER LIABILITY. . . . . . . . . . . . . . . . .36
Section 9.1 Indemnification by Sellers . . . . . . . . . . . . .36
Section 9.2 Set Off. . . . . . . . . . . . . . . . . . . . . . .39
ARTICLE 10. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . .39
Section 10.1 Termination. . . . . . . . . . . . . . . . . . . . .39
Section 10.2 Procedure and Effect of Termination. . . . . . . . .40
ARTICLE 11. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . .40
Section 11.1 Counterparts . . . . . . . . . . . . . . . . . . . .40
Section 11.2 Governing Law. . . . . . . . . . . . . . . . . . . .40
Section 11.3 No Third Party Beneficiaries . . . . . . . . . . . .40
Section 11.4 Entire Agreement . . . . . . . . . . . . . . . . . .41
Section 11.5 Expenses . . . . . . . . . . . . . . . . . . . . . .41
Section 11.6 Notices. . . . . . . . . . . . . . . . . . . . . . .41
Section 11.7 Successors and Assigns . . . . . . . . . . . . . . .42
Section 11.8 Headings; Definitions. . . . . . . . . . . . . . . .42
Section 11.9 Amendments and Waivers . . . . . . . . . . . . . . .43
Section 11.10 Venue; Service of Process. . . . . . . . . . . . . .43
Section 11.11 Arbitration. . . . . . . . . . . . . . . . . . . . .43
Section 11.12 Attorneys' Fees. . . . . . . . . . . . . . . . . . .44
Section 11.13 Severability of Provisions; Jeopardy . . . . . . . .45
Section 11.14 Seller Approval. . . . . . . . . . . . . . . . . . .45
Section 11.15 Certain Consents . . . . . . . . . . . . . . . . . .46
EXHIBITS
- --------
EXHIBIT A - LIST OF SELLERS
EXHIBIT B - LEGAL OPINIONS
EXHIBIT C - GENERAL RELEASE
EXHIBIT C-1 - GENERAL RELEASE OF ESOP
SCHEDULE 9.2
CORPORATION DISCLOSURE SCHEDULE
DISCLOSURE SCHEDULE OF KB MEZZANINE FUND
-iii-<PAGE>
<PAGE>
SHARE PURCHASE AGREEMENT
THIS SHARE PURCHASE AGREEMENT dated as of June 9, 1998 is made and
entered into by and among all of the Sellers listed on Exhibit A hereto
(each a "Seller" and collectively the "Sellers"), Frame-n-Lens Optical, Inc.,
a California corporation (the "Corporation"), and National Vision Associates,
Ltd., a Georgia corporation (the "Buyer").
WHEREAS, the Sellers own all of the shares of the Corporation issued
and outstanding as of the date of this Agreement, with each Seller owning
that number of shares of the Corporation set forth opposite such Seller's
name in Exhibit A hereto; and
WHEREAS, the Buyer desires to purchase from the Sellers, and the
Sellers desire to sell to the Buyer, all of the shares of the Corporation
issued and outstanding as of the date of this Agreement upon the terms and
subject to the conditions set forth in this Agreement (the sale and purchase
of such shares are referred to in this Agreement as the "Share Purchase");
NOW, THEREFORE, in consideration of the mutual agreements, covenants,
representations and warranties contained herein, and subject to the terms
and conditions hereinafter set forth, the parties to this Agreement hereby
agree as follows:
ARTICLE 1.
DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings:
1.1 "Accountants" shall have the meaning set forth in
Section 2.2(b).
1.2 "Accounts Receivable" shall have the meaning set forth
in Section 3.23.
1.3 "Adjustment Amount" shall have the meaning set forth in
Section 2.2(a).
1.4 "Adjustment Date" shall have the meaning set forth in
Section 2.3(b).
1.5 "Affiliate" shall mean, with respect to any Person, a
Person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, such Person.
1.6 "Agreement" shall mean this Share Purchase Agreement,
together with the Buyer Disclosure Schedule, the Corporation Disclosure
Schedule and the Seller Disclosure Schedule, as the same may be updated or
amended from time to time as provided herein.
1.7 "Associate" shall mean, with respect to any Person, any
corporation or other business organization of which such Person is an
executive officer (as such term is defined in Rule 3b-7 under the 1934 Act)
or partner or is the beneficial owner, directly or indirectly, of
ten percent or more of any class of equity securities, any trust or estate
in which such Person has a substantial beneficial interest or as to which
-1-<PAGE>
<PAGE>
such Person serves as a trustee or in a similar capacity and any relative
or spouse of such Person, or any relative of such spouse, who has the same
home as such Person.
1.8 "Audited Financial Statements" shall mean the audited
balance sheet of the Corporation at December 28, 1997, and the related
audited consolidated statements of operations, changes in shareholders'
equity and cash flows for the years then ended, including related footnotes,
in each case as examined by and accompanied by the report of an independent
certified public accountant, which Audited Financial Statements are included
in the Corporation Disclosure Schedule.
1.9 "Balance Sheet" shall mean the unaudited consolidated balance
sheet of the Corporation as of March 29, 1998, included in the Interim
Financial Statements.
1.10 "Balance Sheet Date" shall mean March 29, 1998.
1.11 "Benefit Plans" shall mean all plans, programs, ERISA
Welfare Plans, ERISA Pension Plans and other arrangements under which or
through which the Corporation, any Subsidiary or any ERISA Affiliate
provides, or has an obligation to provide, or makes, or has an obligation
to make, contributions, compensation or benefits of any kind or description
whatsoever (whether current or deferred and whether paid in cash or in kind)
to, or on behalf of, one, or more than one, employee or director or former
employee or former director, other than any plans, programs or other
arrangements which only provide for the payment of cash compensation
currently from the general assets of the Corporation, any Subsidiary or any
ERISA Affiliate on a payday by payday basis as base salary or hourly wages
for current services.
1.12 "Business" shall mean the business of retail optical
dispensing and related services.
1.13 "Business Day" shall mean any day that is not a Saturday, a
Sunday or other day on which banks are required or authorized by law to be
closed in Los Angeles, California.
1.14 "Buyer" shall have the meaning set forth in the first
paragraph of the Agreement.
1.15 "Buyer Disclosure Schedule" shall mean the disclosure
schedule, dated as of the date of this Agreement, delivered to the Sellers
by the Buyer.
1.16 "COBRA" shall mean the Consolidated Omnibus Reconciliation
Act of 1986, as amended.
1.17 "Closing" shall have the meaning set forth in Section 2.4.
1.18 "Closing Balance Sheet" shall have the meaning set forth
in Section 2.2(b).
1.19 "Closing Date" shall mean the date and effective time at
which the Closing occurs.
-2-<PAGE>
<PAGE>
1.20 "Closing Purchase Price" shall have the meaning set forth
in Section 2.2(a).
1.21 "Code" shall mean the Internal Revenue Code of 1986, as
amended, together with the regulations promulgated thereunder.
1.22 "Committee" shall have the meaning set forth in the first
paragraph of Article 4.
1.23 "Company Affiliate" shall have the meaning set forth in
Section 3.12.
1.24 "Confidentiality Agreement" shall mean the Confidentiality
Agreement between the Corporation and the Buyer dated as of May 1, 1998.
1.25 "Contract" shall mean any contract, agreement, indenture,
note, bond, loan agreement, letter of credit agreement, line of credit
agreement, instrument, lien, conditional sales contract, mortgage, franchise,
commitment, obligation or other arrangement or agreement, but shall exclude
leases of real or personal property and insurance policies.
1.26 "Corporation" shall mean Frame-n-Lens Optical, Inc., a
California corporation.
1.27 "Corporation Disclosure Schedule" shall mean the disclosure
schedule, dated as of the date of this Agreement, delivered to the Buyer
by the Corporation.
1.28 "Corporation Shares" shall have the meaning set forth in
Section 2.1.
1.29 "Deferred Purchase Price" shall have the meaning set forth
in Section 2.3(b).
1.30 "Employment Contracts" shall mean all Contracts or other
arrangements under which the Corporation or a Subsidiary has agreed to
employ any Person for any period, including severance contracts.
1.31 "Encumbrances" shall mean any security interest, pledge,
mortgage, lien, charge, adverse claim of ownership, or other encumbrance
of any kind.
1.32 "Environmental Laws" shall mean the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended
("CERCLA"), the Resource Conservation and Recovery Act of 1976, as amended
("RCRA"), and all applicable statutes, regulations, rules, ordinances, codes,
licenses, permits, orders, approvals, plans, authorizations, concessions,
franchises, and similar items of all Governmental Authorities, and all
applicable judicial, administrative and regulatory decrees, judgments
and orders, any of which relate to the protection of human health or the
environment from the effects of Hazardous Substances, including but not
limited to those pertaining to reporting, licensing, permitting,
investigating, and remediating emissions, discharges, releases or threatened
releases of Hazardous Substances into the air, surface water, groundwater
or land, or relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of Hazardous
Substances.
-3-<PAGE>
<PAGE>
1.33 "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended, and the rulings and regulations thereunder.
1.34 "ERISA Affiliate" shall mean a corporation that is or was
a member of a controlled group of corporations with the Corporation or any
Subsidiary within the meaning of Section 414(b) of the Code, a trade or
business (including a sole proprietorship, partnership, limited partnership,
limited liability partnership, limited liability company, trust, estate or
corporation) that is under common control with the Corporation within the
meaning of Section 414(m) of the Code, or a trade or business which together
with the Corporation is treated as a single employer under Section 414(o)
of the Code.
1.35 "ERISA Pension Plan" shall mean any employee pension benefit
plan as defined in Section 3(2) of ERISA which is established, maintained or
contributed to by the Corporation, any Subsidiary or any ERISA Affiliate.
1.36 "ERISA Welfare Plan" shall mean any employee welfare benefit
plan as defined in Section 3(1) of ERISA which is established, maintained or
contributed to by the Corporation, or any Subsidiary or any ERISA Affiliate.
1.37 "ESOP" shall mean the Frame-n-Lens Optical, Inc. Employee
Stock Ownership Plan and Frame-n-Lens Optical, Inc. Employee Stock Ownership
Trust, as in effect on the date hereof and as they may be amended from time
to time.
1.38 "Family Member" shall mean with respect to a particular
individual, such individual's spouse, parents, children, siblings, mothers-
and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-
law.
1.39 "Financial Statements" shall mean the Audited Financial
Statements and the Interim Financial Statements of the Corporation.
1.40 "GAAP" shall mean generally accepted accounting principles
(as such term is used in the American Institute of Certified Public
Accountants' Professional Standards) from time to time in effect.
1.41 "Governmental Authority" shall mean any foreign, federal,
state or local governmental entity or municipality or subdivision thereof
or any authority, department, commission, board, bureau, agency, court or
instrumentality thereof.
1.42 "Hazardous Substance" shall mean any substance or waste
which is listed as hazardous, regulated or toxic in the regulations
implementing CERCLA or RCRA, or is listed as a contaminant, pollutant or
hazardous or toxic substance or waste under any other applicable federal,
state or local Environmental Laws, or any substance or waste which has
been determined at any time by regulation, ruling or otherwise by any
Governmental Authority to be a contaminant, pollutant or hazardous or
toxic substance regulated under federal, state or local law, and which
shall include, without limitation, hazardous waste, any medical waste,
biohazardous waste, industrial waste, and special waste.
-4-<PAGE>
<PAGE>
1.43 "HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
1.44 "Indemnified Losses" shall have the meaning set forth in
Section 9.1(a).
1.45 "Indemnitees" shall have the meaning set forth in Section
9.1(a).
1.46 "Interim Financial Statements" shall mean the Balance Sheet
as of March 29, 1998 and the related unaudited consolidated statement of
operations, changes in shareholders' equity and cash flows for the three
month period then ended, including related footnotes, if any, which Interim
Financial Statements are included in the Corporation Disclosure Schedule.
1.47 "Intellectual Property" means all patents and patent rights,
trademarks and trademark rights, trade names and trade name rights, service
marks and service mark rights, service names and service name rights, brand
names, inventions, procedures, formulae, copyrights and copyright rights,
trade dress, business and product names, logos, slogans, trade secrets,
processes, designs, methodologies, computer programs (including all source
codes) and related documentation, technical information, know-how and all
pending applications for and registrations of patents, trademarks, service
marks and copyrights.
1.48 "IRS" shall mean the Internal Revenue Service.
1.49 "Knowledge" shall mean (i) in the case of any Seller,
knowledge of such Seller, and if such Seller is an entity, knowledge of any
officer or director of such entity, (ii) in the case of the Buyer, knowledge
of any officer or director of the Buyer, and (iii) in the case of the
Corporation or any Subsidiary, knowledge of any officer or director of
the Corporation or such Subsidiary. An individual will be deemed to have
"Knowledge" of a particular fact or other matter if (a) such individual
is actually aware of such fact or other matter; or (b) with respect to
Sections 3.26 and 6.11 only, such individual would likely discover or
otherwise become aware of such fact or other matter by exercising the
care an ordinarily prudent person in a like position would exercise under
similar circumstances.
1.50 "Leases" shall have the meaning set forth in Section 3.16.
1.51 "Material Adverse Effect" shall mean a material adverse
effect on the business, operations, properties, assets (including intangible
assets), liabilities (contingent or otherwise), financial condition or
results of operations of the Corporation and the Subsidiaries, taken as a
whole.
1.52 "Permits" shall mean all permits, licenses and other
governmental approvals, certificates of need, accreditations, participation
agreements, consents, authorizations, certificates of authority and orders.
1.53 "Permitted Encumbrances" shall mean (i) Encumbrances for
Taxes not yet due and payable and for Taxes being contested in good faith,
(ii) Encumbrances arising out of, under or in connection with this Agreement,
-5-<PAGE>
<PAGE>
and (iii) Encumbrances and imperfections of title that do not secure payment
of borrowed money and the existence of which, in the aggregate, do not have a
Material Adverse Effect.
1.54 "Person" shall mean an individual, firm, trust, association,
corporation, limited liability company, partnership, limited partnership,
limited liability partnership, Governmental Authority, or other entity.
1.55 "Purchase Price" shall have the meaning set forth in Section
2.2.
1.56 "Related Party" shall have the meaning set forth in Section
3.12.
1.57 "Retained Funds" shall have the meaning set forth in Section
2.3(b).
1.58 "Seller" and "Sellers" are identified on Exhibit A hereto.
1.59 "Seller Disclosure Schedule" shall mean the disclosure
schedules, dated as of the date of this Agreement, delivered to the Buyer by
any Seller.
1.60 "Share Purchase" shall have the meaning set forth in the
Recitals hereto.
1.61 "Subsidiary" shall mean a corporation, partnership or other
entity of which the Corporation (i) has the power to elect more than fifty
percent (50%) of the board of directors or other governing authority either
directly or indirectly or (ii) owns or controls more than fifty percent (50%)
of the outstanding equity securities or equity interests either directly
or through an unbroken chain of entities as-to each of which fifty percent
(50%) or more of the outstanding equity securities or equity interests is
owned directly or indirectly by its parent.
1.62 "Subsidiary Shares" shall have the meaning set forth in
Section 3.4(b).
1.63 "Survival Period" shall have the meaning as set forth in
Section 9.1(f).
1.64 "Takeover Proposal" shall mean any proposal for a merger,
consolidation, acquisition of all or substantially all of the capital shares
or assets of the Corporation or the acquisition of a substantial equity
interest in the Corporation or a substantial portion of the consolidated
assets of the Corporation, or any solicitation of proxies in connection
with any meeting for the purpose of effecting a business combination or
change in control.
1.65 "Tax" or "Taxes" shall mean all federal, state, local or
foreign taxes, levies, imposts, duties, excises, licenses and resignation
fees, and charges of any nature whatsoever including, without limitation,
income tax withholding, unemployment and social security taxes, sales and
use taxes and property taxes, and interest, penalties and additions to
tax with respect to any of the above.
1.66 "Tax Return" shall mean any return, declaration, report,
claim for refund, or information return or statement relating to Taxes,
including any schedule or attachment to such documents and any amendment
of such documents.
-6-<PAGE>
<PAGE>
1.67 "Trustee" shall have the meaning set forth in the first
paragraph of Article 4.
1.68 "Undisclosed Liability" shall mean an obligation,
indebtedness or liability of any nature (each of which, for purposes of this
definition, is assumed to be material), which is not reserved against or
disclosed on the Balance Sheet, or in the notes to the Balance Sheet or to
the Interim Financial Statements, and which is not so reflected, reserved
against or disclosed or otherwise disclosed in this Agreement or the
Corporation Disclosure Schedule.
1.69 "1933 Act" shall mean the Securities Act of 1933, as amended.
1.70 "Working Capital" shall have the meaning set forth in Section
2.2(c).
1.71 "1934 Act" shall mean the Securities Exchange Act of 1934, as
amended.
1.72 "Other Defined Terms." The terms defined in the first
paragraph and in the whereas clauses shall have the meanings given to such
terms in such paragraph and whereas clauses.
ARTICLE 2.
SALE OF SHARES; CLOSING
Section 2.1 Purchase and Sale. Subject to the satisfaction or waiver
of the conditions to the Closing set forth in this Agreement, at the Closing
the Sellers will sell, and the Buyer will purchase, preferred and common
shares of the Corporation which constitute, and will constitute as of the
Closing, all of the issued and outstanding shares of capital stock of the
Corporation (collectively, the "Corporation Shares"), with the amount of
Corporation Shares to be sold by each Seller set forth opposite such Seller's
name on Exhibit A hereto.
Section 2.2 Purchase Price. (a) In full payment of the Corporation
Shares, the Buyer shall pay and deliver to the Sellers an aggregate purchase
price of consisting of (i) the Deferred Purchase Price (defined below), and
(ii) the Closing Purchase Price. The Closing Purchase Price is Twenty Three
Million Six Hundred Twenty Seven Thousand Four Hundred Sixty One Dollars
($23,627,461) (the "Closing Purchase Price"), minus the Adjustment Amount, if
any. The Adjustment Amount is the decrease in the Working Capital (as defined
below) as set forth on the Closing Balance Sheet, as determined pursuant to
the audit of the Corporation's certified public accountants to be conducted
as set forth in Section 2.2(b), below ($10,819,442) (which is the Working
Capital as reflected on the Balance Sheet) (the "Adjustment Amount"). The
Closing Purchase Price plus the Deferred Purchased Price shall collectively
be referred to herein as the Purchase Price. The Purchase Price shall
be paid to each of the Sellers as set forth opposite each Seller's name on
Exhibit A hereto.
(b) The Corporation will use diligent efforts to cause
Ernst & Young LLP to prepare an audited consolidated balance sheet ("Closing
Balance Sheet") of the Corporation and its Subsidiaries as of the Closing
Date, including a computation of the Corporation's Working Capital, as
defined below, as of the Closing Date. The Corporation will deliver the
Closing Balance Sheet to the Buyer within thirty (30) days after the Closing
Date. The Closing Balance Sheet will be prepared in accordance with GAAP
-7-<PAGE>
<PAGE>
applied on a basis consistent with the preparation of the Audited Financial
Statements, including without limitation accruals, prepaid expenses and
taxes. If within thirty (30) days following delivery of the Closing
Balance Sheet, the Buyer has not given the Sellers notice of its objection
to the Closing Balance Sheet (such notice must contain a statement of the
basis of the Buyer's objection), then the Working Capital reflected in the
Closing Balance Sheet will be used in computing the Adjustment Amount. If
the Buyer gives such notice of objection, then the issues in dispute will
be submitted to KPMG Peat Marwick, certified public accountants (the
"Accountants"), for resolution. If issues in dispute are submitted to the
Accountants for resolution, (i) each party will furnish to the Accountants
such workpapers and other documents and information relating to the disputed
issues as the Accountants may request and are available to that party or
its Subsidiaries (or its independent public accountants), and will be
afforded the opportunity to present to the Accountants any material relating
to the determination and to discuss the determination with the Accountants;
(ii) the determination by the Accountants, with respect to such issues, as
set forth in a notice delivered to both parties by the Accountants, will
be binding and conclusive on the parties; and (iii) the Buyer and the
Sellers will each bear 50% of the fees of the Accountants for such
determination.
(c) "Working Capital" as used herein shall mean the excess
of (x) the sum of cash, net receivables and net inventory, over (y) the sum
of accounts payable, amounts outstanding under the Corporation's line of
credit, long-term debt (including the current portion thereof) and other
accrued liabilities.
Section 2.3 Delivery of Corporation Shares; Payment.
(a) Delivery of Corporation Shares. At the Closing, each
Seller, severally and not jointly, shall sell, assign, transfer and deliver
to the Buyer the number of the Corporation Shares set forth opposite such
Seller's name in Exhibit A by delivery to the Buyer of a certificate or
certificates representing such Corporation Shares, duly endorsed for transfer
or accompanied by duly executed stock powers in form and substance
satisfactory to the Buyer and free and clear of all Encumbrances. The
Corporation agrees to, immediately upon the Closing, accept for transfer
such certificates for the Corporation Shares and to issue to the Buyer a
certificate or certificates, in the name of the Buyer, representing the
Corporation Shares.
(b) Payment of the Purchase Price. (i) At the Closing,
the Buyer shall pay to the Sellers the Closing Purchase Price, less the
Retained Funds described below and less the fees and expenses payable by the
Corporation or the Sellers to Trenwith Securities, Inc., the Corporation's
legal counsel for all services rendered in connection with the Share
Purchase, and amounts payable to certain individuals in connection with the
Corporation's Success Stay Bonus referenced on Section 3.13 of the
Corporation Disclosure Schedule, pro rata based on the percentages set
forth in Exhibit A, by wire transfer of immediately available funds to the
accounts designated by the Sellers in writing to the Buyer not less than
two Business Days prior to the Closing. The Buyer shall retain Five Hundred
Thousand ($500,000) of the Closing Purchase Price (the "Retained Funds"),
which shall be used to reimburse the Buyer to the extent that the Closing
Purchase Price is decreased (if at all) in accordance with Section 2.2.
On the tenth business day following the final determination of the
Adjustment Amount (the "Adjustment Date"), the Adjustment Amount payable to
-8-<PAGE>
<PAGE>
the Buyer, if any, shall be retained by the Buyer out of the Retained Funds
and the remainder shall be paid to the Sellers pro rata based on the
percentages set forth in Exhibit A. To the extent that the Retained Funds
are insufficient to cover the Adjustment Amount, the Buyer may withhold the
Deferred Purchase Price (defined below).
(ii) In addition to the Closing Purchase Price, the Buyer shall
pay to the Sellers an aggregate amount equal to Four Million Dollars
($4,000,000) (the "Deferred Purchase Price"), payable in twenty four (24)
equal quarterly installments commencing on September 30, 1998 and continuing
on each subsequent December 31, March 31, June 30 and September 30 until
completed, based on the percentages set forth on Exhibit A. Upon mutual
agreement between the Buyer and a particular Seller, the Buyer may prepay
that particular Seller's portion of the Deferred Purchase Price based on the
present value of the remaining installments owed to that particular Seller,
determined using a discount rate of eight percent (8%), and the portion of
the Deferred Purchase Price payable to the ESOP shall be so prepaid at the
Closing. The Deferred Purchase Price shall not bear interest so long as it
is paid when due. Any portion of the Deferred Purchase Price which is not
paid when due shall bear interest at the rate of 10% per annum. A portion
of the Deferred Purchase Price equal to $2,000,000 shall be allocated and
subject to possible set off claims for indemnification as specified in
Section 9.2 hereof. If requested by a particular Seller, the Buyer shall
issue a promissory note, in a form and substance reasonably satisfactory
to the Buyer, to such Seller for the dollar amount of such Seller's interest
in the then remaining amounts of the Deferred Purchase Price (less pending
set off claims).
(c) All options or warrants will be exercised prior to the
Closing, or, the Buyer, the Corporation and the Sellers shall, effective as
of the Closing, cause all options or warrants to purchase equity of the
Corporation then outstanding to be canceled.
(d) The Corporation, or with respect to items (i) and (ii)
below, the Corporation or the ESOP, shall pay the fees and expenses incurred
by the Corporation and the ESOP for the services of (i) the law firm of
O'Melveny & Myers, (ii) the consulting firm of Duff & Phelps, and (iii)
Ernst & Young LLP, to the extent said services were incurred with respect
to the transactions described in this Agreement (collectively referred to as
the "Specified Expenses"). The Specified Expenses shall not be included in
the calculations of the Working Capital. The Buyer acknowledges the
Corporation's obligations to employees of the Corporation pursuant to the
agreements specified in Section 3.12 of the Corporation Disclosure Schedule.
Section 2.4 Time and Place of Closing. The closing (the "Closing")
of the Share Purchase will be held at the offices of Trenwith Securities,
Inc., 450 Newport Center Drive, Suite 550, Newport Beach, California at
10:00 a.m. on Friday, June 26, 1998 if all the conditions set forth in
Articles 7 and 8 have been fulfilled or waived on or before the second
Business Day prior thereto, or, if later, on the second Business Day after
the fulfillment or waiver of the conditions set forth in Articles 7 and 8
takes place. If the Closing occurs on June 26, 1998, then the Closing
shall be deemed to be effective as of 11:59 p.m. on June 27, 1998.
-9-<PAGE>
<PAGE>
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF CORPORATION
The Corporation represents and warrants to the Buyer that the
statements contained in this Article 3 are true and correct, except as set
forth in the Corporation Disclosure Schedule.
Section 3.1 Organization, Etc. The Corporation and each Subsidiary
is a corporation duly organized, validly existing and in good standing under
the laws of their respective states of incorporation and has all requisite
corporate or other power and authority (i) to conduct its business as it is
now conducted and to own or lease all of the properties owned or leased by
it, and (ii) in the case of the Corporation, to enter into and perform its
obligations under this Agreement and to undertake the transactions
contemplated hereby. True, correct and complete copies of the Articles of
Incorporation and Bylaws of the Corporation and each Subsidiary as of the
date of this Agreement have been previously delivered or made available to
the Buyer. The corporate records and minute books of the Corporation and
each Subsidiary contain complete, comprehensive and accurate minutes of all
meetings and other corporate actions of the incorporators, directors,
committees of directors and shareholders of the Corporation and each
Subsidiary held, in the case of the Corporation, since its date of
incorporation and, in the case of each Subsidiary, since the date of its
acquisition by the Corporation, and the share certificate books and register
of shareholders of the Corporation and each Subsidiary are complete and
accurate, reflecting all transactions in the equity securities of the
Corporation and each Subsidiary. The Corporation's and each Subsidiary's
share transfer records reflect fully all issuances, transfers and
redemptions of the Corporation Shares and each Subsidiary's shares since
the date of incorporation. The Corporation and each Subsidiary is duly
qualified to do business as a foreign corporation, and is in good standing,
in all jurisdictions in which the ownership or lease of property by it or
the conduct of its business makes such qualification necessary, a complete
list of which jurisdictions is set forth in Section 3.1 of the Corporation
Disclosure Schedule.
Section 3.2 Authorization: Execution: Binding Effect. The execution,
delivery and performance of this Agreement and the consummation of the
transactions provided for herein have been duly authorized by all requisite
corporate action on the part of the Corporation, and this Agreement has been
duly executed and delivered by the Corporation. Assuming due execution and
delivery by the other parties, this Agreement constitutes the legal, valid
and binding obligation of the Corporation, enforceable against the
Corporation in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, or other laws affecting
creditors' rights and remedies generally and by general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
Section 3.3 Capitalization; Share Ownership. The authorized and
outstanding capital shares, options and warrants of the Corporation and each
Subsidiary are listed in Section 3.3 of the Corporation Disclosure Schedule.
All outstanding capital shares of the Corporation and each Subsidiary have
been duly authorized and validly issued, are fully paid and nonassessable,
and have in no case been issued in violation of any preemptive rights
granted by the Corporation or the applicable Subsidiary. All outstanding
capital shares of the Corporation or any Subsidiary were authorized, offered,
issued and sold in accordance with applicable law. Neither the Corporation
-10-<PAGE>
<PAGE>
nor any Subsidiary has any capital shares in its treasury, other than shares
which have been repurchased pursuant to a promissory note which is not yet
fully paid. Excepting only as set forth in Section 3.3 of the Corporation
Disclosure Schedule, there is no existing subscription, option, warrant,
call, right, commitment or other agreement (whether preemptive or
contractual) to which the Corporation or any Subsidiary is a party requiring,
and there are no convertible securities of the Corporation or any Subsidiary
outstanding which upon conversion would require, directly or indirectly, the
issuance of any additional capital shares of the Corporation, a Subsidiary
or other securities convertible into or exercisable or exchangeable for
capital shares of the Corporation, a Subsidiary, or any other equity
security of the Corporation or a Subsidiary, and there are no obligations
(contingent or otherwise) of the Corporation or any Subsidiary (i) to
repurchase, redeem or otherwise acquire any outstanding capital shares of
the Corporation or the capital shares of, or other equity interests in, any
Subsidiary, or (ii) except for guarantees of obligations of, or loans and
advances to, the Corporation or any Subsidiary, provide funds to, or make
investments in, or provide any guarantee with respect to the obligations
of any other Person. There are no bonds, debentures, notes, lines of credit,
letters of credit, or other indebtedness issued and outstanding having the
right to vote on any matters on which the Corporation's shareholders may
vote. The Corporation Shares to be sold pursuant to this Agreement constitute
all of the issued and outstanding capital shares of the Corporation. The
Corporation has granted no Person any registration rights in respect of
capital shares of the Corporation or securities convertible into or
exercisable or exchangeable for capital shares of the Corporation. Each
Seller is the sole record owner of the shares of the Corporation listed
beside such Seller's name in Exhibit A.
Section 3.4 Subsidiaries.
(a) Other than the Subsidiaries set forth in Section
3.4(b) of the Corporation Disclosure Schedule, there are no corporations,
partnerships, limited liability companies, joint ventures, business trusts,
associations, or other entities (i) over which the Corporation has control
(whether absolute or shared) or a right to exercise control, or (ii) in which
the Corporation owns, of record or beneficially, any direct or indirect
equity interest or any right (contingent or otherwise) to acquire the same.
(b) Section 3.4(b) of the Corporation Disclosure Schedule
sets forth the jurisdiction of incorporation of each Subsidiary, its
authorized capital stock, the number and class or series of its issued and
outstanding shares of capital stock, and the current ownership by
Corporation and its Subsidiaries of such shares (collectively, the "Subsidiary
Shares"). The Subsidiary Shares constitute all the issued and outstanding
shares of capital stock of the Subsidiaries. The Subsidiary Shares have been
duly authorized and validly issued, are fully paid and nonassessable, and
were not issued in violation of any preemptive rights. There are no existing
subscriptions, options, warrants, calls, rights of conversion or other rights,
agreements, arrangements or commitments relating to the capital stock of any
Subsidiary obligating any Subsidiary, directly or indirectly, to issue,
sell, or otherwise transfer, or repurchase, redeem, or otherwise acquire
any shares of its capital stock. Either Corporation or another Subsidiary
owns the Subsidiary Shares issued by the respective Subsidiaries free and
clear of all Encumbrances, except Encumbrances arising out of, under or in
connection with this Agreement. There are no voting trusts, shareholder
-11-<PAGE>
<PAGE>
agreements, proxies or other agreements in effect with respect to the voting
or transfer of the Subsidiary Shares.
Section 3.5 No Conflicting Agreements or Articles Provisions.
Except as set forth in Section 3.5 of the Corporation Disclosure Schedule,
the execution and delivery of this Agreement, the compliance with and
performance of the terms and provisions of this Agreement, and the
consummation of the transactions contemplated hereby by the Corporation
will not (i) conflict with or result in the contravention or breach of the
terms, conditions or provisions of, (ii) constitute a default (or an event
which, with notice, lapse of time, or both, would constitute a default)
under, (iii) result in any violation of, (iv) require the obtaining of
any consent or approval of, the taking of any action of, the making of any
filing with, or the giving of any notice to, any Person (except such
consents, approvals, actions, filings and notices that will have been
obtained, taken, made, given or effectively waived prior to the Closing, a
true, correct and complete list of which is set forth in Section 3.5 of
the Corporation Disclosure Schedule) as a result of or under the terms of,
(v) result in or give to any Person any right of termination, cancellation,
acceleration, modification, or increased or accelerated rights, entitlements
or payments under, or (vi) result in the creation or imposition of any
Encumbrance upon the Corporation or any Subsidiary or any of their respective
assets or the Corporation Shares under: (A) the Articles of Incorporation
or Bylaws of the Corporation or any Subsidiary or any resolutions adopted
by the shareholders or the Board of Directors or any committee of the Board
of Directors of the Corporation or any Subsidiary; (B) any order, judgment,
decree, license, permit, statute, law, rule, or regulation to which the
Corporation or any Subsidiary or any of their respective assets is subject;
or (C) any provision of any Contract to which the Corporation or any
Subsidiary is party or by which the Corporation or any Subsidiary or any of
their respective assets is bound except, in the case of clauses (B) and (C),
for any such violations, breaches, defaults, terminations, cancellations or
accelerations which in the aggregate would not be reasonably likely to have a
Material Adverse Effect or a material adverse effect on the ability of the
Corporation or any Subsidiary to consummate the transactions contemplated
by this Agreement.
Section 3.6 Consents, Approvals, Licenses, Etc. No Permit by or
from, or declaration, filing or registration with, or notification to, any
Governmental Authority is required to be made or obtained by the Corporation
or any Subsidiary in connection with the execution, delivery and performance
of this Agreement, or the consummation of the transactions contemplated
hereby, except as set forth in Section 3.6 of the Corporation Disclosure
Schedule, and except where the failure to obtain the Permit, or make the
declaration, filing, registration, or notification would not have a Material
Adverse Effect or a material adverse effect on the parties' ability to
consummate the transactions contemplated by this Agreement.
Section 3.7 Litigation. Except as set forth in Section 3.7 of the
Corporation Disclosure Schedule, there is no action, suit, proceeding or
investigation in progress or pending or, to the Knowledge of the Corporation
or any Subsidiary, threatened or contemplated, at law or in equity, in any
court or before or by any Governmental Authority against or relating to the
Corporation or any Subsidiary or any of their respective properties, or the
conduct of the Corporation's or any Subsidiary's business as presently
operated or currently contemplated to be operated, which in any case would
be reasonably likely to have a Material Adverse Effect or a material adverse
-12-<PAGE>
<PAGE>
effect on the parties' ability to consummate the transactions contemplated
by this Agreement.
Except as set forth in Section 3.7 of the Corporation Disclosure
Schedule, there is not presently outstanding against the Corporation or any
Subsidiary any judgment, decree, injunction, ruling or order of any
Governmental Authority which, insofar as it can be reasonably foreseen,
individually or in the aggregate, would have a Material Adverse Effect.
Section 3.8 Financial Statements. The Corporation Disclosure
Schedule identifies the Financial Statements which have been furnished to
the Buyer. The Financial Statements (i) have been prepared based upon and
are consistent with the books and records of the Corporation and the
Subsidiaries (which books and records are correct and complete in all
material respects), and (ii) fairly present the financial position, results
of operations, changes in shareholders' equity and cash flows of the
Corporation on a consolidated basis as of the dates and for the periods
set forth in such Financial Statements, in accordance with GAAP applied
consistently throughout the periods involved, except normal year-end audit
adjustments with respect to the Interim Financial Statements. The balance
sheets included in the Financial Statements accurately reflect all
properties and assets of the Corporation and each Subsidiary, whether real,
personal or mixed, which are required to be reflected on such balance sheets
in accordance with GAAP, consistently applied.
Section 3.9 No Undisclosed Liabilities. The Corporation and its
Subsidiaries have no Undisclosed Liabilities outstanding on the date of this
Agreement, whether due or to become due, which individually or in the
aggregate would be reasonably likely to have a Material Adverse Effect,
except (i) as set forth in Section 3.9 of the Corporation Disclosure
Schedule or (ii) for normal and recurring current liabilities accruing in
the ordinary course of business since the Balance Sheet Date.
Section 3.10 Compliance with Laws: Permits. The Corporation and the
Subsidiaries have complied with, and are not in violation of, and have not
received any notices of violation with respect to, any federal, state or
local statute, law, regulation or ordinance with respect to the conduct of
their business, or the ownership or operation of their business, except for
failures to comply or violations which would not be reasonably likely to
have a Material Adverse Effect.
Section 3.11 No Adverse Changes. Since the Balance Sheet Date,
except as set forth in Section 3.11 of the Corporation Disclosure Schedule or
as contemplated by this Agreement, there has not been, occurred or arisen:
(i) any change, destruction or loss not covered by
insurance with respect to the Corporation or any Subsidiary having a Material
Adverse Effect;
(ii) any material change by the Corporation and any
Subsidiary in its accounting methods, principles, or practices;
(iii) any material revaluation of any of the assets of
the Corporation or any Subsidiary, including, without limitation, writing
down the value of inventory; or
-13-<PAGE>
<PAGE>
(iv) any other event that resulted in a Material Adverse
Effect.
Section 3.12 Certain Transactions. Except as set forth in Section
3.12 of the Corporation Disclosure Schedule, to the Knowledge of the
Corporation or any Subsidiary:
(i) No (A) Seller, and no Family Member, Affiliate or
Associate of any Seller (other than the Corporation and its Subsidiaries),
(B) no officer, director or other Affiliate of the Corporation or any
Subsidiary ("Company Affiliate"), and (C) no Associate or Family Member of
any Company Affiliate ("Related Party") directly or indirectly (1) sells to
or purchases from the Corporation or any Subsidiary any products or services
in any material amount, (2) has any interest in any corporation, partnership,
limited liability company, proprietorship or other entity which sells to or
purchases from the Corporation or any Subsidiary any products or services
in any material amount, (3) has any cause of action or claim against the
Corporation or any Subsidiary in any material amount; or (4) has a beneficial
interest in any Contract to which the Corporation or any Subsidiary is a
party or by which it or its assets is bound;
(ii) The Corporation is not, and no Subsidiary is,
indebted, either directly or indirectly, to any Related Party in any amount
other than current obligations for payments of salaries, bonuses and other
fringe benefits for past services rendered and recorded on the books of the
Corporation or a Subsidiary;
(iii) The Corporation is not, and no Subsidiary is,
indebted to any Seller in any amount for any management fees referenced in
Section 5 of that certain Shareholders Agreement among the Corporation and
certain of the Sellers dated as of May 6, 1994; and
(iv) No Related Party is indebted to the Corporation
or any Subsidiary.
Section 3.13 Benefit Plans.
(a) Corporation and each Subsidiary has made available to
Buyer true and correct copies of all Benefit Plans and, to the extent
applicable, all related trust agreements, summary plan descriptions,
actuarial reports, Annual Report Form 5500s, IRS determination letters,
insurance contracts, administrative service agreements, maintained for the
benefit of, or relating to, any current or former employee of Corporation,
each Subsidiary, and any ERISA Affiliate.
(b) With respect to the Benefit Plans, individually and in
the aggregate, (i) no event has occurred, and to the Knowledge of Corporation,
there exists no condition or set of circumstances in connection with which
Corporation could be subject to any liability that is reasonably expected to
have a Material Adverse Effect under ERISA, the Code or any other applicable
law, and (ii) the Benefit Plans have been administered and operated in
accordance with their terms and in all material respects in accordance
with the Code, ERISA and the rulings and regulations thereunder. The
representations, warranties and agreements in Sections 4.8, 4.9 and 6.11
are included as if set forth in full herein and are made by the Corporation.
(c) With respect to the Benefit Plans, individually and in
the aggregate, there are no funded benefit obligations for which
contributions have not been made or properly accrued, and there are no
-14-<PAGE>
<PAGE>
unfunded benefit obligations which have not been accounted for by reserves
or otherwise properly footnoted in accordance with GAAP in the Financial
Statements, which obligations are reasonably expected to have a Material
Adverse Effect.
(d) With respect to each Benefit Plan, to the Knowledge of
the Corporation, neither such Benefit Plan, nor any trustee, administrator,
fiduciary, agent or employee thereof has at any time been involved in a
transaction which would constitute a "prohibited transaction" within the
meaning of Section 406 of ERISA or Section 4975 of the Code (unless an
exemption was available), nor has any such person been involved in or
caused the ESOP to be involved in a breach of fiduciary duty under Section
404 of ERISA, which could create a liability that is reasonably expected
to have a Material Adverse Effect.
(e) Except as set forth in Schedule 3.13 of the Corporation
Disclosure Schedule, neither the Corporation nor any of its Subsidiaries is
a party to any oral or written (i) union or collective bargaining agreement,
(ii) agreement with any officer or other key employee of the Corporation or
any of its Subsidiaries, the benefits of which are contingent, or the terms
of which are materially altered, upon the occurrence of a change in control
of the Corporation or other transaction involving the Corporation of the
nature contemplated by this Agreement, (iii) agreement with any officer of
the Corporation or any of its Subsidiaries providing any term of employment
or compensation guarantee extending for a period longer than one year from
the date hereof or for the payment of compensation in excess of One
Hundred Thousand Dollars ($100,000) per annum, (iv) agreement or plan,
including any stock option plan, stock appreciation right plan, restricted
stock plan or stock purchase plan, any of the benefits of which will be
increased, or the vesting of the benefits of which will be accelerated, by
the occurrence of any of the transactions contemplated by this Agreement or
the value of any of the benefits of which will be calculated on the basis of
any of the transactions contemplated by this Agreement; or (v) agreement or
commitment to provide health care, life insurance or other benefits after
termination of employment, except for retirement benefits under the
Corporation's retirement plans or except as required under COBRA.
(f) Nothing contained in this Agreement shall limit or
restrict the Corporation's or the Buyer's right from and after the Closing
Date to amend or modify any Benefit Plan in such manner as the Corporation
or the Buyer deems appropriate or to terminate a Benefit Plan.
Section 3.14 Tax Matters.
(a) The Corporation and each Subsidiary have (i) filed
when due (after taking into account applicable extensions) with the
appropriate federal, state, local, foreign and other governmental agencies
all Tax Returns required to be filed by them, and (ii) paid when due and
payable all Taxes owed by them or, to the extent of Taxes not yet due
and payable, have accrued or otherwise adequately reserved on the Financial
Statements in material compliance with GAAP for the payment of such Taxes
not yet due and payable. All such Tax Returns are correct and complete in
all material respects. Complete and accurate copies of all such Tax Returns
due or filed since January 1, 1994 have been furnished or made available to
the Buyer. The Corporation and each Subsidiary set forth in Section 3.14(a)
of the Corporation Disclosure Schedule is a member of the affiliated group
(as defined in Section 1504 of the Code) of corporations filing a
-15-<PAGE>
<PAGE>
consolidated federal income tax return of which the Corporation is the
common parent. The Corporation has included the Subsidiaries in its
consolidated federal income Tax Returns, and in its consolidated, combined
or unitary state or local Tax Returns, to the extent set forth in Section
3.14(a) of the Corporation Disclosure Schedule, the Corporation has not and
no Subsidiary has (A) obtained an extension of the time within which to
file any Tax Return that has not yet been filed, or (B) received notice
from any Governmental Authority in a jurisdiction in which such entity
does not file a Tax Return stating that such entity is or may be subject
to taxation by that jurisdiction.
(b) There are no Taxes assessed or, to the Knowledge of the
Corporation or any Subsidiary, asserted in respect of any Tax Returns filed
by the Corporation or any Subsidiary or claimed to be due by any taxing
authority or otherwise that are not accrued or adequately reserved for on
the Financial Statements in accordance with GAAP. The Corporation is not,
and no Subsidiary is, a party to any action or proceeding, and to the
Corporation's or any Subsidiary's Knowledge, no action or proceeding is
threatened or contemplated, for the assessment or collection of any Taxes,
and no deficiency notices or reports have been received by the Corporation
or any Subsidiary in respect of any Tax. To the Knowledge of the
Corporation or any Subsidiary, no Tax Return of the Corporation or any
Subsidiary is currently being audited or, to the Corporation's or any
Subsidiary's Knowledge, is scheduled for future audit by the IRS or any
other taxing authority (whether foreign or domestic). The Corporation has
not, and no Subsidiary has, executed or filed with the IRS or any other
taxing authority (whether foreign or domestic) any agreement, waiver, or
other document extending, or having the effect of extending, the period
for assessment or collection of any Taxes, which extension or waiver is
still in effect. No requests for ruling or determination letters filed by
the Corporation or any Subsidiary are pending with any taxing authority.
Except with respect to the consolidated group of which the Corporation is
the parent, the Corporation is not, and no Subsidiary is, a party to any
Tax allocation or sharing agreement with any other entity or has any
liability or obligation to any other entity under any such agreement that
previously was in effect. The Corporation does not have, and no Subsidiary
has, any liability to any Person with respect to Taxes paid, owed or to be
paid for periods of time during which the Corporation or any Subsidiary or
any predecessor of such entity was a member of a consolidated group other
than the consolidated group of which the Corporation is or was the common
parent. Neither the Corporation nor any Subsidiary has been a "real
property holding corporation" (within the meaning of Section 897(c)(2)
of the Code) during the five-year period ending on the Closing Date.
Section 3.15 Contracts.
(a) Section 3.15 of the Corporation Disclosure Schedule
sets forth each of the following Contracts to which the Corporation, any
Subsidiary or the ESOP is a party: (i) any Contract for borrowed money or
deferred portion of purchase price; (ii) any loan agreement, credit
agreement, promissory note, guarantee, indenture, subordination agreement,
letter of credit, use of credit, interest rate or foreign currency protection
agreement or any other similar type of Contract; (iii) any consulting or
other Contract with attorneys, accountants, actuaries, appraisers,
investment bankers, lobbyists, government relations persons or other
professional advisers providing for total payments equal to or in excess of
Twenty Five Thousand Dollars ($25,000) and that cannot be terminated by
-16-<PAGE>
<PAGE>
the Corporation without penalty on 30 days or less notice; (iv) any Contract
(except for Contracts with customers) which, in whole or in part, (A)
presently restricts or precludes the Corporation or any present or future
Subsidiary or Affiliate of the Corporation from conducting any business
anywhere in the world, or (B) upon the occurrence of any event, the giving
of notice or the passage of time, by its terms would have such an effect;
(v) any Contract that involves aggregate payments by or to the Corporation
or any Subsidiary in excess of Twenty Five Thousand Dollars ($25,000) and
that cannot be terminated by the Corporation without penalty on 30 days or
less notice; and (vi) any indemnification agreement (except those entered
into in the ordinary course of business), guaranty or power of attorney
granted to any Person (other than the Corporation or a Subsidiary). The
Corporation has delivered or otherwise made available to the Buyer true,
correct and complete copies of the Contracts set forth in Section 3.15 of
the Corporation Disclosure Schedule, together with all amendments, waivers,
modifications, supplements or side letters affecting the obligations of any
party under such Contracts.
(b) Except as set forth opposite or otherwise as part of the
description of such Contract in Section 3.15 of the Corporation Disclosure
Schedule:
(i) Since January 1, 1998, no party to any Contract
listed in Section 3.15 to the Corporation Disclosure Schedule has given to
the Corporation or any Subsidiary notice of any breach or default under any
such Contract by the Corporation or a Subsidiary which has not been cured
or waived;
(ii) the Corporation is not, and no Subsidiary is, in
violation or breach of or default of any material term under any Contract
listed in Section 3.15 to the Corporation Disclosure Schedule in any respect
or, with notice or lapse of time or both, would be in violation or breach of
or default under any such Contract; and, to the Knowledge of the Corporation
or any Subsidiary no other party to any such Contract is in violation or
breach of or default under any such Contract or, with notice or lapse of
time or both, would be in violation or breach of or default under any such
Contract; and
(iii) No consent by or of any party to any Contract
listed in Section 3.15 to the Corporation Disclosure Schedule is required in
order to consummate the transactions contemplated by this Agreement without
causing a breach or violation of or a default under such Contract.
Section 3.16 Leased Property. Set forth in Section 3.16 of the
Corporation Disclosure Schedule is a true, complete and correct list of all
leases, licenses or similar arrangements in respect of the use of real or
personal property by the Corporation or any Subsidiary which, in the case
of personal property arrangements, require payments in excess of $25,000
by the Corporation or any Subsidiary. Each Lease is in full force and
effect, has not been amended or modified in any way, and the Corporation is
not, and no Subsidiary is, in violation or breach of or default under any
material term of any such Lease, nor has any event occurred which, with the
passage of time or action by a third party, could constitute such a
violation, breach or default. To the best of the Corporation's or any
Subsidiary's Knowledge, no other party to any Lease is in violation or
breach of or default under the terms of such Lease, nor has any event
occurred which, with the passage of time or action by a third party, could
constitute such a violation, breach or default. Except as set forth opposite
-17-<PAGE>
<PAGE>
or otherwise as part of the description of such Lease in Section 3.16 of the
Corporation Disclosure Schedule, no consent by or of any party to any such
Lease is required in order to consummate the transactions contemplated by
this Agreement without causing a breach or violation of, a default under
such Lease or increased charges under such Lease.
Section 3.17 Intellectual Property. The Corporation or a Subsidiary
either has all right, title and interest in (free and clear of all
Encumbrances), or a valid and binding license to use, all of the Intellectual
Property used by the Corporation or any Subsidiary in the conduct of their
respective businesses, except to the extent that the failure to have such
rights has not had and would not be reasonably likely to have a Material
Adverse Effect. Except as disclosed in Section 3.17 of the Corporation
Disclosure Schedule, (i) all registrations with and applications to
Governmental Authorities in respect of such Intellectual Property are valid
and in full force and effect, (ii) the Corporation has and the Subsidiaries
have taken reasonable security measures to protect the secrecy,
confidentiality and value of their respective trade secrets which
Corporation or the Subsidiary considers to be material, and (iii) the
Corporation is not, and no Subsidiary is, and the Corporation has not, and
no Subsidiary has, received any notice that it is, in violation or breach of
or default under (or with the giving of notice or lapse of time or both,
would be in violation or breach of or default under) any license to use
such Intellectual Property, except to the extent that the failure to have
such rights has not had and would not be reasonably likely to have a
Material Adverse Effect. The Corporation has not, and no Subsidiary has,
received notice that the Corporation or any Subsidiary is infringing any
Intellectual Property of any other Person; no claim is pending or, to the
Knowledge of the Corporation or any Subsidiary, has been made to such effect
that has not been resolved; and to the Knowledge of the Corporation or any
Subsidiary, the Corporation is not, and no Subsidiary is, infringing any
Intellectual Property rights of any other Person, which infringement would
be reasonably likely to have a Material Adverse Effect.
Section 3.18 Compliance with Environmental Laws. Except as set
forth in Section 3.18 of the Corporation Disclosure Schedule, and except
where any such matters or violations would, individually or in the
aggregate, not be reasonably expected to have a Material Adverse Effect,
(i) the Corporation has not, and no Subsidiary has, generated, used,
manufactured, processed, distributed, handled, transported, treated, stored,
released or disposed of, and has not suffered or permitted anyone else to
generate, use, manufacture, process, distribute, handle, transport, treat,
store, release or dispose of, any Hazardous Substance in violation of any
Environmental Laws; (ii) there has not been any generation, use, manufacture,
processing, distribution, handling, transportation, treatment, storage,
release or disposal of any Hazardous Substance in connection with the
conduct of the Business or the use of any property or facility leased or
owned by the Corporation or any Subsidiary, or to the Knowledge of the
Corporation or any Subsidiary, any nearby or adjacent properties or
facilities, which has created or might reasonably be expected to create
any liability under any Environmental Laws or which would require reporting
to or notification of any Governmental Authority; (iii) to the Knowledge
of the Corporation or any Subsidiary, no friable asbestos or polychlorinated
biphenyl, and no underground storage tank, is contained in or located at any
property or facility of the Corporation or any Subsidiary; (iv) any Hazardous
Substance handled or dealt with in any way in connection with the Business
-18-<PAGE>
<PAGE>
has been and is being handled or dealt with in compliance with any
Environmental Laws; (v) there are no investigations, proceedings, actions,
orders, claims or notices that are pending, anticipated or, to the Knowledge
of the Corporation or any Subsidiary threatened or contemplated against the
Corporation or any Subsidiary or involving the Business and relating to
Environmental Laws; and (vi) the Corporation has not received, and no
Subsidiary has received, any notice of, and the Corporation does not have
Knowledge of or suspect, and no Subsidiary has Knowledge of or suspects,
any facts which relate to the ownership or operation of the Business or
any of the properties or facilities of the Corporation or any Subsidiary
and that might constitute a violation of any Environmental Laws.
Section 3.19 No Brokers. Other than Trenwith Securities, Inc.,
no broker, agent, finder, consultant or other Person has been retained by,
or has acted on behalf of the Sellers or the Corporation (other than legal
and accounting advisors) or is entitled to be paid based upon any
agreements or understandings made by such parties in connection with the
transactions contemplated by this Agreement, and neither the Buyer nor the
Corporation shall have any liability for any broker's fee, finder's fee,
consultant's fee or similar third party remuneration payable by reason of
any action of the Sellers or the Corporation.
Section 3.20 Books and Records. The accounting books, minute books,
share transfer records, and other records of the Corporation and each
Subsidiary, all of which have been made available to the Buyer, are complete
and correct in all material respects and to the Knowledge of the Corporation,
have been maintained in accordance with sound business practices and the
requirements of Section 13(b)(2) of the 1934 Act (regardless of whether or
not the Corporation is subject to that Section), including the maintenance
of an adequate system of internal controls. At the Closing, all such books
and records will be in the possession of the Corporation.
Section 3.21 Title to Properties; Encumbrances. (a) There is no real
property owned by the Corporation or any Subsidiary.
(b) The Corporation or any Subsidiary owns all the properties and
assets (whether tangible or intangible) that it purports to own located in
the facilities operated by the Corporation or any Subsidiary or reflected
as owned in the books and records of the Corporation or any Subsidiary,
including all of the properties and assets reflected in the Balance Sheet
and the Interim Financial Statements (except for assets held under
capitalized leases disclosed or not required to be disclosed in Section
3.16 of the Corporation Disclosure Schedule and personal property sold
since the date of the Balance Sheet and the Interim Financial Statements,
as the case may be, in the ordinary course of business), and all of the
properties and assets purchased or otherwise acquired by the Corporation
or any Subsidiary since the date of the Balance Sheet (except for personal
property acquired and sold since the date of the Balance Sheet in the
ordinary course of business and consistent with past practice).
Section 3.22 Condition and Sufficiency of Assets. To the Knowledge
of the Corporation, the buildings, structures, and equipment of the
Corporation and any Subsidiary are in good operating condition and repair,
and are adequate for the uses to which they are being put.
Section 3.23 Accounts Receivable. All accounts receivable of the
Corporation or any Subsidiary that are reflected on the Balance Sheet and
on the Closing Balance Sheet (collectively, the "Accounts Receivable")
-19-<PAGE>
<PAGE>
represent or will represent valid obligations arising from sales actually
made or services actually performed in the ordinary course of business.
Unless paid before the Closing Date, the Accounts Receivable are or will
be as of the Closing Date collectible net of the respective reserves shown
on the Balance Sheet or the Interim Financial Statements.
Section 3.24 Inventory. All inventory of the Corporation or any
Subsidiary is usable and salable in the ordinary course of business.
Section 3.25 Insurance. The Corporation and each Subsidiary has
obtained and maintains insurance policies as listed on Schedule 3.25, and
all such policies are in full force and effect. All premiums due on such
policies have been paid, and the Corporation or any Subsidiary has not
received any notice of cancellation with respect thereto. The Corporation
or any Subsidiary has no obligation, liability or indebtedness for premiums
or for retrospective premium adjustments for any period through the date
hereof. The Corporation Disclosure Schedule lists the types, amounts of
coverage and deductibles of all such insurance policies, and true, correct
and complete copies thereof have been delivered to the Buyer.
Section 3.26 Labor Relations; Compliance. Since December 31, 1994,
the Corporation and any Subsidiary has not been and is not a party to any
collective bargaining or other labor Contract. Since December 31, 1994,
there has not been, there is not presently pending or existing, and there
is not threatened, (a) any strike, slowdown, picketing or work stoppage,
(b) any proceeding against or affecting the Corporation or any Subsidiary
relating to the alleged violation of any legal requirement pertaining to
labor relations or employment matters, including any charge or complaint
filed by an employee or union with the National Labor Relations Board, the
Equal Employment Opportunity Commission, or any comparable Governmental
Authority, organizational activity, or other labor or employment dispute
against or affecting the Corporation or any Subsidiary or their respective
premises, or (c) any application for certification of a collective bargaining
agent. No event has occurred or circumstance exists that is likely to
provide the basis for any work stoppage or other labor dispute. There is
no lockout of any employees by the Corporation or any Subsidiary, and no
such action is contemplated by the Corporation or any Subsidiary. To the
Knowledge of the Corporation, the Corporation and any Subsidiary has
complied in all respects with all legal requirements relating to
employment, equal employment opportunity, nondiscrimination, immigration,
wages, hours, benefits, collective bargaining, the payment of social
security and similar taxes, and occupational safety and health. To the
Knowledge of the Corporation, neither the Corporation nor any Subsidiary
is liable for the payment of any compensation, damages, taxes, fines,
penalties, or other amounts, however designated, for failure to comply
with any of the foregoing legal requirements.
Section 3.27 Certain Payments. Since December 31, 1994, the
Corporation or any Subsidiary has not and no director, officer, agent or
employee of the Corporation, any Subsidiary, or any other Person associated
with or acting for or on behalf of the Corporation or any Subsidiary, has
directly or indirectly (a) made any bribe, rebate, payoff, influence
payment, kickback, or other payment to any Person, private or public,
regardless of form, whether in money, property, or services (i) to obtain
favorable treatment in securing business, (ii) to pay for favorable treatment
for business secured, (iii) to obtain special concessions or for special
concessions already obtained, for or in respect of the Corporation, any
-20-<PAGE>
<PAGE>
Subsidiary or any Affiliate, or (iv) in violation of any legal requirement,
(b) established or maintained any fund or asset that has not been recorded
in the books and records of the Corporation or any Subsidiary.
Section 3.28 Disclosure. No representation or warranties of the
Corporation and no statement in the Corporation Disclosure Schedule fails
to state a material fact necessary to make the statements herein or therein,
in light of the circumstances in which they were made, not misleading.
There is no fact known to the Corporation that has specific application to
the Corporation or any Subsidiary (other than general economic or industry
conditions) and that materially adversely affects the assets, business,
prospects, financial condition, or results of operations of the Corporation
or any Subsidiary (on a consolidated basis) that has not been set forth in
this Agreement or the Corporation Disclosure Schedule.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Each Seller, except the ESOP, severally and not jointly, represents
and warrants to the Buyer that the statements contained in Sections 4.1 to
4.7 of this Agreement are true and correct, except as set forth in the
Seller Disclosure Schedule. The Plan Administrative Committee (the
"Committee"), as a named fiduciary of the ESOP, represents and warrants to
the Buyer that the statements contained in Sections 4.1 to 4.8 of this
Agreement are true and correct, except as set forth in the Seller
Disclosure Schedule. First National Bank of San Diego, as the directed
trustee ("Trustee") of the ESOP, represents and warrants to the Buyer
only that the statements contained in Section 4.9 are true and correct.
Section 4.1 Capacity; Execution; Validity; Binding Effect. Such
Seller has the full power and capacity necessary to enter into and perform
its obligations under this Agreement and to consummate the transactions
contemplated herein. This Agreement has been duly executed and delivered
by such Seller and, assuming due execution and delivery by the other parties,
constitutes the legal, valid and binding obligation of such Seller,
enforceable against such Seller in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization, or
other laws affecting creditors' rights and remedies generally and by general
principles of equity (regardless of whether such enforceability is considered
in a proceeding in equity or at law).
Section 4.2 Share Ownership. Except as set forth on Section 4.2
of the Seller Disclosure Schedule, there is no existing subscription, option,
warrant, call, right, commitment or other agreement (whether preemptive or
contractual) to which such Seller is a party requiring, and there are no
convertible securities of the Corporation owned or held by such Seller which
upon conversion would require, directly or indirectly, the issuance of any
additional capital shares of the Corporation or other securities convertible
into or exercisable or exchangeable for capital shares of the Corporation
or any other equity security of the Corporation, and there are no obligations
(contingent or otherwise) of such Seller to purchase or otherwise acquire
any outstanding capital shares of the Corporation. The Corporation
Shares to be sold by such Seller pursuant to this Agreement will be
delivered to the Buyer free and clear of all Encumbrances (except
Encumbrances arising out of, under or in connection with this Agreement),
-21-<PAGE>
<PAGE>
and such delivery will not be in violation of any preemptive rights. Such
Seller is the sole beneficial owner of the Corporation Shares listed
beside such Seller's name on Exhibit A, and has the full legal right and
power to sell, convey, transfer, and assign such Corporation Shares to the
Buyer pursuant to this Agreement. Such Seller is not a party to any
shareholder agreement, voting agreement, voting trust, proxy or other
agreement with respect to the voting or transfer of the Corporation Shares.
Section 4.3 No Other Rights. No Person (other than the Buyer as
provided in this Agreement) has any agreement or option or any right or
privilege (whether preemptive or contractual) capable of becoming an
agreement or option for the purchase from such Seller of any of the
Corporation Shares being transferred by such Seller to the Buyer pursuant
to this Agreement.
Section 4.4 No Conflicting Agreements. The execution and delivery
of this Agreement, the compliance with and performance of the terms and
provisions of this Agreement, and the consummation of the transactions
contemplated herein by such Seller will not (i) conflict with or result
in a breach of the terms, conditions or provisions of, (ii) constitute a
violation or breach of default (or an event which, with notice, lapse of
time, or both, would constitute a default) under, (iii) result in any
violation of, (iv) require the obtaining of any consent or approval of,
the taking of any action of, the making of any filing with, or the giving
of any notice to, any Person (except such consents, approvals, actions,
filings and notices that will have been obtained, taken, made, given, or
effectively waived prior to the Closing, a true, accurate and complete
list of which is set forth in Section 4.4 of the Seller Disclosure Schedule)
as a result of or under the terms of, (v) result in or give to any Persons
any right of termination, cancellation, acceleration, modification, or
increased or accelerated rights, entitlements or payments under, or (vi)
result in the creation or imposition of any Encumbrance upon such Seller
under: (A) any provision of any Contract to which such Seller is a party
or by which it or any of its assets is bound, or (B) any order, decree,
license, permit, statute, law, rule or regulation to which such Seller is
subject.
Section 4.5 Consents, Approvals, Licenses, Etc. Except for any
consent, approval, authorization, license, order or Permit that is also
required to be obtained by the Corporation, the Buyer or any other Seller,
no consent, approval, authorization, license, order or Permit of, or
declaration, filing or registration with, or notification to, any Governmental
Authority is required to be made or obtained by such Seller in connection
with the execution, delivery and performance of this Agreement, and the
consummation of the transactions contemplated hereby.
Section 4.6 Litigation. There is no action, suit, proceeding or
investigation in progress or pending to the Knowledge of such Seller which
affects this Agreement or the Corporation Shares or any action taken or to
be taken or documents executed or to be executed by such Seller pursuant
to or in connection with the provisions of this Agreement, or that would
otherwise prevent the consummation of the transactions by such Seller
contemplated by this Agreement. There is no present state of facts or
circumstances of which such Seller has Knowledge which might reasonably
be expected to result in any such action, suit, proceeding or investigation.
-22-<PAGE>
<PAGE>
Section 4.7 No Brokers. Except as set forth in Section 3.19, no
broker, agent, finder, consultant or other Person has been retained by, or
has acted on behalf of such Seller (other than legal and accounting advisors)
or is entitled to be paid based upon any agreements or understandings made
by such parties in connection with the transactions contemplated by this
Agreement, and except as set forth in Section 3.19, neither the Buyer nor the
Corporation shall have any liability for any broker's fee, finder's fee,
consultant's fee or similar third party remuneration payable by reason of
any action of such Seller.
Section 4.8 Satisfaction of Fiduciary Obligations. In making the
Committee's decision to direct the Trustee to sell the Corporation Shares
owned by the ESOP pursuant to this Agreement, the Committee discharged
its duties and conducted the inquiries and deliberations regarding such
decision to sell (i) in accordance with the terms of the ESOP document and
(ii) after consultation with and consistent with the advice provided by
independent legal counsel and financial experts, including the fairness
opinion of Duff & Phelps dated June 8, 1998.
Section 4.9 Representations of the ESOP Trustee. The Trustee is
entering into this Agreement solely in its capacity as the legal owner of
the Corporation Shares held by the ESOP and as a directed trustee as defined
in ERISA. It represents that it has been directed by the Committee to sell
the Corporation Shares held by the ESOP pursuant to this Agreement and that
such direction is in accordance with the terms of the ESOP and not contrary
to the terms of ERISA.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF BUYER
The Buyer represents and warrants to the Sellers that the statements
contained in this Article 5 are true and correct, except as set forth in
the Buyer Disclosure Schedule.
Section 5.1 Organization, Etc. The Buyer is a corporation, duly
organized, validly existing and in good standing under the laws of the
State of Georgia and has all requisite corporate or other power and
authority to enter into and perform its obligations under this Agreement
and to consummate the transactions contemplated hereby.
Section 5.2 Authorization; Execution; Binding Effect. The
execution, delivery and performance of this Agreement and the consummation
of the transactions provided for herein have been duly authorized by all
necessary corporate action on the part of the Buyer, and this Agreement
has been duly executed and delivered by the Buyer. Assuming due execution
and delivery by the other parties, this Agreement constitutes the legal,
valid and binding obligation of the Buyer, enforceable against the Buyer
in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization or other laws affecting creditors'
rights and remedies generally and by general principles of equity
(regardless of whether such enforceability is considered in a proceeding
in equity or at law).
Section 5.3 No Conflicting Agreements or Charter Provisions. The
execution and delivery of this Agreement, the compliance with and performance
of the terms and provisions of this Agreement, and the consummation of the
-23-<PAGE>
<PAGE>
transactions contemplated hereby by the Buyer will not (i) conflict with or
result in a breach of the terms, conditions or provisions of, (ii) constitute
a default (or an event which, with notice, lapse of time, or both, would
constitute a default) under, (iii) result in any violation of, (iv) require
the obtaining of any consent or approval of, the taking of any action of,
the making of any filing with, or the giving of any notice to, any Person
(except such consents, approvals, actions, filings and notices that will
have been obtained, taken, made, given, or effectively waived prior to the
Closing, a true, correct and complete list of which is set forth in Section
5.3 of the Buyer Disclosure Schedule) as a result of or under the terms of,
or (v) result in or give to any Person any right of termination,
cancellation, acceleration, modification, or increased or accelerated rights,
entitlements or payments under (A) the Articles/Certificate of Incorporation
or Bylaws of the Buyer, (B) any provision of any material Contract to which
the Buyer is a party, or by which the Buyer or any of its assets is bound,
or (c) any order, judgment, decree, license, permit, statute, law, rule or
regulation to which the Buyer or any of its assets is subject.
Section 5.4 Litigation. There is no action, suit, proceeding or
investigation in progress or pending or, to the Knowledge of the Buyer,
threatened in writing, at law or in equity, in any court or before or by
any Governmental Authority against the Buyer that would prevent the Buyer
from consummating the transactions contemplated by this Agreement, nor
is there any present state of facts or circumstances of which the Buyer
has Knowledge which might reasonably be expected to result in or form the
basis of any such action, suit, proceeding or investigation.
Section 5.5 Investment Intent. The Buyer is acquiring the
Corporation Shares for its own account and not with a view to, or for
sale in connection with, any distribution thereof. The Buyer will not sell
or otherwise dispose of any Corporation Shares, except in compliance with
the 1933 Act and any applicable state securities laws.
Section 5.6 No Brokers. Other than Schroders & Co. Inc., no
broker, agent, finder, consultant or other Person has been retained by, or
has acted on behalf of the Buyer (other than legal and accounting advisors)
or is entitled to be paid based upon any agreements or understanding made
by the Buyer in connection with the transactions contemplated by this
Agreement. The Sellers shall not have any liability for any broker's fee,
finder's fee, consultant's fee or similar third party remuneration payable
by reason of any action of the Buyer.
ARTICLE 6.
COVENANTS OF SELLERS, BUYER AND CORPORATION
Section 6.1 Investigation of Business; Access to Properties and
Records.
(a) Subject to restrictions contained in confidentiality
agreements to which such party is subject with respect to any information
relating to any third party, prior to the Closing or termination of this
Agreement, the Corporation shall give to the Buyer and its legal counsel,
accountants, lenders and other representatives reasonable access during
normal business hours to all of the Corporation's and the Subsidiaries'
properties (including books, contracts, commitments and records) for
inspection (including financial, legal and environmental), and shall permit
-24-<PAGE>
<PAGE>
them to consult with each Seller and with management employees of the
Corporation and the Subsidiaries to allow the Buyer full opportunity to
make such investigations as are necessary to review the affairs of the
Corporation and the Subsidiaries. If, prior to Closing, the Buyer discovers
any breach by any Seller or the Corporation of any representation or
warranty contained in this Agreement or any circumstances or condition that,
to the Knowledge of the Buyer would constitute such a breach, the Buyer
will notify the Sellers promptly of such facts known to the Buyer and the
nature of the breach.
(b) For the period between the Balance Sheet Date and the
Closing Date (commencing with the April 1998 statements), the Corporation
shall deliver to the Buyer, as soon as available but not later than thirty
(30) days after the end of each month with respect to monthly financial
statements and not later than forty-five (45) days after the end of each
quarter with respect to quarterly financial statements, unaudited condensed
consolidated monthly and quarterly financial statements of the Corporation.
Such financial statements, which shall reflect comparative periods from the
preceding year, shall include (i) a balance sheet as of the end of such
period, (ii) statements of income cash flows, and (iii) per store profit
and loss statements and comparative store sales figures for the period then
ended, all of which shall be prepared from and be, in all material respects,
in accordance with the books and records of the Corporation and its
Subsidiaries, and shall otherwise be prepared on a basis consistent with
the Corporation's past practices with respect to monthly and quarterly
financial statements.
(c) Any information provided to or obtained by any party
to this Agreement, its legal counsel, accountants, lenders or other
representatives pursuant to this Agreement shall be held by such party,
its representatives and lenders in accordance with, and shall be subject
to the terms of, the Confidentiality Agreement.
Section 6.2 Regulatory and Other Authorizations.
(a) Subject to the limitations set forth in this Section
6.2, each of the Sellers, the Corporation and the Buyer shall take all
reasonable actions to obtain all Permits of all Governmental Authorities
that may be or become necessary for the execution and delivery of this
Agreement and the performance of their respective obligations pursuant to
this Agreement (which actions shall include, without limitation, furnishing
all information and obtaining all approvals required under the HSR Act),
and will cooperate fully with one another in promptly seeking to obtain
all such Permits. Each party to this Agreement agrees to provide
information requested by any Governmental Authority or the other party in
connection with obtaining such Permits, and agrees not to take any action
that will have the effect of delaying, impairing or impeding the receipt
of any required Permits.
(b) Notwithstanding anything in Section 6.2(a) to the
contrary, the Buyer shall coordinate on behalf of all parties the obtaining
of all such Permits. The Buyer and the Corporation shall by mutual
agreement determine the substance of all communications and filings made by
the parties with any Governmental Authority regarding the transactions
contemplated by this Agreement, including without limitation:
-25-<PAGE>
<PAGE>
(i) the extent to which it may be necessary to
resolve or settle any concerns on the part of any Governmental Authority
regarding the legality under any federal, state or local law of the
transactions contemplated by this Agreement by entering into negotiations,
providing information, making proposals, entering into and performing
agreements or submitting to judicial or administrative orders, agreeing to
any restrictions on the conduct of business after Closing by the Buyer or
the Corporation or any Subsidiary, or selling or otherwise disposing of,
or holding separate (through the establishment of a trust or otherwise),
particular assets or categories of assets or businesses of the Buyer,
including, after the Closing, the Corporation or any Subsidiary;
(ii) contesting the entry in a judicial or
administrative proceeding brought under any federal, state or local law by
any Governmental Authority or any other Person of any permanent or
preliminary injunction or other order that would make consummation of the
transactions contemplated by this Agreement unlawful or would prevent
or delay the transactions, including, without limitation, taking the steps
contemplated by Section 6.2(b)(i);
(iii) if such an injunction or order has been issued
in such a proceeding, taking any and all steps, including, without limitation,
appeal thereof, the posting of a bond or the steps contemplated by Section
6.2(b)(i), necessary to vacate, modify or suspend such injunction or order
so as to permit the consummation of the transaction on the schedule
contemplated by this Agreement;
(iv) responding to and complying with any request or
subpoena for additional information by any Governmental Authority; and
(v) determining any other appropriate response or
initiative to avoid or eliminate impediments under any federal, state or
local law that may be asserted by any Governmental Authority or any other
Person to the consummation of the transactions contemplated by this Agreement.
Section 6.3 Reasonable Efforts; Consents and Notifications. Subject
to the terms and conditions provided in this Agreement, each Seller, the
Corporation and the Buyer each will use all reasonable efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective as promptly
as practicable the transactions contemplated by this Agreement and to
cooperate with one another in connection with the foregoing, including using
all reasonable efforts:
(i) to obtain all necessary waivers, consents,
releases and approvals from other parties to loan agreements, Leases,
guarantees and other Contracts;
(ii) to lift or rescind any injunction or restraining
order or other order adversely affecting the ability of the parties to this
Agreement to consummate the transactions contemplated by this Agreement; and
(iii) to fulfill all conditions to this Agreement.
-26-<PAGE>
<PAGE>
Section 6.4 Further Assurances. The Sellers, the Corporation and
the Buyer agree that, from time to time, at or after the Closing Date, each
of them will execute and deliver such further instruments of conveyance and
transfer and take such other action as may be reasonably necessary to carry
out the purposes of this Agreement.
Section 6.5 Conduct of Business of the Corporation and Subsidiaries.
From the date of this Agreement through the Closing, except as otherwise
provided by this Agreement or consented to or approved by the Buyer in
writing, the Corporation covenants and agrees that (and the Sellers covenant
and agree as expressly noted below that):
(i) the Corporation and the Subsidiaries shall operate
their businesses in the ordinary and usual course in all material respects
in accordance with past practices;
(ii) the Corporation (and the Sellers acting with
respect to the shares of the Corporation) shall not, and no Subsidiary shall,
issue, purchase or agree to purchase, sell or agree to issue or sell:
(A) any of its capital shares; or
(B) any securities convertible into or
evidencing the right to purchase, or options with respect to, or rights to
subscribe for, any of its capital shares;
(iii) the Corporation shall not, and no Subsidiary shall,
(and the Sellers acting with respect to the capital shares of the Corporation
shall not) amend its Articles of Incorporation or Bylaws or declare or pay
any dividend (whether in cash or property) or declare or effect any stock
split, reclassification or other change in capital structure;
(iv) the Corporation and the Subsidiaries shall maintain
their respective books and records in the usual, regular and ordinary manner
consistent with past practice;
(v) the Corporation and the Subsidiaries shall comply
in all material respects with all applicable laws; and
(vi) the Corporation shall not, and no Subsidiary
shall,:
(A) enter into or consummate any joint venture,
partnership or other similar arrangement or form any other new arrangement
for the conduct of its business or acquire or enter into any agreement or
letter of intent to acquire, by merger, consolidation, or purchase of stock
or assets, any business, entity or Person;
(B) purchase any material assets or securities
of any Person, except for asset purchases in the ordinary course of its
business for individual amounts not in excess of Twenty Five Thousand Dollars
($25,000);
(C) enter into any transactions, commitments or
obligations outside the ordinary course of business or incur any indebtedness,
including notes payable, current maturities of long-term debt or capital
-27-<PAGE>
<PAGE>
lease obligations, except for trade payables and other normal items accrued as
current liabilities;
(D) take or agree to take any action prohibited
by this Section 6.5 or that would be reasonably likely to cause any
representation or warranty made by the Corporation or any Seller in this
Agreement to be untrue or inaccurate in any material respect at the Closing
Date;
(E) take any action to amend or terminate any
Benefit Plan or to adopt any other plan, program, arrangement or practice
providing benefits for or compensation to or on behalf of its employees or
former employees before the Closing Date, except as required by applicable
law;
(F) increase the base compensation or bonus,
incentive, severance or other benefit plan of any employee, consultant or
agent, except for increases in base annual salaries in the ordinary course
of business; or
(G) grant any Encumbrance on any asset, except
for Permitted Encumbrances.
Section 6.6 Preservation of Business. Subject to the terms and
conditions of this Agreement and except as otherwise provided by this
Agreement, the Corporation and the Subsidiaries shall use reasonable
efforts to:
(i) preserve the business of the Corporation and the
Subsidiaries and keep generally available to the Corporation and the
Subsidiaries the services of the employees, officers, consultants,
contractors and agents of the Corporation and the Subsidiaries;
(ii) preserve generally the goodwill of customers,
suppliers, creditors and others having business relations with the
Corporation or any Subsidiary; and
(iii) continue performance in the ordinary course of
their respective obligations under all Contracts to which the Corporation
or any Subsidiary is a party or by which it or its assets are bound.
In connection with the operation of the Business between the date
of this Agreement and the Closing, the Corporation shall confer in good
faith on a regular and frequent basis with one or more designated
representatives of the Buyer (which representatives shall have been
designated by the Buyer to the Corporation in writing) with respect to
material matters affecting or impacting the operations of the Corporation
or any Subsidiaries and shall consult in general with respect to the ongoing
operations of the Corporation and the Subsidiaries. The Corporation and the
Sellers shall cooperate with the Buyer in its efforts to communicate with
the employees, consultants, professionals, agents and others having business
relationships with the Corporation regarding the transition of the
Corporation's business to ownership by the Buyer.
Section 6.7 Announcements. Neither the Sellers, the Corporation,
the Subsidiaries or the Buyer, nor any agent nor any Affiliate of any of the
-28-<PAGE>
<PAGE>
foregoing, shall make any public statements, including, without limitation,
any press releases or other public disclosure, with respect to this Agreement
and the transactions contemplated by this Agreement without the prior consent
of the Buyer and the Corporation (which consent may not be unreasonably
withheld or delayed), except as may be required by law or advisable under
the rules of any securities exchange to which the Buyer is subject.
Section 6.8 No Solicitation. From the date of this Agreement to
the earlier of (i) the Closing Date or (ii) the termination of this Agreement
in accordance with its terms, the Sellers agree that (A) they will not, and
(B) they will not authorize or permit any officer, director or employee of
the Corporation or any Subsidiary, or any investment banker, attorney,
financial advisor, accountant or other Person retained by any Seller or the
Corporation or any Subsidiary, directly or indirectly (including by way of
furnishing any information) to: (1) solicit, initiate, assist, encourage or
accept any Takeover Proposal or any inquiries relating to a Takeover
Proposal or to make any proposals which could reasonably be expected to
lead to any Takeover Proposal relating to the Corporation or any Subsidiary;
(2) engage in any negotiations with respect to, or otherwise attempt to
consummate, a Takeover Proposal; (3) provide any public or nonpublic
information concerning the Corporation or any Subsidiary to any Person in
connection with any Takeover Proposal or to any Person whom any Seller or
the Corporation or any Subsidiary knows or has reason to believe is in the
process of planning or considering a Takeover Proposal; or (4) reach any
agreement or understanding for or with respect to any Takeover Proposal.
Section 6.9 Right to Update and Cure.
(a) From time to time prior to the Closing, the Buyer, the
Corporation and the Sellers shall update or amend their respective
disclosure of any matter set forth or required to be set forth in their
respective Disclosure Schedules to reflect any changes in (or any
inaccuracies in) such Disclosure Schedule. For purposes of Section 7.1
or Section 8.1, any material change in a disclosure, representation or
warranty made by the Corporation or any Seller shall entitle the Buyer
to terminate this Agreement, unless the Buyer consents in writing to the
material change or fails to object within 15 days of its receipt of written
notice of such change. Notwithstanding anything in this Agreement to the
contrary, any party that receives a material change in the disclosures may
defer the Closing Date for up to five Business Days after receipt of such
change, provided that the Closing Date shall not under any circumstances
be deferred beyond the deadline specified in Section 10.1 hereof.
(b) Prior to the Closing, each of the parties to this
Agreement agrees to notify the other parties promptly in writing of, and
contemporaneously will provide the other parties with true and complete
copies of, any and all information or documents relating to, and will use
all commercially reasonable efforts to cure before Closing, any event,
transaction or circumstance occurring after the date of this Agreement
that causes or will cause any covenant or agreement under this Agreement
to be breached or that renders or will render untrue any representation
or warranty contained in this Agreement as if the same were made on or as
of the date of such event, transaction or circumstance. Each of the parties
to this Agreement also agrees to notify the other parties promptly in
writing of, and will use all commercially reasonable efforts to cure, before
the Closing, any violation or breach of any representation, warranty,
covenant or agreement made in this Agreement, whether occurring or arising
before, on or after the date of this Agreement.
-29-<PAGE>
<PAGE>
Section 6.10 Indemnification of Directors and Officers.
(a) The Corporation and the Buyer agree that the
indemnification obligations set forth in the Corporation's Articles of
Incorporation and Bylaws, in each case as of the date of this Agreement,
shall survive the Closing and shall not be amended, repealed or otherwise
modified for a period of six years after the Closing Date in any manner that
would adversely affect the rights thereunder of the individuals who on or
prior to the Closing Date were directors, officers, employees or agents of
the Corporation or any of its Subsidiaries.
(b) For a period of six years following the Closing Date,
the Buyer shall provide or cause the Corporation to provide to the
Corporation's current directors and officers liability insurance protection
substantially equivalent in kind and scope as that provided by the
Corporation's current directors' and officers' liability insurance policies;
provided, however, that in no event shall the Buyer or the Corporation be
required to expend in any one year an aggregate amount in excess of 100% of
the annual premiums currently paid by the Corporation for such insurance,
which maximum amount shall increase at a rate of 10% per annum; and,
provided, further, that if during such period the annual premiums for
such comparable insurance coverage exceed such amount, the Buyer shall be
obligated to obtain a policy which, in the reasonable judgment of the Buyer,
provides the best coverage available for a cost not exceeding such amount;
and provided further, if the Buyer elects to purchase a six-year "tail"
coverage policy, the premium will not exceed 400% of the annual premium.
(c) The obligations of the Buyer and the Corporation
under this Section 6.10 shall not be terminated or modified in such a manner
as to adversely affect any director, officer, employee, agent or other
person to whom this Section 6.10 applies without the consent of such
affected director, officer, employee, agent or other person (it being
expressly agreed that each such director, officer, employee, agent or
other person to whom this Section 6.10 applies shall be a third-party
beneficiary of this Section 6.10).
(d) The foregoing provisions are in addition to and not in
limitation of any other rights of indemnification to which the directors
and officers are entitled as a matter of law or the Corporation's Articles,
bylaws or agreements.
Section 6.11 Administration of the ESOP
(a) The Committee, as a named fiduciary of the ESOP, represents and
warrants with respect to the ESOP, as follows:
(i) the ESOP has been administered and operated in accordance
with its terms and in all material respects in compliance with ERISA, the
Code and the regulations and rulings thereunder;
(ii) to the Knowledge of the Committee, neither the ESOP,
nor any trustee, administrator, fiduciary, agent or employee thereof has
at any time been involved in a transaction which would constitute a
"prohibited transaction" within the meaning of Section 406 of ERISA or
-30-<PAGE>
<PAGE>
Section 4975 of the Code (unless an exemption was available), nor has
any such person been involved in or caused the ESOP to be involved in a
breach of fiduciary duty under Section 404 of ERISA;
(iii) no claim has been made by a participant, beneficiary or
governmental agency that the employer securities currently owned (and any
employer securities owned previously) by the ESOP fail to meet the
requirements of Sections 407 and 408 of ERISA and Sections 409 and 4975 of
the Code;
(iv) all indebtedness incurred by the ESOP to acquire employer
securities has been paid in full and the ESOP does not currently have any
indebtedness to any party;
(v) no litigation or administrative or other proceeding is
pending or threatened against the ESOP.
(b) Nothing contained in this Agreement shall limit or restrict the
Corporation's or the Buyer's right from and after the Closing Date to amend
or modify the ESOP in such manner as the Corporation or the Buyer deems
appropriate or to terminate the ESOP.
ARTICLE 7.
CONDITIONS TO BUYER'S OBLIGATION TO CLOSE
The Buyer's obligation to consummate the Share Purchase shall be
subject to the satisfaction on or prior to the Closing Date of all of the
following conditions (any of which may be waived in writing by the Buyer in
its sole discretion):
Section 7.1 Representations; Warranties and Covenants of the
Corporation and the Sellers. Subject to the second sentence of this
Section 7.1, the representations and warranties of the Corporation and the
Sellers in this Agreement shall be true and correct on and as of the Closing
Date with the same effect as though such representations and warranties
had been made on and as of such date, except for representations and
warranties that speak as of a specific date or time other than the Closing
Date (which need only be true and correct as of such date or time). The
Closing condition contained in this Section 7.1, as it relates to
representations and warranties, shall be satisfied unless the inaccuracies
in and breaches of such representations and warranties, without reference
to materiality qualifiers, have or are likely to have an adverse effect on
the Corporation and its Subsidiaries, taken as a whole, or on the Buyer's
ownership of the Corporation Shares, of Two Hundred Fifty Thousand
Dollars ($250,000) or more. The covenants and agreements of the Corporation
and the Sellers to be performed on or before the Closing Date in accordance
with this Agreement shall have been performed in all material respects.
Section 7.2 Filings; Consents; Waiting Periods. All registrations,
filings, applications, notices, consent, approvals, waivers, authorizations,
qualifications and orders to be filed, made or obtained by the Buyer, the
Corporation or any Seller in order to consummate the transactions contemplated
by this Agreement (including, without limitation, any filings or actions
required by the HSR Act, if applicable) shall have been filed, made or
-31-<PAGE>
<PAGE>
obtained. The Sellers and the Corporation and the Subsidiaries shall have
obtained the consent of the requisite parties to the agreements identified
in Sections 3.6, 3.15 and 3.16 of the Corporation Disclosure Schedule,
which consent shall be in form and substance reasonably satisfactory to
the Buyer. The Corporation shall have obtained written enforceable waivers
with respect to all existing breaches and any continuing breaches (including
any breaches anticipated to continue in the ordinary course of the business
of the Corporation and the Subsidiaries after the Closing) of agreement
with respect to those Contracts and Leases identified in Sections 3.15 and
3.16 of the Corporation Disclosure Schedule, which waivers shall be in form
and substance satisfactory to the Buyer.
Section 7.3 No Injunction. There shall be no injunction,
restraining order or decree of any nature of any Governmental Authority or
other Person that is in effect and that (i) restrains, prohibits or makes
illegal the consummation of the Share Purchase, or (ii) imposes conditions
on the consummation of the Share Purchase not otherwise provided for
in this Agreement.
Section 7.4 Closing Deliveries. The Sellers shall have delivered
or caused to be delivered to the Buyer the following:
(i) True and correct copies of the Articles of Incorporation
of the Corporation and each Subsidiary certified by the Secretary of State
of the State of California as of a date not more than thirty (30) calendar
days preceding the Closing Date, and true and correct copies of the Bylaws
of the Corporation and each Subsidiary as in effect on the day prior to
Closing, certified by the Secretary of the Corporation;
(ii) Certificates of good standing, current within thirty
(30) calendar days, relating to the Corporation and each Subsidiary from
their respective states of incorporation and each other jurisdiction in
which the Corporation or any Subsidiary is qualified to do business as a
foreign corporation;
(iii) A resolution of the Board of Directors of the Corporation
authorizing the execution, delivery and performance by the Corporation of
this Agreement and the consummation of the transactions contemplated herein,
certified by the Secretary of the Corporation as remaining in full force
and effect on the Closing Date;
(iv) A certificate of the Secretary of the Corporation
attesting to the incumbency of the officers of the Corporation executing
this Agreement or any other certificates or agreements delivered by the
Corporation to the Buyer at or prior to the Closing;
(v) A certificate of the Chairman of the Board or
President of the Corporation, attesting on behalf of such Seller or the
Corporation, as the case may be, to the matters set forth in Section 7.1;
(vi) A certificate of each of the Sellers, as requested by
the Buyer, attesting to the matters set forth in Section 7.1;
(vii) The certificates representing the Corporation Shares
and other documents to be delivered by the Sellers as described in Section
2.3(a);
-32-<PAGE>
<PAGE>
(viii) The Audited Financial Statements for the fiscal year
ended December 28, 1997;
(ix) a pay-off letter from Wells Fargo Bank reflecting the
satisfaction in full of all obligations to such Bank by the Corporation
upon the payment of the amount specified on such letter, plus any other
debt incurred after the date of this Agreement in accordance with the
terms hereof;
(x) Certificates of the appropriate officers or partners
of any Seller that is an entity regarding the governing documents of such
entity, the incumbency of any person executing any document on behalf of
such entity in connection with the Share Purchase, and the ownership of the
Corporation Shares by such entity, together with such other similar documents
and certificates as counsel for the Buyer may reasonably request; and
(xi) ESOP Fairness Opinion from Duff & Phelps.
Section 7.5 Absence of Litigation. No claim, action, suit,
arbitration, investigation, inquiry or other proceeding by any Governmental
Authority or other Person with respect to this Agreement or the transactions
contemplated hereby shall be threatened or pending on the Closing Date and,
up to the Closing, no party to this Agreement shall have been advised by
any Governmental Authority (which advisory has not been officially withdrawn
by such Governmental Authority on or prior to the Closing Date) that such
Governmental Authority is reviewing this Agreement or the transactions
contemplated hereby to determine whether to file or commence any litigation
with respect to any aspect of this Agreement or the transactions contemplated
hereby.
Section 7.6 No Claim Regarding Stock Ownership or Sale Proceeds.
There shall not have been made or threatened by any Person any claim
asserting that such Person (a) is the holder or the beneficial owner of,
or has the right to acquire or to obtain beneficial ownership of, any
stock of, or any other voting, equity, or ownership interest in, the
Corporation or any Subsidiary, or (b) is entitled to all or any portion of
the Purchase Price payable for the Corporation Shares.
Section 7.7 Opinion of Corporation and ESOP Counsel. The Corporation
and ESOP shall have furnished the Buyer with a favorable opinion, dated the
Closing Date, of their respective counsel, each in form and substance
satisfactory to the Buyer and its counsel, to the effect set forth in
Exhibit B attached hereto.
Section 7.8 No Material Adverse Effect. Before the Closing Date,
there shall have been no material change in the assets or liabilities, the
business or condition (financial or otherwise), the results of operations,
or prospects of the Corporation or any Subsidiary, whether as a result of
any legislative or regulatory change, revocation of any license or right
to do business, fire, explosion, accident, casualty, labor trouble, flood,
drought, riot, storm, condemnation or act of God or other public force or
otherwise, that results in a Material Adverse Effect.
-33-<PAGE>
<PAGE>
Section 7.9 Environmental Assessment. The Buyer's environmental
consultants shall have completed their inspection and evaluation of the
properties, assets, business, operations, regulatory status and liabilities
of the Corporation and each Subsidiary and shall have delivered to the Buyer
and the Corporation a report detailing such inspection and evaluation
reasonably satisfactory to the Buyer.
Section 7.10 General Release. The directors of the Corporation and
each Seller (other than the ESOP) shall execute and deliver a General Release
in the form attached hereto as Exhibit C and the ESOP shall execute and
deliver a General Release in the form attached hereto as Exhibit C-1.
Section 7.11 Due Diligence Within ten (10) days immediately
following the later of (i) the date that all requested due diligence
materials have been delivered to the Buyer and (ii) the date of this
Agreement, the Buyer and its representatives shall have completed their due
diligence review of the Corporation's and each Subsidiary's financial
statements, books, records, governmental filings, agreements, plans and
other matters relating to the Corporation's and each Subsidiary's
respective business, properties, assets, liabilities and affairs, and the
Buyer shall be reasonably satisfied with the results thereof. Following
said review period, the Buyer shall be deemed to have accepted all such
matters other than specific items with respect to which the Buyer has
given to the Corporation written objection and proposed cure. If the
Corporation diligently and in good faith attempts to resolve any such
objections of the Buyer, after five (5) days of its receipt of any such
objection by the Buyer, it may inform the Buyer that it is unable to
resolve the objection. The Buyer will then have five (5) days within
which to inform the Corporation that it will either waive such objection
or not. Within five (5) days after the Buyer has given notice to the
Corporation that it will not waive any objection, the Corporation may
terminate this Agreement by written notice to the Buyer.
Section 7.12 Tax Return Filing. The Corporation shall have
completed and filed its consolidated federal tax return for its fiscal
year ended December 28, 1997 and there shall be no positions taken
therein that the Buyer reasonably believes are contrary to law or
regulation.
ARTICLE 8.
CONDITIONS TO SELLERS' OBLIGATIONS TO CLOSE
Each Seller's obligation to consummate the Share Purchase is
subject to the satisfaction on or prior to the Closing Date of all of
the following conditions (any of which may be waived in writing by such
Seller, in its sole discretion):
Section 8.1 Representations, Warranties and Covenants of the
Buyer. The representations and warranties of the Buyer in this Agreement
shall be true and correct on and as of the Closing Date with the same
effect as though such representations and warranties had been made on and
as of such date except for representations and warranties that speak as of a
specific date or time other than the Closing Date (which need only be true
and correct as of such date, or time), and the covenants and agreements of
the Buyer to be performed on or before the Closing Date in accordance with
this Agreement shall have been performed in all material respects.
-34-<PAGE>
<PAGE>
Section 8.2 Filings; Consents; Waiting Periods. All registrations,
filings, applications, notices, consents, approvals, waivers, authorizations,
qualifications and orders to be filed, made or obtained by the Buyer, the
Corporation or any Seller in order to consummate the transactions
contemplated by this Agreement (including, without limitation, any filings
or actions required by the HSR Act, if applicable) shall have been filed,
made or obtained. The Buyer shall have obtained the consents identified in
Section 5.3 of the Buyer Disclosure Schedule, which consents shall be in
form and substance reasonably satisfactory to the Corporation.
Section 8.3 No Injunction. The condition set forth in Section 7.3
shall have been satisfied.
Section 8.4 Closing Deliveries. The Buyer shall have delivered or
caused to be delivered to the Corporation's legal counsel (in the case of
clauses (i), (ii) and (iii) below) and to each Seller (in the case of clause
(iv) below) the following:
(i) A certificate of the Secretary of the Buyer attesting to
the incumbency of the officers of the Buyer executing this Agreement and any
other certificates or agreements delivered by the Buyer to the Sellers at or
prior to the Closing;
(ii) A certificate of the Chairman of the Board or President
of the Buyer attesting on behalf of the Buyer to the matters set forth in
Section 8.1;
(iii) A resolution of the Board of Directors of the Buyer
authorizing the execution, delivery and performance by the Buyer of this
Agreement and the consummation of the transactions contemplated herein,
certified by the Secretary of the Buyer; and
(iv) The Closing Purchase Price payable in accordance with
Section 2.3 to each Seller (as specified in Section 2.2) pursuant to this
Agreement.
Section 8.5 Absence of Litigation. The condition set forth in
Section 7.5 shall have been satisfied.
ARTICLE 9.
SURVIVAL; SELLER LIABILITY
Section 9.1 Indemnification by Sellers. (a) If the Closing occurs,
and subject to the limitations set forth in this Article 9, the Sellers (on
a several basis and as set forth on Schedule 9.2) shall indemnify and hold
harmless the Buyer and its Affiliates (collectively, the "Indemnitees") from
and against and in respect of any and all loss, damage, diminution in value,
liability, cost and expense, including reasonable attorneys' fees and amounts
paid in settlement (collectively, the "Indemnified Losses"), suffered or
incurred by any one or more of the Indemnitees by reason of, or arising out
of:
(i) any misrepresentation or breach of representation
or warranty of the Corporation contained in this Agreement, the
Corporation Disclosure Schedule, or any certificate, instrument,
agreement or other writing delivered by or on behalf of the
-35-<PAGE>
<PAGE>
Corporation pursuant to this Agreement or in connection with
the transactions contemplated herein, or the breach of any
covenant or agreement of the Corporation contained in this
Agreement, the Corporation Disclosure Schedule, or any
certificate, instrument, agreement or other writing delivered
to the Buyer by or on behalf of the Corporation pursuant to
this Agreement or in connection with the transactions
contemplated herein;
(ii) any claim by any holder of options or warrants
to purchase securities of the Corporation that such instruments
were not either canceled as of the Closing Date or cancellable
within 90 days of the Closing without any consideration payable
by the Corporation; and
(iii) any and all actions, orders, assessments, fees and
expenses incident to any of the foregoing or incurred in
investigating or attempting to avoid the same or to oppose the
imposition thereof, or in enforcing this indemnification.
Under no circumstances shall any member of the Committee be obligated
individually to indemnify or hold harmless the Buyer or any of its Affiliates.
(b) Each Seller, individually and severally, shall indemnify
and hold harmless the Indemnitees from and against any Indemnified Losses
caused by a breach of that Seller's representations, warranties or agreements
set forth in this Agreement. For avoidance of doubt, no Seller shall have
responsibility for a breach by any other Seller.
(c) Subject to the rights of the Buyer under Section 9.2, the
Sellers shall reimburse Indemnitees on demand for any Indemnified Losses
suffered by the Indemnitees, based on the judgment of any court of competent
jurisdiction or pursuant to a bona fide compromise or settlement of claims,
demands or actions in respect of any Indemnified Losses. The Sellers shall
have the opportunity to defend at their expense any claim, action or demand
for which the Indemnitees claim indemnity against the Sellers, provided
that: (i) the defense is conducted by reputable counsel approved by the
Indemnitees, which approval shall not be unreasonably withheld or delayed;
(ii) the defense is expressly assumed in writing within 10 days after
written notice of the claim, action or demand is given to the Sellers; and
(iii) counsel for the Indemnitees may participate at all times and in all
proceedings (formal and informal) relating to the defense, compromise and
settlement of the claim, action or demand at the expense of the Indemnitees.
(d) No claim shall be brought by any Indemnitee under this
Article 9 for Indemnified Losses, and none of them shall be entitled to
receive any payment with respect thereto, unless and until the aggregate
amount of such claim(s) equals or exceeds $500,000, and the Indemnitees
will only be entitled to reimbursement hereunder for Indemnified Losses
in excess of such $500,000 amount; provided, that any Indemnified Losses
arising from breaches of the representations set forth in Sections 4.1, 4.2,
4.3 and 4.4 or pursuant to subsection (a)(ii) above shall be reimbursed
from the first dollar of loss. Anything to the contrary notwithstanding,
(i) each Seller will be liable to the Indemnitees for the pro rata portion
of such Indemnified Losses in accordance with the percentages set forth
opposite that Seller's name on Schedule 9.2; (ii) no Seller shall be liable
-36-<PAGE>
<PAGE>
to the Indemnitees for Indemnified Losses in excess of the percentages set
forth opposite that Seller's name on Schedule 9.2; (iii) the Sellers shall
not be liable to the Indemnitees under this Article 9 to reimburse
Indemnified Losses, if any, in excess of the aggregate amount of
$2,000,000 (which equals a $2,500,000 maximum after taking into account
the aforementioned $500,000 deductible); provided, however, that such
limitation shall not apply to any loss suffered by the Indemnitees
attributable to fraudulent misrepresentations or to breaches of the
representations set forth in Section 4.1, 4.2, 4.3 and 4.4 or pursuant to
subsection (a)(ii) above; and (iv) no Seller shall be liable with respect
to the breach of any representation or warranty of any other Seller, as
opposed to a breach a representation or warranty of the Corporation.
(e) The Corporation shall not have any liability, obligation
or indebtedness to any Seller as a result of any misrepresentation or breach
of representation or warranty by the Corporation or any Seller contained in
this Agreement, the Corporation Disclosure Schedule, the Seller Disclosure
Schedule or any certificate, instrument, agreement or other writing
delivered by or on behalf of any Seller or the Corporation pursuant to this
Agreement, or in connection with the transactions contemplated herein, or
the breach of any covenant or agreement of any Seller or the Corporation
contained in this Agreement, the Corporation Disclosure Schedule or the
Seller Disclosure Schedule, or any certificate, instrument, agreement or
other writing by or on behalf of any Seller or the Corporation pursuant
to the provisions of this Agreement or in connection with the transactions
contemplated herein, and no Seller shall have any right of indemnification
or contribution against the Buyer on account of any event or condition
occurring or existing before or on the date hereof.
(f) The representations and warranties of each Seller and the
Corporation contained in this Agreement, the Corporation Disclosure Schedule,
the Seller Disclosure Schedule or in any certificate, instrument, agreement
or other writing delivered by or on behalf of any Seller or the Corporation
pursuant to this Agreement or in connection with the transactions
contemplated herein shall survive any investigation heretofore or hereafter
made by or on behalf of the Buyer and the consummation of the transactions
contemplated herein, and all such representations and warranties shall be
of no further force and effect after fifteen (15) months from the date of
the Closing, except for matters set forth in Sections 3.18, 4.1, 4.2, 4.3
and 4.4, for which the Survival Period shall extend until the expiration of
the applicable statutory limitations period, and for matters set forth in
Sections 3.14 for which the Survival Period shall extend for three (3)
years from the date of Closing ("Survival Period"). Anything to the
contrary notwithstanding, a claim for indemnification which is made but
not resolved prior to the expiration of the Survival Period may be pursued
and resolved after such expiration.
(g) Except as provided in this Article 9, the Sellers shall
have no monetary liability for breaches of any of the representations,
warranties or covenants contained in this Agreement after the Closing.
Section 9.2 Set Off. (a) In addition to any right or remedy
available at law, and subject to the limitations and provisions set forth
in Section 9.1, the Buyer is authorized by the Sellers to exercise a
contractual right of setoff with respect to and on account of any
-37-<PAGE>
<PAGE>
Indemnified Losses against the Deferred Purchase Price, pursuant to the
procedures set forth herein. For avoidance of doubt, an Indemnified Loss
resulting from a breach by the Corporation shall be offset against certain
Sellers' respective pro rata share of the Deferred Purchase Price, in
accordance with the percentages set forth on Schedule 9.2, and an
Indemnified Loss resulting from a breach by a particular Seller shall be
offset against only that particular Seller's pro rata share of the
Deferred Purchase Price. The Buyer shall exhaust this right to set off
prior to pursuing any other remedy to enforce its rights to indemnification
pursuant to the terms and limitations of this Article 9.
(b) The Buyer's right of setoff hereunder shall only be allowed
to the extent Indemnified Losses have been liquidated. If the Indemnified
Losses have not been liquidated before the date by which the Deferred
Purchase Price is due and payable to the Sellers under Section 2.3(b),
the Buyer shall be entitled to elect to refrain from making such payment
to the extent reasonably necessary to cover the potential loss to the
Indemnitees on such Indemnified Losses if the same had been liquidated;
provided, the Buyer shall segregate such amounts otherwise due and payable
in a separate interest bearing bank account. Upon ultimate liquidation of
the Indemnified Losses against Indemnitee, or to the extent such Indemnified
Losses are ultimately not liquidated against the Indemnitees, the amount
held in the segregated bank account shall be disbursed to the party
ultimately entitled to such monies, including the pro rata portion of any
interest earned on such amounts deposited hereunder.
ARTICLE 10.
TERMINATION
Section 10.1 Termination. This Agreement may be terminated at any
time prior to Closing by:
(i) the mutual consent of the holders as of the Closing of a
majority in interest of the common shares of the Corporation and the Buyer;
(ii) the holders as of the Closing of a majority in interest
of the common shares of the Corporation or the Buyer if the Closing has not
occurred by the close of business on the date which is 60 calendar days
following the date of this Agreement, so long as the failure to consummate
the transaction on or before such date did not result from a breach of this
Agreement by the party seeking termination of this Agreement;
(iii) at any time before the Closing, by any Seller or the
Buyer, (A) in the event of a material breach of this Agreement hereof by
any non-terminating party if such non-terminating party fails to cure such
breach within five Business Days following notification by any one or more
of the terminating parties, or (B) upon notification to the non-terminating
parties by the terminating party that the satisfaction of any condition to
the terminating party's obligations under this Agreement has become
impossible or impracticable with the use of best efforts unless the failure
of such condition to be satisfied is caused by a breach of this Agreement by
the terminating party or the non-terminating parties waive such condition
within five Business Days of receipt of such notification (and, for purposes
-38-<PAGE>
<PAGE>
of (ii) and (iii) only, a breach or material breach by any Seller shall
constitute a breach or material breach, as the case may be, by all of the
Sellers);
(iv) if such termination is required pursuant to any final
and nonappealable judgment or order entered in any judicial or administrative
proceeding initiated by a Governmental Authority;
(v) as provided in Section 6.9;
(vi) as provided in Section 7.11; and
(vii) as provided in Section 11.11.
Section 10.2 Procedure and Effect of Termination. In the event of
termination of this Agreement pursuant to Section 10.1, written notice of
such termination shall promptly be given by the terminating party to the
other parties, and this Agreement shall upon that notice terminate and
become void and have no effect, and the transactions contemplated by this
Agreement shall be abandoned without further action by the parties, except
that the provisions of the Confidentiality Agreement and Section 11.5 shall
survive the termination of this Agreement; provided, however, that such
termination shall not relieve any party of any liability for any breach
by it of this Agreement.
ARTICLE 11.
MISCELLANEOUS
Section 11.1 Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which taken together shall be considered one and the same agreement. The
Agreement and signatures on this Agreement, may be transmitted by facsimile,
and such a transmission shall be deemed a delivery of this Agreement by such
signing party.
Section 11.2 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California applicable
to a contract executed and performed in such state without reference to the
choice of law principles of such state.
Section 11.3 No Third Party Beneficiaries. Except as provided in
Section 6.10 above, nothing in this Agreement is intended, nor shall it be
construed, to confer any rights or benefits upon any Person that is not a
party to this Agreement, and no other Person not a party to this Agreement
shall have any rights or remedies under this Agreement.
Section 11.4 Entire Agreement. This Agreement contains the entire
agreement between the parties with respect to the subject matter of this
Agreement, and this Agreement supersedes all prior drafts of such agreement,
and all prior and contemporaneous agreements, representations, negotiations,
discussions, correspondence, communications, term sheets and understandings
of the parties, except for the Confidentiality Agreement, which agreement is
ratified and remains in full force and effect. There are no agreements,
-39-<PAGE>
<PAGE>
understandings, representations and warranties between the parties other
than those set forth or referred to in this Agreement.
Section 11.5 Expenses. Except as set forth in this Agreement (and
particularly Section 2.3), whether the Share Purchase is or is not
consummated, all costs and expenses, including but not limited to fees and
expenses of attorneys, advisers, agents, and accountants, incurred in
connection with this Agreement and the transactions contemplated by this
Agreement shall be paid by the party incurring such costs and expenses,
whether such costs and expenses were incurred prior to or are incurred
after the date hereof, and in particular, all such costs and expenses
incurred by or on behalf of the Sellers shall be borne by the Sellers
and not charged to the Corporation.
Section 11.6 Notices. All notices under this Agreement shall be
sufficiently given for all purposes under this Agreement if in writing (a)
when delivered personally; (b) in the case of domestic deliveries within
the United States, three Business Days after deposited for first class
mailing by the United States Postal Service; (c) in the case of domestic
deliveries within the United States, one day after deposited for delivery
by a nationally recognized overnight delivery service; (d) in the case
of foreign deliveries, two days after deposited for delivery by a
reputable foreign or overseas air courier; or (e) when receipt is confirmed,
by telecopy, telefax or other electronic transmission service to the
appropriate address or number as set forth below. Notices to the Sellers
shall be addressed to each Seller at the address noted in Exhibit A hereto
or at such other address and to the attention of such other Person as
each Seller may designate by written notice to the Buyer. Notices to the
Corporation shall be addressed to:
Frame-n-Lens Optical, Inc.
4201 Bonita Place
Fullerton, CA 92835
Attention: President
Telecopy: (714) 525-9338
with a copy to:
Gray Cary Ware & Freidenrich
4365 Executive Drive, Suite 1600
San Diego, CA 92121
Attention: T. Knox Bell, Esq.
Telecopy: (619) 677-1477
or at such other address and to the attention of such other Person as each
Seller may designate by written notice to the Buyer. Notices to the Buyer
shall be addressed to:
National Vision Associates, Ltd.
296 Grayson Highway
Lawrenceville, Georgia 30045-5737
Attention: Vice President & General Counsel
Telecopy: (770) 822-2029
-40-<PAGE>
<PAGE>
with a copy to:
Kilpatrick Stockton LLP
1100 Peachtree Street
Atlanta, Georgia 30309-4530
Attention: David A. Stockton, Esq.
Telecopy: (404) 815-6555
or to such other address and to the attention of such other Person as the
Buyer may designate by written notice to the Sellers.
Section 11.7 Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties to this Agreement and
their respective successors and permitted assigns. No party to this
Agreement shall have the right to assign its rights or interests in or
delegate its obligations under this Agreement without the express prior
written consent of all other parties to this Agreement; provided, however,
the Buyer may assign its rights or interests under this Agreement to any
direct or indirect wholly-owned subsidiary of the Buyer, in which event
the Buyer shall remain liable under this Agreement; and provided further
that any Seller may, by notice to the Buyer, direct that any or all of its
share of the Deferred Purchase Price be paid to any other Person. No such
assignment shall release the Buyer from its obligations hereunder without
the Sellers' written consent.
Section 11.8 Headings; Definitions. The Section and article headings
contained in this Agreement are inserted for convenience and reference only
and will not affect the meaning or interpretation of this Agreement. All
references to Sections or Articles contained in this Agreement mean
Sections or Articles of this Agreement unless otherwise stated. All
capitalized terms defined in this Agreement are equally applicable to both
the singular and plural forms of such terms. As the context requires, the
singular form of any term includes the plural and vice versa, and all
pronouns used herein shall be deemed to refer to the masculine, feminine
or neuter gender.
Section 11.9 Amendments and Waivers. This Agreement may not be
modified or amended except by an instrument or instruments in writing
signed by the party against whom enforcement of any such modification or
amendment is sought. Any party to this Agreement may, only by an
instrument in writing, waive compliance by any other party to this
Agreement with any term or provision of this Agreement. The waiver by
any parties to this Agreement of a breach of any term or provision of
this Agreement shall not be construed as a waiver of any subsequent breach.
Section 11.10 Venue; Service of Process. In the event that any
litigation or other judicial relief should be commenced or applied for, but
without limitation to the provision requiring arbitration set forth in
Section 11.11 below, each party to this Agreement hereby consents to the
exclusive jurisdiction of the state and federal courts sitting in San Diego,
California in any action on a claim arising out of, under or in connection
with this Agreement or the transactions contemplated by this Agreement.
Each party to this Agreement further agrees that personal jurisdiction over
him may be effected by service of process by registered or certified mail
-41-<PAGE>
<PAGE>
addressed as provided in Section 11.6 above and that when so made shall be
as if served upon him personally within the State of California.
Section 11.11 Arbitration. Any controversy or claim arising
out of or relating to this Agreement, or the breach thereof, shall be settled
by binding arbitration in accordance with the Commercial Arbitration Rules
of the American Arbitration Association ("Rules of AAA"), and the procedures
set forth below. In the event of any inconsistency between the Rules of
AAA and the procedures set forth below, the procedures set forth below shall
control. Judgment upon the award rendered by the arbitrator may be enforced
in any court having jurisdiction thereof.
(a) Location. The location of the arbitration shall be
San Diego, California.
(b) Selection of Arbitrator. The arbitration shall be
conducted by one neutral arbitrator who is independent and disinterested
with respect to the parties, this Agreement, and the outcome of the
arbitration and who is an attorney having at least fifteen (15) year's
experience in corporate and securities issues. The arbitrator shall be
selected by the parties to the arbitration in the manner provided in the
Rules of the AAA.
(c) Discovery. Unless the parties mutually agree in
writing to some additional and specific pre-hearing discovery, the only
pre-hearing discovery shall be (a) reasonably limited production of relevant
and non-privileged documents, and (b) the identification of witnesses to be
called at the hearing, which identification shall give the witness's name,
general qualifications and position, and a brief statement as to the
general scope of the testimony to be given by the witness. The arbitrator
shall decide any disputes and shall control the process concerning these
pre-hearing discovery matters. Pursuant to the Rules of AAA, the parties
may subpoena witnesses and documents for presentation at the hearing.
(d) Case Management. Prompt resolution of any dispute
is important to both parties; and the parties agree that the arbitration
of any dispute shall be conducted expeditiously. The arbitrator is
instructed and directed to assume case management initiative and control
over the arbitration process (including scheduling of events, pre-hearing
discovery and activities, and the conduct of the hearing), in order to
complete the arbitration as expeditiously as is reasonably practical for
obtaining a just resolution of the dispute.
(e) Remedies. The arbitrator shall follow and apply
applicable law and the provisions of this Agreement. The arbitrator shall
grant such legal or equitable remedies and relief in compliance with
applicable law that the arbitrator deems just and equitable, to the
same extent that remedies or relief could be granted by a state or federal
court, provided however, that no punitive damages may be awarded. No
court action may be maintained seeking punitive damages. The decision of
the arbitrator shall be binding upon the parties.
(f) Expenses. The expenses of the arbitration, including
the arbitrator's fees and expert witness fees, but not including the
attorneys' fees (which are addressed in Section 11.12 below) incurred by
the parties to the arbitration, may be awarded to the prevailing party,
in the discretion of the arbitrator, or may be apportioned between the
parties in any manner deemed appropriate by the arbitrator. Unless and
-42-<PAGE>
<PAGE>
until the arbitrator decides that one party is to pay for all (or a share)
of such expenses, both parties shall share equally in the payment of the
arbitrator's fees as and when billed by the arbitrator.
(g) Confidentiality. Except as set forth below, the
parties shall keep confidential the fact of the arbitration, the dispute
being arbitrated, and the decision of the arbitrator. Notwithstanding the
foregoing, the parties may disclose information about the arbitration to
persons who have a need to know, such as directors, trustees, management
employees, witnesses, experts, investors, attorneys, lenders, insurers, and
others who may be directly affected. Additionally, each party may make
such disclosures as are required by applicable securities laws or other
applicable law or regulation. Further, if a party is expressly asked by
a third party about the dispute or the arbitration, the party may disclose
and acknowledge in general and limited terms that there is a dispute with
the other party which is being (or has been) arbitrated. Once the
arbitration award has become final, if the arbitration award is not
promptly satisfied, then these confidentiality provisions shall no longer
be applicable.
Section 11.12 Attorneys' Fees. In the event that any dispute
between any two or more of the parties to this Agreement should result in
litigation or arbitration, the prevailing party in such dispute shall be
entitled to recover from the other party all reasonable fees, costs and
expenses of enforcing any right of the prevailing party, including without
limitation, reasonable attorneys' fees, arbitration fees and other expenses,
all of which shall be deemed to have accrued upon the commencement of such
action and shall be paid whether or not such action is prosecuted to
judgment or arbitration award. Any judgment, order or arbitration award
entered in such action shall contain a specific provision providing for the
recovery of attorney fees and costs incurred in enforcing such judgment or
award and an award of prejudgment interest from the date of the breach at
the maximum rate of interest allowed by law. For the purposes of this
Section 11.12: (a) attorney's fees shall include, without limitation,
fees incurred in the following: (1) post-judgment motions; (2) contempt
proceedings; (3) garnishment, levy, and debtor and third party examinations;
(4) discovery; and (5) bankruptcy litigation and (b) prevailing party
shall mean the party who is determined by the trier of fact in the
proceeding to have prevailed or who prevails by dismissal, default or
otherwise.
Section 11.13 Severability of Provisions; Jeopardy.
(a) If any provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated by this Agreement is
not affected in any manner adverse to any party. Upon a determination
that such an adverse affect will occur, the parties to this Agreement
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable
manner to the end that transactions contemplated to this Agreement are
fulfilled to the greatest extent possible.
(b) Notwithstanding anything to the contrary contained
in this Agreement, in the event that it is determined prior to the Closing
that the performance by any party hereto of any term, covenant, condition
or provision of this Agreement should be in violation of any statute,
ordinance, or be otherwise deemed illegal, the parties shall immediately
-43-<PAGE>
<PAGE>
attempt to negotiate an amendment to this Agreement to eliminate such
jeopardy. In the event that such an amendment is not practicable or
cannot be agreed upon within fifteen (15) days of notice of the need
thereof, either party may, at its option, terminate this Agreement
forthwith.
Section 11.14 Seller Approval. The execution and delivery of
this Agreement by all Sellers shall constitute unanimous shareholder
approval of the execution and delivery of this Agreement by the
Corporation. Subject to and effective only as of Closing, the Sellers
and the Corporation hereby consent to the termination of that certain
Shareholders Agreement among the Corporation and certain of the Sellers
dated as of May 6, 1994 pursuant to Section 7.6 of the Shareholders
Agreement without further action on the part of the Sellers or the
Corporation.
Section 11.15 Certain Consents. So long as the payment
specified on Exhibit A for the Series A Preferred Stock is received by
the holders thereof, the holders of Series A Preferred Stock of the
Corporation hereby waive their right to the notice and redemption
rights provided under Section C.4.(a) of Article III of the Certificate
of Amendment and Restatement of the Articles of Incorporation of the
Corporation dated as of April 27, 1994. Pursuant to Section 5 of
Article VI of the Bylaws of the Corporation, the Corporation and the
Sellers hereby waive its and their respective first refusal rights to
notice and the options granted under Section 3 of Article VI of the
Bylaws of the Corporation.
[The remainder of this page is intentionally left blank]
-44-<PAGE>
<PAGE>
IN WITNESS WHEREOF, this Agreement has been signed by or on
behalf of each of the parties as of the date first above written.
SELLERS:
/S/
____________________________________
MARIE CLAIRE VALTZ, an Individual
/S/
____________________________________
FORREST HIBBITS, an Individual
/S/
____________________________________
ANN MANGIN, an Individual
THE VALTZ CORPORATION
By: /S/
________________________________
FIRST NATIONAL BANK OF SAN DIEGO
AS TRUSTEE FOR FRAME-N-LENS
EMPLOYEE STOCK OWNERSHIP PLAN
By: /S/
________________________________
SMITH BARNEY ACQUISITION FUND,
INC.
By: /S/
________________________________
[Signatures Continued on Next Page]<PAGE>
<PAGE>
[Signatures Continued from Preceding Page]
SMITH BARNEY INVESTORS, L.P.
By: /S/
___________________________________
FIRST CENTURY PARTNERSHIP III
By: /S/
___________________________________
OMEGA PARTNERS
By: /S/
___________________________________
VISION PARTNERS, L.P.
By: /S/
___________________________________
KB MEZZANINE FUND, L.P.
By: /S/
___________________________________
[Signatures Continued on Next Page]<PAGE>
<PAGE>
[Signatures Continued from Preceding Page]
THOMAS C. ACKERMAN FOUNDATION
By: /S/
___________________________________
ROXBURY LATIN SCHOOL
By: /S/
___________________________________
PRESIDENT & FELLOWS OF HARVARD
UNIVERSITY
By: /S/
___________________________________
HOLIHAN LOKEY HOWARD & ZUKIN,
INC.
By: /S/
___________________________________
CARGILL FINANCIAL SERVICES CORP.
By: /S/
___________________________________
[Signatures Continued on Next Page]
<PAGE>
<PAGE>
[Signatures Continued from Preceding Page]
NOMURA HOLDING AMERICA, INC.
By: /S/
___________________________________
FRAME-N-LENS EMPLOYEE STOCK
OWNERSHIP PLAN ADMINISTRATIVE
COMMITTEE
By: /S/
___________________________________
CORPORATION:
FRAME-N-LENS OPTICAL, INC.
a California corporation
By: /S/
__________________________________
BUYER:
NATIONAL VISION ASSOCIATES, LTD.
By: /S/
__________________________________
<PAGE>
<PAGE>
INDEX TO SHARE PURCHASE AGREEMENT
BY AND AMONG
FRAME-N-LENS OPTICAL, INC.
a California corporation,
NATIONAL VISION ASSOCIATES, LTD.
a Georgia corporation
AND
THE SELLERS NAMED HEREIN
DATED AS OF JUNE 9, 1998
Exhibits
- --------
Exhibit A - List of Sellers
Exhibit B - Legal Opinions
Exhibit C - General Release
Exhibit C-1 - General Release of ESOP
Schedules
- ---------
Schedule 9.2
Corporation Disclosure Schedule
Disclosure Schedule of KB Mezzanine Fund
The Registrant hereby agrees to furnish supplementally a copy of any
omitted exhibit or schedule to the Commission upon request.
<TABLE>
<CAPTION>
EXHIBIT 11
NATIONAL VISION ASSOCIATES, LTD.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(000's except per common share information)
Three Months Ended Six Months Ended
--------------------------- ------------------------
June 28, July 4, June 28, July 4,
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET INCOME $ 1,620 $ 2,143 $ 3,273 $ 4,595
======= ======= ======= =======
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 20,649 20,921 20,649 20,846
BASIC INCOME PER COMMON SHARE $ 0.08 $ 0.10 $ 0.16 $ 0.22
WEIGHTED SHARES OUTSTANDING 20,649 20,921 20,649 20,846
Net options issued to employees 124 547 127 396
------- ------- ------- -------
AGGREGATE COMMON SHARES OUTSTANDING 20,773 21,468 20,776 21,242
======= ======= ======= =======
DILUTED INCOME PER COMMON SHARE $ 0.08 $ 0.10 $ 0.16 $ 0.22
======= ======= ======= =======
</TABLE>
In 1997, the Company adopted SFAS No. 128 "Earnings Per Share". Basic
earnings per common share were computed by dividing net income by the weighted
average number of common shares outstanding during the year. Diluted earnings
per common share were computed as basic earnings per common share, adjusted
for outstanding stock options that are dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT JULY 4, 1998 (UNAUDITED) AND THE
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED
JULY 4, 1998 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000868263
<NAME> NATIONAL VISION ASSOCIATES, LTD.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> JAN-04-1998
<PERIOD-END> JUL-04-1998
<CASH> 2,364
<SECURITIES> 0
<RECEIVABLES> 8,940
<ALLOWANCES> 912
<INVENTORY> 23,070
<CURRENT-ASSETS> 34,712
<PP&E> 86,302
<DEPRECIATION> 42,937
<TOTAL-ASSETS> 84,486
<CURRENT-LIABILITIES> 17,491
<BONDS> 0
0
0
<COMMON> 211
<OTHER-SE> 44,306
<TOTAL-LIABILITY-AND-EQUITY> 84,486
<SALES> 51,037
<TOTAL-REVENUES> 51,037
<CGS> 23,890
<TOTAL-COSTS> 23,890
<OTHER-EXPENSES> 23,286
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 235
<INCOME-PRETAX> 3,626
<INCOME-TAX> 1,483
<INCOME-CONTINUING> 2,143
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,143
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
