EXHIBIT 10.7
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STOCK PURCHASE AGREEMENT
DATED APRIL 21, 2003
BETWEEN
BLUEBIRD FINANCE LIMITED
AND
SIGNATURE EYEWEAR, INC.
RELATING TO THE PURCHASE AND SALE
OF
SERIES A 2% CONVERTIBLE PREFERRED STOCK
OF
SIGNATURE EYEWEAR, INC.
CONTENTS
CLAUSE PAGE
1. Definitions..........................................................1
2. Purchase and Sale....................................................4
3. Representations and Warranties of the Corporation....................5
4. Representations and Warranties of Buyer..............................9
5. Covenants of the Corporation........................................10
6. Covenants of Buyer and the Corporation..............................13
7. Survival; Indemnification...........................................14
8. Miscellaneous.......................................................15
Signatories..................................................................18
EXHIBITS
A. Certificate of Determination........................................19
B. Registration Rights.................................................33
C. Legal Opinion of special counsel to the Corporation.................41
SCHEDULES
3.4 Non-Contravention...................................................47
3.5 Capitalization......................................................48
3.9 Material Adverse Change.............................................49
3.10 Litigation..........................................................50
3.12 Subsidiaries........................................................51
3.14 Compliance with Laws................................................52
3.14 Taxes...............................................................53
3.15 Trademarks..........................................................54
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "AGREEMENT") dated as of April 21, 2003
BETWEEN
(1) SIGNATURE EYEWEAR, INC., a California corporation (the "CORPORATION"), and
(2) BLUEBIRD FINANCE LIMITED, a British Virgin Island corporation ("BUYER").
WHEREAS, the Corporation desires to sell the Preferred Shares (as defined
herein) to Buyer, and Buyer desires to purchase the Preferred Shares from the
Corporation, upon the terms hereinafter set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual representations,
warranties, covenants and undertakings contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. DEFINITIONS
1.1 DEFINITIONS
(a) The following terms, as used herein, have the following meanings:
10-DAY MARKET PRICE means the average of the daily Market Prices of the
Common Stock for the 10 consecutive trading days ending the day prior to
the date for which such value is to be computed.
AFFILIATE means, with respect to any specified Person, any other Person
that, directly or indirectly, controls, is controlled by or is under direct
or indirect common control with, such specified Person. For the purposes of
this definition, "control" when used with respect to any Person means the
power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract
or otherwise, and the terms "affiliated," "controlling," and "controlled"
have meanings correlative to the foregoing.
BENEFICIAL OWNER has the meaning set forth in Rule 13d-3 under the Exchange
Act, and derivative terms such as "beneficially own" shall be given
corresponding meanings.
BOARD OF DIRECTORS means the Board of Directors of the Corporation.
BUSINESS DAY means any day except Saturday, Sunday and any day that is a
legal holiday or a day on which banking institutions in Los Angeles,
California generally are authorized or required by law or other
governmental actions to close.
CERTIFICATE OF DETERMINATION means the certificate of determination
executed on or before the date of this Agreement substantially in the form
attached as Exhibit A.
CHANGE OF CONTROL means the occurrence of any of the following events: (i)
any Person or COC Group (with the exception of the Buyer or any of its
affiliates) is or becomes the beneficial owner (as defined herein, except
that a Person shall be deemed to have "beneficial ownership" of all
securities that such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total Voting Securities of the
Corporation; or (ii) the Corporation consolidates with, or merges with or
into, another Person or sells, assigns, conveys, transfers, leases or
otherwise disposes of all or
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substantially all of its assets to any Person, or any Person consolidates
with, or merges with or into the Corporation, in any such event pursuant to
a transaction in which the outstanding Voting Securities of the Corporation
are converted into or exchanged for cash, securities or other property,
other than any such transaction where (A) the outstanding Voting Securities
of the Corporation are converted into or exchanged for Voting Securities of
the surviving or transferee corporation or its parent corporation and/or
cash, securities or other property in an amount which could be paid by the
Corporation under the terms of the Corporation's credit and financing
agreements and (B) immediately after such transaction no Person or COC
Group is the beneficial owner (as defined herein, except that a Person
shall be deemed to have "beneficial ownership" of all securities that such
Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of
more than 50% of the total Voting Securities of the surviving or transferee
corporation, as applicable; or (iii) during any consecutive two-year
period, individuals who at the beginning of such period constituted the
Board of Directors (together with any new directors whose election by the
Board of Directors or whose nomination for election by the stockholders of
the Corporation was approved by a vote of a majority of the directors then
still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved)
cease for any reason to constitute a majority of the Board of Directors
then in office.
CLOSING DATE means the date of the Closing.
COC GROUP means a group within the meaning of Section 13(d)(3)
of the Exchange Act.
COMMISSION means the Securities and Exchange Commission.
COMMON EQUITY means shares of Common Stock, and Convertible Securities
(including the Series A Preferred Stock).
COMMON STOCK means the Corporation's common stock, par value $0.001 per
share.
CONVERSION SHARES means the shares of Common Stock issued upon conversion
of the Series A Preferred Stock.
CONVERTIBLE SECURITIES means any securities convertible into or
exchangeable or exercisable for Common Stock.
CONVERTIBLE VOTING SECURITIES means securities convertible into or
exchangeable or exercisable for Voting Securities.
CREDIT FACILITY AGREEMENT means the agreement to be executed by the Buyer
and the Corporation on the same date as this Agreement.
DECEMBER FINANCIAL STATEMENTS means the draft unaudited consolidated
financial statements of the Corporation for the period ended December 31,
2002.
EXCHANGE ACT means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
FINANCE DOCUMENTATION means the Credit Facility Agreement, the Security
Agreement, the Subordination Agreement.
GAAP means the U.S. generally accepted accounting principles.
GROUP means the Corporation and its Subsidiaries.
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LIEN means any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind.
MARKET PRICE means, with respect to the Common Stock, on any given day, (i)
the price of the last trade, as reported on the Nasdaq National Market, not
identified as having been reported late to such system, or (ii) if the
Common Stock is so quoted, but not so traded, the average of the last bid
and ask prices, as those prices are reported on the Nasdaq National Market,
or (iii) if the Common Stock is not listed or authorized for trading on the
Nasdaq National Market or any comparable system, the average of the closing
bid and asked prices as furnished by two members of the National
Association of Securities Dealers, Inc. selected from time to time by the
Corporation for that purpose; provided that, in connection with (i) or
(ii), the Corporation may from time to time specify in advance the time at
which the trade price or bid and ask prices, respectively, shall be
determined for purposes of a particular calculation under this Agreement.
If the Common Stock is not listed and traded in a manner that the
quotations referred to above are available for the period required
hereunder, the Market Price per share of Common Stock shall be deemed to be
the fair value per share of such security as determined in good faith by
the Board of Directors.
MATERIAL ADVERSE EFFECT means a material adverse effect on:
(a) the business or financial condition of any member of the Group or the
Group as a whole;
(b) the ability of the Corporation to perform its obligations under this
Agreement or any of the Finance Documentation;
(c) the validity or enforceability of this Agreement or any of the Finance
Documentation; or
(d) any right or remedy of the Buyer under this Agreement or any of the
Finance Documentation.
OCTOBER FINANCIAL STATEMENTS means the draft consolidated financial
statements of the Corporation for the year ended October 31, 2002.
PERSON means an individual, corporation, partnership, limited liability
company, association, trust and any other entity or organization, including
a government or political subdivision or an agency or instrumentality
thereof.
PREFERRED SHARES means 1,200,000 shares of Series A Preferred Stock issued
on the Closing Date.
PREFERRED STOCK has the meaning set out in Section 3.5(a).
RESTRICTED SECURITIES means (i) Common Equity and (ii) any other Voting
Securities or Convertible Voting Securities.
SEC REPORTS means all forms, reports and documents that the Corporation is
required to file with the Commission.
SECURITIES ACT means the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
SECURITY AGREEMENT means the security agreement to be executed by the
Corporation and Buyer on the same date as this Agreement.
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SERIES A PREFERRED STOCK means the Series A 2% Convertible Preferred Stock
of the Corporation having the rights, preferences and restrictions as set
forth in the Certificate of Determination.
SUBORDINATION AGREEMENT means the subordination agreement to be executed
between the Buyer, the Corporation and Home Loan and Investment Company on
the same date as this Agreement.
SUBSIDIARY means, with respect to any Person, any corporation or other
entity (and any predecessor thereof) of which the securities or other
ownership interests having ordinary voting power to elect a majority of the
Board of Directors or other persons performing similar functions are
directly or indirectly owned by such Person.
VOTING SECURITIES means securities of the Corporation ordinarily having the
power to vote for the election of directors of the Corporation other than
the Series A Preferred Stock, provided that when the term "Voting
Securities" is used with respect to any other Person it means the capital
stock or other equity interests of any class or kind ordinarily having the
power to vote for the election of directors or other members of the
governing body of such Person.
(b) The following definitional provisions shall apply to this Agreement:
(i) The words "hereof", "herein", and "hereunder" and words of
similar import, when used in this Agreement, shall refer to this
Agreement as a whole and not to any particular provision of this
Agreement.
(ii) The terms defined in the singular shall have a comparable meaning
when used in the plural, and vice versa.
(iii) The terms "Dollars" and "$" shall mean United States Dollars.
(iv) References herein to a specific Section, Subsection or paragraph
shall refer, respectively, to Sections, Subsections or paragraph
of this Agreement, unless the express context otherwise requires.
(v) Wherever the word "include," "includes," or "including" is used
this Agreement, it shall be deemed to be followed by the words
"without limitation".
2. PURCHASE AND SALE
2.1 PURCHASE AND SALE
Upon the terms of this Agreement, the Corporation agrees to sell to Buyer, and
Buyer agrees to purchase from the Corporation, 1,200,000 Preferred Shares at the
Closing. The purchase price (the PURCHASE PRICE) for the Preferred Shares is
$800,000 in cash. The Purchase Price shall be paid as provided in Section 2.2.
2.2 CLOSING.
The closing (the CLOSING) of the purchase and sale of the 1,200,000 Preferred
Shares hereunder shall take place at the offices of Jeffer, Mangels, ▇▇▇▇▇▇ &
▇▇▇▇▇▇▇ LLP, 1900 Avenue of the Stars, ▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇,
immediately upon execution of this Agreement and the Finance Documentation. At
the Closing:
(a) The Corporation shall deliver to Buyer:
(i) certificates for the Preferred Shares;
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(ii) confirmation that the Certificate of Determination has been filed
in accordance with the laws of California;
(iii) certified copies of the Articles of Incorporation and bylaws of
the Corporation;
(iv) a copy of the resolutions adopted by the Board of Directors,
certified by the Secretary of the Corporation, authorizing this
Agreement and issuance of the Preferred Shares and the Conversion
Shares; and
(v) an opinion reasonably acceptable to Buyer from Jeffer, Mangels,
Butter & Marmaro, LLP, special counsel to the Corporation, in the
form of the attached Exhibit C.
(b) Buyer shall deliver to the Corporation the Purchase Price in
immediately available funds by wire transfer to the account of the
Corporation notified to Buyer.
2.3 CERTIFICATES.
(a) Each certificate for Preferred Shares or Restricted Securities issued
to Buyer shall bear the following legend:
"The securities represented hereby have not been registered under
Securities Act of 1933, as amended, and may not be offered, sold,
transferred or otherwise disposed of except in compliance such Act and
other applicable laws."
(b) The Corporation agrees that, at the request of Buyer, it will remove
from the certificates representing any Preferred Shares or Restricted
Securities the legend contemplated by subsection (a) regarding the
restriction under the Securities Act in the event that outside counsel
for Buyer delivers to the Corporation a written opinion that the
transfer of such Restricted Securities is no longer restricted by the
Securities Act.
3. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION
The Corporation represents and warrants to Buyer as of the date hereof (and if
different, as at the Closing Date) that: 3.1 CORPORATE EXISTENCE AND POWER.
The Corporation is a corporation duly incorporated, validly existing under the
laws of the State of California, and the Corporation and each of its
Subsidiaries has the powers required to own its assets and to carry on its
business as now conducted.
3.2 CORPORATE AUTHORIZATION.
(a) The execution, delivery and performance of this Agreement by the
Corporation, including the issuance of the Preferred Shares and the
Conversion Shares, is within the Corporation's powers and has been
duly authorized by all necessary corporate action on the part of the
Corporation.
(b) This Agreement constitutes a legal and binding agreement of the
Corporation, enforceable against the Corporation in accordance with
its terms, except (i) as such enforcement is limited by bankruptcy,
insolvency and other similar laws affecting the enforcement of
creditors' rights generally and (ii) for limitations imposed by
general principles of equity.
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3.3 AUTHORIZATION.
The execution, delivery and performance of this Agreement by the Corporation
requires no action by or in respect of, or filing with, any governmental or
non-governmental body, agency, official or authority other than (i) compliance
with any applicable requirements of the Exchange Act, (ii) with respect to the
Corporation's obligations under Section 6.4, compliance with any applicable
requirements of the Securities Act, (iii) the filing of the Certificate of
Determination and Notice of Transaction under Section 25102(f) of the California
Corporations Code in accordance with the laws of California, and (iv) other
filings, notifications and consents that are immaterial to the consummation of
the transactions contemplated hereby.
3.4 NON-CONTRAVENTION.
Assuming compliance with the matters referred to in Section 3.3, the execution,
delivery and performance of this Agreement by the Corporation do not and will
not conflict with (i) the articles of incorporation or bylaws of the Corporation
or any of its Subsidiaries, (ii) any applicable law or regulation or (iii) and
except as to matters which would be immaterial to the Corporation or as set
forth in Schedule 3.4, (y) constitute a default under, or give rise to any right
of termination, cancellation or acceleration of any right or obligation of the
Corporation or to a loss of any benefit to which the Corporation is entitled
under any provision of any agreement or other instrument binding upon the
Corporation or (z) result in the creation or imposition of any Lien on any asset
of the Corporation.
3.5 CAPITALIZATION.
(a) As of the date hereof, the authorized capital stock of the Corporation
consists of 30,000,000 shares of common stock (COMMON STOCK), par
value $.001 per share; and 5,000,000 shares of preferred stock, par
value $.001 per share (PREFERRED STOCK), of which 1,360,000 shares are
designated as "Series A 2% Convertible Preferred Stock". As of October
31, 2002, there were issued and outstanding the following shares of
such stock: 5,556,889 shares of Common Stock, no shares Preferred
Stock. The Certificate of Determination has been duly filed with the
California Secretary of State and remains unchanged and in effect.
(b) All outstanding shares of Common Stock are duly authorized, validly
issued and fully paid and nonassessable. There are no preemptive or
other similar rights available to the existing holders of the capital
stock of the Corporation. Except as contemplated by this Agreement or
set forth in Schedule 3.5 hereto, there are no outstanding options,
warrants, rights, puts, calls, commitments, or other contracts,
arrangements, or understandings issued by or binding upon the
Corporation requiring, and there are no outstanding debt or equity
securities of the Corporation which upon the conversion, exchange or
exercise thereof would require, the issuance, sale or transfer by the
Corporation of any new or additional equity interests in the
Corporation (or any other securities of the Corporation or any of its
Subsidiaries which, whether after notice, lapse of time or payment of
monies, are or would be convertible into or exercisable or
exchangeable for equity interests in the Corporation). There are no
voting trusts or other agreements or understandings to which the
Corporation or any of its Subsidiaries is a party with respect to the
voting of capital stock of the Corporation. There are no outstanding
obligations pursuant to which the Corporation is or may become
obligated to purchase or redeem any shares of capital stock.
3.6 AUTHORIZATION OF PREFERRED SHARES AND CONVERSION SHARES.
The issuance, sale and delivery of the Preferred Shares has been duly authorized
by all requisite corporate and stockholder action of the Corporation, and the
Preferred Shares issued to Buyer, when issued and delivered in accordance with
the terms of this Agreement, will be validly issued and outstanding, fully paid
and nonassessable, free and clear of any Liens and not subject to preemptive or
other similar rights of the stockholders of the Corporation. The Conversion
Shares have
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been duly and validly reserved for issuance, and when issued upon conversion of
the Preferred Shares, will be validly issued, fully paid, and nonassessable,
free and clear of any Liens and not subject to preemptive or other similar
rights of the shareholders of the Corporation. The issuance of the Preferred
Shares and the Conversion Shares to Buyer is and will be in full compliance with
all applicable federal, foreign, and state securities laws., provided that by
making the representations contained in this section 3.6, the Corporation is not
making any representation concerning the ability of the Buyer to subscribe for
the Preferred Shares and the Conversion Shares pursuant to this Agreement.
3.7 FINDERS' FEES.
There is no investment banker, broker, finder or other intermediary that has
been retained by or is authorized to act on behalf of the Corporation who might
be entitled to any fee or commission in connection with the sale of the
Preferred Shares pursuant to this Agreement.
3.8 FINANCIAL STATEMENTS.
(a) The October Financial Statements have been prepared in good faith with
due care and diligence and fairly represent its financial condition
and results of operations as at the date to which they were drawn up,
subject to:
(i) normal year end adjustments and completion of the footnotes; and
(ii) adjustments required by the Corporation's auditors to be made as
follows:
(A) increase in inventory reserves as a result of obsolescence
or slow movement of inventory;
(B) increase in the reserves for returns of goods, inventory and
merchandise;
(C) and increase in the bad debt reserve,
all such adjustments to be notified to the Buyer promptly upon
agreement thereof by the Corporation and its auditors.
(b) The December Financial Statements have been prepared in good faith
with due care and diligence and fairly represent its financial
condition and results of operations as at the date to which they were
drawn up, subject to:
(i) normal year end adjustments; and
(ii) adjustments directly resulting from any adjustments made to the
October Financial Statements in accordance with paragraph (a)(ii)
above.
The December Financial Statements contain no footnotes.
(c) Its audited consolidated financial statements most recently delivered
to the Buyer:
(i) have been prepared in accordance with accounting principles and
practices generally accepted in its jurisdiction of
incorporation, consistently applied; and
(ii) fairly represent its consolidated financial condition and results
of operations as at the date to which they were drawn up,
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except, in each case, as disclosed to the contrary in those financial
statements.
3.9 NO MATERIAL ADVERSE CHANGE.
There has been no material adverse change in the consolidated financial
condition and results of operations of the Corporation since December 31,
2002 other than:
(a) as set out in Schedule 3.9 (Material Adverse Change); or
(b) as otherwise known to the Buyer.
3.10 LITIGATION.
No litigation, arbitration or administrative proceedings are current or, to
its knowledge, pending or threatened, which, if adversely determined, are
reasonably likely to have a Material Adverse Effect other than:
(a) as set out in Schedule 3.10 (Litigation); or
(b) threatened claims for an amount not exceeding US$100,000 in aggregate.
3.11 OFFERING OF PREFERRED SHARES.
Neither the Corporation nor any Person acting on its behalf has taken or will
take any action (including, without limitation, any offering of any securities
of the Corporation under circumstances that would require, under the Securities
Act, the integration of such offering with the offering and sale of the
Preferred Shares) that might subject the offering, issuance or sale of the
Preferred Shares to the registration requirements of Section 5 of the Securities
Act.
3.12 SUBSIDIARIES AND OTHER INTERESTS.
Except as set forth in Schedule 3.12, the Corporation does not have any
Subsidiaries and does not, directly or indirectly, own any capital stock or have
any equity interests of or in any other entity. 3.13 COMPLIANCE WITH LAW.
Except as disclosed in Schedule 3.13, the business of the Corporation has been
and is presently being conducted in compliance with applicable US and foreign
federal, state, and local governmental laws, rules, regulations and ordinances,
except for any such noncompliance that would not have a Material Adverse Effect
on the Corporation.
3.14 TAXES.
Except as disclosed in Schedule 3.14, the Corporation has timely filed or caused
to be filed all Tax Returns that are required to be filed by or with respect to
it, its operations and assets, and as of the time of filing, all such Tax
Returns were complete and correct. Except as disclosed in Schedule 3.14, the
Corporation has paid or caused to be paid all Taxes as shown on said returns and
on all assessments received by them to the extent that such Taxes have become
due. The federal income Tax Returns of the Corporation have been examined and
reported on by the Internal Revenue Service (or closed by applicable statutes)
and all tax liabilities including additional assessments have been satisfied for
all fiscal years prior to and including the fiscal year ended 31 October, 2001.
The Corporation has paid or caused to be paid, or have established reserves
which, in the reasonable judgment of the Corporation, are adequate in all
material respects, for all Tax liabilities applicable to the Corporation for all
fiscal years which have not been examined and reported on by the taxing
authorities (or closed by applicable statutes). The term TAXES shall mean all
taxes, charges, fees, levies or other assessments, including, without
limitation, all net income, gross income, gross receipts, premium, sales, use,
ad valorem,
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transfer, franchise, profits, license, withholding, payroll, employment, excise,
estimated severance, stamp, occupation, property or other taxes, fees, custom
duties, assessments or charges of any kind whatsoever, together with any
interest and any penalties (including penalties for failure to file in
accordance with applicable information reporting requirements), and additions to
tax by any authority (domestic or foreign). The term TAX RETURN shall mean any
report, return, form, declaration or other document or information required to
be supplied to any authority in connection with Taxes.
3.15 TRADEMARKS, ETC.
Schedule 3.15 sets forth a true and complete list of all patents, trademarks,
trade names, service marks and copyrights and applications therefor
(collectively, INTELLECTUAL PROPERTY) owned by or licensed to the Corporation
which constitutes all the Intellectual Property necessary for use in the United
States and in such other jurisdictions as is necessary for the conduct of the
business of the Corporation as presently conducted. Except as disclosed on
Schedule 3.15, the Corporation owns or has the perpetual right to use, without
payment to or interference from any other party, all Intellectual Property
listed on Schedule 3.15 and has not authorized any person in any jurisdiction to
use any such Intellectual Property. All Intellectual Property listed on Schedule
3.15 which may be so registered or filed has been duly registered and filed in
or issued by the appropriate governmental agency in the jurisdictions indicated,
all necessary affidavits of continuing use have been filed, and all necessary
maintenance fees have been paid to continue all such rights in effect. Except as
set forth in Schedule 3.15, the Corporation has no notice or knowledge of any
objection or claim being asserted by any person with respect to the ownership,
validity, enforceability or use of any Intellectual Property listed on Schedule
3.15 or challenging or questioning the validity or effectiveness of any such
license.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Corporation as of the date hereof (and, if
different, as of the Closing Date) that:
4.1 CORPORATE EXISTENCE AND POWER.
Buyer is a corporation duly incorporated, validly existing and in good standing
under the laws of its jurisdiction of incorporation.
4.2 CORPORATE AUTHORIZATION.
The execution, delivery and performance of this Agreement by Buyer are within
Buyer's corporate powers and have been duly authorized by all necessary
corporate action on the part of Buyer. This Agreement constitutes a legal, valid
and binding agreement of Buyer, enforceable against Buyer in accordance with its
terms, except (a) as such enforcement is limited by bankruptcy, insolvency and
other similar laws affecting the enforcement of creditors' rights generally and
(b) for limitations imposed by general principles of equity. 4.3 AUTHORIZATION.
The execution, delivery and performance of this Agreement by Buyer requires no
action by or in respect of, or filing with, any governmental or non-governmental
body, agency or official or any other Person other than (i) compliance with any
applicable requirements of the Exchange Act, and (ii) other filings or
notifications that are immaterial to the consummation of the transactions
contemplated hereby.
4.4 NON-CONTRAVENTION.
Assuming compliance with the matters referred to in Section 4.3, the execution,
delivery and performance of this Agreement by Buyer does not and will not (i)
violate the certificate of incorporation or bylaws of Buyer, (ii) violate any
applicable law, rule, regulation, judgment, injunction, order or decree, except
for any such violations which would not have a material adverse effect on the
ability of Buyer to consummate the transactions contemplated hereby or (iii)
constitute a default under any agreement or other instrument binding upon Buyer
except as to matters which would not be material to Buyer.
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4.5 PURCHASE FOR INVESTMENT.
(a) Buyer is an "accredited investor" as defined in Rule 501 of Regulation
D promulgated under the Securities Act. Buyer is purchasing the
Preferred Shares for investment for its own account and not with a
view to, or for sale in connection with, any distribution thereof or
of any Conversion Shares in violation of the Securities Act.
(b) Buyer understands that (i) the offering and sale of the Preferred
Shares and the Conversion Shares by the Corporation is intended to be
exempt from registration under the Securities Act pursuant to Section
4(2) thereof and (ii) there is no existing public or other market for
the Preferred Shares.
(c) The Buyer confirms that it (i) has been furnished with or has had
access to all of the information that it considers necessary to make
an informed investment decision with respect to the Preferred Shares
and Conversion Shares, (ii) has had the opportunity to discuss with
management of the Corporation the intended business and financial
affairs of the Corporation (iii) (either alone or together with its
advisors) has sufficient knowledge and experience in financial and
business matters so as to be capable of evaluating the merits and
risks of its investment in the Preferred Shares and the Conversion
Shares, (iv) is capable of bearing the economic risks of such
investment; and (v) it has not relied upon any oral representations of
the Corporation in connection with its decision to invest in the
Preferred Shares and the Conversion Shares.
(d) Buyer has not received any advertising or general solicitation in
connection with the issuance of the Preferred Shares.
(e) Buyer understands that the Preferred Shares and the Conversion Shares
will be issued in a transaction exempt from the registration or
qualification requirements of the Securities Act and applicable state
securities laws, and that such securities must be held indefinitely
unless a subsequent disposition thereof is registered or qualified
under the Securities Act and such state securities laws or is exempt
from such registration or qualification.
4.6 FINDER'S FEES
There is no investment banker, broker, finder or other intermediary that has
been retained by or is authorized to act on behalf of the Buyer who might be
entitled to any fee or commission in connection with the transactions
contemplated by this Agreement.
5. COVENANTS OF THE CORPORATION
The Corporation agrees that:
5.1 CERTIFICATE OF DETERMINATION.
The Corporation has caused the Certificate of Determination set forth as Exhibit
A hereto to be filed as required pursuant to the law of California.
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5.2 RESERVATION OF SHARES.
For so long as any of the Preferred Shares is outstanding, the Corporation shall
keep reserved for issuance a sufficient number of shares of Common Stock to
satisfy its conversion obligations under the Certificate of Determination.
5.3 OTHER TRANSFERS OF RESTRICTED SECURITIES.
The Corporation shall take all actions reasonably necessary to enable holders of
the Common Stock to sell such stock without registration under the Securities
Act pursuant to Rule 144 under the Securities Act or any successor rule or
regulation, subject in each case to the provisions of this Agreement and,
specifically, the filing on a timely basis of all reports required to be filed
under the Exchange Act.
5.4 PRO-RATA PARTICIPATION.
(a) If the Corporation shall issue (such issuance, including any Common
Equity issued to Buyer pursuant to this Section 5.4, an ISSUANCE) any
Common Equity (other than an issuance of Common Equity (i) pursuant to
the Corporation's existing or future stock option plans or pursuant to
any other existing or future director or employee compensation plan
approved by the Board of Directors, (ii) as consideration for the
acquisition of a business or of assets, (iii) to the Corporation's
joint venture partners in exchange for interests in the relevant joint
venture, (iv) upon conversion, exercise or exchange of Convertible
Securities, (v) that would cause an adjustment under paragraph
8(g)(iii) of the Certificate of Determination, (vi) pursuant to any
shareholders' rights plan or (vii) as dividends on any class of
preferred stock of the Corporation), Buyer shall have the right to
purchase for cash up to an amount of such Common Equity (PRO-RATA
SECURITIES) on the same terms and at the same price as the issue price
of such Common Equity (such price to be agreed by the Corporation and
Buyer if such Common Equity is to be issued for consideration other
than cash, and if the parties cannot agree on such price, the price
shall be determined as provided in paragraph (c) of this Section 5.4)
so that, after the Issuance, Buyer would own the same proportional
interest of Common Stock in the aggregate (assuming conversion,
exercise or exchange of all Convertible Securities) as is owned by it
prior to the Issuance (assuming conversion, exercise or exchange of
all Convertible Securities). The Corporation shall deliver written
notice (a PRO-RATA NOTICE) to Buyer with respect to any Issuance
subject to the provisions of this Section 5.4 not less than 10 days
before the anticipated date of such Issuance. Buyer's right to
purchase Pro-Rata Securities with respect to any Issuance of Common
Equity shall terminate 10 business days after delivery of the Pro-Rata
Notice. If Buyer timely elects to exercise its right to purchase
Pro-Rata Securities, such election will constitute a binding offer to
purchase and may not be revoked by Buyer; provided, however, that
Buyer's obligation to acquire the Pro-Rata Securities will be subject
to terms and conditions at least as favorable as those applicable to
the Issuance giving rise to Buyer's rights under this Section 5.4 and
to receipt of any necessary governmental approvals (and the parties
agree to expeditiously seek and cooperate with respect to obtaining
such approvals). Notwithstanding anything in this Section 5.4 to the
contrary, (x) if Buyer exercises its right to purchase any Pro-Rata
Securities pursuant to an Pro-Rata Notice, but the Corporation does
not consummate the issuance of Common Equity referred to in such
notice (or reduces the size of such issuance), Buyer will not have the
right to purchase such Pro-Rata Securities (or, in the event of a
reduction in the size of the Issuance, have its right to purchase
reduced pro rata), (y) if Buyer exercises its right to purchase any
Pro-Rata Securities, the Corporation and Buyer agree that the Issuance
giving Buyer such right shall not cause an adjustment under paragraph
8(g)(ii) of the Certificate of Determination, and (z) if the
Corporation issues securities (RIGHTS) the issuance of which, except
for this paragraph, would cause an adjustment under paragraph
8(g)(iii) of the Certificate of Determination, then (A) Buyer shall,
in addition to any Rights it receives in respect of any Common Stock
it owns, be entitled to receive Rights in respect of all Preferred
Stock (as if such Preferred Stock had been converted into Common Stock
immediately prior to the record date for the Issuance of such Rights)
11
owned by Buyer, and (B) the Corporation and Buyer agree that the
issuance of Rights shall not cause an adjustment under Section
8(g)(iii) or 8(g)(iv) of the Certificate of Determination. Buyer
agrees that it will not, directly or indirectly, sell, pledge,
encumber or otherwise transfer or agree to sell, pledge, encumber or
otherwise transfer, any Rights it receives pursuant to this Section
5.4 in respect of Preferred Shares. The agreements between the
Corporation and Buyer in this paragraph 5.4(a) not to make adjustments
under paragraph 8(g) of the Certificate of Determination under the
circumstances set forth in this paragraph 5.4(a) shall constitute
agreements as referred to in, and for the purposes of, paragraph
8(g)(vii) of the Certificate of Determination.
(b) The rights and agreements in paragraph (a) of this Section 5.4 shall
terminate in their entirety if all shares of Series A Preferred Stock
have been either redeemed by the Corporation or converted into Common
Stock.
(c) If Buyer and the Corporation fail to agree on the price at which Buyer
may purchase securities under paragraph (a) of this Section 5.4 within
30 days following receipt by the Buyer of a Pro-Rata Notice, then the
items in dispute shall be referred to a nationally recognized
investment banking firm or other third party arbitrator selected
jointly by Buyer and the Corporation. The determination of such
investment banking firm or other third party arbitrator shall be
rendered within 30 days of such referral. The Corporation and Buyer
shall share equally in payment of all fees and expenses of such
investment banking firm or other third party arbitrator. All
determinations made pursuant to this paragraph (c) shall be final and
binding on the Buyer and the Corporation.
5.5 CHANGE OF CONTROL.
(a) Subject to paragraphs 5.5(c) and (d) below, upon the occurrence of a
Change of Control (the date of such occurrence being the CHANGE OF
CONTROL DATE), the Corporation shall, to the extent funds are legally
available therefor, make an offer (the CHANGE OF CONTROL OFFER) to
Buyer to repurchase 100% of Buyer's shares of Series A Preferred Stock
at a price per share in cash equal to (A) if the Change of Control
Payment Date is prior to the First Call Date (as defined in the
Certificate of Determination), 110% of the product of (i) one plus the
number (or fraction) of shares of Series A Preferred Stock accrued and
unpaid as dividends on such share to the Change of Control Payment
Date, times (ii) the Conversion Ratio (as defined in the Certificate
of Determination) in effect immediately prior to the Change of
Control, times (iii) if the Change of Control is the result of a
tender or exchange offer, merger or other form of business
combination, the price paid per share of Common Stock in such tender
or exchange offer, merger or other form of business combination (with
the fair market value of any non-cash consideration being determined
in good faith by the Board of Directors of the Corporation), or if the
Change of Control is not the result of a tender or exchange offer,
merger or other form of business combination, the 10-Day Market Price
of the Common Stock on the Change of Control Date and (B) if the
Change of Control Payment Date is on or after the First Call Date, the
Redemption Price (as defined in the Certificate of Determination);
provided, that Buyer shall not be entitled to tender any Series A
Preferred Stock under this provision until such time as the
Corporation has repurchased such debt securities as are required to be
repurchased by the Corporation upon such event pursuant to the
Corporation's credit and financing agreements. The Corporation shall
promptly take all actions required to make such repurchases of debt
securities.
(b) The Corporation shall make the Change of Control Offer not later than
30 days following the Change of Control Date by giving notice to Buyer
specifying a date, not less than 20 days nor more than 30 days after
the date of such notice, on which the Corporation will purchase any
shares of Series A Preferred Stock subject to such offer (the CHANGE
OF CONTROL PAYMENT DATE). Not less than 2 Business Days prior to the
Change of Control Payment Date, Buyer shall notify the Corporation (an
ELECTION NOTICE) as to the number of shares of Series A Preferred
Stock in respect of which Buyer is accepting the Change of Control
12
Offer. If Buyer does not deliver the Election Notice by such date, its
rights under this Section 5.5 will terminate. If Buyer does deliver an
Election Notice by such date, then (i) such Election Notice will be a
binding commitment of Buyer to sell to the Corporation on the Change
of Control Payment Date the number of shares of Preferred Stock
specified in such Election Notice, subject to Section 5.5(a) and (ii)
on the Change of Control Payment Date, (A) the Corporation will
deliver to Buyer an amount of cash equal to the purchase price for the
Series A Preferred Stock to be purchased and (B) Buyer will deliver to
the Corporation free and clear of any Liens one or more certificates
representing the Series A Preferred Stock to be sold duly endorsed or
accompanied by stock powers duly endorsed in blank, with any required
transfer stamps affixed thereto.
(c) Notwithstanding the foregoing, the Corporation shall not be required
to make a Change of Control Offer following a Change of Control if a
third party makes the Change of Control Offer in the manner, at the
price and at the times and otherwise in compliance with the
requirements applicable to a Change of Control Offer made by the
Corporation and purchases all shares of Series A Preferred Stock
validly tendered under such Change of Control Offer.
(d) The Corporation's obligations under this Section 5.5 are subject to
compliance with the California Corporations Code. If the Corporation
is limited by the California Corporations Code from fully complying
with its obligations hereunder, the Corporation agrees that: (i) it
will comply with its obligations hereunder to the extent it is able to
do so and (ii) it will use its best efforts to remove any such legal
impediment. If, at any time, the Corporation is obligated to make a
Change of Control Offer hereunder but is not able to fully perform its
obligations hereunder because of a legal impediment, Buyer may elect
to have the Corporation defer such Change of Control Offer until the
Corporation is legally able to fully perform its obligations
hereunder. The Series A Preferred Stock will continue to accrue
dividends until repurchased, redeemed or converted.
6. COVENANTS OF BUYER AND THE CORPORATION
6.1 REQUIRED REGULATORY APPROVALS; REASONABLE BEST EFFORTS; FURTHER ASSURANCES.
Subject to the terms of this Agreement, Buyer and the Corporation will, and will
cause their Affiliates to, use their reasonable best efforts to take, or cause
to be taken, all actions and to do, or cause to be done, all things necessary or
desirable under applicable laws and regulations to consummate the transactions
contemplated by this Agreement. The Corporation and Buyer agree to execute and
deliver such other documents, certificates, agreements and other writings and to
take such other actions as may be necessary or desirable in order to consummate
or implement expeditiously the transactions contemplated by this Agreement.
6.2 CERTAIN FILINGS.
(a) The Corporation and Buyer will, and will cause their Affiliates to,
cooperate with one another (i) in determining whether any action by or
in respect of, or filing with, any governmental body, agency, official
or authority is required, or any actions, consents, approvals or
waivers are required to be obtained from parties to any material
contracts, in connection with the consummation of the transactions
contemplated by this Agreement or the conversion by Buyer of Series A
Preferred Stock and (ii) in taking such actions or making any such
filings, furnishing information required in connection therewith and
seeking timely to obtain any such actions, consents, approvals or
waivers. Each of the Corporation and Buyer shall (A) give the other
party prompt notice of the commencement of any action, suit,
litigation, arbitration, preceding or investigation by or before any
governmental body with respect to the transactions contemplated by
this Agreement, and (B) keep the other party informed as to the status
of any such action, suit, litigation, arbitration, preceding or
investigation.
13
(b) The Corporation and Buyer will, and will cause their Affiliates to,
take such actions, make such payments or commitments, and agree to
such amendments to any of their respective franchises, licenses,
contracts or other agreements or authorizations, as shall be required
in order to obtain a consent, approval or waiver from any other Person
in connection with the transactions contemplated hereby and by the
Certificate of Determination (including conversion of the Series A
Preferred Stock).
6.3 PUBLIC ANNOUNCEMENTS.
Except as may be required by applicable law or any listing agreement with any
national securities exchange or quotation system, the parties agree to consult
with each other before issuing any press release or making any public statement
or completing any public filing with respect to this Agreement or the
transactions contemplated hereby and will not issue any such press release or
make any such public statement prior to such consultation.
6.4 REGISTRATION RIGHTS AGREEMENT.
The terms set forth in Exhibit B hereto are hereby incorporated by reference.
The registration rights set forth in Exhibit B may be assigned by a Holder (as
defined therein) to a transferee or assignee of the Preferred Shares or the
Registrable Securities, provided that such transferee or assignee agrees to be
bound to the terms of Exhibit B. The Corporation shall not, without the prior
written consent of the Holder owning a majority-in-interest of the Preferred
Shares or Registrable Securities, enter into an agreement which grants a Person
registration rights superior to those granted in Exhibit B.
6.5 SEC REPORTS
The Corporation hereby agrees that (a) the Corporation shall, within 90 days
after the Closing Date, have filed all required SEC Reports through such date
and delivered or made available to Buyer copies thereof, and as of the filing
date of such SEC Reports (b) the SEC Reports shall comply in all material
respects with all applicable requirements of the Exchange Act or the Securities
Act, as the case may be and (c) none of the SEC Reports shall contain any untrue
statement of a material fact or omit to state a material fact required to be
stated or incorporated by reference therein or necessary in order to make the
statements therein, in light of the circumstances under which they will be made,
not misleading.
7. SURVIVAL; INDEMNIFICATION
7.1 SURVIVAL OF REPRESENTATION AND WARRANTIES.
All representations and warranties contained in this Agreement and all claims
with respect thereto shall terminate upon the expiration of 24 months after the
date of this Agreement, except that the representations and warranties contained
in Sections 3.1, 3.2, 3.3, 3.6, 4.1, 4.2, and 4.3 shall survive indefinitely.
Notwithstanding the preceding sentence, any representation or warranty in
respect of which indemnity may be sought under this Agreement shall survive the
time at which it would otherwise terminate pursuant to the preceding sentence,
if notice of the inaccuracy or breach thereof giving rise to such right of
indemnity shall have been given in reasonable detail to the party against whom
such indemnity may be sought prior to such time.
7.2 INDEMNIFICATION.
(a) The Corporation hereby indemnifies Buyer against and agrees to hold
Buyer harmless from any and all damage, loss, liability and expense
(including, without limitation, reasonable expenses of investigation
and reasonable attorneys' fees and expenses in connection with any
action, suit or proceeding) (DAMAGES) incurred or suffered by Buyer
arising out of any misrepresentation or breach of warranty, covenant
or agreement made or to be performed by the Corporation pursuant to
this Agreement; provided that the Corporation's maximum liability
under this Section 7.2(a) shall not exceed US$800,000.
(b) Buyer hereby indemnifies the Corporation against and agrees to hold
the Corporation harmless from any and all Damages incurred or suffered
by the Corporation arising out of any misrepresentation or breach of
warranty, covenant or agreement made or to be performed by Buyer
pursuant to this Agreement.
7.3 PROCEDURES.
The party seeking indemnification under Section 7.2 (the INDEMNIFIED PARTY)
agrees to give prompt notice to the party against whom indemnity is sought (the
INDEMNIFYING PARTY) of the assertion of any claim, or the commencement of any
suit, action or proceeding in respect of which indemnity may be sought under
such Section. The Indemnifying Party may at its election participate in and
control the defense of any such suit, action or proceeding at its own expense.
The Indemnifying Party shall not be liable under Section 7.2 for any settlement
effected without its consent of any claim, litigation or proceeding in respect
of which indemnity may be sought hereunder.
8. MISCELLANEOUS
8.1 NOTICES.
All notices, requests and other communications to any party hereunder shall be
in writing and shall be deemed duly given, effective (i) two Business Days
later, if sent by international overnight courier, return receipt requested (ii)
when sent if sent by fax, provided that the receipt of the fax is promptly
confirmed by telephone confirmation thereof, and (iii) when served, if delivered
personally to the intended recipient, and in each case, addressed,
if to Buyer, to:
BlueBird Finance Limited
▇.▇. ▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Attention: The Directors
if to the Corporation, to:
Signature Eyewear, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Chief Financial Officer
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy (not constituting notice) to:
Jeffer, Mangels, ▇▇▇▇▇▇ & Marmaro LLP
1900 Avenue of the Stars
▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, PC
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
15
Any party may change the address to which notices or other communications
hereunder are to be delivered by giving the other party notice in the manner
herein set forth.
8.2 AMENDMENTS AND WAIVERS.
Any provision of this Agreement may be amended or waived if, but only if, such
amendment or waiver is in writing and is signed, in the case of an amendment, by
each party to this Agreement, or in the case of a waiver, by the party against
whom the waiver is to be effective. No failure or delay by any party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein provided shall be cumulative.
8.3 EXPENSES.
All costs and expenses incurred in connection with this Agreement shall be paid
by the party incurring such cost or expense.
8.4 ASSIGNMENT.
The rights and obligations of the parties hereunder cannot be assigned or
delegated without the prior written consent of the other party, except that (i)
Buyer may assign all of its rights and obligations under this Agreement to an
Affiliate (provided that (A) any such Affiliate continues to be a Affiliate of
Buyer and (B) Buyer shall be responsible for any breach by such Affiliate) and
(ii) Buyer may assign its rights and obligations under Section 6.4 and Exhibit B
of this Agreement to the assignee of Series A Preferred Stock, provided such
assignee agrees to be bound to the terms of such provisions and Exhibit.
8.5 GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the law of
the State of California (excluding conflicts of law principles).
8.6 JURISDICTION.
Except as otherwise expressly provided in this Agreement, the parties hereto
agree that any suit, action or proceeding seeking to enforce any provision of,
or based on any matter arising out of or in connection with, this Agreement or
the transactions contemplated hereby may only be brought in a state or federal
court of competent jurisdiction sitting in Los Angeles County, California and
each of the parties hereby consents to the non-exclusive jurisdiction of such
courts (and of the appropriate appellate courts therefrom) in any such suit,
action or proceeding. Process in any such suit, action or proceeding may be
served on any party anywhere in the world, whether within or without the
jurisdiction of any such court. Without limiting the foregoing, each party
agrees that service of process on such party as provided in Section 8.1 shall be
deemed effective service of process on such party.
8.7 COUNTERPARTS; THIRD PARTY BENEFICIARIES.
This Agreement may be signed in any number of counterparts, each of which shall
be an original, with the same effect as if the signatures thereto and hereto
were upon the same instrument. This Agreement shall become effective when each
party hereto shall have received a counterpart hereof signed by the other party
hereto. No provision if this Agreement is intended to confer upon any Person
other than the parties hereto any rights or remedies.
16
8.8 ENTIRE AGREEMENT.
This Agreement (including the Exhibits hereto) and the Certificate of
Determination constitute the entire agreement between the parties with respect
to the subject matter of this Agreement and supersede all prior agreements and
understandings, both oral and written, between the parties with respect to the
subject matter of this Agreement.
8.9 HEADINGS.
The headings herein are included for convenience of reference only and shall be
ignored in the construction or interpretation hereof.
8.10 SEVERABILITY.
The provisions of this Agreement shall be deemed severable and the invalidity or
unenforceability of any provision shall not affect the validity or
enforceability of the other provisions hereof. If any provision of this
Agreement, or the application thereof to any person or entity or any
circumstance, is held by a court of competent jurisdiction to be invalid or
unenforceable, (a) a suitable and equitable provision shall be substituted
therefor in order to carry out, so far as may be valid and enforceable, the
intent and purpose of such invalid or unenforceable provision and (b) the
remainder of this Agreement and the application of such provision to other
persons, entities or circumstances shall not be affected by such invalidity or
unenforceability, nor shall such invalidity or unenforceability affect the
validity or enforceability of such provision, or the application thereof, in any
other jurisdiction.
8.11 SPECIFIC PERFORMANCE.
The parties hereto agree that the remedy at law for any breach of this Agreement
will be inadequate and that any party by whom this Agreement is enforceable
shall be entitled to specific performance in addition to any other appropriate
relief or remedy. Such party may, in its sole discretion, apply to any court of
competent jurisdiction for specific performance or injunctive or such other
relief as such court may deem just and proper in order to enforce this Agreement
or prevent any violation hereof and, to the extent permitted by applicable law,
each party waives any objection to the imposition of such relief.
8.12 NO RECOURSE.
Notwithstanding any of the terms or provisions of this Agreement, (a) the
Corporation agrees that neither it nor any Person acting on its behalf may
assert any claims or cause of action against any officer, director, partner,
member or stockholder of the Buyer or any of its Affiliates in connection with
or arising out of this Agreement or the transactions contemplated hereby and (b)
the Buyer agrees that neither it nor any Person acting on its behalf may assert
any claims or cause of action against any officer, director, partner, member or
stockholder of the Corporation or any of its Affiliates in connection with or
arising out of this Agreement or the transactions contemplated hereby.
8.13 CALIFORNIA COMMISSIONER OF CORPORATIONS
THE SALE OF THE SECURITIES THAT ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN
QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND
THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION FOR SUCH SECURITIES PRIOR TO SUCH QUALIFICATION IS UNLAWFUL,
UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100,
25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO
THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED,
UNLESS THE SALE IS SO EXEMPT.
17
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.
SIGNATURE EYEWEAR, INC.
BY: ______________________________
NAME: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
TITLE: CHIEF FINANCIAL OFFICER
BLUEBIRD FINANCE LIMITED
BY: ______________________________
NAME:
TITLE:
18
EXHIBIT A
CERTIFICATE OF DETERMINATION
OF
SERIES A 2% CONVERTIBLE PREFERRED STOCK
OF
SIGNATURE EYEWEAR, INC.
The undersigned hereby certify that:
1. They are the President and Secretary, respectively, of Signature Eyewear,
Inc., a California corporation (CORPORATION).
2. The authorized number of shares of this Corporation's Preferred Stock is
5,000,000, and the number of shares of the Series A Preferred Stock (which
is the series created by this Certificate of Determination) is 1,360,000.
None of the shares of the Series A Preferred Stock has been issued.
3. Pursuant to authority granted by Article IV of this Corporation's Restated
Articles of Incorporation, the following resolutions have been duly adopted
and approved by this Corporation's Board of Directors:
"WHEREAS, the Restated Articles of Incorporation of this Corporation
provide for a class of shares known as Preferred Stock, issuable from time
to time in one or more series; and
WHEREAS, the Board of Directors of this Corporation is authorized to
determine or alter the rights, preferences, privileges, and restrictions
granted to or imposed on any wholly unissued series of Preferred Stock, to
fix a number of shares constituting any such series, and to determine the
designation of that series, or any of them; and
WHEREAS, the Board of Directors of this Corporation has determined it to be
in the best interests of this Corporation and its shareholders to issue a
Series A Preferred Stock and to fix the rights, preferences, privileges,
and restrictions relating to that Series A Preferred Stock and the number
of shares constituting that series;
NOW, THEREFORE, BE IT HEREBY RESOLVED, THAT pursuant to Article IV of the
Articles of Incorporation which authorizes 5,000,000 shares of preferred
stock, $0.001 par value (PREFERRED STOCK), the Board of Directors hereby
fixes the powers, designations, preferences and relative, participating,
optional and other special rights, and the qualifications, limitations and
restrictions, of a series of Preferred Stock.
RESOLVED FURTHER, that each share of such series of Preferred Stock shall
rank equally in all respects and shall be subject to the following
provisions:
1. NUMBER AND DESIGNATION. 1,360,000 shares of the Preferred Stock of the
Corporation shall be designated as Series A 2% Convertible Preferred Stock (the
SERIES A PREFERRED STOCK) (including 160,000 shares of Series A Preferred Stock
reserved exclusively for the payment of dividends pursuant to paragraph 4 and
referred to therein as "Additional Shares"). After the initial issuance of
1,200,000 shares of Series A Preferred Stock, the Corporation may not issue
additional shares of Series A Preferred Stock except as Additional Shares issued
in lieu of payment of dividends on outstanding shares of Series A Preferred
Stock or upon the transfer, exchange or replacement of existing shares of
Preferred Stock.
19
2. DEFINITIONS. Unless the context otherwise requires, when used herein the
following terms shall have the meaning indicated.
10 DAY MARKET PRICE means the average of the daily Market Prices of the Common
Stock for the 10 consecutive trading days ending the day prior to the date for
which such value is to be computed
30 DAY MARKET PRICE means the average of the daily Market Prices of the Common
Stock for the 30 consecutive trading days ending the day prior to the date for
which such value is to be computed.
AFFILIATE means, with respect to any specified Person, any other Person that,
directly or indirectly, controls, is controlled by or is under direct or
indirect common control with, such specified Person. For the purposes of this
definition, "control" when used with respect to any Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "affiliated," "controlling," and "controlled" have meanings
correlative to the foregoing.
BOARD OF DIRECTORS means the Board of Directors of the Corporation.
BUSINESS DAY means any day except Saturday, Sunday and any day that is a legal
holiday or a day on which banking institutions in Los Angeles, California
generally are authorized or required by law or other governmental actions to
close.
CAPITAL STOCK means, with respect to any Person, any and all shares, interests,
participations, rights in, or other equivalents (however designated and whether
voting and/or non-voting) of such Person's capital stock, whether outstanding on
the Issue Date or issued after the Issue Date, and any and all rights (other
than any evidence of indebtedness), warrants or options exchangeable for or
convertible into such capital stock.
CHANGE OF CONTROL means the occurrence of any of the following events: (a) any
Person or Group is or becomes the beneficial owner (as defined in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that a Person shall be deemed to have
"beneficial ownership" of all securities that such Person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than 50% of the total Voting Stock of
the Corporation; or (b) the Corporation consolidates with, or merges with or
into, another Person or sells, assigns, conveys, transfers, leases or otherwise
disposes of all or substantially all of its assets to any Person, or any Person
consolidates with, or merges with or into the Corporation, in any such event
pursuant to a transaction in which the outstanding Voting Stock of the
Corporation is converted into or exchanged for cash, securities or other
property, other than any such transaction where (i) the outstanding Voting Stock
of the Corporation is converted into or exchanged for Voting Stock of the
surviving or transferee corporation or its parent corporation and/or cash,
securities or other property in an amount which could be paid by the Corporation
under the terms of the Corporation's credit and financing agreements and (ii)
immediately after such transaction no Person or Group is the beneficial owner
(as defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that a
Person shall be deemed to have "beneficial ownership" of all securities that
such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of more
than 50% of the total Voting Stock of the surviving or transferee corporation,
as applicable; or (c) during any consecutive two-year period, individuals who at
the beginning of such period constituted the Board of Directors (together with
any new directors whose election by the Board of Directors or whose nomination
for election by the stockholders of the Corporation was approved by a vote of a
majority of the directors then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors then in office.
COMMON STOCK means the Corporation's common stock, par value $0.001 per share.
20
EXCHANGE ACT means the Securities Exchange Act of 1934, as amended, or any
successor statute, and the rules and regulations promulgated thereunder.
FIRST CALL DATE means April 21, 2005.
GROUP means a group within the meaning of Section 13(d)(3) of the Exchange Act.
ISSUE DATE means the first date of issuance of shares of Series A Preferred
Stock.
HOLDER means a person who owns Series A Preferred Stock.
LIQUIDATION PREFERENCE is an amount equal to US$0.67 per share plus accrued but
unpaid dividends per share of Series A Preferred Stock.
MARKET PRICE means, with respect to the Common Stock, on any given day, (i) the
price of the last trade, as reported on the Nasdaq National Market, not
identified as having been reported late to such system, or (ii) if the Common
Stock is so quoted, but not so traded, the average of the last bid and ask
prices, as those prices are reported on the Nasdaq National Market, or (iii) if
the Common Stock is not listed or authorized for trading on the Nasdaq National
Market or any comparable system, the average of the closing bid and asked prices
as furnished by two members of the National Association of Securities Dealers,
Inc. selected from time to time by the Corporation for that purpose; provided
that, in connection with (i) or (ii), the Corporation may from time to time
specify in advance the time at which the trade price or bid and ask prices,
respectively, shall be determined for purposes of a particular calculation . If
the Common Stock is not listed and traded in a manner that the quotations
referred to above are available for the period required hereunder, the Market
Price per share of Common Stock shall be deemed to be the fair value per share
of such security as determined in good faith by the Board of Directors.
OUTSTANDING, when used with reference to shares of stock, means issued shares,
excluding shares held by the Corporation or a subsidiary.
PERSON means an individual, corporation, partnership, limited liability company,
association, trust and any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
REDEMPTION PREMIUM means US$450,000.
VOTING STOCK means, with respect to any Person, the Capital Stock of any class
or kind (other than the Series A Preferred Stock) ordinarily having the power to
vote for the election of directors or other members of the governing body of
such Person.
3. RANK.
(a) Any class or series of stock of the Corporation shall be deemed to rank:
(i) prior to the Series A Preferred Stock, either as to the payment of
dividends or as to distribution of assets upon liquidation, dissolution or
winding up, or both, if the holders of such class or series shall be
entitled by the terms thereof to the receipt of dividends and of amounts
distributable upon liquidation, dissolution or winding up, in preference or
priority to the holders of Series A Preferred Stock (SENIOR SECURITIES);
(ii) on a parity with the Series A Preferred Stock, either as to the
payment of dividends or as to distribution of assets upon liquidation,
dissolution or winding up, or both, whether or not the dividend rates,
dividend payment dates or redemption or liquidation prices per share
thereof be different from those of the Series A Preferred Stock if the
holders of the Series
21
A Preferred Stock and of such class of stock or series shall be entitled by
the terms thereof to the receipt of dividends or of amounts distributable
upon liquidation, dissolution or winding up, or both, in proportion to
their respective amounts of accrued and unpaid dividends per share or
liquidation preferences (including, but not limited to preferences as to
payment of dividends or other amounts distributable upon liquidation),
without preference or priority one over the other and such class of stock
or series is not a class of Senior Securities (PARITY SECURITIES); and
(iii) junior to the Series A Preferred Stock, either as to the payment of
dividends or as to the distribution of assets upon liquidation, dissolution
or winding up, or both, if such stock or series shall be Common Stock or if
the holders of the Series A Preferred Stock shall be entitled by the terms
thereof to receipt of dividends, and of amounts distributable upon
liquidation, dissolution or winding up, in preference or priority to the
holders of shares of such stock or series (including, but not limited to
preferences as to payment of dividends or other amounts distributable upon
liquidation) (JUNIOR SECURITIES).
(b) The respective definitions of Senior Securities, Junior Securities and
Parity Securities shall also include any rights or options exercisable or
exchangeable for or convertible into any of the Senior Securities, Junior
Securities and Parity Securities, as the case may be.
(c) The Series A Preferred Stock shall be subject to the creation of Junior
Securities and Parity Securities.
4. DIVIDENDS.
(a) The holders of shares of Series A Preferred Stock shall be entitled to
receive with respect to each share of Series A Preferred Stock, when, as
and if declared by the Board of Directors, out of funds legally available
for the payment of dividends, cumulative dividends at a rate per annum
equal to two percent (2%) of the then effective Liquidation Preference per
share, payable in (A) cash, (B) additional shares of Series A Preferred
Stock (ADDITIONAL SHARES) or (C) any combination of the foregoing in
accordance with the terms of this paragraph 4; provided, however, that
dividends must be payable solely in cash unless, with respect to each
Dividend Payment Date (as hereinafter defined) on which the Corporation
elects to pay all or a portion of the applicable dividend in Additional
Shares, the Corporation delivers to the holders a certified resolution of
the Board of Directors of the Corporation finding that payment of the
dividend solely in cash would materially adversely affect the financial
condition of the Corporation; and provided, further, however that the
Corporation may not issue Additional Shares in lieu of cash dividends
unless sufficient shares of Series A Preferred Stock remain authorized and
available for issuance. Such dividends shall be cumulative from the Issue
Date regardless of when actually issued (except that dividends on
Additional Shares shall accrue from the date such Additional Shares are
issued), whether or not in any Dividend Period or Dividend Periods there
shall be funds of the Corporation legally available for the payment of such
dividends and whether or not dividends are declared, and shall be payable
on April 21 of each year (unless such day is not a Business Day, in which
event such dividends shall be payable on the next succeeding Business Day)
(each such date being a DIVIDEND PAYMENT DATE and each such annual period
being a DIVIDEND PERIOD). Each such dividend shall be payable to the
holders of record of shares of the Series A Preferred Stock as they appear
on the share register of the Corporation on the corresponding Record Date.
As used herein, the term RECORD DATE means, with respect to the dividend
payable on April 21 of each year, the date 45 days preceding April 21.
Accrued and unpaid dividends for any past Dividend Periods may be declared
and paid at any time, without reference to any Dividend Payment Date, to
holders of record on such record date, not more than 45 days preceding the
payment date thereof, as may be fixed by the Board of Directors. Dividends
shall accumulate to the extent that they are not paid on the Dividend
Payment Date for the Dividend Period to which they relate.
22
(b) Holders of shares of Series A Preferred Stock shall not be entitled to any
dividends, whether payable in cash, property or stock, in excess of
cumulative dividends, as herein provided, on the Series A Preferred Stock.
No interest, or sum of money in lieu of interest, shall be payable in
respect of any dividend payment or payments on the Series A Preferred Stock
that may be in arrears; provided that if dividends are not paid in full on
any Dividend Payment Date, the amount so payable, to the extent not paid,
shall be added to the then effective Liquidation Preference on such
Dividend Payment Date.
(c) So long as any shares of the Series A Preferred Stock are outstanding, no
dividend, except as described in the next succeeding sentence, shall be
declared or paid or set apart for payment on any Parity Securities, nor
shall any Parity Securities be redeemed, purchased or otherwise acquired
for any consideration (or moneys be paid to or made available for a sinking
fund for the redemption of any shares of any such stock) by the
Corporation, directly or indirectly, (except by conversion into or exchange
for Junior Securities) unless in each case full cumulative dividends have
been or contemporaneously are declared and paid or declared and
consideration sufficient for the payment thereof set apart for such payment
on the Series A Preferred Stock for all Dividend Periods terminating on or
prior to the date of payment of the dividend on such class or series of
Parity Securities or the redemption, purchase or other acquisition thereof.
When dividends are not paid in full or consideration sufficient for such
payment is not set apart, as aforesaid, all dividends declared upon shares
of the Series A Preferred Stock and all dividends declared upon any other
class or series of Parity Securities shall be declared ratably in
proportion to the respective amounts of dividends accumulated and unpaid on
the Series A Preferred Stock and accumulated and unpaid on such Parity
Securities.
(d) So long as any shares of the Series A Preferred Stock are outstanding, no
dividends (other than dividends or distributions paid in shares of, or to
effectuate a stock split on, or options, warrants or rights to subscribe
for or purchase shares of, Junior Securities) shall be declared or paid or
set apart for payment or other distribution declared or made upon Junior
Securities, nor shall any Junior Securities be redeemed, purchased or
otherwise acquired (other than a redemption, purchase or other acquisition
of shares of Common Stock made for purposes of an employee incentive or
benefit plan of the Corporation or any subsidiary) (any such dividend,
distribution, redemption or purchase being hereinafter referred to as a
JUNIOR SECURITIES DISTRIBUTION) for any consideration (or any moneys be
paid to or made available for a sinking fund for the redemption of any
shares of any such stock) by the Corporation, directly or indirectly
(except by conversion into or exchange for Junior Securities), unless in
each case (i) the full cumulative dividends on all outstanding shares of
the Series A Preferred Stock and accrued and unpaid dividends on any other
Parity Securities shall have been paid or set apart for payment for all
past Dividend Periods with respect to the Series A Preferred Stock and all
past dividend periods with respect to such Parity Securities and (ii)
sufficient consideration shall have been paid or set apart for the payment
of the dividend for the current Dividend Period with respect to the Series
A Preferred Stock and the current dividend period with respect to such
Parity Securities.
(e) The number of Additional Shares to be issued as dividends in lieu of cash
will equal the quotient of (X) the cash amount of the dividend that
otherwise would have been payable in cash and (Y) the then effective
Liquidation Preference per share.
5. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, before any payment or
distribution of the assets of the Corporation (whether capital or surplus)
shall be made to or set apart for the holders of Junior Securities, the
holders of the shares of Series A Preferred Stock shall be entitled to
receive with respect to each share of Series A Preferred Stock an amount in
cash equal to the Liquidation Preference per share plus an amount equal to
all dividends accrued and unpaid thereon to the date of final distribution
to such holders, but such holders shall not be entitled to any further
payment. If, upon any liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation, or proceeds thereof, shall be
insufficient to pay in full the preferential amount aforesaid and
liquidating payments on the Series A Preferred Stock and all Parity
Securities, then such assets, or the proceeds thereof, shall
23
be distributed among the holders of shares of Series A Preferred Stock and
any such other Parity Securities ratably in accordance with the respective
amounts that would be payable on such shares of Series A Preferred Stock
and any such other Parity Securities if all amounts payable thereon were
paid in full.
(b) Subject to the rights of the holders of any Parity Securities, after
payment shall have been made in full to the holders of the Series A
Preferred Stock, as provided in this paragraph 5, any other series or class
or classes of Junior Securities shall, subject to the respective terms and
provisions (if any) applying thereto, be entitled to receive any and all
assets remaining to be paid or distributed, and the holders of the Series A
Preferred Stock and any Parity Securities shall not be entitled to share
therein.
6. REDEMPTION.
(a) The Series A Preferred Stock shall not be redeemable by the Corporation
prior to the First Call Date. On and after the First Call Date, to the
extent the Corporation shall have funds legally available for such payment,
the Corporation may redeem at its option all the shares of Series A
Preferred Stock, at any time in whole only at a redemption price per share
equal to the Liquidation Preference (which for the avoidance of doubt shall
be deemed to include all accrued and unpaid dividends thereon) plus the
Redemption Premium thereon to the date fixed for redemption (the REDEMPTION
PRICE).
(b) (i) Subject to paragraphs (iii) and (iv) below, upon the occurrence of a
Change of Control (the date of such occurrence being the CHANGE OF CONTROL
DATE), the Corporation shall, to the extent funds are legally available
therefor, make an offer (the CHANGE OF CONTROL OFFER) to Holders to
repurchase 100% of each Holder's share of Series A Preferred Stock at a
price per share in cash equal to (A) if the Change of Control Payment Date
is prior to the First Call Date, 110% of the product of (x) one plus the
number (or fraction) of shares of Series A Preferred Stock accrued and
unpaid as dividends on such share to the Change of Control Payment Date,
times (y) the Conversion Ratio (as defined in paragraph 8) in effect
immediately prior to the Change of Control, times (z) if the Change of
Control is the result of a tender or exchange offer, merger or other form
of business combination, the price paid per share of Common Stock in such
tender or exchange offer, merger or other form of business combination
(with the fair market value of any non-cash consideration being determined
in good faith by the Board of Directors of the Corporation), or if the
Change of Control is not the result of a tender or exchange offer, merger
or other form of business combination, the 10-Day Market Price of the
Common Stock on the Change of Control Date and (B) if the Change of Control
Payment Date is on or after the First Call Date, the Redemption Price;
provided, that a Holder shall not be entitled to tender any Series A
Preferred Stock under this provision until such time as the Corporation has
repurchased such debt securities as are required to be repurchased by the
Corporation upon such event pursuant to the Corporation's credit and
financing agreements. The Corporation shall promptly take all actions
required to make such repurchases of debt securities.
(ii) The Corporation shall make the Change of Control Offer not later than
30 days following the Change of Control Date by giving notice to each
Holder specifying a date, not less than 20 days nor more than 30 days after
the date of such notice, on which the Corporation will purchase any shares
of Series A Preferred Stock subject to such offer (the CHANGE OF CONTROL
PAYMENT DATE). Not less than 2 Business Days prior to the Change of Control
Payment Date, each Holder shall notify the Corporation (an ELECTION NOTICE)
as to the number of shares of Series A Preferred Stock in respect of which
it is accepting the Change of Control Offer. If a Holder does not deliver
the Election Notice by such date, its rights under this paragraph 6(b) will
terminate. If a Holder does deliver an Election Notice by such date, then
(A) such Election Notice will be a binding commitment of such Holder to
sell to the Corporation on the Change of Control Payment Date the number of
shares of Preferred Stock specified in such Election Notice, subject to
paragraph 6(b)(i) and (B) on the Change of Control Payment Date, (x) the
Corporation will deliver to such Holder an amount of cash equal to the
purchase price for the Series A Preferred
24
Stock to be purchased and (y) such Holder will deliver to the Corporation
free and clear of any Liens one or more certificates representing the
Series A Preferred Stock to be sold duly endorsed or accompanied by stock
powers duly endorsed in blank, with any required transfer stamps affixed
thereto.
(iii) Notwithstanding the foregoing, the Corporation shall not be required
to make a Change of Control Offer following a Change of Control if a third
party makes the Change of Control Offer in the manner, at the price and at
the times and otherwise in compliance with the requirements applicable to a
Change of Control Offer made by the Corporation and purchases all shares of
Series A Preferred Stock validly tendered under such Change of Control
Offer.
(iv) The Corporation's obligations under this paragraph 6(b) are subject to
compliance with the California Corporations Code. If the Corporation is
limited by the California Corporations Code from fully complying with its
obligations hereunder, the Corporation agrees that: (A) it will comply with
its obligations hereunder to the extent it is able to do so and (B) it will
use its best efforts to remove any such legal impediment. If, at any time,
the Corporation is obligated to make a Change of Control Offer hereunder
but is not able to fully perform its obligations hereunder because of a
legal impediment, each Holder may elect to have the Corporation defer such
Change of Control Offer until the Corporation is legally able to fully
perform its obligations hereunder. The Series A Preferred Stock will
continue to accrue dividends until repurchased, redeemed or converted.
(c) If the Shares of Series A Preferred Stock are purchased or redeemed, then
they shall (upon compliance with any applicable provisions of the laws of
the State of California) have the status of authorized and unissued shares
of the class of Preferred Stock undesignated as to series and may be
redesignated and reissued as part of any series of the Preferred Stock;
provided that no such issued and reacquired shares of Series A Preferred
Stock shall be reissued or sold as Series A Preferred Stock.
7. PROCEDURE FOR REDEMPTION.
(a) In the event the Corporation shall elect to redeem shares of Series A
Preferred Stock, notice of such redemption (the REDEMPTION NOTICE) shall be
given by international overnight courier or first class mail, postage
prepaid, mailed not less than 30 days nor more than 60 days prior to the
redemption date (the REDEMPTION DATE), to each Holder of record of the
shares to be redeemed at such Holder's address as the same appears on the
stock register of the Corporation. Each Redemption Notice shall state: (i)
the Redemption Date (which shall be a date on or after the First Call
Date); (ii) the number of shares of Series A Preferred Stock to be
redeemed, which shall be all the shares held by such holder; (iii) the
Redemption Price; (iv) that on the Redemption Date, the Redemption Price,
will become due and payable upon each such share of Series A Preferred
Stock to be redeemed and that dividends thereon will cease to accrue on and
after said date; (v) (if the Redemption Date is stated to be at any time
after 30 days following the First Call Date) the Conversion Ratio, the date
on which the right to convert shares of Series A Preferred Stock to be
redeemed will terminate and the place or places where such shares of Series
A Preferred Stock may be surrendered for conversion; and (vi) the place or
places where certificates for such shares are to be surrendered for payment
of the redemption price.
(b) Prior to such Redemption Date, the Corporation, in its capacity acting as
its own paying agent, shall segregate and hold in trust an amount of
consideration sufficient to pay the Redemption Price of all the shares of
Series A Preferred Stock that are to be redeemed on the Redemption Date. If
the Redemption Date is stated to be at any time after 30 days following the
First Call Date and any share of Series A Preferred Stock called for
redemption is converted, any consideration so segregated and held in trust
for the redemption of such share of Series A Preferred Stock shall be
discharged from such trust.
(c) Redemption Notice having been mailed as aforesaid, from and after the
Redemption Date, dividends on the shares of Series A Preferred Stock so
called for redemption shall cease to accrue, and all rights of the holders
thereof as
25
stockholders of the Corporation (except the right to receive from the
Corporation the Redemption Price) shall cease. Upon surrender in accordance
with said notice of the certificates for any shares so redeemed (properly
endorsed or assigned for transfer, if the Board of Directors of the
Corporation shall so require and the notice shall so state), such share
shall be redeemed by the Corporation at the Redemption Price aforesaid.
8. CONVERSION.
(a)(i) Subject to the provisions of this paragraph 8, (A) a holder of shares
of Series A Preferred Stock shall have the right, on or after the date
which is 30 days after the First Call Date (or, in the event that a Change
of Control has occurred, at any time), at such holder's option, to convert
any or all outstanding shares (and fractional shares) of Series A Preferred
Stock held by such holder, in whole or in part, into fully paid and
non-assessable shares of Common Stock.
(ii) The number of shares of Common Stock deliverable upon conversion of a share
of Series A Preferred Stock (including the Additional Shares), subject to
adjustment as hereinafter provided, shall be 1.0 (the CONVERSION RATIO). In
the event that at the time of conversion of a share of Series A Preferred
Stock there are accrued and unpaid dividends on such share with respect to
which Additional Shares have not been issued (including, with respect to
any interim period since the last Dividend Payment Date, the product of the
full dividend payable for the current Dividend Period ending on the next
Dividend Payment Date, multiplied by a fraction, the numerator of which is
the number of days that have elapsed since the last Dividend Payment Date
and the denominator of which is 360), then, upon such conversion, the
holder thereof shall be entitled to receive such number of shares of Common
Stock (in addition to the shares of Common Stock otherwise issuable upon
the conversion of any such shares of Series A Preferred Stock and
Additional Shares converted therewith) as would have been issued in
accordance with the preceding sentence if Additional Shares had been issued
in respect of such accrued and unpaid dividends and had been converted
simultaneously therewith.
(b)(i) In connection with any Conversion pursuant to this paragraph 8, the
holder of the shares of Series A Preferred Stock to be converted shall
surrender the certificates representing such shares at the office of the
Corporation with a written notice (a CONVERSION NOTICE) of election to
convert completed and signed, specifying the number of shares to be
converted. Unless the shares issuable on conversion are to be issued in the
same name as the name in which such shares of Series A Preferred Stock are
registered, each share surrendered for conversion shall be accompanied by
instruments of transfer, in form satisfactory to the Corporation, duly
executed by the holder or the holder's duly authorized attorney, and an
amount sufficient to pay any transfer or similar tax.
(ii) As promptly as practicable after the surrender by a holder of certificates
for shares of Series A Preferred Stock under paragraph 8(b)(i), the
Corporation shall issue and shall deliver to such holder, or on the
holder's written order to the holder's transferee, (w) a certificate or
certificates for the whole number of shares of Common Stock issuable upon
the conversion of such shares in accordance with the provisions of this
paragraph 8, (x) any cash adjustment required pursuant to paragraph 8(f)
and (y) in the event of a conversion in part, a certificate or certificates
for the whole number of Series A Preferred Stock not being so converted.
(iii) Each conversion shall be deemed to have been effected (the EFFECTIVE TIME)
immediately prior to the close of business on the date of delivery of the
Conversion Notice. At the Effective Time, the Person in whose name or names
any certificate or certificates for shares of Common Stock shall be
issuable upon such conversion shall be deemed to have become the holder of
record of the shares of Common Stock represented thereby at such time on
such date and such conversion shall be into a number of whole shares of
Common Stock in the aggregate equal to the product of the number of shares
of Series A Preferred Stock surrendered and the Conversion Ratio in effect
at such time on such date. All shares of Common Stock delivered upon
conversion of the Series A Preferred Stock
26
will upon delivery be duly and validly issued and fully paid and
non-assessable, free of all liens and charges and not subject to any
preemptive rights. At the Effective Time, the shares to be so converted
shall no longer be deemed to be outstanding and all rights of a holder with
respect to such shares surrendered for conversion shall immediately
terminate except the right to receive the Common Stock and other amounts
payable pursuant to this paragraph 8 and a certificate or certificates
representing the shares of Series A Preferred Stock not converted.
(c)(i) Upon delivery to the Corporation of a Conversion Notice by a holder of
shares of Series A Preferred Stock, the right of the Corporation to redeem
such shares of Series A Preferred Stock shall terminate, regardless of
whether a notice of redemption has been mailed pursuant to paragraph 7.
(ii) Except as provided above and in paragraph 8(g), the Corporation shall make
no payment or adjustment for accrued and unpaid dividends on shares of
Series A Preferred Stock, whether or not in arrears, on conversion of such
shares or for dividends in cash on the shares of Common Stock issued upon
such conversion.
(d)(i) The Corporation covenants that it will at all times reserve and keep
available, free from preemptive rights, such number of its authorized but
unissued shares of Common Stock as shall be required for the purpose of
effecting conversions of the Series A Preferred Stock.
(ii) Prior to the delivery of any securities which the Corporation shall be
obligated to deliver upon conversion of the Series A Preferred Stock, the
Corporation shall comply with all applicable federal and state laws and
regulations which require action to be taken by the Corporation.
(e) The Corporation will pay any and all documentary stamp or similar issue or
transfer taxes payable in respect of the issue or delivery of shares of
Common Stock on conversion of the Series A Preferred Stock pursuant hereto;
provided that the Corporation shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issue or delivery
of shares of Common Stock in a name other than that of the holder of the
Series A Preferred Stock to be converted and no such issue or delivery
shall be made unless and until the Person requesting such issue or delivery
has paid to the Corporation the amount of any such tax or has established,
to the satisfaction of the Corporation, that such tax has been paid.
(f) In connection with the conversion by a holder of any shares of Series A
Preferred Stock, no fractions of shares of Common Stock shall be required
to be issued to such holder, but in lieu thereof the Corporation shall pay
a cash adjustment in respect of such fractional interest in an amount equal
to such fractional interest on the business day on which such shares of
Series A Preferred Stock are deemed to have been converted.
(g)(i) In case the Corporation shall at any time after the date of issue of
the Series A Preferred Stock (A) declare a dividend or make a distribution
on Common Stock payable in Common Stock, (B) subdivide or split the
outstanding Common Stock, (C) combine or reclassify the outstanding Common
Stock into a smaller number of shares, (D) issue any shares of its Capital
Stock in a reclassification of Common Stock (including any such
reclassification in connection with a consolidation or merger in which the
Corporation is the continuing corporation) or, (E) consolidate with, or
merge with or into, any other Person, or engage in any reorganization,
recapitalization, sale of all or substantially all of the Corporation's
assets to any entity or any other transaction which, in the case of any of
the transactions referred in this subclause (E), is effected in such a
manner that the holders of Common Stock are entitled to receive stock,
securities or assets with respect to or in exchange for Common Stock (any
such transaction described in this subclause (E), an ORGANIC CHANGE), the
Conversion Ratio in effect at the time of the record date for such dividend
or distribution or of the effective date of such subdivision, split,
combination, consolidation, merger, reclassification or Organic Change
shall be proportionately adjusted, or other provision shall be made, so
that the conversion of the Series A Preferred Stock after such time shall
entitle the holder to receive the aggregate number of shares of Common
Stock, or other securities of the Corporation (or shares of any security or
cash or other property into which such shares of Common Stock have
27
been combined, consolidated, merged, reclassified or changed, or which were
otherwise receivable with respect to or in exchange for shares of Common
Stock, pursuant to paragraph 8(g)(i)(C), 8(g)(i)(D) or 8(g)(i)(E) above)
which, if the Series A Preferred Stock had been converted immediately prior
to such time, such holder would have owned upon such conversion and been
entitled to receive by virtue of such dividend, distribution, subdivision,
split, combination, consolidation, merger, reclassification or Organic
Change, assuming such holder of Common Stock of the Corporation (x) is not
a Person with which the Corporation consolidated or into which the
Corporation merged or which merged into the Corporation or in connection
with which such reclassification or Organic Change was made, as the case
may be (CONSTITUENT PERSON), or an affiliate of a Constituent Person and
(y) failed to exercise any rights of election as to the kind or amount of
securities, cash and other property receivable upon such reclassification,
change, consolidation, merger or Organic Change (provided, that if the kind
or amount of securities, cash and other property receivable upon such
reclassification, change, consolidation, merger or Organic Change, is not
the same for each share of Common Stock of the Corporation held immediately
prior to such reclassification, change, consolidation, merger or Organic
Change by other than a Constituent Person or an affiliate thereof and in
respect of which such rights of election shall not have been exercised
(NON-ELECTING share), then for the purpose of this paragraph 8(g) the kind
and amount of securities, cash and other property receivable upon such
reclassification, change, consolidation, merger or Organic Change by each
non-electing share shall be deemed to be the kind and amount so receivable
per share by a plurality of the non-electing shares). Such adjustment shall
be made successively whenever any event listed above shall occur.
(ii) In case the Corporation shall issue or sell any Common Stock (other than
Common Stock issued (A) pursuant to the Corporation's existing or future
stock option plans or pursuant to any other existing or future Common
Stock-related director or employee compensation plan of the Corporation
approved by the Board of Directors, (B) as consideration for the
acquisition of a business or of assets, (C) in a firmly committed
underwritten public offering, (D) to the Corporation's joint venture
partners in exchange for interests in the relevant joint venture, (E) upon
conversion of shares of any series of Preferred Stock or (F) upon exercise
or conversion of any security the issuance of which caused an adjustment
under paragraph 8(g)(i), 8(g)(iii) or 8(g)(iv) hereof or the issuance of
which did not require adjustment hereunder) without consideration or for a
consideration per share less than the 30 Day Market Price on the date of
such issuance, or shall issue securities convertible into Common Stock
(other than such securities paid as dividends on any class of Preferred
Stock) having a conversion price per share less than the 30 Day Market
Price at the date of issuance of such convertible security, the Conversion
Ratio to be in effect after such issuance or sale shall be determined by
multiplying the Conversion Ratio in effect immediately prior to such
issuance or sale by a fraction, (1) the numerator of which shall be the sum
of the number of shares of Common Stock outstanding immediately prior to
such issuance or sale and the number of additional shares of Common Stock
to be issued or sold (or, in the case of convertible securities, issued on
conversion), and (2) the denominator of which shall be the sum of (x) the
number of shares of Common Stock outstanding immediately prior to such
issuance or sale and (y) the number of shares of Common Stock which the
aggregate consideration receivable by the Corporation for the total number
of additional shares of Common Stock so issued or sold (or issuable on
conversion) would purchase at the 30 Day Market Price in effect on the date
of such issuance or sale. In case any portion of the consideration to be
received by the Corporation shall be in a form other than cash, the fair
market value of such noncash consideration shall be utilized in the
foregoing computation. Such fair market value shall be determined in good
faith by the Board of Directors.
(iii) In case the Corporation shall fix a record date for the issuance of
rights, options or warrants to the holders of its Common Stock or other
securities entitling such holders to subscribe for or purchase shares of
Common Stock (or securities convertible into shares of Common Stock) at a
price per share of Common Stock (or having a conversion price per share of
Common Stock, if a security convertible into shares of Common Stock) less
than the 30 Day Market Price on such record date, the maximum number of
shares of Common Stock issuable upon exercise of such rights, options or
warrants (or conversion of such convertible securities) shall be deemed to
have been issued and outstanding as of such record date and the Conversion
Ratio shall be adjusted pursuant to paragraph 8(g)(ii) hereof, as though
such maximum number of shares of Common Stock had been so issued for an
28
aggregate consideration payable by the holders of such rights, options,
warrants or convertible securities prior to their receipt of such shares of
Common Stock. In case any portion of such consideration shall be in a form
other than cash, the fair market value of such noncash consideration shall
be determined as set forth in paragraph 8(g)(ii) hereof. Such adjustment
shall be made successively whenever such record date is fixed. In the event
that after fixing a record date such rights, options or warrants are not so
issued, the Conversion Ratio shall be readjusted to the Conversion Ratio
that would then be in effect if such record date had not been fixed. In the
event that such rights, options or warrants expire in whole or in part
unexercised or in the event of a change in the number of shares of Common
Stock to which the holders of such rights, options or warrants are entitled
(other than pursuant to adjustment provisions therein comparable to those
contained in this paragraph 8(g)), the Conversion Ratio shall again be
adjusted as follows: (A) in the event that all of such rights, options or
warrants expire unexercised, the Conversion Ratio shall be the Conversion
Ratio that would then be in effect if such record date had not been fixed;
(B) in the event that less than all of such rights, options or warrants
expire unexercised, the Conversion Ratio shall be adjusted pursuant to
paragraph 8(g)(ii) to reflect the maximum number of shares of Common Stock
issuable upon exercise of such rights, options or warrants that remain
outstanding (without taking into effect shares of Common Stock issuable
upon exercise of rights, options or warrants that have lapsed or expired);
and (C) in the event of a change in the number of shares of Common Stock to
which the holders of such rights, options or warrants are entitled, the
Conversion Ratio shall be adjusted to reflect the Conversion Ratio which
would then be in effect if such holder had initially been entitled to such
changed number of shares of Common Stock. Notwithstanding anything herein
to the contrary, no further adjustment to the Conversion Ratio shall be
made upon the issuance or sale of Common Stock upon the exercise of any
rights, options or warrants to subscribe for or purchase Common Stock, if
any adjustment in the Conversion Ratio was made or required to be made upon
the record date for the issuance or sale of such rights, options or
warrants under this clause 8(g)(iii).
(iv) In case the Corporation shall fix a record date for the making of a
distribution to holders of Common Stock (including any such distribution
made in connection with a consolidation or merger in which the Corporation
is the continuing corporation) of evidences of indebtedness, assets or
other property (other than dividends or distributions for which an
adjustment is made pursuant to paragraph 8(g)(i) or 8(g)(iii) hereof), the
Conversion Ratio to be in effect after such record date shall be determined
by multiplying the Conversion Ratio in effect immediately prior to such
record date by a fraction, (A) the numerator of which shall be the 30 Day
Market Price on such record date, and (B) the denominator of which shall be
the 30 Day Market Price on such record date, less the fair market value
(determined as set forth in paragraph 8(g)(ii) hereof) of the portion of
the assets, other property or evidence of indebtedness so to be distributed
which is applicable to one share of Common Stock. Such adjustments shall be
made successively whenever such a record date is fixed; and in the event
that such distribution is not so made, the Conversion Ratio shall again be
adjusted to be the Conversion Ratio which would then be in effect if such
record date had not been fixed.
(v) No adjustment to the Conversion Ratio pursuant to paragraphs 8(g)(ii),
8(g)(iii) or 8(g)(iv) above shall be required unless such adjustment would
require an increase or decrease of at least 1% in the Conversion Ratio;
provided however, that any adjustments which by reason of this paragraph
8(g)(v) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this paragraph
8(g) shall be made to the nearest four decimal points.
(vi) In the event that, at any time as a result of the provisions of this
paragraph 8(g), a holder of Series A Preferred Stock upon subsequent
conversion shall become entitled to receive any shares of Capital Stock of
the Corporation other than Common Stock, the number of such other shares so
receivable upon conversion of Series A Preferred Stock shall thereafter be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions contained herein.
(h) All adjustments pursuant to this paragraph 8 shall be notified to the
holders of the Series A Preferred Stock and such notice shall be
accompanied by a schedule of computations of the adjustments.
29
(i) In the event that any adjustment is made to the Conversion Ratio, a
corresponding adjustment shall be made to the number of shares of Common
Stock issuable upon conversion in respect of accrued and unpaid dividends,
pursuant to the second sentence of paragraph 8(a)(ii).
9. VOTING RIGHTS.
(a) The holders of Series A Preferred Stock shall not be entitled to vote with
the holders of Common Stock except with respect to shares of the Series A
Preferred Stock that have been converted into Common Stock.
(b) If and whenever two dividends payable on the Series A Preferred Stock have
not been paid in full, the number of directors then constituting the Board
of Directors shall be increased by two and the holders of shares of Series
A Preferred Stock, voting as a single class, shall be entitled to elect the
additional directors to serve on the Board of Directors at any annual
meeting of stockholders or special meeting held in place thereof, or at a
special meeting of the holders of the Series A Preferred Stock called as
hereinafter provided. Whenever all arrears in dividends on the Series A
Preferred Stock then outstanding shall have been paid and dividends thereon
for the current dividend period shall have been paid or declared and set
apart for payment, then the right of the holders of the Series A Preferred
Stock to elect such additional directors shall cease (but subject always to
the same provisions for the vesting of such voting rights in the case of
any similar future arrearage in two dividends), and the term of office of
any person elected as director by the holders of the Series A Preferred
Stock shall forthwith terminate and the number of the Board of Directors
shall be reduced accordingly. At any time after voting power to elect a
director shall have become vested and be continuing in the holders of
Series A Preferred Stock pursuant to this paragraph, or if a vacancy shall
exist in the office of a director elected by the holders of Series A
Preferred Stock, a proper officer of the Corporation may, and upon the
written request of the holders of record of at least ten percent (10%) of
the shares of Series A Preferred Stock then outstanding addressed to the
Secretary of the Corporation shall, call a special meeting of the holders
of Series A Preferred Stock for the purpose of electing the director which
such holders are entitled to elect. If such meeting shall not be called by
a proper officer of the Corporation within twenty (20) days after personal
service of said written request upon the Secretary of the Corporation, or
within twenty (20) days after mailing the same within the United States by
certified mail, addressed to the Secretary of the Corporation at its
principal executive offices, then the holders of at least ten percent (10%)
of the outstanding shares of Series A Preferred Stock may designate in
writing one of their number to call such meeting at the expense of the
Corporation, and such meeting may be called by the person so designated
upon the notice required for the annual meeting of stockholders of the
Corporation and shall be held at the place for holding the annual meetings
of stockholders. Any holder of Series A Preferred Stock so designated shall
have, and the Corporation shall provide, access to the lists of
stockholders to be called pursuant to the provisions hereof.
(c) Without either (i) the written consent of holders of a majority of the
outstanding shares of Series A Preferred Stock or (ii) the vote of holders
of a majority of the outstanding shares of Series A Preferred Stock which
vote is taken at a meeting of the holders of Series A Preferred Stock
called for such purpose, the Corporation will not amend, alter or repeal
any provision of the Articles of Incorporation or this Certificate of
Determination (including by way of merger), so as to adversely affect the
preferences, rights or powers of the Series A Preferred Stock; provided
that any such amendment that changes the dividend payable on or the
Liquidation Preference of the Series A Preferred Stock shall require either
(i) the written consent of holders of two-thirds of the outstanding shares
of Series A Preferred Stock (ii) or the vote of holders of two-thirds of
the outstanding shares of Series A Preferred Stock which vote is taken at a
meeting of the holders of Series A Preferred Stock called for such purpose.
(d) Without either (i) the written consent of holders of a majority of the
outstanding shares of Series A Preferred Stock or (ii) the vote of holders
of a majority of the outstanding shares of Series A Preferred Stock which
vote is
30
taken at a meeting of such holders called for such purpose, the Corporation
will not create, authorize or issue any Senior Securities nor split or
combine the Preferred Stock.
(e) The Corporation shall not, in a single transaction or series of related
transactions, consolidate or merge with or into, or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its
assets to, any Person or adopt a plan of liquidation unless: either (1) the
Corporation is the surviving or continuing Person and the Series A
Preferred Stock shall remain outstanding without any amendment that would
adversely affect the preferences, rights or powers of the Series A
Preferred Stock or (2) (i) the Person (if other than the Corporation)
formed by such consolidation or into which the Corporation is merged or the
Person which acquires by conveyance, transfer or lease the properties and
assets of the Corporation substantially as an entirety or in the case of a
plan of liquidation, the Person to which assets of the Corporation have
been transferred, shall be a corporation, partnership or trust organized
and existing under the laws of the United States or any State thereof or
the District of Columbia and (ii) the Series A Preferred Stock shall be
converted into or exchanged for and shall become shares of such successor,
transferee or resulting Person, having in respect of such successor,
transferee or resulting Person, the same powers, preferences and relative
participating, optional or other special rights and the qualifications,
limitations or restrictions thereon, that the Series A Preferred Stock had
immediately prior to such transaction except as provided in paragraph
8(g)(i).
(f) In exercising the voting rights set forth in Clauses (b), (c) and (d) of
this paragraph 9, each shares of Series A Preferred Stock shall have one
vote per share.
(g) The consent or votes required above shall be in addition to any approval of
stockholders of the Corporation which may be required by law or pursuant to
any provision of the Corporation's articles of incorporation or bylaws,
which approval shall be obtained by vote of the stockholders of the
Corporation or as otherwise required by applicable law or the Corporation's
Articles of Incorporation or bylaws.
10. REPORTS.
So long as any of the Series A Preferred Stock is outstanding, in the event
the Corporation is not required to file quarterly and annual financial
reports with the Securities and Exchange Commission pursuant to Section 13
or Section 15(d) of the Exchange Act, the Corporation will furnish the
holders of the Series A Preferred Stock with reports containing the same
information as would be required in such reports at the same time such
reports would be required to be filed if the Corporation were required to
file reports with the Securities and Exchange Commission.
11. GENERAL PROVISIONS.
The headings of the paragraphs, subparagraphs, clauses and subclauses of
this Certificate of Determination are for convenience of reference only and
shall not define, limit or affect any of the provisions hereof."
31
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
Dated: ______________, 2003
_____________________________
__________________, President
_____________________________
__________________, Secretary
32
EXHIBIT B
REGISTRATION RIGHTS
This constitutes Exhibit B to the Stock Purchase Agreement (as it may be amended
from time to time, the STOCK PURCHASE AGREEMENT) dated as of April 21, 2003
between Signature Eyewear, Inc., a California corporation (the CORPORATION), and
Bluebird Finance Limited, a British Virgin Islands corporation (BUYER).
ARTICLE 1
DEFINITIONS
Definitions. Terms defined in the Stock Purchase Agreement are used herein as
therein defined. In addition, the following terms, as used herein, have the
following meanings:
COMMISSION means the Securities and Exchange Commission.
CONVERSION SHARES means shares of Common Stock issued upon conversion of the
Series A Preferred Stock.
HOLDER means a person who owns Registrable Securities and is either Buyer or a
transferee of the Buyer who has agreed in writing to be bound by the terms of
Sections 2.3 and 6.4 of the Stock Purchase Agreement and this Exhibit B.
PIGGYBACK REGISTRATION means a piggyback registration as defined in Section 2.02
of this Exhibit B.
REGISTRABLE SECURITIES means (i) shares of Common Stock constituting Conversion
Shares, (ii) shares of Common Stock acquired under Section 5.4 of the Stock
Purchase Agreement, and (iii) any additional shares of Common Stock issued in
respect of the shares referred to in (i) and (ii) in connection with a stock
split, stock dividend or similar event with respect to the Common Stock. As to
any particular Registrable Securities, such Registrable Securities shall cease
to be Registrable Securities as soon as they (i) have been sold or otherwise
disposed of pursuant to a registration statement that was filed with the
Commission and declared effective under the Securities Act, (ii) are eligible
for sale pursuant to Rule 144 without being subject to applicable volume
limitations thereunder, (iii) have been otherwise sold, transferred or disposed
of by a Holder to any Person that is not a Holder, or (iv) have ceased to be
outstanding.
RULE 144 means Rule 144 (or any successor rule of similar effect) promulgated
under the Securities Act.
SELLING HOLDER means any Holder who is selling Registrable Securities pursuant
to a public offering registered hereunder.
UNDERWRITER means a securities dealer who purchases any Registrable Securities
as principal and not as part of such dealer's market-making activities.
SECTION 1.02. Internal References. Unless the context indicates otherwise,
references to Articles, Sections and paragraphs shall refer to the corresponding
articles, sections and paragraphs in this Exhibit B, and references to the
parties shall mean the parties to the Stock Purchase Agreement.
ARTICLE 2
REGISTRATION RIGHTS
SECTION 2.01. Demand Registration. (a) Buyer, on its own behalf and on behalf of
the other Holders, may make up to two written requests for registration under
the Securities Act of all or any part of the Registrable Securities held by the
33
Holders (each, a DEMAND REGISTRATION). Such request will specify the aggregate
number of shares of Registrable Securities proposed to be sold and will also
specify the intended method of disposition thereof. A registration will not
count as a Demand Registration until it has become effective. Should a Demand
Registration not become effective due to the failure of a Holder to perform its
obligations under this Exhibit B or the inability of the requesting Holders to
reach agreement with the Underwriters for the proposed sale on price or other
customary terms for such transaction, or in the event the requesting Holders
withdraw or do not pursue the request for the Demand Registration (in each of
the foregoing cases, provided that at such time the Corporation is in compliance
in all material respects with its obligations under this Exhibit B), then such
Demand Registration shall be deemed to have been effected (provided that if the
Demand Registration does not become effective because of a material adverse
change in the condition (financial or otherwise), business, assets or results of
operations of the Corporation and its subsidiaries taken as a whole that occurs
subsequent to the date of the written request made by the requesting Holders,
then the Demand Registration shall not be deemed to have been effected).
(b) In the event that the requesting Holders withdraw or do not pursue a request
for a Demand Registration and, pursuant to Section 2.01(a) hereof, such Demand
Registration is deemed to have been effected, the Holders may reacquire such
Demand Registration (such that the withdrawal or failure to pursue a request
will not count as a Demand Registration hereunder) if the Holders reimburse the
Corporation for any and all Registration Expenses incurred by the Corporation in
connection with such request for a Demand Registration; provided that the right
to reacquire a Demand Registration may be exercised a maximum of two times.
(c) If the Selling Holders so elect, the offering of such Registrable Securities
pursuant to such Demand Registration shall be in the form of an underwritten
offering. A majority in interest of the Selling Holders shall have the right to
select the managing Underwriters and any additional investment bankers and
managers to be used in connection with such offering, subject to the
Corporation's approval, which approval shall not be unreasonably withheld.
(d) The Selling Holders will inform the Corporation of the time and manner of
any disposition of Registrable Securities, and agree to reasonably cooperate
with the Corporation in effecting the disposition of the Registrable Securities
in a manner that does not unreasonably disrupt the public trading market for the
Common Stock.
(e) The Corporation will have the right to preempt any Demand Registration with
a primary registration by delivering written notice (within five business days
after the Corporation has received a request for such Demand Registration) of
such intention to the Selling Holders indicating that the Corporation has
identified a specific business need and use for the proceeds of the sale of such
securities and the Corporation shall use commercially reasonable efforts to
effect a primary registration within 60 days of such notice. In the ensuing
primary registration, the Holders will have such piggyback registration rights
as are set forth in Section 2.02 hereof. Upon the Corporation's preemption of a
requested Demand Registration, such requested registration will not count as a
Demand Registration; provided that a Demand Registration will not be deemed
preempted if the Holders are permitted to sell all requested securities in
connection with the ensuing primary offering by exercising their piggyback
registration rights as set forth in Section 2.02 hereof. The Corporation may
exercise the right to preempt only twice in any 360-day period; provided, that
during any 360 day period there shall be a period of at least 120 consecutive
days during which the Selling Holders may effect a Demand Registration.
(f) Subject to Section 2.03 hereof, the Corporation will be entitled to include
in a Demand Registration shares of Common Stock for its own account or for the
account of other Persons.
(g) Notwithstanding anything to the contrary contained herein, the Corporation
shall be entitled to (i) postpone the filing of the Registration Statement
required to be prepared and filed by it hereunder or (ii) withdraw the
Registration Statement after its filing but before it has been declared
effective, if, in either case, the Corporation in its good faith discretion
determines that there has occurred or is occurring a material non-public event
which such registration would interfere with or which cannot at such time be
disclosed in the registration statement or if such registration statement would
interfere in any material respect with any proposal or plan by the Corporation
to engage in any financing or any material
34
acquisition or disposition by the Corporation or any subsidiary thereof of the
capital stock or substantially all of the assets of any other Person (other than
in the ordinary course of business), any tender offer or any offering, merger,
consolidation, corporate reorganization or restructuring (MATERIAL EVENT). In
the event the filing of the Registration Statement is postponed or withdrawn in
accordance with this section 2.01(g), the Corporation shall file or refile the
Registration Statement within ten (10) Business Days after the Corporation, in
its good faith discretion, determines that the Material Event has been completed
or terminated.
(h) The Corporation shall disclose to the Selling Holders the nature of any
Material Event for which it has delayed or withdrawn the Registration Statement
or suspended the use of the Prospectus, provided the Selling Holders agree in
writing to keep any information so disclosed confidential and not complete any
trades of Common Stock until the Corporation informs the Selling Holders the
information is considered public information or is no longer material, such
notification to the Selling Holders to be given promptly after the information
is considered public or is no longer material.
SECTION 2.02. Piggyback Registration. If the Corporation proposes to file a
registration statement under the Securities Act with respect to an offering of
Common Stock for its own account or for the account of another Person (other
than a registration statement on Form S-4 or S-8 or pursuant to Rule 415 (or any
substitute form or rule, respectively, that may be adopted by the Commission)),
the Corporation shall give written notice of such proposed filing to the Holders
at the address set forth in the share register of the Corporation as soon as
reasonably practicable (but in no event less than 10 days before the anticipated
filing date), and such notice shall offer each Holder the opportunity to
register on the same terms and conditions such number of shares of Registrable
Securities as such Holder may request (A PIGGYBACK REGISTRATION). Each Holder
will have five business days after receipt of any such notice to notify the
Corporation as to whether it wishes to participate in a Piggyback Registration;
provided that should a Holder fail to provide timely notice to the Corporation,
such Holder will forfeit any rights to participate in the Piggyback Registration
with respect to such proposed offering. In the event that the registration
statement is filed on behalf of a Person other than the Corporation, the
Corporation will use its best efforts to have the shares of Registrable
Securities that the Holders wish to sell included in the registration statement.
If the Corporation shall determine in its sole discretion not to register or to
delay the proposed offering, the Corporation may, at its election, provide
written notice of such determination to the Holders and (i) in the case of a
determination not to effect the proposed offering, shall thereupon be relieved
of the obligation to register such Registrable Securities in connection
therewith, and (ii) in the case of a determination to delay a proposed offering,
shall thereupon be permitted to delay registering such Registrable Securities
for the same period as the delay in respect of the proposed offering. As between
the Corporation and the Selling Holders, the Corporation shall be entitled to
select the Underwriters in connection with any Piggyback Registration.
SECTION 2.03. Reduction of Offering. Notwithstanding anything contained herein,
if the managing Underwriter of an offering described in Section 2.01 or 2.02
hereof states in writing that the size of the offering that Holders, the
Corporation and any other Persons intend to make is such that the inclusion of
the Registrable Securities would be likely to materially and adversely affect
the price, timing or distribution of the offering, then the amount of
Registrable Securities to be offered for the account of Holders shall be reduced
to the extent necessary to reduce the total amount of securities to be included
in such offering to the amount recommended by such managing Underwriter;
provided that in the case of a Piggyback Registration, if securities are being
offered for the account of Persons other than the Corporation, then the
proportion by which the amount of Registrable Securities intended to be offered
for the account of Holders is reduced shall not exceed the proportion by which
the amount of securities intended to be offered for the account of such other
Persons (other than any Person exercising a demand registration right) is
reduced; provided further that in the case of a Demand Registration, the amount
of Registrable Securities to be offered for the account of the Holders making
the Demand Registration shall be reduced only after the amount of securities to
be offered for the account of the Corporation and any other Persons has been
reduced to zero. In the event of a reduction pursuant to this Section 2.03 of
Registrable Securities to be offered for the account of Holders, such reduction
shall be pro rata among such Holders based on the number of Registrable
Securities each Holder had proposed to sell.
35
SECTION 2.04. Preservation of Rights. The Corporation will not grant any
registration rights to third parties that contravene or are inconsistent with
the rights granted hereunder.
ARTICLE 3
REGISTRATION PROCEDURES
SECTION 3.01. Filings; Information. In connection with a Demand Registration
pursuant to Section 2.01 hereof, the Corporation will use its reasonable best
efforts to effect the registration of such Registrable Securities as promptly as
is reasonably practicable, and in connection with any such request:
(a) The Corporation will expeditiously prepare and file with the Commission a
registration statement on any form for which the Corporation then qualifies and
which counsel for the Corporation shall deem appropriate and available for the
sale of the Registrable Securities to be registered thereunder in accordance
with the intended method of distribution thereof, and use its reasonable best
efforts to cause such filed registration statement to become and remain
effective for such period, not to exceed 60 days, as may be reasonably necessary
to effect the sale of such securities; and provided that if (i) the effective
date of any registration statement filed pursuant to a Demand Registration would
otherwise be at least 45 calendar days, but fewer than 90 calendar days, after
the end of the Corporation's fiscal year, and (ii) the Securities Act requires
the Corporation to include audited financials as of the end of such fiscal year,
the Corporation may delay the effectiveness of such registration statement for
such period as is reasonably necessary to include therein its audited financial
statements for such fiscal year.
(b) The Corporation will, if requested, prior to filing such registration
statement or any amendment or supplement thereto, furnish to the Selling
Holders, and each applicable managing Underwriter, if any, copies thereof, and
thereafter furnish to the Selling Holders and each such Underwriter, if any,
such number of copies of such registration statement, amendment and supplement
thereto (in each case including all exhibits thereto and documents incorporated
by reference therein) and the prospectus included in such registration statement
(including each preliminary prospectus) as the Selling Holders or each such
Underwriter may reasonably request in order to facilitate the sale of the
Registrable Securities by the Selling Holders.
(c) After the filing of the registration statement, the Corporation will
promptly notify the Selling Holders of any stop order issued or, to the
Corporation's knowledge, threatened to be issued by the Commission and take all
reasonable actions required to prevent the entry of such stop order or to remove
it if entered.
(d) The Corporation will use its reasonable best efforts to qualify the
Registrable Securities for offer and sale under such other securities or blue
sky laws of such jurisdictions in the United States as the Selling Holders
reasonably request; provided that the Corporation will not be required to (i)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this paragraph 3.01(d), (ii) subject
itself to taxation in any such jurisdiction or (iii) consent to general service
of process in any such jurisdiction.
(e) The Corporation will as promptly as is practicable notify the Selling
Holders, at any time when a prospectus relating to the sale of the Registrable
Securities is required by law to be delivered in connection with sales by an
Underwriter or dealer, of the occurrence of any event requiring the preparation
of a supplement or amendment to such prospectus so that, as thereafter delivered
to the purchasers of such Registrable Securities, such prospectus will not
contain an untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading and
promptly make available to the Selling Holders and to the Underwriters any such
supplement or amendment. Upon receipt of any notice from the Corporation of the
occurrence of any event of the kind described in the preceding sentence, the
Selling Holders will forthwith discontinue the offer and sale of Registrable
Securities pursuant to the registration statement covering such Registrable
Securities until receipt by the Selling Holders and the Underwriters of the
copies of such supplemented or
36
amended prospectus and, if so directed by the Corporation, the Selling Holders
will deliver to the Corporation all copies, other than permanent file and then
in the possession of Selling Holders, of the most recent prospectus covering
such Registrable Securities at the time of receipt of such notice. In the event
the Corporation shall give such notice, the Corporation shall extend the period
during which such registration statement shall be maintained effective as
provided in Section 3.01(a) hereof by the number of days during the period from
and including the date of the giving of such notice to the date when the
Corporation shall make available to the Selling Holders such supplemented or
amended prospectus.
(f) The Corporation will enter into customary agreements (including an
underwriting agreement in customary form) and take such other actions as are
reasonably required in order to expedite or facilitate the sale of such
Registrable Securities.
(g) At the request of any Underwriter in connection with an underwritten
offering, the Corporation will furnish (i) an opinion of counsel, addressed to
the Underwriters, covering such customary matters as the managing Underwriter
may reasonably request and (ii) a comfort letter or comfort letters from the
Corporation's independent public accountants covering such customary matters as
the managing Underwriter may reasonably request.
(h) The Corporation will make generally available to its security holders, as
soon as reasonably practicable, an earnings statement covering a period of 12
months, beginning within three months after the effective date of the
registration statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act and the rules and regulations of the
Commission thereunder.
(i) The Corporation will use commercially reasonable efforts to cause all such
Registrable Securities to be listed on each securities exchange or quoted on
each inter-dealer quotation system on which the Common Stock is then listed or
quoted.
SECTION 3.02. Selling Holder Information. The Corporation may require Selling
Holders promptly to furnish in writing to the Corporation such information
regarding such Selling Holders, the plan of distribution of the Registrable
Securities and other information as the Corporation may from time to time
reasonably request or as may be legally required in connection with any Demand
Registration or Piggyback Registration.
SECTION 3.03. Registration Expenses. In connection with any Demand Registration,
the Corporation shall pay the following expenses incurred in connection with
such registration (the REGISTRATION EXPENSES): (i) registration and filing fees
with the Commission and the National Association of Securities Dealers, Inc.,
(ii) fees and expenses of compliance with securities or blue sky laws (including
reasonable fees and disbursements of counsel in connection with blue sky
qualifications of the Registrable Securities), (iii) printing expenses, (iv)
fees and expenses incurred in connection with the listing or quotation of the
Registrable Securities, (v) fees and expenses of counsel to the Corporation and
the reasonable fees and expenses of independent certified public accountants for
the Corporation (including fees and expenses associated with the special audits
or the delivery of comfort letters) and (vi) the reasonable fees and expenses of
any additional experts retained by the Corporation in connection with such
registration. In connection with any Piggyback Registration, the Corporation
shall pay the Registration Expenses set forth in clauses (ii) through (vi) of
the preceding sentence. The Selling Holders shall pay (A) any underwriting fees,
discounts or commissions attributable to the sale of Registrable Securities, (B)
fees and expenses of counsel for the Selling Holders and (C) any out-of-pocket
expenses of the Selling Holders. In connection with any Piggyback Registration,
the Selling Holders shall pay, in addition to items (A) through (C) of the
preceding sentence, registration and filing fees with the Commission and
National Association of Securities Dealers Inc., in proportion to the ratio that
the number of shares of Registrable Securities being registered for the account
of the Selling Holders bears to the aggregate number of shares of Common Stock
being included in the applicable registration statement.
37
ARTICLE 4
INDEMNIFICATION AND CONTRIBUTION
SECTION 4.01. Indemnification by the Corporation. The Corporation agrees to
indemnify and hold harmless each Selling Holder and its Affiliates and their
respective officers, directors, partners, stockholders, members, employees,
agents and representatives and each Person (if any) which controls a Selling
Holder within the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act, from and against any and all losses, claims, damages,
liabilities, costs and expenses (including reasonable attorneys' fees) caused
by, arising out of, resulting from or related to any untrue statement or alleged
untrue statement of a material fact contained in any registration statement or
prospectus relating to the Registrable Securities (as amended or supplemented if
the Corporation shall have furnished any amendments or supplements thereto) or
any preliminary prospectus, or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as such losses, claims,
damages or liabilities are caused by or contained in or based upon any
information furnished in writing to the Corporation by or on behalf of such
Selling Holder or any Underwriter expressly for use therein or by the Selling
Holder or Underwriter's failure to deliver a copy of the registration statement
or prospectus or any amendments or supplements thereto after the Corporation has
furnished the Selling Holders or Underwriter with copies of the same. The
Corporation also agrees to indemnify any Underwriters of the Registrable
Securities, their officers and directors and each person who controls such
Underwriters on substantially the same basis as that of the indemnification of
the Selling Holders provided in this Section 4.01.
SECTION 4.02. Indemnification by a Selling Holder. Each Selling Holder agrees to
indemnify and hold harmless the Corporation, its officers and directors, and
each Person, if any, which controls the Corporation within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act to the same
extent as the foregoing indemnity from the Corporation to each Selling Holder,
but only (a) with reference to information furnished in writing by or on behalf
of such Selling Holder expressly for use in any registration statement or
prospectus relating to the Registrable Securities, or any amendment or
supplement thereto, or any preliminary prospectus or (b) as a result of the
Selling Holder's failure to deliver any registration statement or prospectus
relating to the Registrable Securities, or any amendment or supplement thereto,
or any preliminary prospectus. Each Selling Holder also agrees to indemnify and
hold harmless any Underwriters of the Registrable Securities, their officers and
directors and each person who controls such Underwriters on substantially the
same basis as that of the indemnification of the Corporation provided in this
Section 4.02.
SECTION 4.03. Conduct of Indemnification Proceedings. In case any proceeding
(including any governmental investigation) shall be instituted involving any
Person in respect of which indemnity may be sought pursuant to Section 4.01 or
Section 4.02 hereof, such Person (the INDEMNIFIED PARTY) shall promptly notify
the Person against whom such indemnity may be sought (the INDEMNIFYING PARTY) in
writing and the Indemnifying Party, upon the request of the Indemnified Party,
shall retain counsel reasonably satisfactory to such Indemnified Party to
represent such Indemnified Party and any others the Indemnifying Party may
designate in such proceeding and shall pay the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any Indemnified
Party shall have the right to retain its own counsel, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party unless (i) the
Indemnifying Party and the Indemnified Party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the Indemnified Party and the
Indemnifying Party and, in the written opinion of counsel for the Indemnified
Party, representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them. It is understood
that the Indemnifying Party shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) at any time for all such Indemnified Parties, and that all such fees
and expenses shall be reimbursed as they are incurred. In the case of any such
separate firm for the Indemnified Parties, such firm shall be designated in
writing by the Indemnified Parties. The Indemnifying Party shall not be liable
for any settlement of any proceeding effected without its written consent, but
if settled with such consent (not to be unreasonably withheld), or if there be a
final judgment for the plaintiff, the Indemnifying Party shall indemnify and
hold harmless such Indemnified Parties from and against any loss or liability
(to the extent stated above) by reason of such settlement or judgment.
38
SECTION 4.04. Contribution. If the indemnification provided for in this Article
4 is unavailable to an Indemnified Party in respect of any losses, claims,
damages or liabilities in respect of which indemnity is to be provided
hereunder, then each such Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall to the fullest extent permitted by law contribute to
the amount paid or payable by such Indemnified Party as a result of such losses,
claims, damages or liabilities in such proportion as is appropriate to reflect
the relative fault of such party in connection with the statements or omissions
that resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The relative fault of the Corporation,
a Selling Holder and the Underwriters shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by such party and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Corporation and each Selling Holder agrees that it would not be just and
equitable if contribution pursuant to this Section 4.04 were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages or liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such Indemnified Party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Article 4, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, and each Selling
Holder shall not be required to contribute any amount in excess of the amount by
which the net proceeds of the offering (before deducting expenses) received by
such Selling Holder exceeds the amount of any damages which such Selling Holder
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
ARTICLE 5
MISCELLANEOUS
SECTION 5.01. Participation in Underwritten Registrations. No Person may
participate in any underwritten registered offering contemplated hereunder
unless such Person (a) agrees to sell its securities on the basis provided in
any underwriting arrangements approved by the Persons entitled hereunder to
approve such arrangements, (b) completes and executes all questionnaires, powers
of attorney, custody arrangements, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements and this Exhibit B and (c) furnishes in writing to the Corporation
such information regarding such Person, the plan of distribution of the
Registrable Securities and other information as the Corporation may from time to
time request or as may be legally required in connection with such registration.
SECTION 5.02. Rule 144. Subject to Section 6.5 of the Stock Purchase Agreement,
the Corporation covenants that it will file any reports required to be filed by
it under the Securities Act and the Exchange Act and that it will take such
further action as the Holders may reasonably request to the extent required from
time to time to enable the Holders to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144 under the Securities Act, as such Rule 144 may be amended
from time to time, or any similar rule or regulation hereafter adopted by the
Commission. Upon the request of Buyer, the Corporation will deliver to Buyer a
written statement as to whether it has complied with such reporting
requirements.
SECTION 5.03. Holdback Agreements. Each Holder agrees, in the event of an
underwritten offering for the Corporation (whether for the account of the
Corporation or otherwise) not to offer, sell, contract to sell or otherwise
dispose of any 39
Registrable Securities or other Common Stock or Class B Stock, or any securities
convertible into or exchangeable or exercisable for any of the foregoing,
including any sale pursuant to Rule 144 under the Securities Act (except as part
of such underwritten offering), during the 14 days prior to, and during the
180-day period (or such lesser period as the lead or managing Underwriter may
agree) beginning on, the effective date of the registration statement for such
underwritten offering (or, in the case of an offering pursuant to an effective
shelf registration statement pursuant to Rule 415, the pricing date for such
underwritten offering).
SECTION 5.04. Termination. The registration rights granted under this Exhibit B
will terminate on the tenth anniversary of the Closing Date.
SECTION 5.05. Holder Determinations. In the event any determination is to be
made by the Holders or the Selling Holders as a group, such determination shall
be made by Holders or Selling Holders holding a majority in interest of the
Registrable Securities or the Registrable Securities being sold, respectively.
40
EXHIBIT C
LEGAL OPINION OF SPECIAL COUNSEL TO THE CORPORATION
APRIL ___, 2003
Bluebird Finance Limited
▇.▇. ▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Re: Bluebird Finance Limited - Sale of Series A Preferred Stock
Ladies and Gentlemen:
We have acted as special counsel to Signature Eyewear, Inc., a
California corporation (the "Company"), in connection with the issuance and
sale of up to 1,200,000 shares of the Company's Series A 2% Convertible
Preferred Stock (the "Shares"), pursuant to the Stock Purchase Agreement
(the "Purchase Agreement"), of even date, between the Company and Bluebird
Finance Limited (the "Buyer"). We do not represent the Company in all of
its legal matters, and the Company has retained other legal counsel to
represent it in connection with certain other legal matters. We do not
assume any responsibility for any transaction or matter where the Company
has been represented by other counsel. Capitalized terms, which are used
herein but not defined herein, shall have the meanings ascribed to them in
the Purchase Agreement.
In connection with this opinion, we have examined and relied upon (i) the
representations and warranties as to factual matters contained in and made
pursuant to the Purchase Agreement by various parties, and (ii) originals or
copies, certified or otherwise identified to our satisfaction as being true
copies, of the following documents (collectively, the "Documents"):
(1) The Purchase Agreement;
(2) The Certificate of Determination (the "Certificate")
(3) Articles of Incorporation of the Company, as amended, as certified by
the office of the Secretary of State of the State of California as of
March 26, 2003 (the "Articles");
(4) Amended and Restated Bylaws of the Company, dated June 6, 1997 (the
"Bylaws");
(5) Certificate of Status Domestic Company for the Company issued by the
California Secretary of State and dated March 26, 2003 (the "Domestic
Status Certificate");
(6) The Credit Facility Agreement between Buyer and the Company dated of
even date with the Purchase Agreement, and related documents and
agreements (collectively, the "Bluebird Loan Agreement") and
(7) the Representation Letter from ▇▇▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ (the
"Representation Letter").
41
Except as set forth above, the documents listed in clauses (1) and (2) are each
dated as of April ___, 2003 and are referred to herein collectively as the
"Transaction Documents."
We have rendered these opinions based solely upon our review of the
Documents, and upon our examination of such statutes, decisions and matters of
law as we deem necessary to express the opinions set forth below. In particular,
our opinion that the Company is "in good standing under the laws of the State of
California" set forth in opinion number 1, below, is based solely on the
Domestic Status Certificate. We have made no examination of public records
(including, without limitation, the plaintiff or defendant indices of state and
federal courts), nor have we undertaken any independent investigation to
determine the existence or nonexistence of facts contained or asserted in the
Documents or the assumptions set forth herein and you acknowledge we have no
duty to perform any such independent investigation.
In addition, in rendering this opinion, we have not taken into
consideration the effect, if any, that certain other transactions that will be
occurring on or about the time of the Closing, may have upon the Company or the
opinions set forth herein, including, without limitation, transactions between
(i) the Company and Home Loan Investment Company (referred to collectively with
the Bluebird Loan Documents as the "Senior Loan Documents"), (ii) the Company,
Moulin Optical Manufactory Limited, Allied Industrial Limited and Dartmouth
Commerce of Manhattan, Inc. ("Dartmouth"), (iii) the Company and Dartmouth, and
(iv) the ▇▇▇▇▇ Family Trust and Dartmouth.
In rendering this opinion, we have assumed (i) the genuineness and
authenticity of all signatures on original documents, (ii) the authenticity of
all documents submitted to us as originals and the conformity to originals of
documents submitted to us as certified or photostatic copies, (iii) the
accuracy, completeness and authenticity of certificates of public officials,
(iv) each person signing a document is a competent adult person not operating
under any legal disability, duress or having been defrauded in the execution of
documents, and (v) the due authorization, execution and delivery of all
documents (except the due authorization, execution and delivery by the Company
of the Transaction Documents), and (vi) that the parties to the Transaction
Documents will act in good faith in connection with their obligations under the
Transaction Documents.
For purposes of this opinion, we have made the following additional
assumptions:
(a) Other than the Documents, there are no documents, understandings or
agreements between or among the parties which would expand or otherwise modify
the obligations of the respective parties to the Documents regarding the
transactions contemplated thereby and which would have an effect on this
opinion;
(b) To the extent that the obligations of the Company may be dependent upon
such matters, we have assumed for purposes of this opinion, that: (i) each party
to the Transaction Documents other than the Company ("Other Party") is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of formation and qualified to do business in other jurisdictions,
to the extent necessary; (ii) each Other Party has the requisite organizational
or other power and authority to execute and deliver, and to perform its
obligations under, the Transaction Documents to which it is a party; and (iii)
the Transaction Documents to which each Other Party is a party have been duly
authorized, executed and delivered by it, and each of such Transaction Document
constitutes the legally valid and binding obligation of such Other Party,
enforceable against such party in accordance with its terms.
(c) The representations and warranties of the Company and the Buyer in the
Transaction Documents are true and correct;
(d) The choice of California law in the Purchase Agreement will be
enforced; and
(e) Value has been given by the Buyer.
42
Whenever used in this opinion, the phrase "to the best of our actual
knowledge" or words of similar import mean to the actual conscious knowledge of
those attorneys in this Firm who have given substantive attention to the
transaction contemplated by the Transaction Documents.
We are licensed to practice law only in the State of California. The
opinions set forth below apply only insofar as the substantive laws of the State
of California (without application of the principle of conflicts of laws) and
the United States' federal laws may be concerned, and we express no opinion with
respect to the laws of any other state or jurisdiction. Specifically and without
limiting the foregoing, we express no opinion as to any law of the British
Virgin Islands. Based on the foregoing and subject to the assumptions,
qualifications and limitations set forth herein, it is our opinion that:
1. The Company has been duly incorporated, is validly existing and in good
standing under the laws of the State of California, with the requisite corporate
power and corporate authority to own its properties and assets, to conduct its
business as presently conducted, to enter into and deliver the Transaction
Documents and to perform its obligations under the Transaction Documents.
2. The execution, delivery and performance of the Transaction Documents
have been duly authorized by all necessary corporate action on the part of the
Company, and the Transaction Documents have been duly executed and delivered by
the Company.
3. Each of the Transaction Documents constitutes the legally valid and
binding obligation of the Company, and except as otherwise provided in the
Senior Loan Documents, enforceable against the Company in accordance with its
terms.
4. The Company's execution, delivery and performance of the Transaction
Documents do not violate the Articles or Bylaws of the Company.
5. To the best of our actual knowledge, the execution, delivery and
performance by the Company of the Transaction Documents and the consummation of
the transactions contemplated therein, do not and will not violate any law or
regulation applicable to the Company.
6. Except as set forth in the schedules to the Purchase Agreement, to the
best of our actual knowledge, no consent of, authorization from or registration
or filing with any governmental authority, agency or body is required in
connection with the execution, delivery and performance by the Company of the
Transaction Documents.
7. The Preferred Shares issued in connection with the Stock Purchase
Agreement and the Conversion Shares issuable upon conversion of the Preferred
Shares have been duly authorized by all necessary corporate action on the part
of the Company and, upon payment for and delivery of the Preferred Shares in
accordance with the Stock Purchase Agreement and the countersigning of the
certificate or certificates representing the Preferred Shares by a duly
authorized officer of the Company, the Preferred Shares will be validly issued,
fully paid and nonassessable.
8. Assuming the Company has sufficient authorized and unissued shares of
common stock available at such time, the Conversion Shares, when issued and
delivered upon conversion of the Securities in accordance with the terms thereof
as such terms exist on the date hereof and the countersigning of the certificate
or certificates representing the Conversion Shares by a duly authorized officer
of the Company, will be duly and validly issued, fully paid and nonassessable.
9. Except for (i) any actions, suits or proceedings before any court,
arbitrator or governmental agency which may result in damages against the
Company in excess of $100,000 ("Legal Proceedings") which are described in the
schedules to the Stock Purchase Agreement, and (ii) those Legal Proceeding that
have been represented
43
to us will settle within thirty (30) days of the Closing and are set forth on
Exhibit E to the Representation Letter, we are not and have not represented the
Company in connection with any currently pending Legal Proceedings.
10. Assuming the accuracy of the representations made in Section 4.5 of the
Purchase Agreement by the Buyer, the sale of the Securities to Buyer is exempt
from the registration and qualification requirements of the Securities Act of
1933, as amended, and the securities laws of the State of California.
We express no opinion with respect to:
(i) The applicability of Sections 547 and 548 of the Bankruptcy Code,
11 U.S.C. Sections 547 and 548, Sections 500 et seq. of the
California Corporations Code, or any other federal or state laws
regarding fraudulent conveyances or preferences;
(ii) Compliance by any party with any anti-fraud, disclosure or
similar law, rule or regulations relating to securities or the
issuance and sale thereof;
(iii) Compliance by any party with (A) antitrust laws including, but
not limited to, the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act
of 1976, or (B) the Employee Retirement Income Security Act of
1974, as amended;
(iv) Compliance by any party, or any of the Transaction Documents,
with any federal, state or local land use, subdivision, zoning,
planning, tax, labor or communications law, ordinance or
regulation;
(v) The fairness of any consideration given or received in connection
with any of the Transaction Documents or any transaction
contemplated thereby, including, without limitation, the fair
value of consideration for issuance of the Preferred Shares and
the Conversion Shares;
(vi) The impact of local, state, federal or foreign tax laws on the
transactions contemplated by any of the Transaction Documents,
including, without limitation, the effect of any failure of the
Company to pay any employment, withholding, sales or other taxes
when due;
(vii) Any provisions of the Transaction Documents which permit the
enforcement of the remaining provisions of the Transaction
Documents where some provision has been declared unenforceable,
unless the unenforceable portion is not an essential part of the
agreement therein contained;
(viii) Any covenant not to compete, non-solicitation, confidentiality
or similar provisions contained in any of the Transaction
Documents; or
(ix) Any Legal Proceeding in which we are not counsel of record.
This opinion is subject to, and limited by, the following qualifications,
exceptions and reservations:
(a) The enforceability of the Transaction Documents may be limited or
affected by (i) bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors' rights generally (including, without limitation,
fraudulent conveyance laws), (ii) general principles of equity including,
without limitation, concepts of materiality, reasonableness, good faith and fair
dealing and the possible unavailability of specific performance or injunctive
relief, regardless of whether considered in a proceeding in equity or at law,
and (iii) judicial discretion and the valid exercise of sovereign power of the
State of California and the constitutional powers of the United States of
America;
44
(b) Limitations imposed by equitable principles of California or federal
law upon the specific enforceability of any of the remedies, covenants, or other
provisions of the Transaction Documents and upon the availability of injunctive
relief or other equitable remedies;
(c) The unenforceability under certain circumstances, under any state or
federal law or court decision, of (i) provisions expressly or by implication
waiving broadly or vaguely stated rights, unknown future rights, defenses to
obligations or rights created by law, (ii) provisions indemnifying a party
against liability for its own negligent or wrongful acts, where such waivers or
indemnifications are against public policy or prohibited by law, and (iii)
provisions which impose late charges, default rates of interest or other similar
penalty terms, or restrict or condition prepayment;
(d) The effect of California court decisions invoking statutes or
principles of equity, which have held that certain covenants and provisions of
agreements are unenforceable where (i) the breach of such covenants or
provisions imposes restrictions or burdens upon an obligor, including the
acceleration of indebtedness due under such instruments, and it cannot be
demonstrated that the enforcement of such restrictions or burdens is reasonably
necessary for the protection of the creditor, or (ii) the creditor's enforcement
of such covenants or provisions under the circumstances would violate the
creditor's implied covenant of good faith and fair dealing.
(e) The effect of Section 1670.5 of the California Civil Code, which
provides, in substance, that if a court as a matter of law finds a contract or
any clause of a contract to have been "unconscionable" at the time it was made,
the court may refuse to enforce the contract, or the court may enforce the
remainder of the contract without the "unconscionable" clause or so as to avoid
an "unconscionable" result. That Section also permits parties to present
evidence as to the commercial setting, purpose and effect of any contract or
clause thereof claimed to be "unconscionable," to aid the court in making its
determination;
(f) The unenforceability under certain circumstances of provisions to the
effect that rights or remedies are not exclusive, that every right or remedy is
cumulative and may be exercised in addition to or with any other right or
remedy, that election of a particular remedy or remedies does not preclude
recourse to one or more other remedies or that failure to exercise or delay in
exercising rights or remedies will not operate as a waiver of any such right or
remedy;
(g) The unenforceability under certain circumstances of contractual
provisions which allow the exercise of self-help or summary remedies without
requiring notice or opportunity for hearing or correction; and
(h) The effect of California law providing that, where a contract permits
one party to the contract to recover attorneys' fees, the prevailing party in
any action to enforce any provision of the contract shall be entitled to recover
its reasonable attorneys' fees.
(i) We express no opinion as to the provisions of the Transaction Documents
which (1) purport to waive, limit, or restrict various rights of the Company
except to the extent permitted by law, (2) permit a party to act as the agent
and attorney-in-fact of the Company after a default, (3) select the forum for
the resolution of any disputes or consent to the jurisdiction of any
jurisdiction (both as to personal jurisdiction and subject matter jurisdiction),
(4) attempt to change or waive rules of evidence or fix the method or quantum of
proof to be applied in litigation or similar proceedings, (5) provide for the
confession of judgment, (6) provide that time is of the essence, or (7) permit
the enforcement of the remaining provisions of a Transaction Document where some
provision has been declared unenforceable, unless the unenforceable portion is
not an essential part of the agreement therein contained.
This opinion is rendered only with respect to the laws, and the rules,
regulations and orders under those laws, that are in effect as of the date
hereof, and we disclaim any obligation to update this opinion for events
occurring after the date hereof. We assume no responsibility to advise you or
any other person or entity of changes which may hereafter be brought to our
attention.
45
This opinion is rendered only to the Buyer and is solely for its benefit in
connection with the above transaction. Except as provided above, this opinion
may not be quoted or used in whole or in part for any purpose, nor may copies be
provided to any person, without our prior written consent
Very truly yours,
46
SCHEDULE 3.4
NON-CONTRAVENTION
(z) Liens
-----
1. Both the Buyer and Home Loan and Investment Company ("Home") will have
Liens on the assets of the Corporation pursuant to their respective loan
agreements.
2. The Security Interest granted by the Corporation to ▇▇▇▇▇ Fargo Equipment
Finance, Inc. and US Bancorp ▇▇▇▇▇▇-▇▇▇▇▇ Technology Leasing with respect
to certain equipment pursuant to a security agreement dated March 26, 2003
to secure the Corporation's obligations under the promissory note dated on
or about March 26, 2003.
3. The Security Interest granted by the Corporation to Axwood Investments
Limited with respect to certain inventory pursuant to a security agreement
dated February 4, 2003 to secure the Corporation's obligations under the
promissory note dated February 4, 2003.
4. The Security Interests granted by the Corporation to the lessors of certain
office equipment (including, a telephone system, postage meter,
photocopier, certain computer equipment and a warehouse storage racking
system referred to as the "Carousel") utilized by the Corporation in its
business.
47
SCHEDULE 3.5
CAPITALIZATION
1. As of March 31, 2003, the Corporation has the following options
outstanding:
(a) options to purchase 191,500 shares of Common Stock at $10,00 per
share; and
(b) options to purchase 84,700 shares of Common Stock at $4.00 per share.
2. In addition, in connection with its loan transaction with Home, the
Corporation has granted Home warrants to purchase up to 100,000 shares of
Common Stock at an exercise price of $0.67 per share.
48
SCHEDULE 3.9
MATERIAL ADVERSE CHANGE
The Corporation has continued to suffer operating losses in the ordinary course
of its business since December 31, 2002. In addition, given the Corporation's
current financial condition and cash flow, the Corporation is in actual or
technical default with many of the companies and entities with which the
Corporation has, or currently does, transact its business.
49
SCHEDULE 3.10
LITIGATION
1. The Chapter 7 trustee in bankruptcy of an optical company which holds a
disputed claim against the Corporation of approximately $58,000 contacted
the Corporation with respect to such claim approximately nine months ago.
When advised of the dispute, the trustee advised that it would enquire into
the matter. The Corporation has had no further contact from either the
trustee or any other party with respect to this disputed claim.
2. ▇▇▇▇▇▇ v. Signature Eyewear - case pending in Washington State Court
arising out of an employment dispute. The amount claimed does not exceed
$25,000.
3. ▇▇▇▇ ▇▇▇▇▇▇▇ v. Signature Eyewear - ▇▇. ▇▇▇▇▇▇▇, a former employee of the
Corporation, has made a written demand in the amount of approximately
$138,000 to the Corporation for certain vacation pay and commissions he
claims he is owed. The Corporation disputes the claims made by ▇▇. ▇▇▇▇▇▇▇.
4. Amplicon Financial has threatened in writing to bring a claim against the
Corporation in an amount of approximately $30,000.
5. The Corporation intends to use the proceeds from the transactions
contemplated by the Finance Documents and the Senior Credit Agreement, in
part, to settle certain outstanding claims against the Corporation and
thereby curing certain outstanding defaults. The Corporation has previously
delivered to the Lender a schedule of the pending or threatened claims that
the Corporation intends to settle using the proceeds from these
transactions. The Corporation intends to settle these matters within thirty
days of the date of this Agreement or such later date as has been agreed
with certain claimants.
6. As a result of the Corporation's current financial condition and cash flow,
the Corporation is in actual or technical default with most of the
companies and entities with which the Corporation has, or currently does,
transact its business. Some of these parties have asserted, or may assert,
claims against the Corporation and some of these claims will be in excess
of $100,000 in the aggregate.
50
SCHEDULE 3.12
SUBSIDIARIES
In June 1999, the Corporation acquired all of the outstanding shares of a
Canadian corporation in connection with its acquisition of California Design
Studio. The Corporation liquidated that subsidiary by the end of 1999 and since
2000, the subsidiary has not had any assets, liabilities or operations.
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SCHEDULE 3.14
COMPLIANCE WITH LAWS
The Corporation is delinquent in its SEC filings for fiscal years 2002 and 2003.
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SCHEDULE 3.14
TAXES
The Corporation received notice from the California Franchise Tax Board ("FTB")
that the FTB intends to assess a deficiency for the 1998 and 1999 tax years. The
proposed assessments from the FTB for 1998 and 1999 are $2,918.38 and
$64,797.70, respectively. The Corporation intends to contest both of these
proposed assessments.
The Corporation filed for an extension for its federal and state tax returns for
the fiscal year ended October 31, 2002.
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SCHEDULE 3.15
TRADEMARKS
LICENSES
The Corporation is party to the following License Agreements:
1. License Agreement dated June 24, 1997 between the Corporation and ▇▇▇▇▇
▇▇▇▇▇, Inc., as amended, for use of the "▇▇▇▇▇ ▇▇▇▇▇" ▇▇▇▇ and related
logos.
2. License Agreement dated January 12, 1996 between the Corporation and ▇▇▇▇
▇▇▇▇▇▇▇▇▇ & ▇▇▇▇, as amended, for use of the "▇▇▇▇ ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇" ▇▇▇▇
and related logos.
3. License Agreement dated May 28, 1991 between the Corporation (as successor
in interest to USA Optical Distributors, Inc.) and ▇▇▇▇▇ Ashley Limited, as
amended, for use of the "▇▇▇▇▇ ▇▇▇▇▇▇" ▇▇▇▇ and related logos.
4. License Agreement dated September 23, 1999 between the Corporation and bebe
stores, inc., as amended, for use of the "bebe" ▇▇▇▇ and related logos.
5. License Agreement dated April 1, 1993 between the Corporation (as successor
in interest to California Design Studio, Inc.) and Kobra International,
Ltd., T/A ▇▇▇▇▇▇ ▇▇▇▇▇▇, as amended, for use of the "▇▇▇▇▇▇ ▇▇▇▇▇▇" ▇▇▇▇
and related logos.
6. License Agreement dated February 4, 2003 between the Corporation and Axwood
Investments Limited for the use of the "Dakota ▇▇▇▇▇" ▇▇▇▇ and related
logos.
As a result of the Corporation's current financial condition, the Corporation is
in contravention of certain of the financial covenants contained in the above
license agreements and is accordingly in technical or actual default under such
licenses. The Corporation has not received any written notices of default from
any of the licensors under such license agreements.
TRADEMARKS
1. Intuition
2. Bravado
3. Latitudes
4. Lifescape
5. Search
6. Small Print
7. Kensington & ▇▇▇▇▇ Riding Club and Design
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