<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 10, 1997
REGISTRATION NO. 333-18709
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
AMENDMENT NO. 3
TO
FORM S-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------------------
NEW WEST EYEWORKS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 34-1589514
(State of incorporation) (I.R.S. Employer Identification No.)
2104 WEST SOUTHERN AVENUE, TEMPE, ARIZONA 85282, (602) 438-1330
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
BARRY J. FELD
PRESIDENT AND CHIEF EXECUTIVE OFFICER
NEW WEST EYEWORKS, INC.
2104 WEST SOUTHERN AVENUE
TEMPE, ARIZONA 85282
(602) 438-1330
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------------
WITH COPIES TO:
MARC C. KRANTZ PAUL I. RACHLIN
KOHRMAN JACKSON & KRANTZ P.L.L. ARNOLD & PORTER
20TH FLOOR, ONE CLEVELAND CENTER 399 PARK AVENUE
CLEVELAND, OHIO 44114 NEW YORK, NY 10022-4690
(216) 696-8700 (212) 715-1172
------------------------------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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MAXIMUM OFFERING
TITLE OF SECURITIES AMOUNT TO PRICE PER MAXIMUM AGGREGATE AMOUNT OF
TO BE REGISTERED BE REGISTERED(1) SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock,
$0.01 par value........ 1,610,000 Shares(1) $6.25 10,062,500 $3,049.24
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</TABLE>
(1) Includes up to 210,000 shares of Common Stock issuable pursuant to the
Underwriters' over-allotment option. See "Underwriting."
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
NEW WEST EYEWORKS, INC.
CROSS REFERENCE SHEET
PURSUANT TO
ITEM 501(b) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM
NO. FORM S-2 CAPTION CAPTION OR LOCATION IN PROSPECTUS
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<C> <S> <C>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus................ Forepart of Registration Statement and
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus.................................... Inside Front and Outside Back Cover
Pages of Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges..................... Summary; Risk Factors; Not Applicable
4. Use of Proceeds............................... Use of Proceeds
5. Determination of Offering Price............... Not Applicable
6. Dilution...................................... Dilution
7. Selling Security Holders...................... Principal and Selling Stockholders
8. Plan of Distribution.......................... Underwriting
9. Description of Securities to Be Registered.... Outside Front Cover Page; Price Range of
Common Stock and Dividends; Description
of Capital Stock
10. Interests of Named Experts and Counsel........ Legal Matters
11. Information With Respect to the Registrant.... The Company; Consolidated Financial
Statements; Price Range of Common Stock
and Dividends; Selected Financial And
Operating Data; Management's Discussion
and Analysis of Financial Condition and
Results of Operations
12. Incorporation of Certain Information by
Reference..................................... Information Incorporated by Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................... Not Applicable
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED FEBRUARY 10, 1997
(NEW WEST EYEWORKS LOGO)
1,400,000 SHARES
COMMON STOCK
Of the 1,400,000 shares of Common Stock, par value $0.01 per share (the
"Common Stock"), of New West Eyeworks, Inc. (the "Company") offered hereby,
1,000,000 shares are being issued and sold by the Company and 400,000 are being
sold by the selling stockholders (the "Selling Stockholders"). The Company will
not receive any proceeds from the sale of shares by the Selling Stockholders.
See "Principal and Selling Stockholders."
The Company's Common Stock is quoted on the National Association of
Securities Dealers Automated Quotation System SmallCap Market ("NASDAQ") under
the symbol "NEWI" and is listed on the Pacific Stock Exchange under the symbol
"NWE." The last reported sales price for the Common Stock on NASDAQ on February
6, 1997 was $6.25 per share. See "Price Range of Common Stock and Dividends."
Fahnestock & Co. Inc. (the "Representative") will act as the "independent
qualified underwriter" pursuant to Rule 2710(c)(8) of the Conduct Rules of the
National Association of Securities Dealers, Inc. See "Underwriting."
------------------------
THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 5 HEREIN.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS
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<S> <C> <C> <C> <C>
Per Share..................... $ $ $ $
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Total (3)..................... $ $ $ $
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</TABLE>
(1) Does not include additional compensation paid or payable to the
Underwriters. See "Underwriting" for information concerning compensation
paid and payable to the Representative, indemnification of the Underwriters
and other matters.
(2) Before deducting expenses payable by the Company estimated at $525,000,
including the Representative's non-accountable expense allowance of $75,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 210,000 additional shares of Common Stock, solely to cover
over-allotments, if any. If the Underwriters exercise this option in full,
the total Price to Public, Underwriting Discount, Proceeds to Company, and
Proceeds to Selling Stockholders will be $ , $ ,
$ and $ , respectively. The Company will not
receive any proceeds from the sale of shares by the Selling Stockholders.
See "Principal and Selling Stockholders" and "Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters named
herein, subject to prior sale, when, as and if delivered to and accepted by the
Underwriters and subject to certain other conditions. The Underwriters reserve
the right to withdraw, cancel or modify the offering and to reject any orders in
whole or in part. It is expected that delivery of certificates representing the
shares of Common Stock will be made against payment therefor on or about
, 1997.
FAHNESTOCK & CO. INC. MESIROW FINANCIAL, INC.
The date of this Prospectus is , 1997.
<PAGE> 4
[VARIOUS PHOTOGRAPHS OF GLASSES, PEOPLE WEARING GLASSES, PEOPLE MAKING GLASSES
AND STORES.]
[MAP OF THE UNITED STATES WITH DOTS SHOWING STORE LOCATIONS.]
[NEW WEST EYEWORKS LOGO WITH THE FOLLOWING TEXT UNDERNEATH: "SELLING QUALITY,
FASHIONABLE EYEWEAR AT EVERYDAY VALUE PRICES."]
[NEW WEST EYEWORKS, ALEXIS VISION, VISTA OPTICAL AND LEE OPTICAL LOGOS.]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON NASDAQ AND THE PACIFIC STOCK EXCHANGE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN
PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK OF THE COMPANY ON NASDAQ
AND THE PACIFIC STOCK EXCHANGE IN ACCORDANCE WITH RULE 10B-6A UNDER THE
SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
<PAGE> 5
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
filed by the Company may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549, and at its regional offices located at Seven
World Trade Center, 13th Floor, New York, New York 10048 and at Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or
any part of such material may be obtained from the Public Reference Section of
the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission also maintains a web site (http://www.sec.gov) that
contains reports, proxy, and information statements and other information
regarding registrants, such as the Company, that file electronically with the
Commission. The Company's Common Stock is listed on the Pacific Stock Exchange
under the symbol "NWE" and investors may contact the Pacific Stock Exchange at
(415) 393-4252 to arrange to examine similar information at its offices at 301
Pine Street, San Francisco, California 44101.
The Company has filed with the Commission a registration statement on Form
S-2 (together with all amendments, exhibits, schedules and supplements thereto,
the "Registration Statement") with respect to the shares of Common Stock offered
hereby. This Prospectus, which constitutes part of the Registration Statement,
does not contain all of the information contained in the Registration Statement.
For further information with respect to the Company and the Common Stock offered
hereby, reference is made to the Registration Statement. Statements contained
herein concerning the provisions of any contract or other document filed as an
exhibit to the Registration Statement or otherwise filed with the Commission are
not necessarily complete, and in each instance, reference is made to the copy of
such contract or other document as so filed. Each such statement is qualified in
its entirety by such reference.
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained or
incorporated by reference in this Prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company, any Selling Stockholders or any Underwriter. This Prospectus
does not constitute an offer to sell or solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer in such jurisdiction. Neither the delivery of this
Prospectus nor any offer, solicitation or sale made hereunder shall, under any
circumstances, create an implication that there has been no change in the
affairs of the Company since the dates as of which information is furnished or
the date hereof.
INFORMATION INCORPORATED BY REFERENCE
The following documents have been filed by the Company with the Commission
and are hereby incorporated by reference into this Prospectus: (1) Annual Report
on Form 10-K for the fiscal year ended December 30, 1995; (2) Quarterly Report
on Form 10-Q for the quarter ended March 30, 1996; (3) Quarterly Report on Form
10-Q for the quarter ended June 29, 1996; (4) Quarterly Report on Form 10-Q for
the quarter ended September 28, 1996; and (5) Current Report on Form 8-K dated
June 10, 1996. All other documents and reports filed pursuant to Sections 13(a)
or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of this offering shall be deemed to be incorporated by
reference in this Prospectus and to be made a part hereof from the date of the
filing of such reports and documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
iii
<PAGE> 6
The Company will provide without charge to each person, including any
beneficial owner of Common Stock, to whom this Prospectus is delivered, upon the
written or oral request of such person, a copy of any or all documents
incorporated herein by reference (not including the exhibits to such documents,
unless such exhibits are specifically incorporated by reference in the document
which this Prospectus incorporates). Requests for such documents should be
directed to New West Eyeworks, Inc., 2104 West Southern Avenue, Tempe, Arizona
85282, Attention: Vice President -- Finance and Administration. The Company's
executive office telephone number is (602) 438-1330.
iv
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. This Prospectus contains forward-looking
statements that involve risks and uncertainties. Statements that are not
historical facts, including statements about the Company's confidence in its
prospects and strategies and its expectations about expansion into new markets,
growth in existing markets, enhanced operating margins or growth in the managed
optical care business, are forward-looking statements that involve risks and
uncertainties. Actual results and events may differ significantly from those
discussed in the forward-looking statements. Factors that might cause a
difference include, but are not limited to, those discussed in "Risk Factors."
Unless otherwise indicated, the information contained in this Prospectus does
not give effect to the exercise of the Underwriters' over-allotment option.
THE COMPANY
New West Eyeworks, Inc. (the "Company") is a leading specialty retailer of
eyewear, operating under the tradenames "Lee Optical" and "Vista Optical." In
the western and midwestern United States, the Company operates 146 value-priced
optical stores located in malls, strip-shopping centers and Fred Meyer, Inc.
("Fred Meyer") host stores. The Company's everyday value-pricing strategy
features its "signature" $59 price point for a wide selection of quality, brand
name eyeglasses offered at attractive, convenient locations with professional
service. The Company's stores also sell brand name contact lenses and
non-prescription sunglasses and offer customers on-site eye examinations by
independent optometrists. The Company operates optical laboratory and
distribution facilities in Tempe, Arizona and near Portland, Oregon.
The Company's value-pricing strategy differentiates it from competitors.
The Company believes that the economies of scale achieved by operating
centralized laboratory and distribution facilities enable it to produce eyewear
at a lower per unit cost and to maintain lower capital and inventory investment
per sales dollar than optical superstores which operate individual in-store
laboratories to offer "one-hour" service to customers. Therefore, the Company
believes that chains with in-store laboratories are unable to implement an
everyday value-pricing strategy. While certain discount chains have positioned
themselves as low-priced eyewear retailers, the Company believes that such
chains cannot match the combination of product quality, selection, professional
service and mall and strip-shopping center locations offered by the Company. In
addition, the Company believes independent retail outlets, which lack economies
of scale, cannot match the Company's everyday value-pricing, wide selection and
number of locations. The Company also believes that its value-pricing strategy
has appeal to today's price-conscious consumer, especially given the current
trends toward cost containment in the health care industry.
At $59 for both the frame and lenses, the Company carries recognizable
brand name eyewear, enabling consumers to comparison price shop. The Company
also sells brand name contact lenses at similar everyday value prices, featuring
daily soft wear lenses for $22 a pair. The Company believes that the success of
its value-pricing strategy is demonstrated by (1) its 20 consecutive quarters of
positive comparable store sales growth, including an 8.8% increase in 1996
compared to 1995 and a 10.7% increase in its mall and strip-shopping center
locations over the same periods, and (2) the Company's increasing number of
repeat customers.
The Company's growth strategy has three major components:
Emphasize Mall and Strip-Shopping Centers. The Company's expansion
plan is to open new mall and strip-shopping center stores where it can
market its value-pricing strategy under the "Lee Optical" and "Vista
Optical" tradenames. Since completing its initial public offering in
December 1993, the Company has embarked on its growth program under which
it has opened 40 new stores, 31 of which are located in malls and
strip-shopping centers. In addition, during this period, the Company has
relocated and remodeled 18 of its stores, eight of which are located in
malls and strip-shopping centers. To further improve the Company's
operating performance and place increased emphasis on its mall and strip-
shopping center locations, the Company closed 28 underperforming stores in
the same period, 19 of which were located in Fred Meyer and Smitty's Super
Valu, Inc. ("Smitty's") host stores.
Accelerate Store Opening Program. Upon completion of this offering,
the Company plans to accelerate its store opening program with the addition
of 20 to 25 stores in 1997, substantially all of which
1
<PAGE> 8
will be in malls and strip-shopping centers. In addition, the Company plans
to remodel five of its mall and strip-shopping center stores. The Company
will use its modular store design in all of its new, relocated or remodeled
stores. The Company believes that its store design optimizes customer
appeal, while the use of modular construction reduces store opening and
operating costs and substantially shortens new store construction time. The
Company's strategy is to improve its market share in existing markets and
to expand into new markets by clustering stores in a particular
metropolitan area or in smaller adjacent markets. For example, since 1993,
the Company has entered new markets in Colorado and Iowa where it has
established itself as a leading eyewear retailer.
Increase Managed Care Sales. Managed care is a substantial and
rapidly growing segment of the retail optical business. Under the trade
name "Alexis Vision Plan," the Company uses its stores as a managed care
network. Alexis Vision Plan provides eyecare benefits through negotiated
pricing to members of health maintenance organizations ("HMO"),
beneficiaries of health insurance plans and employees of local and state
governments and mid-sized to large companies. In 1996, sales generated
under the Alexis Vision Plan were $11.4 million (or 26.1% of net sales), a
23.2% increase over 1995. The Company believes that its value-pricing
strategy and convenient store locations are key factors in attracting
managed care business. As the Company increases its presence within
existing markets and expands into new markets, it believes it will be more
attractive to managed care administrators because of its additional store
locations.
To support its planned expansion, the Company (1) operates two
manufacturing facilities that provide operational flexibility and additional
capacity necessary for expansion and facilitate the efficient and timely
delivery of eyewear products and customer service, (2) has made substantial
investments in information systems, including a manufacturing and distribution
system and a fully integrated inventory control, merchandising, and general
ledger software system, which provide management with detailed retail sales,
manufacturing, financial and administrative data on a timely basis, and (3) uses
centralized purchasing to achieve greater leverage with vendors.
In late 1994, certain Fred Meyer employees went on a strike that lasted for
a 12-week period. None of the Company's employees were involved in the Fred
Meyer labor dispute and none participated in the Fred Meyer strike. However,
reduced customer traffic in all Fred Meyer stores resulted in a material
reduction in Company sales at the Fred Meyer host stores. In 1995, it became
clear that certain of the Company's stores located in Fred Meyer host stores
were permanently damaged by the impact of the 1994 strike. Management, through
successful negotiations with Fred Meyer, was able to close eight underperforming
stores without lease penalties.
Total accumulated deficit was $11.3 million, $13.6 million and $13.0
million at December 31, 1994, December 30, 1995 and September 28, 1996,
respectively. The Company reported operating losses of $1.3 million and $2.0
million for 1994 and 1995. For the first nine months of 1996, operating income
was $1.2 million compared to an operating loss of $438,000 in the comparable
1995 period. The Company will, however, experience an operating loss in the
fourth quarter of 1996, as a result of seasonal factors, including severe winter
weather in the northwestern United States. The Company believes that it is well
positioned to continue its recent improvement in operating results and
anticipates that as incremental sales occur the operating leverage provided by
its optical laboratory fixed cost structure will enhance operating margins.
Finally, the demographic trends of an aging U.S. population are expected to
increase demand for prescription eyewear from the current $13.8 billion annual
U.S. retail optical market.
------------------------
In 1988, New West, Inc., a Delaware corporation, was formed to acquire the
capital stock of Western States Optical, Inc., an Arizona corporation, from
MEDIQ Incorporated. In 1992, the name Western States Optical, Inc. was changed
to New West Eyeworks, Inc. In a parent-subsidiary merger in 1993, New West
Eyeworks, Inc. was merged with and into New West, Inc., and concurrently, New
West, Inc. changed its name to New West Eyeworks, Inc. The Company's principal
executive offices are located at 2104 West Southern Avenue, Tempe, Arizona
85282, and its telephone number is (602) 438-1330.
2
<PAGE> 9
THE OFFERING
Common Stock offered by the
Company............................. 1,000,000 shares
Common Stock offered by the Selling
Stockholders...................... 400,000 shares
Common Stock to be outstanding after
this offering(1).................... 4,763,036 shares
Use of Proceeds..................... To repay indebtedness, open new stores,
remodel existing stores, and for
general corporate purposes, including
working capital. See "Use of Proceeds."
Risk Factors........................ This offering involves a high degree of
risk. Prospective investors should
review and consider the information set
forth under "Risk Factors."
NASDAQ SmallCap Market Symbol....... NEWI
Pacific Stock Exchange Symbol....... NWE
- ---------------
(1) Does not include (i) options to purchase 400,000 shares of Common Stock
under the Company's Amended and Restated Stock Option Plan (of which 230,500
are outstanding); (ii) 156,563 shares of Common Stock issuable upon the
exercise of outstanding warrants; and (iii) 650,000 shares of Common Stock
issuable upon conversion of the Company's outstanding preferred stock at
$8.40 per share. See "Description of Capital Stock."
3
<PAGE> 10
SUMMARY FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED(1) NINE-MONTHS ENDED
------------------------------------------ -----------------------------
DECEMBER 25, DECEMBER 31, DECEMBER 30, SEPTEMBER 30, SEPTEMBER 28,
1993(2) 1994 1995 1995 1996
------------ ------------ ------------ ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AND STATISTICAL DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................................... $ 32,964 $ 37,367 $ 40,033 $31,030 $34,043
Gross profit................................. 15,708 17,692 19,681 15,537 17,196
Operating income (loss)...................... (569) (1,286) (1,986) (438) 1,219
Extraordinary gain........................... 1,674 -- -- -- --
Cumulative effect of change in accounting
principle.................................. 374 -- -- -- --
Net income (loss)............................ 1,238 (1,288) (2,025) (451) 902
Net income (loss) applicable to holders of
common stock............................... $ 842 $ (1,616) $ (2,354) $ (696) $ 657
======= ======= ======= ======= =======
Income (loss) per common and common
equivalent share:
Income (loss) before extraordinary gain and
cumulative effect of change in accounting
principle................................ $ (0.57) $ (0.43) $ (0.63) $ (0.18) $ 0.18
Extraordinary gain........................... 0.79 -- -- -- --
Cumulative effect of change in accounting
principle.................................. 0.18 -- -- -- --
------- ------- ------- ------- -------
Net income (loss) per share.................. $ 0.40 $ (0.43) $ (0.63) $ (0.18) $ 0.18
======= ======= ======= ======= =======
Weighted average number of common and common
equivalent shares outstanding.............. 2,125 3,736 3,763 3,763 3,763
STATISTICAL DATA:
Net sales growth (3)....................... 16.1% 13.4% 7.1% 9.3% 9.7%
Increase in comparable store sales (4)..... 15.0% 6.7% 5.9% 5.6% 9.2%
Stores open at period beginning............ 129 134 150 150 139
Stores opened during period................ 8 21 9 8 10
Stores closed during period................ (3) (5) (20) (13) (3)
------- ------- ------- ------- -------
Stores open at period end.................. 134 150 139 145 146
======= ======= ======= ======= =======
Type of store at period end:
Host stores.............................. 61 65 51 58 51
Mall and strip-shopping centers.......... 73 85 88 87 95
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 28, 1996
------------------------
ACTUAL AS ADJUSTED(5)
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<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................................................. $ 126 $ 3,514
Working capital (deficit).................................................................. (4,924) 364
Total assets............................................................................... 12,920 16,308
Notes payable and capital lease obligations................................................ 2,368 468
Total stockholders' equity................................................................. 2,609 7,897
</TABLE>
- ---------------
(1) The Company's fiscal year consists of 52 or 53 weeks ending on the last
Saturday of the calendar year. The year ended December 31, 1994 consists of
53 weeks, all other years presented consist of 52 weeks.
(2) Net income for the year ended December 25, 1993 includes an extraordinary
gain of $1,674,000 or $0.79 per share, that was realized by the Company as a
result of the retirement in full of its senior bank debt. See Note 1 of
Notes to Consolidated Financial Statements appearing elsewhere in this
Prospectus. During the same period, the Company changed its method of
accounting for income taxes, resulting in a cumulative effect adjustment of
$374,000, or $0.18 per share. See "Change in Accounting Principle" in Note 2
of Notes to Consolidated Financial Statements appearing elsewhere in this
Prospectus.
(3) Net sales growth in the first nine months of 1996 would have been 13.3% if
prior-year sales from closed retail outlets were excluded from 1995
revenues.
(4) A store becomes comparable after it has been open 52 weeks. Stores that are
relocated are not included in the comparable store base.
(5) As adjusted to reflect the sale by the Company of 1,000,000 shares of Common
Stock offered hereby at an assumed public offering price of $6.25 per share
of Common Stock, and the application of the estimated net proceeds of this
offering to reduce the amount outstanding on the Company's revolving line of
credit, as of February 7, 1997, as set forth in "Use of Proceeds."
4
<PAGE> 11
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. In addition
to the other information contained in this Prospectus, the following factors
should be considered carefully in evaluating the Company and its business before
purchasing any shares of Common Stock.
ACCUMULATED DEFICIT AND HISTORICAL OPERATING LOSSES
Total accumulated deficit was $11.3 million, $13.6 million and $13.0
million at December 31, 1994, December 30, 1995 and September 28, 1996,
respectively. The Company reported operating losses of $1.3 million and $2.0
million for 1994 and 1995. The Company had operating income of $1.2 million for
the first nine months of 1996, although the Company will incur an operating loss
in the fourth quarter of 1996, as a result of seasonal factors, including severe
winter weather in the northwestern United States. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Recent Events"
and "-- Seasonality and Quarterly Results." There can be no assurance that the
Company will remain profitable, or will achieve profits similar to or greater
than those achieved in 1996.
RISKS ASSOCIATED WITH EXPANSION
The growth of the Company is dependent, in large part, upon its ability to
open and operate new stores on a timely and profitable basis. Upon completion of
this offering, the Company plans to open a total of 20 to 25 new stores in 1997,
substantially all of which will be in malls and strip-shopping centers. The
Company expects that in the short-term its operating margins may be adversely
affected by increased operating costs associated with such new store openings.
In addition, no assurance can be given that opening new stores in markets
already served by the Company will not adversely impact existing store
profitability or reduce comparable store sales. Furthermore, the rate of new
store openings is subject to various contingencies, many of which are beyond the
Company's control. These contingencies include the Company's ability to secure
suitable store sites on a timely basis and on satisfactory terms, the
availability of independent optometrists, the ability to attract licensed
opticians and other qualified personnel, the Company's ability to successfully
integrate new geographic markets into its existing eyewear laboratory,
manufacturing and distribution system, and the availability of adequate capital
resources. Insufficient capital resources may require the Company to delay,
scale back or eliminate its expansion activities. There can be no assurance that
the continued expansion of the Company's business will be profitable. See
"Business -- Expansion Strategy."
COMPETITION
The retail eyecare industry is fragmented and highly competitive and
historically has been subject to severe price competition. The Company's
competitors include large optical store chains and numerous independent retail
outlets, opticians, optometrists and ophthalmologists. In addition, the increase
in the number of optical units in department store chains and warehouse clubs
and the emergence of mail order contact lens replacement services have further
increased the Company's competition. Many of the Company's competitors are
larger than the Company and have financial and other resources substantially
greater than those of the Company. There can be no assurance that competition
will not adversely affect the Company's operations in the future. In addition,
medical innovations such as surgical laser technology and new drug development
may change the nature of the eyecare industry. There can be no assurance that
technological innovations will not have a material adverse effect on the
Company's operations. See "Business -- Competition."
DEPENDENCE ON FRED MEYER
Historically, the Company has been dependent upon its relationship with
Fred Meyer, in which the Company had 51 stores as of December 28, 1996. The Fred
Meyer host stores are generally smaller than the Company's mall and
strip-shopping center locations and historically have lower net revenues per
store than the Company's other stores. The Company has a master lease agreement
with Fred Meyer, due to expire in April 1998, that grants the Company the right
of first refusal to open an optical store in any new Fred Meyer
5
<PAGE> 12
store in which Fred Meyer decides to place an eyewear department. However, Fred
Meyer is not required under the master lease agreement to open any future stores
or, when new stores are opened, to place an eyewear department in the store. A
strike by certain Fred Meyer employees in the third and fourth quarters of 1994
had an adverse impact on the Company. None of the Company's employees were
involved in the Fred Meyer labor dispute and none participated in the strike.
However, reduced customer traffic in all Fred Meyer stores resulted in a
material reduction in Company sales at the Fred Meyer host stores. Although Fred
Meyer entered into agreements with the unions representing the striking
employees, there can be no assurance that a similar strike in the future will
not adversely impact the Company. See "Business -- Expansion Strategy" and
"-- Relationship with Host Stores."
DEPENDENCE ON MANAGED CARE
As an increasing percentage of optometric and ophthalmologic patients are
coming under the control of managed care entities, the Company believes that its
success will, in part, be dependent upon its ability to negotiate contracts with
HMOs, health insurance companies and employer groups. When the Company provides
benefits to a managed care customer it does so generally at a small discount
from the Company's everyday value prices. The Company competes with some of its
largest and best financed competitors, including large optical store chains, for
managed care contracts. There can be no assurance that the Company will be able
to negotiate satisfactory agreements with managed care providers or maintain its
current agreements with managed care providers. Any such failure to obtain
satisfactory new agreements or maintain existing relationships may have a
material adverse effect on the Company. See "Business -- Managed Care."
DEPENDENCE ON OPTOMETRISTS
An important element in the Company's expansion plans is the establishment
of relationships with optometrists for the Company's new stores. There can be no
assurance that the Company will be successful in developing new relationships or
maintaining its existing relationships. Any difficulties or delays in securing
or maintaining the services of optometrists could have a material adverse effect
on the Company. See "Business -- Optical Professionals."
SEASONALITY AND QUARTERLY RESULTS
The retail eyewear industry is seasonal in nature. The Company has
historically incurred and anticipates that it may incur lower net sales and net
losses during the fourth quarter of each year because of reduced demand for
eyewear during the holiday season. The Company's quarterly results may also
fluctuate significantly as a result of a variety of factors, including the
timing of new store openings, the net sales contributed by new stores and bad
weather. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Recent Events" and "-- Seasonality and Quarterly
Results."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant extent upon the performance
of its senior management team, including Ronald E. Weinberg, Chairman of the
Board, and Barry J. Feld, the Company's Chief Executive Officer and President.
The loss of services of any of the Company's executive officers could have an
adverse impact on the Company. The Company maintains key man life insurance in
the amount of $2.0 million on the life of Mr. Feld. The future success of the
Company will depend in large part on its continued ability to attract and retain
qualified personnel. See "Management."
EFFECT OF GOVERNMENT REGULATION
The retail optical industry is subject to a variety of federal, state and
local laws, regulations and ordinances, including those regarding advertising,
location and design of stores, products sold, qualifications and practices of
opticians (such as those employed by the Company), and relations between
independent optometrists and optical retailers (such as the Company). The state
and local legal requirements vary widely among jurisdictions and are subject to
frequent change. In addition, the Federal Trade Commission has issued
6
<PAGE> 13
regulations affecting certain aspects of the optical industry, including a
requirement that optometrists deliver a copy of optical prescriptions for
eyeglasses to patients so that they may select optical dispensers of their
choice. Certain products sold by the Company, specifically ophthalmic lenses,
contact lenses and contact lens solutions, must comply with quality control
standards set by the United States Food and Drug Administration.
There can be no assurance that a review of the Company's past, present or
future business activities by courts or regulatory authorities will not result
in determinations that could adversely affect the operations of the Company or
that the health care regulatory environment will not change so as to restrict
the Company's existing operations or limit the expansion of the Company's
business. See "Business -- Government Regulation."
In addition, numerous health care related legislative proposals have been
made in recent years in the United States Congress and various state
legislatures. The potential impact of these proposals with respect to the
Company's managed optical care business is uncertain, and there is no assurance
that the proposals, if adopted, would not have a material adverse impact on the
Company.
LIMITATIONS ON UTILIZATION OF NET OPERATING LOSS CARRYFORWARDS
As of December 30, 1995, for federal income tax purposes, the Company had
regular net operating loss ("NOL") carryforwards of $7.7 million and alternative
minimum tax ("AMT") NOL carryforwards of $6.9 million which begin to expire in
2006. Under Section 382 of the Internal Revenue Code of 1986, as amended (the
"Code"), utilization of NOL carryforwards is subject to significant limitations
after an "ownership change" as defined in Section 382(g) of the Code, which may
result in Federal income taxes being paid earlier than if no such change in
ownership had occurred. The Company's initial public offering in 1993 caused the
Company to experience an ownership change as defined by Section 382(g) of the
Code. As a result, there is an annual limitation of approximately $1.0 million
on the amount of NOL carryforwards generated prior to the ownership change which
can be utilized to offset the Company's future taxable income. The Company does
not currently believe that this offering will result in an ownership change.
However, future transactions involving the Company's stock (or rights to acquire
such stock) could cause a further ownership change resulting in additional
restrictions on the Company's ability to utilize its net operating loss
carryforwards after the date of such ownership change. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Net
Operating Loss Carryforwards."
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Amended and Restated Certificate of
Incorporation and Amended and Restated Bylaws may be deemed to have
anti-takeover effects and may discourage, defer or prevent a change of control
of the Company. These provisions (1) classify the Company's Board of Directors
into three classes, each of which serves for different three-year periods, (2)
provide that only the Board of Directors, the Chairman of the Board or at least
25% of the stockholders of the Company entitled to vote may call special
meetings of the stockholders, (3) establish certain advance notice procedures
for nomination of candidates for election as directors and for stockholder
proposals to be considered at stockholders' meetings and (4) authorize preferred
stock, the terms of which may be determined by the Board of Directors and which
may be issued without stockholder approval.
CONTROL BY PRINCIPAL STOCKHOLDERS
Assuming conversion of the Company's convertible 6% cumulative preferred
stock, Series A and Series B, par value $1,000 per share (together, the
"Convertible Preferred Stock"), and the exercise of all warrants and options
that are presently exercisable, officers and directors of the Company and the
Selling Stockholders collectively will own approximately 45.0% of the
outstanding Common Stock upon the closing of this offering (43.4% if the
Underwriters' over-allotment option is exercised in full). Accordingly, if such
persons vote their shares of Common Stock in the same manner, they will
influence significantly all matters submitted to the holders of Common Stock for
approval, including the election of directors and fundamental corporate
transactions. In addition, each of the two series of the Convertible Preferred
Stock has elected and
7
<PAGE> 14
will be entitled to elect one director to the Company's Board of Directors, and
if the Company fails to pay in full six consecutive quarterly dividends, then
the holders of the Convertible Preferred Stock will be entitled to vote on all
matters submitted to the holders of Common Stock, as if the Convertible
Preferred Stock had been converted into Common Stock at a price equal to $8.40
per share (subject to adjustment). There is no assurance that the Company will
make the required dividend payments on the Convertible Preferred Stock. If the
Company fails to pay in full six consecutive quarterly dividends on the
Convertible Preferred Stock, the provisions of the Convertible Preferred Stock
granting voting rights to the holders thereof will dilute significantly the
voting power of the holders of the outstanding Common Stock. See "Principal and
Selling Stockholders" and "Description of Capital Stock -- Convertible Preferred
Stock."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS; POTENTIAL ADVERSE IMPACT
ON MARKET PRICE
Upon the closing of this offering, the Company will have 4,763,036 shares
of Common Stock outstanding. All the directors, officers and beneficial owners
of 5% or more of the outstanding Common Stock of the Company have agreed not to
offer, sell or otherwise dispose of such shares or any other shares of Common
Stock purchased by them directly from the Company after the effective date of
this offering, until 180 days after the effective date, without the prior
written consent of the Representative. After such date, all such shares may be
sold subject to the limitations of Rule 144 of the Securities Act of 1933, as
amended (the "Securities Act"). The holders of the Convertible Preferred Stock
may convert their shares into 650,000 shares of Common Stock, subject to
customary anti-dilution adjustments. In addition, the Company has warrants and
options outstanding to purchase up to an aggregate of 387,063 shares of Common
Stock, subject to customary anti-dilution adjustments. Certain of the Company's
existing stockholders are entitled to certain rights with respect to the
registration under the Securities Act of (1) 712,440 outstanding shares of
Common Stock, (2) 650,000 shares of Common Stock (subject to adjustment)
issuable upon conversion of the Convertible Preferred Stock, and (3) 106,563
shares of Common Stock (subject to adjustment) issuable upon the exercise of
outstanding warrants (collectively, the "Registrable Securities"). In the event
that the Company proposes to register any of its securities under the Securities
Act, either for its own account or the account of other security holders, the
holders of Registrable Securities are entitled to have their shares included in
such registration, subject to certain marketing and other limitations. In
addition, the Mesirow Group (as defined below) and Mr. Weinberg, with respect to
35,655 of his shares, each generally have the right under certain circumstances
to require the Company to file one registration statement under the Securities
Act to register all or any part of their Registrable Securities, provided that
the aggregate offering value of the Registrable Securities is at least $8.0
million. The Company may in certain circumstances defer such registrations and
the underwriters have the right, subject to certain limitations, to limit the
number of shares included in such registration. Future sales of substantial
amounts of Common Stock, or the potential for such sales, could adversely affect
prevailing market prices.
LIMITED PUBLIC FLOAT; TRADING; VOLATILITY OF STOCK PRICE
The Company's Common Stock is quoted on the National Association of
Securities Dealers Automated Quotation System SmallCap Market ("NASDAQ") and the
Pacific Stock Exchange. While a public market currently exists for the Company's
Common Stock, the number of shares in the public market at the completion of
this offering will be approximately 3.0 million. Trading volume in the four
weeks ended February 7, 1997 averaged 6,965 shares traded per day. Thus, trading
of relatively small blocks of stock can have a significant impact on the price
at which the stock is traded. In addition, NASDAQ has experienced, and is likely
to experience in the future, significant price and volume fluctuations that
could adversely affect the market price of the Common Stock without regard to
the operating performance of the Company. The Company believes factors such as
quarterly fluctuations in financial results, announcements by competitors or
changes in securities analysts' recommendations may cause the market price to
fluctuate, perhaps substantially. These fluctuations, as well as general
economic conditions, such as recessions or high interest rates, may adversely
affect the market price of the Common Stock. See "Price Range of Common Stock
and Dividends."
8
<PAGE> 15
NO DIVIDENDS
The Company has never paid cash dividends on its Common Stock and
anticipates that all earnings, if any, in the foreseeable future will be
retained to finance the growth and development of its business. Any future
dividends will depend on the earnings, capital requirements and financial
condition of the Company, and on such other factors as the Company's Board of
Directors may consider relevant. In addition, the Company's current revolving
line of credit prohibits, and any new financing agreements entered into by the
Company may limit or prohibit, the payment of cash dividends on its Common
Stock. See "Price Range of Common Stock and Dividends."
DILUTION
The purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution in the amount of $4.89 per share or 78.2%.
See "Dilution."
USE OF PROCEEDS
The net proceeds to the Company from the sale of 1,000,000 shares of Common
Stock offered by the Company hereby are estimated to be $5.3 million (or
approximately $6.5 million if the Underwriters' over-allotment options are
exercised in full) assuming a public offering price of $6.25 per share, after
deducting underwriting discounts and commissions and estimated offering expenses
payable by the Company. The Company will not receive any proceeds from the sale
of shares of Common Stock by the Selling Stockholders.
The Company expects to use the net proceeds of this offering to reduce the
outstanding balance on its revolving line of credit ($1.9 million, including
accrued and unpaid interest) and to retire its bridge loan ($355,000, including
accrued and unpaid interest). The bridge loan, the proceeds of which were used
to fund the Company's store expansion plans, matures on June 2, 1997 and bears
interest at a rate equal to the lending bank's prime rate plus 1.5% per annum,
payable upon maturity. The revolving line of credit is secured by guarantees
from Mesirow Capital Partners V and Mesirow Capital Partners VI, two of the
Selling Stockholders, and Ronald E. Weinberg, Chairman of the Board of the
Company. The bridge loan is secured by Mr. Weinberg's guarantee. Barry J. Feld,
President and Chief Executive Officer of the Company, agreed to share in the
obligations of the guarantors on both loans. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Recent Events" and
"Certain Transactions." The Company also expects to use approximately $3.0
million to open new stores and remodel existing stores. See
"Business -- Expansion Strategy." The remainder of the net proceeds will be used
for general corporate purposes, including working capital. Pending such uses,
the Company will invest the net proceeds of this offering in short term,
investment-grade, interest-bearing securities.
The following table sets forth the foregoing use of net proceeds:
<TABLE>
<CAPTION>
APPROXIMATE
APPROXIMATE PERCENTAGE OF
USE OF PROCEEDS AMOUNT NET PROCEEDS
----------------------------------------------------------- ----------- -------------
<S> <C> <C>
New and remodeled stores................................... $ 3,000,000 56.6%
Repayment of revolving line of credit...................... 1,900,000 35.8
Repayment of bridge loan................................... 355,000 6.7
Working capital............................................ 45,000 0.9
---------- -----
Total............................................ $ 5,300,000 100.0%
========== =====
</TABLE>
9
<PAGE> 16
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Company's Common Stock is quoted on NASDAQ under the symbol "NEWI" and
is listed on the Pacific Stock Exchange under the symbol "NWE." The following
table sets forth the high and low closing price of the Company's Common Stock on
NASDAQ for each full fiscal quarter in 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
QUARTER ENDED HIGH LOW HIGH LOW HIGH LOW
------------------------------------------- ---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
First Quarter.............................. 5 3/4 4 5 1/2 3 1/4 8 1/2 5 7/8
Second Quarter............................. 6 5 5 3/4 4 1/8 7 5/8 4 1/2
Third Quarter.............................. 6 3/4 5 1/4 5 1/2 3 1/2 5 3
Fourth Quarter............................. 7 1/2 6 5 3 7/8 4 1/2 3 1/8
</TABLE>
The last sale price of the Company's Common Stock on February 6, 1997 as
reported on NASDAQ was $6.25 per share. As of January 15, 1997, there were
approximately 30 stockholders of record representing approximately 403
beneficial holders of the Common Stock.
The Company has never paid cash dividends on its Common Stock and
anticipates that all earnings, if any, in the foreseeable future will be
retained to finance the growth and development of its business. Any future
dividends will depend on the earnings, capital requirements and financial
condition of the Company, and on such other factors as the Company's Board of
Directors may consider relevant. In addition, the Company's current revolving
line of credit prohibits, and any new financing agreements entered into by the
Company may limit or prohibit, the payment of cash dividends on its Common
Stock.
DILUTION
At September 28, 1996, the Company had net tangible book value of $2.1
million, or $0.47 per share of Common Stock. Net tangible book value per share
represents the Company's tangible assets less total liabilities divided by the
number of shares of Common Stock outstanding, assuming conversion of the
Convertible Preferred Stock. After giving effect to the sale by the Company of
1,000,000 shares of Common Stock offered hereby at an assumed offering price of
$6.25 per share and after deduction of underwriting discounts and commissions
and estimated offering expenses (estimated at $1.0 million), the as adjusted net
tangible book value of the Company at September 28, 1996 would have been $7.4
million, or $1.36 per share. This represents an immediate increase in net
tangible book value of $0.89 per share to existing stockholders and an immediate
dilution of $4.89 per share to new investors. The following table illustrates
this dilution per share:
<TABLE>
<S> <C> <C>
Assumed public offering price per share........ $6.25
Net tangible book value per share as of
September 28, 1996........................... $ 0.47
Increase in net tangible book value per share
attributable to new investors................ 0.89
------
As adjusted net tangible book value per share
after the offering........................... 1.36
-----
Dilution per share to new investors............ $4.89
=====
</TABLE>
10
<PAGE> 17
CAPITALIZATION
The following table presents as of September 28, 1996, (1) the actual
capitalization of the Company, and (2) the adjusted capitalization of the
Company after giving effect to the sale by the Company of 1,000,000 shares of
Common Stock offered hereby at an assumed offering price of $6.25 per share and
the application of the estimated net proceeds therefrom as described under "Use
of Proceeds." This table should be read in conjunction with the more detailed
financial data and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 28, 1996
-----------------------
AS ADJUSTED
FOR
ACTUAL OFFERING
------- -----------
(IN THOUSANDS)
<S> <C> <C>
SHORT-TERM DEBT AND CURRENT PORTION OF LONG-TERM DEBT AND CAPITAL
LEASE OBLIGATIONS.................................................. $ 2,133 $ 233
--------- ----------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATION (LESS CURRENT PORTION)... 235 235
--------- ----------
STOCKHOLDERS' EQUITY:
Series A 6% Cumulative Convertible Preferred Stock, $1,000 par
value, 3,960 shares authorized, issued and outstanding.......... 3,960 3,960
Series B 6% Cumulative Convertible Preferred Stock, $1,000 par
value, 1,500 shares authorized, issued and outstanding.......... 1,500 1,500
Common stock, $0.01 par value, 5,000,000 shares authorized,
3,763,036 shares issued and outstanding, 4,763,036 shares issued
and outstanding on an as adjusted basis......................... 38 48
Paid-in capital.................................................... 10,100 15,378
Accumulated deficit................................................ (12,989) (12,989)
--------- ----------
Total stockholders' equity................................. 2,609 7,897
--------- ----------
TOTAL CAPITALIZATION................................................. $ 4,977 $ 8,365
========= ==========
</TABLE>
11
<PAGE> 18
SELECTED FINANCIAL AND OPERATING DATA
The selected financial data presented below under the captions "Statement
of Operations Data," "Income (Loss) Per Common and Common Equivalent Share" and
"Balance Sheet Data" for the years ended 1991, 1992, 1993, 1994, and 1995, are
derived from the Company's annual Consolidated Financial Statements. The
selected financial data for the nine months ended September 30, 1995 and
September 28, 1996 are derived from the Company's unaudited Consolidated
Financial Statements. The unaudited financial statements include all adjustments
(consisting only of normal recurring adjustments) which the Company considers
necessary for a fair presentation of its financial position and results of
operations for the interim period. The operating results for the nine months
ended September 28, 1996 are not necessarily indicative of the results that may
be expected for the full year. The following data should be read in conjunction
with, and are qualified in their entirety by, such Consolidated Financial
Statements and related notes, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the other financial information
included elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED (1) NINE-MONTHS ENDED
------------------------------------------------------------ -----------------------
DEC. 28, DEC. 26, DEC. 25, DEC. 31, DEC. 30, SEPT. 30, SEPT. 28,
1991 1992 1993 (2) 1994 1995 1995 1996
-------- -------- -------- -------- -------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AND STATISTICAL DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................. $24,568 $28,383 $32,964 $37,367 $40,033 $31,030 $34,043
Gross profit.......................... 10,630 13,642 15,708 17,692 19,681 15,537 17,196
Restructuring expenses (3)............ 1,279 -- -- -- -- -- --
Operating income (loss)............... (4,786) (1,312) (569) (1,286) (1,986) (438) 1,219
Income (loss) before income taxes,
extraordinary gain and cumulative
effect of change in accounting
principle........................... (5,417) (1,846) (1,279) (1,288) (2,025) (451) 1,074
Income tax expense (benefit).......... -- -- (469) -- -- -- 172
Extraordinary gain.................... -- -- 1,674 -- -- -- --
Cumulative effect of change in
accounting principle................ -- -- 374 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)..................... (5,417) (1,846) 1,238 (1,288) (2,025) (451) 902
Accretion of redeemable preferred
stock............................... (100) -- -- -- -- -- --
Dividends paid or accrued on
redeemable preferred stock and
cumulative convertible preferred
stock............................... (291) (431) (396) (328) (329) (245) (245)
-------- -------- -------- -------- -------- -------- --------
Net income (loss) applicable to
holders of common stock............. $(5,808) $(2,277) $ 842 $(1,616) $(2,354) $ (696) $ 657
======== ======== ======== ======== ======== ======== ========
INCOME (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE:
Loss before extraordinary gain and
cumulative effect of accounting
change.............................. $ (4.27) $ (1.67) $ (0.57) $ (0.43) $ (0.63) $ (0.18) $ 0.18
Extraordinary gain.................... -- -- 0.79 -- -- -- --
Cumulative effect of change in
accounting principle................ -- -- 0.18 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)..................... $ (4.27) $ (1.67) $ 0.40 $ (0.43) $ (0.63) $ (0.18) $ 0.18
======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA:
Cash and cash equivalents............. $ 395 $ 281 $ 163 $ 1,000 $ 241 $ 127 $ 126
Working capital (deficit)............. (7,406) (8,260) (6,917) (2,354) (4,984) (3,433) (4,924)
Total assets.......................... 9,274 8,372 9,846 11,721 11,734 12,225 12,920
Notes payable and capital lease
obligations......................... -- -- 406 259 556 636 2,368
Total common stock and other
stockholders' equity (deficit)...... (8,077) (10,347) (2,692) 4,276 1,922 3,578 2,609
STATISTICAL DATA:
Net sales growth (4).................. (12.3%) 15.5% 16.1% 13.4% 7.1% 9.3% 9.7%
Increase (decrease) in comparable
store sales (5)..................... (12.3%) 19.5% 15.0% 6.7% 5.9% 5.6% 9.2%
Stores open at period beginning....... 143 128 129 134 150 150 139
Stores opened during period........... 1 3 8 21 9 8 10
Stores closed during period........... (16) (2) (3) (5) (20) (13) (3)
-------- -------- -------- -------- -------- -------- --------
Stores open at period end............. 128 129 134 150 139 145 146
======== ======== ======== ======== ======== ======== ========
Type of store at period end:
Host stores......................... 58 58 61 65 51 58 51
Malls and strip-shopping centers.... 70 71 73 85 88 87 95
</TABLE>
- ---------------
(1) The Company's fiscal year consists of 52 or 53 weeks ending the last
Saturday of the calendar year. The year ended December 31, 1994 consists of
53 weeks, all other years presented consist of 52 weeks.
(2) Net income for the period ended December 25, 1993 includes an extraordinary
gain of $1,674,000 or $0.79 per share, that was realized by the Company as a
result of the retirement in full of its senior bank debt. See Note 1 of
Notes to Consolidated Financial Statements appearing elsewhere in this
Prospectus. During the same period, the Company changed its method of
accounting for income taxes, resulting in a cumulative effect adjustment of
$374,000, or $0.18 per share. See "Change in Accounting Principle" in Note 2
of Notes to Consolidated Financial Statements appearing elsewhere in this
Prospectus.
(3) During 1991, the Company incurred nonrecurring expenses of $1,279,000
relating to the restructuring of its business, including the write-off of
property and equipment and accrual of lease payments at stores and optical
laboratories either closed or scheduled for closure.
(4) Net sales growth in the first nine months of 1996 would have been 13.3% if
prior-year sales from closed retail outlets were excluded from 1995
revenues.
(5) A store becomes comparable after it has been open 52 weeks. Stores that are
relocated are not included in the comparable store base.
12
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless otherwise stated, references in this Prospectus to the years 1996,
1995, 1994, and 1993 relate to the fiscal years ended December 28, 1996,
December 30, 1995, December 31, 1994, and December 25, 1993, and references to
1996 and 1995 nine month periods relate to the periods ended September 28, 1996
and September 30, 1995. Fiscal years 1995 and 1993 each had 52 weeks, while 1994
had 53 weeks.
OVERVIEW
Concurrent with the hiring of new management in 1991, the Company
implemented its everyday value-pricing strategy, featuring its "signature" $59
price point for a wide selection of quality, brand name eyeglasses (including
frame and lenses) offered at attractive, convenient locations with professional
service. Since that time, the Company has focused on opening new stores,
primarily in malls and strip-shopping centers, entering new geographic markets,
improving its operating efficiency, expanding its managed optical care business
and establishing the informational and operational infrastructure necessary for
further expansion. Simultaneously, the Company closed its underperforming stores
which were located primarily in host stores, including eight stores located in
Fred Meyer host stores that were negatively impacted by the 1994 strike by Fred
Meyer employees.
The Company believes that the success of its value-pricing strategy is
demonstrated by (1) its 20 consecutive quarters of positive comparable store
sales growth, including an 8.8% increase in 1996 compared to 1995 and a 10.7%
increase in its mall and strip-shopping center locations over the same periods,
and (2) the increasing number of repeat customers. Currently, the Company
operates 146 stores in 12 western and midwestern states.
In 1996, the Company opened 10 stores, nine of which are located in malls
or strip-shopping centers and one of which is located in a Fred Meyer host
store. Evidencing the Company's strategy to expand into new geographic markets,
seven of the 10 new stores opened in 1996 were located in the Iowa market,
representing the Company's first entry into the midwestern United States. In
addition, the Company remodeled or relocated eight stores and closed three
stores during this period. With additional capital from this offering, the
Company plans to accelerate its store opening program with the addition of 20 to
25 stores in 1997, substantially all of which will be in malls and
strip-shopping centers. Opening new stores in markets already served by the
Company may adversely impact existing store profitability and reduce comparable
store sales, although the Company believes that such new stores will increase
its total sales and profitability in such markets.
The Company's managed optical care business, Alexis Vision Plan, is an
increasingly important component of its overall business. In 1996, sales
generated by the Alexis Vision Plan were $11.4 million (or approximately 26.1%
of net sales), a 23.2% increase over 1995. There is no assurance that sales
generated under the Alexis Vision Plan will continue to increase at all or at
the rate of increase of 1995 and 1996.
Total accumulated deficit was $11.3 million, $13.6 million and $13.0
million at December 31, 1994, December 30, 1995 and September 28, 1996,
respectively. The Company reported operating losses of $1.3 million and $2.0
million for 1994 and 1995. The Company had operating income of $1.2 million for
the first nine months of 1996, although the Company will incur a net loss in the
fourth quarter of 1996, as a result of seasonal factors, including severe winter
weather in the northwestern United States. See " -- Recent Events" and
" -- Seasonality and Quarterly Results."
The Company believes that it is well positioned to continue its recent
improvement of operating results and in 1996, expects to report its first full
year of operating income since implementing its value-pricing strategy. The
Company has established the infrastructure necessary for future growth. To
support its planned expansion, the Company (1) operates two manufacturing
facilities, (2) has made substantial investments in information systems and (3)
uses centralized purchasing. Therefore, the Company believes that as incremental
sales occur, from both existing stores and new stores, the operating leverage
provided by its optical laboratory fixed cost structure will enhance operating
margins. However, because it is the Company's
13
<PAGE> 20
accounting policy to expense pre-opening advertising costs and other store
pre-opening expenses as they are incurred, the Company expects that, in the
short-term, its operating margins may be adversely affected by increased
operating costs associated with new store openings.
RECENT EVENTS
In December 1996, to fund the Company's store expansion plans, the Company
entered into a bridge loan for $350,000 with The Second National Bank of Warren
(Ohio). The loan matures on June 2, 1997 and bears interest at a rate equal to
the lending bank's prime rate plus 1.5% per annum, payable upon maturity. The
loan is guaranteed by Ronald E. Weinberg, Chairman of the Board. The Company has
paid Mr. Weinberg $7,500 in exchange for his guaranty of the loan and has agreed
to consider further compensation if the Company fails to repay the loan upon its
maturity. Barry J. Feld, President and Chief Executive Officer of the Company,
agreed with Mr. Weinberg to share his guaranty obligations. The Company expects
to repay the loan in full with the proceeds of this offering. See "Use of
Proceeds." Norman C. Harbert, a director of the Company, is also a director of
Second Bancorp Inc., the parent holding company of The Second National Bank of
Warren (Ohio).
As of December 28, 1996, the Company was not in compliance with certain
financial covenants, including covenants with respect to the Company's tangible
net worth, capital ratio and working capital, contained in the revolving line of
credit agreement with U.S. Bank of Washington, National Association. The credit
agreement was amended effective January 14, 1997, and the Company believes that
it is now in compliance with all the covenants contained in the agreement. There
can be no assurance that the Company will not require additional waivers in the
future or, if required, that the lender will grant them.
The Company's sales during December 1996 were significantly impacted by
severe winter weather in the northwestern United States. Approximately 81 of the
Company's 146 retail eyewear stores were either closed or severely impacted by
flooding and heavy snowfall in Washington, Oregon and Idaho. As a result of the
reduction in December revenues, the Company will incur a net loss in the fourth
quarter. The Company's comparable store sales increased 7.1% for the fourth
quarter of 1996, when compared with the corresponding prior-year period.
Based on preliminary unaudited results, net sales for 1996 increased 9.8%
to approximately $43.9 million, compared with $40.0 million for the previous
year. If sales from retail outlets closed during 1995 are excluded from these
results, the Company's revenues would have increased 12.6% (to $43.9 million
compared to $39.0 million). The Company's comparable store sales increased 8.8%
for 1996 when compared with the previous year, and 10.7% for its mall and
strip-shopping center locations over the same periods.
14
<PAGE> 21
RESULTS OF OPERATIONS
The following table sets forth for each of the years 1995, 1994, and 1993,
and the first nine months of 1996 and 1995 certain selected statement of
operations data expressed as a percentage of net sales:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE-MONTHS ENDED
------------------------------------------ -----------------------------
DECEMBER 25, DECEMBER 31, DECEMBER 30, SEPTEMBER 30, SEPTEMBER 28,
1993 1994 1995 1995 1996
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales....................... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit.................... 47.7 47.3 49.2 50.1 50.5
Selling, general, and
administrative expenses...... 49.4 50.8 54.2 51.5 46.9
----- ----- ----- ----- -----
Operating income (loss)......... (1.7) (3.5) (5.0) (1.4) 3.6
Interest income................. -- 0.1 -- -- --
Interest expense................ 2.2 0.1 0.1 0.1 0.4
----- ----- ----- ----- -----
Income (loss) before income tax
benefit, extraordinary gain
and cumulative effect of
change in accounting
principle.................... (3.9) (3.5) (5.1) (1.5) 3.2
Income tax expense (benefit).... (1.4) -- -- -- 0.6
----- ----- ----- ----- -----
Income (loss) before
extraordinary gain and
cumulative effect of change
in accounting principle...... (2.5) (3.5) (5.1) (1.5) 2.6
Extraordinary gain.............. 5.1 -- -- -- --
Cumulative effect of accounting
change....................... 1.1 -- -- -- --
----- ----- ----- ----- -----
Net income (loss)............... 3.7 (3.5) (5.1) (1.5) 2.6
Preferred stock dividends....... (1.1) (0.8) (0.8) (0.7) (0.7)
----- ----- ----- ----- -----
Net income (loss) applicable to
holders of common stock...... 2.6% (4.3)% (5.9)% (2.2)% 1.9%
===== ===== ===== ===== =====
</TABLE>
FIRST NINE MONTHS OF 1996 COMPARED TO FIRST NINE MONTHS 1995
Net sales increased $3.0 million or 9.7% to $34.0 million during the first
nine months of 1996 from $31.0 million during the first nine months of 1995.
Revenues during the first nine months of 1995 included $989,000 in sales from
unprofitable or underperforming host stores which were closed during 1995. If
prior-year sales from these closed retail outlets were excluded from 1995
revenues, the Company would have posted a 13.3% year-to-date improvement in net
sales ($34.0 million compared to $30.0 million). The net sales increase in the
first nine months of 1996 was primarily attributable to an increase of 9.2% in
comparable store sales. The comparable store sales increase was primarily due to
increases in eyeglass and contact lens units sold and sales generated under the
Alexis Vision Plan, the Company's managed optical care division. The comparable
store sales increase in the first nine months of 1996 at the Company's stores in
malls and strip-shopping centers was partially offset by a lower rate of
comparable store sales growth in the Company's host stores.
Gross profit increased $1.7 million to $17.2 million during the first nine
months of 1996, a 10.7% increase compared to gross profit of $15.5 million
during the first nine months of 1995. The gross profit margin improved slightly
to 50.5% in the first nine months of 1996 from 50.1% in the first nine months of
1995. This increase was primarily due to increased sales volume which covered
more of the fixed cost components of cost of goods sold and was partially offset
by increased sales under the Alexis Vision Plan. Consistent with the Company's
practice, the Alexis Vision Plan sales are generally at a small discount from
the Company's everyday value prices.
15
<PAGE> 22
Selling, general and administrative expenses remained steady at $16.0
million during the first nine months of 1996 and the first nine months of 1995.
As a percentage of sales, these expenses decreased to 46.9% during the first
nine months of 1996, from 51.5% during the first nine months of 1995 as a result
of an increase in the Company's sales while the selling, general, and
administrative expenses remained steady, and to a lesser extent, reduced
advertising expenditures resulting from the Company's changing to a different
advertising agency in the fourth quarter of 1995.
Interest expense increased by $120,000 to $145,000 in the first nine months
of 1996 from $25,000 in the first nine months of 1995 as a result of increased
capital lease obligations, interest payments on two bridge loans from Mesirow
Capital Partners VI, a common and preferred stockholder, and Ronald E. Weinberg,
Chairman of the Board, and interest on the line of credit executed in June 1996.
Income tax expense increased to $172,000 in the first nine months of 1996
compared to no income tax expense in the first nine months of 1995, as a result
of increased pre-tax income. The income tax expense for the Company is lower
than what the Company would have to pay if it did not have significant NOL
carryforwards.
As a result of the foregoing, net income increased by $1.4 million to
$902,000 in the first nine months of 1996 compared to a net loss of $451,000 in
the first nine months of 1995.
Dividends were accrued and paid on the Company's Convertible Preferred
Stock in the aggregate amount of $245,000 in the first nine months of 1996 and
1995.
1995 COMPARED TO 1994
Net sales increased $2.6 million or 7.1% to $40.0 million in 1995 from
$37.4 million in 1994. The net sales increase was primarily attributable to an
increase of 5.9% in comparable store sales, which increase was primarily due to
increases in units sold and sales generated under the Alexis Vision Plan. The
comparable store increase at malls and strip-shopping centers was partially
offset by a lower rate of comparable store sales growth in the Company's host
stores. This lower host store growth rate is consistent with the Company's
historical experience, but in 1995, the Company experienced even lower host
store growth because of the lingering effects from the 12 week long strike
involving Fred Meyer in 1994 that negatively impacted the Company's stores in
Fred Meyer locations in Oregon and Washington. See "Business -- Relationship
with Host Stores."
Gross profit increased $2.0 million to $19.7 million in 1995, an 11.2%
increase over gross profit of $17.7 million in 1994. The gross profit margin as
a percentage of sales increased to 49.2% in 1995 compared to 47.3% in 1994 as a
result of improved lab efficiencies due to increased volume and decreased
depreciation expense in 1995. The depreciation expense decreased as a result of
the original asset base from the 1988 acquisition being fully depreciated in
1994.
Selling, general and administrative expenses increased $2.7 million to
$21.7 million in 1995 from $19.0 million in 1994. As a percentage of sales,
these expenses increased to 54.2% in 1995, from 50.8% in 1994. This increase is
primarily due to increased advertising expenses during off-peak seasons and
increased administrative and advertising expenses in the effort to revive the
strike-impacted Fred Meyer stores, and to a lesser extent, the cost of closing
eight of these unprofitable locations.
A provision for income taxes was not required in 1995 or in 1994 due to the
net loss experienced for the year.
The Company had a net loss of $2.0 million for 1995 compared to a net loss
of $1.3 million in 1994, a $700,000 increase. The increased net loss is
primarily due to the poor performance of the Fred Meyer host stores in 1995.
Despite additional administrative, training and advertising resources, the
Company was unable to achieve pre-strike sales levels at these locations. As a
result, the Company redirected this portion of the business in late 1995 to
include administrative reductions, advertising reductions, and the closing of
eight unprofitable Fred Meyer locations. To a lesser extent, the increased net
loss in 1995 was the result of the
16
<PAGE> 23
incomplete and ineffective advertising campaign delivered by the Company's new
advertising agency during the second selling season of 1995.
Dividends were accrued and paid on the Company's Convertible Preferred
Stock, in the aggregate amount of $329,000 in 1995 compared to $328,000 in 1994.
1994 COMPARED TO 1993
Net sales increased $4.4 million or 13.4% to $37.4 million in 1994 from
$33.0 million in 1993. The net sales increase was attributable to an increase of
6.7% in comparable store sales, as well as a net of 16 new stores opened during
1994. The comparable store sales increase was primarily due to increases in
units sold and sales generated under the Alexis Vision Plan. The comparable
store increase at malls and strip-shopping centers was partially offset by a
lower rate of comparable store sales growth in the Company's host stores. This
lower host store growth rate is consistent with the Company's historical
experience, but in 1994, the Company experienced even lower host store growth
because of the 12 week long strike involving Fred Meyer that negatively impacted
the Company's stores in Fred Meyer locations in Oregon and Washington. See
"Business -- Relationship with Host Stores."
Gross profit increased $2.0 million to $17.7 million in 1994, a 12.6%
increase over gross profit of $15.7 million in 1993. The gross profit margin as
a percentage of sales decreased slightly to 47.3% in 1994 compared to 47.7% in
1993 as a result of increased sales under the Alexis Vision Plan, which sales
are generally made at a small discount from the Company's everyday value
pricing.
Selling, general and administrative expenses increased $2.7 million to
$19.0 million in 1994 from $16.3 million in 1993. As a percentage of sales,
these expenses increased to 50.8% in 1994, from 49.4% in 1993. This increase is
primarily due to increased advertising expenses during off-peak seasons,
expensing store pre-opening costs associated with opening 21 new stores, and to
a lesser extent, additional costs incurred as a result of being a public
company.
Interest income increased to $53,000 in 1994 from $2,000 in 1993 primarily
due to the increased cash balances from the proceeds of the Company's initial
public offering.
Interest expense decreased by $657,000 to $55,000 in 1994 from $712,000 in
1993. The decrease was due to the repayment of the principal and interest on the
Company's senior and junior bridge loans. The loans were retired from the
proceeds of the initial public offering in December 1993.
A provision for income taxes was not required in 1994 due to the net loss
experienced for the year. An income tax benefit of $469,000 was recorded in 1993
primarily as a result of the extraordinary gain relating to the retirement of
debt.
The Company had a net loss of $1.3 million for 1994 compared to net income
of $1.2 million in 1993, a $2.5 million decrease. The decrease was primarily due
to a $1.7 million extraordinary gain in 1993, net of incremental costs incurred
to effect the debt restructuring and income taxes, as a result of the retirement
in full of its senior bank debt and, to a lesser extent, a cumulative effect
adjustment resulting from a change in the Company's method of accounting for
income taxes in 1993. The Fred Meyer strike, and approximately $300,000 in costs
related to closing all 10 of the Company's retail outlets located in the
Smitty's host stores, contributed significantly to the decrease of net income in
1994. See Note 1 and Note 2 of Notes to Consolidated Financial Statements
appearing elsewhere in this Prospectus.
Dividends were accrued and paid on the Company's Convertible Preferred
Stock, in the aggregate amount of $328,000 in 1994 compared to $396,000 in 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires liquidity and working capital primarily for operations
and the opening of new stores, and, to a lesser extent, management information
systems and optical laboratory equipment to support store growth and improve
operating efficiencies. The Company's primary sources of funds are cash flow
from operations, lease financing of equipment, vendor trade credit, shareholder
loans and bank loans.
17
<PAGE> 24
In early 1996, to fund the Company's expansion and advertising needs, the
Company entered into two bridge loans with Mesirow Capital Partners VI and Mr.
Weinberg, totaling $700,000. The loans bore interest at an annual rate of 15%
and were secured by a deed of trust on the Company's executive office building
and optical laboratory facility in Tempe, Arizona. William P. Sutter, Jr. is an
officer of the corporate general partner of Mesirow Capital Partners VI and a
director of the Company. The bridge loans were retired with the proceeds of a
$2.0 million bank revolving line of credit in June 1996. The revolving line of
credit 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 in Tempe, Arizona, but excluding furniture, fixtures and equipment.
The revolving line of credit bears interest on the principal balance outstanding
from time to time at a rate equal to the lending bank's prime rate plus 2.0% per
annum, and is due and payable monthly. The interest rate may be reduced to the
lending bank's prime rate plus 1.0% per annum if certain financial covenants are
met at year end 1996 and at the end of February 1997. The revolving line of
credit is also secured by guarantees from Mesirow Capital Partners V, Mesirow
Capital Partners VI, and Mr. Weinberg. Barry J. Feld, President and Chief
Executive Officer of the Company, agreed to share in the obligations of the
guarantors.
In exchange for the guarantee of the Company's obligations under its
revolving line of credit by such officers and shareholders, the Company issued
warrants to them to purchase, in the aggregate, 50,000 shares of the Common
Stock at a price per share of $6.11, subject to customary anti-dilution
adjustments. The value of the warrants, which was determined by independent
valuation to be $0.57 per share, is reflected on the September 28, 1996 balance
sheet in other assets and paid-in capital and will be amortized over the life of
the revolving line of credit.
The Company was not in compliance with the working capital covenant
contained in the revolving line of credit agreement at June 29, 1996 and
September 28, 1996. The credit agreement was amended effective October 24, 1996
to bring the Company in compliance with the covenant. See "-- Recent Events."
Short-term trade credit represents a significant source of financing for
inventory. Trade credit arises from the willingness of the Company's vendors to
grant payment terms for inventory purchases. Inventory levels increased $356,000
from December 30, 1995 to September 28, 1996, primarily as a result of the
opening of a net of seven new stores in the first nine months of 1996, expanded
merchandise programs in certain other stores and seasonal buying patterns.
Although the Company has negotiated what it believes to be favorable payment
terms from its primary vendors, there is no assurance that the Company will
obtain such terms in the future. In addition, although the Company has not
customarily been able to take advantage of available vendor trade discounts
because it has not had sufficient funds, the Company anticipates that after
completion of this offering it may take advantage of such discounts. See
"Business -- Operations -- Inventory and Suppliers."
The Company leases all of its retail space and the optical laboratory and
distribution facility near Portland, Oregon. Certain retail store leases require
payment of base rent and property taxes, expenses for utilities, common area
maintenance, and insurance, plus, in many circumstances, additional rent based
on sales. Total rent expenses for the Company's retail space and its facility
near Portland, Oregon approximated $4.1 million, $5.0 million, and $5.0 million
for the periods ending September 28, 1996, December 30, 1995, and December 31,
1994, respectively, including $818,000, $889,000, and $930,000, respectively,
for additional rent based on sales. The Company owns its executive offices and
optical laboratory and distribution facility in Tempe, Arizona, subject to a
deed of trust under the Company's revolving line of credit.
Although operating income was $1.2 million in the first nine months of 1996
compared to a $438,000 operating loss in 1995, the Company had net cash used in
operating activities of $372,000 in the first nine months of 1996 compared to
net cash from operating activities of $294,000 in the first nine months of 1995.
The change was primarily attributable to a $505,000 decrease in accounts payable
in the first nine months of 1996 compared to a $1.3 million increase in accounts
payable during the same period in 1995, and an $819,000 decrease in accrued
expenses in the first nine months of 1996 compared to a $295,000 decrease in
accrued expenses during the same period in 1995. Net cash from operating
activities was $722,000 in 1995 compared to $733,000 in 1994. This slight
decrease was primarily attributable to the increase in the net operating loss,
exclusive of non-cash charges, offset by an increase in accounts payable and
accrued expenses.
18
<PAGE> 25
Cash flows used in investing activities, primarily for store expansion,
renovation and relocation, were $1.3 million in the first nine months of 1996
and $1.4 million in the first nine months of 1995. Cash flows used in investing
activities were $1.5 million in 1995 compared to $3.2 million in 1994. This
decrease reflects a decrease in the number of new stores opening in 1995.
Cash flows from financing activities were $1.6 million in the first nine
months of 1996 compared to $213,000 in the comparable 1995 period. Cash flows
from financing activities in the first nine months of 1996 reflect the
establishment of the revolving line of credit. Cash flows from financing
activities were $51,000 in 1995 compared to $3.3 million in 1994. The 1994 cash
flow reflects the $8.6 million in net proceeds of the Company's initial public
offering, partially offset by the Company's repayment of $3.2 million to retire,
and pay accrued interest on, the then outstanding senior and junior bridge
loans, and the Company's payment of $1.8 million to redeem its remaining old
senior redeemable 6% cumulative preferred stock, par value $1,000 per share, and
pay accrued dividends and interest on the Company's old Series A junior
redeemable 6% cumulative preferred stock, par value $1,000 per share. The debt
repayments on the senior and junior bridge loans were made to Mesirow Capital
Partners II, Mesirow Capital Partners III, Mesirow Capital Partners IV, and
Mesirow Capital Partners V and Mr. Weinberg, all of whom are shareholders of the
Company.
On August 17, 1995, the Company sold certain equipment for an aggregate
sales price of $505,000 and simultaneously leased the equipment back over a term
of three years with monthly payments of $16,000. The sale was recorded as a
financing transaction with no associated gain or loss recognized. The equipment
includes modular fixtures, optical equipment and manufacturing equipment
purchased by the Company in late 1994 and early 1995.
The Company anticipates opening 20 to 25 new stores in 1997. Assuming the
Company opens 25 new stores in 1997, including 24 new stores in malls and
strip-shopping centers and one new store within a Fred Meyer host store, the
Company expects that the costs of these new stores, including furniture,
fixtures, leasehold improvements, inventory and optometric equipment, will be
approximately $3.0 million. Actual costs will vary based upon, among other
matters, geographic location, the size of the store and the extent of the
build-out required at the selected site. The Company also plans to spend
approximately $500,000 to remodel certain of its existing mall and
strip-shopping center stores.
The Company anticipates renegotiating the revolving line of credit prior to
its expiration on May 31, 1997, or obtaining other comparable financing. There
can be no assurance that the Company will be able to renegotiate the revolving
line of credit on terms acceptable to the Company, or that the Company will be
able to obtain other financing. However, the Company does not believe that
extending the revolving line of credit or obtaining other financing is necessary
for its current expansion plans and immediate working capital needs. The Company
believes that the net proceeds from this offering, cash flow from operations and
existing capital lease financing will be sufficient to fund its working capital
needs and store expansion and renovation program for at least the next 12
months.
NET OPERATING LOSS CARRYFORWARDS
As of December 30, 1995, for federal income tax purposes, the Company had
regular NOL carryforwards of $7.7 million and AMT NOL carryforwards of $6.9
million that begin to expire in 2006. Under Section 382 of the Code, utilization
of NOL carryforwards is subject to significant limitations after an "ownership
change" as defined in Section 382(g) of the Code, which may result in Federal
income taxes being paid earlier than if no such change in ownership had
occurred. The Company's initial public offering in 1993 caused the Company to
experience an ownership change as defined by Section 382(g) of the Code. As a
result, there is an annual limitation of approximately $1.0 million on the
amount of NOL carryforwards generated prior to the ownership change which can be
utilized to offset the Company's future taxable income. The Company does not
currently believe that this offering will result in an ownership change.
However, future transactions involving the Company's stock (or rights to acquire
such stock) could cause a further ownership change resulting in additional
restrictions on the Company's ability to utilize its net operating loss
carryforwards after the date of such ownership change.
19
<PAGE> 26
At December 30, 1995, the Company had deferred tax assets of approximately
$3.5 million relating to the future tax benefits attributable to its NOL
carryforwards and other deductible items. As a result of historical operating
losses, the Company had fully reserved its deferred tax assets as of December
30, 1995. The Company will consider reducing this reserve once profitable
operations have been sustained.
SEASONALITY AND QUARTERLY RESULTS
Historically, the Company's operations have been seasonal, with the highest
sales in a given year occurring first in February, March and April and then in
August, September and, to a lesser extent, in October. The Company has
historically incurred and anticipates that it may continue to incur lower net
sales and net losses during the Company's fourth quarter because of reduced
demand for eyewear during the holiday season.
The Company's results of operations may also fluctuate from quarter to
quarter as a result of the amount and timing of sales contributed by new stores,
the integration of new stores into the operations of the Company, as well as
other factors, including bad weather. The addition of a large number of new
stores can therefore significantly affect quarterly results of operations.
The following table presents certain unaudited financial data for the first
three quarters of 1996 and all of 1995 and 1994. The quarterly results set forth
below are not necessarily indicative of results for any future period. The
Company believes that the amounts stated below including all adjustments
(consisting only of normal reoccurring adjustments) necessary to present fairly
and in accordance with generally accepted accounting principles the following
selected quarterly information when read in conjunction with the Company's
Consolidated Financial Statements included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
1994 1995 1996
------------------------------------- ------------------------------------- ---------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST SECOND THIRD
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AND STORE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales........... $9,621 $9,242 $9,520 $8,984 $10,815 $10,127 $10,088 $9,003 $11,504 $10,865 $11,674
Gross profit........ 4,686 4,489 4,555 3,962 5,551 5,153 4,834 4,143 5,704 5,436 6,056
Operating income
(loss)............ 320 (238) (259) (1,109) 466 (114) (790) (1,548) 583 220 416
Net income (loss)... 219 (170) (249) (1,088) 329 (65) (715) (1,574) 443 152 307
Net income (loss)
applicable to
holders of common
stock............. $ 137 $ (251) $ (330) $(1,172) $ 248 $ (148) $ (796) $(1,658) $ 362 $ 71 $ 224
====== ====== ====== ====== ======= ====== ====== ======= ====== ====== ======
Net income (loss)
per common and
common equivalent
shares............ $ 0.04 $(0.07) $(0.09) $(0.31) $ 0.07 $(0.04) $(0.21) $(0.45) $ 0.10 $ 0.02 $ 0.06
====== ====== ====== ====== ======= ====== ====== ======= ====== ====== ======
Stores open at
period end........ 141 147 148 150 151 144 145 139 141 145 146
</TABLE>
- ---------------
(1) All quarters presented are 13 week quarters with the exception of the fourth
quarter of 1994 which contained 14 weeks.
INFLATION
The Company believes that the relatively moderate rate of inflation over
the past few years has not had a significant effect on its results of
operations.
20
<PAGE> 27
BUSINESS
GENERAL
The Company is a leading specialty retailer of eyewear, operating under the
tradenames "Lee Optical" and "Vista Optical." In the western and midwestern
United States, the Company operates 146 value-priced optical stores located in
malls, strip-shopping centers and Fred Meyer host stores. The Company's everyday
value-pricing strategy features its "signature" $59 price point for a wide
selection of quality, brand name eyeglasses offered at attractive, convenient
locations with professional service. The Company's stores also sell brand name
contact lenses and non-prescription sunglasses and offer customers on-site eye
examinations by independent optometrists. The Company operates optical
laboratory and distribution facilities in Tempe, Arizona and near Portland,
Oregon.
The Company's value-pricing strategy differentiates it from competitors.
The Company believes that the economies of scale achieved by operating
centralized laboratory and distribution facilities enable it to produce eyewear
at a lower per unit cost and to maintain lower capital and inventory investment
per sales dollar than optical superstores which operate individual in-store
laboratories to offer "one-hour" service to customers. Therefore, the Company
believes that chains with in-store laboratories are unable to implement an
everyday value-pricing strategy. While certain discount chains have positioned
themselves as low-priced eyewear retailers, the Company believes that such
chains cannot match the combination of product quality, selection, professional
service and mall and strip-shopping center locations offered by the Company. In
addition, the Company believes independent retail outlets, which lack economies
of scale, cannot match the Company's everyday value pricing, wide selection and
number of locations. The Company also believes that its value-pricing strategy
has appeal to today's price-conscious consumer, especially given the current
trends toward cost containment in the health care industry.
EXPANSION STRATEGY
The Company's expansion plan is to open new mall and strip-shopping center
stores where it can market its value-pricing strategy under the "Lee Optical"
and "Vista Optical" tradenames. Since completing its initial public offering in
December 1993, the Company has embarked on its growth program under which it has
opened 40 new stores, 31 of which are located in malls and strip-shopping
centers. In addition, during this period, the Company has relocated and
remodeled 18 of its stores, eight of which are located in malls and
strip-shopping centers. To further improve the Company's operating performance
and place increased emphasis on its mall and strip-shopping center locations,
the Company has closed 28 underperforming stores in the same period, 19 of which
were located in Fred Meyer and Smitty's host stores.
Upon completion of this offering, the Company plans to accelerate its store
opening program with the addition of 20 to 25 new stores in 1997, substantially
all of which will be located in malls and strip-shopping centers. Assuming the
Company opens 25 new stores in 1997, including 24 new stores in malls and strip-
shopping centers and one new store within a Fred Meyer host store, the Company
expects that the costs of these new stores, including furniture, fixtures,
leasehold improvements, inventory and optometric equipment, will be
approximately $3.0 million. Actual costs will vary based upon, among other
matters, geographic location, the size of the store and the extent of the
build-out required at the selected site. In addition to opening new stores, the
Company may relocate stores within a mall or strip-shopping center if sites
become available with better traffic patterns and better merchandising
opportunities. In 1997, the Company plans to remodel five of its mall and
strip-shopping center stores at an estimated cost of approximately $500,000.
The Company will use its modular store construction design in all of its
new, relocated or remodeled stores. The Company believes that its use of modular
store construction reduces store opening and operating costs and substantially
shortens the time required to construct new stores or remodel existing ones.
The Company's strategy is to improve its market share in existing markets
and to expand into new markets by clustering stores in a particular metropolitan
area or in smaller adjacent markets. For example, since 1993, the Company has
entered new markets in Colorado and Iowa where it has established itself as a
leading eyewear retailer. The Company believes that by clustering stores it can
obtain economies of scale with
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<PAGE> 28
respect to advertising, distribution and management costs as well as attract
additional managed care business. As incremental sales occur, the Company
anticipates that these economies, as well as its optical laboratory fixed cost
structure, will enable it to enhance its operating margins. In its new markets,
the Company expects that all of its stores will be operated under the trade name
"Vista Optical."
The Company will consider opportunistic acquisitions of small retail
optical chains or independent retail optical outlets if such acquisitions enable
the Company to improve its market share in existing markets or expand into new
markets. There can be no assurance that any definitive acquisition agreements
will be reached or, if entered into, that any acquisitions will be successful.
The Company has no outstanding commitments or agreements regarding any
acquisitions.
To evaluate the suitability of potential markets, the Company performs a
demographic and competitive analysis. Potential store site selection criteria
include market demographics, traffic count, the retail mix of a mall or
strip-shopping center, location within the mall or center, overall retail
activity of the area and proposed lease terms.
The Company intends to lease all new store locations under multi-year
leases. The time required to open a store after signing a lease depends
primarily upon the landlord's ability to deliver the premises to the Company.
Upon acceptance of the premises from the landlord, the Company expects, with the
use of its modular construction store design, to be able to open a store
generally within three to five weeks. See "Operations -- Store Locations and
Layout."
MERCHANDISING AND MARKETING
The Company's merchandising and marketing strategy focuses on the following
key concepts: (1) selling quality, brand name eyewear at everyday value prices;
(2) offering a wide selection of eyewear products in each of its stores; (3)
using a variety of media, such as television, direct mail, newspaper and yellow
page advertising, to differentiate it from competitors and to create general
consumer awareness and traffic in its retail stores; and (4) providing
knowledgeable and personalized customer service.
Value-Pricing. The Company's merchandising focuses on offering quality,
brand name eyewear at everyday value prices. Beginning in September 1991, the
Company set a $59 price point for single vision, plastic lens eyeglasses
(including both the frame and lenses), enabling consumers to comparison price
shop. "Single vision" eyewear refers to a non-bifocal prescription. Additional
pairs of single vision, plastic lens eyeglasses purchased on the same store
visit with the same prescription are sold for $49. The Company also features
similar value pricing for contact lenses with daily wear, soft lenses at $22 a
pair. The Company expects to maintain its $59 eyeglass price point for the
foreseeable future.
Wide Selection of Eyewear Products. Each store carries a selection of 650
to 1,200 frames, depending on the size and type of store. The Company
continually analyzes sales of its frames to keep its stores stocked with a wide
selection of the latest in eyewear fashion and a proper assortment of styles,
colors, and sizes. Approximately 65% of each store's inventory consists of
frames that are sold at the $59 price point, and in 1996, approximately 80% of
the Company's eyeglass unit sales were at the $59 price point. The balance of
each store's inventory is distributed among higher-priced frames, including
recognized designer brand names that are sold at price points ranging from $79
to $149 complete with single vision, plastic lenses. The result is that the
Company's customers are offered a broad selection at the $59 price point with
the opportunity to purchase higher-priced designer frames, many of which the
Company believes are sold at lower prices than at chains offering "one-hour"
service to customers. The Company also believes that its value pricing is
conducive to multiple sales.
At its $59 price point, the Company carries recognizable brand name
eyewear, such as REM, St. Moritz, Zimco and Limited Editions. Designer frames
carried by the Company include Anne Klein, Liz Claiborne, Stetson, Logo of
Paris, Perry Ellis and Sophia Loren. The Company sells gas permeable and soft
contact lenses, including daily wear, flexible wear and disposable lenses
manufactured by such nationally-recognized eyewear companies as Bausch & Lomb,
Inc., Ciba-Vision Corporation, Johnson & Johnson and Wesley-Jessen. The Company
does not buy close-out or discontinued inventory.
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<PAGE> 29
The Company also offers several different types of eyeglass lenses, such
as, progressive, transition, bi-focal, polycarbonate and hi-index lenses, as
well as other eyeglass options, including fashion tints, ultraviolet protection,
anti-reflective coatings and scratch resistance. In keeping with its
value-pricing strategy, the Company offers these options at prices ranging from
$15 for options, such as tints or scratch resistance, to $80 for transition
lenses. For multiple pair purchases, the customer is offered a package of three
options on all additional pairs for free.
Advertising. The Company uses a variety of media, such as television,
direct mail, newspaper and yellow page advertising, to differentiate it from
competitors and to create general consumer awareness and traffic in its retail
stores. The primary emphasis of the Company's advertising is to inform consumers
that they can spend less and still receive quality, brand name eyewear.
The Company has developed management information systems to quickly
evaluate the effectiveness of advertising and target its advertising expenses
accordingly. Historically, the Company has concentrated its advertising
expenditures in its peak selling seasons of March and April, and again in August
and September. However, the Company has increased its advertising expenditures
during its off-peak seasons and in its existing and new markets where sufficient
stores are clustered to support additional advertising. There is no assurance
that the Company's advertising will be effective.
The Company was not satisfied with the results of the incomplete and
ineffective advertising campaign delivered by the Company's advertising agency
during the second selling season of 1995. The Company has replaced the agency
responsible for this campaign and has refocused its advertising campaign on the
Company's core message of informing consumers that they can spend less and still
receive quality, brand name eyewear.
Customer Service. The Company believes that providing knowledgeable and
personalized customer service is essential to its success. The Company has
employee training programs designed to continually upgrade the technical optical
skills and retail selling techniques of its sales associates. See "Operations--
Personnel and Training." Stores are open during hours that are convenient for
customers, generally from 10 a.m. to 9 p.m. All stores are open on Saturdays and
most are open on Sundays.
The Company's return policy and its service agreement program are also
designed to ensure customer satisfaction. Within 30 days, if a customer is
dissatisfied with a choice of eyeglasses, the Company will exchange them for a
new pair of comparable value, at no additional charge. Historically, the
Company's merchandise return rate has not been significant. As an additional
option to its customers, the Company offers an eyeglass service agreement that
can be purchased for $20. Under the service agreement, all frames or eyeglass
lenses that break within one year are replaced free of charge. In addition, the
customer is entitled to a $10 discount on any pair of eyeglasses purchased
during the service agreement year. For customers who need eyewear quickly, the
Company offers for $10 a guaranteed express service that delivers eyewear within
48 hours.
MANAGED CARE
Managed care is a substantial and rapidly growing area of the retail
optical business. Under the tradename "Alexis Vision Plan," formerly American
Vision Plan, the Company uses its stores as a managed care network. The Company
markets Alexis Vision Plan to managed care administrators at HMOs and health
insurance plans and to local and state governments and mid-sized to large
companies that offer eyecare benefits to their employees. When the Company
provides benefits to members of an HMO, beneficiaries of a health care insurer
or employees of a government or company, the covered participants may use their
eyecare benefits at the Company's stores, generally at a small discount from the
Company's everyday value prices. Because of the Company's value pricing,
participants will typically be eligible for greater eyecare benefits at the
Company's stores than at other eyecare providers participating in managed care
programs. The Company believes that the additional customer traffic generated
under the Alexis Vision Plan, including family members of the covered
participants, and purchases by covered participants beyond their eyecare
benefits, more than offsets the reduced gross margins generated under the Alexis
Vision Plan.
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<PAGE> 30
In 1996, sales generated under the Alexis Vision Plan were $11.4 million
(or 26.1% of net sales), a 23.2% increase over 1995. In 1996, the Company
continued to enter into new managed care agreements in its existing and new
markets.
The Company believes that its value-pricing strategy and convenient store
locations are key factors in attracting managed care business. As the Company
increases its presence within existing markets and expands into new markets, it
believes it will be more attractive to managed care administrators because of
its additional store locations. The Company also believes that Alexis Vision
Plan will further benefit from the trend in the health care industry toward
managed care as a means to better manage health care costs.
OPERATIONS
Store Locations and Layout. The Company's stores are located in regional
malls, strip-shopping centers and leased departments within Fred Meyer host
stores. In Arizona and Utah, the Company's stores are operated under the
tradename "Lee Optical" and in other states as "Vista Optical." In its new
markets, the Company expects that all of its stores will be operated under the
tradename "Vista Optical."
The following table sets forth the Company's stores by location and type as
of December 28, 1996:
<TABLE>
<CAPTION>
LOCATION NUMBER TYPE NUMBER
--------------------------------- ------ --------------------------------- ------
<S> <C> <C> <C>
Washington....................... 39 Regional Malls................... 74
Oregon........................... 31 Fred Meyer Host Stores........... 51
Arizona.......................... 28 Strip-Shopping Centers........... 21
------
Colorado......................... 13
Idaho............................ 11
Alaska........................... 9
Iowa............................. 6
Montana.......................... 3
New Mexico....................... 2
Wyoming.......................... 2
Illinois......................... 1
Utah............................. 1
------
Total.......................... 146 Total............................ 146
====== ======
</TABLE>
The Company's typical mall location ranges from 700 to 1,500 square feet,
and the typical Company store in a strip-shopping center ranges from 700 to
1,200 square feet. The ideal size for the Company's modular design store is
approximately 1,000 square feet. The Fred Meyer host store locations range from
400 to 800 square feet, with the ideal size for the host store modular design
being 700 square feet. The Company believes that its use of modular store
construction reduces store opening and operating costs and substantially
shortens the time required to construct new stores or remodel existing ones. The
Company will use its modular store design in all of its new, relocated or
remodeled stores.
Each of the Company's stores has separate areas for merchandise display,
customer service and an independent optometrist to perform eye examinations. The
Company continuously enhances its store design to optimize customer appeal. In
1997, the Company plans to introduce a new store design in its new and remodeled
stores, including new store colors, improved lighting, enhanced eyeglass frame
displays and wood floors, as well as other improvements in store fixtures and
furniture.
Manufacturing and Distribution. To produce prescription eyeglasses and to
distribute eyeglasses, contact lenses and other products to the Company's
stores, the Company operates two optical laboratory and distribution facilities
located in Tempe, Arizona and Clackamas, Oregon, which is near Portland. The
laboratories provide grinding, polishing, cutting, edging, tempering, tinting
and coating for prescription lenses that are custom fitted to eyeglass frames in
the size and style selected by the customer. The two facilities produce
approximately the same number of eyeglasses. In 1995, the Company expanded its
distribution facility in Clackamas, Oregon, to include the distribution of
contact lenses to better service its customers in
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<PAGE> 31
the northwest. Previously, all contact lenses were distributed out of the Tempe
location. The Company believes that having two facilities provides it with the
operational flexibility and additional capacity for expansion and facilitates
the efficient and timely delivery of eyewear products and customer service.
The Company has made substantial investments in information systems,
including a manufacturing and distribution system and a fully integrated
inventory control, merchandising, and general ledger software system, which
provide management with detailed retail sales, manufacturing, financial and
administrative data on a timely basis. The Company believes that these systems
should help maintain stable margins and sound fiscal controls as the Company
expands its network of retail stores and Alexis Vision Plan business.
The Company continually seeks to shorten the turnaround time necessary to
deliver completed eyeglasses and contact lenses to its customers. The Company's
stores submit orders daily to the laboratories, which stock many frames in the
Company's stay-in-stock program, thereby minimizing turnaround time. For frames
not in stock at the laboratories, independent couriers make daily deliveries
from the stores. These couriers also make outbound deliveries from the
laboratories to the stores to replenish store inventories and deliver completed
prescription eyeglasses and contact lenses. Generally, delivery of prescription
eyeglasses takes four to six business days. For customers who need eyewear
quickly, the Company offers its guaranteed express service that delivers eyewear
within 48 hours.
Inventory and Suppliers. Inventory control is a major focus for the
Company. The Company has established systems to increase inventory turns and
eliminate overages and shortages. As a result, the Company turned its inventory
approximately every 54 days in the first nine months of 1996.
The Company has not experienced any difficulty in obtaining satisfactory
sources of supply in the past and believes that it has excellent relations with
each of its principal vendors. In addition, the Company believes that it will be
able to obtain greater purchasing leverage as it expands. The Company is not
dependent on any single supplier and has purchase agreements with several of its
suppliers which the Company believes enable it to purchase ophthalmic lenses and
various other supplies on favorable payment terms. In addition, although the
Company has not customarily been able to take advantage of available trade
discounts because it has not had sufficient funds, the Company anticipates that
after completion of this offering it may take advantage of such discounts. A
material change in the Company's current purchase terms could have a material
adverse effect on the Company's financial condition or results of operations.
Personnel and Training. Each of the Company's stores is staffed by a
manager and one to six sales associates. In certain states, in conformity with
applicable regulations, each store is staffed with a licensed optician. See
"Government Regulation." Each store employee receives a basic wage, plus
incentive compensation based on sales performance. Each store is supported by a
district administrative staff. Each of 12 District Managers has general
supervisory authority over nine to 21 stores. The District Managers report
directly to either the Senior Vice President or the Division Manager of the
Company.
The Company emphasizes employee training. The Company operates a
comprehensive training program led by the Senior Vice President and the National
Sales Training Manager, who supervise two support trainers, each of whom trains
personnel on a regional basis. Training programs have been developed for
employees from entry level to senior management. These programs teach the
Company's sales associates technical information about skills particular to the
optical business, Company policies and procedures and retail sales techniques,
including skills that enable the sales associates to educate consumers about
eyewear options offered by the Company.
The Company developed and operates Vision In Excellence Workshops ("VIEW"
Training) to provide advanced skills to both store managers and store employees
in the critical areas of communication and customer service. In addition, the
Company uses vendor product training seminars that provide the Company's sales
associates with specific product knowledge enabling them to match customer needs
with the eyewear. The Company believes its training programs have assisted in
increasing revenue, as well as reducing employee turnover.
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<PAGE> 32
RELATIONSHIP WITH HOST STORES
Fred Meyer. The Company operates 51 stores in Fred Meyer host stores in
the states of Oregon, Washington, Idaho and Alaska. Fred Meyer has approximately
110 stores located primarily in the Pacific Northwest. Generally, the Fred Meyer
stores are "one-stop" department stores of approximately 140,000 square feet
that offer groceries, soft goods, home improvement items and various other
merchandise. Not all of the Fred Meyer stores have eyewear departments.
The Company's optical store is generally located near the main checkout
counter in the front of the Fred Meyer host store, offering excellent exposure
to customer traffic. In 1996, the Company opened one new store and closed one
store in Fred Meyer locations. The Company expects to open one new store within
Fred Meyer in 1997. From time to time, Fred Meyer remodels a store and the
Company may remodel its store at that location. In addition, when Fred Meyer
closes a store, the Company's store closes.
The Company has a master lease agreement with Fred Meyer due to expire in
April 1998, that grants the Company the right of first refusal to open an
optical store in any new Fred Meyer store in which Fred Meyer decides to place
an eyewear department. However, Fred Meyer is not required under the master
lease agreement to open any future stores, or when new stores are opened, to
place an eyewear department in the store. Each optical store is covered by its
own separate lease, subject to the guideline provisions of the master lease.
Generally, the term of each store lease is for a period of five years, with an
option to extend the lease term for one renewal term of five years.
The Company is generally prohibited under the terms of each individual
store lease from operating an optical store within a one mile radius of the Fred
Meyer store in which the Company has a store, unless otherwise approved by Fred
Meyer. Additionally, the Company is required under each lease to pay rent that
is generally the greater of the minimum base rent, which varies according to the
Company's store size, or 13% of all merchandise sales. During the renewal
period, the minimum base rent generally increases annually at a rate of 5% per
year.
On August 18, 1994, certain Fred Meyer employees went on strike. The strike
involved retail in-store employees, as well as Fred Meyer office workers,
warehouse workers, and truck drivers. None of the Company's employees were
involved in the Fred Meyer labor dispute and none participated in the Fred Meyer
strike. The affected Fred Meyer stores continued to operate, and Company outlets
in the Fred Meyer stores remained open for business during the strike. However,
reduced customer traffic in all Fred Meyer stores resulted in a material
reduction in Company sales at the Fred Meyer host stores during the 12 weeks of
the strike. The strike was settled on November 12, 1994.
In 1995, it became clear that certain of the Company's stores located in
Fred Meyer host stores were permanently damaged by the impact of the 1994
strike. Despite increased advertising, these stores did not return to pre-strike
sales levels. Management, through successful negotiations with Fred Meyer, was
able to close eight underperforming stores without lease penalties.
Smitty's. Immediately following the end of the first quarter of 1995, the
Company closed all 10 of its stores located in Smitty's host stores in Arizona.
These stores were not profitable.
OPTICAL PROFESSIONALS
Optometrists. Each Company store offers customers on-site eye examinations
performed by independent optometrists who are licensed to prescribe corrective
eyeglasses and contact lenses. These optometrists are not employed by, and
receive no compensation from, the Company. The Company does not share in the
fees which are set and received by the independent optometrists.
Generally, the Company subleases at nominal rates approximately 125 square
feet in each store to an independent optometrist who is, in certain instances,
permitted to re-sublet space to an additional optometrist to handle increased
patient loads. Customers of on-site optometrists are not required to have
prescriptions filled in the Company's stores, and the Company may fill any
eyewear prescription whether or not it was written by the on-site optometrist.
The leased space, which is usually developed and equipped by the Company,
includes optometric examination and diagnostic equipment. The cost to fully
equip a store with such optical equipment is approximately $25,000.
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<PAGE> 33
The Company operates a formal program of continuing professional education
that provides optometrists with a convenient method of meeting state continuing
education requirements and helps ensure that the Company's customers receive
high quality optical care. The Company offers this continuing education to all
optometrists in certain states, regardless of whether or not they occupy one of
the Company's stores. This program has been useful in recruiting new doctors.
The Company has formed an internal peer review committee to periodically review
the performance of its independent optometrists who provide services to Alexis
Vision Plan customers. In addition, the Company has initiated a series of
regional optometrist meetings to facilitate communication among the independent
optometrists. The Company believes that its stores offer excellent practice
opportunities for independent optometrists and that relations with its
optometrists are good.
Opticians. Certain states require that the Company staff its stores with
one or more opticians licensed by state authorities to fit and dispense
eyeglasses and contact lenses prescribed by optometrists or ophthalmologists.
See "Government Regulation." However, not all of the Company's sales associates
are opticians. To assist its opticians in maintaining their licenses, the
Company has implemented a formal training and education program. The Company has
not experienced any difficulty in recruiting and employing opticians. Opticians
are not licensed to prescribe corrective lenses.
COMPETITION
The retail eyecare industry is fragmented and highly competitive and
historically has been subject to severe price competition. According to 20/20, a
leading optical industry trade journal, total sales in the U.S. retail optical
market were $11.4 billion in 1990, and grew to $13.8 billion in 1995. The
Company's competitors include large optical store chains, such as LensCrafters
and Pearle Vision Centers, many of which offer "one-hour" service to customers,
and numerous independent retail outlets, opticians, optometrists and
ophthalmologists. In addition, the increase in the number of optical units in
department store chains (including Sears, Roebuck & Co. and Wal-Mart Stores,
Inc.) and warehouse clubs (including Wholesale Club Inc. and Price/Costco Inc.)
and the emergence of mail order contact lens replacement services have further
increased the Company's competition. The Company believes it is able to compete
in the retail marketplace based on its value-pricing strategy, the wide
selection of frames offered at the Company's $59 price point, the quality of its
products and services, its attractive stores and its convenient store locations.
However, many of the Company's competitors are larger than the Company and have
financial and other resources substantially greater than those of the Company.
The Company's value-pricing strategy differentiates it from competitors.
The Company believes that the economies of scale achieved by operating
centralized laboratory and distribution facilities enable it to produce eyewear
at a lower per unit cost and to maintain lower capital and inventory investment
per sales dollar than optical superstores which operate individual in-store
laboratories to offer "one-hour" service to customers. Therefore, the Company
believes chains with in-store laboratories are unable to implement an everyday
value-pricing strategy. These chains may offer special price promotions or
limited value-priced sections, but the Company believes that these chains do not
compete with the Company's everyday value prices. While certain discount chains
have positioned themselves as low-priced eyewear retailers, the Company believes
that such chains cannot match the combination of product quality, selection,
professional service and mall and strip-shopping center locations offered by the
Company. In addition, the Company believes independent retail outlets, which
lack economies of scale, cannot match the Company's everyday value-pricing, wide
selection and number of locations. The Company also believes that its
value-pricing strategy has appeal to today's price-conscious consumer,
especially given the current trends toward cost containment in the health care
industry.
Although the retail eyewear industry is highly competitive, demographic
trends are expected to increase demand for prescription eyewear. According to
20/20, the percentage of the U.S. population wearing prescription eyewear
increases from over 62% between ages 25 and 44 to almost 95% at age 45 and
older. The number of Americans aged 45 and over is expected to increase from
85.8 million in 1995 to approximately 96.0 million in 2000. The aging population
is a major factor in the projected growth of U.S. retail optical sales from
$13.8 billion in 1995 to $18.0 billion in 2000.
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<PAGE> 34
GOVERNMENT REGULATION
The retail optical industry is subject to a variety of federal, state and
local laws, regulations and ordinances, including those regarding advertising,
location and design of stores, products sold, qualifications and practices of
opticians, such as those employed by the Company, and relations between
independent optometrists and optical retailers, such as the Company. The state
and local legal requirements vary widely among jurisdictions and are subject to
frequent change. In addition, the Federal Trade Commission has issued
regulations affecting certain aspects of the optical industry, including a
requirement that optometrists deliver a copy of optical prescriptions for
eyeglasses to patients so that they may select optical dispensers of their
choice. Certain products sold by the Company, specifically ophthalmic lenses,
contact lenses and contact lens solutions, must comply with quality control
standards set by the United States Food and Drug Administration.
In certain states, the Company is required to staff retail optical stores
with one or more licensed opticians, who fit and dispense eyeglasses or contact
lenses. The extent of these requirements varies from state to state.
State and local regulations also govern the relations between independent
optometrists and optical retail stores. For example, some states and
municipalities restrict the location of optometric offices in relation to
optical stores, such as the Company's stores, and other commercial or mercantile
establishments, such as Fred Meyer host stores. The Company configures its
stores and adjusts the terms and conditions of its arrangements with independent
optometrists to comply with these varying state and local requirements. The
Company believes it is in substantial compliance with all material laws and
regulations applicable to its operations.
EMPLOYEES
As of December 28, 1996, the Company employed 619 persons, 511 on a
full-time basis and 108 on a part-time basis. Approximately 438 of the Company's
employees work in retail sales or retail sales supervision, 95 in the Company's
optical laboratory and distribution facilities, eight in managed care and 78 in
management and administration. None of the Company's employees are covered under
any collective bargaining agreement. The Company has experienced no strikes and
believes its relations with its employees to be good.
TRADEMARKS
Vista Optical and Lee Optical are federally registered trademarks of the
Company. In addition, the Company has a pending application with the United
States Patent and Trademarks Office to register "Alexis Vision Plan" as a
trademark of the Company. The Company also relies on common law, including the
law of unfair competition, to protect its trademarks and services. The Company
is not aware of any pending claims of infringement or other challenges to the
Company's right to use its trademarks.
PROPERTIES
The Company's stores are located in regional malls, strip-shopping centers
and host stores. Each of the stores located in a mall or strip center operates
under a retail lease agreement which provides for certain base rents plus, in
many circumstances, additional rent based on sales. The host store sites are
leased under a master lease agreement with Fred Meyer and each individual site
has a separate lease under the master agreement. See "Operations -- Store
Locations and Layout" and "-- Relationship with Host Stores."
The Company's Clackamas, Oregon, laboratory and distribution facility which
is near Portland is located in approximately 6,430 square feet of leased space.
The lease provides for average annual payments of approximately $40,000 through
August 31, 2001. The Company's executive offices and laboratory and distribution
facility in Tempe, Arizona, are located in a 24,000 square foot building that is
owned by Alexis Holdings, Inc. ("Alexis"), a wholly-owned subsidiary of the
Company. Alexis' sole purpose is ownership of the Tempe building. This building
secures the Company's revolving line of credit. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
LEGAL PROCEEDINGS
From time to time, the Company is involved in legal matters which are
incidental to its operations. In the opinion of management, the ultimate
resolution of these matters is not anticipated to have a material adverse effect
on the Company's financial condition or results of operations.
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MANAGEMENT
The directors, executive officers and significant employees of the Company
and their respective ages and positions held with the Company, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- -----------------------------------------------
<S> <C> <C>
Ronald E. Weinberg(1)(2).................. 55 Chairman of the Board and Treasurer
Barry J. Feld............................. 40 Chief Executive Officer, President and Director
James W. Swanson.......................... 49 Senior Vice President
Darius J. DiTallo......................... 39 Vice President -- Finance and Administration
Annette C. Feld........................... 34 Vice President -- Marketing and Merchandising
Glenn K. Ozawa............................ 39 Vice President -- Manufacturing
Roger W. Deason........................... 53 Vice President -- Managed Care
Byron S. Krantz(2)........................ 61 Secretary and Director
Donald M. Gleklen(1)...................... 60 Director
Norman C. Harbert......................... 63 Director
Larry I. Pollock(2)....................... 49 Director
William P. Sutter, Jr.(1)(2).............. 39 Director
</TABLE>
- ---------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Ronald E. Weinberg has served as Chairman of the Board and Treasurer since
the acquisition of the Company in August 1988. Mr. Weinberg served as acting
President of the Company from January 1991 until May 1991 as the Company
recruited a new management team. In 1986, Mr. Weinberg led an investor group in
the acquisition of SunMedia Corp., which publishes a chain of weekly newspapers
in the Cleveland and Milwaukee markets and operates a direct mail business, and
Mr. Weinberg has served as Chairman of the Board of that company since that
date. Since 1989, Mr. Weinberg has been Vice-Chairman of the Board of Hawk
Corporation ("Hawk"), which manufactures friction products and powdered metal
components primarily for aerospace, industrial and specialty applications.
Barry J. Feld has served as President and a member of the Board of
Directors since joining the Company in May 1991, and as Chief Executive Officer
since February 1994. Previously, Mr. Feld was President of Frame-n-Lens Optical,
Inc., which is the largest chain of retail optical stores in California. Mr.
Feld joined Frame-n-Lens Optical, Inc. in 1987 and served as Executive Vice
President and Chief Operating Officer until January 1990 when he became
President. Prior to that, Mr. Feld spent 10 years with Pearle Health Services,
Inc., one of the largest retail optical chains in the United States, serving in
various senior management capacities during his tenure, including Retail
Operations Director of Texas State Optical, Inc., then one of the largest retail
optical subsidiaries of Pearle Health Services, Inc., from 1985 until 1987.
James W. Swanson has served as Senior Vice President since May 1996, and
Vice President -- Human Resources and Optometric Relations since April 1992. Mr.
Swanson joined the Company in July 1991 as Vice President -- Training and
Optometric Relations. Prior to that, Mr. Swanson was Director of Training and
Third-Party Sales at Frame-n-Lens Optical, Inc. from September 1989 to July
1991, and Director of Operations of Dr. Leventhal's Vision Care Centers, Inc., a
San Diego-based chain of retail optical stores, from March 1984 until September
1989.
Darius J. DiTallo joined the Company in December 1996 and serves as Vice
President -- Finance and Administration. Previously, Mr. DiTallo held senior
financial management positions, including serving as Chief Financial Officer, at
Image Choice, Inc., a Phoenix-based document imaging solution provider, from
December 1993 to December 1996. During this period, Mr. DiTallo also served as
Chief Financial Officer of TransEquatorial Holdings, Inc., which sells
electronic components and held a substantial investment in Image Choice, Inc.
Prior to that, he served as a financial consultant to various entities from
January 1993 to December 1993, and he held senior financial management positions
at the Arizona facility of Courtaulds Performance Films, Inc., from October 1990
to January 1993. Mr. DiTallo is a certified public accountant.
29
<PAGE> 36
Annette C. Feld has served as Vice President -- Marketing and Merchandising
since December 1992. Ms. Feld joined the Company in May 1991 as Director of
Marketing and Merchandising. Previously, she was the Director of Materials and
Marketing for Frame-n-Lens Optical, Inc. from March 1988 to April 1991. Prior to
that, Ms. Feld was an associate buyer for Bullock's, a chain of department
stores, from 1985 to 1987 and an associate buyer for R. H. Macy & Co., Inc.,
from 1983 to 1985. Ms. Feld is the wife of Barry J. Feld.
Glenn K. Ozawa has served as Vice President -- Manufacturing since March
1995. Mr. Ozawa joined the Company in January 1992 as Director of Manufacturing.
Prior to that, he served as Manufacturing Manager for Frame-n-Lens Optical, Inc.
from November 1990 to December 1991 and as Director of Manufacturing of
NuVision, Inc., a chain of optical stores based in California and Michigan, from
August 1988 until November 1990 after previously serving in a senior capacity at
that company for three years.
Roger W. Deason has served as Vice President -- Managed Care since October
1995. Previously, Mr. Deason was Vice President -- National Marketing & Sales of
The Eye Health Network, Inc., a large Denver based managed eyecare organization,
from February 1994 to October 1995. Prior to that, Mr. Deason was in senior
management positions with Sierra Health Services, Inc., a Nevada based
multi-state health maintenance organization, from September 1991 to January
1994, and Vision Service Plan, a national vision care organization, from
September 1984 to August 1991.
Byron S. Krantz has been the Secretary and a director since August 1988.
Mr. Krantz has been a partner in the law firm of Kohrman Jackson & Krantz P.L.L.
since its formation in 1984.
Donald M. Gleklen has been a director since August 1988. Since February
1995, Mr. Gleklen has been President of Jocard Financial Services, Inc. From
March 1994 to February 1995, Mr. Gleklen was a private investor and special
counsel to Robert J.F. Brobyn & Associates, attorneys at law. From September
1984 to March 1994, Mr. Gleklen was Senior Vice President of MEDIQ Incorporated
("MEDIQ"), a provider of health care services to hospitals, extended care
facilities and other health-care professionals, and President of MEDIQ
Investment Services, Inc., with oversight responsibilities for six of MEDIQ's
nine operating subsidiaries and corporate development responsibilities. Mr.
Gleklen is also a director of Nutramax Products, Inc., Gandalf Technologies,
Inc., Microleague Multimedia, Inc. and Lason Inc., and Chairman of the Board of
Trustees of the Pennsylvania College of Optometry.
Norman C. Harbert has been a director since April 1994. Since 1989, Mr.
Harbert has served as the Chairman of the Board, President and Chief Executive
Officer of Hawk. Mr. Harbert is a director of Second Bancorp Inc., a bank
holding company, and Caliber System, Inc., a transportation company (formerly
known as Roadway Services, Inc.).
Larry I. Pollock has been a director since April 1990. In January 1997, Mr.
Pollock became Executive Vice President and Chief Operating Officer of
HomePlace, Inc., a chain of home furnishings and housewares superstores. From
January 1994 to January 1996, Mr. Pollock was President and Chief Operating
Officer of Zale Corporation, a retail jewelry store chain. From January 1990 to
December 1993, Mr. Pollock served as President and Chief Executive Officer of
Karten's Jewelers, Inc., a New England jewelry chain. Mr. Pollock is a partner
of Independent Group, L.P., a privately-held radio broadcasting company based in
Cleveland, Ohio and a director of Borders Group, Inc.
William P. Sutter, Jr. has been a director since August 1988. Since 1984,
Mr. Sutter has been associated with affiliates of Mesirow Financial Holdings,
Inc., a Chicago-based financial services firm. Mr. Sutter is an Executive Vice
President of Mesirow Private Equity Investments, Inc. and a Vice President of
Mesirow Financial Services, Inc.
EMPLOYMENT AGREEMENTS
Effective August 1, 1993, the Company entered into employment agreements
with each of Mr. Weinberg and Mr. Feld. Both agreements have been extended until
December 31, 1999. Mr. Weinberg's agreement provided for his employment as
Chairman of the Board at a base salary of $131,250 per year through December 31,
1994, and Mr. Feld's agreement provided for his employment as President at a
base salary of $175,000 per year through December 31, 1994. Thereafter, the base
annual salaries may be adjusted by the
30
<PAGE> 37
Board of Directors of the Company. For 1995 and 1996, the Board of Directors did
not increase the salary of either Mr. Feld or Mr. Weinberg. Mr. Weinberg agreed
to forgo a portion of his salary in 1994, 1995 and 1996.
The employment agreements also required the adoption of a bonus plan for
the years 1994 and thereafter. On January 31, 1995, the members of the
Compensation Committee of the Board of Directors adopted the 1995 incentive
bonus plan, which plan provides that a bonus is payable to Messrs. Feld and
Weinberg if the Company's pre-tax income exceeds $1 million. The bonus increases
along with an increase in the Company's pre-tax income according to a formula
adopted by the Compensation Committee. Because the Company experienced a pre-tax
loss in 1995, no bonus was paid to either Mr. Feld or Mr. Weinberg. The 1996
incentive bonus plan is substantially the same as the 1995 plan.
Mr. Weinberg devotes a substantial amount of his time and effort to the
business of the Company, but under the terms of Mr. Weinberg's employment
agreement, he is not required to devote all of his time and efforts to such
business so long as he performs the duties of his office to the best of his
ability in a manner that promotes the best interests of the Company. If either
Mr. Weinberg or Mr. Feld dies during the term of their respective employment
agreements, the Company will pay his base annual salary for 12 months and any
bonus earned but not paid, and if either becomes mentally or physically disabled
during the term, the Company will pay his base annual salary for 12 months. Each
employment agreement also provides for a two year non-competition provision;
however, Mr. Feld's non-competition provision is conditioned upon the Company
paying him 75% of his base salary then in effect.
The Company has no other employment agreements with any of its executive
officers or other employees.
31
<PAGE> 38
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth, as of the date of this Prospectus, and as
adjusted to reflect the sale of the Common Stock offered hereby, information
regarding the beneficial ownership of the Company's capital stock, by (1) the
Selling Stockholders and each stockholder known by the Company to be the
beneficial owner of more than five percent of the Company's outstanding shares
of capital stock, (2) each director and the Company's President, and (3) all
directors and executive officers of the Company as a group. The information set
forth in the table below does not include 91,200 shares of Common Stock issuable
under the Amended and Restated New West Eyeworks, Inc. Stock Option Plan (the
"Option Plan") under options that are outstanding, but not presently
exercisable. The information set forth in the table below includes (a) 132,300
shares of Common Stock issuable under presently exercisable options granted by
the Company pursuant to the Option Plan, (b) 156,563 shares of Common Stock
issuable upon the exercise of certain warrants, including 106,563 shares of
Common Stock issuable upon the exercise of warrants granted in connection with
the Company's initial public offering in December 1993, and (c) 650,000 shares
of Common Stock issuable upon conversion of the Convertible Preferred Stock. See
"Underwriting." Mesirow Capital Partners II ("Mesirow II"), Mesirow Capital
Partners III ("Mesirow III") and Mesirow Capital Partners IV ("Mesirow IV") will
sell 106,642, 123,501 and 169,857 shares of Common Stock in this offering,
respectively. Each of Mesirow II, III, IV and Mesirow Capital Partners V
("Mesirow V") and Mesirow Capital Partners VI ("Mesirow VI") (collectively, the
"Mesirow Group") are limited partnerships, the corporate general partners of
which are affiliates of Mesirow Financial. The corporate general partner of each
of Mesirow II, III, IV and VI is Mesirow Financial Services, Inc. and the
corporate general partner of Mesirow V is Mesirow Private Equity Investments,
Inc. William P. Sutter, Jr. is an Executive Vice President or Vice President of
each of the corporate general partners of the Mesirow Group and a director of
the Company. For additional information regarding the Mesirow Group and its
relationship with the Company, see "Risk Factors -- Shares Eligible for Future
Sale" and "Certain Transactions."
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP NUMBER OF BENEFICIAL OWNERSHIP AFTER
PRIOR TO THE OFFERING (2) SHARES THE OFFERING
-------------------------- TO BE SOLD IN --------------------------
NAME AND ADDRESS (1) SHARES PERCENTAGE THE OFFERING SHARES PERCENTAGE
- ---------------------------- --------- ---------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Ronald E. Weinberg(3) 884,923 18.8% -- 884,923 15.5%
Mesirow Group
350 North Clark Street
Chicago, Illinois 60610(4) 1,636,687(5) 34.8% 400,000 1,236,687 21.7%
Barry J. Feld(6) 236,837 5.0% -- 236,837 4.2%
Donald M. Gleklen(7) 32,260 * -- 32,260 *
Norman C. Harbert(8) 30,819 * -- 30,819 *
Byron S. Krantz(9) 52,895 1.1% -- 52,895 *
Larry I. Pollock(10) 11,700 * -- 11,700 *
William P. Sutter, Jr.(11) 27,690 * -- 27,690 *
All directors and executive
officers as a group
(12 individuals)(12) 1,330,124 28.3% -- 1,330,124 23.3%
</TABLE>
- ---------------
* Less than 1%.
(1) Unless otherwise indicated, the address of each of the beneficial owners
identified is c/o New West Eyeworks, Inc., 2104 West Southern Avenue,
Tempe, Arizona 85282.
(2) Unless otherwise indicated, the Company believes that all persons named in
the table have sole investment and voting power over the shares of capital
stock owned.
(3) Includes (i) a warrant to purchase 22,500 shares of Common Stock; (ii)
6,805 shares of Common Stock and 15,714 shares of Common Stock issuable
upon the conversion of shares of Convertible Preferred Stock, Series A
("Series A Convertible Preferred Stock") held of record by Flag Partners,
an Ohio partnership ("Flag"), and (iii) 1,000 shares beneficially owned by
Mr. Weinberg's wife as to which shares Mr. Weinberg disclaims beneficial
ownership. The partners of Flag are all directors of the Company. Flag
holds of record 30,623 shares of Common Stock and 594 shares of Series A
Convertible Preferred Stock.
32
<PAGE> 39
(4) Includes (i) a warrant to purchase 9,000 shares of Common Stock held by
Mesirow V and a warrant to purchase 13,500 shares of Common Stock held by
Mesirow VI; (ii) 392,857 shares of Common Stock issuable upon the
conversion of shares of Series A Convertible Preferred Stock held of record
by Mesirow Capital Partners VI; and (iii) 178,571 shares of Common Stock
issuable upon the conversion of Convertible Preferred Stock, Series B
("Series B Convertible Preferred Stock") of which (a) 59,523 shares are
held of record by Mesirow II, (b) 41,667 shares are held of record by
Mesirow III, (c) 35,714 shares are held of record by Mesirow IV, and (d)
41,667 shares are held of record by Mesirow V. Mr. Sutter disclaims
beneficial ownership of such shares. Does not include shares beneficially
owned by Mr. Sutter.
(5) Includes 1,042,759 shares of Common Stock, of which (i) 171,161 shares are
held of record by Mesirow II, (ii) 198,220 shares are held of record by
Mesirow III, (iii) 169,857 shares are held of record by Mesirow IV, (iv)
333,386 shares are held of record by Mesirow V, and (v) 170,135 shares are
held of record by Mesirow VI. Mr. Sutter disclaims beneficial ownership of
such Common Stock. Does not include shares of Common Stock beneficially
owned by Mr. Sutter.
(6) Includes (i) a warrant to purchase 5,000 shares of Common Stock; (ii) 5,104
shares of Common Stock and 11,786 shares of Common Stock issuable upon the
conversion of shares of Series A Convertible Preferred Stock held of record
by Flag; and (iii) 200 shares of Common Stock held by Mr. Feld as custodian
for his children. Annette C. Feld, Vice President -- Marketing and
Merchandise of the Company, is the wife of Barry J. Feld. Also includes the
presently exercisable portion of options to purchase 27,000 shares of
Common Stock granted to Ms. Feld pursuant to the Option Plan, which options
are presently exercisable for 16,000 shares, as to which Mr. Feld disclaims
beneficial ownership.
(7) Includes (i) an option to purchase 10,000 shares of Common Stock granted to
Mr. Gleklen pursuant to the Option Plan; (ii) 7,857 shares of Common Stock
issuable upon the conversion of shares of Series A Convertible Preferred
Stock; and (iii)1,000 shares held by Mr. Gleklen's wife as to which shares
Mr. Gleklen disclaims beneficial ownership.
(8) Includes (i) the presently exercisable portion of an option granted to Mr.
Harbert pursuant to the Option Plan to purchase 10,000 shares of Common
Stock, which option is presently exercisable for 3,300 shares; and (ii)
6,805 shares of Common Stock and 15,714 shares of Common Stock issuable
upon the conversion of Series A Convertible Preferred Stock held of record
by Flag.
(9) Includes (i) an option to purchase 10,000 shares of Common Stock granted to
Mr. Krantz pursuant to the Option Plan; and (ii) 6,805 shares of Common
Stock and 15,714 shares of Common Stock issuable upon the conversion of
shares of Series A Convertible Preferred Stock held of record by Flag.
(10) Includes an option to purchase 10,000 shares of Common Stock granted to Mr.
Pollock pursuant to the Option Plan.
(11) Includes (i) an option to purchase 10,000 shares of Common Stock granted to
Mr. Sutter pursuant to the Option Plan; (ii) 5,104 shares of Common Stock
and 11,786 shares of Common Stock issuable upon the conversion of shares of
Series A Convertible Preferred Stock held of record by Flag; and (iii) 800
shares held by Mr. Sutter as a custodian for his children.
(12) Includes (i) options to purchase shares of Common Stock granted to
directors and executive officers pursuant to the Option Plan, which are
presently exercisable for 110,300 shares in the aggregate; (ii) warrants to
purchase 27,500 shares of Common Stock in the aggregate; (iii) 7,857 shares
of Common Stock issuable upon the conversion of shares of Series A
Convertible Preferred Stock held by Mr. Gleklen, and (iv) 30,623 shares of
Common Stock and 70,714 shares of Common Stock issuable upon the conversion
of Series A Convertible Preferred Stock held of record by Flag. Does not
include shares beneficially owned by the Mesirow Group. See footnotes 4, 5
and 6.
33
<PAGE> 40
CERTAIN TRANSACTIONS
In December 1996, the Company entered into a bridge loan for $350,000 with
the Second National Bank of Warren (Ohio). Mr. Weinberg guaranteed the loan and
received $7,500 in return for his guaranty. Mr. Harbert is a director of the
lender's parent corporation. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Recent Events."
In early 1996, to fund the Company's expansion and advertising needs, the
Company entered into two bridge loans with Mesirow VI and Mr. Weinberg, totaling
$700,000. The loans bore interest at an annual rate of 15% and were secured by a
deed of trust on the Company's executive office building and optical laboratory
facility in Tempe, Arizona. William P. Sutter, Jr. is an officer of the
corporate general partner of Mesirow Capital Partners VI and a director of the
Company. The bridge loans were retired with the proceeds of a $2.0 million
revolving line of credit in June 1996. The revolving line of credit 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 in
Tempe, Arizona, but excluding furniture, fixtures, and equipment. The revolving
line of credit bears interest on the principal balance outstanding from time to
time at a rate equal to the lending bank's prime rate plus 2.0% per annum, and
is due and payable monthly. The interest rate may be reduced to the lending
bank's prime rate plus 1.0% per annum if certain financial covenants are met at
year end 1996 and at the end of February 1997. The revolving line of credit is
secured by guarantees from Mesirow V, Mesirow VI, and Mr. Weinberg. Mr. Feld
agreed to share in the obligations of the guarantors.
In exchange for the guarantee of the Company's obligations under its
revolving line of credit by such officers and shareholders, the Company issued
warrants to Mesirow V, Mesirow VI, Mr. Weinberg and Mr. Feld to purchase 9,000,
13,500, 22,500 and 5,000 shares of the Company's common stock, respectively, at
a price per share of $6.11, subject to customary anti-dilution adjustments. The
value of the warrants, which was determined by independent valuation to be $0.57
per share, is reflected on the September 28, 1996 balance sheet in other assets
and paid-in capital and will be amortized over the life of the revolving line of
credit.
The Company is a party to an expense sharing arrangement under which the
Company shares the expenses of its Cleveland, Ohio headquarters with Weinberg
Capital Corporation, of which Mr. Weinberg is President and sole shareholder.
The Company pays (1) up to approximately $12,000 per month in the aggregate for
its allocated portion of the overhead costs of the headquarters and the salary
of a financial staff assistant to the Chairman of the Board, and (2) all
clearly-identifiable and reasonable out-of-pocket expenses incurred by personnel
in the headquarters office directly on behalf of the Company. The aggregate
amount of the payments by the Company for the shared headquarters were
approximately $74,000 in the first nine months of 1996, $136,000 in 1995,
$140,000 in 1994 and $117,000 in 1993.
In August 1993, the Company chose Mesirow Insurance Services, Inc., as its
primary insurance broker to arrange its insurance coverage, including real and
personal property, workers' compensation and general liability. Mesirow
Insurance Services, Inc. is affiliated with each of the Selling Stockholders.
See "Underwriting." The original insurance agreement was for a period of one
year and has since been renewed. Under the terms of the insurance agreement, the
annual aggregate premiums paid by the Company are approximately $200,000.
Byron S. Krantz, a director of the Company, is a partner of the law firm of
Kohrman Jackson & Krantz P.L.L., which provides legal services to the Company.
Mesirow Financial, Inc., which is participating in and serving as
co-manager of this offering, is affiliated with each of the Selling
Stockholders. See "Underwriting."
The Company believes that the terms of the transactions and the agreements
described above are on terms at least as favorable as those which it could
otherwise have obtained from unrelated parties. On-going and future transactions
with related parties will be (1) on terms at least as favorable as those that
the Company would be able to obtain from unrelated parties, (2) for bona fide
business purposes, and (3) approved by a majority of the disinterested and
non-employee directors. In addition, the Company will not grant options or
warrants to officers, directors, employees, 5% stockholders or affiliates of the
Company with an exercise price of less than 85% of the fair market value of the
Common Stock on the date of grant.
34
<PAGE> 41
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of (1) 5,000,000
authorized shares of Common Stock, $0.01 par value per share, 3,763,036 shares
of which were outstanding as of the date of this Prospectus, (2) 3,960
authorized shares of Series A Convertible Preferred Stock, $1,000 par value per
share and 1,500 authorized shares of Series B Convertible Preferred Stock,
$1,000 par value per share, all of which are outstanding, and (3) 500,000
authorized shares of Preferred Stock, $0.01 par value per share (the "Preferred
Stock"), none of which are outstanding. At its next annual meeting of
stockholders, the Company intends to propose that the number of authorized
shares of Common Stock be increased to allow for the issuance of Common Stock
upon conversion of the Convertible Preferred Stock and exercise of warrants and
options under the Option Plan. The holders of outstanding warrants of the
Company and the Convertible Preferred Stock have agreed to waive the reservation
of shares of Common Stock reserved for issuance under the warrants and
Convertible Preferred Stock until the proposed increase is effected.
COMMON STOCK
Subject to the rights of the holders of any outstanding preferred stock,
each holder of Common Stock on the applicable record date is entitled to receive
such dividends as may be declared by the Board of Directors out of funds legally
available therefor. Upon liquidation or dissolution of the Company, each holder
of Common Stock will be entitled to share pro rata in any distribution of the
Company's assets after the payment of all debts and other liabilities, subject
to the rights of the holders of any outstanding preferred stock. Each holder of
Common Stock is entitled to one vote per share owned of record on the applicable
record date on all matters presented to a vote of the holders of Common Stock,
including the election of directors. Holders of Common Stock have no cumulative
voting rights and, therefore, the holders of more than half of the shares voting
for the election of a class of directors can elect all the directors of such
class and in such event the holders of the remaining shares will not be able to
elect any of such directors. The holders of Common Stock have no preemptive
rights to purchase or subscribe for any stock or other securities and there are
no conversion rights or redemption or sinking fund provisions with respect to
such stock. All outstanding shares of Common Stock are, and the shares of Common
Stock offered hereby will be when issued, fully paid and nonassessable.
CONVERTIBLE PREFERRED STOCK
Holders of the Convertible Preferred Stock are entitled on a pari passu
basis by Series to receive 6% cumulative, quarterly cash dividends. If the
Company fails to pay in full six consecutive dividends, then, until the Company
pays in full all such past due dividends, the holders of the Convertible
Preferred Stock will be entitled to vote on all matters submitted to the holders
of Common Stock, as if the Convertible Preferred Stock had been converted into
Common Stock based on its par value of $1,000 per share at a price equal to
$8.40, subject to adjustment as described below. The Company may redeem the
Series A Convertible Preferred Stock, in whole or in part, at any time, with not
less than 30 days notice, at its par value of $1,000 per share plus accrued
dividends. The Company may not redeem the Series B Convertible Preferred Stock,
in whole or in part, while any shares of the Series A Convertible Preferred
Stock are outstanding. Holders of both Series A and Series B may convert their
shares based on their par value of $1,000 per share into shares of Common Stock
at $8.40 per share. The Convertible Preferred Stock contains provisions
providing for adjustment of the conversion price and the number and type of
securities issuable upon conversion of such Preferred Stock upon the occurrence
of certain events. The holders of each Series of the Convertible Preferred Stock
have the right to elect one director per Series as long as the applicable Series
is outstanding. The holders of each Series of the Convertible Preferred Stock
are entitled to vote as a class on various actions that may adversely affect
each such Series. Upon the liquidation or dissolution of the Company, after the
payment of all debts and other liabilities of the Company, each holder of
Convertible Preferred Stock will be entitled on a pari passu basis by Series to
receive out of the assets of the Company available for distribution to
stockholders, before any payments or distribution is made on the Common Stock
(or any other capital stock subordinate to the Convertible Preferred Stock), the
amount of $1,000 per share plus an amount equal to the accumulated
35
<PAGE> 42
dividends to the date of such liquidation or dissolution. The Convertible
Preferred Stock is not listed or quoted on any stock exchange or market.
PREFERRED STOCK
The Company's Board of Directors has the authority (without action by the
stockholders) to issue the authorized and unissued Preferred Stock in one or
more series, to designate the number of shares constituting any series, and to
fix, by resolution, the preferences, rights, privileges, restrictions and other
rights thereof, including voting rights, liquidation preferences, dividend
rights and conversion and redemption rights of such series subject to the prior
rights of the Convertible Preferred Stock. Under certain circumstances, the
Company could issue this Preferred Stock as a method of discouraging, delaying
or preventing a change of control of the Company. If the Company issues
Preferred Stock with voting rights or Preferred Stock convertible into
securities with voting rights, the holders of Common Stock may experience
substantial dilution of their voting rights. The Company does not currently
intend to issue any shares of this Preferred Stock.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Continental Stock
Transfer & Trust Company, New York, New York.
36
<PAGE> 43
UNDERWRITING
The Underwriters named below, for whom Fahnestock & Co. Inc. is acting as
representative (the "Representative"), have severally agreed, subject to the
terms and conditions contained in the Underwriting Agreement, to purchase from
the Company and the Selling Stockholders the number of shares of Common Stock
indicated below opposite their respective names at the public offering price
less the underwriting discount set forth on the cover page of this Prospectus.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON
STOCK TO BE
NAME OF UNDERWRITER PURCHASED
---------------------------------------------------------- -----------
<S> <C>
Fahnestock & Co. Inc. ....................................
Mesirow Financial, Inc. ..................................
---------
Total........................................... 1,600,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions and that the Underwriters are
committed to purchase all of the shares (other than those covered by the
over-allotment option) if any are purchased.
The Representative has advised the Company and the Selling Stockholders
that the Underwriters propose to offer the Common Stock to the public at the
public offering price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not to exceed $ per share.
The Underwriters may allow, and such dealers may reallow, a concession of not
more than $ to certain other dealers. After the public offering, the
offering price, the concession to certain dealers and other selling terms may be
changed by the Representative. The Underwriters have agreed not to confirm sales
of Common Stock offered hereby to any account over which they exercise
discretionary authority without the prior written approval of the customer.
The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to a
maximum of 210,000 additional shares of Common Stock in the aggregate on an
equal basis solely to cover over-allotments, if any, at the public offering
price less the underwriting discount set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise this option, each
Underwriter will be committed, subject to certain conditions, to purchase
approximately the same proportion of such additional shares as the number of
shares to be purchased by it shown in the foregoing table bears to the total
number of shares of Common Stock initially offered hereby.
The Underwriting Agreement provides that the Company and the Selling
Stockholders will indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act or will contribute to payments
the Underwriters may be required to make in respect thereof. The Company has
also agreed to pay the Representative a non-accountable expense allowance of
$75,000, $25,000 of which has been paid to date.
The Company's directors, officers and beneficial owners of 5% or more of
the Company's outstanding Common Stock have agreed not to offer, issue, sell,
contract to sell, grant any option for the sale of, or otherwise dispose of,
directly or indirectly, any securities of the Company, other than the
over-allotment shares, if any, for a period of 180 days from the date of this
Prospectus, without the prior written request of the Representative.
Under Rule 2710(c)(8) of the Conduct Rules of the National Association of
Securities Dealers, Inc. (the "NASD"), no NASD member may participate in a
public offering where more than 10% of the net offering proceeds, after
underwriting compensation, are intended to be paid to members participating in
the distribution of the offering or associated or affiliated persons of such
members, unless the public offering price is no higher than that recommended by
a "qualified independent underwriter," as defined in the NASD Conduct Rules.
Mesirow Financial, Inc., which is participating in and serving as a co-manager
of the offering, is an affiliate of the Company and each of the Selling
Stockholders under the NASD Conduct Rules, and the Selling Stockholders are
receiving more than 10% of the net proceeds of the offering. The offering will
be
37
<PAGE> 44
made in compliance with Rule 2720 of the NASD Conduct Rules and is being made
pursuant to Rule 2710(c)(8) and the Representative is assuming the
responsibilities of acting as a qualified independent underwriter in pricing the
offering and conducting due diligence. William P. Sutter, Jr., a director of the
Company, is an Executive Vice President or Vice President of the corporate
general partners of each of the members of the Mesirow Group, which corporate
general partners are affiliates of Mesirow Financial, Inc.
The Representative and certain of its affiliates currently hold warrants to
purchase up to 66,563 shares of Common Stock which were granted to Reich & Co.,
Inc. ("Reich") pursuant to a warrant agreement dated December 31, 1993 (the
"1993 Warrant Agreement") in connection with Reich's participation in the
Company's initial public offering in 1993. Reich is now a wholly-owned
subsidiary of the Representative. The Company and the Representative have
entered into an agreement to eliminate the antidilution provisions of the 1993
Warrant Agreement in consideration for a reduction in the exercise price of the
warrants from $8.75 to $8.00.
In connection with this offering, the Company has agreed to grant to the
Representative and certain of its affiliates warrants to purchase up to 66,563
shares of Common Stock concurrently with the closing of this offering (the
"Representative's Warrants"). The Representative's Warrants are exercisable
beginning on December 23, 1998, the termination date of the 1993 Warrant
Agreement, for a period of three years terminating on December 23, 2001,
provided, however, that the number of shares of Common Stock issuable upon the
exercise of the Representative's Warrants will equal the number of shares of
Common Stock that remain issuable and unexercised under the 1993 Warrant
Agreement upon its termination, and the initial exercise price under the
Representative's Warrants will equal the exercise price under the 1993 Warrant
Agreement upon its termination, which price is currently $8.00. The
Representative's Warrants are non-transferrable during the term, except to
affiliates of the Representative, and grant to the holder thereof certain
registration rights for the securities issuable upon the exercise thereof.
In connection with this offering, the Underwriters and selling group
members, if any, may engage in passive market making transactions in the Common
Stock on NASDAQ in accordance with rule 10b-6A under the Securities and Exchange
Act of 1934, as amended. Passive market making consists of displaying bids on
NASDAQ limited by the prices of independent market makers and effecting
purchases limited by such prices and in response to order flow. Net purchases by
a passive maker on each day are limited in amount to a specified percentage of
the passive market maker's average daily trading volume in the Common Stock
during a specified prior period and must be discontinued when such limit is
reached. Passive market making may stabilize the market price of the Common
Stock at a level above that which might otherwise prevail and, if commenced, may
be discontinued at any time.
LEGAL MATTERS
Certain legal matters with respect to the Common Stock offered hereby will
be passed upon for the Company by Kohrman Jackson & Krantz P.L.L., Cleveland,
Ohio. Certain legal matters will be passed upon for the Underwriters by Arnold &
Porter, New York, New York. Byron S. Krantz, a partner in Kohrman Jackson &
Krantz P.L.L., is the beneficial owner of 27,181 shares of Common Stock, 132
shares of Series A Convertible Preferred Stock, an option to purchase 10,000
shares of Common Stock granted under the Option Plan, and is the Secretary and a
director of the Company.
EXPERTS
The consolidated financial statements as of December 30, 1995 and December
31, 1994 and for each of the three years in the period ended December 30, 1995
included in this Prospectus have been so included in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
38
<PAGE> 45
NEW WEST EYEWORKS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants..................................................... F-2
Financial Statements:
Consolidated Balance Sheet at December 31, 1994, December 30, 1995 and September 28,
1996 (unaudited)................................................................. F-3
Consolidated Statements of Operations for each year in the three year period ended
December 30, 1995, and the unaudited nine-month periods ended September 30, 1995
and September 28, 1996........................................................... F-4
Consolidated Statement of Stockholders' Equity for each year in the three year
period ended December 30, 1995, and the unaudited nine-month period ended
September 28, 1996............................................................... F-5
Consolidated Statement of Cash Flow for each year in the three year period ended
December 30, 1995, and the unaudited nine-month period ended September 30, 1995
and September 28, 1996........................................................... F-6
Notes to Consolidated Financial Statements.......................................... F-7
</TABLE>
F-1
<PAGE> 46
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of New West Eyeworks, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of New West
Eyeworks, Inc. and its subsidiary at December 30, 1995 and December 31, 1994,
and the results of their operations and their cash flows for each of the three
years in the period ended December 30, 1995, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As described in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for income taxes effective December 27, 1992.
PRICE WATERHOUSE LLP
Phoenix, Arizona
March 8, 1996
F-2
<PAGE> 47
NEW WEST EYEWORKS, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 30, SEPTEMBER
1994 1995 28, 1996
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................... $ 1,000 $ 241 $ 126
Accounts receivable, net................................ 875 999 1,324
Inventory............................................... 2,851 3,132 3,488
Other current assets.................................... 130 78 189
-------- -------- --------
Total current assets................................. 4,856 4,450 5,127
Property and equipment, net............................... 6,131 6,656 7,214
Goodwill.................................................. 686 596 528
Other assets.............................................. 48 32 51
-------- -------- --------
Total assets......................................... $ 11,721 $ 11,734 $ 12,920
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable........................................ $ 4,059 $ 5,755 $ 5,250
Accrued expenses........................................ 2,410 3,096 2,358
Deferred warranty revenues.............................. 588 348 310
Notes payable and capital lease obligations, current
portion.............................................. 153 235 2,133
-------- -------- --------
Total current liabilities............................ 7,210 9,434 10,051
Liability for closed store leases......................... 129 57 25
Notes payable and capital lease obligations............... 106 321 235
-------- -------- --------
Total liabilities.................................... 7,445 9,812 10,311
-------- -------- --------
Stockholders' Equity:
Series A 6% Cumulative Convertible Preferred Stock,
$1,000 par value, 3,960 shares authorized, issued and
outstanding.......................................... 3,960 3,960 3,960
Series B 6% Cumulative Convertible Preferred Stock,
$1,000 par value, 1,500 shares authorized, issued and
outstanding.......................................... 1,500 1,500 1,500
Common stock, $0.01 par value, 5,000,000 shares
authorized, 3,763,036 shares issued and
outstanding.......................................... 38 38 38
Paid-in capital......................................... 10,070 10,070 10,100
Accumulated deficit..................................... (11,292) (13,646) (12,989)
-------- -------- --------
Total stockholders' equity........................... 4,276 1,922 2,609
-------- -------- --------
Total liabilities and stockholders' equity........... $ 11,721 $ 11,734 $ 12,920
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 48
NEW WEST EYEWORKS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE-MONTHS ENDED
------------------------------------------ -----------------------------
DECEMBER 25, DECEMBER 31, DECEMBER 30, SEPTEMBER 30, SEPTEMBER 28,
1993 1994 1995 1995 1996
------------ ------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.......................... $ 32,964 $ 37,367 $ 40,033 $31,030 $34,043
Cost of Sales...................... 17,256 19,675 20,352 15,493 16,847
------- ------- ------- ------- -------
Gross Profit..................... 15,708 17,692 19,681 15,537 17,196
Selling, general and administrative
expenses......................... 16,277 18,978 21,667 15,975 15,977
------- ------- ------- ------- -------
Operating income (loss)............ (569) (1,286) (1,986) (438) 1,219
Interest income.................... 2 53 12 12 --
Interest expense................... 712 55 51 25 145
------- ------- ------- ------- -------
Income (loss) before income tax
expense (benefit) extraordinary
gain and cumulative effect of
change in accounting principle... (1,279) (1,288) (2,025) (451) 1,074
Income tax expense (benefit)....... (469) -- -- -- 172
------- ------- ------- ------- -------
Income (loss) before extraordinary
gain and cumulative effect of
change in accounting principle... (810) (1,288) (2,025) (451) 902
Extraordinary gain from retirement
of debt, net of tax.............. 1,674 -- -- -- --
Cumulative effect of change in
accounting principle............. 374 -- -- -- --
------- ------- ------- ------- -------
Net income (loss).................. 1,238 (1,288) (2,025) (451) 902
Preferred stock dividends.......... (396) (328) (329) (245) (245)
------- ------- ------- ------- -------
Net income (loss) applicable to
holder of common stock........... $ 842 $ (1,616) $ (2,354) $ (696) $ 657
======= ======= ======= ======= =======
Income (loss) per common and common
equivalent share:
Income (loss) before
extraordinary gain and
cumulative effect of change
in accounting principle..... $ (0.57) $ (0.43) $ (0.63) $ (0.18) $ 0.18
Extraordinary gain............ 0.79 -- -- -- --
Cumulative effect of change in
accounting principle........ 0.18 -- -- -- --
------- ------- ------- ------- -------
Net income (loss)............. $ 0.40 $ (0.43) $ (0.63) $ (0.18) $ 0.18
======= ======= ======= ======= =======
Weighted average number of common
and common equivalent shares
outstanding...................... 2,125 3,736 3,763 3,763 3,763
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 49
NEW WEST EYEWORKS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSAND, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
AMOUNTS
SHARES -----------------------------------------------------
--------------------- PAID-IN ACCUMULATED
PREFERRED COMMON PREFERRED COMMON CAPITAL DEFICIT TOTAL
--------- --------- --------- ------ ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 26, 1992......... 921,007 $ 9 $ 162 $ (10,518) $(10,347)
Issuance of warrants.................. 95 95
Dividends accrued on redeemable
preferred stock..................... (396) (396)
Dividends forgiven on redeemable
preferred stock..................... 252 252
Collection of stock subscription
receivable.......................... 29 29
Preferred stock issued upon conversion
of redeemable preferred stock....... 5,460 $ 5,460 5,460
Common stock issued in exchange for
reduction in debt and accrued
dividends........................... 139,286 1 974 975
Common stock issued upon exercise of
warrants............................ 1,203,993 12 (10) 2
Net income............................ 1,238 1,238
----- --------- ------ --- ------- -------- -------
BALANCES AT DECEMBER 25, 1993......... 5,460 2,264,286 5,460 22 1,502 (9,676) (2,692)
Common stock issued................... 1,498,750 16 8,568 8,584
Preferred stock dividends............. (328) (328)
Net loss.............................. (1,288) (1,288)
----- --------- ------ --- ------- -------- -------
BALANCES AT DECEMBER 31, 1994......... 5,460 3,763,036 5,460 38 10,070 (11,292) 4,276
Preferred stock dividends............. (329) (329)
Net loss.............................. (2,025) (2,025)
----- --------- ------ --- ------- -------- -------
BALANCES AT DECEMBER 30, 1995......... 5,460 3,763,036 5,460 38 10,070 (13,646) 1,922
Preferred stock dividends
(unaudited)......................... (245) (245)
Issuance of warrants (unaudited)...... 30 30
Net income (unaudited)................ 902 902
----- --------- ------ --- ------- -------- -------
BALANCES AT SEPTEMBER 28, 1996
(unaudited)......................... 5,460 3,763,036 $ 5,460 $ 38 $10,100 $ (12,989) $ 2,609
===== ========= ====== === ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 50
NEW WEST EYEWORKS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE-MONTHS ENDED
------------------------------------------ -----------------------------
DECEMBER 25, DECEMBER 31, DECEMBER 30, SEPTEMBER 30, SEPTEMBER 28,
1993 1994 1995 1995 1996
------------ ------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net income (loss).................................. $1,238 $ (1,288) $ (2,025) $ (451) $ 902
Adjustments to reconcile net income (loss) to net
cash from (used in) operating activities:
Depreciation and amortization.................... 1,845 1,614 1,048 763 910
Provision for closed stores...................... -- -- -- 40 --
Loss on disposal of fixed assets................. 54 133 65 -- --
Extraordinary gain............................... (2,500) -- -- -- --
Cumulative effect of change in accounting
principle...................................... (374) -- -- -- --
Reduction in goodwill resulting from tax benefit
of acquisition NOL............................. 88 -- -- -- --
Interest expenses accrued on unpaid preferred
stock dividends................................ 65 -- -- -- --
Amortization of debt discount.................... 95 -- -- -- --
Change in assets and liabilities:
Accounts receivable, net......................... (310) (48) (124) (95) (325)
Inventory........................................ (418) (515) (281) (686) (356)
Other current assets............................. (15) (34) 52 (21) (111)
Deferred offering costs.......................... (929) 929 -- -- --
Accounts payable................................. 1,217 (680) 1,696 1,290 (505)
Accrued expenses................................. 108 522 603 (295) (819)
Deferred warranty revenues....................... 90 94 (240) (179) (38)
Other assets and liabilities..................... (104) 6 (72) (72) (30)
------- ------- ------- ------- ------
Net cash from (used in) operating activities..... 150 733 722 294 (372)
------- ------- ------- ------- ------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment................. (1,018) (3,178) (1,532) (1,380) (1,300)
------- ------- ------- ------- ------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Proceeds from issuance of debt..................... 3,750 -- 505 505 2,615
Payment of debt.................................... (3,031) (3,222) (208) (128) (895)
Payment of preferred stock dividends............... -- (328) (246) (164) (163)
Net proceeds from issuance of common stock......... -- 8,584 -- -- --
Redemption of redeemable preferred stock........... -- (1,752) -- -- --
Other.............................................. 31 -- -- -- --
------- ------- ------- ------- ------
Net cash from financing activities................... 750 3,282 51 213 1,557
------- ------- ------- ------- ------
NET INCREASE (DECREASE) IN CASH and CASH
EQUIVALENTS:....................................... (118) 837 (759) (873) (115)
CASH and CASH EQUIVALENTS, beginning of period....... 281 163 1,000 1,000 241
------- ------- ------- ------- ------
CASH and CASH EQUIVALENTS, end of period............. $ 163 $ 1,000 $ 241 $ 127 $ 126
======= ======= ======= ======= ======
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid...................................... $ 311 $ 66 $ 51 $ 25 $ 138
Income taxes paid.................................. $ 50 $ 65 $ -- $ -- $ --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 51
NEW WEST EYEWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY AND ITS RECAPITALIZATION:
New West Eyeworks, Inc. (the Company) operates retail optical stores as
well as two optical laboratories and distribution facilities in the Western
United States. During 1993 and early 1994, the Company consummated the following
transactions in connection with its recapitalization.
JUNIOR BRIDGE LOAN
On March 26, 1993, the Company entered into a new investment agreement with
an officer of the Company as well as certain holders of its then outstanding
Series A Redeemable Junior Preferred Stock. Under terms of this agreement, the
Company issued $750,000 ($75,000 to an officer of the Company) of its 8% notes
(the Junior Bridge Loan) which required quarterly interest payments. The Company
also issued warrants to those creditors to purchase 248,917 shares of its common
stock (24,941 to an officer of the Company) at an exercise price of $0.002 per
share. The fair value of the warrants at the date of issuance was determined by
independent valuation to be $0.095 per share. The aggregate warrant value of
$23,000 was recorded as a discount against the Junior Bridge Loan to be accreted
over the five year term of the loan as incremental interest expense.
Proceeds from the Junior Bridge Loan were used to repay $250,000 of
principal under the Company's then outstanding bank term note and revolving line
of credit agreements; to make payments of approximately $122,000 in connection
with the settlement of a dispute involving two former employees under which the
Company acquired its executive office building and optical laboratory facilities
subject to a mortgage with the then principal amount of $228,000; to repay a
$100,000 short-term loan extended by an officer of the Company; and for working
capital and general corporate purposes.
Under terms of the new investment agreement, the Company also issued
warrants to the holder of its then outstanding Redeemable Cumulative Preferred
Stock to purchase 33,906 shares of common stock at an exercise price of $0.002
per share in exchange for the stockholder's consent to the Junior Bridge Loan, a
waiver of certain defaults under the original Redeemable Cumulative Preferred
Stock purchase agreement and the stockholder's agreement to forego accrued
dividends and interest of approximately $252,000 (such forgiven dividends and
interest have been recorded by the Company as a capital contribution). The fair
value of such warrants at the date of issuance was determined by independent
valuation to be $0.095 per share. In connection with obtaining the stockholder's
consent to the Junior Bridge Loan, the Company also decreased the exercise price
of previously existing warrants held by the stockholder to purchase 195,612
shares of common stock from $0.613 to $0.002. The fair value of such warrants at
the date of the reduction in exercise price was determined by independent
valuation to be $0.095 per share. The aggregate value of the new warrants as
well as the reduction in the exercise price of existing warrants of $20,000 was
also recorded as a discount against the Junior Bridge Loan to be accreted over
the five year term of the loan as incremental interest expense.
SENIOR BRIDGE LOAN
On September 16, 1993, the Company consummated a series of transactions
under which it borrowed $2,900,000 from one of the holders of its then
outstanding Series A Redeemable Junior Preferred Stock (the Senior Bridge Loan).
Under the terms of the related agreement, the Senior Bridge Loan was due on
September 16, 1994, and had an annual effective interest rate of 25%. The
Company also issued warrants to the stockholder to purchase 63,737 shares of
common stock at an exercise price of $0.003 per share. The fair value of
warrants at the date of issuance was determined by independent valuation to be
$0.816 per share. The aggregate warrant value of $52,000 was recorded as a
discount against the Senior Bridge Loan to be accreted over the one year term of
the loan as incremental interest expense. The proceeds of the Senior Bridge Loan
were used primarily to retire in full for $2,000,000 the Company's then
outstanding aggregate balance of
F-7
<PAGE> 52
NEW WEST EYEWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- THE COMPANY AND ITS RECAPITALIZATION: (CONTINUED)
SENIOR BRIDGE LOAN (CONTINUED)
$4,500,000 under the bank term note and revolving line of credit agreements. The
resulting gain of $1,674,000 (which is net of incremental costs incurred to
effect the debt restructuring of $209,000 and income taxes of $617,000) has been
reflected in the accompanying consolidated statement of operations as an
extraordinary gain.
STOCK SPLIT
On October 7, 1993, the Company's Board of Directors approved a
163.0101-for-1 stock split, which stock split became effective prior to the
Company's initial public offering of its common stock described below. The stock
split has been reflected in the accompanying consolidated financial statements
as if it had occurred at the beginning of fiscal 1993.
CHANGES IN CAPITAL STRUCTURE
On December 20, 1993, the Company amended its Certificate of Incorporation
to increase the number of authorized shares of common stock from 13,500 to
5,000,000 and to authorize the issuance of 3,960 shares of Series A and 1,500
shares of Series B $1,000 par value Cumulative Convertible Preferred Stock. The
Cumulative Convertible Preferred Stock is redeemable by the Company at par value
plus accrued but unpaid dividends; however, Series B shares cannot be redeemed
while any Series A shares are outstanding. Additionally, prior to August 1,
1996, Series B shares could not be redeemed without the consent of the holders
of such shares. Holders of Cumulative Convertible Preferred Stock may convert
their shares into shares of the Company's common stock beginning August 1, 1996.
The number of common shares issuable upon conversion is determined by dividing
the par value of outstanding Cumulative Convertible Preferred Stock by 120% of
the initial public offering price of $7.00 per share, subject to adjustment.
CONVERSION OF REDEEMABLE PREFERRED STOCK
As of December 20, 1993, 3,960 shares of the then outstanding Redeemable
Cumulative Preferred Stock were converted on a one-for-one basis into the
newly-authorized shares of Series A Cumulative Convertible Preferred Stock and
1,500 shares of the then outstanding Series A Redeemable Junior Preferred Stock
were converted on a one-for-one basis into the newly authorized shares of Series
B Cumulative Convertible Preferred Stock.
EXCHANGE OF INDEBTEDNESS AND ACCRUED DIVIDENDS
As of December 20, 1993, the Company issued 71,429 shares of its common
stock in exchange for a $500,000 reduction in the principal amount of the Senior
Bridge Loan; 57,143 shares of common stock to holders of the then outstanding
Redeemable Cumulative Preferred Stock in exchange for a $400,000 reduction in
accrued dividends; and 10,714 shares of common stock to an officer of the
Company in exchange for the retirement of $75,000 in the principal amount of the
Junior Bridge Loan.
EXERCISE OF WARRANTS
During the last month of fiscal 1993, all existing warrants for the
Company's common stock were exercised at prices ranging from $0.002 to $0.003
per share. As a result of these exercises, the Company issued 1,203,993 shares
of its common stock generating proceeds of $2,000.
F-8
<PAGE> 53
NEW WEST EYEWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- THE COMPANY AND ITS RECAPITALIZATION: (CONTINUED)
INITIAL PUBLIC OFFERING
On December 23, 1993, the Company's initial Registration Statement on Form
S-1 was declared effective by the Securities and Exchange Commission for the
purpose of offering 1,375,000 shares of its common stock at a price of $7.00 per
share. An additional 123,750 shares were sold on January 20, 1994, when the
underwriters of the initial public offering exercised their over-allotment
option. Aggregate net offering proceeds to the Company were approximately
$8,584,000.
Proceeds from the offering were used by the Company to repay outstanding
principal and interest on the Junior Bridge Loan and the Senior Bridge Loan of
$691,000 and $2,611,000, respectively; to redeem the outstanding shares of the
then outstanding Redeemable Cumulative Preferred Stock together with accrued
dividends and related interest aggregating $1,408,000; and to pay accrued
dividends and interest on the then outstanding Series A Redeemable Junior
Preferred Stock aggregating $344,000. Remaining proceeds were used for the
Company's store expansion program, optical laboratory equipment, and other
general corporate purposes.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of the Company
and its wholly-owned subsidiary, Alexis Holdings, Inc. All significant
intercompany accounts and transactions have been eliminated.
CHANGE IN ACCOUNTING PRINCIPLE
Effective December 27, 1992, the Company adopted, on a prospective basis,
Statement of Financial Accounting Standards No. 109, Accounting for Incomes
Taxes (SFAS 109). The adoption of SFAS 109 changes the Company's method of
accounting for income taxes from the deferred method to an asset and liability
approach. Previously, the Company deferred the past tax effects of timing
differences between financial reporting and taxable income. The asset and
liability approach requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of temporary differences
between the carrying amounts and tax bases of assets and liabilities.
Under SFAS 109, assets and liabilities acquired in purchase business
combinations are assigned their fair values assuming equal tax bases, and
deferred taxes are provided for lower or higher tax bases. Under the Company's
previous accounting method, values were assigned net-of-tax. In adopting SFAS
109, the Company adjusted the carrying amount of property and equipment obtained
in its 1988 acquisition of Western States Optical (WSO). The adjustments to the
December 27, 1992, balance sheet to adopt SFAS 109 totalled $374,000 and relate
to the increase in the carrying amount of property and equipment acquired from
WSO in 1988. This adjustment was recorded in the first quarter of 1993 and is
reflected in net income for the year as the cumulative effect of a change in
accounting principle. The loss before income tax benefit, extraordinary gain and
cumulative effect adjustment for the years ended December 31, 1994, and December
25, 1993, was
F-9
<PAGE> 54
NEW WEST EYEWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
CHANGE IN ACCOUNTING PRINCIPLE (CONTINUED)
increased by $138,000 and $236,000, respectively, to reflect depreciation
expense during the year related to the previously mentioned increase in carrying
value.
FISCAL YEAR
The Company's fiscal year ends on the last Saturday of the calendar year.
Fiscal years 1995 and 1993 reflect periods of 52 weeks while fiscal year 1994
reflects a period of 53 weeks.
REVENUE RECOGNITION
Revenues are recognized at the time of customer order. Revenues from
separately priced warranty contracts are deferred and recognized on a pro rata
basis over the contract period.
STORE OPENING COSTS
The Company expenses store opening costs as incurred.
ADVERTISING COSTS
Effective January 1, 1995, the Company adopted American Institute of
Certified Public Accountants Statement of Position No. 93-7, Reporting on
Advertising Costs (the "Statement"). In accordance with the Statement, the
Company recognizes advertising production costs in the period in which the
related advertisement first takes place. Advertising communication costs such as
television air time and newspaper advertising space are recognized as the
related services are received. All other costs are expensed as incurred. The
adoption of the Statement during 1995 did not have a material impact on the
Company's financial condition or results of operations. Advertising expenses
totaling $4,136,000, $3,392,000, and $2,552,000 for the years 1995, 1994, and
1993, respectively.
CASH AND CASH EQUIVALENTS
The Company considers liquid investments with an original maturity of three
months or less to be cash equivalents.
ACCOUNTS RECEIVABLE
Accounts receivable are primarily comprised of amounts due from insurance
carriers on sales where the Company has accepted an assignment of insurance
benefits from the customer. The reported balances are net of an allowance for
doubtful accounts of $160,000 and $186,000 at December 30, 1995, and December
31, 1994, respectively.
INVENTORY AND COST OF SALES
Inventory primarily consists of the direct material cost of eyeglass
frames, contact lenses, ophthalmic lenses and optical laboratory supplies and is
stated at the lower of cost or market. Cost is determined using the first-in,
first-out method.
Cost of sales includes the cost of merchandise sold during the period,
optical laboratory costs directly related to manufacturing eyeglasses, store
occupancy expenses, and depreciation expense relating to store and optical
laboratory fixtures and equipment.
F-10
<PAGE> 55
NEW WEST EYEWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the related assets which range from five to ten years. Major
improvements are capitalized while repairs which do not extend the useful life
of the asset are expensed.
GOODWILL
Goodwill relating to the 1988 acquisition of Western States Optical is
being amortized for financial statement purposes on a straight-line basis over a
period of fifteen years. The reported balance is net of accumulated amortization
of $669,000 and $579,000 at December 30, 1995, and December 31, 1994,
respectively. The Company evaluates the possibility of goodwill impairment when
events or changes in economic circumstances indicate that the related carrying
amount may not be recoverable.
INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Income (loss) per common and common equivalent share is computed using the
weighted average number of common and common equivalent shares outstanding
during the period. Common equivalent shares consist of warrants and options
using the treasury stock method. Common equivalent shares are excluded from the
computation if their effect is anti-dilutive except that, pursuant to the
requirements of the Securities and Exchange Commission, common equivalent shares
relating to warrants issued during the twelve month period prior to the initial
public offering (See Note 1) are included in the computations for all periods
presented.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim consolidated financial statements as of September 28, 1996 and
for the nine-month periods ended September 30, 1995 and September 28, 1996 are
unaudited. In the opinion of management, such interim consolidated financial
statements include all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the Company's consolidated financial
position as of September 28, 1996 and the consolidated results of operations and
cash flows for the periods ended September 30, 1995 and September 28, 1996. The
interim results of operations are not necessarily indicative of results which
may occur for the full year.
NOTE 3 -- STORE CLOSURES:
The Company closed ten of its retail outlets operated in a chain of
department stores in Arizona at the end of the first quarter of 1995. Costs of
closing these retail outlets, including remaining lease payments for periods
subsequent to April 1, 1995, equipment write-downs and other related costs,
approximated $300,000 and are included in cost of sales, and selling, general
and administrative expenses for the year ending December 31, 1994.
The Company closed three of its retail outlets during of the first quarter
of 1996. Estimated costs of closing these retail outlets, including remaining
lease payments, equipment write-downs and other related costs, approximated
$50,000 and are included in cost of sales, and selling, general and
administrative expenses for the year ending December 30, 1995.
F-11
<PAGE> 56
NEW WEST EYEWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- PROPERTY, EQUIPMENT AND LEASES:
Property and equipment consists of the following, in thousands:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
Store fixtures and equipment............................... $ 10,385 $ 9,888
Laboratory fixtures and equipment.......................... 1,843 1,632
Other fixtures and equipment............................... 1,971 1,793
Building and improvements.................................. 638 517
Construction in progress................................... 28
---------- ----------
14,865 13,830
Less: accumulated depreciation............................. (8,209) (7,699)
---------- ----------
$ 6,656 $ 6,131
========== ==========
</TABLE>
The Company leases substantially all of its store facilities under
operating leases which expire at various dates through 2002. Certain leases
require payment of property taxes, utilities, common area maintenance and
insurance as well as additional rent if sales exceed specified amounts. Total
rent expense incurred during 1995, 1994 and 1993 approximated $5,000,000,
$5,000,000 and $4,300,000, respectively, including additional rent expense of
$889,000, $930,000 and $843,000, respectively. At December 30, 1995, future
minimum annual rental commitments under noncancelable operating leases were as
follows, in thousands:
<TABLE>
<S> <C>
1996....................................................... $ 3,085
1997....................................................... 2,706
1998....................................................... 2,376
1999....................................................... 1,724
2000....................................................... 1,017
Thereafter................................................. 1,447
-------
$12,355
=======
</TABLE>
NOTE 5 -- NOTES PAYABLE:
Notes payable consist of the following, in thousands:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
Capital lease obligations.................................. $505 $134
Mortgage note payable, interest at 10.75%, interest and
principal payments of $7,000 due monthly until maturity
on August 1, 1996, secured by executive office building
and optical
laboratory facilities.................................... 51 125
------ ------
Total debt................................................. 556 259
Less: current portion...................................... 235 153
------ ------
Total long-term debt....................................... $321 $106
====== ======
</TABLE>
In August 1995, the Company sold certain equipment for an aggregate sales
price of $505,000 and simultaneously leased the equipment back over a term of
three years with monthly payments of $16,000. The sale was recorded as a
financing transaction with no associated gain or loss recognized. The equipment
F-12
<PAGE> 57
NEW WEST EYEWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- NOTES PAYABLE: (CONTINUED)
includes modular fixtures, optical equipment and manufacturing equipment
purchased by the Company in late 1994 and early 1995.
To fund the Company's expansion and advertising needs in early 1996, two
bridge loans were executed with Mesirow Partners VI, a common and preferred
stockholder, and Ronald Weinberg, Chairman of the Board, totaling $700,000. The
loans mature on April 30, 1996, bear interest at an annual rate of 15% and are
secured by a deed of trust on the Company's executive office building and
optical laboratory facilities in Tempe, Arizona.
The Company believes that cash flow from operations, lease financing and
shareholder loans will be sufficient to fund its working capital needs and store
expansion program in 1996. However, there can be no assurances that the Company
will meet its sales targets or obtain additional financing, in which case the
Company will not have sufficient funds to satisfy its working capital needs and
fund its store expansion program.
NOTE 6 -- COMMON STOCK AND WARRANTS:
In connection with the initial public offering, the Company sold warrants
to its primary underwriter and two individuals at a nominal price. The warrants,
which are exercisable for a four-year period commencing December 23, 1994,
entitle the holders to purchase a total of 106,563 shares of the Company's
common stock at an exercise price of 125% of the initial public offering price
of $7.00 per share ($8.75 per share).
In October 1993, the Company established the New West Eyeworks 1993 Stock
Option Plan (the 1993 Plan) which provides for grants to eligible employees and
directors of options to purchase an aggregate of 200,000 shares of the Company's
common stock. Option awards vest evenly over a three-year period and are
exercisable for up to ten years. Changes during 1994 and 1995 in options
outstanding were as follows:
<TABLE>
<CAPTION>
AVERAGE OPTION
SHARES PRICE PER SHARE
------- ---------------
<S> <C> <C>
Outstanding December 25, 1993: --
Granted in fiscal 1994.................................... 108,500 $7.00
-------
Outstanding December 31, 1994:.............................. 108,500
Granted in fiscal 1995.................................... 99,500 $4.10
Cancelled in fiscal 1995.................................. (76,500) $4.99
-------
Outstanding December 30, 1995:.............................. 131,500
=======
Options exercisable at December 30, 1995.................... 58,000
=======
</TABLE>
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 123, Accounting for Stock-Based
Compensation (SFAS123). The Company will adopt only the disclosure provision of
SFAS123 in 1996.
NOTE 7 -- INCOME TAXES:
As of December 30, 1995, the Company had net operating loss carryforwards
of $7.7 million and $6.9 million for regular tax and alternative minimum tax
purposes, respectively, which begin to expire in 2006. The initial public
offering described in Note 1 caused the Company to experience an ownership
change as defined by Section 382(g) of the Internal Revenue Code. As a result,
there will be an annual limitation of approximately $1.0 million on the amount
of net operating loss carryforwards generated prior to the ownership change
which can be utilized to offset the Company's future taxable income.
Additionally, capital share
F-13
<PAGE> 58
NEW WEST EYEWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- INCOME TAXES: (CONTINUED)
transactions among existing shareholders during 1995 may further limit the
Company's ability to utilize its operating loss carryforwards. Future
transactions involving the Company's stock (or rights to acquire such stock)
could also cause an ownership change resulting in additional restrictions on the
Company's ability to utilize its net operating loss carryforwards after the date
of such ownership change.
The Company's deferred tax assets consist of the following, in thousands:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
Net operating loss carryforwards........................... $ 2,611 $ 1,724
Property and equipment..................................... 363 354
Deferred warranty revenues................................. 118 200
Other...................................................... 360 426
------- -------
Deferred tax assets........................................ 3,452 2,704
Less: valuation allowance.................................. (3,452) (2,704)
------- -------
Net deferred tax assets.................................... $ -- $ --
======= =======
</TABLE>
As a result of historical operating losses, the Company has reserved its
net deferred tax assets as of December 30, 1995, and December 31, 1994.
For the year ended December 25, 1993, the Company's results included a
pre-tax operating loss of $1,279,000 and a pre-tax extraordinary gain of
$2,291,000 relating to the retirement of debt. The pre-tax loss generated a
$469,000 income tax benefit. The extraordinary gain is shown net of income taxes
of $617,000 which represent a $469,000 charge relating to the tax benefit
generated by the 1993 operating loss, an $88,000 charge relating to the tax
benefits attributable to the utilization of a net operating loss carryforward
generated by a subsidiary prior to its acquisition by the Company which was
recorded as a reduction in goodwill and $60,000 of actual federal and state
income taxes. Remaining taxes applicable to the extraordinary gain were
eliminated by the application of net operating loss carryforwards.
NOTE 8 -- EMPLOYEE BENEFIT PLAN:
The Company established the New West Eyeworks, Inc. Profit Sharing and
401(k) Savings Plan (the Plan) for the benefit of employees (participants) who
meet certain age and eligibility requirements. The Plan provides for
discretionary profit sharing contributions as well as employer matching
contributions on participants' pre-tax savings deferrals. A profit sharing
contribution was not made in 1995, 1994, or 1993; however, employer matching
contributions approximated $97,000, $71,000, and $38,000 in 1995, 1994 and 1993,
respectively.
NOTE 9 -- RELATED PARTY TRANSACTIONS:
The Company is a party to an expense sharing arrangement whereby it pays an
entity owned by an officer of the Company for certain services provided by such
entity for the Company and as reimbursement for certain expenses incurred
directly on behalf of the Company. The aggregate amount of the payments by the
F-14
<PAGE> 59
NEW WEST EYEWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- RELATED PARTY TRANSACTIONS: (CONTINUED)
Company to such entity, including expenses incurred directly on behalf of the
Company, were approximately $136,000, $140,000 and $117,000 in 1995, 1994 and
1993, respectively.
A director of the Company is a partner in a law firm which provides legal
services to the Company.
NOTE 10 -- COMMITMENTS AND CONTINGENCIES:
As a result of the settlement agreement entered into between the Company
and Saatchi & Saatchi North America, Inc. the Company agreed to pay Saatchi &
Saatchi $1.0 million. $250,000 was paid in late February 1996. The balance of
$750,000 is to be paid in seven installments of $107,142.85 by April 30, May 31,
June 28, July 31, August 30, September 30, and October 31, 1996. These costs are
reflected in accounts payable and accrued expensed in the accompanying
consolidated balance sheet as of December 30, 1995.
From time to time, the Company is involved in legal matters which are
incidental to its operations. In the opinion of management, the ultimate
resolution of these matters is not anticipated to have a material adverse effect
on the Company's financial condition or results of operations.
NOTE 11 -- SUBSEQUENT EVENTS (UNAUDITED):
In June 1996, the Company secured a $2.0 million bank revolving line of
credit. The two bridge loans totaling $700,000 referred to in Note 5 were
retired with the proceeds from the line of credit. The line of credit 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 in
Tempe, Arizona, but excluding furniture, fixtures, and equipment. The loan bears
interest on the principal balance outstanding from time to time at a rate equal
to the lending bank's prime rate plus 2.0% per annum, and is due and payable
monthly. The loan is also secured by guarantees from Mesirow Capital Partners V
and Mesirow Capital Partners VI, each a preferred stockholder, and Ronald E.
Weinberg, Chairman of the Board. Barry J. Feld, President and Chief Executive
Officer, agreed to share in the obligations of the guarantors. William P.
Sutter, Jr. is an officer of the corporate general partner of Mesirow Capital
Partners V and VI and a director of the Company.
The Company was not in compliance with certain financial covenants
contained in the line of credit agreement at June 29, 1996, September 28, 1996
and December 28, 1996. The credit agreement was amended effective October 24,
1996 and January 14, 1997, and the Company believes that it is now in compliance
with all covenants contained in the agreement. There can be no assurance that
the Company will not require additional waivers in the future or, if required,
that the lenders will grant them.
In exchange for the guarantee of the Company's obligations under its line
of credit by such officers and shareholders, the Company issued warrants to them
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
value of the warrants, which was determined by independent valuation to be $0.57
per share, is reflected on the September 28, 1996 balance sheet in other assets
and paid-in capital and will be amortized over the life of the loan.
In December 1996, the Company entered into a bridge loan for $350,000 with
The Second National Bank of Warren (Ohio). The loan matures on June 2, 1997 and
bears interest at a rate equal to the lending bank's prime rate plus 1.5% per
annum, payable upon maturity. The loan is guaranteed by Ronald E. Weinberg,
Chairman of the Board. The Company has paid Mr. Weinberg $7,500 in exchange for
his guaranty of the loan and has agreed to consider further compensation if the
Company fails to repay the loan upon its maturity. Norman C. Harbert, a director
of the Company, is also a director of Second Bancorp Inc., the parent holding
company for The Second National Bank of Warren (Ohio).
F-15
<PAGE> 60
[VARIOUS PHOTOGRAPHS OF GLASSES AND STORE INTERIORS.]
[NEW WEST EYEWORKS LOGO.]
<PAGE> 61
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, ANY SELLING STOCKHOLDERS OR ANY UNDERWRITER. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY OFFER, SOLICITATION OR SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATES AS OF WHICH INFORMATION IS FURNISHED OR
THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................... iii
Information Incorporated by Reference... iii
Prospectus Summary...................... 1
Risk Factors............................ 5
Use of Proceeds......................... 9
Price Range of Common Stock and
Dividends............................. 10
Dilution................................ 10
Capitalization.......................... 11
Selected Financial and Operating Data... 12
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 13
Business................................ 21
Management.............................. 29
Principal and Selling Stockholders...... 32
Certain Transactions.................... 34
Description of Capital Stock............ 35
Underwriting............................ 37
Legal Matters........................... 38
Experts................................. 38
Index to Consolidated Financial
Statements............................ F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
(New West Eyeworks Logo)
1,400,000 SHARES
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
FAHNESTOCK & CO. INC.
MESIROW FINANCIAL, INC.
, 1997
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 62
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Registrant estimates that expenses payable by the Registrant in
connection with the offering described in this registration statement (other
than underwriting discounts and commissions) will be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.................... $ 3,975.52
NASD filing fee........................................................ $ 1,640.80
NASDAQ filing fee...................................................... $ 7,500.00
Pacific Stock Exchange Listing Fee..................................... $ 2,800.00
Printing and engraving expenses........................................ $150,000.00
Accounting fees and expenses........................................... $ 85,000.00
Legal fees and expenses................................................ $135,000.00
Fees and expenses (including legal fees) for qualification under state
securities laws...................................................... $ 50,000.00
Miscellaneous.......................................................... $ 89,083.68
---------
Total.................................................................. $525,000.00
=========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Reference is made to Section 102(b)(7) of the Delaware General Corporation
Law, as amended (the "DGCL"), which enables a corporation in its original
certificate of incorporation or an amendment thereto to eliminate or limit the
personal liability of a director for violations of the director's fiduciary
duty, except (1) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (2) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (3) pursuant
to Section 174 of the DGCL (providing for liability of directors for unlawful
payment of dividends or unlawful stock purchases or redemptions) or (4) for any
transaction from which a director derived an improper personal benefit. The
Registrant's Amended and Restated Certificate of Incorporation, a copy of which
is filed as Exhibit 3.1 to the Registrant's S-1 Registration Statement filed
with the Securities and Exchange Commission (File No. 33-71330), contains
provisions permitted by Section 102(b)(7) of the DGCL.
Reference also is made to Section 145 of the DGCL, which permits a
corporation to indemnify any persons, including officers and directors, who are,
or are threatened to be made, parties to any threatened, pending or completed
legal action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation), by
reason of the fact that such person was an officer, director, employee or agent
of such corporation, or is or was serving at the request of such corporation as
a director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided such officer,
director, employee or agent acted in good faith and in a manner he reasonably
believed to be in or not opposed to the corporation's best interests and, for
criminal proceedings, had no reasonable cause to believe that his conduct was
unlawful. A Delaware corporation may indemnify officers and directors in an
action by or in the right of the corporation under the same conditions, except
that no indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses which
such officer or director actually and reasonably incurred.
The Certificate of Incorporation of the Registrant provides for the
indemnification of directors and officers of the Registrant to the fullest
extent permitted by the DGCL. At present, there is no pending litigation or
proceeding involving a director or officer of the Registrant as to which
indemnification is being sought, nor is any Registrant aware of any threatened
litigation that may result in claims for indemnification by any officer or
director.
II-1
<PAGE> 63
Pursuant to the Underwriting Agreement to be filed by amendment as Exhibit
1.1, to this Registration Statement, the underwriters have agreed to indemnify
the directors, officers and controlling persons of the Registrant against
certain civil liabilities that may be incurred in connection with this offering,
including certain liabilities under the Securities Act of 1933, as amended (the
"Securities Act").
ITEM 16. EXHIBITS
See the Exhibit Index following the signature page to this Registration
Statement.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-2
<PAGE> 64
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this amendment to
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Cleveland, State of Ohio, on February 10, 1997.
NEW WEST EYEWORKS, INC.
By: RONALD E. WEINBERG*
------------------------------------
Ronald E. Weinberg, Chairman of the
Board
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- -------------------------------- ------------------------------------------------ ------------------
<S> <C> <C>
RONALD E. WEINBERG* Chairman of the Board, and Treasurer February 10, 1997
- --------------------------------
Ronald E. Weinberg
BARRY J. FELD* Chief Executive Officer, President and Director February 10, 1997
- --------------------------------
Barry J. Feld
/s/ BYRON S. KRANTZ Secretary and Director February 10, 1997
- --------------------------------
Byron S. Krantz
/s/ DARIUS J. DITALLO Vice President -- Finance and Administration February 10, 1997
- -------------------------------- (Principal Financial and Accounting Officer)
Darius J. DiTallo
DONALD M. GLEKLEN* Director February 10, 1997
- --------------------------------
Donald M. Gleklen
NORMAN C. HARBERT* Director February 10, 1997
- --------------------------------
Norman C. Harbert
LARRY I. POLLOCK* Director February 10, 1997
- --------------------------------
Larry I. Pollock
WILLIAM P. SUTTER, JR.* Director February 10, 1997
- --------------------------------
William P. Sutter, Jr.
*By: /s/ BYRON S. KRANTZ
---------------------------
Byron S. Krantz
Attorney-in-fact
</TABLE>
II-3
<PAGE> 65
EXHIBIT INDEX
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement
4.1 Specimen Common Stock Certificate (Incorporated by reference to the Company's S-1
Registration Statement as filed with the Securities and Exchange Commission (File No.
33-71330))
4.2 Representative's Warrants and Warrant Agreement (Incorporated by reference to the
Company's S-1 Registration Statement as filed with the Securities and Exchange
Commission (File No. 33-71330))
4.3 Registration Rights Agreement between Registrant and MEDIQ ISI and amendments thereto
(Incorporated by reference to the Company's S-1 Registration Statement as filed with
the Securities and Exchange Commission (File No. 33-71330))
4.4 Registration Rights Agreement among Registrant, the Mesirow Group and certain other
stockholders and amendments thereto (Incorporated by reference to the Company's S-1
Registration Statement as filed with the Securities and Exchange Commission (File No.
33-71330))
4.5 MEDIQ Registration Rights Letter Agreement and amendments thereto (Incorporated by
reference to the Company's S-1 Registration Statement as filed with the Securities
and Exchange Commission (File No. 33-71330))
4.6 Amendment No. 2 dated November 2, 1993 to the Registration Rights Agreement dated
August 5, 1988 by and between the Registrant and MEDIQ ISI (Incorporated by reference
to the Company's 10-K for the fiscal year ended 1993)
4.7 Amended and Restated Registration Rights Agreement by and between the Company and
MEDIQ ISI dated April 21, 1995 (Incorporated by reference to the Company's 10-Q for
the quarterly period ended September 30, 1995)
4.8 Warrant to Purchase Common Stock of the Registrant issued on June 10, 1996
(Incorporated by reference to the Form 8-K filed by the Company on June 17, 1996)
4.9 Letter to Ronald E. Weinberg containing First Amendment to Warrant to Purchase Common
Stock of the Registrant, dated December 19, 1996 (Previously filed with this S-2
Registration Statement)
4.10 Form of Letter containing First Amendment to Representative's Warrant, dated December
19, 1996 (Previously filed with this S-2 Registration Statement)
4.11 Form of Representative's Warrant Agreement between the Registrant and Fahnestock &
Co. Inc.
4.12 Form of Letter containing an amendment to the 1993 Representative's Warrant
Agreement, dated February 6, 1997
5.1 Opinion of Kohrman Jackson & Krantz P.L.L.
10.1 Employment Agreement, effective as of August 1, 1993, between the Registrant and
Barry Feld (Incorporated by reference to the Company's S-1 Registration Statement as
filed with the Securities and Exchange Commission (File No. 33-71330))
10.2 Employment Agreement, effective as of August 1, 1993, between the Registrant and
Ronald E. Weinberg (Incorporated by reference to the Company's S-1 Registration
Statement as filed with the Securities and Exchange Commission (File No. 33-71330))
</TABLE>
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<PAGE> 66
<TABLE>
<C> <S>
10.3 Master Lease Agreement dated April 26, 1983 between Fred Meyer, Inc. and Western
States Optical, Inc. (predecessor in interest of Registrant) and amendments thereto
(Incorporated by reference to the Company's S-1 Registration Statement as filed with
the Securities and Exchange Commission (File No. 33-71330))
10.4 Agreement dated August 4, 1988 among Fred Meyer, Inc., MEDIQ Incorporated and
Registrant (Incorporated by reference to the Company's S-1 Registration Statement as
filed with the Securities and Exchange Commission (File No. 33-71330))
10.5 Guarantee dated August 4, 1988 by MEDIQ Incorporated to Fred Meyer, Inc.
(Incorporated by reference to the Company's S-1 Registration Statement as filed with
the Securities and Exchange Commission (File No. 33-71330))
10.6 $250,000 Letter of Credit dated November 1, 1990, of Bank One, Columbus, NA, as
extended (Incorporated by reference to the Company's S-1 Registration Statement as
filed with the Securities and Exchange Commission (File No. 33-71330))
10.7 Industrial Lease dated July 22, 1991, between O.W.N. Properties, Inc. and Western
States Optical, Inc. (predecessor in interest of Registrant) and amendments thereto
(Incorporated by reference to the Company's S-1 Registration Statement as filed with
the Securities and Exchange Commission (File No. 33-71330))
10.8 Form Optometrists' Sublease (Incorporated by reference to the Company's S-1
Registration Statement as filed with the Securities and Exchange Commission (File No.
33-71330))
10.9 Notice of Registration Letter to MEDIQ and MEDIQ ISI dated November 2, 1993, as
amended (including Exhibit B only, other exhibits included elsewhere) (Incorporated
by reference to the Company's S-1 Registration Statement as filed with the Securities
and Exchange Commission (File No. 33-71330))
10.10 Notice of Registration Letter to the Mesirow Group dated November 2, 1993, as amended
(including Exhibit B only, other exhibits included elsewhere) (Incorporated by
reference to the Company's S-1 Registration Statement as filed with the Securities
and Exchange Commission (File No. 33-71330))
10.11 Business Loan Agreement dated as of December 16, 1994 between Bank of America,
Arizona, and the Registrant (Incorporated by reference to the Company's Form 10-K for
the fiscal year ended 1996)
10.12 Master Lease (Incorporated by reference to the Company's 10-Q for the quarterly
period ended September 30, 1995)
10.13 Open-End Promissory Note, dated January 16, 1996, from Mesirow Capital Partners VI
(Incorporated by reference to the Company's Form 10-Q for the quarterly period ended
March 30, 1996)
10.14 Open-End Promissory Note, dated January 16, 1996, from Ronald E. Weinberg
(Incorporated by reference to the Company's Form 10-Q for the quarterly period ended
March 30, 1996)
10.15 Note, dated June 10, 1996, executed by the Registrant in favor of U.S. Bank of
Washington, National Association (Previously filed with this S-2 Registration
Statement)
10.16 Deed of Trust, dated May 31, 1996, executed by Alexis Holding Company, Inc., in favor
of U.S. Bank of Washington, National Association (Previously filed with this S-2
Registration Statement)
10.17 Guaranty, Contribution and Indemnification Agreement, dated June 10, 1996 among the
Registrant, Ronald E. Weinberg, Barry Feld, Mesirow Capital Partners V and Mesirow
Capital Partners VI (Incorporated by reference to the Form 8-K filed by the Company
on June 17, 1996)
</TABLE>
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<TABLE>
<C> <S>
10.18 Credit Agreement between U.S. Bank of Washington, National Association, dated June
10, 1996 (Incorporated by reference to the Form 8-K filed by the Company on June 17,
1996)
10.19 First Amendment to Credit Agreement between U.S. Bank of Washington, National
Association and the Registrant, dated September 16, 1996 (Previously filed with this
S-2 Registration Statement)
10.20 Second Amendment to Credit Agreement between U.S. Bank of Washington, National
Association and the Registrant, dated October 24, 1996 (Previously filed with this
S-2 Registration Statement)
10.21 New West Eyeworks, Inc. Amended & Restated Stock Option Plan, dated February 16, 1996
(Incorporated by reference to the Company's S-8 filed on June 26, 1996)
10.22 Letter to FLAG Partners from the Registrant, dated December 19, 1996 (Previously
filed with this S-2 Registration Statement)
10.23 Letter to Barry Feld from the Registrant, dated December 19, 1996 (Previously filed
with this S-2 Registration Statement)
10.24 Letter to Donald M. Gleklen from the Registrant, dated December 19, 1996 (Previously
filed with this S-2 Registration Statement)
10.25 Letter to Mesirow Capital Partners II, III, IV, V, and VI from the Registrant, dated
December 19, 1996 (Previously filed with this S-2 Registration Statement)
10.26 Security Agreement executed by the Registrant for the benefit of U.S. Bank of
Washington, National Association, dated June 10, 1996 (Previously filed with this S-2
Registration Statement)
10.27 Third Amendment to Credit Agreement between U.S. Bank of Washington, National
Association and the Registrant, dated January 14, 1997 (Previously filed with this
S-2 Registration Statement)
10.28 Loan Agreement between The Second National Bank of Warren (Ohio) and the Registrant,
dated December 24, 1996 (Previously filed with this S-2 Registration Statement)
10.29 Letter to Ronald E. Weinberg from the Registrant, dated January 17, 1997 (Previously
filed with this S-2 Registration Statement)
10.30 Amendment to Employment Agreement between Ronald E. Weinberg and the Registrant,
dated January 1, 1997 (Previously filed with this S-2 Registration Statement)
10.31 Amendment to Employment Agreement between Barry J. Feld and the Registrant, dated
January 1, 1997 (Previously filed with this S-2 Registration Statement)
21.1 Subsidiaries of the Registrant (Incorporated by reference to the Company's S-1
Registration Statement as filed with the Securities and Exchange Commission (File No.
33-71330))
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Kohrman Jackson & Krantz P.L.L. is located in its legal opinion, which can
be found in Exhibit 5.1
24.1 Reference is made to the Signatures section of this Report for the Power of Attorney
contained therein (Previously filed with this S-2 Registration Statement)
</TABLE>
II-6
<PAGE> 1
Exhibit 1.1
1,400,000 Shares
NEW WEST EYEWORKS, INC.
Common Stock
(Par Value $0.01 Per Share)
FORM OF UNDERWRITING AGREEMENT
------------------------------
New York, New York
February __, 1997
Fahnestock & Co. Inc.
As Representative of the
Underwriters
110 Wall Street
New York, New York 10005
Ladies and Gentlemen:
New West Eyeworks, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell upon the terms and conditions herein contained, an
aggregate of 1,000,000 shares of its common stock par value, $0.01 (the "Common
Stock), to the underwriters named in Schedule I (the "Underwriters") for whom
you are acting as representative (the "Representative"). In addition, the
selling stockholders named in Schedule II hereto (the "Selling Stockholders")
propose to sell in the respective amounts set forth opposite their names on
Schedule II hereto, to the several Underwriters an aggregate of 400,000 shares
of Common Stock presently owned by such Selling Stockholders. The 1,000,000
shares of Common Stock to be issued and sold to the Underwriters by the Company
and the 400,000 shares of Common Stock to be sold to the Underwriters by the
Selling Stockholders are hereinafter referred to as "Firm Shares."
In addition, upon the terms and conditions herein contained, the
Company proposes to issue and sell to the several Underwriters up to an
additional 210,000 shares of Common Stock (the "Option Shares").
<PAGE> 2
The Firm Shares and the Option Shares are hereinafter collectively referred to
as the "Shares."
The Company also proposes to issue and sell to the Representative
and its affiliates warrants (the "Representative's Warrants") pursuant to the
Representative's Warrant Agreement between the Company and the Representative,
dated as of February 7, 1997, for the purchase of up to an aggregate of 66,563
shares of Common Stock. The shares of Common Stock issuable upon exercise of the
Representative's Warrants are hereinafter referred to as the "Warrant Shares."
The Company and the Selling Stockholders wish to confirm as follows
their respective agreements with you in connection with the several purchases of
the Shares by the Underwriters.
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, each of the Underwriters as of the
date hereof, the Effective Date (as defined below), the Closing Date (as defined
below) and, if later, the Option Closing Date (as defined below), as follows:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement, and an amendment or
amendments thereto, on Form S-2 (No. 333-18709), including any related
preliminary prospectus for the registration of sale of the Shares, under the
Securities Act of 1933, as amended (the "Act"), which registration statement and
amendment or amendments have been prepared by the Company in conformity with the
requirements of the Act, and the rules and regulations (the "Rules and
Regulations") of the Commission under the Act. The term "preliminary prospectus"
as used herein means a preliminary prospectus as contemplated by Rule 430 or
Rule 430A ("Rule 430A") of the Rules and Regulations included at any time as
part of the registration statement. The Company will promptly file a further
amendment to said registration statement in the form heretofore delivered to the
Underwriters and will not thereafter file any other amendment thereto except in
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<PAGE> 3
accordance with Section 5(a) hereof. Such registration statement, as amended, on
file with the Commission (including the prospectus, financial statements,
schedules, exhibits and all other documents filed as a part thereof or
incorporated therein and all information deemed to be a part thereof as of such
time pursuant to paragraph (b) of Rule 430(A) of the Rules and Regulations) at
the time it becomes effective (the "Effective Date") is hereinafter called the
"Registration Statement" and the form of prospectus in the form first filed with
the Commission pursuant to Rule 424(b) of the Rules and Regulations, or if no
such filing is required, the form of final prospectus included in the
Registration Statement at the Effective Date is hereinafter called the
"Prospectus."
(b) Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any preliminary prospectus,
the Registration Statement or Prospectus or part thereof and no proceedings for
a stop order have been instituted or are pending or, to the best knowledge of
the Company, threatened. The Registration Statement, each preliminary prospectus
and the Prospectus at the time of filing thereof conformed in all material
respects with the requirements of the Act and the Rules and Regulations. At the
Effective Date and at all times subsequent thereto up to the Closing Date and,
if later, the Option Closing Date and during such longer period as the
Prospectus may be required to be delivered in connection with sales by the
Underwriters or a dealer, the Registration Statement and the Prospectus will in
all material respects conform to the requirements of the Act and the Rules and
Regulations.
(c) On the Effective Date and when any post-effective amendment to
the Registration Statement becomes effective, no part of the Registration
Statement or any such amendment did or will contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. At the Effective Date,
the date any amendment or supplement to the Prospectus is filed with the
Commission, the Closing Date and, if later, the Option Closing Date, the
Prospectus did not and will not contain any untrue statement of a material fact
or omit to state any material fact necessary to make the
- 3 -
<PAGE> 4
statements therein, in light of the circumstances under which they were made,
not misleading. On the date any preliminary prospectus or any supplement thereto
was issued, such preliminary prospectus or supplement did not contain any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The foregoing representations and warranties in Section
1(b) hereof and this Section 1(c) do not apply to any statements or omissions
made in reliance on and in conformity with information relating to any
Underwriter furnished in writing to the Company by or on behalf of such
Underwriter expressly for inclusion in the Registration Statement or the
Prospectus or any amendment or supplement thereto. For all purposes of this
Agreement, the name of the Representative as set forth on the front and back
covers of, and the first 7 paragraphs and the last paragraph under the
"Underwriting" section of any preliminary prospectus or the Prospectus,
constitute the only information relating to any Underwriter furnished in writing
to the Company by or on behalf of such Underwriter expressly for inclusion in
any preliminary prospectus, the Prospectus or the Registration Statement.
(d) Each of the Company and Alexis Holding Company, Inc. (the
"Subsidiary"), which is the only subsidiary, other than Eye Care Partners, an
Arizona general partnership, which is not a significant subsidiary (as defined
in the Rules and Regulations) of the Company, has been duly organized and is
validly existing as a corporation in good standing under the laws of the state
of its incorporation. Except for the Company's ownership of the stock of the
Subsidiary, and the Company's ownership of any subsidiaries which are not
significant subsidiaries and as set forth in the Prospectus, neither the Company
nor the Subsidiary owns any equity or long-term debt interest in any
corporation, partnership, trust, joint venture or other business entity. The
Company and the Subsidiary are each duly qualified and licensed and in good
standing as a foreign corporation in each jurisdiction in which its ownership or
leasing of any properties or the character of its operations requires such
qualification or licensing, except where the failure to qualify or be licensed
would not have a material adverse effect on the business, properties, business
prospects, results
- 4 -
<PAGE> 5
of operations or condition (financial or otherwise) of the Company and the
Subsidiary taken as a whole. The Company owns all of the outstanding capital
stock of the Subsidiary free and clear of any liens, charges, claims,
encumbrances, pledges, security interests, defects or other restrictions of any
kind whatsoever; such stock has been validly issued without violation of any
preemptive or similar rights and is fully paid and non-assessable. Each of the
Company and the Subsidiary has all requisite power and authority (corporate and
otherwise), and has obtained any and all necessary authorizations, approvals,
orders, licenses, certificates, franchises and permits of and from all
governmental or regulatory officials and bodies (including, without limitation,
those having jurisdiction over environmental or similar matters), to own or
lease its properties and conduct its business as described in the Prospectus,
except where the failure to obtain such authorizations, approvals, orders,
licenses, certificates, franchises or permits would not have a material adverse
effect on the business, properties, business prospects, results of operations or
condition (financial or otherwise) of the Company and the Subsidiary taken as a
whole; each of the Company and the Subsidiary is and is doing business in
compliance in all material respects with all such authorizations, approvals,
orders, licenses, certificates, franchises and permits and all federal, state,
local and foreign laws, rules and regulations; and neither the Company nor the
Subsidiary has received any notice of proceedings relating to the revocation or
modification of any such authorization, approval, order, license, certificate,
franchise, or permit. The disclosures in the Registration Statement concerning
the effects of laws, rules and regulations on the Company's and the Subsidiary's
business as currently conducted and as contemplated are correct in all material
respects and do not omit to state a material fact necessary to make the
statements contained therein not misleading in light of the circumstances in
which they were made. Complete and correct copies of the certificate of
incorporation and of the by-laws of the Company and the Subsidiary and all
amendments thereto have been delivered to the Representative, and, except as set
forth in the Registration Statement, no changes therein will be made subsequent
to the date hereof and prior to the Closing Date or, if later, the Option
Closing Date.
- 5 -
<PAGE> 6
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization" and will
have the adjusted capitalization set forth therein on the Closing Date and, if
later, the Option Closing Date, based upon the assumptions set forth therein.
Neither the Company nor the Subsidiary is a party to or bound by any instrument,
agreement or other arrangement providing for it to issue any capital stock,
rights, warrants, options or other securities, except for this Agreement,
warrants issued under the Representative's Warrant Agreement between the Company
and Reich & Co., Inc., dated December 31, 1993 and as described in the
Prospectus. The Shares, the Representative's Warrants and the Warrant Shares
when issued and paid for will conform, and all other securities issued or
issuable by the Company conform, to the description thereof contained in the
Registration Statement and the Prospectus. All issued and outstanding securities
of the Company have been duly authorized and validly issued and, in the case of
equity securities, are fully paid and non-assessable; the holders of securities
of the Company have no rights of rescission with respect thereto, and are not
subject to personal liability by reason of being such holders; and none of such
securities were issued in violation of the preemptive or similar rights of any
holders of any security of the Company except as have been duly waived. The
Shares, the Representative's Warrants and the Warrant Shares are not and will
not be subject to any preemptive or similar rights, have been duly authorized
and, when issued, paid for and delivered in accordance with the terms hereof and
thereof, will be validly issued, fully paid and non-assessable and will conform
to the description thereof contained in the Prospectus; the holders thereof will
not be subject to any liability solely as such holders; all corporate action
required to be taken for the authorization, issuance and sale of the Shares, the
Representative's Warrants and the Warrant Shares has been duly and validly
taken; and the certificates representing the Shares, the Representative's
Warrants and the Warrant Shares will be in due and proper form. Upon the
issuance and delivery pursuant to the terms hereof of the Common Stock to be
sold by the Company hereunder, the Underwriters will acquire good and marketable
title to such Common Stock free and clear of any lien, charge,
- 6 -
<PAGE> 7
claim, encumbrance, pledge, security interest, defect or other restriction of
any kind whatsoever.
(f) The consolidated financial statements of the Company and the
Subsidiary, together with the related notes and schedules thereto, included in
the Registration Statement and the Prospectus fairly present the consolidated
financial position, results of operations and cash flows of the Company and the
Subsidiary at the respective dates and for the respective periods to which they
apply; and such financial statements have been prepared in conformity with
generally accepted accounting principles and the Rules and Regulations,
consistently applied throughout the periods involved. No other financial
statements or schedules of the Company are required by the Act or the Rules and
Regulations to be included in the Registration Statement or the Prospectus.
Except as disclosed in the Registration Statement and the Prospectus, there has
been no material adverse change or development involving a prospective change in
the condition (financial or otherwise), results of operations, business,
properties, or business prospects of the Company and the Subsidiary taken as a
whole since the date of the financial statements included in the Registration
Statement and the Prospectus and the outstanding debt, the property, both
tangible and intangible, and the business of each of the Company and the
Subsidiary, conform in all material respects to the descriptions thereof
contained in the Registration Statement and the Prospectus.
(g) Each of the Company and the Subsidiary (i) has paid all
federal, state, local, and foreign taxes for which it is liable, including, but
not limited to, withholding taxes and amounts payable under Chapters 21 through
24 of the Internal Revenue Code of 1986 (the "Code"), and has furnished all
information returns it is required to furnish pursuant to the Code, except where
the failure to pay such taxes or furnish such returns would not have a material
adverse effect on the business, properties, business prospects, results of
operations or condition (financial or otherwise) of the Company and the
Subsidiary taken as a whole, (ii) has established adequate reserves for such
taxes which are not due and payable, and (iii) has not received any notice of
any tax deficiency or claims outstanding, proposed or assessed against it.
- 7 -
<PAGE> 8
(h) No transfer tax, stamp duty or other similar tax is payable by
or on behalf of the Underwriters in connection with (i) the issuance by the
Company of the Shares, (ii) the purchase by the Underwriters of the Shares from
the Company or (iii) the consummation by the Company of any of its obligations
under this Agreement.
(i) The Company and the Subsidiary maintain insurance of the types,
against the risks and in amounts adequate for their business and the Company
believes customary to their industry, all of which insurance is in full force
and effect.
(j) Except as disclosed in the Prospectus, there is no action,
suit, proceeding, inquiry or investigation (including, without limitation, those
relating to environmental or similar matters) pending or, to the knowledge of
the Company, threatened against or involving the properties or business of the
Company or the Subsidiary or against any of the officers or directors of the
Company or its Subsidiary in their capacity as such which (i) relates to the
capital stock of the Company or this Agreement, the Representative's Warrant
Agreement or any action taken or to be taken pursuant to or in connection with
any of them (ii) is required to be disclosed in the Prospectus which is not
completely and accurately disclosed therein to the extent required, or (iii)
might in the event of an unfavorable ruling materially and adversely affect the
Company and the Subsidiary taken as a whole or their combined condition
(financial or otherwise), results of operations, business, properties, or
business prospects.
(k) The Company has all necessary corporate power and authority to
enter into this Agreement and the Representative's Warrant Agreement and to
consummate the transactions provided for in such agreements; and this Agreement
and the Representative's Warrant Agreement have each been duly authorized,
executed and delivered by the Company. This Agreement and the Representative's
Warrant Agreement each constitute a legal, valid and binding agreement of the
Company enforceable against the Company in accordance with its terms (assuming
due execution and delivery thereof by the Underwriters, the Representative or
parties other than the Company to the Representative's
- 8 -
<PAGE> 9
Warrant Agreement, as the case may be) except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application relating to or affecting enforcement of
creditors' rights and the application of equitable principles in any action,
legal or equitable, and except as rights to indemnity or contribution may be
limited by applicable law. The Company's execution and delivery of this
Agreement and the Representative's Warrant Agreement, its performance hereunder
and thereunder, its consummation of the transactions contemplated herein and
therein, and the conduct of its business as described in the Registration
Statement and the Prospectus, does not and will not (with the giving of notice
or the passage of time or both) conflict with or result in any breach or
violation of any of the terms or provisions of, or constitute a default under,
or result in the creation or imposition of any lien, charge, claim, encumbrance,
pledge, security interest, defect or other restriction of any kind whatsoever
upon, any property or assets (tangible or intangible) of the Company or the
Subsidiary pursuant to the terms of (i) the articles of incorporation or by-laws
of any of the Company or the Subsidiary, (ii) any material license, contract,
indenture, mortgage, deed of trust, voting trust agreement, stockholders
agreement, note, indebtedness, loan or credit agreement or any other material
agreement or instrument to which the Company or the Subsidiary is a party or by
which any of them is or may be bound or to which any of their properties or
assets (tangible or intangible) is or may be subject, or (iii) in any material
respect, any statute, judgment, decree, order, rule or regulation applicable to
the Company or the Subsidiary of any arbitrator, court, regulatory body or
administrative agency or other governmental agency or body (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, having jurisdiction over any of the Company or the
Subsidiary or any of their respective activities or properties.
(l) No consent, approval, authorization or order of, and no filing
with, any court, regulatory body, government agency or other body, domestic or
foreign, is required for the performance of this Agreement and the transactions
contemplated hereby except such as have been or will be obtained under the
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<PAGE> 10
Act, the Rules and Regulations, the Rules of Conduct of the National Association
of Securities Dealers, Inc. or under state securities or Blue Sky laws in
connection with the Underwriters' purchase and distribution of the Shares to be
sold by the Company hereunder and the Representative's Warrant Agreement.
(m) All agreements filed as exhibits to the Registration Statement
to which either the Company or the Subsidiary is a party or by which either of
them may be bound or to which any of their respective assets, properties or
businesses may be subject have been duly and validly authorized, executed and
delivered by the Company or the Subsidiary, as the case may be, and constitute
the legal, valid and binding agreements of the Company or the Subsidiary, as the
case may be, enforceable against them in accordance with their respective terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting the enforcement of creditors' rights and the
application of equitable principles in any action, legal or equitable, and
except as rights to indemnity or contribution may be limited by applicable law).
The descriptions in the Registration Statement of contracts and other documents
are complete and accurate to the extent required by the Act. There are no
contracts or other documents which are required by the Act to be described in
the Registration Statement or filed as exhibits to the Registration Statement
which are not described or filed as required, and the exhibits which have been
filed are complete and correct copies of the documents of which they purport to
be copies.
(n) Subsequent to the respective dates as of which information is
set forth in the Registration Statement and Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, neither the Company
nor the Subsidiary has (i) issued any debt securities or incurred any liability
or obligation, direct or contingent, for borrowed money, other than capital
leases involving less than $50,000, (ii) entered into any transaction other than
in the ordinary course of business, or (iii) declared or paid any dividend or
made any other distribution on or in respect of its capital stock.
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<PAGE> 11
(o) No default (and no condition which with the giving of notice or
the passage of time or both would become a default) exists in the due
performance and observance of any term, covenant or condition of any license,
contract, indenture, mortgage, installment sale agreement, lease, deed of trust,
voting trust agreement, stockholders agreement, note, loan or credit agreement,
or any other agreement or instrument evidencing an obligation for borrowed
money, or any other agreement or instrument to which the Company or the
Subsidiary is a party or by which the Company or the Subsidiary may be bound or
to which any of the property or assets (tangible or intangible) of the Company
or the Subsidiary is subject or affected, except where such default would not
have a material adverse effect on the business, properties, business prospects,
results of operations or condition (financial or otherwise) of the Company and
the Subsidiary taken as a whole. Neither the Company nor the Subsidiary is, nor
at the Closing Date or, if later the Option Closing Date, will either of them
be, in violation of any provision of its certificate of incorporation or
by-laws.
(p) The Subsidiary has no employees. The Company has generally
enjoyed a satisfactory employer-employee relationship with its employees and is
in compliance in all material respects with all federal, state, local, and
foreign laws and regulations to which it is subject respecting employment and
employment practices, terms and conditions of employment and wages and hours.
Except as disclosed in the Prospectus, there are no pending investigations
involving the Company by the U.S. Department of Labor, or any other governmental
agency responsible for the enforcement of such federal, state, local, or foreign
laws and regulations. There is no unfair labor practice charge or complaint
against the Company pending before the National Labor Relations Board or any
strike, picketing, boycott, dispute, slowdown or stoppage pending or to the
knowledge of the Company threatened against or involving the Company, or to the
knowledge of the Company any predecessor entity, and to the knowledge of the
Company none has ever occurred. No representation question exists respecting the
employees of the Company. The Company is not, has not been party to, nor is
engaged in discussions contemplating, any collective bargaining agreement.
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<PAGE> 12
Except for matters disclosed in the Registration Statement and Prospectus, no
labor dispute with the employees of the Company exists, or, to the best
knowledge of the Company, is imminent.
(q) Neither the Company nor the Subsidiary maintains, sponsors or
contributes to any program or arrangement (an "ERISA Plan") that is an "employee
pension benefit plan," an "employee welfare benefit plan," or a "multiemployer
plan" as such terms are defined in Sections 3(2), 3(1) and 3(37), respectively,
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")
other than (i) as disclosed in the Registration Statement and Prospectus and
(ii) employee welfare benefit plans which are not material to the Company and
the Subsidiary taken as a whole and which do not provide post-retirement health,
medical or life insurance benefits. Neither the Company nor the Subsidiary
maintains or contributes to, or has a material liability, contingent or
otherwise, to, a defined benefit plan, as defined in Section 3(35) of ERISA. No
ERISA Plan (or any trust created thereunder) has engaged in a "prohibited
transaction" within the meaning of Section 406 of ERISA or Section 4975 of the
Code, which could subject the Company or the Subsidiary to any tax penalty on
prohibited transactions and which has not adequately been corrected. Each ERISA
Plan is in compliance with all material reporting, disclosure and other
requirements of the Code and ERISA as they relate to any such ERISA Plan. The
Company has obtained a determination letter from the Internal Revenue Service
with respect to each ERISA Plan which is intended to comply with Code Section
401(a), stating that such ERISA Plan and the attendant trust are qualified
thereunder. Neither the Company nor the Subsidiary has any liability with
respect to any "multiemployer plan," whether on account of any complete or
partial withdrawal from any such plan or otherwise.
(r) Except as disclosed in the Registration Statement and the
Prospectus, no holder of any securities of the Company or of any options,
warrants or other convertible or exchangeable securities of the Company
exercisable for or convertible or exchangeable for securities of the Company has
the right to include any securities issued by the Company in the Registration
Statement or any registration statement to
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<PAGE> 13
be filed by the Company within eighteen (18) months of the date hereof or to
require the Company to file a registration statement under the Act during such
eighteen (18) month period and any such rights disclosed in the Registration
Statement and the Prospectus have been duly waived with respect to the offering
of the Shares hereunder.
(s) Neither the Company nor the Subsidiary has taken, and each of
the Company and the Subsidiary will use its best efforts to cause each of its
respective officers, directors and affiliates (within the meaning of the Rules
and Regulations) not to take, directly or indirectly, any action designed to or
which has constituted or which might reasonably be expected to cause or result
in, stabilization or manipulation under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), of the price of any security of the Company. The
Company has not distributed any offering material in connection with the
offering or sale of the Shares other than the Registration Statement, any
preliminary prospectus, the Prospectus or any other materials, if any, permitted
by the Act.
(t) Except as otherwise disclosed in the Prospectus and to the best
knowledge of the Company, none of the patents, patent applications, trademarks,
service marks, trade names and copyrights, and licenses and rights to the
foregoing presently owned or held by the Company and the Subsidiary, conflict
with the right of any other person or entity or are in dispute. To the best
knowledge of the Company, each of the Company and the Subsidiary (i) owns or has
the right to use, free and clear of all liens, charges, claims, encumbrances,
pledges, security interests, defects or other restrictions of any kind
whatsoever, all patents, trademarks, service marks, trade names and copyrights,
technology and licenses and rights with respect to the foregoing, used in the
conduct of its business as now conducted or proposed to be conducted without
infringing upon or otherwise acting adversely to the right or claimed right of
any person, corporation or other entity under or with respect to any of the
foregoing and (ii) is not obligated or under any liability whatsoever to make
any payments by way of royalties, fees or otherwise to any owner or licensee of,
or other claimant to, any patent, trademark, service mark, trade name,
copyright, knowhow,
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<PAGE> 14
technology or other intangible asset, with respect to the use thereof or in
connection with the conduct of its business or otherwise, except where such
obligation or liability would not have a material adverse effect on the
business, properties, business prospects, results of operations or condition
(financial or otherwise) of the Company and the Subsidiary taken as a whole.
(u) The Company and the Subsidiary each owns and has the
unrestricted right to use all trade secrets, know-how (including all other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures), inventions, designs, processes, works of authorship, computer
programs and technical data and information (collectively herein "intellectual
property") that are material to its business, properties and operations, free
and clear of and without violating any right, lien, or claim of others,
including without limitation, former employers of its employees.
(v) The Company and the Subsidiary each have good and marketable
title to, or valid and enforceable leasehold estates in, all items of real and
personal property described in the Prospectus as owned or leased by it, as the
case may be, in each case free and clear of all liens, charges, claims,
encumbrances, pledges, security interests, defects, or other restrictions of any
kind whatsoever, except as disclosed in the Registration Statement and in the
Prospectus and those which are not material and do not and will not materially
interfere with the use made and proposed to be made of such properties by the
Company and the Subsidiary.
(w) Price Waterhouse LLP (the "Accountants"), whose report is filed
with the Commission as a part of the Registration Statement, are independent
certified public accountants as required by the Act and the Rules and
Regulations. The statements included in the Registration Statement or the
Prospectus with respect to the Accountants pursuant to Item 509 of Regulation
S-K of the Rules and Regulations are true and correct to the extent required by
the Act.
(x) Except as disclosed in the Registration Statement and the
Prospectus and as set forth herein
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<PAGE> 15
and in the Agreement Among Underwriters dated the date hereof, there are no
claims, payments, security issuances, arrangements or understandings for
services in the nature of a finder's or origination fee with respect to the sale
of the Shares hereunder or any other arrangements, agreements, understandings,
payments or security issuance with respect to the Company or any of its
officers, directors, employees or affiliates that may affect the Underwriters'
compensation, as determined by the National Association of Securities Dealers,
Inc. ("NASD").
(y) The Company will maintain its listing on the Automated
Quotation System of the National Association of Securities Dealers, Inc.
("NASDAQ") and on the Pacific Stock Exchange and will list the Shares issued by
the Company in the offering on the NASDAQ and Pacific Stock Exchange. The
Company agrees to apply for inclusion on the Nasdaq Stock Market's National
Market when it becomes eligible.
(z) Neither the Company, the Subsidiary, nor any of their
respective officers, employees, agents or any other person acting on behalf of
any of the Company or the Subsidiary, has, directly or indirectly, given or
agreed to give any money, gift or similar benefit (other than legal price
concessions to customers in the ordinary course of business) to any customer,
supplier, employee or agent of a customer or supplier, or official or employee
of any governmental agency (domestic or foreign) or instrumentality of any
government (domestic or foreign) or any political party or candidate for office
(domestic or foreign) or other person who was, is, or may be in a position to
help or hinder the business of the Company or the Subsidiary (or assist the
Company or the Subsidiary in connection with any actual or proposed transaction)
which (a) might subject the Company or the Subsidiary or any other such person
to any material damage or penalty in any civil, criminal or governmental
litigation or proceeding (domestic or foreign), (b) if not given in the past,
might have had a materially adverse effect on the assets, business or operations
of the Company and the Subsidiary taken as a whole, or (c) if not continued in
the future, might materially and adversely affect the condition (financial or
otherwise), results of operations, business, properties, or business prospects
of the Company and the Subsidiary taken as a
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<PAGE> 16
whole. Each of the Company's and the Subsidiary's internal accounting controls
are sufficient to cause each of the Company and the Subsidiary to comply with
the Foreign Corrupt Practices Act of 1977, as amended.
(aa) Except as set forth in the Prospectus, no officer, director or
stockholder of any of the Company or the Subsidiary, or any "affiliate" or
"associate" (as these terms are defined in Rule 405 promulgated under the Rules
and Regulations) of any such person or entity or the Company or the Subsidiary,
has or has had in the Company's last full fiscal year, either directly or
indirectly, (i) at least a 10% equity interest or any other material interest in
any person or entity which (A) furnishes or sells services or products which are
furnished or sold or are proposed to be furnished or sold by either the Company
or the Subsidiary in an amount in excess of 5% of: (x) the Company's
consolidated gross revenues for its last full fiscal year; or (y) the person's
or entity's consolidated gross revenues for its last full fiscal year; or which
are otherwise material to the Company and the Subsidiary taken as a whole, or
(B) purchases from or sells or furnishes to either the Company or the Subsidiary
any goods or services in an amount in excess of 5% of: (x) the Company's
consolidated gross revenues for its last full fiscal year; or (y) the person's
or entity's consolidated gross revenues for its last full fiscal year; or which
are otherwise material to the Company and the Subsidiary taken as a whole, or
(ii) a beneficial interest in any material contract or agreement to which the
Company or the Subsidiary is a party or by which any of them may be bound or
affected. Except as set forth in the Prospectus under "Certain Transactions",
there are no existing material agreements, arrangements, understandings or
transactions, or proposed material agreements, arrangements, understandings or
transactions, between or among any of the Company or the Subsidiary, on the one
hand, and any officer, director, or stockholder of any of the Company or the
Subsidiary, or any affiliate or associate of any such person or entity, and each
such agreement, arrangement, understanding or transaction disclosed is on terms
at least as favorable to the Company and the Subsidiary as those which they
could have obtained from unrelated parties.
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<PAGE> 17
(bb) Any certificate signed by any officer of the Company and
delivered to the Underwriters or to the Underwriters' counsel shall be deemed a
representation and warranty by the Company to the Underwriters as to the matters
covered thereby.
(cc) On or before the Closing Date, the Company will have amended
the employment agreements with each of Ronald E. Weinberg and Barry Feld to
extend them until December 31, 1999. The Company has obtained a key-man life
insurance policy in the amount of $2,000,000 on the life of Mr. Feld, which
policy is in full force and effect, is owned by the Company and names the
Company as the beneficiary.
(dd) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(ee) The Company is not an "investment company" or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an "investment
company," as such terms are defined in the Investment Company Act of 1940, as
amended.
(ff) The Company is in compliance with its covenants under that
Credit Agreement between the Company and U.S. Bank of Washington, National
Association (the "Bank"), as amended through the date hereof and that Loan
Agreement between the Company and The Second National Bank of Warren (the
"Second Bank"), as amended through the date hereof, and is not in breach of any
representation and warranty thereunder. The Company has obtained all requisite
consents or approvals required from the Bank and Second Bank for the
transactions contemplated by this Agreement and
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<PAGE> 18
such consents and approvals are in full force and effect.
2. Representations and Warranties of the Selling Stockholders. Each
Selling Stockholder represents and warrants to, and agrees with, the
Underwriters as of the date hereof, the Effective Date, the Closing Date and, if
later, the Option Closing Date, as follows:
(a) Such Selling Stockholder has now and (if such Selling
Stockholder has agreed to sell Shares on the Option Closing Date) will have on
the Option Closing Date, good, valid and marketable title to the Shares to be
sold by such Selling Stockholder to the Underwriters, free and clear of any
liens, charges, claims, encumbrances, pledges, security interests, restrictions,
shareholders' agreements, voting trusts, community property rights or defects in
title whatsoever; such Selling Stockholder has full right, power and authority
to sell, transfer and deliver the Shares to be sold by it under this Agreement;
and upon delivery of such Shares and payment of the purchase price therefor as
contemplated in this Agreement, each of the Underwriters will receive good and
marketable title to the Shares purchased by it from the Selling Stockholders,
free and clear of any lien, charge, claim, encumbrance, pledge, security
interest, restriction, shareholders' agreement, voting trust, community property
right or defect in title whatsoever; and other than as described in the
Registration Statement and the Prospectus or created hereby, there are no
outstanding options, warrants, rights, or other agreements or arrangements
requiring such Selling Stockholder at any time to transfer any Common Stock to
be sold hereunder by such Selling Stockholder.
(b) Such Selling Stockholder has all necessary partnership
power and authority to enter into this Agreement and a Custody Agreement and
Power of Attorney (as defined in paragraph (h) below) and to consummate the
transactions provided for herein and therein; and each of this Agreement and a
Custody Agreement and Power of Attorney has been duly authorized, executed and
delivered by such Selling Stockholder. Each of this Agreement and Custody
Agreement and Power of Attorney constitutes a legal, valid and binding agreement
of such Selling Stockholder
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<PAGE> 19
enforceable against such Selling Stockholder in accordance with its respective
terms (assuming due execution and delivery thereof by the Underwriters and the
Company or the Custodian (as defined below), as the case may be, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and the application of equitable
principles in any action, legal or equitable, and except as rights to indemnity
or contribution may be limited by applicable law. Such Selling Stockholder's
execution and delivery of each of this Agreement and a Custody Agreement and
Power of Attorney, the performance hereunder and thereunder and consummation of
the transactions contemplated herein and therein by such Selling Stockholder,
does not and will not (with the giving of notice or the passage of time or both)
conflict with or result in a breach of, or default under, the partnership
agreement and other similar organizational documents of such Selling
Stockholder, any material indenture, mortgage, deed of trust, voting trust
agreement, stockholders' agreement, note, loan or credit agreement, or other
agreement or instrument to which such Selling Stockholder is a party or by which
such Selling Stockholder is or may be bound or to which any of its property is
or may be subject, or, in any material respect, any indebtedness, statute,
judgment, decree, order, rule or regulation applicable to such Selling
Stockholder of any arbitrator, court, regulatory body or administrative agency
or other governmental agency or body, domestic or foreign, having jurisdiction
over such Selling Stockholder or any of its activities or properties.
(c) Such Selling Stockholder has reviewed and is familiar
with the Registration Statement, the registration statement originally filed
with the Commission and each amendment thereto, the Prospectus and each
preliminary prospectus. Neither the Registration Statement nor the Prospectus
contains any untrue statement (i) of a material fact relating to such Selling
Stockholder or omits to state any material fact relating to such Selling
Stockholder and (ii) to the actual knowledge of such Selling Stockholder of any
other material fact, or omits to state any other material fact, in each case
necessary in order to make the statements therein, as to the Prospectus in the
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<PAGE> 20
light of the circumstances under which they were made, not misleading. The
aggregate obligations of a Selling Stockholder pursuant to (ii) of this Section
2 and any recovery thereunder shall (1) be proportional to the number of Shares
sold by such Selling Stockholder to the total number of Shares sold in the
offering, and (2) together with any other liability of such Selling Stockholder
referred to in Section 8(f), not exceed the product of (A) the public offering
price per share for the Common Stock less the applicable underwriting discount
times (B) the number of Shares sold by such Selling Stockholder. All information
furnished by or on behalf of such Selling Stockholder for use in the
Registration Statement, any preliminary prospectus, the Prospectus, or any
amendment or supplement thereto is correct and complete in all material
respects.
(d) There is no action, suit, proceeding, inquiry or
investigation, pending or, to the knowledge of such Selling Stockholder,
threatened against such Selling Stockholder or to which its property is subject
which (i) challenges the validity of this Agreement or of any action taken or to
be taken by such Selling Stockholder hereunder or (ii) which is required to be
disclosed in the Registration Statement and the Prospectus.
(e) Such Selling Stockholder has not taken, and will not
take, directly or indirectly, any action designed to or which has constituted or
which might reasonably be expected to cause or result in stabilization or
manipulation under the Exchange Act of the price of any security of the Company
to facilitate the sale or resale of the Shares.
(f) Any certificate signed by or on behalf of such Selling
Stockholder and delivered to the Underwriters or to counsel for the Underwriters
shall be deemed a representation and warranty by such Selling Stockholder to the
Underwriters as to the matters covered thereby.
(g) As soon as such Selling Stockholder is advised thereof,
such Selling Stockholder will advise the Representative and confirm such advice
in writing, (i) of receipt by such Selling Stockholder, or by any representative
of such Selling Stockholder, of any communication from the Commission relating
to the
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<PAGE> 21
Registration Statement, the Prospectus or any preliminary prospectus, or any
notice or order of the Commission relating to the Company or such Selling
Stockholder in connection with the transactions contemplated by this Agreement
and (ii) of the happening of any event relating to such Selling Stockholder
during any time when a prospectus relating to the Shares is required to be
delivered that in the judgment of such Selling Stockholder makes any statement
relating to such Selling Stockholder made in the Registration Statement or the
Prospectus untrue or that requires the making of any changes in the Registration
Statement or the Prospectus in order to make the statements therein, in light of
the circumstances in which they were made, not misleading.
(h) Each of the Selling Stockholders has executed and
delivered a custody agreement and power of attorney (the "Custody Agreement and
Power of Attorney"), among Mesirow Financial, Inc. (the "Custodian"), Thomas E.
Galuhn, Daniel P. Howell and William P. Sutter, Jr. (hereinafter collectively
and individually referred to as the "Attorney-in-Fact") and such Selling
Stockholder, to the Representative. Certificates in negotiable form, with blank
stock powers, for the Shares have been placed in custody, for the purpose of
making delivery of such Shares under this Agreement and the Custody Agreement
and Power of Attorney. Each of the Selling Stockholders agrees that the Shares
represented by the certificates held in custody for it under the Custody
Agreement and Power of Attorney are for the benefit of and coupled with and
subject to the interest hereunder of the Custodian, the Attorney-in-Fact, the
Underwriters and the Company, that the arrangements made by such Selling
Stockholder for such custody and the appointment of the Custodian and the
Attorney-in-Fact by such Selling Stockholder are irrevocable, and that the
obligations of such Selling Stockholder hereunder shall not be terminated by
operation of law, whether by the liquidation of such Selling Stockholder or the
occurrence of any other event. If such Selling Stockholder should be liquidated
or if any other such event should occur before the delivery of the Shares
hereunder, certificates for the Shares shall be delivered by the Custodian in
accordance with the terms and conditions of this Agreement and actions taken by
the Attorney-in-Fact and the Custodian pursuant to the
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<PAGE> 22
Custody Agreement and Power of Attorney shall be as valid as if such liquidation
or other event had not occurred, regardless of whether or not the Custodian or
the Attorney-in-Fact, or either of them, shall have received notice thereof.
(i) Such Selling Stockholder will deliver to the
Representative prior to or on the Effective Date a properly completed and
executed United States Treasury Department Form W-9 (or other applicable form or
statement specified by Treasury Department regulations in lieu thereof).
3. Purchase, Sale and Delivery of the Shares.
(a) On the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company agrees to sell an aggregate of
1,000,000 Firm Shares and the Selling Stockholders severally agree to sell an
aggregate of 400,000 Firm Shares to the Underwriters in the respective amounts
set forth in Schedule II, and the Underwriters, severally and not jointly, agree
to purchase from the Company and such Selling Stockholders, at the price per
share set forth below, the number of Firm Shares set forth in Schedule I
opposite the name of such Underwriter, subject to such adjustment as the
Representative in its discretion shall make to eliminate any sales or purchases
of fractional shares, plus any additional numbers of Firm Shares which such
Underwriter may become obligated to purchase pursuant to the provisions of
Section 12 hereof.
(b) In addition, on the basis of the representations, warranties,
covenants and agreements, herein contained, but subject to other terms and
conditions herein set forth, the Company hereby grants an option to the
Underwriters to purchase up to an additional 105,000 Option Shares and the
Selling Stockholder so listed in Schedule II hereby grants an option to the
Underwriters to purchase up to an additional 105,000 Option Shares, each Option
Share to be purchased at the same purchase price per share set forth below to be
paid by the Underwriters to the Company for the Firm Shares. The options granted
hereby will expire 30 days after the effective date of this Agreement and may be
exercised in whole or in part
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<PAGE> 23
from time to time only for the purpose of covering over-allotments which may be
made in connection with the offering and distribution of the Firm Shares upon
notice by the Representative to the Company and the Selling Stockholder setting
forth the number of Option Shares as to which the several Underwriters are then
exercising the option and the time and date of payment and delivery for such
Option Shares. Option Shares shall be sold by the Company and the Selling
Stockholder in the ratio of one to one, subject to such adjustment as the
Representative in its discretion shall make to eliminate any sale or purchase of
fractional shares. Any such time and date of delivery (an "Option Closing Date")
shall be determined by the Representative, but shall not be later than three
full business days after the exercise of said option, nor in any event prior to
Closing Date, as hereinafter defined, unless otherwise agreed upon by the
Representative and the Company and such Selling Stockholder. In the event such
option is exercised, each of the Underwriters, acting severally and not jointly,
shall purchase that proportion of the total number of Option Shares then being
purchased which the number of Firm Shares set forth in Schedule I hereto
opposite the name of such Underwriter bears to the total number of Firm Shares,
subject in each case to such adjustments as the Representative in its discretion
shall make to eliminate any sales or purchases of fractional shares. Nothing
herein contained shall obligate the Underwriters to make any over-allotments. No
Option Shares shall be delivered unless the Firm Shares shall be simultaneously
delivered or shall theretofore have been delivered as herein provided.
(c) Payment of the purchase price for, and delivery of certificates
for, the Firm Shares shall be made at the offices of Arnold & Porter, 399 Park
Avenue, New York, New York 10022, or at such other place as shall be agreed upon
by the Representative and the Company. Such delivery and payment shall be made
at 10:00 a.m. (New York City time) three (3) days after the Effective Date or at
such other time and date as shall be agreed upon by the Representative, the
Company, and the Attorney-in-Fact (the "Closing Date"). In addition, in the
event that any or all of the Option Shares are purchased by the Underwriters,
payment of the purchase price for, and delivery of certificates
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<PAGE> 24
for, the Option Shares shall be made at the above mentioned office of Arnold &
Porter or at such other place as shall be agreed upon by the Representative and
the Company, on each Option Closing Date as specified in the notice from the
Representative to the Company. Delivery by the Company and the Custodian of the
certificates for the Firm Shares and the Option Shares, if any, shall be made to
the Representative for the respective accounts of the several Underwriters
against payment by the several Underwriters through the Representative of the
purchase price for the Firm Shares and the Option Shares, if any, to the order
of the Company or the applicable Selling Stockholder, as the case may be, in
immediately available funds. Certificates for the Firm Shares and the Option
Shares, if any, shall be in definitive, fully registered form, shall bear no
restrictive legends and shall be in such denominations and registered in such
names as the Representative may request in writing at least two (2) business
days prior to Closing Date or the relevant Option Closing Date, as the case may
be. The certificates for the Firm Shares and the Option Shares, if any, shall be
made available to the Representative at such office or such other place as the
Representative may designate for inspection, checking and packaging no later
than 9:30 a.m. on the last business day prior to Closing Date or the relevant
Option Closing Date, as the case may be.
The purchase price per Share to be paid by each of the
Underwriters, severally and not jointly, to the Company and the Selling
Stockholders for the Shares purchased hereunder will be the same for each Share
and will be $[_____] per share. Neither the Company nor the Selling Stockholders
shall be obligated to sell any Shares hereunder unless all Firm Shares to be
sold by the Company and the Selling Stockholders are purchased and paid for
hereunder. In accordance with the terms hereof, the Company and the Selling
Stockholders agree to issue and sell, against payment therefor, the Firm Shares
to the Underwriters.
4. Public Offering of the Shares. As soon after the Registration
Statement becomes effective as the Representative deems advisable, the
Underwriters shall make a public offering of the Shares (other than to residents
of or in any jurisdiction in which
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<PAGE> 25
qualification of the Shares is required and has not become effective) at the
price and upon the other terms set forth in the Prospectus. The Representative
may from time to time increase or decrease the public offering price after
distribution of the shares has been completed to such extent as the
Representative, in its sole discretion deems advisable.
5. Covenants of the Company. The Company covenants and agrees with
each of the Underwriters as follows:
(a) The Company shall use its best efforts to cause the
Registration Statement and any amendments thereto to become effective as
promptly as practicable and will not, except pursuant to Section 1(a) at any
time, whether before or after the Effective Date: (i) file any amendment to the
Registration Statement or supplement to the Prospectus; or (ii) file any
document under the Exchange Act before termination of the offering of the Shares
by the Underwriters; of which the Representative shall not previously have been
advised and furnished with a copy, or to which the Representative shall have
reasonably objected or which is not in compliance with the Act, the Exchange Act
or the Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge
thereof, the Company will advise the Representative and confirm the notice in
writing, (i) when the Registration Statement becomes effective, and when any
post-effective amendment to the Registration Statement becomes effective, (ii)
of the issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding, suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of any preliminary
prospectus or the Prospectus, or any amendment or supplement thereto, or the
institution of any proceeding for that purpose, (iii) of the issuance by any
state securities commission of any proceedings for the suspension of the
qualification of the Shares for offering or sale in any jurisdiction or of the
initiation, or the threatening, of any proceeding for that purpose, (iv) of the
receipt of any comments from the Commission, and (v) of any request by the
Commission for any amendment to the Registration Statement or any amendment or
supplement to the
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<PAGE> 26
Prospectus or for additional information. If the Commission or any state
securities commission authority shall enter a stop order or suspend such
qualification at any time, the Company will use its best efforts to obtain
promptly the lifting of such order.
(c) The Company shall, to the extent required, file the
Prospectus (in form and substance satisfactory to the Representative) or
transmit the Prospectus by a means reasonably calculated to result in filing
with the Commission pursuant to Rule 424(b)(1) (or, if applicable and if
consented to by the Representative, pursuant to Rule 424(b)(4)).
(d) The Company will give the Representative notice of its
intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or supplement to the
Prospectus (including any revised prospectus which the Company proposes for use
by the Underwriters in connection with the offering of the Shares which differs
from the corresponding prospectus on file at the Commission at the time the
Registration Statement becomes effective, whether or not such revised prospectus
is required to be filed pursuant to Rule 424(b) of the Rules and Regulations),
will furnish the Representative with copies of any such amendment or supplement
a reasonable amount of time prior to such proposed filing or use, as the case
may be, and will not file any such prospectus to which the Representative shall
object.
(e) The Company shall endeavor in good faith, in cooperation
with the Representative, at or prior to the time the Registration Statement
becomes effective, to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as the Representative may reasonably
designate, and shall make such applications, file such documents and furnish
such information as may be required for such purpose; provided, however, the
Company shall not be required to qualify as a foreign corporation or file a
general or limited consent to service of process in any such jurisdiction. In
each jurisdiction where such qualification shall be effected, the Company will,
unless the Representative agrees that such action is not at the time necessary
or advisable, use all reasonable efforts to file and make such statements or
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<PAGE> 27
reports at such times as are or may reasonably be required by the laws of such
jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be
delivered under the Act, the Company shall use all reasonable efforts to comply
with all requirements imposed upon it by the Act and the Exchange Act, as now
and hereafter amended and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the Shares in accordance with the provisions hereof and the Prospectus, or any
amendments or supplements thereto. If at any time when a prospectus relating to
the Shares is required to be delivered under the Act, any event shall have
occurred as a result of which, in the opinion of counsel for the Company or
Underwriters' Counsel (as defined below), the Prospectus, as then amended or
supplemented, includes an untrue statement of a material fact or omits to state
any material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is necessary
at any time to amend the Prospectus to comply with the Act, the Company will
notify the Representative promptly and prepare and file with the Commission an
appropriate amendment or supplement in accordance with Section 10 of the Act,
each such amendment or supplement to be satisfactory to the Representative, and
the Company will furnish to the Representative copies of such amendment or
supplement in the numbers reasonably requested.
(g) The Company will maintain a Transfer Agent and, if necessary
under the jurisdiction of incorporation of the Company, a Registrar (which may
be the same entity as the Transfer Agent) for its Common Stock.
(h) The Company will furnish to the Representative or on the
Representative's order, without charge, at such place as the Representative may
reasonably designate, copies of each preliminary prospectus, the Registration
Statement and any pre-effective or post-effective amendments thereto (two of
which copies will be signed and will include all financial statements and
exhibits), the Prospectus, and all amendments and supplements thereto, including
any
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<PAGE> 28
prospectus prepared after the Effective Date, in each case as soon as available
and in such quantities as the Representative may reasonably request.
(i) On or before the Effective Date, the Company shall deliver duly
executed legally binding and enforceable agreements in form and substance
satisfactory to the Representative pursuant to which each of the Company's
officers (including all officers named in the table under the heading
"Management" in the Prospectus), directors and beneficial owners of 5% or more
of the Company's outstanding Common Stock shall agree not to, directly or
indirectly, issue, offer to sell, sell, grant any option for the sale of,
assign, transfer, pledge, hypothecate or otherwise encumber or dispose of any
shares of Common Stock or securities convertible into or exchangeable for or
evidencing any right to purchase or subscribe for any shares of Common Stock
owned as of the Effective Date (either pursuant to Rule 144 of the Rules and
Regulations or otherwise) or dispose of any beneficial interest therein
for a period of 180 days from the Effective Date without the prior written
consent of the Representative (the "Lockup").
(j) Neither the Company nor the Subsidiary will take, and each of
the Company and the Subsidiary will use their best efforts to cause each of
their respective officers, directors and affiliates (within the meaning of the
Rules and Regulations) not to take, directly or indirectly, any action designed
to, or which might in the future reasonably be expected to cause or result in,
stabilization or manipulation under the Exchange Act of the price of any
security of the Company.
(k) The Company shall apply the net proceeds from the sale of the
Shares substantially in the manner set forth under "Use of Proceeds" in the
Prospectus. No portion of the net proceeds will be used, directly or indirectly
to acquire any securities issued by the Company.
(l) The Company shall timely file all such reports, forms or other
documents as may be required from time to time, under the Act, the Exchange Act,
and the Rules and Regulations, and all such reports, forms
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<PAGE> 29
and documents filed will comply as to form and substance with the applicable
requirements under the Act, the Exchange Act, and the Rules and Regulations.
(m) The Company shall furnish to the Underwriters as early as
practicable prior to each of the date hereof, the Closing Date and each Option
Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited consolidated interim financial
statements of the Company (which in no event shall be as of a date more than
thirty (30) days prior to the date of the Registration Statement) which have
been read by the Accountants, as stated in their letters to be furnished
pursuant to Section 7(j) hereof.
(n) The Company shall cause the Shares sold by the Company in the
offering to be listed on the NASDAQ and listed on the Pacific Stock Exchange
through the Option Closing Date and during such period as the Prospectus as
amended or supplemented is required by law to be delivered in connection with
sales of Shares by any Underwriter or dealer and shall use its best efforts to
maintain for a period of five (5) years from the date hereof the NASDAQ
quotation of the Common Stock or quotation of the Common Stock on the Nasdaq
Stock Market's National Market, if such quotation is approved.
(o) For a period of two (2) years from the Closing Date, the
Company may extend an invitation to the Representative to attend meetings of the
Board of Directors of the Company (the "Board"). The Company shall reimburse the
Representative's designee for his or her out-of-pocket expenses reasonably
incurred in connection with his or her attendance of the Board meetings.
(p) For a period equal to the lesser of (i) seven years from the
date hereof, and (ii) the sale to the public of the Warrant Shares, the Company
will not take any action or actions which may prevent or disqualify the
Company's use of Form S-1, or if applicable S-2 or S-3 (or other appropriate
form), for the registration under the Act of the Warrant Shares.
(q) The Company shall use its best efforts to continue its
inclusion in Standard & Poor's Corporation
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<PAGE> 30
Descriptions or Moody's OTC Manual for a period of not less than five (5) years,
except in the event the Common Stock is approved for quotation on the Nasdaq
Stock Market's National Market.
(r) The Company shall furnish to the Representative, within ninety
(90) days following the Option Closing Date, three (3) bound volumes of all
papers and documents utilized in the offering.
(s) Following the Effective Date, the Company shall, at its sole
cost and expense, prepare and file such blue sky trading applications with such
jurisdictions as the Representative may reasonably request after consultation
with the Company.
(t) The Company shall execute the Representative's Warrant
Agreement on or before the Closing Date, and shall issue to the Representative,
on behalf of itself and its affiliates on the Closing Date the Representative's
Warrants.
6. Payment of Expenses.
(a) Whether or not the transactions contemplated by this Agreement
are consummated or this Agreement is terminated, the Company hereby agrees to
pay all expenses and fees (other than fees of counsel to the Underwriters,
except as provided in (iv) below) incident to the performance of the obligations
of the Company under this Agreement, including, without limitation, (i) the fees
and expenses of accountants and counsel for the Company, (ii) all costs and
expenses incurred in connection with the preparation, duplication, printing,
filing, delivery and mailing (including the payment of postage with respect
thereto) of the Registration Statement, each preliminary prospectus and the
Prospectus and any amendments and supplements thereto and the printing, mailing
and delivery of this Agreement, the Selected Dealer Agreements, the Agreement
Among Underwriters, Underwriters' Questionnaires, Custody Agreement and Power of
Attorney and related documents, including the cost of all copies thereof
supplied to the Underwriters in quantities as hereinabove stated, (iii) the
printing, engraving, issuance and delivery of the Shares including any transfer
or other taxes payable thereon, (iv) the qualification of the Shares under
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<PAGE> 31
state or foreign securities or "Blue Sky" laws and determination of the status
of such securities under legal investment laws, including the costs of printing
and mailing the "Preliminary Blue Sky Memorandum" and the "Supplemental Blue Sky
Memorandum," if any, and disbursements and fees of counsel in connection
therewith, (v) costs and expenses in connection with the "road show,"
information meetings and presentations and bound volumes, (vi) fees and expenses
of the transfer agent, (vii) the fees payable to the NASD, (viii) the fees and
expenses incurred in connection with the listing of the Shares to be sold by the
Company on the NASDAQ and the Pacific Stock Exchange and (ix) advertising costs
and expenses including "tombstone" advertisements and prospectus memorabilia up
to $7,500.
(b) Each of the Selling Stockholders agrees that it will pay all
stock transfer taxes, stamp duties and other similar taxes, if any, payable (i)
upon the sale, issuance or delivery of the Shares to be sold by such Selling
Stockholder to the Underwriters, and (ii) in connection with the consummation by
such Selling Stockholder of any of its obligations under this Agreement, and
further authorizes the payment of any such amount by deduction from the proceeds
of the Shares to be sold by such Selling Stockholder under this Agreement.
(c) The Company further agrees that, in addition to the expenses
payable pursuant to subsection (a) of this Section 6, it will pay to the
Representative a non-accountable expense allowance equal to $75,000, of which
$25,000 has been paid to date. The Company will pay $50,000 on the Closing Date
by certified or bank cashier's check or, at the election of the Representative,
by deduction from the proceeds of the offering contemplated herein.
(d) Each of the Selling Stockholders is responsible for payment of
underwriters' discounts and commissions attributable to the Shares sold by such
Selling Stockholder and an allocable portion of the expenses of counsel for the
Selling Stockholders above $[ ].
7. Conditions of the Underwriter's Obligations. The obligations of
the Underwriters hereunder shall be
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<PAGE> 32
subject to the continuing accuracy of the representations and warranties of the
Company and the Selling Stockholders herein as of the date hereof and as of the
Closing Date and, if later, the Option Closing Date, as if they had been made on
and as of the Closing Date or the Option Closing Date, as the case may be; the
accuracy on and as of the Closing Date, or, if later, the Option Closing Date,
of the statements of the officers or representatives of the Company and of the
Selling Stockholders made pursuant to the provisions hereof; and the performance
by each of the Company and such Selling Stockholder on and as of the Closing
Date and, if later, the Option Closing Date, of each of its covenants and
obligations hereunder and to the following further conditions:
(a) The Registration Statement shall have become effective not
later than 5:30 P.M., New York time, on the date of this Agreement or such later
date and time as shall be consented to in writing by Representative, and, at the
Closing Date and, if later, the Option Closing Date, no stop order suspending
the effectiveness of the Registration Statement shall have been issued under the
Act and no proceedings for that purpose shall have been instituted or shall be
pending or contemplated by the Commission and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of Underwriters' Counsel.
(b) The Representative shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Representative's opinion, is material, or omits to state a
fact which, in the Representative's opinion, is material and is required to be
stated therein or is necessary to make the statements therein not misleading, or
that the Prospectus, or any supplement thereto, contains an untrue statement of
fact which, in the Representative's opinion, is material, or omits to state a
fact which, in the Representative's opinion, is material or is necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
(c) The Underwriters shall have received an opinion from Arnold &
Porter ("Underwriters' Counsel"),
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<PAGE> 33
dated the Closing Date and, if later, the Option Closing Date, which opinion
shall be satisfactory to the Representative.
(d) The Underwriters shall have received an opinion from Kohrman
Jackson & Krantz P.L.L., counsel to the Company, dated the Closing Date, and, if
later, the Option Closing Date, in a form satisfactory to the Representative.
(e) The Underwriters shall have received an opinion from Sidley &
Austin, counsel to the Selling Stockholders, dated the Closing Date, and, if
later, the Option Closing Date, in a form satisfactory to the Representative.
(f) On or prior to each of the Closing Date and the Option Closing
Date, if any, the Representative and Underwriters' Counsel shall have been
furnished such documents, certificates and opinions as they may reasonably
require for the purpose of enabling Underwriters' Counsel to review or pass upon
the matters contemplated by the opinion referred to in subsection (c) of this
Section 7, or in order to evidence the accuracy, completeness or satisfaction of
any of the representations, warranties or conditions herein contained.
(g) Prior to each of the Closing Date and each Option Closing Date,
if any (i) there shall have been no material adverse change nor development
involving a prospective change in the business, properties, business prospects,
results of operations or condition (financial or otherwise) of the Company and
the Subsidiary taken as a whole, whether or not in the ordinary course of
business, from the latest dates as of which such condition is set forth in the
Registration Statement and Prospectus; (ii) there shall have been no
transaction, not in the ordinary course of business, entered into by either
Company or the Subsidiary, from the latest date as of which the financial
condition of any of the Company or the Subsidiary is set forth in the
Registration Statement and Prospectus which is adverse to the Company and the
Subsidiary taken as a whole; (iii) neither the Company nor the Subsidiary shall
be in default under any
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<PAGE> 34
provision of any instrument relating to any outstanding indebtedness which
default may materially adversely affect the business, properties, business
prospects, results of operations or condition (financial or otherwise) of the
Company and the Subsidiary taken as a whole; (iv) no amount of the assets of any
of the Company or the Subsidiary shall have been pledged or mortgaged, except as
set forth in the Registration Statement and Prospectus; (v) no action, suit or
proceeding, at law or in equity, shall have been pending or to its knowledge
threatened against either the Company or the Subsidiary, or affecting either of
their respective properties or businesses before or by any court or federal,
state or foreign commission, board or other administrative agency wherein an
unfavorable decision, ruling or finding may adversely affect the business,
properties, business prospects, results of operations or condition (financial or
otherwise) of the Company and the Subsidiary taken as a whole, except as set
forth in the Registration Statement and Prospectus; and (vi) Barry Feld shall
continue to serve the Company in his present capacity.
(h) At each of the Closing Date and each Option Closing Date, if
any, the Underwriters shall have received a certificate of the Company as to (i)
below signed by the principal executive officer and by the chief financial or
chief accounting officer of the Company dated the Closing Date or Option Closing
Date, as the case may be, to the effect that each of such persons has carefully
examined the Registration Statement, the Prospectus and this Agreement, and
that:
(i) The representations and warranties of the Company in
this Agreement are true and correct, as if made on and as of the
Closing Date or the Option Closing Date, as the case may be, and
the Company has complied with all agreements and covenants and
satisfied all conditions contained in this Agreement on its part to
be performed or satisfied at or prior to such Closing Date or
Option Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for that
purpose have been instituted or are pending or, to the
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<PAGE> 35
best of each of such person's knowledge, are contemplated or
threatened under the Act; and
(iii) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus and except as disclosed or contemplated therein, none of
the Company or the Subsidiary has incurred up to and including the
Closing Date or the Option Closing Date, as the case may be, other
than in the ordinary course of its business, any material
liabilities or obligations, direct or contingent; the Company has
not paid or declared any dividends or other distributions on its
Common Stock; none of the Company or the Subsidiary has entered
into any transactions not in the ordinary course of business; and
there has not been any change in the capital stock or long-term
debt or any increase in the short-term borrowings (other than any
increase in the short-term borrowings in the ordinary course of
business) of either the Company or the Subsidiary; neither the
Company nor the Subsidiary has sustained any material loss or
damage to its property or assets, whether or not insured; and there
is no litigation which is pending, or, to the best of such person's
knowledge, threatened against any of the Company or the Subsidiary
which is required to be set forth in an amended or supplemented
Prospectus which has not been set forth.
References to the Registration Statement and the Prospectus in this
subsection (h) are to such documents as amended and supplemented at the date of
such certificate.
(i) At the Closing Date the Underwriters shall have received a
certificate from each Selling Stockholder, executed on its behalf by the
general partner thereof, dated the Closing Date, to the effect that the
representations and warranties of such Selling Stockholder in this Agreement
are true and correct, as
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<PAGE> 36
if made on and as of the Closing Date and such Selling Stockholder has
complied with all agreements and covenants and satisfied all conditions
contained in this Agreement on its part to be performed or satisfied at or
prior to such Closing Date or Option Closing Date.
(j) Concurrently with the execution and delivery of this Agreement,
the Accountants shall have furnished to the Representative a letter, dated the
date of its delivery, addressed to the Representative and the Company and in
form and substance satisfactory to the Representative, confirming that they are
independent accountants with respect to the Company as required by the Act and
the Rules and Regulations and with respect to certain financial and other
statistical and numerical information contained in the Registration Statement.
(k) At the Closing Date and, if later, the Option Closing Date, the
Accountants shall have furnished to the Representative a letter, dated the date
of its delivery, which shall confirm, on the basis of a review in accordance
with the procedures set forth in the letter from the Accountants, that nothing
has come to their attention during the period from the date of the letter
referred to in the prior paragraph to a date (specified in the letter) not more
than five days prior to the Closing Date or the Option Closing Date, as the case
may be, which would require any change in their letter dated the date hereof if
it were required to be dated and delivered at the Closing Date and the Option
Closing Date.
(l) No order suspending the sale of the Shares in any jurisdiction
designated by the Representative pursuant to subsection (e) of Section 5 hereof
shall have been issued on either the Closing Date or the Option Closing Date, if
any, and no proceedings for that purpose shall have been instituted or to its
knowledge or that of the Company shall be contemplated.
(m) The Company shall have entered into the Representative's
Warrant Agreement on or before the Closing Date, and on the Closing Date, the
Company shall issue to the Representative, on behalf of itself and its
affiliates, the Representative's Warrants,
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<PAGE> 37
which warrants shall entitle the holders thereof to purchase an aggregate of
66,563 shares of Common Stock. The Representative's Warrants shall be
exercisable at a price of $8.00 per share of Common Stock for a period
terminating on December 23, 2001. The Representative's Warrant Agreement and
form of Representative's Warrants shall be substantially in the form filed as
Exhibit 4.11 to the Registration Statement.
If any condition to the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Option Closing Date,
as the case may be, is not so fulfilled, the Representative may terminate this
Agreement or, if the Representative so elects, it my waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
8. Indemnification.
(a) The Company agrees to indemnify and hold harmless each of the
Underwriters, including specifically each person who may be substituted for an
Underwriter (as provided in Section 12 hereof) and each person, if any, who
controls any Underwriter ("controlling person") within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act, against any and all losses,
claims, damages, expenses or liabilities, joint or several (and actions in
respect thereof), whatsoever (including but not limited to any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever), as such are
incurred, to which such Underwriter or such controlling person may become
subject under the Act, the Exchange Act or any other statute or at common law or
otherwise or under the laws of foreign countries, arising out of or based upon
any untrue statement or alleged untrue statement of a material fact contained
(i) in any preliminary prospectus, the Registration Statement or the Prospectus
(as from time to time amended and supplemented); (ii) in any post-effective
amendment or amendments or any new registration statement and prospectus in
which is included securities or Common Stock of the Company issued or issuable
upon exercise of the warrants issued pursuant to the Warrant Agreement; or (iii)
in any application or other
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<PAGE> 38
document or written communication (in this Section 8 collectively called
("application") executed by the Company or based upon written information
furnished by the Company in any jurisdiction in order to qualify the Common
Stock under the securities laws thereof or filed with the Commission, any state
securities commission or agency, the NASDAQ or any securities exchange; or the
omission or alleged omission therefrom of a material fact necessary to make any
statement therein not misleading (in the case of the Prospectus in the light of
the circumstances under which they were made), unless such statement or omission
was made in reliance upon and in conformity with information relating to any
Underwriter furnished in writing to the Company by or on behalf of such
Underwriter expressly for inclusion in the Prospectus or the Registration
Statement; PROVIDED HOWEVER, that the foregoing indemnification with respect to
each preliminary prospectus shall not inure to the benefit of any Underwriter if
a copy of the Prospectus (as then amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) was not sent or given by
or on behalf of such Underwriter to the person asserting any such losses,
claims, damages, expenses or liabilities, if required by law so to have been
delivered, at or prior to the written confirmation of the sale of the Shares to
such person, and if the Prospectus (as so amended or supplemented) would have
cured the defect giving rise to such loss, claim, damage, expense or liability.
The indemnity agreement in this subsection (a) shall be in addition
to any liability which the Company may have at common law or otherwise.
(b) Each Selling Stockholder agrees to indemnify and hold harmless
each of the Underwriters, including specifically each person who may be
substituted for an Underwriter (as provided in Section 12 hereof) and each
person, if any, who controls any Underwriter ("controlling person") within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against
any and all losses, claims, damages, expenses or liabilities, joint or several
(and actions in respect thereof), whatsoever (including but not limited to any
and all expenses whatsoever reasonably incurred in investigating, preparing or
defending against any litigation, commenced or
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<PAGE> 39
threatened, or any claim whatsoever), as such are incurred, to which such
Underwriter or such controlling person may become subject under the Act, the
Exchange Act or any other statute or at common law or otherwise or under the
laws of foreign countries, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any preliminary
prospectus, the Registration Statement or the Prospectus (as from time to time
amended and supplemented), or the omission or alleged omission therefrom of a
material fact necessary to make any statement therein not misleading (in the
case of the Prospectus, in the light of the circumstances under which they were
made), but only with respect to statements or omissions made relating to such
Selling Stockholder, unless such statement or omission was made in reliance upon
and in conformity with information relating to any Underwriter furnished in
writing to the Company by or on behalf of such Underwriter expressly for
inclusion in the Prospectus or the Registration Statement; PROVIDED HOWEVER,
that the foregoing indemnification with respect to each preliminary prospectus
shall not inure to the benefit of any Underwriter if a copy of the Prospectus
(as then amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) was not sent or given by or on behalf of such
Underwriter to the person asserting any such losses, claims, damages, expenses
or liabilities, if required by law so to have been delivered, at or prior to the
written confirmation of the same of the Shares to such person, and if the
Prospectus (as so amended or supplemented) would have cured the defect giving
rise to such loss, claim, damage, expense or liability.
The indemnity agreement in this subsection (b) shall be in addition
to any liability which such Selling Stockholder may have at common law or
otherwise.
(c) Each of the Underwriters agrees severally, but not jointly, to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration Statement, each other person, if any,
who controls the Company within the meaning of the Act, and each Selling
Stockholder, such Selling Stockholder's general partners and the officers and
directors thereof and each of the persons, if any,
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<PAGE> 40
who controls such Selling Stockholder within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act, to the same extent as the foregoing
indemnity from the Company and such Selling Stockholder to the Underwriters but
only with respect to statements or omissions, if any, made in the Prospectus or
the Registration Statement in reliance upon, and in strict conformity with,
written information furnished to the Company with respect to any Underwriter by
or on behalf of such Underwriter expressly for use in the Prospectus or the
Registration Statement.
(d) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, suit or proceeding, such
indemnified party shall, if a claim in respect thereof is to be made against one
or more indemnifying parties under this Section 8, notify each party against
whom indemnification is to be sought in writing of the commencement thereof (but
the failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 8 except to the extent that it
has been prejudiced in any material respect by such failure or from any
liability which it may have otherwise). In case any such action is brought
against any indemnified party, and it notifies an indemnifying party or parties
of the commencement thereof, the indemnifying party or parties will be entitled
to participate therein, and to the extent it may elect by written notice
delivered to the indemnified party promptly after receiving the aforesaid notice
from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party. Notwithstanding the
foregoing, the indemnified party or parties shall have the right to employ its
or their own counsel in any such case but the fees and expenses of such counsel
shall be at the expense of such indemnified party or parties, unless (i) the
employment of such counsel shall have been authorized in writing by the
indemnifying parties in connection with the defense of such action, (ii) the
indemnifying parties shall not have employed counsel reasonably satisfactory to
such indemnified party to have charge of the defense of such action within a
reasonable time after notice of commencement of the action, or (iii) such
indemnified party or parties shall have reasonably concluded that there may be
defenses available to it or them which are
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<PAGE> 41
different from or additional to those available to one or all of the
indemnifying parties (in which case the indemnifying parties shall not have the
right to direct the defense of such action on behalf of the indemnified party or
parties), in any of which events such fees and expenses of one additional
counsel shall be borne by the indemnifying parties. In no event shall the
indemnifying parties be liable for fees and expenses of more than one counsel
(in addition to any local counsel) separate from their own counsel for all
indemnified parties in connection with any one action or separate but similar
and related actions in the same jurisdiction arising out of the same general
allegations or circumstances. Anything in the Section 8 to the contrary
notwithstanding, an indemnifying party shall not be liable for any settlement of
any claim or action effected without its written consent; provided, however,
that such consent is not unreasonably withheld.
(e) In order to provide for just and suitable contribution in any
case in which (i) an indemnified party makes claim for indemnification pursuant
to this Section 8, but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this Section 8 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions in respect thereof) (A) in such proportion as is appropriate to reflect
the relative benefits received by the respective contributing parties and the
party to be indemnified from the offering of the Shares or (B) if the allocation
provided by clause (A) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (A) above but also the relative fault of each of the contributing
parties and the party to be indemnified in connection with the statements or
omissions that resulted in such losses, claims, damages, expenses or
liabilities, as well as any other relevant equitable considerations. In any case
where
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<PAGE> 42
the Company and one or more Selling Stockholders are contributing parties and
the Underwriters are the indemnified party, the relative benefits received by
the Company and such Selling Stockholder on the one hand, and the Underwriters,
on the other, shall be deemed to be in the same proportion as the total net
proceeds from the offering of the Shares (before deducting expenses) bear to the
total underwriting discounts received by the Underwriters hereunder, in each
case as set forth in the table on the Cover Page of the Prospectus. Relative
fault shall be determined by reference to whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company, a Selling
Stockholder or by the Underwriters, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, expenses or liabilities (or actions in
respect thereof) referred to above in this subparagraph (e), shall be deemed to
include any legal or other expense reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subparagraph (e), the Underwriters shall
not be required to contribute any amount in excess of the underwriting discount
applicable to the Shares purchased by the Underwriters hereunder. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. For purposes of this Section 8, each person,
if any, who controls the Company within the meaning of the Act, each officer of
the Company who has signed the Registration Statement, and each director of the
Company shall have the same rights to contribution as the Company, subject in
each case to this subparagraph (e). Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect to which a claim for contribution may
be made against another party or parties under this subparagraph (e), notify
such party or parties from whom contribution may be sought, but the omission so
to notify such party or parties shall not relieve the party or parties from whom
contribution may be sought
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<PAGE> 43
from any obligation it or they may have hereunder or otherwise than under this
subparagraph (e), except to the extent that such party or parties has been
prejudiced in any material respect by such omission. The contribution agreement
set forth above shall be in addition to any liabilities which any indemnifying
party may have at common law or otherwise.
(f) The aggregate obligations of a Selling Stockholder pursuant to
this Section 8, together with the aggregate obligations of such Selling
Stockholders for a breach of Section 2(c), (d)(ii) and (f) with respect to any
matters covered by Section 2(c) and (d)(ii), shall not exceed the product of (A)
the public offering price per share for the Common Stock less the applicable
underwriting discount times (B) the number of Shares sold by such Selling
Stockholder.
9. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company or of each of the Selling
Stockholders submitted pursuant hereto, shall be deemed to be representations,
warranties and agreements at the Closing Date and the Option Closing Date, as
the case may be, and such representations, warranties and agreements of the
Company and each of the Selling Stockholders, and the indemnity agreements
contained in Section 8 hereof, shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any Underwriter,
the Company, each of the Selling Stockholders, or any controlling person, and
shall survive termination of this Agreement or the issuance and delivery of the
Shares to the Underwriters.
10. Effective Date. This Agreement shall become effective at 10:00
a.m., New York City time, on the next full business day following the date
hereof, or at such earlier time after the Registration Statement becomes
effective as the Representative, in its discretion, shall release the Shares for
the sale to the public, provided, however that the provisions of Sections 6, 8
and 11 of this Agreement shall at all times be effective. For purposes of this
Section 10, the Shares to be purchased hereunder shall be deemed to have been so
released upon the earlier of dispatch by the Representative of telegrams to
securities dealers
- 43 -
<PAGE> 44
releasing such shares for offering or the release by the Representative for
publication of the first newspaper advertisement which is subsequently published
relating to the Shares.
11. Termination.
(a) The Representative shall have the right to terminate this
Agreement, (i) if any calamitous domestic or international event or act or
occurrence has materially disrupted, or in the Representative's opinion will in
the immediate future materially disrupt, general securities markets in the
United States; or (ii) if trading on the New York Stock Exchange, the American
Stock Exchange, or in the over-the-counter market shall have been suspended, or
minimum or maximum prices for trading shall have been fixed, or maximum ranges
for prices for securities shall have been required on the over-the-counter
market by the NASD or by order of the Commission or any other government
authority having jurisdiction; or (iii) if the United States shall have become
involved in a war or major hostilities; or (iv) if a banking moratorium has been
declared by a New York State or federal authority; or (v) if a moratorium in
foreign exchange trading has been declared; or (vi) if the Company or the
Subsidiary shall have sustained a loss material or substantial to the Company
and the Subsidiary taken as a whole by fire, flood, accident, hurricane,
earthquake, theft, sabotage or other calamity or malicious act which, whether or
not such loss shall have been insured, will, in the Representative's opinion,
make it inadvisable to proceed with the delivery of the Shares; or (vii) if
there shall have been such material adverse change in the conditions or
prospects of the Company and the Subsidiary taken as a whole, or such material
adverse general market conditions as in the Representative's opinion would make
it inadvisable to proceed with the offering, sale and/or delivery of the Shares.
(b) If this Agreement is terminated by the Representative in
accordance with the provisions of Section 7 or Section 11 in a situation where
termination pursuant to Section 12(b) does not apply, the Company shall promptly
reimburse and indemnify the Underwriters for the amount of all of their
out-of-pocket expenses, including the fees and
- 44 -
<PAGE> 45
disbursements of counsel for the Underwriters (less amounts previously paid
pursuant to Section 6(c) above), provided that in the event of such termination
pursuant to Section 11(a), such amount shall not exceed $40,000, of which
$25,000 has been paid to date. Except as otherwise provided in the immediately
preceding sentence, any election hereunder or any termination of this Agreement
(including, without limitation, pursuant to Section 7 hereof), and whether or
not this Agreement is otherwise carried out, the provisions of Section 6 and
Section 8 shall not be in any way affected by such election or termination or
failure to carry out the terms of this Agreement or any part hereof.
12. Substitution of the Underwriters. If one or more of the
Underwriters shall fail (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 7 or Section 11
hereof) to purchase the Shares which it or they are obligated to purchase on
such date under this Agreement (the "Defaulted Securities"), the Representative
shall have the right, within 24 hours thereafter, to make arrangements for one
or more of the non-defaulting Underwriters, or any other underwriters, to
purchase all, but not less than all, of the Defaulted Securities in such amounts
as may be agreed upon and upon the terms herein set forth; if, however, the
Representative shall not have completed such arrangements within such 24-hour
period, then:
(a) if the number of Defaulted Securities does not
exceed 10% of the total number of Firm Shares to be purchased on such date, the
non-defaulting Underwriters shall be obligated to purchase the full amount
thereof in the proportions that their respective underwriting obligations
hereunder bear to the underwriting obligations of all non-defaulting
Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of
the total number of Firm Shares, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any
defaulting Underwriter from liability in
- 45 -
<PAGE> 46
respect of any default of such Underwriter under this Agreement.
In the event of any such default which does not result in a
termination of this Agreement, the Representative shall have the right to
postpone the Closing Date for a period not exceeding seven days in order to
effect any required changes in the Registration Statement or Prospectus or in
any other documents or arrangements and the Representative shall provide the
Company notice of the Closing Date no less than 24 hours prior thereto.
13. Notices. All notices and communications hereunder, except as
herein otherwise specifically provided, shall be in writing and shall be deemed
to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to the
Representative at Fahnestock & Co. Inc., 110 Wall Street, New York, New York
10005, Attention: Syndicate Department, with a copy to Arnold & Porter, 399 Park
Avenue, New York, New York 10022, Attention: Paul I. Rachlin, Esq. Notices to
the Company shall be directed to the Company at 2104 West Southern Avenue,
Tempe, Arizona 85282, Attention: Mr. Barry Feld, with a copy to Kohrman Jackson
& Krantz P.L.L., One Cleveland Center, 20th Floor, 1375 East Ninth St.,
Cleveland, Ohio 44114, Attention: Marc C. Krantz, Esq. Notices to the Selling
Stockholder shall be directed to Mesirow Private Equity Investments, Inc., 350
North Clark Street, Chicago, IL 60610, Attention: Mr. William P. Sutter, Jr.,
with a copy to Sidley & Austin, One First National Plaza, Chicago, IL 60603,
Attention: John J. Sabl, Esq.
14. Parties. This Agreement shall inure solely to the benefit of
and shall be binding upon, the Underwriters, the Company and the controlling
persons, directors and officers referred to in Section 8 hereof, and their
respective successors, legal representatives and assigns, and each of the
Selling Stockholders and their successors, legal representatives and assigns and
no other person shall have or be construed to have any legal or equitable right,
remedy or claim under or in respect of or by virtue of this Agreement or any
provisions herein contained. No purchaser of Shares from any Underwriter shall
be deemed to be successor by reason merely of such purchase.
- 46 -
<PAGE> 47
15. Construction. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New York without giving
effect to the choice of law or conflict of laws principles.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
17. Representative of Underwriters. Pursuant to the Agreement Among
Underwriters dated the date hereof, Fahnestock & Co. Inc., as the
Representative, is authorized by the Underwriters to enter into this Agreement
and to take all such action necessary or advisable in order to carry out the
provisions of this Agreement, including the sale and distribution of the Shares.
- 47 -
<PAGE> 48
If the foregoing correctly sets forth the understanding among the
Underwriters and the Company and the Selling Stockholder, please so indicate in
the space provided below for that purpose, whereupon this letter shall
constitute a binding agreement among us.
Very truly yours,
NEW WEST EYEWORKS, INC.
By:______________________________
Name:
Title:
MESIROW CAPITAL PARTNERS II
MESIROW CAPITAL PARTNERS III
MESIROW CAPITAL PARTNERS IV
By: MESIROW FINANCIAL SERVICES, INC.,
general partner for each
By:______________________________
Name: William P. Sutter, Jr.
Title:
Confirmed and accepted as of
the date first above written:
FAHNESTOCK & CO. INC.,
as Representative of the
several Underwriters named in
Schedule I hereto.
By: _______________________
Name:
Title:
- 48 -
<PAGE> 49
UNDERWRITERS
<TABLE>
<CAPTION>
Number of Firm Shares
Name of Underwriter to be Purchased
- ------------------- ---------------
<S> <C>
Fahnestock & Co. Inc.
Mesirow Financial, Inc.
----------
Total 1,400,000
==========
</TABLE>
- 49 -
<PAGE> 50
SELLING STOCKHOLDERS
<TABLE>
<CAPTION>
Number of Firm Shares
Name of Selling Stockholder to be Sold
- --------------------------- ----------
<S> <C>
Mesirow Capital Partners II 106,642
Mesirow Capital Partners III 123,501
Mesirow Capital Partners IV 169,857
----------
Total 400,000
==========
</TABLE>
- 50 -
<PAGE> 1
EXHIBIT 4.11
----------------------------------------------------------
NEW WEST EYEWORKS, INC.
AND
FAHNESTOCK & CO.
------------------
FORM OF REPRESENTATIVE'S
WARRANT AGREEMENT
Dated as of February 7, 1997
----------------------------------------------------------
<PAGE> 2
This REPRESENTATIVE'S WARRANT AGREEMENT, dated as of February 7, 1997,
is executed between NEW WEST EYEWORKS, INC., a Delaware corporation (the
"Company"), and FAHNESTOCK & CO. (hereinafter referred to variously as the
"Holder" or the "Representative").
The Company proposes to issue to the Representative warrants
(collectively with Additional Warrants, as defined below in Section 12,
"Warrants") to purchase up to an aggregate of 46,173 shares of common stock, par
value $0.01 per share, of the Company ("Common Stock"), and to the persons
listed on Exhibit A hereto, warrants (sometimes, the "Additional Warrants") to
purchase an aggregate of 60,390 shares of Common Stock; and
The Representative has agreed to act as the Representative of the
several underwriters (the "Underwriters") in connection with the Company's
proposed public offering of up to 1,600,000 shares of Common Stock at a public
offering price of $____ per share of Common Stock pursuant to the underwriting
agreement (the "Underwriting Agreement"), dated as of the date hereof, among the
Underwriters, the Selling Stockholder (as defined therein) and the Company (the
"Public Offering"); and
The Company and Reich & Co., Inc., a wholly owned subsidiary of the
Representative, entered into the Representative's Warrant Agreement, dated
December 31, 1993, and amended such agreement on December 19, 1996 (as amended,
the "1993 Agreement"); and
The Warrants to be issued pursuant to this Agreement will be issued on
the Closing Date (as such term is defined in the Underwriting Agreement) by the
Company to the Representative in consideration for, and as part of the
compensation in connection with, the Representative acting as the Representative
pursuant to the Underwriting Agreement;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Grant. The Holder (as defined in Section 3 hereof) is hereby granted
the right to purchase, at any time between December 23, 1998, the date of
termination of the warrant issued under the 1993 Agreement, and 5:30 P.M., New
York time, on December 23, 2001, up to an aggregate of 46,173 shares of Common
Stock (the "Shares") at the initial exercise price (subject to adjustment as
provided in Section 8 hereof) set forth in Section 6.1 hereof, subject to the
terms and conditions of this Agreement; provided that, effective December 23,
1998, the number of Warrant Shares issuable upon exercise hereof shall equal the
number of Warrant Shares that remain issuable and unexercised under the 1993
Agreement upon its termination or such date; and provided further that,
effective December 23, 1998, the number of Warrant Shares issuable upon exercise
of each Additional Warrant shall equal the number of Warrant Shares that remain
issuable and unexercised under the applicable warrant issued pursuant to the
1993 Warrant upon its termination or such date. Except as set forth herein, the
Shares issuable upon exercise of the Warrants are in all respects identical to
the shares of Common Stock being purchased by the Underwriters for resale to the
public
<PAGE> 3
pursuant to the terms and provisions of the Underwriting Agreement.
2. Warrant Certificates. The warrant certificates (the "Warrant
Certificates") delivered and to be delivered pursuant to this Agreement shall be
in the form set forth in Exhibit B, attached hereto and made a part hereof, with
such appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
3. Exercise of Warrant. Each Warrant initially is exercisable at the
initial exercise price (subject to adjustment as provided in Section 8 hereof)
per share of Common Stock set forth in Section 6 hereof payable by check or bank
draft to the order of the Company. Upon surrender of a Warrant Certificate at
the Company's principal offices in Arizona (2104 West Southern Avenue, Tempe,
Arizona 85282) with the annexed Form of Election to Purchase duly executed,
together with payment of the Exercise Price (as hereinafter defined) for the
shares of Common Stock purchased, the registered holder of a Warrant Certificate
("Holder" or "Holders") shall be entitled to receive a certificate or
certificates for the shares of Common Stock so purchased. The purchase rights
represented by each Warrant Certificate are exercisable at the option of the
Holder thereof, in whole or in part (but not as to fractional shares of Common
Stock underlying the Warrants). In the case of the purchase of less than all the
shares of Common Stock purchasable under any Warrant Certificate, the Company
shall cancel said Warrant Certificate upon the surrender thereof and shall
execute and deliver a new Warrant Certificate of like tenor for the balance of
the shares of Common Stock purchasable thereunder.
4. Issuance of Certificates. Upon the exercise of the Warrants, the
issuance of certificates for shares of Common Stock or other securities,
properties or rights underlying such Warrants, shall be made forthwith (and in
any event within five (5) business days thereafter) without charge to the Holder
thereof including, without limitation, any tax which may be payable in respect
of the issuance thereof, and such certificates shall (subject to the provisions
of Sections 5 and 7.1 hereof) be issued in the name of, or in such names as may
be directed by, the Holder thereof; provided, however, that the Company shall
not be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any such certificates in a name other
than that of the Holder and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the Shares
(and/or other securities, property or rights issuable upon the exercise of the
Warrants) shall be executed on behalf of the Company by the manual or facsimile
signature of the then present Chairman or Vice Chairman of the Board of
Directors or President or Vice President of the Company under its corporate seal
reproduced thereon, attested to by the manual or facsimile signature of the then
present Secretary or Assistant Secretary of the Company. Warrant Certificates
shall be dated the date of execution by the Company upon initial issuance,
division, exchange, substitution or transfer.
2
<PAGE> 4
5. Restriction On Transfer of Warrants. The Holder of a Warrant
Certificate, by its acceptance thereof, covenants and agrees that the Warrants
are being acquired as an investment and not with a view of the distribution
thereof; that the Warrants may not be sold, transferred, assigned, hypothecated
or otherwise disposed of, in whole or in part, except to any Underwriter, any
person who controls any Underwriter, any partner or director of any Underwriter
and any officer or any employee having an equity interest in any Underwriter.
6. Exercise Price.
Section 6.1 Initial and Adjusted Exercise Price. Except as otherwise
provided in Section 8 hereof, the initial exercise price of each Warrant on
December 23, 1998, shall be equal to the Exercise Price on December 23, 1998,
as determined under the 1993 Warrant. The adjusted exercise price shall be the
price which shall result from time to time from any and all adjustments of the
initial exercise price in accordance with the provisions of Section 8 hereof.
Section 6.2 Exercise Price. The term "Exercise Price" herein shall
mean the initial exercise price or the adjusted exercise price, depending upon
the context.
7. Registration Rights.
Section 7.1 Registration Under the Securities Act of 1933. The Shares
and any of the other securities issuable upon exercise of the Warrants have not
been registered under the Securities Act of 1933, as amended (the "Act"). Upon
exercise, in part or in whole, of the Warrants, certificates representing the
Shares underlying the Warrants and any of the other securities issuable upon
exercise of the Warrants (collectively with the shares and other securities
issuable on exercise of the Additional Warrants as provided in Section 12, the
"Warrant Shares") shall bear the following legend:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"), and may not be offered or sold except pursuant to (i)
an effective registration statement under the Act, or (ii) to
the extent applicable, Rule 144 under the Act (or any similar
rule under such Act relating to the disposition of securities)
or another exemption from registration under the Act is
available."
Section 7.2 Piggyback Registration. If, at any time between
December 23, 1998 and December 23, 2001, the Company proposes to register any
of its securities under the Act (for sale by the Company or otherwise and
whether by a new registration statement or a post-effective amendment to the
Registration Statement as defined in the Underwriting Agreement but other than
pursuant to Form S-8) it will give written notice by registered mail, at least
30 days prior to the filing of each such registration statement or
post-effective amendment, to the Representative and to all other Holders of the
Warrants and the Warrant Shares of its intention to do so. If the
Representative or
3
<PAGE> 5
other Holders of the Warrants or Warrant Shares notify the Company within 20
days after receipt of any such notice of its or their desire to include any
Warrant Shares in such proposed registration statement or post-effective
amendment, the Company shall afford the Representative and such Holders the
opportunity to have any such Warrant Shares registered under such registration
statement or post-effective amendment.
Notwithstanding the provisions of this Section 7.2, the Company shall
have the right at any time after it shall have given written notice pursuant to
this Section 7.2 (irrespective of whether a written request for inclusion of any
such securities shall have been made) to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but prior to
the effective date thereof.
Section 7.3 Demand Registration.
(a) At any time commencing after December 23, 1998 through and
including December 23, 2001, the Holders of the Warrants and Warrant Shares
representing a "Majority" (as hereinafter defined) of such securities (assuming
for this purpose the exercise of all of the Warrants) shall have the right
(which right is in addition to the registration rights under Section 7.2
hereof), exercisable by written notice to the Company, to cause the Company to
prepare and file with the Securities and Exchange Commission (the "Commission"),
on one occasion, a registration statement and such other documents, including a
prospectus, as may be necessary in the opinion of both counsel for the Company
and counsel for the Holders, in order to comply with the provisions of the Act,
so as to permit a public offering and sale of all or any portion of their
respective Warrant Shares for nine consecutive months by such Holders and any
other Holders of the Warrants and/or Warrant Shares who elect to participate by
notice to the Company within ten (10) days after receiving notice from the
Company of such request.
(b) In addition to the registration rights under Section 7.2 and
subsection (a) of this Section 7.3, at any time prior to December 23, 2001, any
Holder of Warrants or Warrant Shares shall have the right, exercisable by
written request to the Company, to have the Company prepare and file, on one
occasion, with the Commission a registration statement so as to permit a public
offering and sale of all or any portion of their Warrant Shares for nine
consecutive months by such Holder and any other Holders of the Warrants who
elect to participate by notice to the Company within ten days after receiving
notice from the Company of such request; provided, however, that the provisions
of Section 7.4(c) hereof shall not apply to any such registration request and
registration and all costs incident thereto shall be at the expense of the
Holder or Holders making such request or electing to participate.
(c) The Company covenants and agrees to give written notice of any
registration request under this Section 7.3 by any Holder or Holders to all
other registered Holders of the Warrants and the Warrant Shares within ten (10)
days from the date of the receipt of any such registration request.
(d) Notwithstanding anything to the contrary contained herein, if the
Company shall not
4
<PAGE> 6
have filed a registration statement for the Warrant Shares within the time
period specified in Section 7.4(a) hereof pursuant to the written notice
specified in Section 7.3(a) of a Majority of the Holders of the Warrants and/or
Warrant Shares, the Company agrees that upon the written notice of election of a
Majority of the Holders of the Warrants and/or Warrant Shares it shall
repurchase (i) any and all Warrant Shares at the arithmetic average Market Price
(as defined in Section 8.1(a)) per share of Common Stock on each of the days
when the market shall be open during the seventy-five (75) calendar days
following the date of the notice sent pursuant to Section 7.3(a) and (ii) any
and all Warrants at such average Market Price less the lowest Exercise Price of
such Warrants during such seventy-five (75) day period. Such repurchase shall be
in immediately available funds and shall close within two (2) days after the
later of (i) the expiration of the period specified in Section 7.4(a) or (ii)
the delivery of the written notice of election specified in this Section 7.3(d).
(e) Any notice from Holders to cause a registration under Section
7.3(a) or (b) which does not result in a registration statement which is duly
declared effective pursuant to the Act in accordance with the terms hereof or as
to which a stop order is issued and not withdrawn shall not constitute a
exercise of the Holders' rights under such Sections, respectively.
(f) Notwithstanding the provisions of Sections 7.3(a) above, if upon
exercise of the demand registration rights set forth in the Registration Rights
Agreements dated August 5, 1988, by and among the Company and the signatories
thereto, as amended (the "MEDIQ/Mesirow Agreements"), a Holder declines to
exercise its right to include Warrant Shares in such registration statement or
post-effective amendment and such registration statement or amendment is duly
declared effective pursuant to the Act and is not subject to any stop order
which is not withdrawn, then such Holder shall be deemed to have waived its
right to demand registration pursuant to Sections 7.3(a) and (b) until one year
from the date of a demand registration request pursuant to the MEDIQ/Mesirow
Agreements; provided, however, that if the demand registration rights referred
to above shall be exercised within one year from the date when the Holder's
rights would expire, and if the market price of the Common Stock (which shall
equal the average of the bid and ask price of the Common Stock as quoted on the
National Association of Securities Dealers' Automated Quotation System) shall be
less than the Exercise Price at the time the Holder receives notice of the
demand registration request pursuant to the MEDIQ/Mesirow Agreements, and during
the period following such notice during which the Holder is permitted to notify
the Company whether it will so include its Shares, the Holder shall only be
deemed to have waived its right to demand registration pursuant to Sections
7.3(a) and (b) until one month prior to the date such Holder's rights would
otherwise expire.
Section 7.4 Covenants of the Company With Respect to Registration. In
connection with any registration under Section 7.2 or 7.3 hereof, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to file a registration
statement within seventy-five (75) days of receipt of any demand therefor, shall
use its best efforts to have any registration statement declared effective at
the earliest possible time, and shall furnish each Holder desiring to sell
Warrant Shares such number of prospectuses as shall reasonably be requested;
5
<PAGE> 7
provided that before filing a registration statement or prospectus or any
amendment or supplement thereto, including, without limitation, documents
incorporated therein by reference after the initial filing of any registration
statement, the Company will furnish to the Holders of the Warrant Shares covered
by such registration statement and the underwriters, if any, copies of all such
documents proposed to be filed, which documents will be subject to the review
and approval of such underwriters, and, with respect to information relating to
such Holders, to the comments of such Holders.
(b) The Company will prepare and file with the Commission such
amendments and post-effective amendments to a registration statement as may be
necessary to keep such registration statement effective for the period required
by Sections 7.3(a) or (b); cause the related prospectus to be supplemented by
any required prospectus supplement, and as so supplemented to be filed pursuant
to Rule 424 under the Act; and comply with the provisions of the Act with
respect to the disposition of all securities covered by such registration
statement during such period in accordance with the intended methods of
disposition by the sellers thereof set forth in such registration statement or
amendment or supplement to such prospectus.
(c) The Company shall make every reasonable effort to obtain the
withdrawal of any order suspending the effectiveness of a registration statement
at the earliest possible moment.
(d) The Company shall pay all costs (excluding fees and expenses of
Holder(s) counsel and any underwriting or selling commissions), fees and
expenses in connection with all registration statements filed pursuant to
Sections 7.2 and 7.3(a) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses. The
Holder(s) making a request or electing to participate pursuant to Section 7.3(b)
will pay all costs, fees and expenses in connection with any registration
statement filed pursuant to Section 7.3(b).
(e) The Company will take all necessary action which may be required in
qualifying or registering the Warrant Shares included in a registration
statement for offering and sale under the securities or blue sky laws of such
states as reasonably are requested by the Holder(s), provided that the Company
shall not be obligated to execute or file any general consent to service of
process or to qualify as a foreign corporation to do business under the laws of
any such jurisdiction.
(f) The Company shall indemnify the Holder(s) of the Warrant Shares to
be sold pursuant to any registration statement and each person, if any, who
controls such Holder(s) within the meaning of Section 15 of the Act or Section
20(a) of the Securities Exchange Act of 1934, as amended ("Exchange Act"),
against all loss, claim, damage, expense or liability (including all expenses
reasonably incurred in investigating, preparing or defending against any claim
whatsoever) to which any of them may become subject under the Act, the Exchange
Act or otherwise, arising from such registration statement but only to the same
extent and with the same effect as the provisions pursuant to which the Company
has agreed to indemnify each of the Underwriters contained in Section 8 of the
Underwriting Agreement.
6
<PAGE> 8
(g) The Holder(s) of the Warrant Shares to be sold pursuant to a
registration statement, and their successors and assigns, shall severally, and
not jointly, indemnify the Company, its officers and directors and each person,
if any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, against all loss, claim, damage or expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from information
furnished by or behalf of such Holder(s), or their successors or assigns, for
specific inclusion in such registration statement to the same extent and with
the same effect as the provisions contained in Section 8 of the Underwriting
Agreement pursuant to which the Underwriters have agreed to indemnify the
Company.
(h) Nothing contained in this Agreement shall be construed as requiring
the Holder(s) to exercise their Warrants prior to the initial filing of any
registration statement or the effectiveness thereof.
(i) Other than "Registrable Securities" and "Registrable Shares," as
defined in the MEDIQ/Mesirow Agreements, the Company shall not permit the
inclusion of any securities other than the Warrant Shares to be included in any
registration statement filed pursuant to Section 7.3 hereof, or permit any other
registration statement to be or remain effective during the effectiveness of a
registration statement filed pursuant to Section 7.3 hereof, without the prior
written consent of the Holders of the Warrants and Warrant Shares are presenting
a Majority of such securities.
(j) The Company shall furnish to each Holder participating in the
offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, of (i) an opinion of counsel to the Company, dated
the effective date of such registration statement (or, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), and (ii) a "cold comfort" letter
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, a letter dated the date
of the closing under the underwriting agreement) signed by the independent
public accountants who have issued a report on the Company's financial
statements included in such registration statement, in each case covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of
securities.
(k) The Company shall as soon as practicable, but in any event not
later than 45 days after the end of the 12-month period beginning on the day
after the end of the fiscal quarter of the Company during which the effective
date of the registration statement occurs (90 days in the event that the end of
such fiscal quarter is the end of the Company's fiscal year), make "generally
available to its security holders" (within the meaning of Rule 158 under the
Act) an earnings statement (which need not be audited) complying with Section
11(a) of the Act and covering a period of at least 12 consecutive months
beginning after the effective date of the registration statement.
7
<PAGE> 9
(l) The Company shall deliver promptly to each Holder participating in
the offering requesting the correspondence and memoranda described below and the
managing underwriters copies of all correspondence between the Commission and
the Company, its counsel or auditors and all memoranda relating to discussions
with the Commission or its staff with respect to the registration statement and
permit each Holder and underwriters to do such investigation, upon reasonable
advance notice, with respect to information contained in or omitted from the
registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the National Association of Securities
Dealers, Inc. ("NASD"). Such investigation shall include access to books,
records and properties and opportunities to discuss the business of the Company
with its officers and independent auditors, all to such reasonable extent and at
such reasonable times and as often as any such Holder shall reasonably request.
(m) The Company shall enter into an underwriting agreement with the
managing underwriters selected for such underwriting by Holders holding a
Majority of the Warrant Shares requested to be included in such underwriting.
Such agreement shall be satisfactory in form and substance to the Company, each
Holder and such managing underwriters, and shall contain such representations,
warranties and covenants by the Company and such other terms as are customarily
contained in agreements of that type used by the managing underwriter.
The Holders shall be parties to any underwriting agreement relating to
an underwritten sale of their Warrant Shares and may, at their option, require
that any or all the representations, warranties and covenants of the Company to
or for the benefit of such underwriters shall also be made to and for the
benefit of such Holders. Such Holders shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such Holders and their intended
methods of distribution.
(n) For the purposes of this Agreement, the term "Majority" in
reference to the Holders of Warrants or Warrant Shares, shall mean in excess of
fifty percent (50%) of the then outstanding Warrants and Additional Warrants
(assuming for this purpose the exercise of all of the Warrants and Additional
Warrants) and Warrant Shares that (i) are not held by the Company, an affiliate,
officer, director, employee or agent thereof or any of their respective
affiliates, members of their family, persons acting as nominees or in
conjunction therewith or (ii) have not been resold to the public pursuant to a
registration statement filed with the Commission under the Act.
8. Adjustments to Exercise Price and Number of Securities.
Section 8.1 Subdivision and Combination. In case the Company shall at
any time after December 23, 1998 and prior to the exercise of all Warrants
subdivide or combine the outstanding shares of Common Stock, the Exercise Price
shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
Section 8.2 Adjustment in Number of Securities. Upon each adjustment
of the Exercise Price pursuant to the provisions of this Section 8, the number
of Warrant Shares issuable upon the exercise
8
<PAGE> 10
of each Warrant shall be adjusted to the nearest full amount by multiplying a
number equal to the Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Shares issuable upon exercise of the
Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
Section 8.3 Definition of Common Stock. For the purpose of this
Agreement, the term Common Stock shall mean (i) the class of stock designated
as Common Stock in the Certificate of Incorporation of the Company as amended
as of the date hereof, or (ii) any other class of stock resulting from
successive changes or reclassifications of such Common Stock, consisting solely
of changes in par value, or from par value to no par value, or from no par
value to par value. In the event that the Company shall after the date hereof
issue common stock with greater or superior voting rights than the shares of
Common Stock outstanding as of the date hereof, the Holder, at its option, may
receive upon exercise of any Warrant either shares of Common Stock or a like
number of such common stock with greater or superior voting rights.
8.4 Merger or Consolidation. In case of any consolidation of the
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder a supplemental warrant agreement providing that the holder of each
Warrant then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of such
Warrant, the kind and amount of shares of and stock and other securities and
property receivable upon such consolidation or merger, by a holder of the number
of shares of Common Stock of the Company for which such Warrant might have been
exercised immediately prior to such consolidation, merger, sale or transfer.
Such supplemental warrant agreement shall provide for adjustments which shall be
identical to the adjustments provided in Section 8. The above provision of this
subsection shall similarly apply to successive consolidations or mergers.
Section 8.5 Dividends and Other Distributions. In the event that the
Company shall at any time after December 23, 1998 and prior to the exercise of
all Warrants declare a dividend (other than a dividend consisting solely of
shares of Common Stock) or otherwise distribute to its stockholders any assets,
property, rights, evidences of indebtedness, securities (other than shares of
Common Stock), whether issued by the Company or by another, or any other thing
of value, the Holders of the unexercised Warrants shall thereafter be entitled,
in addition to the shares of Common Stock or other securities and property
receivable upon the exercise thereof, to receive, upon the exercise of such
Warrants, the same property, assets, rights, evidences of indebtedness,
securities or any other thing of value that they would have been entitled to
receive at the time of such dividend or distribution as if the Warrants had been
exercised immediately prior to such dividend or distribution. At the time of any
such dividend or distribution, the Company shall make appropriate reserves to
ensure the timely performance of the provisions of this Section 8.5.
9
<PAGE> 11
Section 8.6 Notice of Adjustment. In the case of any adjustment or
readjustment in the number of Warrant Shares issuable upon the exercise of
Warrants or in the Exercise Price, the Company at its own expense will promptly
compute such adjustment or readjustment in accordance with the terms of this
Agreement and cause independent public accountants of recognized national
standing (who may be the independent public accountants for the Company),
selected by the Board of Directors of the Company, to verify such computation in
writing, and the Company shall prepare and mail by first class mail to each
Warrantholder a certificate signed by the Chief Executive Officer and Chief
Financial Officer of the Company, setting forth such adjustment or readjustment
and showing in reasonable detail the method of calculation thereof and the facts
upon which such adjustment or readjustment is based, including a statement of
(a) consideration to be received by the Company from any sale or issuance of
securities, (b) the number of shares of Common Stock outstanding and (c) the
Exercise Price in effect immediately prior to such sale or issuance and as
adjusted and readjusted.
Section 8.7 No Dilution or Impairment. The Company will not, by
amendment of its Certificate of Incorporation or through any consolidation,
merger, reorganization, transfer of assets, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Agreement, but will at all times in
good faith assist in the performance of all such terms and in the taking of all
such action as may be necessary or appropriate in order to protect the rights
of the Holder of this Warrant against dilution or other impairment. Without
limiting the generality of the foregoing, the Company (a) will take all such
action as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable shares of Common Stock on the
exercise of the Warrants from time to time outstanding and (b) will not take
any action which results in any adjustment of the Exercise Price if the total
number of shares of Common Stock issuable thereafter upon the exercise of all
Warrants would exceed the total number of shares of Common Stock then
authorized by the Company's Certificate of Incorporation and available for the
purpose of issuance such exercise.
9. Exchange and Replacement of Warrant Certificates. Each Warrant
Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Shares in such denominations as shall be
designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any Warrant Certificate, and,
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall not be
required to issue certificates representing fractions of shares of Common Stock
upon the exercise of any Warrant and
10
<PAGE> 12
in lieu thereof shall pay to the Holder of such Warrant an amount in cash
(computed to the nearest cent) equal to the current Market Value of such
fractional interest.
11. Reservation and Listing of Securities. The Company shall at all
times between December 23, 1998 and December 23, 2001 reserve and keep available
out of its authorized shares of Common Stock, solely for the purpose of issuance
upon the exercise of the Warrants, such number of shares of Common Stock or
other securities, properties or rights as shall be issuable upon the exercise
thereof. The Company covenants and agrees that, upon exercise of the Warrants
and payment of the Exercise Price therefor, all shares of Common Stock and other
securities issuable upon such exercise shall be duly and validly issued, fully
paid, non-assessable and not subject to the preemptive rights of any
stockholder. As long as the Warrants shall be outstanding, the Company shall use
its best efforts to cause all shares of Common Stock issuable upon the exercise
of the Warrants to be listed (subject to official notice of issuance) on all
securities exchanges on which the Common Stock issued to the public in
connection herewith may then be listed and/or quoted on NASDAQ-NMS or NASDAQ, as
the case may be.
12. Other Warrants Subject to the Agreement. On the date hereof, the
Company will issue to the persons listed on Exhibit A attached hereto,
Additional Warrants of like tenor to purchase an aggregate of 60,390 shares of
Common Stock, in the numbers of shares set forth opposite their respective names
on Exhibit A. The Additional Warrants and the shares of Common Stock and any
other securities issuable upon exercise thereof shall be subject to and governed
by the terms of this Agreement in the same manner as if they were Warrants and
Warrant Shares and shall be treated as Representative's Warrants and Warrant
Shares and the holders thereof shall be treated as Holders, for all purposes
hereunder except as may be expressly stated herein.
13. Notices to Warrant Holders. Nothing contained in this Agreement
shall be construed as construed upon the Holders the right to vote or to consent
or to receive notice as a stockholder in respect of any meetings of stockholders
for the election of directors or any other matter, or as having any rights
whatsoever as a stockholder of the Company. If, however, at any time prior to
the expiration of the Warrants and their exercise, any of the following events
shall occur:
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of current or
retained earnings, as indicated by the accounting treatment of such
dividend or distribution on the books of the Company; or
(b) the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or
securities convertible into or exchangeable for shares of capital stock
of the Company, or any option, right or warrant to subscribe therefor;
or
(c) a dissolution, liquidation or winding up of the Company
(other than in
11
<PAGE> 13
connection with a consolidation or merger) or a sale of all or
substantially all of its property assets and business as an entirety
shall be proposed;
then, in any one or more of said events the Company shall give written notice of
such event at least fifteen (15) days prior to the date fixed as a record date
or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend, or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
14. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made when
delivered, or mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder of the Warrants, to the
address of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3
hereof or to such other address as the Company may designate by notice
to the Holders.
15. Supplements and Amendments. The Company and the Representative may
from time to time supplement or amend this Agreement without the approval of any
Holders in order to cure any ambiguity, to correct or supplement any provision
contained herein which may be defective or inconsistent with any provisions
herein or to make any other provisions in regard to matters or questions arising
hereunder which the Company and the Representative may deem necessary or
desirable and which the Company and the Representative deem not to affect
adversely the interests of the Holders.
16. Successors. All the covenants and provisions of this Agreement
shall be binding upon and inure to the benefit of the Company, the Holders and
their respective successors and assigns hereunder.
17. Termination. This Agreement shall terminate at the close of
business on December 23, 2001. Notwithstanding the foregoing, the
indemnification provisions of Section 7 shall survive such termination.
18. Governing Law; Submission to Jurisdiction. This Agreement and each
Warrant Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of Delaware and for all purposes shall be construed in
accordance with the laws of said State without giving effect to the rules of
said State governing the conflicts of laws.
12
<PAGE> 14
The Company, the Representative and the Holders hereby agree that any
action, proceeding or claim against any of them arising out of, or relating in
any way to, this Agreement shall be brought and enforced in the courts of the
State of New York or of the United States of America for the Southern District
of New York, and irrevocably submit to such jurisdiction, which jurisdiction
shall be exclusive. The Company, the Representative and the Holders hereby
irrevocably waive any objection to such exclusive jurisdiction or inconvenient
forum. Any such process or summons to be served upon any of the Company, the
Representative and the Holders (at the option of the party bringing such action,
proceeding or claim) may be served by transmitting a copy thereof, by registered
or certified mail, return receipt requested, postage prepaid, addressed to it at
the address set forth in Section 13 hereof. Such mailing shall be deemed
personal service and shall be legal and binding upon the party so served in any
action, proceeding or claim. The Company, the Representative and the Holders
agree that the prevailing party(ies) in any such action or proceeding shall be
entitled to recover from the other party(ies) all of its/their reasonable legal
costs and expenses relating to such action or proceeding and/or incurred in
connection with the preparation therefor.
19. Entire Agreement; Modification. This Agreement (including the
Underwriting Agreement to the extent portions thereof are referred to herein)
contains the entire understanding between the parties hereto with respect to the
subject matter hereof and may not be modified or amended except by a writing
duly signed by the party against whom enforcement of the modification or
amendment is sought.
20. Severability. If any provision of this Agreement shall be held to
be invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provision of this Agreement.
21. Captions. The caption headings of the Sections of this Agreement
are for convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive effect.
22. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Representative and any other registered Holder(s) of the Warrant Certificates or
Warrant Shares any legal or equitable right, remedy or claim under this
Agreement; and this Agreement shall be for the sole and exclusive benefit of the
Company and the Representative and any other Holder(s) of the Warrant
Certificates or Warrant Shares.
23. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
13
<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
NEW WEST EYEWORKS, INC.
By /s/
--------------------------------
Name:
Title:
Attest:
- ---------------------------------
Secretary
FAHNESTOCK & CO. INC.
By
--------------------------------
Name:
Title:
14
<PAGE> 16
EXHIBIT A
ADDITIONAL WARRANTS
Frederic M. Roberts 12,500
Stacy Ruchlamer 12,500
Frank Colen 3,670
Sean J. Lichtig 1,500
Andrew P. Nardella 3,500
Scott W. Salisbury 2,500
Michael A. Stango 7,500
Henry P. Williams 16,720
15
<PAGE> 17
EXHIBIT B
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE
UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR ANOTHER EXEMPTION
FROM REGISTRATION UNDER SUCH ACT.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT
REFERRED TO HEREIN.
EXERCISABLE BETWEEN 5:30 P.M., NEW YORK TIME, DECEMBER 23, 1998
AND 5:30 P.M., NEW YORK TIME, DECEMBER 23, 2001
No. W-__ ___ Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that ______, or registered assigns,
is the registered holder of Warrants to purchase initially, at any time from
December 23, 1998 until 5:30 p.m. New York time on December 23, 2001
("Expiration Date"), up to ___________ (which number is subject to adjustment
pursuant to the Representative's Warrant Agreement dated as of February __,
1997 between the Company and Fahnestock & Co., as may be amended (the "Warrant
Agreement")) fully-paid and non-assessable shares of common stock, par value
$0.01 per share ("Common Stock") of NEW WEST EYEWORKS, INC., a Delaware
corporation (the "Company"), at the initial exercise price, subject to
adjustment in certain events (the "Exercise Price") set forth in Section 6.1 of
the Warrant Agreement upon surrender of this Warrant Certificate and payment of
the Exercise Price at an office or agency of the Company, but subject to the
conditions set forth herein and in the Warrant Agreement. Payment of the
Exercise Price shall be made by check or bank draft to the order of the
Company.
No Warrant may be exercised after 5:30 p.m., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, shall thereafter be void.
16
<PAGE> 18
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants pursuant to the Warrant Agreement, which Warrant
Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder on the books of the Company) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price and/or number of the Company's securities issuable
thereupon may, subject to certain conditions, be adjusted. In such event, the
Company will, at the request of the holder, issue a new Warrant Certificate
evidencing the adjustment in the Exercise Price and the number and/or type of
securities issuable upon the exercise of the Warrants; provided, however, that
the failure of the Company to issue such new Warrant Certificates shall not in
any way change, alter or otherwise impair, the rights of the holder as set forth
in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the
Representative's Warrant Agreement, without any charge except for any tax or
other governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
17
<PAGE> 19
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed.
Dated as of ___________________, 1997
NEW WEST EYEWORKS, INC.
By /s/
-----------------------------
Name:
Title:
Attest:
- -----------------
Secretary
18
<PAGE> 20
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase shares of Common Stock and
herewith tenders in payment for such securities a check payable in New York
Clearing House Funds to the order of NEW WEST EYEWORKS, INC. in the amount of
$ _______________, all in accordance with the terms hereof. The undersigned
requests that a certificate for such securities be registered in the name of
____________________ whose address is _____________________________ and that
such Certificate be delivered to _____________________ whose address is
____________________________.
Dated: ______________________
Signature
-----------------------------
(Signature must conform in all
respects to name of holder
as specified on the face of the
Warrant Certificate.)
------------------------------
(Insert Social Security or Other
Identifying Number of Holder.)
19
<PAGE> 1
EXHIBIT 4.12
February 6, 1997
VIA FEDERAL EXPRESS
[NAME AND ADDRESS
OF WARRANT HOLDER]
Re: REPRESENTATIVE'S WARRANT
Dear [NAME OF WARRANT HOLDER]:
Reference is hereby made to that certain Representative's Warrant
Agreement, dated as of December 31, 1993, between New West Eyeworks, Inc. (the
"Company") and Reich & Co., Inc. (the "Agreement"), the terms of which apply to
certain warrants held by you. This letter will serve to amend the Agreement,
effective December 31, 1993 (the "Amendment"), as follows:
1. Sections 8.1, 8.2, 8.7 and 8.11 are hereby deleted in their entirety
and Sections 8.3, 8.4, 8.5, 8.6, 8.8, 8.9 and 8.10 are renumbered
accordingly.
2. The first sentence of Section 1 shall be replaced with the following:
"The Holder (as defined in Section 3 hereof) is hereby granted the
right to purchase, at any time from December 23, 1994 until 5:30 P.M.,
New York time, on December 23, 1998, up to an aggregate of 81,563
shares of Common Stock (the "Shares") at an initial exercise price
(subject to adjustment as provided in Section 8 hereof) of $8.00 per
share of Common Stock subject to the terms and conditions this
Agreement."
3. The first sentence of Section 6.1 shall be replaced with the following:
"Except as otherwise provided in Section 8 hereof, the initial exercise
price of each Warrant shall be $8.00 per share of Common Stock."
Except as otherwise modified by the letter, dated December 19, 1996
between you and the Company ("December Letter"), and except as set forth in the
following sentence, all other terms of the Agreement remain in full force and
effect. This Amendment supersedes in its entirety the provisions of the
penultimate paragraph of the December Letter relating to the Agreement.
<PAGE> 2
February 6, 1997
Page 2
- ----------------
In addition, the Company proposes to extend to you the terms of the
Representative's Warrant Agreement, between New West Eyeworks, Inc. (the
"Company") and Fahnestock & Co. (the "New Agreement"), a copy of which (marked
to show changes from the Agreement) is attached hereto. By signing the enclosed
copy of this letter, as indicated below, you are acknowledging your agreement to
the terms the New Agreement to the extent they are applicable to you.
Please acknowledge your agreement to the foregoing amendments and the
New Agreement by signing and dating the enclosed copy of this letter and
returning it to me by no later than February 10, 1997.
Very truly yours,
NEW WEST EYEWORKS, INC.
By:
-----------------------
Byron S. Krantz
Secretary
AGREED AND ACKNOWLEDGED
________________________ Date:_________________________
[NAME OF WARRANT HOLDER]
<PAGE> 1
EXHIBIT 5.1
KOHRMAN JACKSON & KRANTZ P.L.L.
ATTORNEYS AT LAW
20th FLOOR, ONE CLEVELAND CENTER
CLEVELAND, OHIO 44114
-------
216-696-8700
TELECOPIER
216-621-6536
February 7, 1997
New West Eyeworks, Inc.
2104 West Southern Avenue
Tempe, Arizona 85282
Mesirow Capital Partners II
Mesirow Capital Partners III
Mesirow Capital Partners IV
Mesirow Capital Partners V
350 North Clark St.
Chicago Illinois, 60610
Re: Public Offering of Common Stock
Ladies and Gentlemen:
On December 24, 1996, New West Eyeworks, Inc., a Delaware corporation
(the "Company"), filed with the Commission a registration statement of Form
S-2, Registration Number 333-18709 (as subsequently amended, the "Registration
Statement"), under the Securities Act of 1933, as amended (the "Act"). The
Registration Statement relates to the sale by the Company and the Selling
Stockholders of up to 1,840,000 shares (the "Shares") of the Company's common
stock, par value $0.01 per share (the "Common Stock"). We have acted as counsel
to the Company in connection with the preparation and filing of the
Registration Statement. Capitalized terms used herein and not otherwise defined
shall have the meanings attributed to them in the Registration Statement.
In connection herewith, we have examined and relied upon the original
or a copy, certified to our satisfaction, of (i) the Amended and Restated
Certificate of Incorporation and the Amended and Restated Bylaws of the
Company; (ii) resolutions of the Board of Directors of the Company authorizing
the offering and the issuance of the Shares and related matters; (iii) the
Registration Statement; (iv) the Prospectus; (v) a specimen of the Shares; (vi)
the Underwriting Agreement; and (vii) such other documents and instruments as
we have deemed necessary for the expression of opinions herein contained.
We have assumed the genuineness of all signatures, the authenticity of
all documents submitted to us as originals, and the conformity to original
documents of all documents we deem appropriate as a basis for rendering the
opinions expressed below. We have made such investigations of law as
<PAGE> 2
KOHRMAN JACKSON & KRANTZ P.L.L.
New West Eyeworks, Inc.
Mesirow Capital Partners II
Mesirow Capital Partners III
Mesirow Capital Partners IV
Mesirow Capital Partners V
February 7, 1997
Page 2
we deem appropriate for rendering the opinions expressed below. As to various
questions of fact material to the opinions, we have relied, to the extent we
deem appropriate, upon representations or certificates of officers or directors
of the Company and upon documents, records and instruments furnished to us by
the Company, without independently checking or verifying the accuracy of such
documents, records and instruments.
Based upon the foregoing examination, we are of the opinion that, (i)
the Shares to be sold by the Company pursuant to the Registration Statement
will be duly and validly authorized and, when issued and delivered in
accordance with the Underwriting Agreement filed as Exhibit 1.1 to the
Registration Statement, validly issued, fully paid and nonassessable, and (ii)
the Shares to be sold by the Selling Stockholders pursuant to the Registration
Statement are duly and validly authorized and issued and fully paid and
nonassessable.
We express no opinion other than as to the Federal law of the United
States and the General Corporation Law of the State of Delaware.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement. In
giving such consent, we do not admit that we come within the category of
persons whose consent is required by Section 7 of the Act or the rules and
regulations of the Commission thereunder.
Sincerely,
Kohrman Jackson & Krantz P.L.L.
/s/ Marc C. Krantz
-------------------------------
By Marc C. Krantz, a Partner
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of
this Registration Statement on Form S-2 of our report dated March 8, 1996
relating to the financial statements of New West Eyeworks, Inc., which appears
in such Prospectus. We also consent to the application of such report to the
Financial Statement Schedules for the three years ended December 30, 1995
listed under Item 14(a) of New West Eyeworks, Inc.'s Annual Report on Form 10-K
for the year ended December 30, 1995 when such schedules are read in
conjunction with the financial statements referred to in our report. The audits
referred to in such report also included these Financial Statement Schedules.
We also consent to the references to us under the headings "Experts" in such
Prospectus.
PRICE WATERHOUSE LLP
Phoenix, Arizona
February 6, 1997
