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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported) June 10, 1996
NEW WEST EYEWORKS, INC.
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(Exact name of Registrant as Specified in Its Charter)
Delaware
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(State or Other Jurisdiction of Incorporation)
1-12740 34-1589514
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(Commission File Number) (I.R.S. Employer Identification No.)
2104 West Southern Avenue, Tempe, Arizonia 85282
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(Address of Principal Executive Office) (Zip Code)
(602)438-1330
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(Registrant's Telephone Number, Including Area Code)
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(Former Name or Former Address, if Changed Since Last Report)
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Item 5. Other Events.
On June 10, 1996, New West Eyeworks, Inc. (the "Company") entered into a
credit agreement (the "Credit Agreement") under which the Company received a
$2.0 million revolving line of credit (the "Loan"). Under the terms of the
Credit Agreement, interest will accrue on the principal balance outstanding on
the Loan from time to time at a rate equal to the lending bank's prime rate,
plus 2.0% per annum, and will be due and payable monthly. The interest rate
may be reduced to the prime rate plus 1.0% per annum if certain financial
conditions are met at year end 1996 and at the end of February 1997. Until the
Loan is paid in full, the Credit Agreement prohibits payments of cash dividends
or the Company's common stock, par value $0.01 per share (the "Common Stock").
The Loan matures on May 31, 1997, and is secured by substantially all of the
Company's assets, including the Company's executive office building and optical
laboratory facilities in Tempe, Arizona, but excluding furniture, fixtures and
equipment.
The loan is also secured by (i) the personal guaranty of Ronald E.
Weinberg, Chairman of the Board and a common and preferred stockholder of the
Company; (ii) the guaranty of Mesirow Capital Partners V, an Illinois limited
partnership and a common and preferred stockholder of the Company ("MCP V");
and (iii) the guaranty of Mesirow Capital Partners VI, an Illinois limited
partnership and a common and preferred stockholder of the Company ("MCP VI").
William P. Sutter, Jr. is an officer of the corporate general partners of MCP V
and MCP VI and a director of the Company. The aggregate liability of the
guarantors under the three guaranties is $1.0 million. Under the terms of the
Guaranty, Indemnification and Contribution Agreement, dated June 10, 1996,
among the Company, Mr. Weinberg, Barry Feld, President of the Company, MCP V
and MCP VI (the "Contribution Agreement"), Mr. Feld agreed to share in the
obligations of the guarantors should any of them be required to perform under
their respective guaranties, and the Company agreed to indemnify Mr. Feld and
the guarantors against liabilities in the event any of them are required to
perform their share of the guarantied obligations. The indemnification
obligation of the Company is secured by a second lien granted to the guarantors
and Mr. Feld on certain assets of the Company, including the Company's Tempe,
Arizona building. In consideration for the guaranties of Mr. Weinberg, MCP V
and MCP VI and Mr. Feld's agreement to share in the obligations of the
guarantors, the Company issued on June 10, 1996 to such guarantors and Mr. Feld
a warrant (the "Warrant") to purchase, in the aggregate, 50,000 shares of the
Company's Common Stock, at a price per share of $6.11, subject to customary
anti-dilution adjustments. The Warrant is exercisable for five years from the
date of its issuance.
The proceeds of the Loan will be used by the Company for working capital
and general corporate purposes. $686,000 of the proceeds were used to retire
and pay accrued interest on two bridge loans. The bridge loans in the original
principal amount of $700,000 were provided in January 1996 by MCP VI and Mr.
Weinberg to fund the Company's expansion and advertising needs. The bridge
loans originally matured on April 30, 1996. The maturity dates were extended
to May 18, 1996, and then further extended to the repayment date. The loans
bore interest at an annual rate of 15% and were secured by a deed of trust on
the Company's Tempe, Arizona building. In April 1996, the Company repaid Mr.
Weinberg a portion of the bridge loan, and accrued interest thereon, in the
amount of $52,000.
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The foregoing summaries of the Credit Agreement, Contribution Agreement
and Warrant are qualified by reference to the full text of such documents, each
of which is attached as an exhibit hereto.
Item 7. Financial Statements and Exhibits.
(c) Exhibits
Exhibit 4.8 -- Warrant, dated June 10, 1996, issued to Ronald E.
Weinberg, Barry Feld, Mesirow Capital Partners V and
Mesirow Capital Partners VI
Exhibit 99.1 -- Credit Agreement, dated June 10, 1996, between U.S.
Bank of Washington, National Association, and New West
Eyeworks, Inc.
Exhibit 99.2 -- Guaranty, Contribution and Indemnification Agreement,
dated June 10, 1996, among New West Eyeworks, Inc.,
Ronald E. Weinberg, Barry Feld, Mesirow Capital
Partners V and Mesirow Capital Partners VI
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 hereunto duly authorized.
NEW WEST EYEWORKS, INC.
(Registrant)
Date: June 17, 1996 By: /s/ Ronald E. Weinberg
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(Signature)
Ronald E. Weinberg
Chairman of the Board
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Exhibit Index
Exhibit 4.8 -- Warrant, dated June 10, 1996, issued to Ronald E. Weinberg,
Barry Feld, Mesirow Capital Partners V and Mesirow Capital
Partners VI
Exhibit 99.1 -- Credit Agreement, dated June 10, 1996, between U.S. Bank of
Washington, National Association, and New West Eyeworks,
Inc.
Exhibit 99.2 -- Guaranty, Contribution and Indemnification Agreement, dated
June 10, 1996, among New West Eyeworks, Inc., Ronald E.
Weinberg, Barry Feld, Mesirow Capital Partners V and
Mesirow Capital Partners VI
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Exhibit 4.8
WARRANT TO PURCHASE COMMON STOCK
OF
NEW WEST EYEWORKS, INC.
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES
LAWS, AND MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED
OR OTHERWISE DISPOSED OF UNLESS IT IS FIRST REGISTERED
UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR
UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE AND
THE COMPANY HAS RECEIVED, AT THE EXPENSE OF THE HOLDER
HEREOF, EVIDENCE OF SUCH EXEMPTION REASONABLY SATISFACTORY
TO THE COMPANY (WHICH MAY INCLUDE, AMONG OTHER THINGS, AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY).
STOCK PURCHASE WARRANT
Date of Issuance: June 10, 1996 W-17
FOR VALUE RECEIVED, New West Eyeworks, Inc., a Delaware corporation (the
"Company"), hereby grants to Mesirow Capital Partners V, Mesirow Capital
Partners VI, Ronald E. Weinberg and Barry J. Feld, jointly, or their registered
assigns (collectively the "Registered Holders" or singularly each "Registered
Holder"), the right to purchase from the Company Fifty Thousand (50,000) shares
of the Company's common stock at a price per share of Six and 11/100 Dollars
($6.11) (the "Initial Exercise Price"). This Warrant is subject to the
Guaranty, Contribution and Indemnification Agreement ("Guaranty Agreement") of
even date herewith among the Company and the Registered Holders and shall only
be divided among the Registered Holders in accordance with the terms thereof.
Certain capitalized terms used herein are defined in Part 5 hereof. The amount
and kind of securities purchasable pursuant to the rights granted hereunder and
the purchase price for such securities are subject to adjustment pursuant to
the provisions contained in this Warrant.
This Warrant is subject to the following additional provisions:
Part 1. Exercise of Warrant.
1A. Exercise Period. The Registered Holders may exercise, in whole or in
part (but not as to a fractional share of Common Stock), the purchase rights
represented by this Warrant at any time and from time to time after the Date of
Issuance to and including June 10, 2001 (the "Exercise Period").
1B. Exercise Procedure.
(i) This Warrant will be deemed to have been exercised when the Company
has received all of the following items (the "Exercise Time"):
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(a) a completed Exercise Agreement, as described in paragraph
1C below and substantially in the form of Exhibit I hereto, executed
by each of the Registered Holders;
(b) this Warrant; and
(c) a cashier's or certified check payable to the Company in an
amount equal to the product of the Exercise Price (as such term is
defined in Part 2) multiplied by the number of shares of Common Stock
being purchased upon such exercise.
(ii) Certificates for shares of Common Stock purchased upon exercise of
this Warrant will be delivered by the Company to the exercising Registered
Holders (the "Purchasers") within five (5) business days after the date of the
Exercise Time. Subject to the terms of the Guaranty Agreement, unless this
Warrant has expired or all of the purchase rights represented hereby have been
exercised, the Company will prepare a new Warrant, substantially identical
hereto, representing the rights formerly represented by this Warrant that have
not expired or been exercised and will, within such five-day period, deliver
such new Warrant to the Person designated for delivery in the Exercise
Agreement.
(iii) The Common Stock issuable upon the exercise of this Warrant will
be deemed to have been issued to the Purchasers at the Exercise Time, and the
Purchasers will be deemed for all purposes to have become the record holders of
such Common Stock at the Exercise Time.
(iv) The issuance of certificates for shares of Common Stock upon exercise
of this Warrant will be made without charge to the Purchasers for any issuance
tax in respect thereof or other cost incurred by the Company in connection with
such Exercise and the related issuance of shares of Common Stock. Each share
of Common Stock issuable upon exercise of this Warrant will, upon payment of
the Exercise Price therefor, be fully paid and nonassessable and free from all
liens and charges with respect to the issuance thereof.
(v) The Company will not close its books against the transfer of this
Warrant or of any share of Common Stock issued or issuable upon the exercise of
this Warrant in any manner which interferes with the timely exercise of this
Warrant. The Company will from time to time take all such action as may be
necessary to assure that the par value per share of the unissued Common Stock
acquirable upon exercise of this Warrant is at all times equal to or less than
the Exercise Price then in effect.
1C. Exercise Agreement. Upon any exercise of this Warrant, the Exercise
Agreement will be substantially in the form set forth in Exhibit I hereto,
except that if the shares of Common Stock are not to be issued in the name of
the Person in whose name this Warrant is registered, the Exercise Agreement
will also state the name of the Person to whom the certificates for the shares
of Common Stock are to be issued, and if the number of shares of Common Stock
to be issued does not include all the shares of Common Stock purchasable
hereunder, it will also state the name of the Registered Holder to whom a new
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Warrant for the unexercised portion of the rights hereunder is to be delivered.
Such Exercise Agreement will be dated the actual date of execution thereof.
1D. Fractional Shares. If a fractional share of Common Stock would, but
for the provisions of paragraph 1A, be issuable upon exercise of the rights
represented by this Warrant, the Company will within seven (7) days after the
date of the Exercise Time, deliver to the Purchaser a check payable to the
Purchaser in lieu of such fractional share in an amount equal to the Market
Price of such fractional share as of the Exercise Time.
1E. Reservation of Common Stock. The Company shall at all times reserve
and keep available a number of its authorized but unissued shares of Common
Stock that will be sufficient to permit the exercise in full of this Warrant.
Part 2. Adjustment of Exercise Price and Number of Shares. In
order to prevent dilution of the rights granted under this Warrant, the Initial
Exercise Price shall be subject to adjustment from time to time as provided in
this Part 2 as follows (such price or such price as last adjusted pursuant to
the terms hereof, as the case may be, is herein called the "Exercise Price"):
2A. Issuance of Common Stock. If and whenever after the date hereof the
Company shall issue or sell (or be deemed to issue or sell as provided
hereunder) any shares of its Common Stock for a consideration per share less
than the Exercise Price in effect immediately prior to the time of such issue
or sale (other than shares of Common Stock issued pursuant to this Warrant or
shares of Common Stock issued pursuant to options granted under the Company's
Amended and Restated Stock Option Plan (the "Plan"), then, forthwith upon such
issue or sale, the Exercise Price shall be reduced to the price, calculated to
the nearest cent, determined by dividing (i) the sum of (A) the number of
shares of Common Stock outstanding immediately prior to such issue or sale
multiplied by the then existing Exercise Price and (B) the consideration, if
any, received by the Company upon such issue or sale, by (ii) the total number
of shares of Common Stock outstanding immediately after such issue or sale.
(i) Issuance of Rights or Options. If at any time the Company shall
in any manner grant (whether directly or by assumption in a merger or
otherwise), after the date hereof, any rights to subscribe for or to purchase,
or any options for the purchase of (such rights or options being herein called
"Options"), Common Stock (other than Options granted under the Plan) or any
stock or securities convertible into or exchangeable for Common Stock (such
convertible or exchangeable stock or securities being herein called
"Convertible Securities") whether or not such Options or the right to convert
or exchange any such Convertible Securities are immediately exercisable, and
the price per share for which Common Stock is issuable upon the exercise of
such Options or upon conversion or exchange of such Convertible Securities
(determined as provided in the following sentence) shall be less than the
Exercise Price in effect immediately prior to the time of granting such
Options, then the total maximum number of shares of Common Stock issuable upon
the exercise of all such Options or upon conversion or exchange of the total
maximum amount of such Convertible Securities issuable upon the exercise of
such Options shall be deemed to have been issued for such price per share as of
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the date of the grant of Option, and thereafter shall be deemed to be
outstanding. The price per share for which Common Stock is deemed to have been
issued, as referred to in the preceding sentence, shall be determined by
dividing (A) the sum of (1) the total amount, if any, received or receivable by
the Company as consideration for the granting of such Options, plus (2) the
minimum aggregate amount of additional consideration payable to the Company
upon the exercise of all such Options, plus (3) in the case of all such Options
that relate to Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the issue or sale of all such
Convertible Securities (to the extent not counted in clause (2) above) and upon
the conversion or exchange of all such Convertible Securities into Common
Stock, by (B) the total maximum number of shares of Common Stock issuable upon
the exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options. The
consideration received or receivable by the Company shall in each case be
determined in accordance with Part 2(A)(v) hereof. Except as otherwise
provided in Part 2(A)(iii) hereof, no adjustment of the Exercise Price shall be
made upon the actual issue of such Common Stock or of such Convertible
Securities upon exercise of such Options or upon the actual issue of such
Common Stock upon conversion or exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the Company shall in any
manner issue (whether directly or by assumption in a merger or otherwise) or
sell, after the date hereof, any Convertible Securities, whether or not the
rights to exchange or convert thereunder are immediately exercisable, and the
price per share for which Common Stock is issuable upon such conversion or
exchange (determined as provided in the following sentence) shall be less than
the Exercise Price in effect immediately prior to the time of such issue or
sale, then the total maximum number of shares of Common Stock issuable upon
conversion or exchange of all such Convertible Securities shall be deemed to
have been issued for such price per share as of the date of the issue or sale
of such Convertible Securities and thereafter shall be deemed to be
outstanding, provided that (A) except as otherwise provided in Part 2(A)(iii)
hereof, no adjustment of the Exercise Price shall be made upon the actual issue
of such Common Stock upon conversion or exchange of such Convertible
Securities, and (B) if any such issue or sale of such Convertible Securities is
made upon exercise of any Options for which adjustments of the Exercise Price
have been or are to be made pursuant to Part 2(A)(i) hereof, no further
adjustment of the Exercise Price shall be made by reason of such issue or sale.
The price per share for which Common Stock is deemed to have been issued, as
referred to in the preceding sentence, shall be determined by dividing (A) the
sum of (1) the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible Securities, plus (2)
the minimum aggregate amount of additional consideration, if any, payable upon
the conversion or exchange of such Convertible Securities into Common Stock, by
(B) the total maximum number of shares of Common Stock issuable upon the
conversion or exchange of such Convertible Securities. The consideration
received or receivable by the Company shall in each case be determined in
accordance with Part 2(A)(v) hereof.
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(iii) Change in Option Price or Conversion Rate. If the purchase
price provided for in any outstanding Option referred to in Part 2(A)(i)
hereof, the additional consideration, if any, payable upon the conversion or
exchange of any outstanding Convertible Securities referred to in Part 2(A)(i)
or 2(A)(ii) hereof, or the rate at which any such Convertible Securities are
convertible into or exchangeable for Common Stock shall change at any time
(other than under or by reason of provisions designed to protect against
dilution), the Exercise Price in effect at the time of such event shall
forthwith be readjusted to the Exercise Price that would have been in effect at
such time had such Options or Convertible Securities provided for such changed
purchase price, additional consideration or conversion rate, as the case may
be, at the time initially granted, issued or sold. On the expiration of any
Option referred to in Part 2(A)(i) hereof prior to the exercise thereof or the
termination of any right to convert or exchange any Convertible Securities
referred to in Part 2(A)(i) or 2(A)(ii) hereof prior to the exercise of such
rights, the Exercise Price then in effect hereunder shall forthwith be
increased (but in no case shall such Exercise Price be increased to a price
greater than the Initial Exercise Price) to the Exercise Price that would have
been in effect at the time of such expiration or termination had such Option or
Convertible Security, to the extent outstanding immediately prior to such
expiration or termination never been issued, and the Common Stock issuable
thereunder shall no longer be deemed to be outstanding for the purposes of any
calculation under Part 2(A)(i) or 2(a)(iv) hereof. If the purchase price
provided for in any Option referred to in Part 2(A)(i) hereof or the additional
consideration, if any, payable upon the conversion or exchange of any
Convertible Securities issuable upon the exercise of any such Options or upon
the conversion or exchange of any Convertible Securities referred to in Part
2(A)(ii) hereof and still outstanding shall decrease, or the number of shares
of Common Stock issuable upon conversion or exchange of any such Convertible
Securities shall increase, at any time under or by reason of provisions with
respect thereto designed to protect against dilution, then in case of the
delivery of Common Stock upon the exercise of any such Option or upon
conversion or exchange of any such Convertible Security, the Exercise Price
then in effect hereunder shall forthwith be adjusted to the Exercise Price that
would have been obtained had Parts 2(A)(i) and 2(A)(ii) hereof and the
provisions of Part 2(A)(iii) hereof never been given effect in relation to such
Option or Convertible Securities and had the Exercise Price been adjusted
pursuant to Part 2(A) hereof at the time of delivery of such shares of Common
Stock based on the consideration received (or deemed received under Part
2(A)(v) hereof) for such Common Stock, determined as of the date of such
delivery, provided that such adjustment of the Exercise Price shall be made
only if as a result thereof the Exercise Price then in effect hereunder is
thereby reduced.
(iv) Stock Dividends. If the Company declares a dividend or makes
any other distribution upon any stock of the Company payable in Common Stock,
Options or Convertible Securities, then any Common Stock, Options or
Convertible Securities, as the case may be, issuable in payment of such
dividend or distribution shall be deemed to have been issued or sold without
consideration for purposes of the calculations to be made under this Part 2.If
the Company shall at any time prior to the expiration of this Warrant
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declare a dividend payable in cash on its Common Stock and at substantially the
same time offer its stockholders a right to purchase Common Stock from the
proceeds of such dividend or for an amount substantially equal to such
dividend, then, in such case, all Common Stock so issued shall, for purpose of
this Warrant, be deemed to have been issued as a stock dividend.
(v) Calculation of Consideration Received. If any Common Stock,
Options or Convertible Securities are issued or sold or deemed to have been
issued or sold for cash, the consideration received therefor will be deemed to
be the net amount received by the Company therefor. In case any Common Stock,
Options or Convertible Securities are issued or sold for a consideration other
than cash, the amount of the consideration other than cash received by the
Company will be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of consideration
received by the Company will be the Market Price thereof as of the date of
receipt. In case any Common Stock, Options or Convertible Securities are
issued in connection with any merger in which the Company is the surviving
corporation, the amount of consideration therefor will be deemed to be the fair
value of such portion of the net assets and business of the non-surviving
corporation as is attributable to such Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any consideration other than
cash or securities will be determined by a qualified independent third party to
be chosen jointly by the Company and the Registered Holders of this Warrant
representing a majority of the shares of Common Stock obtainable upon exercise
of this Warrant. If such parties are unable to reach agreement on the
selection of such independent third party within a reasonable time, such
independent third party will be selected by a third person jointly selected by
the Company and the Registered Holders of this Warrant representing a majority
of the shares of Common stock obtainable upon exercise of this Warrant.
(vi) Integrated Transactions. In case any Option is issued in
connection with the issue or sale of other securities of the Company, together
comprising one integrated transaction in which no specific consideration is
allocated to such Option by the parties thereto, the Option will be deemed to
have been issued without consideration.
(vii) Treasury Shares. The number of shares of Common Stock
outstanding at any given time does not include shares owned or held by or for
the account of the Company, and the disposition of any shares so owned or held
will be considered an issue or sale of Common Stock.
(viii) Record Date. If the Company takes a record of the holders
of Common Stock for the purpose of entitling them (A) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible
Securities, or (B) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date will be deemed to be the date of
the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
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2B. Subdivision or Combination of Common Stock. If the Company at any
time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, the Exercise Price in effect immediately prior to
such subdivision will be proportionately reduced and the number of shares of
Common Stock obtainable upon exercise of this Warrant will be proportionately
increased. If the Company at any time combines (by reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price in effect immediately prior to
such combination will be proportionately increased and the number of shares of
Common Stock obtainable upon exercise of this Warrant will be proportionately
decreased.
2C. Reorganization, Reclassification, Consolidation, Merger or Sale. Any
capital reorganization, reclassification, consolidation, merger or sale of all
or substantially all of the Company's assets to another Person which is
effected in such a way that holders of Common Stock are entitled to receive
(either directly or upon subsequent liquidation) stock, securities or assets
with respect to or in exchange for Common Stock is referred to herein as an
"Organic Change." Prior to the consummation of any Organic Change, the Company
will make appropriate provision (in form and substance satisfactory to the
Registered Holders of this Warrant representing a majority of the Common Stock
obtainable upon exercise of this Warrant) to insure that each of the Registered
Holders of this Warrant will thereafter have the right to acquire and receive
in lieu of or in addition to the shares of Common Stock immediately theretofore
acquirable and receivable upon the exercise of such holder's Warrant, such
shares of stock, securities or assets as may be issued or payable with respect
to or in exchange for the number of shares of Common Stock immediately
theretofore acquirable and receivable upon exercise of such holder's Warrant
had such Organic Change not taken place. In any such case, the Company will
make appropriate provision (in form and substance satisfactory to the
Registered Holders of this Warrant representing a majority of the Common Stock
obtainable upon exercise of this Warrant) with respect to such holders' rights
and interests to insure that the provisions of this Part 2 and Parts 3 and 4
hereof will thereafter be applicable to the Warrants (including, in the case of
any such consolidation, merger or sale in which the successor corporation or
purchasing corporation is other than the Company, an immediate adjustment of
the Exercise Price to the value of the Common Stock reflected by the terms of
such consolidation, merger or sale, and a corresponding immediate adjustment in
the number of shares of Common Stock acquirable and receivable upon exercise of
this Warrant, if the value so reflected is less than the Exercise Price in
effect immediately prior to such consolidation, merger or sale). The Company
will not effect any such consolidation, merger or sale, unless prior to the
consummation thereof, the successor corporation (if other than the Company)
resulting from consolidation or merger or the corporation purchasing such
assets assumes by written instrument (in form and substance satisfactory to the
Registered Holders of this Warrant representing a majority of the Common Stock
obtainable upon exercise of this Warrant), the obligation to deliver to each
such holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such holder may be entitled to acquire.
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2D. Share Adjustment. Whenever the Exercise Price payable upon exercise
of any Warrant is adjusted pursuant to Parts 2A, 2B, 2C or 2E hereof, the
number of shares of Common Stock purchasable upon exercise of this Warrant
shall simultaneously be adjusted by multiplying the number of shares of Common
Stock initially issuable upon exercise of this Warrant by the Initial Exercise
Price and dividing the product so obtained by the Exercise Price, as adjusted.
2E. Certain Events. If any event occurs of the type contemplated by the
provisions of this Part 2 but not expressly provided for by such provisions,
then the Company's Board of Directors will make an appropriate adjustment in
the Exercise Price and the number of shares of Common Stock obtainable upon
exercise of this Warrant so as to protect the rights of the holders of this
Warrant; provided that no such adjustment will increase the Exercise Price or
decrease the number of shares of Common Stock obtainable as otherwise
determined pursuant to this Part 2.
2F. Notices.
(i) Immediately upon any adjustment of the Exercise Price, the Company
will give written notice thereof to each of the Registered Holders.
(ii) The Company will give written notice to the Registered Holders at
least twenty (20) days prior to the date on which the Company closes its books
or takes a record (A) with respect to any dividend or distribution upon the
Common Stock, (B) with respect to any pro rata subscription offer to holders of
Common Stock, or (C) for determining rights to vote with respect to any Organic
Change, dissolution or liquidation.
(iii) The Company will also give written notice to the Registered
Holders at least twenty (20) days prior to the date on which any Organic
Change, dissolution or liquidation will take place.
Part 3. Liquidating Dividends. If the Company declares or pays a
dividend upon the Common Stock payable otherwise than in cash out of earnings
or earned surplus (determined in accordance with the generally accepted
accounting principles, consistently applied) except for a stock dividend
payable in shares of Common Stock (a "Liquidating Dividend"), then the Company
will pay to the Registered Holders of this Warrant at the time of payment
thereof the Liquidating Dividend that would have been paid to such Registered
Holders on the Common Stock had this Warrant been fully exercised immediately
prior to the date on which a record is taken for such Liquidating Dividend, or,
if no record is taken, the date as of which the record holders of Common Stock
entitled to such dividends are to be determined.
Part 4. Purchase Rights. If at any time the Company grants, issues or
sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of any
class of Common Stock (the "Purchase Rights"), then the Registered Holders of
this Warrant will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which such holder could have
acquired if such holder had held the number of shares of Common Stock
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acquirable upon complete exercise of this Warrant immediately before the date
on which a record is taken for the grant, issuance or sale of such Purchase
Rights, or, if no such record is taken, the date as of which the record holders
of Common Stock are to be determined for the grant, issue or sale of such
Purchase Rights.
Part 5. Definitions. The following terms have the meanings set forth
below:
"Common Stock" means the Company's Common Stock, one cent ($0.01) per
share par value, and, except for purposes of the shares obtainable upon
exercise of this Warrant, any capital stock of any class of the Company
hereafter authorized that is not limited to a fixed sum or percentage of par or
stated value in respect to the rights of the holders thereof to participate in
dividends or in the distribution of assets upon any liquidation, dissolution or
winding up on the Company.
"Market Price" means as to any security the average of the closing prices
of such security's sales on all domestic securities exchanges on which such
security may at the time be listed, or, if there have been no sales on any such
exchange on any day, the average of the highest bid and lowest asked prices on
all such exchanges at the end of such day, or, if on any day such security is
not so listed, the average of the representative bid and asked prices quoted in
the NASDAQ System as of 4:00 P.M., New York time, on such day, or, if on any
day such security is not quoted in the NASDAQ System, the average of the
highest bid and lowest asked prices on such day in the domestic over-the-counter
market as reported by the National Quotation Bureau, Incorporated, or
any similar successor organization, in each such case averaged over a period of
the twenty (20) consecutive business days prior to the date as of which "Market
Price" is being determined; provided that if such security is listed on any
domestic securities exchange the term "business days" as used in this sentence
means business days on which such exchange is open for trading. If at any time
such security is not listed on any domestic securities exchange or quoted in
the NASDAQ System or the domestic over-the-counter market, the "Market Price"
will be the fair value thereof determined by a qualified independent third
party to be selected jointly by the Company and the Registered Holder that, if
the Warrant was fully exercised, would hold a majority of the shares issuable
pursuant to the Warrant.
"Person" means an individual, a partnership, a joint venture, a
corporation, a trust, a limited liability company, an unincorporated
organization or a government or any department or agency thereof.
Part 6. No Voting Rights; Limitations of Liability. This Warrant
will not entitle the holder hereof to any voting rights or other rights as a
stockholder of the Company. No provision hereof, in the absence of affirmative
action by the Registered Holders to purchase Common Stock, and no enumeration
herein of the rights or privileges of the Registered Holders shall give rise to
any liability of such holders for the Exercise Price of Common Stock acquirable
by exercise hereof or as a stockholder of the Company.
<PAGE>
<PAGE> 10
Part 7. Warrant Transferable. This Warrant and all rights
hereunder are transferable among the Registered Holders only and, in the case
of individuals to family members or trusts, in whole or in part, without charge
to the Registered Holders, upon surrender of this Warrant with a properly
executed Assignment (in the form of Exhibit II hereto) at the principal office
of the Company.
Part 8. Warrant Exchangeable for Different Denominations. This
Warrant is exchangeable, upon the surrender hereof by the Registered Holders at
the principal office of the Company, for new warrants of like tenor
representing in the aggregate the purchase rights hereunder, and each of such
new warrants will represent such portion of such rights as is set forth in the
Guaranty Agreement. The date the Company initially issues this Warrant will be
deemed to be the "Date of Issuance" hereof regardless of the number of times
new certificates representing the unexpired and unexercised rights formerly
represented by this Warrant shall be issued.
Part 9. Replacement. Upon receipt of evidence reasonably
satisfactory to the Company (an affidavit of any Registered Holder being
satisfactory) of the ownership and the loss, theft, destruction or mutilation
of any certificate evidencing this Warrant, and in the case of any such loss,
theft or destruction, upon receipt of indemnity reasonably satisfactory to the
Company, or, in the case of any such mutilation upon surrender of such
certificate, the Company will execute and deliver in lieu of such certificate a
new certificate of like kind representing the same rights represented by such
lost, stolen, destroyed or mutilated certificate and dated the date of such
lost, stolen, destroyed or mutilated certificate.
Part 10. Communications. All notices and other communications required
or permitted to be given hereunder shall be in writing and shall be delivered
to each party's business address and shall be deemed to have been received (i)
upon delivery by telecopy or facsimile (with transaction confirmation report)
if delivered on a business day during normal business hours or the first
business day following such delivery if other than on a business day during
normal business hours, or (ii) on the second business day following the date of
mailing by a nationally recognized express courier service, fully prepaid or
upon actual receipt of such mailing whichever occurs first.
Part 11. Amendment and Waiver. Except as otherwise provided herein, the
provisions of this Warrant may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be prohibited,
or omit to perform any act herein required to be performed by it, only if the
Company has obtained the written consent of the Registered Holders of this
Warrant representing eighty percent (80%) of the shares of Common Stock
obtainable upon exercise hereof; provided that no such action may change the
Exercise Price of this Warrant or the number of shares or class of stock
obtainable upon exercise of this Warrant without the written consent of the
Registered Holders of this Warrant representing one hundred percent (100%) of
the shares of Common Stock obtainable upon exercise of this Warrant.
<PAGE>
<PAGE> 11
Part 12. Descriptive Headings; Governing Law. The descriptive headings
of the several parts and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. The
construction, validity and interpretation of this Warrant will be governed by
the internal law, but not the conflicts law, of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and
attested by its duly authorized officers under its corporate seal and to be
dated the Date of Issuance hereof.
NEW WEST EYEWORKS, INC.
By:/s/Robert W. Regas
Its: Vice President
Attest: /s/Byron S. Krantz
Title: Secretary
<PAGE>
<PAGE> 12
EXHIBIT I
EXERCISE AGREEMENT
TO: New West Eyeworks, Inc. DATED:
2104 West Southern Avenue
Tempe, Arizona 85282
(602) 438-1330
Attention: Ronald E. Weinberg
The undersigned, pursuant to the provision set forth in the attached
Warrant (Certificate No. W-17), hereby agrees to subscribe for and purchase
shares of the Common Stock covered by such Warrant and makes payment herewith
in full therefor at the price per share provided by such Warrant. The shares of
Common Stock are to be issued as follows:
Person Number of Shares
Mesirow Capital Partners V
Mesirow Capital Partners VI
Ronald E. Weinberg
Barry J. Feld
MESIROW CAPITAL PARTNERS V
By:
Its:
MESIROW CAPITAL PARTNERS VI
By:
Its:
RONALD E. WEINBERG
BARRY J. FELD
<PAGE>
<PAGE> 13
EXHIBIT II
ASSIGNMENT
FOR VALUE RECEIVED, Mesirow Capital Partners V, Mesirow Capital Partners
VI, Ronald E. Weinberg and Barry J. Feld, hereby sell, assign and transfer all
of the rights of the undersigned under the attached Warrant (Certificate No.
W-17) and with respect to the number of shares of the Common Stock covered
thereby set forth below, unto:
Number
Name of Assignee Address of Shares
Dated:
MESIROW CAPITAL PARTNERS V
By:
Its:
MESIROW CAPITAL PARTNERS VI
By:
Its:
RONALD E. WEINBERG
BARRY J. FELD
<PAGE>
Exhibit 99.1
CREDIT AGREEMENT
Between
U. S. BANK OF WASHINGTON, NATIONAL ASSOCIATION
and
NEW WEST EYEWORKS, INC.
Dated as of June 10, 1996
<PAGE>
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . 6
1.1 Terms Defined . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.2 Accounting Terms. . . . . . . . . . . . . . . . . . . . . . . . . 11
1.3 Rules of Construction . . . . . . . . . . . . . . . . . . . . . . 11
1.4 Incorporation of Recitals and Exhibits. . . . . . . . . . . . . . 11
ARTICLE II. LOAN. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.1 Loan Commitment . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.2 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.3 Note. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.4 Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.5 Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.6 Fundings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.7 Loan Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.8 Borrowing Base. . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE III. GENERAL PROVISIONS APPLICABLE TO THE LOAN. . . . . . . . . 14
3.1 Manner of Payment . . . . . . . . . . . . . . . . . . . . . . . . 14
3.2 Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.3 Book Entry Loan Account . . . . . . . . . . . . . . . . . . . . . 15
3.4 Bank Control Account. . . . . . . . . . . . . . . . . . . . . . . 15
3.5 Computations of Interest. . . . . . . . . . . . . . . . . . . . . 15
3.6 Default Interest. . . . . . . . . . . . . . . . . . . . . . . . . 15
3.7 Maximum Interest Rate . . . . . . . . . . . . . . . . . . . . . . 15
3.8 Late Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.9 Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.10 Extensions, Renewals, and Modifications . . . . . . . . . . . . . 16
ARTICLE IV. CONDITIONS PRECEDENT FOR FUNDINGS UNDER THE LOAN. . . . . . 16
4.1 Conditions Precedent for Initial Funding. . . . . . . . . . . . . 16
4.2 Conditions Precedent to Each Subsequent Funding . . . . . . . . . 18
ARTICLE V. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . 19
5.1 Financial Data. . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.2 Licenses and Permits. . . . . . . . . . . . . . . . . . . . . . . 20
5.3 Maintenance of Properties . . . . . . . . . . . . . . . . . . . . 21
5.4 Payment of Charges. . . . . . . . . . . . . . . . . . . . . . . . 21
5.5 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.6 Maintenance of Records. . . . . . . . . . . . . . . . . . . . . . 22
5.7 Inspection. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.8 Hazardous Substances. . . . . . . . . . . . . . . . . . . . . . . 22
5.9 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . 23
5.10 Notice of Disputes and Other Matters. . . . . . . . . . . . . . . 23
5.11 Exchange of Note. . . . . . . . . . . . . . . . . . . . . . . . . 24
5.12 Maintenance of Liens. . . . . . . . . . . . . . . . . . . . . . . 24
5.13 Other Agreements. . . . . . . . . . . . . . . . . . . . . . . . . 24
5.14 After-Acquired Collateral . . . . . . . . . . . . . . . . . . . . 24
5.15 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . 24
5.16 Maintenance of Bank Accounts. . . . . . . . . . . . . . . . . . . 24
5.17 Lease Financing . . . . . . . . . . . . . . . . . . . . . . . . . 25
<PAGE>
<PAGE> 3
ARTICLE VI. NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . 25
6.1 Dividends and Distributions . . . . . . . . . . . . . . . . . . . 25
6.2 Transactions with Affiliates. . . . . . . . . . . . . . . . . . . 25
6.3 Other Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . 25
6.4 Leases and Leasebacks . . . . . . . . . . . . . . . . . . . . . . 26
6.5 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.6 Advances and Loans. . . . . . . . . . . . . . . . . . . . . . . . 27
6.7 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.8 Consolidation, Merger, and Sale of Assets . . . . . . . . . . . . 27
6.9 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.10 Type of Business. . . . . . . . . . . . . . . . . . . . . . . . . 27
6.11 Change of Chief Executive Office or Name. . . . . . . . . . . . . 27
6.12 Change in Documents . . . . . . . . . . . . . . . . . . . . . . . 28
6.13 Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.14 Pension Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.15 Tangible Net Worth. . . . . . . . . . . . . . . . . . . . . . . . 28
6.16 Capital Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.17 Debt Service Coverage . . . . . . . . . . . . . . . . . . . . . . 28
6.18 Working Capital . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.19 Limitation on Capital Expenditures. . . . . . . . . . . . . . . . 28
ARTICLE VII. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . 28
7.1 Corporate Status. . . . . . . . . . . . . . . . . . . . . . . . . 29
7.2 Power and Authority . . . . . . . . . . . . . . . . . . . . . . . 29
7.3 No Violation of Agreements. . . . . . . . . . . . . . . . . . . . 29
7.4 Recording and Enforceability. . . . . . . . . . . . . . . . . . . 30
7.5 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.6 Good Title to Properties. . . . . . . . . . . . . . . . . . . . . 30
7.7 Licenses and Permits. . . . . . . . . . . . . . . . . . . . . . . 30
7.8 No Burdensome Agreements. . . . . . . . . . . . . . . . . . . . . 30
7.9 Properties in Good Condition. . . . . . . . . . . . . . . . . . . 30
7.10 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . 31
7.11 Outstanding Indebtedness. . . . . . . . . . . . . . . . . . . . . 31
7.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.13 License Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.14 Trademarks, Patents, Etc. . . . . . . . . . . . . . . . . . . . . 31
7.15 Governmental Approvals. . . . . . . . . . . . . . . . . . . . . . 31
7.16 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.17 Regulations U and X . . . . . . . . . . . . . . . . . . . . . . . 32
7.18 Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.19 Condition of Property . . . . . . . . . . . . . . . . . . . . . . 32
7.20 Pension Plans . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE VIII. EVENTS OF DEFAULT; REMEDIES . . . . . . . . . . . . . . . 32
8.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . 32
8.2 Acceleration; Remedies. . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE IX. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . 35
9.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.2 Payment of Expenses . . . . . . . . . . . . . . . . . . . . . . . 36
9.3 Setoff. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.4 Waiver of Setoff. . . . . . . . . . . . . . . . . . . . . . . . . 36
<PAGE>
<PAGE> 4
9.5 Fees and Commissions. . . . . . . . . . . . . . . . . . . . . . . 36
9.6 No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.7 Entire Agreement and Amendments . . . . . . . . . . . . . . . . . 37
9.8 Benefit of Agreement. . . . . . . . . . . . . . . . . . . . . . . 37
9.9 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.10 Descriptive Headings. . . . . . . . . . . . . . . . . . . . . . . 37
9.11 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.12 Consent to Jurisdiction, Service, and Venue . . . . . . . . . . . 38
9.13 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.14 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.15 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.16 Statutory Notice. . . . . . . . . . . . . . . . . . . . . . . . . 39
<PAGE>
<PAGE> 5
EXHIBITS
Exhibit A -- Note, Section 2.3
Exhibit B -- Deed of Trust, Section 4.1(b)
Exhibit C -- Security Agreement, Section 4.1(c)
Exhibit D -- Landlord Waiver, Section 4.1(d)
Exhibit E -- Guaranties, Section 4.1(f)
Exhibit F -- Opinion of Counsel, Section 4.1(h)
Exhibit G -- Certificate of Compliance and Indemnity Regarding
Hazardous Substances, Section 4.1(i)
Exhibit H -- Certificate of Compliance and Indemnification
Agreement Regarding Access Laws, Section 4.1(k)
Exhibit I -- Board Resolution and Incumbency Certificate,Section 4.1(n)(iii)
Exhibit J -- Existing Liens, Section 6.5
Exhibit K -- Schedule of Trademarks, Trade Names, Service Marks, Patents and
Applications, Section 7.14
Exhibit L -- Schedule of Governmental Approvals, Section 7.15
<PAGE>
<PAGE> 6
CREDIT AGREEMENT
This credit agreement is made and entered into as of the 10th day of
June, 1996, by and between U. S. BANK OF WASHINGTON, NATIONAL ASSOCIATION, a
national banking association ("U. S. Bank"), and NEW WEST EYEWORKS, INC., a
Delaware corporation ("Borrower"). Words and phrases with initial capitalized
letters have the meanings assigned in Article I of this Agreement.
R E C I T A L S :
A. U. S. Bank is a national banking association with its principal
place of business in Seattle, Washington. Borrower is a corporation formed and
existing under the laws of the state of Delaware and is engaged in the business
of retail sale of eyewear.
B. Borrower has requested U. S. Bank to extend to Borrower a
revolving line of credit in the amount of $2,000,000.
C. U. S. Bank is ready, able, and willing to extend such credit
facility to Borrower on the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
conditions set forth herein, the parties agree as follows:
ARTICLE I. DEFINITIONS
1.1 Terms Defined. As used herein, the following terms have the
meanings set forth below:
"Affiliate" means a Person that now or hereafter, directly or
indirectly through one or more intermediaries, controls, is controlled by, or
is under common control with Borrower. A Person shall be deemed to control a
corporation or partnership if such Person possesses, directly or indirectly,
the power to direct or cause the direction of the management of such
corporation or partnership, whether through the ownership of voting securities,
by contract, or otherwise.
"Agreement" means this credit agreement and includes all amendments
to this Agreement.
"Applicable Law" means all applicable provisions and requirements of
all (a) constitutions, statutes, ordinances, rules, regulations, standards,
orders, and directives of any Governmental Bodies, (b) Governmental Approvals,
and (c) orders, decisions, decrees, judgments, injunctions, and writs of all
courts and arbitrators, whether such Applicable Laws presently exist, or are
modified, promulgated, or implemented after the date hereof.
<PAGE>
<PAGE> 7
"Borrower" means New West Eyeworks, Inc., a Delaware corporation, and
its successors.
"Borrowing Base" has the meaning set forth in Section 2.8 herein.
"Borrowing Notice" has the meaning set forth in Section 2.6(a)
herein.
"Business Day" means any day except a Saturday, Sunday, or other day
on which national banks in the state of Washington are authorized or required
by law to close.
"Capital Expenditures" means the aggregate amount of capital
expenditures of Borrower as determined in accordance with generally accepted
accounting principles, including leases that are or should be capitalized
pursuant to generally accepted accounting principles.
"Capital Ratio" means the ratio of Borrower's Indebtedness (less
contingent liabilities that have not historically been reflected on Borrower's
balance sheet) to Borrower's Tangible Net Worth.
"Cash Flow" means Borrower's net income (after taxes) for the
relevant period, subject to the following adjustments:
(a) There shall be added to net income: (i) charges against
income consisting of depreciation of real and personal property,
amortization, write-off of goodwill, and other intangibles, and
(ii) interest expense;
(b) There shall be deducted from net income: (i) revenues
derived from sources other than continuing operations, such as net
gains from sales of capital assets, restoration to contingency
reserves, collection of proceeds of life insurance policies, write-up
of assets, or gains from the sale, acquisition, or retirement of
securities, (ii) cash paid by Borrower during the relevant period for
Capital Expenditures, which cash does not constitute proceeds of
loans made to Borrower specifically for Capital Expenditures, and
(iii) dividends and distributions paid to Borrower's shareholders.
"Claims" has the meaning set forth in Section 9.13 herein.
"Collateral" means all the property, real or personal, tangible or
intangible, now owned or hereafter acquired, in which U. S. Bank has been or is
to be granted a security interest by Borrower or any other Person, to secure
the Indebtedness of Borrower to U. S. Bank.
"Confidential Information" has the meaning set forth in Section 9.15
herein.
"Debt Service" means, (a) current portion of long term debt, and
current portion of capitalized leases as of the last day of the relevant period
<PAGE>
<PAGE> 8
(exclusive of the current portion of the proposed financing of equipment and
leasehold improvements in the two Iowa locations), plus (b) interest expense
during the relevant period.
"Debt Service Coverage Ratio" means the ratio of Cash Flow to Debt
Service.
"Deed of Trust" has the meaning set forth in Section 4.1(b) herein
and includes all replacements, amendments, and modifications of the Deed of
Trust.
"Default" means any condition or event that constitutes an Event of
Default or with the giving of notice or lapse of time or both would, unless
cured or waived, become an Event of Default.
"Default Rate" has the meaning set forth in Section 3.6.
"Eligible Accounts Receivable" means the accounts receivable of
Borrower excluding the following: (a) accounts receivable that have been
outstanding in excess of 90 days from the date of invoice, (b) all accounts
receivable from any single customer of Borrower if 25 percent or more of such
customer's accounts owed to Borrower are ineligible for any reason,
(c) accounts receivable due from officers, employees, or Affiliates of
Borrower, (d) accounts receivable that are partially or wholly subject to the
right of setoff, (e) accounts receivable resulting from COD sales, finance
charges, and consignments, (f) accounts receivable due from Persons not
residents of the United States, (g) accounts receivable due from the federal
government, (h) accounts receivable that constitute any retainage, (i) accounts
receivable that constitute dated billings and (j) accounts receivable in which
any Person other than U. S. Bank has a security interest. Notwithstanding the
foregoing, "Eligible Accounts Receivable" shall not include any accounts
receivable unless and until U. S. Bank holds a first, valid, binding perfected
security interest in any such accounts receivable.
"Eligible Inventory" means Borrower's inventory of frames, ophthalmic
lenses, and contact lenses, valued at the lower of cost or market. "Eligible
Inventory" shall exclude inventory that is obsolete, consigned inventory,
inventory that is not in saleable condition, work-in-process, raw materials
(exclusive of frames and lenses), and inventory in which any Person other than
U. S. Bank has a security interest. Notwithstanding the foregoing, "Eligible
Inventory" shall not include any inventory unless and until U. S. Bank holds a
first, valid, and binding, perfected security interest in that inventory.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Event of Default" has the meaning set forth in Section 8.1 herein.
"Funding" means any disbursement of the proceeds of the Loan.
<PAGE>
<PAGE> 9
"Governmental Approval" means any authorization, consent, approval,
certificate of compliance, license, permit, or exemption from, contract with,
registration or filing with, or report or notice to, any Governmental Body
required or permitted by Applicable Law.
"Governmental Body" means the government of the United States, any
state or any foreign country, or any governmental or regulatory official, body,
department, bureau, subdivision, agency, commission, court, arbitrator, or
authority, or any instrumentality thereof, whether federal, state, or local.
"Guarantors" means Mesirow Capital Partners V, an Illinois limited
partnership, Mesirow Capital Partners VI, an Illinois limited partnership, and
Ronald E. Weinberg, each of whom is required to execute and deliver to
U. S. Bank a Guaranty pursuant to the terms of this Agreement.
"Guaranties" has the meaning set forth in Section 4.1(f) herein and
includes all replacements, amendments, and modifications of the Guaranties.
"Hazardous Materials" means oil or petrochemical products, PCB's,
asbestos, urea formaldehyde, flammable explosives, radioactive materials,
hazardous wastes, toxic substances, or related materials including but not
limited to substances defined as or included in the definition of "hazardous
substances," "hazardous wastes," "hazardous materials," or "toxic substances"
under any Hazardous Materials Laws.
"Hazardous Materials Claims" means (a) enforcement, cleanup, removal,
or other regulatory actions instituted, completed, or threatened by any
Governmental Body pursuant to any applicable Hazardous Materials Laws; and
(b) claims made or threatened by any third party against Borrower or its
property relating to damage, contribution, cost recovery, compensation, loss,
or injury resulting from Hazardous Materials.
"Hazardous Materials Laws" means all Applicable Laws pertaining to
Hazardous Materials.
"Indebtedness" means all items that in accordance with generally
accepted accounting principles would be included in determining total
liabilities as shown on the liabilities side of the balance sheet as of the
date that "Indebtedness" is to be determined and in any event includes
liabilities secured by any mortgage, deed of trust, pledge, lien, or security
interest on property owned or acquired, whether or not such a liability has
been assumed, and the guaranties, endorsements (other than for collection in
the ordinary course of business), and other contingent obligations with regard
to the obligations of other Persons.
"Loan" has the meaning set forth in Section 2.1 hereof and includes
all renewals, replacements, and amendments of the Loan.
"Loan Documents" means this Agreement, the Note, the Deed of Trust,
the Security Agreement, and the Guaranties, together with all other agreements,
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instruments, and documents arising out of or relating to this Agreement or the
Loan, and includes all renewals, replacements and amendments thereof.
"Note" has the meaning set forth in Section 2.3 herein and includes
all renewals, replacements, and amendments of the Note.
"Permitted Liens" has the meaning set forth in Section 6.5 herein.
"Person" means any individual, partnership, joint venture, limited
liability company, limited liability partnership, firm, corporation,
association, trust, or other enterprise or any Governmental Body.
"Plan" means an employee pension benefit plan that is covered by
ERISA or subject to the minimum funding standards under Section 412 of the
Internal Revenue Code of 1986 and is either (a) maintained by Borrower or any
Affiliate for employees of Borrower or any Affiliate or (b) maintained pursuant
to a collective bargaining agreement or any other arrangement under which more
than one employer makes contributions and to which Borrower or any Affiliate is
then making or accruing an obligation to make contributions or has within the
preceding five plan years made contributions.
"Prime Rate" means that rate of interest announced by U. S. Bank from
time to time as its prime rate. The Prime Rate is not necessarily the lowest
rate of interest charged by U. S. Bank to any classification of U. S. Bank
customers. For purposes of this Agreement, each time the Prime Rate changes, a
contemporaneous change shall occur in the interest rate charged to Borrower on
the Loan then bearing interest at a rate indexed to the Prime Rate, effective
upon the announcement or publication of any such change in rate. U. S. Bank
shall not be obligated to notify Borrower of any change in the Prime Rate;
however, the Prime Rate is available upon inquiry of U. S. Bank.
"Security Agreement" has the meaning set forth in Section 4.1(c)
herein and includes all renewals, replacements, and amendments of the Security
Agreement.
"Security Mutual" has the meaning set forth in Section 4.1(b) herein.
"Tangible Net Worth" means Borrower's net worth (which is referred to
as "total stockholders' equity" on Borrower's balance sheet) determined in
accordance with generally accepted accounting principles, less (a) the amount
of all deferred charges; (b) all intangible assets including but not limited to
goodwill, licenses, franchises, trademarks, trade names, service marks,
patents, and copyrights; (c) unamortized debt discount and expense; (d) the
cost of capital stock of an Affiliate; (e) any Indebtedness owing to Borrower
by an Affiliate thereof, unless such Indebtedness arose in connection with the
sale or lease of goods or property in the ordinary course of business or the
performance of services in the ordinary course of business and would otherwise
constitute current assets in accordance with generally accepted accounting
principles; and (f) the amount of any write-up in book value of the assets of
Borrower resulting from any revaluation of assets.
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"U. S. Bank" means U. S. Bank of Washington, National Association, a
national banking association, and its successors and assigns.
"Working Capital" means (a) Borrower's cash, accounts receivable, and
inventory, less (b) the outstanding principal balance of the Loan and
Borrower's accounts payable (excluding accounts payable to Saatchi and
Saatchi).
1.2 Accounting Terms. Unless otherwise specified herein, all
accounting terms used herein shall be interpreted, all accounting
determinations hereunder shall be made, and all financial statements required
to be delivered hereunder shall be prepared in accordance with generally
accepted accounting principles consistently applied. The parties agree that
all Borrower's monthly and quarterly financial statements will be unaudited and
will not include all footnote disclosures required by generally accepted
accounting principles for complete financial statements.
1.3 Rules of Construction. Unless the context otherwise requires,
the following rules of construction apply to the Loan Documents:
(a) Words in the singular include the plural and in the plural
include the singular.
(b) Provisions of the Loan Documents apply to successive events and
transactions.
(c) In the event of any inconsistency between the provisions of this
Agreement and the provisions of any of the other Loan Documents, the provisions
of this Agreement govern.
1.4 Incorporation of Recitals and Exhibits. The foregoing recitals
are incorporated into this Agreement by reference. All references to
"Exhibits" contained herein are references to exhibits attached hereto, the
terms and conditions of which are made a part hereof for all purposes.
ARTICLE II. LOAN
2.1 Loan Commitment. Subject to and upon the terms and conditions
set forth herein and in reliance upon the representations, warranties, and
covenants of Borrower contained herein or made pursuant hereto, U. S. Bank will
make Fundings to Borrower from time to time during the period ending on May 31,
1997, but such Fundings shall not exceed, in the aggregate principal amount at
any one time outstanding, $2,000,000 (the "Loan"). Borrower may borrow, repay,
and reborrow hereunder either the full amount of the Loan or any lesser sum.
2.2 Use of Proceeds. The proceeds of the Loan shall be used by
Borrower for working capital and general corporate purposes.
2.3 Note. The Loan shall be evidenced by a promissory note in the
form attached hereto as Exhibit A (the "Note").
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2.4 Interest Rate.
(a) Except as provided in Section 2.4(b) or Section 3.6 herein,
the Loan shall bear interest on the principal amount thereof remaining unpaid
from time to time, at a rate of interest equal to the Prime Rate plus
2.0 percent per annum.
(b) The interest rate on the Loan shall be reduced to the Prime
Rate plus one percent per annum in the event Borrower satisfies the following
conditions:
(i) Borrower's audited financial statements for
Borrower's fiscal year ending December 28, 1996, reflect that:
(A) Borrower's net income after taxes for such fiscal
year is greater than $1,000,000;
(B) The Capital Ratio as of December 28, 1996, is
less than or equal to 3.75:1.00; and
(C) The Debt Service Coverage ratio as of
December 28, 1996, and for the fiscal year then ending is equal to or
greater than 1.10:1.00; and
(ii) Borrower's internally prepared financial
statements for the month ending February 22, 1997, reflect that there has
been no material adverse change in Borrower's financial condition since
December 28, 1996.
2.5 Repayment.
(a) Commencing on the first day of the fifteenth month following the
initial Funding under the Loan and on the fifteenth day of each month
thereafter, Borrower shall pay U. S. Bank, in arrears, an amount equal to all
accrued but unpaid interest on the Loan.
(b) Borrower shall pay U. S. Bank all outstanding principal, accrued
interest, and other charges with respect to the Loan on May 31, 1997.
2.6 Fundings.
(a) U. S. Bank is hereby authorized by Borrower to make Fundings
under the Loan upon receipt for each Funding of an oral or a written request
therefor (including written requests communicated by facsimile) calculating the
Borrowing Base ("Borrowing Notice") from Barry Feld, Robert Regas, or Nancy
Forness, each of whom is authorized to request Fundings and direct the
disposition of any such Fundings until written notice by Borrower of the
revocation of such authority is received by U. S. Bank. Any such Funding shall
be conclusively presumed to have been made to or for the benefit of Borrower
when made in accordance with such a request and direction for disposition or
when such Funding is deposited to the credit of the account of Borrower with
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U. S. Bank or is transmitted to any other bank with directions to credit the
same to the account of Borrower at such bank, regardless of whether persons
other than those authorized hereunder to make requests for Fundings have
authority to draw against any such account.
(b) Borrower acknowledges that U. S. Bank cannot effectively
determine whether a particular request for a Funding is valid, authorized, or
authentic. It is nevertheless important to Borrower that it has the privilege
of making requests for Fundings in accordance with Section 2.6(a)
hereof.Therefore, to induce U. S. Bank to lend funds in response to such
requests and in consideration for U. S. Bank's agreement to receive and
consider such requests, Borrower assumes all risk of the validity,
authenticity, and authorization of such requests from any person who U. S. Bank
reasonably believes is an authorized individual set forth in Section 2.6(a)
hereof, whether or not such individual has authority to request Fundings and
whether or not the aggregate sum owing exceeds the maximum principal amount
referred to above. U. S. Bank shall not be responsible under principles of
contract, tort, or otherwise for the amount of an unauthorized or invalid
Funding made at the request from any person who U. S. Bank reasonably believes
is an authorized individual; rather, Borrower agrees to repay any sums with
interest as provided herein.
2.7 Loan Fee. Concurrently with the execution of this Agreement,
Borrower shall pay U. S. Bank a nonrefundable fee for the Loan in the amount of
$45,000, less any portion of such fee previously paid by Borrower.
2.8 Borrowing Base.
(a) The outstanding balance of principal on the Loan shall at no
time exceed an amount equal to:
(i) 80 percent of Eligible Accounts Receivable, plus
(ii) 40 percent of Eligible Inventory; provided that the maximum
advance based upon Eligible Inventory shall not exceed $1,100,000 ("Borrowing
Base").
(b) Borrower shall submit to U. S. Bank a Borrowing Notice in a form
acceptable to U. S. Bank calculating the Borrowing Base and executed by
Borrower on Wednesday of each week for the previous week.
(c) If at any time the aggregate principal amount of the Loan
exceeds the Borrowing Base, Borrower shall repay such outstanding portion of
the Loan in an amount equal to such excess within one Business Day of notice by
U. S. Bank to Borrower. Borrower's failure to do so shall constitute an Event
of Default.
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<PAGE> 14
ARTICLE III. GENERAL PROVISIONS APPLICABLE TO THE LOAN
3.1 Manner of Payment. All sums payable to U. S. Bank pursuant to
this Agreement shall be paid directly to U. S. Bank in immediately available
United States funds. Whenever any payment to be made hereunder or on the Note
becomes due and payable on a day that is not a Business Day, such payment may
be made on the next succeeding Business Day and such extension of time shall in
such case be included in computing interest on such payment.
3.2 Statements. U. S. Bank shall send Borrower statements of all
amounts due hereunder; the statements shall be considered correct and
conclusively binding, absent manifest error, on Borrower unless Borrower
notifies U. S. Bank to the contrary within 30 days of receipt of any statement
that Borrower claims to be incorrect. Borrower agrees that accounting entries
made by U. S. Bank with respect to Borrower's loan accounts shall constitute
evidence of all Fundings made under and payments made on the Loan. Without
limiting the methods by which U. S. Bank may otherwise be entitled by
Applicable Law to make demand for payment of the Loan upon Borrower, Borrower
agrees that any statement, invoice, or payment notice from U. S. Bank to
Borrower with respect to any principal or interest obligation of Borrower to
U. S. Bank shall be deemed to be a demand for payment in accordance with the
terms of such statement, invoice, or payment notice. Under no circumstances
shall a demand by U. S. Bank for partial payment of principal or interest or
both be construed as a waiver by U. S. Bank of its right thereafter to demand
and receive payment (in part or in full) of any remaining principal or interest
obligation.
3.3 Book Entry Loan Account. U. S. Bank shall establish a book
entry loan account for the Loan in which U. S. Bank will make debit entries of
all Fundings pursuant to the terms of this Agreement. U. S. Bank will also
record in the applicable loan account, in accordance with customary banking
practices, all interest and other charges, expenses, and other items properly
chargeable to Borrower, if any, together with all payments made by Borrower on
account of the Indebtedness evidenced by Borrower's respective loan accounts
and all other sums credited to the respective loan accounts. The debit balance
of Borrower's respective loan accounts shall reflect the amount of Borrower's
Indebtedness to U. S. Bank from time to time by reason of advances, charges,
payments, or credits.
3.4 Bank Control Account. So long as any amounts remain outstanding
under the Loan, there shall be established for Borrower a bank control account
at U. S. Bank into which all funds obtained by Borrower from the collection of
accounts receivable, from the sale of inventory or services, or otherwise
during the term of the Loan shall be deposited. U. S. Bank and Borrower hereby
agree that U. S. Bank may credit the bank control account in order to make any
payments under the Loan that Borrower is required to make pursuant to the terms
of this Agreement.
3.5 Computations of Interest. All computations of interest shall be
based on a 360-day year for the actual number of days elapsed.
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<PAGE> 15
3.6 Default Interest. Upon the occurrence and during the
continuance of any Event of Default, U. S. Bank may, at its option, raise the
interest rate charged on the Loan to a rate of up to the Prime Rate plus
3 percent per annum from the date of the occurrence of the Event of Default
until the Event of Default is cured or waived by U. S. Bank or, absent cure or
waiver, until the Loan is repaid in full (the "Default Rate"); provided that if
the interest rate on the Loan is reduced in accordance with Section 2.4(b)
hereof, the Default Rate shall equal the Prime Rate plus 2 percent per annum.
3.7 Maximum Interest Rate. Notwithstanding any provision contained
herein or in the Note, the total liability of Borrower for payment of interest
pursuant hereto, including late charges, shall not exceed the maximum amount of
interest permitted by Applicable Law to be charged, collected, or received from
Borrower; and if any payments by Borrower include interest in excess of that
maximum amount, U. S. Bank shall apply the excess first to reduce the unpaid
balance of the Loan, then to reduce the balance of any other Indebtedness of
Borrower to U. S. Bank. If there is no such Indebtedness, the excess shall be
returned to Borrower.
3.8 Late Charge. If any payment of principal or interest required
under the Loan is 15 days or more past due, Borrower will be charged a late
charge of 5 percent of the delinquent payment or $5, whichever is greater, for
each such late payment. The 15 day period provided for herein shall not be
construed as a waiver of any Default or Event of Default resulting from any
late payment under the Loan. Notwithstanding the foregoing, the late charge
shall not apply to the payment on the Loan due on the maturity date of the
Loan.
3.9 Prepayments. Prepayments of all or any portion of the Loan
shall not be subject to a prepayment charge.
3.10 Extensions, Renewals, and Modifications. Any extensions,
renewals, and modifications of the Loan shall be governed by the terms and
conditions of this Agreement and the other Loan Documents unless otherwise
agreed to in writing by U. S. Bank and Borrower.
ARTICLE IV. CONDITIONS PRECEDENT FOR FUNDINGS UNDER THE LOAN
4.1 Conditions Precedent for Initial Funding. U. S. Bank shall not
be required to make the initial Funding under the Loan unless or until the
following conditions have been fulfilled to the satisfaction of U. S. Bank:
(a) U. S. Bank shall have received this Agreement, and the Note,
duly executed and delivered by the respective parties thereto.
(b) U. S. Bank shall have received, duly executed and delivered by
Alexis Holding Company, Inc., a deed of trust, assignment of leases and rents,
and security agreement in the form attached hereto as Exhibit B ("Deed of
Trust"), granting to U. S. Bank a security interest in Alexis Holding Company,
Inc.'s fee interest in the real property legally described therein, which
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<PAGE> 16
security interest will be a first priority security interest upon payment of
Indebtedness to Security Mutual Life Insurance Company of New York ("Security
Mutual") and release by Security Mutual of its interest.
(c) U. S. Bank shall have received, duly executed and delivered by
Borrower, a security agreement in the form attached hereto as Exhibit C
("Security Agreement"), granting to U. S. Bank a first priority and exclusive
security interest in all of the personal property of Borrower (other than
equipment and leasehold improvements), whether tangible or intangible, now
owned or hereafter acquired, except for Permitted Liens.
(d) U. S. Bank shall have received a landlord waiver in the form
attached hereto as Exhibit D for Borrower's two lab sites.
(e) U. S. Bank shall have received, duly executed and delivered by
Borrower, such financing statements and other documents deemed necessary by
U. S. Bank to perfect the security interest granted to U. S. Bank.
(f) U. S. Bank shall have received a guaranty from each Guarantor,
duly executed and delivered, in the forms attached hereto as Exhibits E-1, E-2,
and E-3 ("Guaranties").
(g) U. S. Bank shall have received a supplement to the May 6, 1996,
preliminary commitment for title insurance No. DR-1017084, issued by First
American Title Insurance Company, dated as of the estimated date of the initial
Funding, stating that the title company is ready, able, and willing to issue to
U. S. Bank, without condition, change, or exception other than the exceptions
standard to such policy, an American Land Title Association (ALTA) extended
coverage mortgagee's policy of title insurance insuring the validity and first
priority of the lien of the Deed of Trust against the real property described
therein, except as described in Section 4.1(b), in the amount of $970,000, and
with such endorsements as U. S. Bank deems necessary, in its sole discretion.
(h) U. S. Bank shall have received from counsel for Borrower, an
opinion addressed to U. S. Bank and dated as of the date of this Agreement, in
the form attached hereto as Exhibit F.
(i) U. S. Bank shall have received, duly executed and delivered by
Borrower, a certificate of compliance and indemnity regarding hazardous
substances in the form attached hereto as Exhibit G.
(j) U. S. Bank shall have received duly executed and delivered by
Borrower, a questionnaire and disclosure statement regarding Borrower's
compliance with the Americans with Disabilities Act of 1990, and all state and
local laws or ordinances related to handicapped access or any statute, rule,
regulation, ordinance, order of Governmental Bodies, or order or decree of
court adopted or enacted with respect thereto ("Access Laws").
(k) U. S. Bank shall have received, duly executed and delivered by
Borrower, a certificate of compliance and indemnification agreement with
respect to Access Laws in the form attached hereto as Exhibit H.
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<PAGE> 17
(l) No Default or Event of Default hereunder shall exist, and after
having given effect to the requested Funding, no Default or Event of Default
shall exist.
(m) All representations and warranties of Borrower contained herein
or otherwise made in writing in connection herewith shall be true and correct
in all material respects with the same effect as though such representations
and warranties had been made on and as of the date of the initial Funding.
(n) All corporate proceedings of Borrower shall be satisfactory in
form and substance to U. S. Bank, and U. S. Bank shall have received all
information and copies of all documents, including records of all corporate
proceedings, that U. S. Bank has requested in connection therewith, such
documents where appropriate to be certified by proper corporate authorities or
Governmental Bodies. Borrower shall provide U. S. Bank with the following
documents prior to or upon the execution of this Agreement:
(i) Copies of the articles of incorporation of Borrower,
together with all amendments thereto, certified by Borrower to be
true and complete;
(ii) A certificate of good standing for Borrower in the states
of Delaware and Arizona, dated within 30 days of the date of the
execution of this Agreement; and
(iii) A certified resolution of the directors of Borrower and
incumbency certificate in the form attached hereto as Exhibit I.
(o) U. S. Bank shall have received a certified resolution of the
general partners of the partnership Guarantors, as well as the directors of
Alexis Holding Company, Inc. and incumbency certificates in forms acceptable to
U. S. Bank.
(p) U. S. Bank shall have received such evidence deemed necessary by
U. S. Bank that U. S. Bank's security interests in the Collateral constitute
first priority and exclusive security interests, except as otherwise provided
herein.
(q) U. S. Bank has received, reviewed, and approved a Collateral and
financial status examination as performed by U. S. Bank's internal audit staff,
at U. S. Bank's expense.
(r) U. S. Bank shall have received a Borrowing Notice from Borrower
for the initial Funding requested under the Loan.
(s) U. S. Bank shall have received insurance certificates and lender
loss payable endorsements on casualty/property loss insurance in forms
satisfactory to U. S. Bank to the effect set forth in Section 5.5 hereof.
4.2 Conditions Precedent to Each Subsequent Funding. The obligation
of U. S. Bank to make any Funding subsequent to the initial Funding hereunder
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is subject to the fulfillment, to the satisfaction of U. S. Bank, of the
following:
(a) The conditions set forth in Section 4.1 shall have been
previously satisfied, and U. S. Bank shall have received evidence satisfactory
to U. S. Bank of satisfaction thereof;
(b) U. S. Bank shall have received a Borrowing Notice for each
requested Funding under the Loan;
(c) There shall be executed and delivered to U. S. Bank such further
instruments, agreements, and documents, as may be reasonably necessary or
proper in the opinion of U. S. Bank to confirm the obligations of Borrower to
U. S. Bank hereunder, the grant of security therefor, and the proper use of the
proceeds of all Fundings;
(d) The representations and warranties of Borrower in Article VII
herein shall be true on the date of each Funding with the same force and effect
as if made on and as of that date;
(e) No Default or Event of Default shall exist, and after having
given effect to the requested Funding, no Default or Event of Default shall
exist; and
(f) To the extent not previously delivered, all other documents,
agreements, and instruments from or with respect to Borrower or any other
Person that may be called for hereunder shall be duly executed and delivered to
U. S. Bank, including but not limited to all documents, agreements, and
instruments deemed reasonably necessary by U. S. Bank to perfect its security
interest in Collateral acquired after the date of this Agreement. For the
purposes of this Agreement, the waiver of delivery of any document, agreement,
or instrument from or with respect to Borrower or any other Person does not
constitute a continuing waiver with respect to the obligation to fulfill the
conditions precedent to each Funding hereunder.
ARTICLE V. AFFIRMATIVE COVENANTS
Borrower hereby covenants and agrees that so long as this Agreement
is in effect, and until the Loan, together with interest thereon, and all other
obligations incurred hereunder are paid or satisfied in full, Borrower shall:
5.1 Financial Data. Keep its books of account in accordance with
generally accepted accounting principles, consistently applied, and furnish to
U. S. Bank:
(a) As soon as practicable and in any event within 30 days after the
close of each month, the following unaudited financial statements of Borrower
for each such month, all in reasonable detail and certified by Borrower to be
true and correct in all material respects: balance sheet, statement of income,
and statement of cash flows. There shall be included (i) in such monthly
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financial statements a comparison to Borrower's budget and (ii) in each
quarterly financial statement a calculation of the financial covenants provided
for in Article VI herein as applicable.
(b) As soon as practicable and in any event within 120 days after
the close of each fiscal year of Borrower, the following financial statements
of Borrower, setting forth the corresponding figures for the previous fiscal
year in comparative form where appropriate, all in reasonable detail and
audited (without any qualification or exception deemed material by U. S. Bank)
by Borrower's current independent certified public accountant or such other big
six accounting firm selected by Borrower: balance sheet, statement of income,
and statement of cash flows. Borrower shall provide U. S. Bank with a copy of
its independent certified public accountants' management letter or other
similar report or correspondence to Borrower.
(c) The financial statements of Guarantors as required by the
Guaranties.
(d) As soon as practicable and in any event within 30 days after the
close of each month, certificates signed by Borrower, stating that during such
period no Default or Event of Default existed or if any such Default or Event
of Default existed, specifying the nature thereof, the period of existence
thereof, and what action Borrower proposes to take or has taken with respect
thereto, and that during such period Borrower was in compliance with all of the
financial covenants set forth in Article VI herein as applicable; and promptly
upon the occurrence of any Default or Event of Default, a certificate signed by
Borrower, specifying the nature thereof, the period of existence thereof, and
what action Borrower proposes to take or has taken with respect thereto.
(e) As soon as practicable and in any event within 30 days after the
close of each month, accounts receivable and accounts payable agings for each
such month in a form and in such detail as is reasonably acceptable to
U. S. Bank.
(f) Upon request by U. S. Bank, copies of all reports relative to
the operations of Borrower and its Affiliates filed with any Governmental Body.
(g) As soon as practicable and in any event within 90 days after the
beginning of each fiscal year of Borrower, a statement projecting all capital
expenditures to be made or committed to during such fiscal year with respect to
Borrower.
(h) As soon as practicable and in any event within 90 days after the
beginning of each fiscal year, a projection of the financial operations of
Borrower in a form and in such detail as is acceptable to U. S. Bank.
(i) With reasonable promptness, such other information regarding the
business, operations, and financial condition of Borrower and Guarantors as
U. S. Bank may from time to time reasonably request.
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5.2 Licenses and Permits. Maintain all material Governmental
Approvals and all related or other material agreements necessary for Borrower
to operate its business, as it now exists or as it may be modified or
expanded.Borrower will at all times comply with all Applicable Laws relating to
the operations, facilities, or activities of Borrower, the noncompliance with
which could reasonably be expected to have a material adverse effect on
Borrower.
5.3 Maintenance of Properties. Keep Borrower's properties in good
repair and in good working order and condition, in a manner consistent with
past practices and comparable to industry standards; from time to time make all
appropriate and proper repairs, renewals, replacements, additions, and
improvements thereto; and keep all equipment that may now or in the future be
subject to compliance with any Applicable Laws in compliance with such
Applicable Laws, the noncompliance with which could reasonably be expected to
have a material adverse effect on Borrower.
5.4 Payment of Charges. Duly pay and discharge all material
(a) taxes, assessments, levies, and any other charges of Governmental Bodies
imposed on or against Borrower or its property or assets, or upon any property
leased by Borrower, prior to the date on which penalties attached thereto,
unless and to the extent only that such taxes, assessments, levies, and any
other charges of Governmental Bodies are being contested in good faith and by
appropriate proceedings, (b) claims allowed by Applicable Laws, whether for
labor, materials, rentals, or anything else, which could, if unpaid, become a
lien or charge upon Borrower's property or assets or the outstanding capital
stock of Borrower or materially adversely affect the facilities or operations
of Borrower, (unless and to the extent only that the validity thereof is being
contested in good faith and by appropriate proceedings; (c) trade bills in
accordance with the terms thereof or generally prevailing industry standards;
and (d) other Indebtedness heretofore or hereafter incurred or assumed by
Borrower, unless such Indebtedness be renewed or extended. In the event any
charge is being contested by Borrower as allowed above, Borrower shall
establish adequate reserves against possible liability therefor as required by
generally accepted accounting principles.
5.5 Insurance.
(a) Maintain insurance upon Borrower's properties and business
insuring against risks in accordance with generally prevailing industry
standards. Borrower shall cause each insurance policy issued in connection
therewith to provide and shall cause the insurer issuing such policy to certify
to U. S. Bank that (i) if such insurance is proposed to be canceled or
materially changed for any reason whatsoever, such insurer will promptly notify
U. S. Bank, and such cancellation or change shall not be effective as to
U. S. Bank for 30 days after receipt by U. S. Bank of such notice, unless the
effect of the change is to extend or increase coverage under the policy;
(ii) U. S. Bank will have the right at its election to remedy any default in
the payment of premiums within 30 days of notice from the insurer of the
default; and (iii) loss payments from casualty/property loss insurance in
excess of $100,000 in each instance will be payable jointly to the Borrower and
U. S. Bank as secured party or otherwise as its interest may appear.
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(b) From time to time upon request by U. S. Bank, promptly furnish
or cause to be furnished to U. S. Bank evidence, in form and substance
satisfactory to U. S. Bank, of the maintenance of all insurance, indemnities,
or bonds required by this Section 5.5 or by any license, lease, or other
agreement to be maintained, including but not limited to such originals or
copies as U. S. Bank may request of policies, certificates of insurance,
riders, assignments, and endorsements relating to the insurance and proof of
premium payments.
5.6 Maintenance of Records. Keep at all times books of account and
other records in which full, true, and correct entries will be made of all
dealings or transactions in relation to the business and affairs of Borrower.
5.7 Inspection. Upon at least 24 hours' advance written notice to
Borrower, allow any representative of U. S. Bank to visit and inspect any of
the properties of Borrower, to examine the books of account and other records
and files of Borrower, to make copies thereof, and to discuss the affairs,
business, finances, and accounts of Borrower with its officers, employees, and
accountants, all at such reasonable times and as often as U. S. Bank may
desire. This right of inspection shall specifically include U. S. Bank's
collateral and financial examinations. Borrower acknowledges that it is
U. S. Bank's intent to conduct three such examinations during each 12-month
period. Borrower shall reimburse U. S. Bank for reasonable travel costs
incurred in connection with such three examinations.
5.8 Hazardous Substances.
(a) Borrower hereby covenants and agrees that so long as any
Indebtedness of Borrower to U. S. Bank is outstanding:
(i) Borrower will not permit its property or any portion
thereof to be a site for the storage, use, generation, manufacture,
disposal or transportation of Hazardous Materials in any manner that
violates any Hazardous Material Law (other than minor violations that
are remedied within 30 days of the occurrence thereof);
(ii) Borrower will not permit any Hazardous Materials to be
disposed of off its property other than in properly licensed disposal
sites;
(iii) Borrower, at Borrower's sole cost and expense, will
keep and maintain its property and each portion thereof in compliance
with all Hazardous Materials Laws (other than minor violations that
are remedied within 30 days of the occurrence thereof); and
(iv) Borrower will promptly advise U. S. Bank in writing of any
Hazardous Material Claim.
(b) Borrower agrees to indemnify U. S. Bank and hold U. S. Bank
harmless from and against any and all claims, demands, damages, losses, liens,
liabilities, penalties, fines, lawsuits, and other proceedings and costs and
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<PAGE> 22
expenses (including reasonable attorney fees), arising directly or indirectly
from or out of or in any way connected with (i) the accuracy of the
representations contained in Section 7.19 herein; (ii) any activities on its
property during Borrower's ownership, possession, or control of its property
which directly or indirectly results in its property or any other property
becoming contaminated with Hazardous Materials; (iii) the discovery of
Hazardous Materials on its property; (iv) the cleanup of Hazardous Materials
from its property; and (v) the discovery of Hazardous Materials or the cleanup
of Hazardous Materials from adjacent or other property that has become
contaminated as a result of any activity on Borrower's property. As between
Borrower and U. S. Bank, Borrower acknowledges that it will be solely
responsible for all costs and expenses relating to the cleanup of Hazardous
Materials from its property or from any other properties that become
contaminated with Hazardous Materials as a result of activities on or the
contamination of its property.
(c) Borrower's obligations under this Section 5.8 are unconditional
and shall not be limited by any nonrecourse or other limitations of liability
provided for in the Loan Documents. The representations, warranties, and
covenants of Borrower set forth in this Section 5.8 and Section 7.19 herein
(including but not limited to the indemnity provided for in Section 5.8(b)
above) shall survive the closing and repayment of the Loan to U. S. Bank;
and, to the extent permitted by Applicable Laws and Hazardous Materials Laws,
shall survive the transfer of its property by foreclosure proceedings (whether
judicial or nonjudicial), deed in lieu of foreclosure, or otherwise. Borrower
acknowledges and agrees that its covenants and obligations hereunder are
separate and distinct from its obligations under the Loan and the Loan
Documents.
5.9 Corporate Existence. Maintain and preserve the corporate
existence of Borrower.
5.10 Notice of Disputes and Other Matters. Promptly give written
notice to U. S. Bank of:
(a) Any citation, order to show cause, or other legal process or
order that could have a material adverse effect on Borrower, directing Borrower
to become a party to or to appear at any proceeding or hearing by or before any
Governmental Body that has granted to Borrower any Governmental Approval, and
include with such notice a copy of any such citation, order to show cause, or
other legal process or order;
(b) Any (i) refusal, denial, threatened denial, or failure by any
Governmental Body to grant, issue, renew, or extend any material Governmental
Approval; (ii) proposed or actual revocation, termination, or modification
(whether favorable or adverse) of any material Governmental Approval by any
Governmental Body; (iii) dispute or other action with regard to any material
Governmental Approval by any Governmental Body; (iv) notice from any
Governmental Body of the imposition of any material fines or penalties or
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<PAGE> 23
forfeitures; or (v) threats or notice with respect to any of the foregoing or
with respect to any proceeding or hearing that might result in any of the
foregoing;
(c) Any dispute concerning or any threatened nonrenewal or
modification of any material lease for real or personal property to which
Borrower is a party; or
(d) Any actions, proceedings, or claims of which Borrower may have
notice that may be commenced or asserted against Borrower in which the amount
involved is $50,000 or more and is not fully covered by insurance or which, if
not solely a claim for monetary damages, could, if adversely determined, have a
material adverse effect on Borrower.
5.11 Exchange of Note. Upon receipt of a written notice from an
authorized officer of U. S. Bank of loss, theft, destruction, or mutilation of
a Note, and upon surrendering such Note for cancellation if mutilated, execute
and deliver a new Note or a Note of like tenor in lieu of such lost, stolen,
destroyed, or mutilated Note. Any Note issued pursuant to this Section 5.11
shall be dated so that neither gain nor loss of interest shall result
therefrom.
5.12 Maintenance of Liens. Except as otherwise contemplated herein,
at all times maintain the liens and security interests provided under or
pursuant to this Agreement as valid and perfected first liens and security
interests on the property and assets intended to be covered thereby. Except as
contemplated under Section 6.5, Borrower shall take all action requested by
U. S. Bank necessary to assure that U. S. Bank has valid and exclusive liens
and security interests in all Collateral.
5.13 Other Agreements. Comply with all covenants and agreements set
forth in or required pursuant to any of the other Loan Documents.
5.14 After-Acquired Collateral. Execute and deliver to U. S. Bank
appropriate instruments as may be reasonably proper or necessary in the opinion
of U. S. Bank in order to effectuate the proper granting and perfection of a
first priority security interest in or assignment of all property (other than
equipment and leasehold improvements) to U. S. Bank, hereafter acquired by
Borrower.
5.15 Further Assurances. Within ten days of request by U. S. Bank,
duly execute and deliver or cause to be duly executed and delivered to
U. S. Bank such further instruments, agreements, and documents and do or cause
to be done such further acts as may be necessary or proper in the opinion of
U. S. Bank to carry out more effectively the provisions and purpose of this
Agreement and the other Loan Documents.
5.16 Maintenance of Bank Accounts. As security for repayment of the
Loan, maintain its principal depository accounts with U. S. Bank and effectuate
the transfer of such accounts within a reasonable period of time after
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<PAGE> 24
execution of this Agreement. Borrower hereby grants to U. S. Bank a security
interest in all such accounts in order to secure the obligations of Borrower
hereunder.
5.17 Lease Financing. On or before December 31, 1996, Borrower shall
obtain financing on its existing equipment as well as equipment acquired after
the date of this Agreement in an amount not less than $600,000 on terms and
conditions reasonably acceptable to U. S. Bank.
ARTICLE VI. NEGATIVE COVENANTS
Borrower covenants and agrees that until the Loan, together with
interest thereon, and all other obligations incurred hereunder are paid or
satisfied in full, Borrower shall not, without the prior written consent of
U. S. Bank:
6.1 Dividends and Distributions. Declare or pay any cash
distributions or dividends or return any capital to any of Borrower's
shareholders; authorize or make any distribution, payment, or delivery of
property or cash to any of Borrower's shareholders; redeem, retire, purchase,
or otherwise acquire, directly or indirectly, for consideration, any shares or
other interests of Borrower now or hereafter outstanding; or set aside any
funds for any of the foregoing purposes. Notwithstanding the foregoing,
(i) this Section shall not prohibit the repayment of outstanding Indebtedness
to the Guarantors concurrently with the initial Funding; and (ii) so long as
there exists no Default or Event of Default and so long as the proposed
dividend would not result in a violation of any of the financial covenants set
forth in Article VI herein if measured immediately following payment of the
proposed dividend, Borrower may declare and pay preferred dividends in an
amount not to exceed $82,000 during any fiscal quarter of Borrower.
6.2 Transactions with Affiliates. Enter into any transaction, other
than an arm's length transaction, in which an Affiliate of Borrower shall have
any interest; or make any payment or agree to make any payment to any such
Affiliate in other than an arm's length transaction; or transfer or agree to
transfer ownership or possession of any of its business or assets, tangible or
intangible, real, personal, or mixed, to any Affiliate other than on an arm's
length transaction. Notwithstanding the foregoing, nothing in this Section
shall prohibit Borrower from making payments to Mesirow Insurance Services,
Inc., for insurance brokerage services, to Weinberg Capital Corporation for the
costs of the operation of Borrower's Cleveland, Ohio office, and to Kohrman
Jackson & Krantz P.L.L. for legal services, all in accordance with past
practice.
6.3 Other Indebtedness. Create, incur, assume, or suffer to exist,
contingently or otherwise, any Indebtedness except (a) Indebtedness represented
by the Note; (b) accounts and other current payables arising from the ordinary
course of business; (c) the equipment lease financing referred to in
Section 5.17 herein; (d) the contingent lease liability related to lap closures
at retail locations that occurred in 1991; (e) Borrower's master lease with
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<PAGE> 25
Oliver-Allen Corporation; and (f) additional Indebtedness outstanding or
committed to at any time (including but not limited to indebtedness evidenced
by notes, bonds, debentures, leases, purchase agreements, and other contractual
obligations) not in excess of an aggregate amount at any one time outstanding
of $100,000. Notwithstanding clause (f) above, Borrower may not guarantee or
become contingently liable for the obligation of any Person except as provided
for herein. In computing the additional Indebtedness permitted by clause (f)
hereof, all capital lease payments due from Borrower shall be excluded. Except
as set forth in Section 6.5 herein, none of the additional Indebtedness
permitted by this Section 6.3 shall be secured by the Collateral.
6.4 Leases and Leasebacks. Except for arrangements entered into
prior to the date hereof or the equipment lease financing referred to in
Section 5.17 hereto, enter into any new agreement to rent or lease any material
real or personal property or enter into any arrangement with any bank,
insurance company, or other lender or investor providing for the leasing of any
real or personal property or equipment (a) that at the time has been or is sold
or transferred by Borrower to such lender or investor or (b) that has been or
is being acquired from another Person by such lender or investor or on which
one or more buildings have been or are to be constructed by such lender or
investor, for the purpose of leasing such property to Borrower. Borrower may,
however, enter into such leases in the ordinary course of business provided
that there is compliance with Section 6.3(f) hereof.
6.5 Liens. Contract, create, incur, assume, or suffer to exist any
mortgage, pledge, lien, or other charge or encumbrance of any kind (including
but not limited to the charge upon property purchased under conditional sales
or other title retention agreements) upon or grant any interest in any of its
property or assets whether now owned or hereafter acquired, except (a) liens
granted pursuant to this Agreement; (b) liens in connection with worker's
compensation, unemployment insurance, or other social security obligations;
(c) good faith deposits in connection with bids, tenders, contracts, or
leases or deposits to secure public statutory obligations; (d) mechanic's,
carrier's, repairmen's, or other like liens in the ordinary course of business
with respect to obligations that are not overdue or that are being contested in
good faith and for which appropriate reserves have been established in
accordance with generally accepted accounting principles or for which deposits
to obtain the release of such liens have been made; (e) liens for taxes,
assessments, levies, or charges of Governmental Bodies imposed upon Borrower or
its property, operations, income, products, or profits that are not at the time
due or payable or for which, if the validity thereof is being contested in good
faith by legal or administrative proceedings, appropriate reserves have been
established in accordance with generally accepted accounting principles;
(f) encumbrances consisting of zoning regulations, easements, rights-of-way,
survey exceptions, and other similar restrictions on the use of real property
or minor irregularities in title thereto that do not materially impair the use
of such property in the operation of the business of Borrower; (g) liens
arising out of judgments or awards with regard to which Borrower shall be
prosecuting an appeal in good faith and for which a stay of execution has been
issued and appropriate reserves established; (h) liens on equipment to secure
the equipment lease financing referred to in Section 5.17 herein; (i) security
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<PAGE> 26
interests in the Collateral granted by Borrower and Alexis Holding Company,
Inc. to Guarantors, provided that such security interests are junior in
priority to the security interests granted to U. S. Bank; and (j) the currently
existing liens listed on Exhibit J hereto. The liens described in clauses
(a) through (j) herein are called the "Permitted Liens."
6.6 Advances and Loans. Lend money, make credit available (other
than in the ordinary course of business to customers and loans to employees not
to exceed $5,000 in the aggregate at any time), or lend property or the use
thereof to any Person; purchase or repurchase the stock or Indebtedness or all
or a substantial part of the assets or properties of any Person; guarantee,
assume, endorse, or otherwise become responsible for (directly or indirectly or
by any instrument having the effect of assuring any Person's payment,
performance, or capability) the Indebtedness, performance, obligations, stock,
or dividends of any Person; or agree to do any of the foregoing; but Borrower
may endorse negotiable instruments for deposit or collection in the ordinary
course of business. Notwithstanding the foregoing, Borrower shall be permitted
to make book entry loans (as opposed to cash loans) to members of Borrower's
senior management and Borrower's board of directors in order to allow such
persons to exercise stock options for the acquisition of stock of Borrower.
6.7 Investments. Invest in (by capital contribution or otherwise),
acquire, purchase, or make any commitment to purchase the obligations, stock,
or equity of any Person except (a) direct obligations of the government of the
United States of America or any agency or instrumentality thereof, (b) time
deposits or interest-bearing certificates of deposit or repurchase agreements
issued by any commercial banking institution satisfactory to U. S. Bank,
(c) stock or obligations issued in settlement of claims of Borrower against
others by reason of bankruptcy or a composition or readjustment of debt or
reorganization of any debtor of Borrower, or (d) Borrower's current investment
in Alexis Holding Company, Inc.
6.8 Consolidation, Merger, and Sale of Assets. Wind up, liquidate,
or dissolve Borrower's affairs or enter into any transaction of merger or
consolidation with any Person; convey, sell, lease, or otherwise dispose of (or
agree to do any of the foregoing at any time) any of its material licenses,
contracts, or permits; sell all or a substantial part of its property or assets
or sell any part of its property or assets necessary or desirable for the
conduct of its business as now generally conducted or as proposed to be
conducted; sell any of its notes receivable, installment or conditional sales
agreements, or accounts receivable; purchase, lease, or otherwise acquire all
or a substantial part of the property or assets of any other Person.
6.9 Subsidiaries. Form or acquire any Person or any portion
thereof.
6.10 Type of Business. Enter into any business which is
substantially different from or not connected with the business in which
Borrower is presently engaged or make any substantial change in the nature of
its business or operations.
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<PAGE> 27
6.11 Change of Chief Executive Office or Name. Change (a) the
location of the chief executive office of Borrower, (b) Borrower's name, or
(c) the location of any of the Collateral, other than in the ordinary course of
business; or adopt or use any trade name without (x) prior written notice to
U. S. Bank and (y) the execution, delivery, and filing (and payment of filing
fees and taxes) of all such documents as may be necessary or advisable in the
opinion of U. S. Bank to continue to perfect and protect the liens and security
interests in the Collateral.
6.12 Change in Documents. Amend, supplement, terminate, or otherwise
modify in any way Borrower's articles of incorporation.
6.13 Control. Enter into any agreement (other than employment
agreements) with any Person that confers upon such Person the right or
authority to control or direct a major portion of the business or assets of
Borrower.
6.14 Pension Plan. Terminate or partially terminate any Plan now
existing or hereafter established for Borrower or its Affiliates or withdraw
from participation therein under circumstances that result or could result in
liability to the Pension Benefit Guaranty Corporation, to the fund by which the
Plan is funded, or to the employees (or their beneficiaries) for whom the Plan
is or shall be maintained; or permit any other event or circumstance to occur
that results or could result in liability to the Pension Benefit Guaranty
Corporation or a violation of ERISA.
6.15 Tangible Net Worth. Permit Tangible Net Worth to be less than
$1,500,000 as of June 29, 1996, $1,900,000 as of September 28, 1996, $2,000,000
as of December 28, 1996, and $2,200,000 as of March 29, 1997 and as of the last
day of each fiscal quarter of Borrower thereafter.
6.16 Capital Ratio. Permit the Capital Ratio to be greater than
5.75:1.00 as of June 29, 1996, 5.50:1.00 as of September 28, 1996, 5.00:1.00 as
of December 28, 1996, and 4.50:1.00 as of March 29, 1997, and as of the last
day of each fiscal quarter of Borrower thereafter.
6.17 Debt Service Coverage. Permit the Debt Service Coverage Ratio
to be less than 1.00:1.00 for any fiscal year of Borrower.
6.18 Working Capital. Permit Working Capital to be less than
negative $1,100,000 as of June 29, 1996, and less than negative $900,000 as of
the last day of each fiscal quarter of Borrower thereafter.
6.19 Limitation on Capital Expenditures. Permit the total amount of
Capital Expenditures from operating cash flow to exceed $1,950,000 during
Borrower's fiscal year ending December 28, 1996.
ARTICLE VII. REPRESENTATIONS AND WARRANTIES
In order to induce U. S. Bank to enter into this Agreement and to
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<PAGE> 28
make the Loan as herein provided, Borrower hereby makes the following
representations, covenants, and warranties, all of which shall survive the
execution and delivery of this Agreement and shall not be affected or waived by
any inspection or examination made by or on behalf of U. S. Bank:
7.1 Corporate Status. Borrower is a corporation organized and
validly existing under the laws of the state of Delaware. Borrower has the
power and authority to own its property and assets and to transact the business
in which it is engaged or presently proposes to engage. Borrower is qualified
to do business in all states except where the failure to be qualified could not
reasonably be expected to have a material adverse effect on Borrower.
7.2 Power and Authority. Borrower has the power to execute,
deliver, and carry out the terms and provisions of this Agreement and each of
the Loan Documents and has taken all necessary action to authorize the
execution, delivery, and performance of this Agreement and the other Loan
Documents, the borrowings hereunder, and the making and delivery of the Note
and all Loan Documents delivered hereunder. This Agreement constitutes and the
Note and other Loan Documents and instruments issued or to be issued hereunder,
when executed and delivered pursuant hereto, constitute or will constitute the
authorized, valid, and legally binding obligations of Borrower enforceable in
accordance with their respective terms.
7.3 No Violation of Agreements. Borrower is not in default under
any material provision of any agreement to which it is a party or in violation
of any Applicable Laws, which could reasonably be expected to have a material
adverse effect on the Borrower. The execution and delivery of this Agreement,
the Note, the other Loan Documents, and the instruments incidental hereto; the
consummation of the transactions herein or therein contemplated; and compliance
with the terms and provisions hereof or thereof (a) will not violate any
material Applicable Law in existence as of the date hereof and (b) other than
the obligations to Security Mutual, will not conflict or be inconsistent with;
result in any breach of any of the material terms, covenants, conditions, or
provisions of; constitute a default under; or result in the creation or
imposition of (or the obligation to impose) any lien, charge, or encumbrance
upon any of the property or assets of Borrower pursuant to the terms of: any
material Governmental Approval, mortgage, deed of trust, lease, agreement, or
other instrument to which Borrower is a party, by which Borrower may be bound,
or to which Borrower may be subject, and (c) will not violate any of the
provisions of the articles of incorporation of Borrower. Other than filings or
recordings that may be required under the Uniform Commercial Code or to perfect
security interests in patents, trademarks, and similar Collateral, no
Governmental Approval is necessary (x) for the execution of this Agreement, the
making of the Note, or the assumption and performance of this Agreement or the
Note by Borrower or (y) for the consummation by Borrower of the transactions
contemplated by this Agreement including but not limited to the grant of the
security interests to U. S. Bank.
7.4 Recording and Enforceability. Neither the articles of
incorporation, bylaws, or other applicable corporate documents of Borrower nor
other agreements require recording, filing, registration, notice, or other
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<PAGE> 29
similar action in order to insure the legality, validity, binding effect, or
enforceability against all Persons of this Agreement, the Note, or other Loan
Documents executed or to be executed hereunder, other than filings or
recordings that may be required under the Uniform Commercial Code or in
connection with the perfection of the security interests of U. S. Bank in
patents, trademarks, and similar types of Collateral.
7.5 Litigation. There are no actions, suits, or proceedings pending
or to Borrower's knowledge threatened against or affecting Borrower before any
Governmental Body that could reasonably be expected to have a material adverse
effect on Borrower or the Collateral. Borrower is not in default under any
material provision of any Applicable Law or Governmental Approval of any
Governmental Body which could reasonably be expected to have a material adverse
effect on Borrower or on the Collateral.
7.6 Good Title to Properties. Borrower has good and marketable
title to, or a valid leasehold interest in, its property and assets, subject to
no liens, mortgages, pledges, encumbrances, or charges of any kind, except
those permitted under the provisions of Section 6.5 of this Agreement.
7.7 Licenses and Permits. All Governmental Approvals with respect
to the business of Borrower were to Borrower's knowledge duly and validly
issued by the respective Governmental Bodies, are in full force and effect, and
are to Borrower's knowledge valid and enforceable in accordance with their
terms. With regard to such Governmental Approvals, no fact or circumstance
exists to Borrower's knowledge that constitutes or, with the passage of time or
the giving of notice or both, would constitute a material default under any
thereof, or permit the grantor thereof to cancel or terminate the rights
thereunder, except upon the expiration of the full term thereof. Borrower
presently holds all material Governmental Approvals as are necessary or
advisable in connection with the conduct of its business as now conducted and
as presently proposed to be conducted.
7.8 No Burdensome Agreements. Borrower is not a party to any
agreement or instrument or subject to any restrictions that now have or, as far
as can be foreseen, could have a material adverse effect on Borrower.
7.9 Properties in Good Condition. All the material properties of
Borrower are, and all material properties to be added in connection with any
contemplated expansion will be in good repair and good working order and
condition in a manner consistent with past practices of Borrower, and
comparable to industry standards and are and will be in compliance with all
Applicable Laws, the noncompliance with which could reasonably be expected to
have a material adverse effect on Borrower.
7.10 Financial Statements. The (a) audited financial statements of
Borrower dated December 31, 1995, and all schedules and notes included in such
financial statements and (b) unaudited financial statements of Borrower for
each of January, February, March, and April, 1996, that have heretofore been
delivered to U. S. Bank are true and correct in all material respects and
present fairly (i) the financial position of Borrower as of the date of said
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<PAGE> 30
statements and (ii) the results of operations of Borrower for the periods
covered thereby; and there are not any significant liabilities that should have
been reflected in the financial statements or the notes thereto under generally
accepted accounting principles, contingent or otherwise, including liabilities
for taxes or any unusual forward or long-term commitments, that are not
disclosed or reserved against in the statements referred to above or in the
notes thereto or that are not disclosed herein. All such financial statements
have been prepared in accordance with generally accepted accounting principles
consistently applied. There has been no material adverse change (including but
not limited to any such change occasioned by accident, act of God, war, fire,
flood, explosion, strike or other labor dispute, or orders or action by any
Governmental Body or public utility) in the operations, business, property,
assets, or condition (financial or otherwise) of Borrower since December 31,
1996.
7.11 Outstanding Indebtedness. Other than current trade payables,
Borrower has no Indebtedness, including but not limited to Indebtedness to
Affiliates, that is not listed on Borrower's unaudited financial statements
dated March 30, 1996.
7.12 Taxes. Borrower has duly filed all tax returns and reports
required by Applicable Law to be filed; and all taxes, assessments, levies,
fees, and other charges of Governmental Bodies upon Borrower or upon its assets
that are due and payable have been paid (except as otherwise permitted in this
Agreement and except for sales and business and occupation taxes and tax
returns for the states of Washington, Idaho, and Utah disclosed to U. S. Bank
as of the date of this Agreement, which taxes shall be paid in full promptly
after the initial Funding).
7.13 License Fees. Borrower has paid all fees and charges that have
become due for any material Governmental Approval for its business or has made
adequate provisions for any such fees and charges that have accrued.
7.14 Trademarks, Patents, Etc. Attached hereto as Exhibit K is a
schedule of all trademarks, trade names, service marks, patents, and
applications therefor currently held by Borrower or in which it has an
interest, e.g., a license. Borrower possesses all necessary trademarks, trade
names, service marks, copyrights, patents, patent rights, and licenses to
conduct its businesses as now and as proposed to be conducted, without, to the
knowledge of Borrower, conflict with the rights or claimed rights of others.
7.15 Governmental Approvals. Attached hereto as Exhibit L is a
schedule of all material Governmental Approvals necessary for the operation of
Borrower's business.
7.16 Disclosure. To Borrower's knowledge, the exhibits hereto, the
financial information and statements referred to in Section 7.10 herein, any
certificate, statement, report or other document furnished to U. S. Bank by
Borrower or any other Person in connection herewith or in connection with any
transaction contemplated hereby, and this Agreement, do not contain any untrue
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<PAGE> 31
statements of material fact or omit to state any material fact necessary in
order to make the statements contained therein or herein not misleading.
7.17 Regulations U and X. Borrower does not own and no part of the
proceeds hereof will be used to purchase or carry any margin stock (within the
meaning of Regulation U of the Board of Governors of the Federal Reserve
System) or to extend credit to others for the purpose of purchasing or carrying
any margin stock. Borrower is not engaged principally or as one of its
important activities in the business of extending credit for the purpose of
purchasing or carrying any margin stock. If requested by U. S. Bank, Borrower
will furnish to U. S. Bank a statement in conformity with the requirements of
Federal Reserve Form U-1 referred to in said Regulation. No part of the
proceeds of the Loan will be used for any purpose that violates or is
inconsistent with the provisions of Regulation X of said Board of Governors.
7.18 Names. Neither Borrower nor any of its predecessors operate or
do business or during the past five years have operated or done business under
a fictitious, trade, or assumed name other than "Vista Optical," Lee Optical,"
"Alexis Vision Plan," formerly "American Vision Plan," and Western States
Optical."
7.19 Condition of Property. Except as otherwise disclosed to
U. S. Bank, Borrower hereby represents and warrants to U. S. Bank that as of
the date hereof and continuing hereafter, Borrower's property (both owned and
leased) and each portion thereof (a) are not and to the knowledge of Borrower
have not been a site for the use, generation, manufacture, storage, disposal,
or transportation of any Hazardous Material; (b) are presently in compliance
with all Hazardous Materials Laws; and (c) are not being used and to the
knowledge of Borrower have not been used in any manner that has resulted in or
will result in Hazardous Materials being spilled or disposed of on any adjacent
or other property.
7.20 Pension Plans. No "reportable event" as defined in
Section 4043(b) of Title IV of ERISA has occurred and is continuing with
respect to any plan maintained for employees of Borrower or any Affiliate. In
addition, each of the plans maintained for the employees of Borrower and its
Affiliates are in compliance with the requirements of ERISA, including the
minimum funding requirements.
ARTICLE VIII. EVENTS OF DEFAULT; REMEDIES
8.1 Events of Default. "Event of Default," wherever used herein,
means any one of the following events (whatever the reason for the Event of
Default, whether it shall relate to one or more of the parties hereto, and
whether it shall be voluntary or involuntary or be pursuant to or affected by
operation of Applicable Law):
(a) If Borrower fails to pay the principal of or any installment of
interest on the Note, within five days the same becomes due and payable,
whether at scheduled maturity, by acceleration, or otherwise; or
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<PAGE> 32
(b) If any Indebtedness of Borrower for money borrowed or credit
extended in excess of $50,000 becomes or is declared due and payable (after any
applicable grace period) prior to the stated maturity thereof or is not paid as
and when it becomes due and payable, or if any event occurs which constitutes
an event of default under any instrument, agreement, or evidence of
Indebtedness relating to any such obligation of Borrower (notwithstanding the
foregoing, it shall not constitute an Event of Default if (i) Borrower has any
delinquent accounts payable incurred in the ordinary course of business so long
as the account creditor (A) has not ceased providing goods or services to
Borrower on credit and (B) has not demanded payment or taken any other steps to
exercise remedies; or (ii) Borrower is past due on any real property lease
payments so long as the landlord under any such lease has not taken any steps
to exercise remedies under such lease that could require Borrower to vacate its
premises); or
(c) If Borrower fails to pay or perform (after any applicable grace
period) any obligation or Indebtedness to others in excess of $50,000 (other
than as set forth in Section 8.1(b) herein), whether now or hereafter incurred
(notwithstanding the foregoing, it shall not constitute an Event of Default if
(i) Borrower has any delinquent accounts payable incurred in the ordinary
course of business so long as the account creditor (A) has not ceased providing
goods or services to Borrower on credit and (B) has not demanded payment or
taken any other steps to exercise remedies; or (ii) Borrower is past due on any
real property lease payments so long as the landlord under any such lease has
not taken any steps to exercise remedies under such lease that could require
Borrower to vacate its premises); or
(d) If any representation or warranty (i) made by Borrower in this
Agreement or (ii) made by Borrower, in any document, certificate, or statement
furnished pursuant to this Agreement or in connection herewith, is false or
misleading in any material respect; or
(e) If Borrower fails to observe or perform any term, covenant, or
agreement to be performed or observed pursuant to Article V and VI herein; or
(f) If Borrower fails to observe or perform any term, covenant, or
agreement (not otherwise specified in this Article VIII) to be performed or
observed pursuant to the provisions of this Agreement, the other Loan
Documents, or any other agreement incidental hereto and such default is not
cured within 30 days; or
(g) If Borrower fails to perform any of its obligations under any of
the Loan Documents not otherwise specified in this Article VIII, or if the
validity of any of such documents has been disaffirmed by or on behalf of any
of the parties thereto other than U. S. Bank and such default is not cured
within 30 days; or
(h) If custody or control of any substantial part of the property of
Borrower or any Guarantor is assumed by any Governmental Body or if any
Governmental Body takes any final action, the effect of which would be to have
a material adverse effect on Borrower; or
<PAGE>
<PAGE> 33
(i) If Borrower or any Guarantor suspends or discontinues its
business, or if Borrower or any Guarantor makes an assignment for the benefit
of creditors or a composition with creditors, is unable or admits in writing
its inability to pay its debts as they mature, files a petition in bankruptcy,
becomes insolvent (howsoever such insolvency may be evidenced), is adjudicated
insolvent or bankrupt, petitions or applies to any tribunal for the appointment
of any receiver, liquidator, or trustee of or for it or any substantial part of
its property or assets, commences any proceeding relating to it under any
Applicable Law of any jurisdiction whether now or hereafter in effect relating
to bankruptcy, reorganization, arrangement, readjustment of debt, receivership,
dissolution, or liquidation; or if there is commenced against Borrower or any
Guarantor any such proceeding that remains undismissed for a period of 60 days
or more, or an order, judgment, or decree approving the petition in any such
proceeding is entered; or if Borrower or any Guarantor by any act or failure to
act indicates its consent to, approval of, or acquiescence in, any such
proceeding or any appointment of any receiver, liquidator, or trustee of or for
it or for any substantial part of its property or assets, suffers any such
appointment to continue undischarged or unstayed for a period of 60 days or
more, or takes any corporate action for the purpose of effecting any of the
foregoing; or if any court of competent jurisdiction assumes jurisdiction with
respect to any such proceeding, or if a receiver or a trustee or other officer
or representative of a court or of creditors, or if any Governmental Body,
under color of legal authority, takes and holds possession of any substantial
part of the property or assets of Borrower or any Guarantor; or
(j) If there is (i) any refusal or failure by any Governmental Body
to issue, renew, or extend any Governmental Approval with respect to the
operation of the business of Borrower, or (ii) any denial, forfeiture or
revocation by any Governmental Body of any Governmental Approval, that in the
case of any event occurring under clauses (i) or (ii), could have a material
adverse effect on Borrower; or
(k) If any Person or Persons during the term of the Loan acquire an
aggregate 10 percent or more of the outstanding shares of voting stock of
Borrower; or
(l) If any material adverse change in the business or financial
condition of Borrower or any Guarantor occurs, or if any event occurs that in
U. S. Bank's reasonable judgment materially increases U. S. Bank's risk
hereunder or materially impairs the Collateral.
8.2 Acceleration; Remedies. Upon the occurrence of any Event of
Default or at any time thereafter, if any Event of Default is then continuing,
U. S. Bank may, by written notice to Borrower, declare the entire unpaid
principal balance or any portion of the principal balance of the Note and
interest accrued thereon to be immediately due and payable by the maker
thereof; and such principal and interest shall thereupon become and be
immediately due and payable, without presentation, demand, protest, notice of
protest, or other notice of dishonor of any kind, all of which are hereby
expressly waived by Borrower. U. S. Bank may proceed to protect and enforce
its rights hereunder or realize on any or all security granted pursuant hereto
<PAGE>
<PAGE> 34
in any manner or order it deems expedient without regard to any equitable
principles of marshaling or otherwise. All rights and remedies given by this
Agreement, the Note, and the other Loan Documents are cumulative and not
exclusive of any thereof or of any other rights or remedies available to
U. S. Bank; no course of dealing between Borrower and U. S. Bank or any delay
or omission in exercising any right or remedy; shall operate as a waiver of any
right or remedy; and every right and remedy may be exercised from time to time
and as often as deemed appropriate by U. S. Bank.
ARTICLE IX. MISCELLANEOUS
9.1 Notices. All notices, requests, consents, demands, approvals,
and other communications hereunder shall be deemed to have been duly given,
made, or served if made in writing and delivered personally, sent via
facsimile, or mailed by first class mail, postage prepaid, to the respective
parties to this Agreement as follows:
(a) If to Borrower:
New West Eyeworks, Inc.
2104 West Southern Avenue
Tempe, Arizona 85282
Attention: Robert W. Regas
Facsimile No.: (602) 438-2650
(b) If to U. S. Bank:
U. S. Bank of Washington, National Association
1420 Fifth Avenue, Tenth Floor
Seattle, Washington 98101
Attention: Jason Gill
Facsimile No.: (206) 344-2331
The designation of the persons to be so notified or the address of such persons
for the purposes of such notice may be changed from time to time by similar
notice in writing, except that any communication with respect to a change of
address shall be deemed to be given or made when received by the party to whom
such communication was sent.
9.2 Payment of Expenses. Whether or not the transactions hereby
contemplated are consummated, Borrower shall pay on demand all costs and
expenses of U. S. Bank incurred in connection with the preparation,
negotiation, execution, and delivery of the Loan Documents, as well as any
amendments, modifications, consents, or waivers relating thereto, including,
without limitation, reasonable attorney fees, appraisal fees, title insurance
fees, and recording fees. In addition, if there shall occur any Default or
Event of Default, U. S. Bank shall be entitled to recover any costs and
expenses incurred in connection with the preservation of rights under, and
enforcement of, the Loan Documents, whether or not any lawsuit or arbitration
proceeding is commenced, in all such cases, including, without limitation,
<PAGE>
<PAGE> 35
reasonable attorney fees and costs (including the allocated fees of internal
counsel). Costs and expenses as referred to above, shall include, without
limitation, a reasonable hourly rate for collection personnel, whether employed
in-house or otherwise, overhead costs as reasonably allocated to the collection
effort, and all other expenses actually incurred. Reasonable attorney fees
shall include, without limitation, attorney fees and costs incurred in
connection with any bankruptcy case or other insolvency proceeding commenced by
or against Borrower or any Person granting a security interest in any item of
Collateral, including all fees incurred in connection with (a) moving from
relief from the automatic stay, to convert or dismiss the case or proceeding,
or to appoint a trustee or examiner, or (b) proposing or opposing confirmation
of a plan of reorganization or liquidation, in any case without regarding to
the identity of the prevailing party.
9.3 Setoff. Borrower hereby pledges and gives to U. S. Bank a lien
and security interest in, for the amount of all past, present, and future
Indebtedness of Borrower to U. S. Bank, the balance of any deposit account
maintained by Borrower at U. S. Bank. In the case of Borrower's Default
hereunder, Borrower hereby authorizes U. S. Bank at U. S. Bank's sole option,
at any time and from time to time, to apply to the payment of all or any
portion of the Loan or other Indebtedness of Borrower to U. S. Bank, any
deposit balance or balances now or hereafter in the possession of U. S. Bank
that belong to or are owed to Borrower.
9.4 Waiver of Setoff. Borrower hereby waives the right to interpose
any setoff, counterclaim, or cross-claim (other than compulsory counterclaims
or cross-claims) in connection with any litigation or dispute under this
Agreement, regardless of the nature of such setoff, counterclaim, or
cross-claim.
9.5 Fees and Commissions. Borrower agrees to indemnify U. S. Bank
and hold it harmless with regard to any commissions, fees, judgments, or
expenses of any nature and kind that U. S. Bank may become liable to pay by
reason of any claims relating to this Agreement or the transactions
contemplated hereby, by or on behalf of brokers, finders, or agents in
connection with any act or failure to act by Borrower or any litigation or
similar proceeding arising from such claims. Borrower states that it is aware
of no valid basis for any such claims.
9.6 No Waiver. No failure or delay on the part of U. S. Bank or the
holder of the Note in exercising any right, power, or privilege hereunder and
no course of dealing between Borrower and U. S. Bank or the holder of the Note
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, power, or privilege hereunder preclude any other or further exercise
thereof or the exercise of any right, power, or privilege. The rights and
remedies herein expressly provided are cumulative and not exclusive of any
rights or remedies that U. S. Bank or any subsequent holder of the Note would
otherwise have. No notice to or demand on Borrower in any case shall entitle
Borrower to any other or further notice or demand in similar or other
circumstances or shall constitute a waiver of the right of U. S. Bank to any
other or further action in any circumstances without notice or demand.
<PAGE>
<PAGE> 36
9.7 Entire Agreement and Amendments. This Agreement represents the
entire agreement between the parties hereto with respect to the Loan and the
transactions contemplated hereunder and, except as expressly provided herein,
shall not be affected by reference to any other documents. This Agreement, or
any provision hereof, may not be changed, waived, discharged, or terminated
orally, but only by an instrument in writing, signed by the party against whom
enforcement of the change, waiver, discharge, or termination is sought.
9.8 Benefit of Agreement. This Agreement is binding upon and inures
to the benefit of Borrower and U. S. Bank and their successors and assigns and
all subsequent holders of the Note or any portion thereof. Borrower expressly
acknowledges that U. S. Bank is not prohibited or restricted from assigning
rights hereunder or any portion thereof to another Person. Borrower, however,
is precluded from assigning any of its respective rights or delegating any of
its obligations hereunder or under any of the other agreements between Borrower
and U. S. Bank without the prior written consent of U. S. Bank.
9.9 Severability. If any provision of this Agreement or any of the
Loan Documents is held invalid under any Applicable Laws, such invalidity shall
not affect any other provision of this Agreement that can be given an effect
without the invalid provision, and, to this end, the provisions hereof are
severable.
9.10 Descriptive Headings. The descriptive headings of the several
sections of this Agreement are inserted for convenience only and do not affect
the meaning or construction of any of the provisions hereof.
9.11 Governing Law. This Agreement and the rights and obligations of
the parties hereunder and under the other Loan Documents shall be construed in
accordance with and shall be governed by the laws of the state of Washington
without regard to the choice of law rules thereof.
9.12 Consent to Jurisdiction, Service, and Venue. For the purpose of
enforcing payment of the Note, performance of the obligations under the Note,
any arbitration award under the other Loan Documents, or otherwise in
connection herewith, Borrower hereby consents to the jurisdiction and venue of
the courts of the state of Washington or of any federal court located in such
state including but not limited to the Superior Court of Washington for King
County and the United States District Court for the Western District of
Washington. Borrower hereby waives the right to contest the jurisdiction and
venue of courts located in King County, Washington, on the ground of
inconvenience or otherwise and waives any right to bring any action or
proceeding against U. S. Bank in any court outside King County, Washington.The
provisions of this section do not limit or otherwise affect the right of
U. S. Bank to institute and conduct action in any other appropriate manner,
jurisdiction, or court.
9.13 Arbitration.
(a) Either Borrower or U. S. Bank may require that all disputes,
claims, counterclaims, and defenses, including those based on or arising from
any alleged tort ("Claims") relating in any way to the Loan be settled by
<PAGE>
<PAGE> 37
binding arbitration in accordance with the Commercial Arbitration Rules of the
American Arbitration Association and Title 9 of the U.S. Code. All Claims will
be subject to the statutes of limitations that would be applicable if they were
litigated.
(b) This provision is void if the effect of the arbitration
procedure (as opposed to any Claims of Borrower) would be to materially impair
U. S. Bank's ability to realize on any Collateral pursuant to an arbitration
ruling favorable to U. S. Bank.
(c) If arbitration occurs and each party's Claim is less than
$100,000, one neutral arbitrator will decide all issues; if either party's
Claim is more than $100,000, three neutral arbitrators will decide all issues.
All arbitrators will be active Washington State Bar members in good standing.
All arbitration hearings will be held in Seattle, Washington. In addition to
all other powers, the arbitrator or arbitrators shall have the exclusive right
to determine all issues of arbitrability and shall have the authority to issue
subpoenas. Judgment on any arbitration award may be entered in any court with
jurisdiction.
(d) If either party institutes any judicial proceeding relating to
the Loan, that action shall not be a waiver of the right to submit any Claim to
arbitration. In addition, each has the right before, during, and after any
arbitration to exercise any number of the following remedies, in any order or
concurrently: (i) setoff, (ii) self-help repossession, (iii) judicial or
nonjudicial foreclosure against real or personal collateral, (iv) provisional
remedies, including injunction, appointment of a receiver, attachment, claim
and delivery, and replevin.
(e) This arbitration clause cannot be modified or waived by either
party except in writing, which writing must refer to this arbitration clause
and be signed by Borrower and U. S. Bank.
9.14 Counterparts. This Agreement and each of the Loan Documents may
be executed in one or more counterparts, each of which shall constitute an
original agreement, but all of which together shall constitute one and the same
instrument.
9.15 Confidentiality. U. S. Bank will use reasonable efforts not to
disclose to any Person any Confidential Information; provided, however,
Borrower acknowledges that in the ordinary course of its business, U. S. Bank
may disclose Confidential Information to its inside and internal auditors, bank
regulators, prospective participants, prospective purchasers of U. S. Bank or
its holding company, as well as prospective purchasers of the Loan. As used
herein, the term "Confidential Information" means all information that Borrower
or its representatives furnish to U. S. Bank, whether furnished before or after
the date of this Agreement, but shall exclude information that (a) becomes
generally available to the public other than as a result of a disclosure by
U. S. Bank in violation of this Agreement; (b) is shown by written
documentation to have been available to U. S. Bank prior to its disclosure to
U. S. Bank; or (c) is shown by written documentation to have become available
to or independently developed by U. S. Bank from a source other than Borrower
or its representatives.
<PAGE>
<PAGE> 38
9.16 Statutory Notice. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN
MONEY, EXTEND CREDIT, OR FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT
ENFORCEABLE UNDER WASHINGTON LAW.
<PAGE>
<PAGE> 39
IN WITNESS WHEREOF, Borrower and U. S. Bank have caused this
Agreement to be duly executed by the respective, duly authorized signatories as
of the date first above written.
NEW WEST EYEWORKS, INC., a Delaware
corporation
By /s/Barry J. Feld
Title President, Chief Executive Officer
U. S. BANK OF WASHINGTON,
NATIONAL ASSOCIATION
By /s/ Jason Gill
Title Assistant Vice-President
<PAGE>
Exhibit 99.2
GUARANTY, CONTRIBUTION AND INDEMNIFICATION
AGREEMENT
This Guaranty and Indemnification Agreement (this "Agreement") dated this
10th day of June, 1996, is made by and among MESIROW CAPITAL PARTNERS V,
MESIROW CAPITAL PARTNERS VI, RONALD E. WEINBERG, BARRY J. FELD and, with
respect to Sections 5, 6 and 7 hereof only, NEW WEST EYEWORKS, INC.
R E C I T A L S:
WHEREAS, each of Mesirow Capital Partners V ("MCP-V"), Mesirow Capital
Partners VI ("MCP-VI"), Ronald E. Weinberg ("REW") and Barry J. Feld ("BJF")
own New West Eyeworks, Inc. ("NEWI") common stock, $0.01 per share par value
("Common Stock"), and/or Series A 6% Cumulative Convertible Preferred Stock,
$1,000 per share par value, and/or Series B 6% Cumulative Convertible Preferred
Stock, $1,000 per share par value;
WHEREAS, U.S. Bank of Washington, N.A. (the "Bank") has agreed to enter
into a credit relationship with NEWI in part conditioned on separate guaranties
being provided by MCP-V in the amount of $400,000, MCP-VI in the amount of
$600,000 and REW in the amount of $1,000,000;
WHEREAS, MCP-V, MCP-VI and REW have agreed to become guarantors as
required by the Bank;
WHEREAS, the Bank has agreed to limit the collective guaranty to
$1,000,000 plus certain interest and costs of collection (the "Guaranteed
Amount");
WHEREAS, the parties, except NEWI, have agreed among themselves that in
the event the guarantors or any one or more of them are called upon by the
Bank to pay all or a portion of the guaranteed amount, then and in that event
each party, except NEWI, shall be responsible for the percentage of the payment
as herein provided;
WHEREAS, NEWI has agreed to indemnify MCP-V, MCP-VI, REW and BJF; and
WHEREAS, NEWI has authorized the issuance of a warrant exercisable for a
period of five years giving the holder the right to purchase 50,000 shares of
Common Stock, with an exercise price equal to 110% of the average market price
of Common Stock for the five day period prior to its May 17, 1996 authorization
(the "Warrant"), and MCP-V, MCP-VI, REW and BJF have agreed to accept the
<PAGE>
<PAGE> 2
Warrant as compensation for the guaranty to the Bank and the execution of this
Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises hereinafter set forth, the parties, intending to be legally bound,
agree as follows:
1. Guaranty
MCP-V agrees to guaranty NEWI's obligation to the Bank in the amount of
$400,000, MCP-VI agrees to guaranty NEWI's obligation to the Bank in the
amount of $600,000, and REW agrees to guaranty NEWI's obligation to the Bank in
the amount of $1,000,000. It is understood and agreed that as related to the
Bank such guaranty is joint and several. Each of the foregoing guaranty
obligations shall be more fully evidenced by separate guaranty agreements in
the form required by the Bank. BJF is not executing a separate guaranty
agreement with the Bank.
2. Indemnification by Mesirow Capital Partners V, Mesirow Capital
Partners VI, Ronald E. Weinberg and Barry J. Feld
MCP-V, MCP-VI, REW and BJF shall indemnify and hold harmless each other
against any amount any of them actually pay under their guaranties to the Bank
in excess of the following percentages of the Guaranteed Amount:
(i) MCP-V - 18%
(ii) MCP-VI - 27%
(iii) REW - 45%
(iv) BJF - 10%
and each of MCP-V, MCP-VI, REW and BJF assumes and shall be responsible to each
other in proportion to the foregoing percentages for any and all liability to
the Bank in connection with the Bank guarantees. In furtherance of said
percentage assumption and responsibility, MCP-V, MCP-VI, REW and BJF shall
indemnify and hold harmless each other from any and all fees and expenses
(including reasonable attorney fees and collection costs) actually paid by any
guarantor in excess of the percentages set forth above.
3. Warrant
Unless otherwise agreed in writing, the Warrant shall remain undivided and
shall be held by NEWI during the continuance of the guaranty to the Bank. At
the expiration of the guaranty by its terms and in the event that no party was
required to make payment pursuant to the guaranty to the Bank, the Warrant
shall be divided and MCP-V, MCP-VI, REW and BJF shall be issued a warrant for
his or its interest in the Warrant which shall be determined by multiplying
50,000 (or such number of shares of Common Stock as the Warrant is then
exercisable for) times the applicable percentage set forth in Section 2. In
the event that MCP-V, MCP-VI, REW and/or BJF are required to indemnify as
herein provided and he or it fails to so indemnify within 30 business days of
notification, such non-indemnifying party shall forfeit his or its interest in
<PAGE>
<PAGE> 3
the Warrant and the Warrant shall be reallocated among the non-defaulting
parties in accordance with the percentages of the non-defaulting parties set
forth in Section 2.
4. Defaults
In the event any party is called upon by the Bank to pay the guaranty and
he or it makes a payment in excess of its percentage share set forth in
Section 2 of the Guaranteed Amount, then he or it shall notify the other
parties of his or its obligation to indemnify and the amount owed. In the
event the indemnifying party does not pay the amount owed within 30 business
days of the demand by the indemnified party, a default will occur and the
indemnified party shall be entitled to, in addition to his or its other rights
and remedies herein provided, interest on the amount owed by each indemnifying
party at the lesser of (i) 25% per annum, or (ii) the highest rate allowed by
law. Interest in the event of default shall be computed from the date of
payment to the Bank by the party seeking indemnification.
5. Indemnification by New West Eyeworks, Inc.
NEWI shall indemnify and hold harmless MCP-V, MCP-VI, REW and BJF against
liability under the guaranty to the Bank or any payments make hereunder, except
default interest payments or obligations to make default interest payments
pursuant to Section 4. NEWI shall also be responsible and shall indemnify and
hold harmless MCP-V, MCP-VI, REW and BJF and each of them from any and all fees
and expenses (including reasonable attorney fees and collection costs) incurred
in connection with this Agreement and enforcing his or its right to
indemnification.
6. Arbitration
6.1 Disputes to be Arbitrated. Any controversy, claim or dispute arising
out of or in any way relating to this Agreement or its breach or the
transactions contemplated hereby, including without limitation any claim that
this Agreement or any of its parts is invalid, illegal or otherwise voidable or
void, shall be submitted to arbitration before and, unless otherwise provided
herein, in accordance with the Commercial Arbitration Rules of the American
Arbitration Association (the "AAA"). Notwithstanding any provision of this
Agreement relating to which state laws govern this Agreement, all issues
relating to arbitrability or the enforcement of the agreement to arbitrate
contained herein shall be governed by the Federal Arbitration Act (9 U.S.C.
Section 1 et seq.) and the federal common law of arbitration.
6.2 Entry of Judgment. Judgment upon an arbitration award may be entered
in any court having competent jurisdiction and shall be final, binding and
non-appealable. The parties hereby waive to the fullest extent permitted by law
any right to or claim for any punitive or exemplary damages against the other
<PAGE>
<PAGE> 4
and agree that in the event of a dispute between them, each shall be limited to
the recovery of only the actual damages sustained.
6.3 Procedures. The arbitration provisions of this Section 6 are self-
executing and will remain in full force and effect after the expiration or
termination of this Agreement. If either party fails to appear at any properly
noticed arbitration proceeding, an award may be entered against such party by
default or otherwise, notwithstanding such failure to appear. In the event of
a default in payment pursuant to Section 4 hereof the arbitration shall occur
in the city selected by the indemnified party, which city must be either
Chicago, Illinois, or Cleveland, Ohio and all other matters to be arbitrated
hereunder unless otherwise agreed to in writing by the parties, shall take
place in Phoenix, Arizona. With respect to any dispute involving $100,000 or
more, arbitration proceedings shall be conducted before three (3) neutral
arbitrators. With respect to any dispute involving less than $100,000,
arbitration proceedings shall be conducted by a single arbitrator in accordance
with the Expedited Rules of the AAA.
6.4 Excepted Disputes. The obligation herein to arbitrate shall not
prevent either party from seeking temporary restraining orders, preliminary
injunctions or other procedures in a court of competent jurisdiction to obtain
interim relief when deemed necessary by such court to preserve the status quo
or prevent irreparable injury pending resolution by arbitration of the actual
dispute.
7. General Provisions
7.1 Waiver of Terms. Any of the terms or conditions of this Agreement
may be waived at any time, but only by a written notice signed by the party or
parties waiving such terms or conditions.
7.2 Amendment of Agreement. This Agreement may be amended or
supplemented at any time, but only by a written agreement signed by each of the
parties to this Agreement.
7.3 Entire Agreement. This Agreement and the other agreements and
documents referred to herein set forth the entire understanding of the parties
with respect to the subject matter hereof, and supersede any previous
agreements or understandings between the parties regarding the subject matter
hereof.
7.4 Binding Effect. This Agreement will be binding upon and inure to the
benefit of and be enforceable by the parties and their respective heirs, legal
representatives, successors and permitted assigns.
7.5 Assignment. Neither this Agreement nor any of the rights or
obligations under this Agreement may be assigned without the prior written
consent of each other party, which consent will not unreasonably be withheld.
<PAGE>
<PAGE> 5
7.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
7.7 Governing Law. This Agreement will be governed, construed and
enforced in accordance with the internal laws of the State of Ohio, excluding
any choice of law rules which may direct the application of the laws of another
jurisdiction.
7.8 Notice. All notices or other communications required or permitted to
be given hereunder shall be in writing and shall be delivered to each party's
business address and shall be deemed to have been received (i) upon delivery by
telecopy or facsimile (with transmission confirmation report) if delivered on a
business day during normal business hours or the first business day following
such delivery if other than on a business day during normal business hours, or
(ii) on the second business day following the date of mailing by a
nationally-recognized express courier service, fully prepaid or upon actual
receipt of such mailing whichever occurs first.
<PAGE>
<PAGE> 6
In Witness Whereof, this Agreement has been duly executed by the parties
as of the date first written above.
Mesirow Capital Partners V
/s/ William P. Sutter
By: William P. Sutter
Its:V.P. of General Partner
Mesirow Capital Partners VI
/s/ William P. Sutter
By: William P. Sutter
Its:V.P. of General Partner
Ronald E. Weinberg
/s/ Ronald E. Weinberg
Barry J. Feld
/s/ Barry J. Feld
New West Eyeworks, Inc.
/s/ Robert W. Regas
By: Robert W. Regas
Its: Vice President
