-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EqYEgTLhxCrXlzUbqIPzJo3U0b9VuBjfmPkUpU/ApNHRAPzAoLIdqOXFPWKyrRr6 pnOhLSFzbb7wxWq7veBnRA== 0000950170-97-000834.txt : 19970718 0000950170-97-000834.hdr.sgml : 19970718 ACCESSION NUMBER: 0000950170-97-000834 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 19970717 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: OCEAN OPTIQUE DISTRIBUTORS INC CENTRAL INDEX KEY: 0000876235 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-PROFESSIONAL & COMMERCIAL EQUIPMENT & SUPPLIES [5040] IRS NUMBER: 650052592 STATE OF INCORPORATION: FL FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: SB-2 SEC ACT: 1933 Act SEC FILE NUMBER: 333-31469 FILM NUMBER: 97641842 BUSINESS ADDRESS: STREET 1: 14250 S W 119 AVENUE CITY: MIAMI STATE: FL ZIP: 33186 BUSINESS PHONE: 3052553272 MAIL ADDRESS: STREET 1: 14250 S W 119TH AVE CITY: MIAMI STATE: FL ZIP: 33186 SB-2 1 As filed with the Securities and Exchange Commission on July 17, 1997. Registration No. 333-_______ =============================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------- FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------- OCEAN OPTIQUE DISTRIBUTORS, INC. ---------------------------------------------- (Name of Small Business Issuer in Its Charter)
FLORIDA 5098 65-0052592 - ------------------------------- ---------------------------- ---------------------- (State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Incorporation of Organization) Classification Code Number) Identification Number)
14250 S.W. 119TH AVENUE MIAMI, FLORIDA 33186 (305) 255-3272 ------------------------------------------------------------- (Address and Telephone Number of Principal Executive Offices) KENNETH J. GORDON CHIEF FINANCIAL OFFICER OCEAN OPTIQUE DISTRIBUTORS, INC. 14250 S.W. 119TH AVENUE MIAMI, FLORIDA 33186 (305) 255-3272 -------------------------------------------------------- (Name, Address and Telephone Number of Agent For Service) Copies to: A. Jeffry Robinson, P.A. Nina S. Gordon, P.A. Broad and Cassel 201 South Biscayne Boulevard Suite 3000 Miami, Florida 33131 ------- Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. |X| If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of earlier effective registration statement for the same offering.|_| If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.|_| If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box.|X|
CALCULATION OF REGISTRATION FEE ================================================================================================== TITLE OF EACH PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(3) FEE ================================================================================================== Common Stock(3) 248,284 230,000 @ $ .75 $ 239,236.60 $ 72.50 Common Stock(4) 18,284 @ $3.625 Common Stock(5) 335,417 $2.0313(8) $ 681,332.55 $ 206.46 Common Stock(6) 1,172,500 775,000 @ $ .75 $1,280,937.50 $ 388.16 187,500 @ $1.625 200,000 @ $1.875 10,000 @ $2.00 Common Stock(7) 3,137,977 $2.0313(8) $6,374,172.68 $ 1,931.57 Common Stock 966,924 $2.0313(8) $1,964,112.72 $ 595.19 ---------- $ 3,193.88 ========== - ---------- (1) Pursuant to Rule 416(c) promulgated under the Securities Act of 1933, as amended, this Registration Statement also covers an indeterminate amount of securities to be offered or sold as a result of any adjustments from stock splits, stock dividends or similar events. (2) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457. (3) Shares of Common Stock issuable upon exercise of stock options granted pursuant to the Company's 1992 Stock Option Plan at an exercise price of $.75 per share. (4) Shares of Common Stock issuable upon exercise of a stock option having an exercise price which varies from $.75 to $3.625 per share. (5) Shares of Common Stock issuable upon conversion of shares of the Company's Series B-1 Cumulative Convertible 2% Preferred Stock. (6) Shares of Common Stock issuable upon exercise of outstanding warrants, which are exercisable at prices ranging from between $.75 to $2.00 per share. (7) Shares of Common Stock issued to the shareholders of Solovision Optical, Inc. upon the effectiveness of the merger of Ocean Acquisition Corporation, a wholly-owned subsidiary of the Company, with and into Solovision Optical, Inc. (8) Pursuant to Rule 457(c), based on the average of the bid and ask closing prices of the registrant's Common Stock on July 14, 1997.
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. ii
OCEAN OPTIQUE DISTRIBUTORS, INC. CROSS-REFERENCE SHEET Showing Location in the Prospectus of the Information Required by Items of Form SB-2 FORM SB-2 ITEM NUMBER AND CAPTION HEADING IN PROSPECTUS - --------------------------------- --------------------- 1. Front of Registration Statement and....................... Facing Page of Registration Outside Front Cover of Prospectus......................... Statement: Cover of Prospectus 2. Inside Front and Outside Back............................. Inside Front and Outside Back Cover Pages of Prospectus................................. Cover Pages of Prospectus 3. Summary Information and Risk Factors ..................... Prospectus Summary; Risk Factors 4. Use of Proceeds........................................... Prospectus Summary; Use of Proceeds 5. Determination of Offering Price........................... Description of Securities; Plan of Distribution 6. Dilution.................................................. Not Applicable 7. Selling Securityholders................................... Selling Securityholders 8. Plan of Distribution...................................... Front Cover Page; Prospectus Summary; Plan of Distribution 9. Legal Proceedings......................................... Business 10. Directors, Executive Officers, Promoters and Control Persons....................................... Management 11. Security Ownership of Certain Beneficial Owners and Management..................................... Principal Shareholders 12. Description of the Securities............................. Description of Securities 13. Interest of Named Experts and Counsel..................... Legal Matters 14. Disclosure of Commission Position on Securities Act Liabilities................................ Description of Securities FORM SB-2 ITEM NUMBER AND CAPTION HEADING IN PROSPECTUS - --------------------------------- --------------------- 15. Organization Within Last Five Years....................... Not Applicable 16. Description of Business................................... Prospectus Summary; Business 17. Management's Discussion and Analysis or Plan of Operation...................................... Management's Discussion and Analysis of Financial Condition and Results of Operation 18. Description of Property................................... Business 19. Certain Relationships and Related......................... Certain Transactions Transactions 20. Market for Common Equity and Related Stockholder Matters....................................... Market for Common Equity and Related Shareholder Matters 21. Executive Compensation.................................... Management 22. Financial Statements...................................... Index to Financial Statements 23. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure...................................... Not Applicable
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED JULY 17, 1997 OCEAN OPTIQUE DISTRIBUTORS, INC. 5,861,102 SHARES COMMON STOCK Ocean Optique Distributors, Inc. (the "Company" or "Ocean") hereby registers up to 5,861,102 shares (the "Shares") of its common stock, no par value (the "Common Stock"), for the account of certain selling securityholders (the "Selling Securityholders"). In addition to 966,924 issued and outstanding Shares of Common Stock being registered hereby, up to 335,417 of the Shares are issuable upon conversion of shares of the Company's Series B-1 Cumulative Convertible 2% Preferred Stock (the "Series B-1 Preferred Stock"); up to 248,284 of the Shares are issuable upon exercise of options to acquire 230,000 shares granted under the Company's 1992 Stock Option Plan at an exercise price of $.75 per share, and options to acquire 18,284 Shares, having an exercise price which varies from $.75 to $3.625 per share (collectively, the "Options"); up to 1,172,500 of the Shares are issuable upon exercise of a like number of warrants at an exercise price ranging between $.75 and $2.00 per share (the "Warrants"); and 3,137,977 Shares issued to the shareholders of Solovision Optical, Inc. ("Solovision") in the Company's recently completed acquisition of Solovision. See "Acquisition of Solovision," "Selling SecurityHolders" and "Description of Securities." The Company will not receive any of the proceeds from the sale of Shares by the Selling Securityholders, but will receive up to approximately $1,494,487.50 in gross proceeds upon the exercise of the outstanding Warrants and Options. See "Use of Proceeds." The Company will pay all of the expenses of this offering, except that the Selling Securityholders will bear the cost of any brokerage commissions or discounts incurred in connection with the sale of the Shares and their respective legal expenses. The Shares may be sold by Selling Securityholders directly or through underwriters, dealers or agents in market transactions or in privately negotiated transactions. See "Plan of Distribution." The Common Stock of the Company is quoted on the automated quotation system of the National Association of Securities Dealers, Inc. ("Nasdaq") SmallCap Market under the symbol "OPTQ." On July 14, 1997, the average of the bid and ask closing prices of the Common Stock was $2.0313 per share. AN INVESTMENT IN THE SHARES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE DISCUSSION UNDER "RISK FACTORS" ON PAGE 5 OF THIS PROSPECTUS. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. --------------- The date of this Prospectus is July __, 1997. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934 (the "Exchange Act"), and, in accordance therewith, files reports and other information with the Securities and Exchange Commission (the "Commission"). Such reports and other information can be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C., and at its following regional offices: Suite 788, 1375 Peachtree St., N.E., Atlanta, Georgia 30367; Suite 1400, 500 West Madison Street, Chicago, Illinois; and 7 World Trade Center, New York, New York. Copies of such material can also be obtained at prescribed rates from the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains a Website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the Commission (http: //www.sec.gov). The Company's Common Stock is quoted on Nasdaq SmallCap Market under the symbol "OPTQ." All of the reports required to be filed by the Company with Nasdaq and other information concerning the Company can be inspected at 1735 K Street, N.W., Washington, D.C. 20006. 2 PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE DETAILED INFORMATION, FINANCIAL STATEMENTS AND RELATED NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. EACH INVESTOR IS URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY. INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER THE HEADING "RISK FACTORS." THE COMPANY The Company is engaged in importing, marketing and distributing high quality ophthalmic (or eyeglass) frames and sunglasses in the mid- and premium-priced categories. The Company's products, which currently are manufactured in Europe and the Far East, include more than 400 styles in metal or plastic in an array of colors and sizes. The Company is currently the exclusive or non-exclusive licensee (with respect to eyewear) of well-recognized labels that include Crayola, Chevrolet and Jacques Fath. Effective June 27, 1997, the Company consummated the acquisition of Solovision, a privately held, Miami-based company engaged in importing, exporting, marketing and distributing moderately priced eyeglass frames and importing and distributing optical equipment. In connection with the acquisition of Solovision (the "Solovision Acquisition"), the Company issued to the shareholders of Solovision shares of the Company's Common Stock and the Company's Series C Non-Cumulative Convertible Preferred Stock (the "Series C Preferred Stock") with an aggregate voting power equal to 60% of the outstanding voting capital stock of the Company, on a fully diluted basis, after giving effect to the Solovision Acquisition. See "Acquisition of Solovision." The Company maintains its executive offices at 14250 S.W. 119th Avenue, Miami, Florida 33186, and its telephone number is (305) 255-3272. Except as otherwise expressly provided, the historical information set forth in this Prospectus regarding the Company's business, operations and financial results relate to Ocean and do not reflect the consummation of the Solovision Acquisition. SECURITIES OFFERED Up to 5,861,102 shares of the Company's Common Stock are being registered hereunder for the account of the Selling Securityholders, including 966,924 issued and outstanding shares of Common Stock; up to 335,417 shares of Common Stock issuable upon the conversion of outstanding shares of Series B-1 Preferred Stock; 248,284 shares of Common Stock issuable upon the exercise of the Options; 1,172,500 shares of Common Stock issuable upon the exercise of the Warrants; and 3,137,977 shares of Common Stock issued to the shareholders of Solovision in the Solovision Acquisition (see "Acquisition of Solovision"). USE OF PROCEEDS The Company will not receive any proceeds from sales of the Shares by the Selling Securityholders. Any proceeds received by the Company upon the exercise of the Warrants and Options will be used for working capital and other general corporate purposes. OUTSTANDING SHARES As of July 3, 1997, the Company had 7,400,722 shares of Common Stock and 1,403,978 shares of Preferred Stock outstanding.(1) As of July 3, 1997, holders of the Debentures totaling $1,196,242 in aggregate principal amount have converted their Debentures into 725,006 shares of Common Stock, and holders of $81,250 in aggregate principal amount of Debentures have provided notice to the Company of their intention to convert their Debentures into an aggregate of 49,244 shares of Common Stock. Also, as of July 3, 1997, 388,500 shares of the Company's Series A Convertible Preferred Stock have been converted into a like number of shares of Common Stock, and holders of 42,500 shares of Series A Convertible Preferred have provided notice to the Company of their intention to convert such shares to shares of Common Stock. - --------------------------- (1) Excludes up to 1,000,000 shares of Common Stock issuable upon exercise of options granted and to be granted pursuant to the Company's Stock Option Plans; up to 1,282,500 shares of Common Stock issuable upon exercise of outstanding Warrants; up to 7,559,036 shares of Common Stock issuable upon conversion of outstanding shares of the Company's Series A, Series B-1 and Series C Preferred Stock; and 229,539 shares of Common Stock issuable upon conversion of outstanding Debentures. 3 SUMMARY CONSOLIDATED FINANCIAL DATA THE SUMMARY FINANCIAL DATA SET FORTH BELOW IS DERIVED FROM THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS. THE FOLLOWING INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, SET FORTH ELSEWHERE IN THIS PROSPECTUS.
NINE MONTHS ENDED YEARS ENDED JUNE 30, MARCH 31, -------------------------------------------- ----------------------------------------- OPERATING DATA: 1996 1995 1997 1996 ----------------------------- ----------- -------------------------- ----------- OCEAN PRO FORMA OCEAN PRO FORMA HISTORICAL COMBINED(1) HISTORICAL COMBINED(1) ---------- ----------- ----------- ----------- Net sales............................ $14,363,180 $16,607,675 $ 9,752,264 $9,473,152 $11,581,455 $10,644,836 Cost of goods sold................... 11,901,450 13,351,516 5,680,055 6,436,893 7,921,902 7,989,156 ----------- ---------- ----------- ----------- ----------- ---------- Gross profit...................... 2,461,730 3,256,159 4,072,209 3,036,259 3,659,553 2,655,680 Selling, general and administrative expenses.......................... 9,854,600 10,807,855 4,694,571 3,190,283 3,990,702 4,282,532 ----------- ---------- ----------- ----------- ----------- ---------- Loss from operations................. (7,392,870) (7,551,696) (622,362) (154,024) (331,149) (1,626,852) Interest expense, net................ (492,011) (493,940) (257,687) (285,167) (303,596) (404,895) ----------- ---------- ----------- ----------- ----------- ---------- Income (loss) before income taxes. (7,884,881) (8,045,636) (880,049) (439,191) (634,745) (2,031,747) Income tax benefit (expense)......... 53,096 17,346 145,000 __ 5,100 __ ----------- ---------- ----------- ----------- ----------- ---------- Net income (loss)................. (7,831,785) (8,028,290) (735,049) (439,191) (629,645) (2,031,747) Dividends paid on preferred stock.... 67,003 67,003 47,439 19,500 19,500 35,632 ------------ ----------- ------------ ------------ ----------- ------------- Net income (loss) applicable to Common Stock...................... $ (7,898,788) $(8,095,293) $ (782,488) $ (458,691) $ (659,345) $(2,067,379) ============ =========== ============ ============ =========== ============= Net income (loss) per common share... $ (4.64) $ (1.67) $ (0.48) $ (0.17) $ (.11) $ (0.95) ============ =========== ============ ============ =========== ============= Weighted average number of common shares outstanding......... 1,700,906 4,838,883 1,619,602 2,778,500 5,916,477 2,126,818 ============ =========== ============ ============ =========== =============
MARCH 31, 1997 ----------------------------- OCEAN PRO FORMA BALANCE SHEET DATA: JUNE 30, 1996 JUNE 30, 1995 HISTORICAL COMBINED(2) ------------- ------------- ---------- ----------- Current assets....................... $ 9,015,519 $12,246,346 $ 8,253,254 $ 9,226,416 Total assets......................... 9,415,860 16,438,996 8,575,671 13,980,631 ============ ============ ============ =========== Current liabilities.................. 6,850,402 6,077,949 6,242,552 6,900,383 ------------ ------------ ------------ ----------- Total liabilities.................... 8,231,932 8,487,530 7,225,435 7,990,504 Total stockholders' equity........... 1,183,928 7,951,466 1,350,236 5,990,127 ------------ ------------ ------------ ----------- Total liabilities and stockholders' equity.............. $ 9,415,860 $16,438,996 $ 8,575,671 $13,980,631 ============ ============ ============ ===========
(1) Gives effect to the Solovision Acquisition as if it had occurred on July 1, 1995. See "Acquisition of Solovision." (2) Gives effect to the Solovision Acquisition as if it had occurred on March 31, 1997. See "Acquisition of Solovision." 4 RISK FACTORS AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. THEREFORE, IN EVALUATING THE COMPANY AND ITS BUSINESS PROSPECTS, PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, IN ADDITION TO THE OTHER INFORMATION SET FORTH ELSEWHERE IN THIS PROSPECTUS, BEFORE ACQUIRING SHARES OF COMMON STOCK. THIS PROSPECTUS CONTAINS, IN ADDITION TO HISTORICAL INFORMATION, FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERING RESULTS INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW, AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS. RESULTS OF OPERATIONS; HISTORY OF LOSSES The Company incurred net losses of $7,831,784 and $735,049 for the fiscal years ended June 30, 1996, and 1995, respectively, and $439,191 and $2,031,747 for the nine months ended March 31, 1997 and 1996, respectively. No assurance can be given that the Company will be able to reduce its net losses or achieve profitability in either the short or the long term. The Company may require, depending on then-current levels of cash flow generated from operations, additional financing in the near and/or long term. No assurance can be given that the Company would be able to procure such necessary financing, or if available, would be able to procure financing on terms deemed favorable by the Company. In the event the Company is unable to generate sufficient cash flow from operations, the Company may be forced in the future to reduce its level of operations. BANK LINE OF CREDIT On May 28, 1997, the Company refinanced its credit facility through a Loan and Security Agreement with Coast Business Credit, /Registered Trademark/ a division of Southern Pacific Thrift & Loan Association ("Coast"). Loans outstanding under this agreement at any time may not exceed the lesser of either: (a) $4,000,000 or (b) the sum of: (i) 70% of the Company's receivables deemed by Coast to be eligible for borrowing (which may be increased to 75% if dilution is less than 15%, subject to certain restrictions); and (ii) the lesser of up to 55% of the value of the Company's inventory deemed by Coast to be eligible for borrowing, or $2,000,000. The interest rate on all loans made under the credit facility is 2% above the prime rate, with a minimum monthly interest amount equal to said rate charged on an outstanding daily balance of $2,000,000. The maturity date is June 30, 2000, subject to automatic renewal for additional one-year terms upon payment of a renewal fee. The credit facility is currently secured by all of the assets of Ocean and its wholly owned subsidiaries, Classic Optical, Inc. ("Classic Optical") and European Manufacturers Agency, Inc. (EMA"). Inability to repay the loans under the credit facility in a timely manner as they become due would have a materially adverse effect on the Company's ability to continue its operations and could cause the Company to lose most of its assets. There can be no assurances that income generated from the Company's operations will be sufficient to cover all operating expenses and meet present and future debt service payments of the Company. LICENSING AGREEMENTS AND RELATIONSHIPS WITH LICENSORS The Company is the exclusive and/or non-exclusive licensee with respect to eyewear of several well-recognized labels that include Crayola, Chevrolet and Jacques Fath. The Company's prior license agreement with Revlon has been terminated and will not be renewed. The Company elected not to renew its licensing agreement with J.H. Collectibles, due to the fact that J.H. Collectibles filed for bankruptcy during the first quarter of 1997. The Company currently believes that the termination of its relationships with Revlon and J.H. Collectibles will not have a material adverse effect on the Company's long-term future business. Additionally, the Company is currently re-negotiating its license agreement with Gitano Fashions Limited ("Gitano"), which expired on June 30, 1997. No assurance can be given that the Company will be able to re-negotiate a renewal of the Company's license agreement with Gitano, or that a substitute agreement will be executed. Further, no assurance can be given that any other existing licensing agreements to which the Company is a party will not expire or be cancelled in the future. In the event that such other licensing agreements terminate, the Company's results of operations may be negatively impacted in the future. 5 COMPETITION The Company competes with a large number of entities, most of which are much larger, better capitalized and have greater resources than the Company. In addition, some of the Company's competitors are vertically integrated, producing and distributing their own eyewear products. There can be no assurance that the Company will be able to compete successfully against any current or potential competitor. DIVIDENDS The Company has not paid any cash dividends on the Common Stock and, in view of its financial condition and currently contemplated financial requirements, does not anticipate paying any cash dividends on its Common Stock in the foreseeable future. DEPENDENCE ON CERTAIN CUSTOMERS For the nine months ended March 31, 1997, the Company had one customer whose net sales represented approximately 12.2% of the Company's total net sales for the year. No other customers accounted for more than 10% of the Company's sales in the period. The loss of such customer could have a material adverse effect on the business of the Company. CONTROL BY MANAGEMENT As of July 3, 1997, the officers and/or directors of the Company beneficially owned an aggregate of 9,420,324 shares of Common Stock (or approximately 69.50% of the shares of Common Stock outstanding). POSSIBLE VOLATILITY OF COMMON STOCK PRICES The market price of the Company's Common Stock may be significantly affected by various factors, including, but not limited to, the Company's results of operations, general economic conditions and conditions specific to the industry in which the Company is engaged. In addition, sales of all or a part of the 5,861,102 Shares being registered hereunder on behalf of the Selling Securityholders may have a depressive effect on the market price of the Common Stock. See "Plan of Distribution" and "Shares Eligible for Future Sale." DILUTION In the event the Company seeks to obtain additional financing through the sale and issuance of its securities, the then-current shareholders of the Company may suffer immediate and substantial dilution in their percentage of ownership of shares of the Company's Common Stock. In addition, the future issuance of shares below the then-current market price of the Company's Common Stock may have a depressive effect on the future market price of the Common Stock, although such market price is subject to numerous factors, many of which are beyond the Company's control, including general economic business conditions and the then-current economic condition of the industry in which the Company engages. The issuance of additional shares of the Company's Common Stock may also trigger certain anti-dilution provisions set forth in the various instruments evidencing certain outstanding derivative securities of the Company, and may result in the issuance of additional shares of the Company's Common Stock upon conversion and/or exercise thereof, further diluting the shareholders' equity position in the Company. 6 CONTINUED LISTING ON NASDAQ SMALLCAP MARKET IS NOT ASSURED; POSSIBLE APPLICABILITY OF RULES RELATING TO LOW-PRICED STOCKS The National Association of Securities Dealers, Inc. has imposed certain financial criteria for continued listing on the Nasdaq SmallCap Market, including capital and surplus requirements, and minimum stock price standards. For continued listing on the Nasdaq SmallCap Market, a company must maintain $2 million in total assets, a $200,000 market value of the public float and $1 million in total capital and surplus. In addition, continued inclusion requires two market-makers and a minimum bid of $1 per share; provided, however, that if a company falls below such minimum bid price, it will remain eligible for continued inclusion on the Nasdaq SmallCap Market if the market value of the public float is at least $1 million and the company has $2 million in capital and surplus. In February 1997, the Company received notice from Nasdaq of the Company's failure to meet such maintenance standards (in particular, the $1 million minimum capital and surplus requirement). The Company advised Nasdaq of certain steps it was taking to comply with such requirement, and subsequently achieved compliance as of March 31, 1997. To date, the Company has not received any further response or notices from Nasdaq. There can be no assurances that the Company will remain in compliance with these maintenance criteria. The Company's failure to meet these maintenance criteria in the future may result in the discontinuance of the inclusion of the Common Stock of the Company on the Nasdaq SmallCap Market. In such an event, an investor may find it more difficult to dispose of, or to obtain accurate quotations as to the market value of, the Company's Common Stock. Furthermore, the Nasdaq Stock Market, Inc. has recently proposed certain changes to the maintenance criteria for listing eligibility on the Nasdaq SmallCap Market. The proposed maintenance standards would require at least $2 million in net tangible assets or $500,000 in net income in two of the last three years, a public float of at least 500,000 shares, a $1 million market value of public float, a minimum bid price of $1.00 per share, at least two market-makers, and at least 300 shareholders. The Nasdaq Stock Market, Inc. is currently in the process of soliciting comments from investors, issuers, market participants and others with respect to the foregoing proposed changes. No changes have yet been adopted by the Nasdaq Stock Market, Inc. If the Company is or becomes unable to meet the listing criteria of the Nasdaq SmallCap Market and becomes delisted therefrom, trading, if any, in the common stock of the Company would thereafter be conducted in the over-the-counter market in the so-called "pink sheets" or, if then available, on the "Electronic Bulletin Board" administered by the National Association of Securities Dealers, Inc. In such an event, the market price of the shares may be adversely impacted. As a result, an investor may find it difficult to dispose of, or to obtain accurate quotations as to, the market value of the Common Stock. The Securities and Exchange Commission (the "Commission") has also promulgated regulations that define a "penny stock" to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. Such regulations impose various sales practice requirements on broker-dealers who sell securities governed by the rule to persons other than established customers and accredited investors. For these types of transactions, the broker-dealer must make a special suitability determination for the purchaser and have received the purchaser's written consent to the transaction prior to sale. Such broker-dealers must also, prior to the purchase, provide the customer with risk disclosure documents that identify certain risks associated with investing in "penny stocks" and that describe the market therefor as well as a customer's legal remedies. The broker-dealer must also obtain a signed and dated acknowledgement from its customers demonstrating that the customers have actually received the required risk disclosure documents before their first transaction in a penny stock. Consequently, the rule may have an adverse effect on the ability of broker-dealers to sell the Company's Common Stock and may affect the ability of holders to sell their shares in the secondary market. While many Nasdaq SmallCap Market-listed securities are covered by the definition of penny stock, transactions in a Nasdaq SmallCap Market-listed security are exempt for (i) issuers who have 7 $2,000,000 in net tangible assets ($5,000,000 if the issuer has not been in continuous operation for three years), (ii) transactions in which the customer is an institutional accredited investor, and (iii) transactions that are not recommended by the broker-dealer. In addition, transactions in a Nasdaq SmallCap Market security directly with a Nasdaq SmallCap Market-maker for such securities are subject only to the disclosure with respect to commissions to be paid to the broker-dealer and the registered representative. No assurance can be given, however, that the current regulations and statutes may not be amended or revised, which could negatively impact the market for the Company's Common Stock. SHARES ELIGIBLE FOR FUTURE SALE A substantial amount of the outstanding Common Stock is available for sale in the public marketplace. Also outstanding are the Debentures, Preferred Stock, Options and Warrants that are convertible into or exercisable for shares of Common Stock at various conversion rates and exercise prices per share. To the extent that these derivative securities are exercised or converted, the interests of the Company's shareholders will be diluted. As of July 3, 1997, holders of the Company's Debentures totaling $1,196,242 in aggregate principal amount have converted their Debentures into 725,006 shares of Common Stock, and holders of $81,250 in aggregate principal amount of Debentures have provided notice to the Company of their intention to convert their Debentures into an aggregate of 49,244 shares of Common Stock. Additionally, as of July 3, 1997, 388,500 shares of the Company's Series A Preferred Stock have been converted into a like number of shares of Common Stock, and holders of 42,500 shares of Series A Preferred Stock have provided notice to the Company of their intention to convert such shares to shares of Common Stock. No prediction can be made as to the effect, if any, that sales of any such shares of Common Stock or the availability of such shares for sale will have on the market prices of the Common Stock prevailing from time to time. The possibility that substantial amounts of Common Stock may be sold in the public market may adversely affect prevailing market prices for the Common Stock and could impair the Company's ability to raise capital through the sale of its equity securities. See "Description of Securities" and "Shares Eligible for Future Sale." FORWARD-LOOKING STATEMENTS The Company cautions readers that certain important factors may affect the Company's actual results and could cause such results to differ materially from any forward-looking statements that may be deemed to have been made in this Prospectus or that are otherwise made by or on behalf of the Company. For this purpose, any statements contained in this Prospectus that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as "may," "expect," "believe," "anticipate," "intend," "could," "estimate," or "continue" or the negative or other variations thereof or comparable terminology are intended to indentify forward-looking statements. Factors that may affect the Company's results include, but are not limited to, the Company's prior operating losses, its possible need for future financing, its dependence on its license agreements and its relationship with its licensees, its ability to assimilate an additional subsidiary and achieve operating efficiencies following the Solovision Acquisition, and its ability to compete in the eyewear industry. The Company is also subject to other risks detailed herein or detailed from time to time in the Company's filings with the Commission. ACQUISITION OF SOLOVISION GENERAL Effective June 27, 1997, the Company consummated the Solovision Acquisition pursuant to the Agreement and Plan of Merger dated as of June 26, 1997 (the "Solovision Agreement and Plan of Merger") by and among the Company, Ocean Acquisition Corporation ("OAC"), Solovision, Solomon Ovadia, Leon Wildstein, and Ovadia Family Trust. Solovision is a Miami-based company engaged in importing, exporting, marketing and distributing moderately priced eyeglass frames and importing and distributing optical equipment. The Company believes that the consummation of the Solovision Acquisition will enable the Company to strengthen its marketing and distribution capabilities, increase its product lines and the markets for its products, and strengthen its management team. STRUCTURE OF THE ACQUISITION The Solovision Acquisition was effected as follows: (1) Solovision and an affiliated corporation, Sorrento Eyewear, Inc. ("Sorrento"), were merged pursuant to Florida law, with Solovision as the surviving corporation (the "Solovision-Sorrento Merger"); (2) immediately thereafter, Solovision was merged with and into OAC pursuant to Florida law, with Solovision as the surviving corporation (the "Merger"); and (3) the shares of the common stock, $1.00 par value per share, of Solovision (the "Solovision Common Stock") outstanding at the effective time of the Merger were converted into an aggregate of 3,137,977 shares of the Company's Common Stock (which are included in the Shares offered hereby) and 1,000,000 shares of Series C Preferred Stock (each share of Solovision Common Stock being converted as a result of the Merger into 21,346.78 shares of Common Stock and 6,802.72 shares of Series C Preferred Stock). Each Share of Series C Preferred Stock will be entitled to vote together with the Common Stock as a single class on all matters presented to a vote of shareholders, except as provided by law, with each share of Series C Preferred Stock entitled to 7.155058 votes. Each share of Series C Preferred Stock will be automatically converted into 7.155058 shares of Common Stock upon the filing of an amendment to the Company's Articles of Incorporation increasing the number of authorized shares of Common Stock to not less than 25,000,000 shares. See "Description of Securities." As a result, the shareholders of Solovision received, on a pro rata basis, shares with an aggregate voting power equal to 60% of the outstanding voting capital stock of the Company, on a fully diluted basis, after giving effect to the Solovision Acquisition. See "Principal Securityholders." CHANGES TO THE COMPANY'S MANAGEMENT In connection with the Solovision Acquisition, Leon Wildstein, one of the Solovision shareholders, and Solomon Ovadia, Solovision's President, were appointed to the Company's Board of Directors. Additionally, Mr. Ovadia was named the Company's President. See "Management." PRO FORMA FINANCIAL INFORMATION BASIS OF PRESENTATION. The following Pro Forma Condensed Consolidated Balance Sheet as of March 31, 1997 and the Pro Forma Condensed Consolidated Statements of Operations for the year ended June 30, 1996 and the nine months ended March 31, 1997 give effect to the Solovision Acquisition. For accounting purposes, the acquisition has been treated as a recapitalization of Solovision with Solovision as the acquiror (a reverse acquisition). The Pro Forma Condensed Consolidated Balance Sheet as of March 31, 1997 is presented as if the Solovision Acquisition took place on March 31, 1997. The Pro Forma Condensed Consolidated Statements of Operations for the year ended June 30, 1996 and for the nine months ended March 31, 1997 present the pro forma results assuming the Solovision Acquisition had occurred on July 1, 1995. The Pro Forma Condensed Consolidated Financial Statements have been prepared based upon the historical financial statements of the Company and the acquired subsidiary, for the periods stated above. Such pro forma financial statements may not be indicative of the results that would have occurred if the Solovision Acquisition actually had been consummated on the indicated date, or of the operating results that may be achieved by the combined companies in the future. The Pro Forma Condensed Consolidated Statements should be read in conjunction with the Company's Consolidated Financial Statements and the Notes thereto included elsewhere in this Prospectus. 8
OCEAN OPTIQUE DISTRIBUTORS, INC. PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) MARCH 31, 1997 ASSETS OCEAN SOLOVISION SORRENTO PRO FORMA HISTORICAL HISTORICAL(1) HISTORICAL(1) ADJUSTMENTS COMBINED ---------- ------------ ------------ ----------- -------- Current assets Cash and cash equivalents $ 176,866 $ 55,232 - $ 232,098 Certificate of deposit - restricted 65,000 - - 65,000 Due from affiliate 35,254 14,800 50,054 Accounts receivable (net) 2,403,327 123,643 116,173 2,643,143 Inventory 4,235,713 420,271 187,978 4,843,962 Prepaid expenses and other current assets 1,279,248 3,811 10,000 1,283,059 Deferred income taxes 93,100 6,000 - 99,100 -------------- ------------- ------- ------------- Total current assets 8,253,254 644,211 328,951 9,226,416 Property, plant and equipment, net 185,282 110,235 9,494 305,011 Security deposits and other assets 14,853 10,655 1,310 26,818 Debt issue costs, net 122,282 - - 122,282 Goodwill - - $ 4,526,425 (2) 4,300,104 (226,321) (3) -------------- ------------- ------- ------------- -------------- Total assets $ 8,575,671 $ 765,101 339,755 $ 4,300,104 $ 13,980,631 ============== ============= ======= ============= ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Bank line of credit $ 2,766,500 $ - - $ 2,766,500 Bank overdraft - - 15,862 15,862 Accounts payable 1,843,599 52,922 18,411 1,914,932 Due to related parties 712,522 - 712,522 Accrued expenses and taxes payable 450,371 111,510 12,318 574,199 Note payable to related party, current 391,975 285,409 148,294 825,678 Notes payable, current portion 77,136 13,105 - 90,241 Capital lease obligations, current portion 449 - - 449 -------------- ------------- ------- ------------- Total current liabilities 6,242,552 462,946 194,885 6,900,383 Convertible subordinated debentures 743,752 - - 743,752 Notes payable, long-term - 7,238 100,000 107,238 Notes payable to related party, long-term 146,031 - - 146,031 Deferred income taxes 93,100 - - 93,100 -------------- ------------- ------- ------------- Total liabilities 7,225,435 470,184 294,885 7,990,504 Stockholders' equity Preferred stock - Series A 1,409,398 - - $ (91,898) (4) 1,317,500 Preferred stock - Series B 1,150,000 - - 7,080 (4) 1,157,080 Common stock 7,920,476 100 1,000 (7,921,576) (5) - Paid-in capital - 299,900 7,921,576 (5) 3,703,081 4,526,424 (2) (9,129,638) (6) 84,819 (4) Retained Earnings (Accumulated deficit) (9,129,638) (5,083) 43,870 9,129,638 (6) (187,534) (226,321) (3) -------------- ------------- ------- ------------- ------------- Total stockholders' equity 1,350,236 294,917 44,870 5,990,127 -------------- ------------- ------- ------------- ------------- Total liabilities and stock- holders' equity $ 8,575,671 $ 765,101 339,755 $ 7,992,492 $ 13,980,631 ============== ============= ======= ============= =============
9
OCEAN OPTIQUE DISTRIBUTORS, INC. PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) NINE MONTHS ENDED MARCH 31, 1997 OCEAN SOLOVISION SORRENTO PRO FORMA HISTORICAL HISTORICAL(1) HISTORICAL(1) ADJUSTMENTS COMBINED -------------- ------------- ------------- ------------- ------------- Net sales $ 9,473,152 $ 1,726,746 381,557 $ 11,581,455 Cost of goods sold 6,436,893 1,201,970 283,039 7,921,902 -------------- ------------- -------- ------------- Gross profit 3,036,259 524,776 98,518 3,659,553 Selling, general and administrative expenses 3,190,283 529,550 44,548 $ 226,321 (3) 3,990,702 Interest expense, net 285,167 18,429 - 303,596 Income tax expense - (5,000) 10,100 5,100 Dividends paid on convertible preferred stock 19,500 - - 19,500 -------------- ------------- -------- ------------- ------------- Net income (loss) applicable to common stockholders' $ (458,691) $ (18,203) 43,870 $ (226,321) $ (659,345) ============== ============= ======== ============= ============= Weighted average number of common shares outstanding 2,778,500 3,137,977 5,916,477 Net loss per share $ (.17) $ (.11)
10
OCEAN OPTIQUE DISTRIBUTORS, INC. PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) YEAR ENDED JUNE 30, 1996 OCEAN SOLOVISION PRO FORMA HISTORICAL HISTORICAL(1) ADJUSTMENTS COMBINED -------------- ------------- ------------- ------------- Net sales $ 14,363,180 $ 2,244,495 $ 16,607,675 Cost of goods sold 11,901,450 1,450,066 13,351,516 -------------- ------------- ------------- Gross profit 2,461,730 794,429 3,256,159 Selling, general and administrative expenses 9,854,600 651,493 $ 301,762 (7) 10,807,855 Interest expense, net 492,011 1,929 493,940 Income tax (benefit) expense (53,096) 35,750 (17,346) Dividends paid on convertible preferred stock 67,003 - - 67,003 -------------- ------------- ------------- ------------- Net income (loss) applicable to common stockholders' $ (7,898,788) $ 105,257 $ (301,762) $ (8,095,293) ============== ============= ============= ============= Weighted average number of common shares outstanding 1,700,906 3,137,977 4,838,883 Net loss per share $ (4.64) $ (1.67)
11 OCEAN OPTIQUE DISTRIBUTORS, INC. NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) Immediately prior to the merger of Solovision with and into OAC, Solovision and Sorrento were merged in the Solovision- Sorrento Merger. See "Structure of the Acquisition," above. Sorrento was incorporated in October 1996, and accordingly its results of operations are only reflected in the Pro Forma Condensed Consolidated Statement of Operations for the nine months ended March 31, 1997. (2) To record goodwill which resulted from the cost (determined based on the fair value of the Company's Common Stock) exceeding the fair value of the net assets acquired. The fair value of the Company's Common Stock for this purpose has been based on an independent valuation of the shares issued in the Solovision Acquisition. (3) To record amortization of goodwill over a period of 15 years. Nine months of amortization was recorded for the period ended March 31, 1997. (4) To adjust the Series A and Series B Preferred Stock to market based on the fair value of the Company's Common Stock. The fair value of the Company's Common Stock for this purpose has been based on an independent valuation of the shares issued in the Solovision Acquisition. (5) To reclass capital stock in paid-in capital. (6) To eliminate the accumulated deficit of the acquired company. (7) To record amortization of goodwill over a period of 15 years. 12 USE OF PROCEEDS The Company will not receive any of the proceeds from the sale of the Shares being offered by the Selling Securityholders. In the event all of the Warrants and Options are exercised, however, the Company will receive gross proceeds of approximately $1,494,487.50. Any net proceeds received by the Company upon the exercise of the Warrants and Options will be used for working capital and other general corporate purposes. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS MARKET INFORMATION The Common Stock of the Company is currently trading on the Nasdaq SmallCap Market under the symbol "OPTQ." The following table sets forth the range of high and low bid prices for the Company's Common Stock for each quarterly period indicated, as reported by brokers and dealers making a market in the Common Stock. Such quotations reflect inter-dealer prices without retail markup, markdown or commissions, and may not necessarily represent actual transactions: COMMON STOCK QUARTER ENDED HIGH BID LOW BID - ------------- -------- ------- March 31, 1997 $1.8100 $ .5000 December 31, 1996 2.1300 1.6900 September 30, 1996 2.2500 1.8800 June 30, 1996 2.7500 1.5000 March 31, 1996 2.7500 1.4375 December 31, 1995 2.7500 1.8750 September 30, 1995 2.5000 1.7500 HOLDERS The approximate number of record holders of the Company's Common Stock as of July 3, 1997 was 70. The Company believes that its Common Stock is beneficially held by more than 400 holders. DIVIDENDS The Company never has paid cash dividends on its Common Stock and does not intend to do so in the foreseeable future. The Company currently intends to retain its earnings for the operation and expansion of its business. 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION The following is an analysis of the Company's results of operations and its liquidity and capital resources. To the extent that such analysis contains statements that are not of a historical nature, such statements are forward-looking statements, which involve risks and uncertainties. These risks include: risks of increases in the costs of the Company's products; the Company's relationships with its suppliers and licensors; risks related to purchasing inventory from foreign suppliers; the financial condition and operations of the Company's customers; changes in fashions and preferences of purchasers of eyewear; competitive and general economic factors in the markets where the Company's products are manufactured or sold; the impact of, and changes in, government regulations such as trade restrictions or prohibitions, or import and other charges and taxes; and other factors discussed in the Company's filings with the Securities and Exchange Commission. The following should be read in conjunction with the Company's Consolidated Financial Statements and the related Notes thereto included elsewhere in this Prospectus. Except as otherwise expressly set forth herein, the discussion set forth herein regarding the Company's results of operations relates solely to the results of Ocean and its wholly owned subsidiaries, Classic Optical and EMA, and does not reflect the Solovision Acquisition. OVERVIEW Effective June 27, 1997, the Company consummated the Solovision Acquisition, as a result of which the Company acquired an additional operating subsidiary and strengthened its management team. See "Acquisition of Solovision." As of the date of this Prospectus, the Company is in the process of assimilating its new subsidiary, including coordination of accounting and computer systems and deployment of personnel. The Company is not able at this time to estimate the timetable for completion of such assimilation. Therefore, there can be no assurances of the Company's ability to realize significant operating efficiencies, if any, from the Solovision Acquisition in the near future. For the year ended June 30, 1996 and the nine months ended March 31, 1997, the Company continued to experience a net loss. During the year and quarter, the Company continued its assimilation of the business lines acquired in its June 1995 acquisition of EMA. As discussed more fully below, the EMA acquisition resulted in increased net sales for the Company, but also contributed to the Company's lower gross profit margin and higher selling, general and administrative ("SG&A") expenses. In April 1997, the Company relocated EMA's operations from Clearwater, Florida to the Company's headquarters in Miami, Florida. The Company currently plans to consolidate EMA into Classic Optical, a wholly owned subsidiary of the Company, and to operate Classic Optical and EMA as one division. Management believes that this will enable the Company to continue to realize operating efficiencies. The Company has continued to review its SG&A expenses in an effort to control such expenses. In an effort to reduce the Company's inventory levels and increase its cash position, management has examined closely the Company's excess and slow moving inventory and has made the decision to increase the reserve for markdowns, returns and defectives. See "Results of Operations." Beginning with the 1995 fiscal year, the Company has been selectively purchasing foreign currency in advance of anticipated inventory purchases in order to stabilize the Company's cost of goods sold. Management believes at the present time that its current foreign currency holdings are sufficient for the Company's anticipated inventory purchases for the next 12 months. The Company's advance purchases of foreign currencies, however, may limit the Company's ability to benefit from further favorable changes in exchange rates and may not offset the impact of possible future increase in the prices of inventories purchased. The following are the foreign currencies held at March 31, 1997 in U.S. dollar equivalent: German mark $92,984; Italian lira $1,035,096; Japanese yen $341,345; and French franc $175,974. During February 1997, the Company's license agreement with Revlon was terminated. Nevertheless, management currently believes that the Company's overall gross margin has been enhanced with the termination of this contract, as all of the Company's other lines carry larger margins than did the Revlon product. In addition, JH Collectibles, one of the Company's other licensors, filed for bankruptcy relief under Chapter 11 of the Bankruptcy Code during the first 14 quarter of 1997. The Company's licensing agreement with JH Collectibles expired on March 31, 1997, and as a result of the bankruptcy, was not renewed. The Company is currently re-negotiating its license agreement with Gitano, which expired on June 30, 1997. Although the Company believes that there has been and will be no material adverse effect on the Company's long-term future business as a result of the termination of the Revlon and JH Collectibles licenses, termination or non-renewal of one or more of the Company's other licenses may have a negative impact on the Company. LINE OF CREDIT FACILITY On May 28, 1997, the Company refinanced its credit facility through a Loan and Security Agreement with Coast. Loans outstanding under this agreement at any time may not exceed the lesser of either: (a) $4,000,000 or (b) the sum of: (i) 70% of the Company's receivables deemed by Coast to be eligible for borrowing (which may be increased to 75% if dilution is less than 15%, subject to certain restrictions); and (ii) the lesser of up to 55% of the value of the Company's inventory deemed by Coast to be eligible for borrowing, or $2,000,000. The interest rate on all loans made under the credit facility is 2% above the prime rate, with a minimum monthly interest amount equal to said rate charged on an outstanding daily balance of $2,000,000. The maturity date is June 30, 2000, subject to automatic renewal for additional one-year terms upon payment of a renewal fee. The Company also issued to Coast warrants to acquire 187,500 Shares of Common Stock at an exercise price of $1.625 per share. Such Shares are included in the Shares offered hereby. The credit facility is secured by all of the Company's assets. Inability to repay the loans under the credit facility in a timely manner as they become due would have a materially adverse effect on the Company's ability to continue its operations and could cause the Company to lose most of its assets. There can be no assurances that income generated from operations will be sufficient to cover all operating expenses and meet present and future debt service payments. RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND 1996. For the nine months ended March 31, 1997, the Company had net sales of $9,473,152, a decrease of $1,171,684 (11.0%) over the same period in 1996. This decrease was largely due to the hiring of new sales representatives and the time needed to train them. The Company's gross profit for the nine months ended March 31, 1997 increased by $380,579, or 14.3%, when compared to the same period in 1996, mainly due to the decrease in the cost of goods sold in the current period. The Company's gross profit margin increased from 24.9% for the nine months ended March 31, 1996, to 32.9% for the nine month period ended March 31, 1997. This increase can be mainly attributed to management's better control of inventory, and reserves taken for markdowns in the prior year. The Company has adopted an open-to-buy system that closely monitors inventory levels by style and allows for prompt action on items that may sell more slowly or more quickly. Through this system, the Company has been able to transform more slow moving inventory into faster moving items by, for example, changing the color of a frame. Although the gross profit margin at EMA has been traditionally lower than the Company's gross profit margin, management believes that the consolidation of EMA's operations with Classic Optical's will result in higher margins for EMA in the near future. SG&A expenses for the nine months ended March 31, 1997 decreased by $1,092,249 (25.5%) over the same period last year, largely as a result of a decrease in payroll of $224,783, depreciation and amortization of $242,751, and to a lesser extent advertising of $69,190 and professional fees of $89,096. SG&A as a percentage of net sales decreased to 33.7% for the nine months ended March 31, 1997 from 40.2% for 1996. For the nine months ended March 31, 1997 the Company had a net loss of $439,191 compared to a net loss of $2,031,747 for the same period last year. This $1,592,556 decrease in the net loss is mainly due to lower SG&A expenses, higher gross margin as discussed above, and a $119,728 decrease in net interest expense in the nine month period ended March 31, 1997 versus the same period in 1996. The decrease in net interest expense was due to lower loan balances and the conversion of debentures to common stock. 15 Beginning with the 1995 fiscal year, the Company has been selectively purchasing foreign currency in advance of anticipated inventory purchases in order to stabilize the Company's cost of goods sold. Management believes at the present time that its current foreign currency holdings are sufficient for the Company's anticipated inventory purchases for the next 12 months. The Company's advance purchases of foreign currencies, however, may limit the Company's ability to benefit from further favorable changes in exchange rates and may not offset the impact of possible future increases in the prices of inventories purchased. The following are the foreign currencies held at March 31, 1997 in U.S. dollar equivalent: German mark $92,984; Italian lira $1,035,096; Japanese yen $341,345; and French franc $175,974. RESULTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 1996 AND 1995 Net sales for the fiscal year ended June 30, 1996 were $14,363,180, an increase of $4,610,916 or 47% from the 1995 fiscal year. Included in the sales for the fiscal year ended June 30, 1996 are EMA's annual sales of $3,949,545, compared to only nine days of sales by EMA of $570,760 for the 1995 fiscal year. Classic's sales volume also increased for the 1996 fiscal year by $1,006,316, or 18% over the 1995 fiscal year. Excluding the sales of Classic and EMA, the Company's net sales increased by $225,815, or 7% from the previous fiscal year. The Company's overall gross profit margin decreased from 42% to 17% from fiscal 1995 to fiscal 1996, respectively. This decrease is mainly due to the writeoff of approximately $1,680,000 in slow-moving and obsolete inventory in the 1996 fiscal year. The Company has also written down approximately $400,000 in defective inventory, as it is not able to determine what value, if any, will be received from the various vendors regarding this defective inventory. The Company's gross profit margin, excluding the inventory writedown, was 30% for the current fiscal year. The Company's management has determined to increase the current reserves for markdowns, returns and defectives and to focus its efforts on selling excess and slower moving inventories at reduced prices in order to reduce the Company's inventory levels. Management believes that the cash generated by these sales will help lower the Company's borrowings against its line of credit, thereby lowering interest expense. SG&A expenses for the fiscal year ended June 30, 1996 increased by $5,160,028 (110%) over the same period last year, largely as a result of the increase in SG&A expenses at EMA, which amounted to $3,329,339 for the fiscal year ended June 30, 1996, compared to only $19,643 for the same period last year. SG&A expenses for the current year included the amortization and write down of the goodwill and the covenants not to compete resulting from the Company's acquisitions of $2,581,083 and $1,505,927 for EMA and Classic, respectively. In addition, a review of the Company's accounts receivable resulted in an increase in bad debt expense to approximately $190,000 for the 1996 fiscal year, compared to only approximately $77,000 for the 1995 fiscal year. Professional fees increased $330,000 from the fiscal year 1995 to 1996 mainly due to the S-3 filing, and royalties increased $165,000 in the current year due to increased sales volume and minimum guarantees. As discussed above, since its 1995 fiscal year the Company has been selectively purchasing foreign currency in advance of anticipated inventory purchases in order to stabilize the Company's cost of goods sold. The following table sets forth the amount of foreign currencies held at the dates indicated: 16
AT JUNE 30, 1996 AT JUNE 30, 1995 ------------------------------ -------------------------------- FOREIGN U.S. FOREIGN U.S. CURRENCY DOLLAR CURRENCY DOLLAR DENOMINATED EQUIVALENT DENOMINATED EQUIVALENT ----------- ---------- ----------- ---------- Italian lira..................... 511,935,780.18 $ 333,835.00 1,709,166,018.18 $ 1,043,128.00 Japanese yen..................... 37,834,691.20 344,610.00 7,753,008.20 91,567.00 French franc..................... 977,207.03 189,749.00 937,336.31 193,405.00 German mark...................... 153,330.97 100,719.00 -- -- -------------- --------------- Total U.S. dollar equivalents $ 968,910.00 $ 1,328,100.00 ============== ===============
For the fiscal year ended June 30, 1996, the Company recognized a net gain of $32,710 related to its foreign currency transactions, and for the fiscal year ended June 30, 1995, the Company recognized a net gain of $57,840. Such net gains were included in the cost of goods sold for the respective years. The Company purchases foreign currencies at a 2 1/2% margin from a foreign currency dealer who finances up to 97 1/2% of the purchase price. The Company pays interest on the U.S. dollar equivalent balance, at a rate of 6.000% for fiscal year 1996 and 6.706% for fiscal year 1995. The Company earns interest on the foreign currency denominated balances, which for the fiscal years 1996 and 1995 was paid at the rates indicated below: FOR THE FISCAL YEAR FOR THE FISCAL YEAR ENDED JUNE 30, 1996 ENDED JUNE 30, 1995 ------------------- ------------------- Italian lira........... 8.1250% 9.8130% Japanese yen........... .0000% .5580% French franc........... 2.6250% 6.7080% German mark............ 2.5000% 3.8113% The Company incurred a net loss of $7,831,784 for the fiscal year ended June 30, 1996, compared to a net loss of $735,049 for the fiscal year ended June 30, 1995. Included in this loss is the following: approximately $1,680,000 in inventory reserves for slow-moving inventory, the writeoff of approximately $400,000 in defective inventory, the writeoff of the remainder of goodwill and non-compete resulting from the Company's acquisitions of approximately $4,087,000, additional bad debt expense of $113,000, the accrual of $130,000 for the settlement with the Company's former Chief Executive Officer, and additional professional fees of $330,000 mainly related to a filing with the SEC to register certain securities of the Company. LIQUIDITY AND CAPITAL RESOURCES At March 31, 1997, the Company's working capital was $2,010,702 and its current ratio was 1.32:1, as compared to the working capital of $2,165,117 and a current ratio of 1.32:1 as of June 30, 1996. 17 The change in net cash provided by operating activities was primarily due to the net loss from operations of $458,691, depreciation of $81,920, decreases in inventory of $1,612,768, an increase in prepaid expenses and other current assets of $1,143,641, and decreases in accounts payable and accrued expenses due to related parties of $657,162. Societe Francaise de Lunetterie ("SFL") and D'Arrigo Moda Italia ("D'Arrigo") are both principal shareholders of the Company and are major European suppliers of product to the Company. During the quarter ended March 31, 1996, the Company agreed to exchange $400,000 of debt to SFL for 246,154 shares of the Company's Common Stock. During the quarter ended September 30, 1996, the Company, in consideration of 10,000 eyeglass frames tendered by SFL, granted to SFL the option to purchase 110,000 Common Shares of the Company at a price of $1.30 per share. This option is exercisable for three years. Also during the September quarter D'Arrigo forgave the Company six monthly payments amounting to $239,729. In return, the Company agreed to reduce by 20% the conversion price of $3.00 on 70% of the shares of convertible preferred stock owned by D'Arrigo. During the March 1997 quarter the Company agreed to exchange $300,000 of debt to D'Arrigo for 300,000 shares of the Company's Common Stock. The Company also during the quarter negotiated the settlement of certain accounts payable, resulting in a write-off of approximately $96,000 of the Company's outstanding accounts payable and the acquisition of 77,419 shares of the Company's Common Stock at $1 - 15/16 per share, the then current market price. On May 18, 1997, the Company refinanced its credit facility through a Loan and Security Agreement with Coast. Loans outstanding under this agreement at any time may not exceed the lesser of either: (a) $4,000,000 or (b) the sum of: (i) 70% of the Company's receivables deemed by Coast to be eligible for borrowing (which may be increased to 75% if dilution is less than 15%, subject to certain restrictions); and (ii) the lesser of up to 55% of the value of the Company's inventory deemed by Coast to be eligible for borrowing, or $2,000,000. The interest rate on all loans made under the credit facility is 2% above the prime rate, with a minimum monthly interest amount equal to said rate charged on an outstanding daily balance of $2,000,000. The maturity date is June 30, 2000, subject to automatic renewal for additional one-year terms upon payment of a renewal fee. The credit facility is currently secured by all of the assets of Ocean, Classic Optical and EMA. Inability to repay the loans under the credit facility in a timely manner as they become due would have a materially adverse effect on the Company's ability to continue its operations and could cause the Company to lose most of its assets. There can be no assurances that income generated from operations will be sufficient to cover all operating expenses and meet present and future debt service payments. At June 30, 1996, the Company's working capital was $2,165,177 and its current ratio was 1.3:1, as compared to the working capital of $6,168,397 and a current ratio of 2.0:1 as of June 30, 1995. The change in net cash provided by operating activities for the 1996 fiscal year was primarily due to the net loss from operations of $7,898,797, depreciation and amortization of $3,780,448, a decrease in accounts receivable of $253,335, a decrease in inventory of $1,525,224, and increase in accounts payable and accrued expenses of $1,435,386. The decrease in accounts receivable was primarily due to an increase in the allowance for doubtful accounts and an improvement in accounts receivable collections. The decrease in inventory was directly related to reserves for slow-moving inventory of $1,680,000 and the write-off of defective inventory of $400,000, while the decrease in amounts due to foreign currency dealer relates to utilizing currency in the Company's account at better rates than the current market rates. The increase in depreciation and amortization was mainly due to management's decision to write-off goodwill and the covenants not to compete in the amount of approximately $4,087,000. The increase in accounts payable and accrued expenses resulted primarily from purchasing new inventory of approximately $555,000. During the Company's 1995 and 1996 fiscal years, it maintained a $3,500,000 line of credit agreement with Republic National Bank ("RNB"). As of June 30, 1996, total borrowings outstanding under the line of credit were approximately $2,600,000 and total available credit was $924,000. Interest on the line of credit was 3/4% above the prime lending rate. 18 During the fiscal year ended June 30, 1996, the Company decreased its borrowings on its line of credit by $889,055. As discussed previously, this line of credit was not renewed following its maturity in May 1997; instead, the Company refinanced its credit facility with Coast on May 28, 1997. See "Overview," above. D'Arrigo agreed to exchange $1,150,000 of EMA's accounts payable balance for $1,150,000 in Series B Cumulative Preferred Stock ("Series B Preferred Stock"), which was subsequently re-designated as 162,478 shares of Series B-1 Preferred Stock and 67,522 shares of Series B-2 Cumulative Convertible 2% Preferred Stock ("Series B-2 Preferred Stock"). In addition, the remaining accounts payable balance at June 20, 1995 of $1,523,734 was converted into a note payable to D'Arrigo in the principal amount of $1,273,734, payable in 32 equal monthly payments, and the remaining balance of $250,000 was paid in cash. On July 2, 1996, D'Arrigo forgave the Company six monthly payments amounting to $239,729, resulting in a gain of approximately $100,000. In return, the Company agreed to give D'Arrigo a 20% discount on the conversion price of $3.00 on 70% of the Series B Preferred Stock leading to the above-mentioned re-designation of Series B Preferred Stock as Series B-1 Preferred Stock and Series B-2 Preferred Stock. D'Arrigo converted all of its shares of Series B-2 Preferred Stock into 209,091 shares of the Company's Common Stock in June 1997, leaving it with 162,478 shares of Series B-1 Preferred Stock, each of which is convertible into 2.064384 shares of the Company's Common Stock. Management currently believes that cash from operations and from available credit sources is sufficient for the Company to maintain its operations at current levels, including the operations acquired in the EMA acquisition. The Company from time to time investigates other sources of financing to provide additional working capital. There can be no assurances that such other financing will be available and, if available, will be at terms favorable to the Company. 19 BUSINESS The Company is engaged in importing, marketing and distributing high-quality ophthalmic (or eyeglass) frames and sunglasses in the mid- and premium-priced categories. The Company's products, which are currently manufactured in Europe and the Far East, include more than 400 styles in metal or plastic in an array of colors and sizes. As described below, the Company is the exclusive or non-exclusive licensee (with respect to eyewear) of several well-recognized labels, including Crayola, Chevrolet and Jacques Fath. Except as otherwise expressly set forth herein, the following discussion relates to the business and operations of Ocean and its subsidiaries, Classic Optical and EMA, and does not reflect the Solovision Acquisition. INDUSTRY OVERVIEW The Company believes that the United States market for eyeglass frames is divisible into three price categories: low priced frames selling at retail prices below $40; mid-priced frames retailing at prices ranging from $40 to $160; and high- or premium-priced frames retailing at more than $160. The Company believes that the mid-priced category is the largest of these segments. The Company believes that the U.S. retail optical market has grown from approximately $9.4 billion in 1987 to approximately $14.6 billion in 1996. Also, the average eyeglass sale (frame and lenses) at retail has grown to $147.98 (per pair) in 1996 from $126.66 (per pair) in 1991. The Company believes that the U.S. plano sunglass market grew from approximately $0.7 billion in 1995 to approximately $0.8 billion in 1996. Most of the mid-and premium-priced eyeglass frames purchased at retail in the United States are sold through independent dispensing opticians, although optical chains, optical superstores and health maintenance organizations account for a gradually increasing market share. The Company believes that in 1994 the U.S. market's total retail eyewear sales were distributed as follows: independent professionals collectively accounted for approximately 63% of the $14.6 billion total; the rest of the market accounted for 37%. Independent opticians typically maintain a small frame inventory and, accordingly, must place frequent orders with distributors in response to sales. While the larger retail optical chains and optical superstores generally maintain somewhat larger frame inventories, their greater volume of sales per store requires them to place frequent orders against actual sales in order to maintain frame selection availability. Distributors of eyeglass frames, consequently, must maintain substantial inventories of the product in order to provide prompt shipment. The Company believes that the fastest growing sunglass market segments are represented by the premium-priced and mid-priced sunglasses, which are sold at retail primarily by department stores and by specialty boutiques and independent dispensing opticians located in shopping malls. OCEAN'S PRODUCT LINES The Company is currently the exclusive or non-exclusive licensee of a number of high-profile labels under which it designs and markets, or is in the process of developing products to be marketed, including: Crayola (exclusive in the United States, Canada, Mexico, Central and South America, and the Caribbean); Chevrolet (United States, Canada and Brazil, on non-exclusive basis); and Jacques Fath (exclusive in the United States). In addition, products are produced and marketed under the "Ocean" label, which the Company believes has developed recognition in the market place. Also, with the addition of EMA (see "Acquisition of EMA" below), the Company distributes private label products to retailers. 20 The Company designs the products it markets with the approval of the licensors where applicable, stressing styles with popular, broad-based appeal and durability. The Company believes that its products are of the highest quality in their price categories. The Company intends to expand its line of products marketed under well-known labels or "superbrands," as attractive opportunities to acquire licenses are presented. SALES AND MARKETING The Company's sales efforts are made directly by its officers and currently by five independent manufacturers' representatives who do not sell competing products and are compensated on a commission basis. Classic Optical, which sells directly to independent opticians, optometrists and ophthalmologists, as well as to certain chain stores, uses approximately 20 commissioned sales representatives, who may also carry non-competing lines. EMA's sales efforts are made directly by its officers and the Classic Optical sales representatives. For the nine months ended March 31, 1997, the Company had two customers whose net sales represented approximately 12.2% and 9.4% respectively of the Company's total net sales for the nine months. No other customers accounted for more than 10% of the Company's sales for the three quarters ended March 31, 1997. Prior to the acquisition of Classic Optical in October 1992, the number of the Company's customers had shown a steady growth: from 147 customers in the fiscal year ended June 30, 1990, to 405 in the fiscal year ended June 30, 1992. With the acquisition of EMA in June 1995, the Company's customer base has increased to more than 4,200 at the fiscal year ended June 30, 1996. This increase generally was a result of an increase in the number of independent representatives who sell the Company's products. As a result of the acquisition of Classic Optical, and its direct method of distribution to independent opticians, optometrists, and ophthalmologists, the Company's active customers numbered more than 4,000 throughout the United States and Canada at the fiscal year ended June 30, 1994. To date, the Company's marketing and promotional efforts have been limited. Advertising expenses for the fiscal years ended June 30, 1996 and 1995 amounted to 3% and 7% of net sales, respectively. The Company currently intends to exhibit its products at three national trade shows annually. The Company has decided to limit its exhibition at certain regional trade shows in order to control costs. The Company is aware that desirable product lines and styling, and durable products, will not be sufficient to fully capitalize on the Company's strengths. The Company has hired an experienced product design professional, who has added several new designs to the Company's product lines. To a large extent, management believes that the future success of the Company will depend on enhanced promotional efforts led by a marketing team. The Company intends to commit future resources, as available, to national marketing programs and to increasing the name recognition of the Company's licensed and proprietary names. With the addition of the Solovision sales force and its expertise in certain markets not previously exploited by the Company, the Company expects to have an increased ability to move its slow-moving and excess inventory. SOURCES OF SUPPLY Management believes that much of the allure of the Company's products is a consequence of the manufacturers chosen by the Company. More than 35% of the Company's ophthalmic frames are currently manufactured by SFL, a principal shareholder of the Company, located in France, and the remainder of its ophthalmic frames are manufactured by 21 a number of vendors in Europe and the Far East. D'Arrigo is EMA's major supplier located in Italy. The Company believes that it currently enjoys a strong relationship with its vendors, and does not anticipate the loss of any material supplier in the near future. In the event the Company is unable to procure its products from certain present suppliers, the Company believes its business will not be adversely affected, due to adequate alternative sources of product supply. ACQUISITION OF EMA In June 1995, the Company acquired all of the outstanding capital stock of EMA. As a result of the acquisition, the Company's present method of distribution was expanded to include markets not previously serviced by the Company, primarily private label products for retailers, which is EMA's forte. As a result of the EMA acquisition, D'Arrigo has become a principal shareholder of the Company. The EMA acquisition agreement provided for the escrow of 500,000 of the 533,333 total shares of the Company's Common Stock issued in exchange for the EMA shares, with a portion of such escrowed shares to be released to the former EMA shareholders, Robert D. Winn and Mary S. Winn, on each of the first, second, third and fourth anniversaries of the acquisition date based on a formula. The acquisition agreement provided that the Winns, as beneficial owners of the escrowed shares, are entitled to all voting, dividend and liquidation rights, preferences and privileges applicable to all of the escrowed shares, but would be unable to transfer such shares until released from escrow. In accordance with the acquisition agreement, 125,000 shares were released from escrow in June 1996. In October 1996, the Company and the Winns reached an agreement regarding certain EMA product that was sold prior to the acquisition date but returned by the buyer for credit in 1996. Under this agreement, the Winns agreed to pay the Company $75,000 and the Company agreed to release the remaining shares from escrow. Pursuant to the acquisition agreement, EMA entered into employment agreements with Robert Winn and Mary Winn relating to their continued service as executive officers of EMA. COMPETITION The Company occupies a minor place among a multitude of competitors, many of which are considerably larger, with greater financial, marketing and distribution resources than the Company. The Company believes that its principal competitors of eyeglass frames and sunwear in the United States, some of which manufacture the frames they distribute, include the Italian companies, Safilo Group, S.p.A. (operating in the United States through a number of subsidiaries), Luxottica Group S.p.A. (operating in the United States through its subsidiaries), and Marchon Eyewear, Inc. The Company's primary methods of competing include advertising in trade journals, point-of-sale displays, exhibitions at trade shows, and direct marketing to optical wholesalers and retailers by its officers and sales representatives. The Company's marketing has been limited recently in order to control costs, however. 22 EMPLOYEES As of July 3, 1997, the Company had 52 full-time employees, in addition to its 22 independent manufacturers' representatives. The Company is not a party to a collective bargaining agreement. PROPERTY The Company currently leases 11,000 square feet for its main office and warehouse space from a third party for a five-year term expiring in February, 1998, at a monthly rate of $7,570. In addition, the Company leases a small warehouse storage facility across the street from the main location, at a monthly rate of $812. This six-month lease is renewable, and expires in November 1997. In connection with the Solovision Acquisition, the Company entered into a lease of 16,550 square feet of commercial real property located at 2 N.E. 40 Street, Miami, Florida with Miami Opti Mart, Inc. as lessor. Miami Opti Mart, Inc. is a Florida corporation controlled by Solomon Ovadia, the Company's new President and a member of the Board of Directors. The lease is for a term of five years commencing on July 1, 1997 or on the date of occupancy by the Company, whichever is later and ending on June 30, 2002, with a renewal option for an additional five-year term. The monthly rent is $10,300. The Company currently anticipates relocating its executive offices to this location during the 1997 fiscal year. The Company believes that its offices and warehouse facilities are in good condition. LEGAL PROCEEDINGS The Company is not a party to any material legal proceeding, nor is the Company aware of any material pending proceeding to which the Company's property is subject. 23 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS As of July 3, 1997, the directors and executive officers of the Company, their ages, positions in the Company, the dates of their initial election or appointment as director or executive officer, and the expiration of the terms as director are as follows:
OFFICER EXPIRATION OR OF CURRENT DIRECTOR NAME AGE POSITION WITH THE COMPANY BOARD TERM SINCE - ---- --- ------------------------- ---------- -------- Kenneth J. Gordon 57 Chief Financial and Accounting 1998 1992 Officer and Director Solomon A. Ovadia 45 President and Director 1998 1997 Richard Russo 64 Director and Operations Manager 1997 1997 Leon Wildstein 69 Director 2000 1997 Robert D. Winn(1) 46 President of EMA and Director 1999 1995 Mary S. Winn(1) 43 Vice President of EMA -- 1995
The expiration dates of the Company's Board of Directors' terms are staggered. Each year one class (typically one-third) of the Company's Directors are elected at the annual meeting of shareholders and hold office for three years or until their successors are elected and qualified. The Company's officers are elected annually by the Board of Directors and serve at the pleasure of the Board. BUSINESS EXPERIENCE MR. GORDON was recently reappointed to the Board of Directors of the Company, on which he had previously served as a member from 1993 through 1996. Mr. Gordon has been employed as the Chief Financial Officer of the Company since December 1991. Mr. Gordon served briefly as the President and Chief Executive Officer of the Company, in addition to his duties as Chief Financial Officer, during the period between May 30, 1997 and June 26, 1997, replacing Neil B. Lande, who resigned as Chief Executive Officer and Chairman of the Board of the Company for personal reasons as of May 30, 1997. From December 1991 through mid-September 1992, he was employed by the Company on a part-time basis, during which time he also was employed part-time as the controller of a closely held business. He currently is employed by the Company full-time. From 1987 until December 1991, Mr. Gordon was the President of CBT Optical Corporation ("CBT"), and HNJ Optical Corporation, which companies operated a retail optical business. In March 1993, CBT filed a proceeding under Chapter 7 of the U.S. Bankruptcy Code, and was discharged therefrom shortly thereafter. From 1982 to 1987, he was Secretary, Treasurer and Chief Financial Officer of Royal International Optical Corporation, the securities of which were traded on the Nasdaq. MR. OVADIA became President and a director of the Company in June 1997 pursuant to the Solovision Agreement and Plan of Merger. Mr. Ovadia has engaged in the wholesale and retail optical business since 1974. From November 1995 through June 1997, Mr. Ovadia was the first President and sale director of Solovision Optical, Inc. From 1990 until November 1995, Mr. Ovadia was President and a director of South American Optical, Inc. (1) Robert D. Winn and Mary S. Winn are husband and wife. 24 MR. RUSSO has been a director of the Company since March 1997. Between March 1991 and 1997, he was a private investor, and prior thereto was President of Admire Fashions, Inc. in New York, from 1960 to 1991. MR. WILDSTEIN became a director of the Company in June 1997 pursuant to the Solovision Agreement and Plan of Merger and is the Company's Chairman of the Board of Directors. Mr. Wildstein has been a real estate developer for the past 30 years, with residential and commercial projects in Canada and the United States. MR. WINN has been the President of EMA since its inception in late 1990. Prior thereto, he was Executive Vice President of Indo USA from 1987 to 1990, after several years in marketing/management in the homebuilding industry. Mr. Winn has been a director of the Company since July 1995. MS. WINN has been the Vice President of EMA since its inception in late 1990. Prior thereto she was Director of Marketing for Bay Area Renaissance Festivals from 1987 to 1990 after several years as an independent business owner. Ms. Winn was also a director of the Company from April 1996 until her resignation as director in June 1997. To the best of the Company's knowledge, none of the Company's executive officers, directors or principal shareholders were delinquent in filing any required Forms 3, 4 or 5 during the fiscal year ended June 30, 1996. EXECUTIVE COMPENSATION The following table sets forth information about compensation paid or accrued by the Company during the fiscal years ended June 30, 1996, 1995 and 1994 to the Company's Chief Executive Officer and President, and the President and Vice President of EMA. No other executive officer of the Company earned more than $100,000 during the fiscal year ended June 30, 1996. 25
SUMMARY COMPENSATION TABLE LONG TERM COMPENSATION ----------------------------------------------------- ANNUAL COMPENSATION AWARDS PAYOUTS --------------------------------------- ---------- --------------------- OTHER SECURITIES NAME ANNUAL RESTRICTED UNDER- ALL OTHER AND COMPEN- STOCK LYING LTIP COMPEN- PRINCIPAL SALARY BONUS SATION AWARD(S) OPTIONS/ PAYOUTS SATION POSITION YEAR ($) ($) ($) ($) SARS (#) ($) ($) ------------ ---- ------ ----- ----- ---------- --------- ------- --------- Ray Hyman(1) 1996 170,914 - - - 228,484(4) - 130,00 Chief Executive 1995 177,404 - - - 228,484(4) - - Officer 1994 170,064 - - - 124,384(4) - - Neil B. Lande(2) 1996 - - - - 50,000 - Chief Executive Officer Ray Hyman, Jr.(3) 1996 113,808 - - - 130,054(4) - - President 1995 112,115 - - - 130,054(4) - - 1994 102,692 - - - 73,814(4) - - Robert D. Winn 1996 104,000 - - - - - - President of EMA Mary S. Winn 1996 104,000 - - - - - - Vice-President of EMA
- -------------------- (1) Mr. Hyman resigned as Chief Executive Officer of the Company in April 1996. (2) Mr. Lande was appointed Chief Executive Officer of the Company in April 1996, and resigned from such position effective May 30, 1997. (3) Mr. Hyman resigned as President of the Company in April 1997. (4) Does not include options issued and subsequently canceled by the Company. In connection with the Solovision Acquisition, Solomon Ovadia was appointed President of the Company and entered into a three-year employment agreement with the Company. See "Executive Employment Agreements," below. 26
The following tables set forth information concerning options granted to and exercised by the named executive officers during the last fiscal year. OPTION/SAR GRANTS IN LAST FISCAL YEAR(1) INDIVIDUAL GRANTS -------------------------------------------------------------------------------- NUMBER OF SECURITIES % OF TOTAL UNDERLYING OPTIONS/SARS OPTIONS/ GRANTED TO EXERCISE SARS EMPLOYEES IN OR BASE EXPIRATION NAME GRANTED(#) FISCAL YEAR PRICE ($/SH) DATE - ---------------- ---------- ------------ ------------ ---------- Ray Hyman(2) 124,384 30.0% $3.1250 May 5, 2001 24,100 30.1% $3.6250 August 5, 2001 30,000 30.0% $2.5000 December 22, 2001 50,000 33.3% $2.0000 May 23, 2002 Neil B. Lande(3) 50,000 100.0 0.75 May 20, 2002
- ------------ (1) All information provided relates to option grants with the exception of the information provided for Neil R. Lande, which involves Warrants. The Company does not grant SARs. (2) Mr. Hyman resigned as Chief Executive Officer of the Company in April 1996. (3) Mr. Lande resigned as Chief Executive Officer effective May 30, 1997. AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES(1)
NUMBER OF SECURITIES VALUE OF UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS/SARS OPTIONS/SARS AT FY-END (#) AT FY-END ($) SHARES ACQUIRED VALUE ------------- ------------- ON EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/ NAME (#) ($) UNEXERCISABLE UNEXERCISABLE ---- ----- ----- ------------- ------------- Ray Hyman(2) 0 0 228,484/0 25,000/0 Neil B. Lande(3) 0 0 50,000/0 31,250/0 --------------------
(1) All information provided relates to option grants. The Company does not grant SARs. (2) Mr. Hyman resigned as Chief Executive Officer of the Company in April 1996. (3) Mr. Lande resigned as Chief Executive Officer effective May 30, 1997. COMPENSATION OF DIRECTORS Directors who are not employees of the Company receive $250 for each meeting attended in person. Employees of the Company receive no additional cash compensation for service as a director. All directors are reimbursed for expenses incurred in attending Board meetings. 27 COMPENSATION PURSUANT TO PLANS STOCK OPTION PLANS. In July 1991, the Board of Directors and shareholders of the Company adopted a Stock Option Plan (the "1991 Plan"), pursuant to which 54,000 (adjusted for stock dividends) shares of Common Stock of the Company were reserved for issuance. In November 1992, the Board adopted a new plan (the "1992 Plan," and together with the 1991 Plan, the "Plans"), which was approved by the shareholders in February 1993, and which provided for the issuance of 240,000 (adjusted for stock dividends) shares. The number of shares issuable under the 1992 Plan was increased to 750,000 at the Company's Annual Securityholders' Meeting held in December 1993 and to 1,000,000 shares at the Annual Meeting of Shareholders held November 30, 1994. Both Plans are intended to promote the growth and profitability of the Company; to provide employees of the Company who are largely responsible for the management, growth and protection of its business with an incentive to continue to make substantial contributions to the success of the Company; and to provide those key employees with an equity interest in the Company. The Plans are administered by the Company's Board of Directors or by a Stock Option Committee appointed by the Board (the "Committee"). The Board or, if appointed, the Committee, has the authority to designate the key employees eligible to participate in the Plans, to prescribe the terms of award, to interpret the Plans, and to make all other determinations for administering the Plans. The Plans provide for granting of stock options that may be either "Incentive Stock Options" within the meaning of Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"), or "Non-Statutory Stock Options" that do not satisfy the provisions of Section 422A of the Code. Incentive Stock Options are required to be issued at an option exercise price per share equal to the fair market value of a share of Common Stock on the date of grant, except that the exercise price of options granted to any employee who owns (or, under pertinent Code provisions, is deemed to own) more than 10% of the outstanding Common Stock must equal at least 110% of fair market value on the date of grant. Non-Statutory Stock Options may be issued at such option exercise price as the Board (or, if appointed, the Committee) determines. Exercise of a stock option will be subject to terms and conditions established by the Board (or, if appointed, the Committee) and set forth in the instrument evidencing the stock option. Stock options may be exercised with either cash or shares of the Company's Common Stock or other form of payment authorized by the Board (or, if appointed, the Committee). The date of expiration of a stock option is fixed by the Board (or, if appointed, the Committee) but may not be longer than 10 years from the date of the Plans. PROFIT SHARING PLAN. In 1989, the Company adopted a qualified profit sharing plan covering all employees 21 years of age and older who have completed one year of employment. For the fiscal year ended June 30, 1995, the Company elected not to contribute to the profit sharing plan, and the plan was subsequently dissolved, with all vested monies distributed during the quarter ended December 31, 1996. EXECUTIVE EMPLOYMENT AGREEMENTS In October 1996, the Company entered into a three-year agreement with its executive officer at a base annual salary of $81,500. EMA entered into four-year agreements with its two executive officers, Robert D. Winn and Mary S. Winn, at base annual salaries of $104,000 each. Effective June 27, 1997, in connection with the Solovision Acquisition, the Company entered into an employment agreement with its new President, Solomon Ovadia. Mr. Ovadia's employment agreement is for a term of three years from the effective date of the agreement, and his gross annual base salary is $175,000, with eligibility for a discretionary bonus as well as certain fringe benefits including performance-based stock options. See "Acquisition of Solovision." The Company's executive officers may participate in such profit sharing, pension or other incentive compensation plans as may be provided by the Company to its executives. 28 PRINCIPAL SECURITYHOLDERS The following information sets forth certain information as of July 3, 1997, by each person who is known to the Company to be the beneficial owner of more than five percent of the Company's Common Stock, the beneficial ownership by each director, and the beneficial ownership of all directors and officers as a group: AMOUNT AND NATURE OF PERCENT BENEFICIAL OF NAME AND ADDRESS OWNERSHIP(1) CLASS(1) - ---------------- ------------ -------- Kevin Fischer 420,985(2) 5.47 1527 E. Tipton Seymour, Indiana 47274 Kenneth J. Gordon 144,800(3) 1.92 14250 S.W. 119th Avenue Miami, Florida 33186 JoAnne Hyman 125,000(4) 1.69 14250 S.W. 119th Avenue Miami, Florida 33186 Ray Hyman 413,984(5) 5.43 14250 S.W. 119th Avenue Miami, Florida 33186 Gerald Josephson 438,030(6) 5.59 Harborside Apartment #3 Cloister Drive, Paradise Island Nassau, Bahamas P.O. Box N732 Neil B. Lande 290,000(7) 3.84 4265 San Felipe Suite 230 Houston, Texas 77027 Ovadia Family Trust 5,844,385(8) 50.98 2 N.E. 40th Street Miami, Florida 33137 Richard Russo 50,000(9) * 14250 S.W. 119th Avenue Miami, FL 33186 Bruce Schindler 150,000(10) 1.99 5258 Princeton Way Boca Raton, Florida 33496 Leon Wildstein 2,697,805(11) 29.08 3577 Atwater Avenue Suite 615 Montreal, Quebec Canada H3H2R2 Mary S. Winn 341,666(12) 4.61 21951 U.S. 19 North Clearwater, Florida 34625 Robert D. Winn 341,667(13) 4.61 21951 U.S. 19 North Clearwater, Florida 34625 (TABLE CONTINUED ON NEXT PAGE.) 29 D'Arrigo Moda Italia SRL 635,417(14) 8.21 Via Giava 11/12 32040 Lorenzago Di Cadore Italy Societe Francaise de 500,154(15) 6.66 Lunetterie F 39150 Chaux du Domdief St. Laurent en Grandvaux France The Global Eye 171,600(16) 2.32 5628 Amersham Way Boca Raton, Florida 33486 Ovidia Family Trust, 1,049,890(17) 12.91 Kevin Fischer and Linda Fischer, as tenants in common All executive officers and 9,420,324(18) 69.50 Directors as a group (19) (consisting of 6 persons) - -------------------------- *Less than one percent. (1) In accordance with Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), shares which are not outstanding but which are subject to options, warrants, rights or conversion privileges pursuant to which such shares may be acquired in the next sixty days have been deemed to be outstanding for the purpose of computing the percentage of outstanding shares owned by the individual having such right but have not been deemed outstanding for the purpose of computing the percentage for any other person. (2) Mr. Fischer owns 128,343 shares of the Company's Common Stock and 40,900 shares of the Company's Series C Preferred Stock. Excludes 85,353 shares of the Company's Common Stock and 27,200 shares of the Company's Series C Preferred Stock owned by Mr. Fischer's wife, Linda Fischer, individually, of which shares he disclaims beneficial ownership. Also excludes 320,074 shares of the Company's Common Stock and 102,000 shares of the Company's Series C Preferred Stock held as tenant in common with Ovadia Family Trust and Mr. Fischer's wife, Linda Fischer, which are listed separately below. Each share of Series C Preferred Stock is automatically convertible into 7.155058 shares of the Company's Common Stock upon the filing of Articles of Amendment to the Company's Articles of Incorporation to increase the number of authorized shares of Common Stock of the Company to not less than 25,000,000. (3) Mr. Gordon is the owner of 4,800 shares of the Company's Common Stock, and has options to acquire 140,000 shares at an exercise price of $.75 per share, the market price of the Common Stock on the dates of grant. (4) Excludes shares owned by Ms. Hyman's husband, Ray, of which shares she disclaims beneficial ownership. See Note (2) above. (5) Mr. Hyman is the owner of record of 185,500 shares of the Company's Common Stock, and options to acquire an additional 124,384 shares at $3.125 per share, 24,100 shares at $3.625 per share, 30,000 shares at $2.50 per share and 50,000 shares at $2.00 per share, the market prices of the Common Stock on the dates of grant. Excludes 125,000 shares owned by Mr. Hyman's wife, JoAnne, of which shares Mr. Hyman disclaims beneficial ownership. (FOOTNOTES CONTINUED ON NEXT PAGE.) 30 (6) Mr. Josephson owns 35,000 shares of the Company's Series A Preferred Stock, $87,500 of the Company's Convertible Subordinated Debentures convertible at $1.65, and warrants to acquire 350,000 shares of Common Stock at an exercise price of $.75 per share. (7) Mr. Lande owns 140,000 shares of the Company's Common Stock and has warrants to acquire 150,000 shares at an exercise price of $.75 per share. In addition, 4,000 shares are owned by Mr. Lande's children, as to which he disclaims beneficial ownership. (8) Ovadia Family Trust is the sole owner of 1,781,743 shares of the Company's Common Stock and 567,800 shares of the Company's Series C Preferred Stock. Additionally, Ovadia Family Trust owns 320,074 shares of the Company's Common Stock and 102,000 shares of the Company's Series C Preferred Stock as tenant-in-common with Kevin Fischer and Linda Fischer which are listed separately. Each share of Series C Preferred Stock is automatically convertible into 7.155058 shares of the Company's Common Stock upon the filing of Articles of Amendment to the Company's Articles of Incorporation to increase the number of authorized shares of Commmon Stock of the Company to not less than 25,000,000. (9) Mr. Russo owns options to purchase 50,000 shares of Common Stock at $.75 per share. (10) Mr. Schindler owns warrants to acquire 150,000 shares of Common Stock at an exercise price of $.75. This excludes 36,500 shares of Preferred Stock owned by Mr. Schindler's wife, Judi Schindler, of which shares Mr. Schindler disclaims beneficial ownership. (11) Mr. Wildstein is the owner of 822,464 shares of the Company's Common Stock and 262,100 shares of the Company's Series C Preferred Stock. Each share of Series C Preferred Stock is automatically convertible into 7.155058 shares of the Company's Common Stock upon the filing of Articles of Amendment to the Company's Articles of Incorporation to increase the number of authorized shares of Common Stock of the Company to not less than 25,000,000. (12) Mrs. Winn has options to purchase 12,500 shares of Common Stock at $.75 per share. Excludes 329,167 shares owned by Ms. Winn's husband, Robert, of which shares Ms. Winn disclaims beneficial ownership. (13) Mr. Winn has options to purchase 12,500 shares of Common Stock at $.75 per share. Excludes 329,166 shares owned by Mr. Winn's wife, Mary, of which shares Mr. Winn disclaims beneficial ownership. (14) D'Arrigo owns of record 300,000 shares of the Company's Common Stock as well as the outstanding shares of the Company's Series B-1 Preferred Stock, which pursuant to its terms is convertible into 335,417 shares of the Company's Common Stock. (15) SFL owns 390,154 shares of the Company's Common Stock and has Warrants to acquire 110,000 shares of Common Stock at an exercise price of $1.30 per share. (16) The Global Eye owns 156,000 shares of the Company's Common Stock. The Global Eye is owned by Alan R. Ackerman, who also owns 15,600 shares of the Company's Common Stock. Mr. Ackerman may therefore be deemed to be the beneficial owner of 171,600 shares of the Company's Common Stock. (17) Ovadia Family Trust, Kevin Fischer and Linda Fischer are coowners as tenants in common of 320,074 shares of the Company's Common Stock, and 102,000 shares of the Company's Series C Preferred Stock. Each share of Series C Preferred Stock is automatically convertible into 7.155058 shares of the Company's Common Stock upon the filing of Articles of Amendment to the Company's Articles of Incorporation to increase the number of authorized shares of Common Stock of the Company to not less than 25,000,000. (18) Includes shares issuable upon exercise of all options and warrants beneficially owned by such persons, and excludes shares of which beneficial ownership is disclaimed. (19) Consists of Kenneth Gordon, Solomon Ovadia, Richard Russo, Leon Wildstein, Mary Winn and Robert D. Winn. 31
SELLING SECURITYHOLDERS The following table sets forth the number of shares of Common Stock being registered under the Registration Statement (of which this Prospectus forms a part) on behalf of each of the Selling Securityholders listed below (including their transferees and/or assignees) and the approximate percentage of the Common Stock outstanding (assuming that no outstanding Options or additional Warrants, Debentures or Preferred Stock have been exercised or converted). SHARES BENEFICIALLY SHARES BENEFICIALLY OWNED BEFORE OFFERING(1) SHARES OWNED AFTER OFFERING(2) ------------------------ ------ ----------------------- NAME NUMBER PERCENT OFFERED NUMBER PERCENT - ---- ------ ------- ------- ------ ------ Kevin Fischer 420,985 5.47 420,985(3) 0 0 Linda Fischer 279,971 3.69 279,971(4) 0 0 Gordon Freeman 50,000 * 50,000(5) 0 0 Kenneth Gordon(6) 144,800 1.92 140,000(7) 4,800 * Jack Greenwood 10,000 * 10,000(8) 0 0 Andrew C. Hall 39,450 * 39,450 0 0 Frank Hollingsworth 18,284 * 18,284(9) 0 0 Patricia Hyman 38,901 * 38,901 0 0 Debra James 2,000 * 2,000(10) 0 0 Gerald Josephson(11) 438,030 5.59 350,000(12) 88,030 * Neil Lande 290,000 3.84 150,000(13) 140,000 1.53 Ovadia Family Trust(14) 5,844,385 50.98 5,844,385 0 0 Ronda Ping 1,500 * 1,500(15) 0 0 Bobby Rege 10,000 * 10,000(16) 0 0 Richard Russo 50,000 * 50,000(17) 0 0 Bruce Schindler(18) 150,000 1.99 150,000(19) 0 0 Margaret Schmidt 40,000 * 40,000 0 0 Marvin Singer 75,000 1.00 75,000(20) 0 0 Mark Smith 1,500 * 1,500(21) 0 0 Leon Wildstein(22) 2,697,805 29.08 2,697,805 0 0 Mary Winn(23) 329,166 4.61 62,500(24) 266,666 2.91 Robert Winn(25) 329,167 4.61 62,500(24) 266,667 2.91 32 Broad and Cassel(26) 77,419 1.05 77,419 0 0 Coast Business Credit 187,500 2.47 187,500(27) 0 0 D'Arrigo Moda Italia(28) 635,417 8.21 635,417(29) 0 0 SRL JW Charles & Associates 200,000 2.63 200,000(30) 0 0 Societe Francaise(31) de Lunetterie 500,154 6.66 246,154 254,000 2.77 Trevi/Coliseum 125,000 1.69 125,000 0 0 Ovadia Family Trust, 1,049,890(32) 12.91 1,049,890 0 0 Kevin Fischer and Linda Fischer, as tenants in common
- ------------------ * Less than 1%. (1) Except as otherwise indicated, the persons named in this table have sole voting and investment power with respect to all shares of Common Stock listed. Includes shares of Common Stock that such person have the right to acquire a beneficial ownership in within 60 days from the date of this Prospectus. (2) Assumes that all shares of Common Stock registered for the account of Selling Securityholders are sold pursuant to this Prospectus. (3) Reflects 128,343 shares of Common Stock and 40,900 shares of Series C Preferred Stock. (4) Reflects 85,353 shares of Common Stock and 27,200 shares of Series C Preferred Stock. (5) Reflects warrants to purchase 50,000 shares of Common Stock at $.75 per share. (6) Mr. Gordon is Chief Executive Officer, Principal Accounting Officer and Chief Financial Officer of the Company. (7) Reflects options to purchase 140,000 shares of Common Stock at $.75 per share. (8) Reflects options to purchase 10,000 shares of Common Stock at $.75 per share. (9) Reflects options to purchase 18,284 shares of Common Stock at prices ranging between $.75 and $3.65 per share. (10) Reflects options to purchase 2,000 shares of Common Stock at $.75 per share. (11) Mr. Josephson is a principal shareholder of the Company. (12) Reflects warrants to purchase 350,000 shares of Common Stock at $.75 per share. (13) Reflects warrants to purchase 150,000 shares of Common Stock at $.75 per share. (14) Ovadia Family Trust is a principal shareholder of the Company. (15) Reflects options to purchase 1,500 shares of Common Stock at $.75 per share. (16) Reflects warrants to purchase 10,000 shares of Common Stock at $2.00 per share. (17) Reflects options to purchase 50,000 shares of Common Stock at $.75 per share. (18) Mr. Schindler is a director of the Company. (19) Reflects warrants to purchase 150,000 Shares of Common Stock at $.75 per share. (20) Reflects warrants to purchase 75,000 shares of Common Stock at $.75 per share. (21) Reflects options to purchase 1,500 shares of Common Stock at $.75 per share. (22) Mr. Wildstein is a principal shareholder of the Company. (23) Mrs. Winn is a director of the Company and Vice President of EMA. (24) Reflects 50,000 shares of Common Stock and options to purchase 12,500 shares of Common Stock at $.75 per share. (25) Mr. Winn is a director of the Company and President of EMA. (26) Broad and Cassel acts as outside corporate counsel to the Company. (27) Reflects 75,000 warrants to purchase 75,000 shares of Common Stock at $1.625 per share. (28) D'Arrigo is a principal shareholder of the Company. (29) Includes 300,000 shares of Common Stock and 335,417 shares issuable upon conversion of Series B-1 Preferred Stock at a conversion rate of 2.064384 shares of Common Stock of the Company for each share of Series B-1 Preferred Stock. (30) Reflects warrants to purchase 200,000 shares of Common Stock at $1.875 per share. (31) SFL is a principal shareholder of the Company. (32) Reflects 320,074 shares of Common Stock and 102,000 shares of Series C Preferred Stock. 33 PLAN OF DISTRIBUTION The Common Stock included in this Prospectus may be sold from time to time directly by the Selling Securityholders and their transferees and/or assignees. The Selling Securityholders and any broker-dealers that act in connection with the sale of the Common Stock may be deemed to be "underwriters" within the meaning of Section 2(11) of the Securities Act, and any commissions received by them and any profit on the resale of the Shares as principal may be deemed to be underwriting discounts and commissions under the Securities Act. In order to comply with certain state securities laws, if applicable, the Shares will not be sold in a particular state unless such securities have been registered or qualified for sale in such state or an exemption from registration or qualification is available and complied with. The Company will pay the registration expenses incident to the offering and sale of the Shares by the Selling Securityholders to the public. Such expenses include legal and accounting expenses attributable to the Company, filing fees payable to the Securities and Exchange Commission, applicable state "blue sky" filing fees and printing expenses. The Company, however, will not pay for any expenses, commissions or discounts of underwriters, dealers or agents or the fees and expenses of counsel for the Selling Securityholders. CERTAIN TRANSACTIONS SFL has been the largest supplier of Ocean's ophthalmic frames. During the years ended June 30, 1996 and 1995, the Company's purchases from SFL amounted to $3,318,00 and $3,687,000, respectively. During the nine months ended March 31, 1997, the Company purchased from SFL an additional $1,590,299 of merchandise. The amount owed to this affiliated party for the years ended June 30, 1995 and 1996 and the nine months ended March 31, 1997 totaled $450,000, $520,000 and $290,000, respectively. The Company believes that its purchases of products from SFL have been on terms and conditions at least as favorable to the Company as could have been obtained elsewhere. D'Arrigo, the holder of the outstanding shares of the Company's Common Stock and Series B-1 Preferred Stock, is the largest supplier of ophthalmic frames for EMA, which was acquired by the Company in June 1995. The Company currently anticipates that it will continue to purchase significant quantities of frames from D'Arrigo, and anticipates that such purchases will be on terms as least as favorable to the Company as could be obtained elsewhere. In fiscal year 1996, D'Arrigo agreed to exchange $1,150,000 of EMA's accounts payable balance for $1,150,000 in Series B Preferred Stock, which was subsequently reclassified as 162,478 shares of Series B-1 Preferred Stock and 67,522 shares of Series B-2 Preferred Stock. Each share of Series B-1 Preferred Stock is convertible into 2.064384 shares of the Company's Common Stock, and each share of the Company's Series B-2 Preferred Stock is convertible into 3.096635 shares of the Company's Common Stock. In the event of any liquidation, the holders of shares of the Series B-1 Preferred Stock and Series B-2 Preferred Stock are entitled to receive out of assets of the Company available for distribution to shareholders before any distribution of assets is made to holders of Common Stock, a liquidating distribution in the amount of $5.00 per share. In addition, the remaining accounts payable balance at June 30, 1995 of $1,523,734 was converted into a non-interest bearing note payable due to 34 D'Arrigo of $1,128,674, payable in 32 equal monthly payments, and $250,000 in cash. The Series B Preferred was reclassified into 162,478 shares of Series B-1 Preferred Stock and 67,522 shares of Series B-2 Preferred Stock to reflect a 20% discount on the conversion price of $3.00 on 70% of the original Series B Preferred Stock given by the Company to D'Arrigo in exchange for D'Arrigo's forgiveness of six monthly payments amounting to $239,729 on July 2, 1996 resulting in a gain of approximately $100,000 to the Company. As of the quarter ended March 31, 1997, $501,000 principal amount of the note remained outstanding. Also during the quarter ended March 31, 1997, the Company agreed to exchange $300,000 of debt to D'Arrigo for 300,000 shares of the Company's Common Stock. All of the Series B-2 Preferred Stock were converted to shares of Common Stock in June 1997. Due to related parties at June 30, 1995 includes $400,000 due to the selling principals of EMA in connection with the Company's acquisition of EMA. This balance was paid by the Company in July 1995. In 1996 the Company issued 246,154 shares of common stock to SFL in settlement of $400,000 of accounts payable. At June 30, 1996 the client has accrued $130,000 for amounts due to the former Chief Executive Officer of the Company under a compensation settlement agreement. As of the quarter ended March 31, 1997, the Company had paid $58,000 of the accrued amount due. In April 1997, Trevi S.p.A., a supplier of frames, forgave approximately $185,000 of the Company's accounts payable and received 125,000 shares of the Company's common stock to offset same. In connection with the Solovision Acquisition, the Company entered into a Commercial Lease with Miami Opti Mart, Inc. as lessor for 16,550 square feet of commercial real property located at 2 N.E. 40 Street, Miami, Florida. Miami Opti Mart, Inc. is a Florida corporation controlled by Solomon Ovadia, the Company's new President and member of the Board of Directors. The lease is for a term of five years commencing on July 1, 1997 or on the date of occupancy by the Company, whichever is later, and ending on June 30, 2002, with a renewal option for an additional five-year term. The monthly rent is $10,300. The Company currently anticipates relocating its executive offices to this location during the 1997 fiscal year. 35 DESCRIPTION OF SECURITIES GENERAL Set forth below is a summary of certain terms and provisions of the Company's capital stock, which is qualified in its entirety by reference to the Company's Restated Articles of Incorporation and to the Statements of Designation setting forth the resolutions establishing the rights and preferences of the outstanding series of Preferred Stock. Copies of the Articles of Incorporation and Statements of Designation have been filed as an exhibit to, or incorporated by reference into, the Registration Statement of which this Prospectus forms a part. Under the Articles of Incorporation, the authorized but unissued and unreserved shares of the Company's capital stock will be available for issuance for general corporate purposes, including, but not limited to, possible stock dividends, future mergers or acquisitions, or private or public offerings. Except as may otherwise be required, shareholder approval will not be required for the issuance of those shares. The Company is authorized to issue 10,000,000 shares of Common Stock, no par value, and 5,000,000 shares of Preferred Stock. As of July 3, 1997, there were 7,400,722 shares of the Company's Common Stock issued and outstanding and 1,576,917 shares of Preferred Stock issued and outstanding. COMMON STOCK Holders of shares of Common Stock are entitled to share ratably in such dividends and distributions as may from time to time be declared by the Board of Directors of the Company from funds legally available therefor, and upon liquidation will be entitled to share ratably in any assets of the Company legally available for distribution to holders of the Common Stock, subject to any preference given to the holders of the Company's preferred stock. The Company's Restated Articles of Incorporation, as amended, and Bylaws do not confer any preemptive, subscription, redemption or conversion rights on the holders of Common Stock. Holders of Common Stock are entitled to cast one vote for each share held of record on each matter submitted to a vote of shareholders. There is no cumulative voting, which means that holders of a majority of the voting power may elect all of the Directors. DIVIDENDS ON COMMON STOCK To date, the Company has not paid any cash dividends on its Common Stock. The payment of dividends, if any, in the future is within the discretion of the Board of Directors and will depend upon the Company's earnings, capital requirements and financial condition, and other factors deemed relevant by the Board of Directors. PREFERRED STOCK The Board of Directors has the authority to issue up to 5,000,000 shares of Preferred Stock in one or more series and to fix the number of shares constituting any such series, the voting powers, 36 designation, preferences and relative participation, option or other special rights and qualifications, limitations or restrictions thereof, including the dividend rights and dividend rate, terms of redemption (including sinking fund provisions), redemption price or prices, conversion rights and liquidation preferences of the shares constituting any series, without any further vote or action by the shareholders. SERIES A PREFERRED STOCK The Company has designated 800,000 shares of Preferred Stock as Series A Cumulative Convertible 3% Preferred Stock ("Series A Preferred Stock"). As of July 3, 1997, 388,500 shares of Series A Preferred Stock have been converted to a like number of shares of Common Stock and the holders of 42,500 shares of Series A Preferred Stock have provided notice to the Company of their intent to convert their shares to Common Stock. Holders of the Series A Preferred Stock are entitled to receive cumulative cash dividends or, in the Company's sole discretion, cash equivalent stock dividends in the form of shares of Common Stock, at the annual rate of $0.075 per share. Each share of Series A Preferred Stock is convertible at any time into one share of Common Stock, subject to adjustment in certain events, including: the issuance of stock as a dividend on the Common Stock; stock splits, subdivisions or combinations of the Common Stock; or the distribution to all holders of the Common Stock of evidences of indebtedness of the Company, cash (excluding ordinary cash dividends), other assets or rights or warrants to subscribe for or purchase any securities (other than those referred to above). The Series A Preferred Stock may be not redeemed by the Company. Holders of the Series A Preferred Stock do not vote on matters submitted to the Company's shareholders generally, except as may otherwise be required by law. SERIES B-1 AND SERIES B-2 PREFERRED STOCK Pursuant to an amendment to the Company's Articles of Incorporation filed in June 1997, the Company re-designated 162,478 shares of Preferred Stock previously designated Series B Preferred Stock as shares of Series B-1 Preferred Stock and 67,522 shares of Series B-2 Preferred Stock. As of July 3, 1997, all of the Series B-2 Preferred Stock has been converted to shares of Common Stock, leaving the 162,478 shares of Series B-1 Preferred Stock outstanding. Each share of Series B-1 Preferred Stock is convertible into 2.064384 shares of the Company's Common Stock, and is entitled to a cumulative annual dividend of $0.10 per share, if and when dividends are declared by the Board of Directors of the Company. In the event of any liquidation, the holders of shares of Series B-1 Preferred Stock are entitled to receive out of assets of the Company available for distribution to shareholders before any distribution of assets is made to holders of Common Stock, a liquidating distribution in the amount of $5.00 per share. 37 The Series B-1 and Series B-2 Preferred Stock may be not redeemed by the Company. Holders of the Series B-1 and Series B-2 Preferred Stock do not vote on matters submitted to the Company's shareholders generally, except as may otherwise be required by law. WARRANTS As of July 3, 1997, the Company had outstanding Warrants to purchase an aggregate of 1,282,500 shares of the Company's Common Stock. Holders of the Warrants will be protected against dilution upon the occurrence of certain events, including, but not limited to, stock dividends, stock splits, reclassifications, recapitalizations, stock combinations or similar transactions. Holders of the Warrants have no voting rights and are not entitled to dividends. In the event of liquidation, dissolution or winding up of the Company, holders of Warrants will not be entitled to participate in any distribution of the Company's assets. CONVERTIBLE DEBENTURES The Debentures are unsecured debt securities, subordinated in right of payment to any debt of the Company (defined in the Debentures as any indebtedness, borrowed money or guarantee of such indebtedness) except debt that by its terms is not senior ("Senior Debt") in right of payment to the Debentures. The Debentures bear interest at the annual rate of 8% and mature in 1999. Interest is payable semi-annually in arrears on June 30th and December 31st of each year; provided, however, that the Company may, in its sole discretion, defer payment of any installment of interest for a period of six months until the next interest payment date. Pursuant to the terms of the Debentures as originally issued, the Debentures were convertible into shares of Common Stock at the rate of one share of Common Stock for each $3.50 of principal amount, subject to adjustment in the event of certain events, including: dividends or distributions on the Common Stock payable in shares of Common Stock; subdivisions, combinations or certain reclassifications of Common Stock; distributions to all holders of the Common Stock of certain rights to purchase Common Stock at less than the current market price at the time; or distributions to such holders of Common Stock of assets or debt securities of the Company or certain rights to purchase securities of the Company (excluding cash dividends or distributions from current retained earnings). In May 1996, the Company's Board of Directors authorized a change in the conversion rate of the Debentures to one share of Common Stock for each $1.65 of principal amount of Debentures. As of July 3, 1997, holders of Debentures totaling $1,196,242 in aggregate principal amount of Debentures have converted their Debentures into 725,006 shares of Common Stock, and holders of $81,250 in aggregate principal amount of Debentures have provided notice to the Company of their intent to convert their Debentures into an aggregate of 49,244 shares of Common Stock. The Debentures may not be redeemed by the Company. Holders of the Debentures do not have voting rights and are not entitled to dividends. In the event of liquidation, dissolution or winding up of the Company, holders of Debentures will be junior to the holders of Senior Debt of the Company in any distribution of the Company's assets, but will be senior to the holders of shares of the Company's Common Stock and Preferred Stock. 38 TRANSFER AGENT The Transfer Agent for the Common Stock is North American Transfer Co., 147 West Merrick Road, Freeport, New York 11520. LIMITATION ON DIRECTORS' LIABILITY The Company's Restated Articles of Incorporation, as amended, include a provision eliminating the monetary liability of directors for monetary damages to the fullest extent permissible under Florida law. The provision does not otherwise affect a Director's liability for breach of the fiduciary duties of care and loyalty, failure to act in good faith, receipt of an improper personal benefit, engagement in intentional misconduct or participation in the payment of a dividend, in a stock redemption or in a purchase prohibited by Florida law. Also, the provision does not affect a Director's liability for violation of federal or state securities law. EXPERTS The consolidated financial statements for the Company as of June 30, 1996 and 1995 and for the years then ended included in this Prospectus have been so included in reliance on the report of Grant Thornton LLP, independent certified public accountants, given on the authority of said firm as experts in auditing and accounting. The financial statements of Solovision as of December 31, 1996 and for the two years then ended and the financial statements of Sorrento as of December 31, 1996 and for the period from inception through December 31, 1996 have been so included in reliance on the reports of Rachlin Cohen & Holtz, independent certified public accountants, given on the authority of said firm as experts in auditing and accounting. LEGAL MATTERS The validity of the Shares offered hereby will be passed upon for the Company by Broad and Cassel, a partnership including professional associations ("Broad and Cassel"). Broad and Cassel owns 77,419 shares of the Company's Common Stock, which are included in the Shares offered hereby. 39 INDEX TO FINANCIAL STATEMENTS PAGE ---- OCEAN OPTIQUE DISTRIBUTORS, INC. AND SUBSIDIARIES Report of Independent Certified Public Accountants ........... F-2 Consolidated Balance Sheets at June 30, 1996 and 1995 ........ F-3 Consolidated Statements of Operations For the Years Ended June 30, 1996 and 1995 ................... F-4 Consolidated Statement of Stockholders' Equity For the Years Ended June 30, 1996 and 1995 ................... F-5 Consolidated Statements of Cash Flows For the Years Ended June 30, 1996 and 1995 ................... F-6 Notes to Consolidated Financial Statements ................... F-7 to F-20 Condensed Consolidated Balance Sheets as of March 31, 1997 and June 30, 1996 (Unaudited) ................. F-21 Condensed Consolidated Statements of Income Nine Months Ended March 31, 1997 and 1996 (Unaudited) ........ F-22 Condensed Consolidated Statements of Cash Flows Nine Months Ended March 31, 1997 and 1996 (Unaudited) ........ F-23 Notes to the Condensed Consolidated Financial Statements (Unaudited) ............................. F-24 SOLOVISION OPTICAL, INC. Report of Independent Certified Public Accountants ........... F-25 Balance Sheets as of March 31, 1997 (Unaudited) and December 31, 1996 ............................................ F-26 Statements of Operations and Retained Earnings (Deficit) for the Three Months Ended March 31, 1997 and 1996 (Unaudited) and for the Years Ended December 31, 1996 and 1995 ........... F-27 Statements of Cash Flows for the Three Months Ended March 31, 1997 and 1996 (Unaudited) and for the Years Ended December 31, 1996 and 1995 ........... F-28 Notes to Financial Statements ................................ F-29 to F-35 SORRENTO EYEWEAR, INC. Report of Independent Certified Public Accountants ........... F-36 Balance Sheets as of March 31, 1997 (Unaudited) and December 31, 1996 ............................................ F-37 Statements of Operations and Retained Earnings for the Three Months Ended March 31, 1997 (Unaudited) and from Inception (October 25, 1996) to December 31, 1996 ....... F-38 Statements of Cash Flows for the Three Months Ended March 31, 1997 (Unaudited) and from Inception (October 25, 1996) to December 31, 1996 ....... F-39 Notes to Financial Statements ................................ F-40 to F-43 F-1 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors Ocean Optique Distributors, Inc. We have audited the accompanying consolidated balance sheets of Ocean Optique Distributors, Inc. and Subsidiaries (the "Company") as of June 30, 1995 and 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Ocean Optique Distributors, Inc. and Subsidiaries as of June 30, 1995 and 1996, and the consolidated results of their operations and their consolidated cash flows for the years then ended, in conformity with generally accepted accounting principles. Miami, Florida September 10, 1996 F-2 OCEAN OPTIQUE DISTRIBUTORS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JUNE 30, ASSETS
1996 1995 ---- ---- Current assets Cash & cash equivalents $ 360,627 494,773 Certificate of deposit - restricted 65,000 65,000 Short-term investments - 1,018,308 Accounts receivable (net of allowance for doubtful accounts of $173,109 in 1996 and $214,693 in 1995) 2,317,691 2,571,026 Inventory 5,848,481 7,373,705 Prepaid expenses & other current assets 135,732 376,627 Deferred income taxes 93,100 89,667 Income tax receivable 194,888 257,240 ------------- ---------- Total current assets 9,015,519 12,246,346 Property and equipment, net 240,303 328,702 Security deposits 14,728 14,728 Debt issue cost, net 145,310 176,013 Intangible assets, net - 3,673,207 ------------- ---------- Total assets $ 9,415,860 16,438,996 ============= ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Bank line of credit 2,682,500 3,173,800 Accounts payable 2,007,699 1,350,708 Due to related parties 1,153,512 920,000 Accrued expenses 502,443 124,048 Notes payable to related party, current portion 391,975 391,975 Notes payable, current portion 82,766 71,275 Capital lease obligations, current portion 29,507 46,143 ------------- ---------- Total current liabilities 6,850,402 6,077,949 8% Convertible subordinated debentures 843,750 1,575,000 Notes payable to related party, long-term portion 444,679 736,699 Notes payable, long-term portion - 17,317 Capital lease obligations, long-term portion - 33,356 Deferred income taxes 93,100 47,209 ------------- ---------- Total liabilities 8,231,931 8,487,530 Commitments and contingencies - - Stockholders' equity: Series A cumulative convertible 3% preferred stock (liquidation value - $1,575,000) 1,474,398 1,474,398 Series B 2% convertible preferred stock (liquidation value - $1,150,000) 1,150,000 1,150,000 Common stock, no par value; 10,000,000 shares authorized 2,808,761 and 2,119,420 issued and outstanding in 1996 and 1995, respectively 7,230,478 6,099,228 Retained earnings (accumulated deficit) (8,670,947) (772,160) ------------- ---------- Total stockholders' equity 1,183,929 7,951,466 Total liabilities and stockholders' equity $ 9,415,860 16,438,996 ============= ==========
The accompanying notes are an integral part of these statements. F-3 OCEAN OPTIQUE DISTRIBUTORS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30,
1996 1995 ------------ --------- Net sales $ 14,363,180 9,752,264 Cost of goods sold 11,901,450 5,680,055 ------------ --------- Gross profit 2,461,730 4,072,209 Selling, general and administrative expenses 9,854,599 4,694,571 ------------ --------- (7,392,869) (622,362) Interest expense, net (492,011) (257,687) ------------ --------- Income (loss) before income taxes (7,884,880) (880,049) Income tax benefit (expense) 53,096 145,000 ------------ --------- Net income (loss) $ (7,831,784) (735,049) Dividends paid on convertible preferred stock 67,003 47,439 ------------ --------- Net income (loss) applicable to common stockholders $ (7,898,787) (782,488) ============ ========= Net income (loss) per share of common stock $ (4.64) (0.48) ============ ========= Weighted average number of common shares outstanding 1,700,906 1,619,602 ============ =========
The accompanying notes are an integral part of these statements. F-4 OCEAN OPTIQUE DISTRIBUTORS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
SERIES A SERIES B PREFERRED STOCK PREFERRED STOCK ----------------------------- ------------------------------- NUMBER OF NUMBER OF SHARES AMOUNT SHARES AMOUNT --------- ---------- --------- ---------- Balance, July 1, 1994 635,000 $ 1,486,898 - $ - Exercise of Series A warrants, net - - - - Repurchase and cancellation of common stock - - - - Issuance of Series B preferred stock for debt - - 230,000 1,150,000 Resemption of Series A preferred stock (5,000) (5,000) (12,500) - - Dividends paid on Series A preferred stock - - - - Issuance of common stock for acquisition of EMA - - - - Net loss - - - - ------- ---------- ------- ---------- Balance, June 30, 1995 630,000 1,474,398 230,000 1,150,000 Dividends paid on Series A preferred stock - - - - Issuance of common stock in settlement of debt - - - - Conversion of debentures to common stock - - - - Net loss - - - - ------- ---------- ------- ---------- Balance, June 30, 1996 630,000 $1,474,398 230,000 $1,150,000 ======= ========== ======= ==========
COMMON STOCK RETAINED --------------------------------- EARNINGS TOTAL NUMBER OF (ACCUMULATED STOCKHOLDERS' SHARES AMOUNT DEFICIT) EQUITY --------- ---------- ------------ ------------- Balance, July 1, 1994 1,658,547 $4,860,027 $ 10,328 $ 6,357,253 Exercise of Series A warrants, net 2,540 (42,049) - (42,049) Repurchase and cancellation of common stock (75,000) (318,750) - (318,750) Issuance of Series B preferred stock for debt - - - 1,150,000 Resemption of Series A preferred stock - - - (12,500) Dividends paid on Series A preferred stock - - (47,439) (47,439) Issuance of common stock for acquisition of EMA 533,333 1,600,000 - 1,600,000 Net loss - - (735,049) (735,049) --------- ----------- ----------- ----------- Balance, June 30, 1995 2,119,420 6,099,228 (772,160) 7,951,466 Dividends paid on Series A preferred stock - - (67,003) (67,003) Issuance of common stock in settlement of debt 246,154 400,000 - 400,000 Conversion of debentures to common stock 443,187 731,250 - 731,250 Net loss - - (7,831,784) (7,831,784) --------- ---------- ----------- ----------- Balance, June 30, 1996 2,808,761 $7,230,478 $(8,670,947) $ 1,183,929 ========= ========== =========== ===========
F-5 OCEAN OPTIQUE DISTRIBUTORS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30,
1996 1995 -------------- --------- Cash flows from operating activities: Net loss $ (7,831,784) (735,049) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 3,780,448 320,343 Deferred income taxes, net 49,324 (68,097) Changes in assets and liabilities, net of effects from acquisition of business: Decrease (increase) in short-term investments 1,018,308 (73,661) Decease (increase) in accounts receivable, net 253,335 (670,845) Decrease in inventory 1,525,224 261,350 Decrease in prepaid expenses, security deposits and intangible assets 271,598 41,461 Increase (decrease) in accounts payable and accrued expenses 1,435,386 1,018,206 Increase in due to related parties 233,512 39,000 Increase (decrease) in income taxes 62,352 (97,687) -------------- --------- Net cash provided by (used in) operating activities 797,703 35,021 -------------- --------- Cash flows from investing activities: Cash received from acquisition of business - 103,703 Capital expenditures (25,709) (86,848) -------------- --------- Net cash provided by (used in) investing activities (25,709) 16,855 -------------- --------- Cash flows from financing activities: Net borrowings (payments) on bank line of credit and notes payable (789,145) 387,042 Payments under capital lease obligation (49,992) (41,645) Proceeds from exercise of stock warrents, net - (42,049) Repurchase of common stock - (318,750) Redemption of 8% convertible subordinated debentures - (12,500) Repurchase of Series A 3% preferred stock - (12,500) Dividends paid on Series A 3% preferred stock (67,003) (47,439) -------------- --------- Net cash provided by (used in) financing activities (906,140) (87,841) -------------- --------- Net decrease in cash and cash equivalents (134,146) (35,965) Cash and cash equivalents, beginning of period 494,773 530,738 -------------- --------- Cash and cash equivalents, end of period $ 360,627 494,773 ============== ========= Supplemental disclosure of cash flow information: Cash paid (received) during the period for income taxes, net $ (150,000) 13,066 ============== ========= Cash paid during the period for interest $ 540,898 426,217 ============== ========= Noncash investing and financing activities: Acquisition of business Fair value of assets acquired $ - 2,566,631 ============== ========= Liabilities assumed $ - 2,733,911 ============== ========= Cost in excess of net assets of business acquired, and convenant not to compete agreement, net $ - 2,167,280 ============== ========= Issuance of common stock to acquire business $ - 1,600,000 ============== ========= Conversion of accounts payable to Series B 2% convertible preferred stock $ - 1,150,000 ============== ========= Issuance of common stock in settlement of debt $ 400,000 - ============== =========
The accompanying notes are an integral part of these statements. F-6 OCEAN OPTIQUE DISTRIBUTORS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1996 and 1995 NOTE 1 - ORGANIZATION Ocean Optique Distributors, Inc. (the "Company") was incorporated under the laws of the State of Florida on May 31, 1988. The Company is an importer and distributor of eyeglass frames. On June 21, 1995, the Company acquired 100 percent of the capital stock of European Manufacturers Agency ("EMA"), a Florida corporation. EMA is engaged in the business of distributing and marketing private label ophthalmic frames and related items and continues to conduct such business as a wholly-owned subsidiary of the Company. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) BASIS FOR CONSOLIDATION The consolidated financial statements include the accounts of Ocean Optique Distributors, Inc., and it's wholly owned subsidiaries, Classic Optical, Inc. ("Classic") and EMA. The results of operations of EMA for the fiscal year 1995 are included in the statement of operations for the period from June 21, 1995 (the date of acquisition) through June 30, 1995. All significant intercompany transactions and balances have been eliminated. (b) CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash on deposit at banks, money market funds, short-term highly liquid investments with original maturities of three months or less and foreign currency. (c) FOREIGN CURRENCY TRANSACTION The Company purchases inventory from certain foreign vendors in foreign currency. Foreign currency totaling $968,910 at June 30, 1996 and $1,328,101 at June 30, 1995 is carried at current market exchange rates. Gains or losses from changes in exchange rates are recognized in the consolidated statement of operations in the period of occurrence. (d) INCOME TAXES Deferred taxes have been provided on temporary differences in reporting certain transactions for financial accounting and tax purposes. Under the liability method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the current enacted tax rates which will be in effect when these differences reverse. Deferred tax expense is the result of changes in deferred tax assets and liabilities. F-7 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued (e) USE OF ESTIMATES In preparing the Company's financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. (f) FAIR VALUE OF FINANCIAL INSTRUMENTS The financial statements include various estimated fair value information at June 30, 1995 and 1996, as required by Statement of Financial Accounting Standards 107, "Disclosures about Fair Value of Financial Instruments". Such information, which pertains to the Companys financial instruments, is based on the requirements set forth in that Statement and does not purport to represent the aggregate net fair value of the Company. The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash, Cash Equivalents and Short-Term Investments: The carrying amount approximates fair value because of the short maturity of those instruments. Receivables and Payables: The carrying amounts approximate fair value because of the short maturity of those instruments. Line of Credit and Notes Payable: The carrying amounts of debt, lines of credit and notes payable approximate fair value due to the length of the maturities, the interest rates being tied to market indices and/or due to the interest rates not being significantly different from the current market rates available to the Company. All of the Companys financial instruments are held for purposes other than trading. (g) INVENTORY Inventory consists of finished goods and is stated at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method. (h) PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is calculated over the estimated useful lives (ranging from five to seven years) of the assets using the straight line method. Property and equipment acquired through acquisitions are stated at fair market value as of the date acquired. F-8 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued (i) INTANGIBLE ASSETS Intangible assets are comprised of goodwill and the cost of covenant not to compete agreements. Goodwill results from corporate acquisitions accounted for using the purchase method of accounting and includes the excess of cost over the fair market value of the net assets of the acquired businesses. As of June 30, 1995, all goodwill is being amortized over periods of twenty-five years on a straight line basis. The Company had goodwill associated with the acquisition of Classic in October 1992 of $1,467,038, net of accumulated amortization of $191,833 as of June 30, 1995. At June 30, 1995, the Company had goodwill associated with the acquisition of EMA in June 1995 of $1,817,280, with no accumulated amortization expense. The cost of the Company's covenant not to compete agreements of $350,000 each, related to the acquisitions of Classic and EMA, are being amortized on a straight-line basis over their terms of three years and five years, respectively. At June 30, 1995, accumulated amortization related to the Classic covenant not to compete agreement was $311,111. There was no accumulated amortization related to the EMA covenant not to compete agreement at June 30, 1995. On an ongoing basis, management reviews the valuation and amortization of intangible assets. As part of this review, the Company considers both the current and future undiscounted cash flows generated by the related subsidiaries acquired to determine whether impairment has occurred. In 1996 the Company wrote-down all its goodwill and covenants related to the acquisition of Classic and EMA to zero and included the amount written down in SG&A expenses. Managements decision to write-down the goodwill and the covenants was based on undiscounted cash flow projections over the next 2 years which do not support the carrying amount of the goodwill and covenants. Consideration was also given to the Companys increasing operating losses of the past three years and the possibility of not renewing a licensing agreement with a licensor of a major eyeglass brand. The Financial Accounting Standards Board has recently issued Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS 121 establishes guidance for when to recognize and how to measure impairment losses of long-lived assets and certain identifiable intangible assets, such as goodwill. The Statement is effective for fiscal years beginning after December 15, 1995. The Company does not expect the implementation of SFAS 121 to have a material effect on the Company's financial position or results of operations, in light of the previously discussed write-down of goodwill and covenants. (j) REVENUE RECOGNITION Revenue is recognized when earned as goods are shipped to customers. (k) ADVERTISING The costs of advertising, promotion and marketing programs are charged to operations in the year incurred. F-9 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued (l) NET (LOSS) INCOME PER SHARE OF COMMON STOCK Net (loss) income per share of common stock is computed based upon the weighted average number of common shares outstanding during the year. Common stock issued and placed in escrow (the "Escrow Shares") as described in Note 11, are not treated as common stock equivalents for purposes of computing net (loss) income per share of common stock until the conditions for release are met. At June 30, 1996, 125,000 shares have been released from escrow, and are included in the calculation of the weighted average number of commons shares outstanding. Common stock equivalents are excluded from the net (loss) per share of common stock computation due to their anti-dilutive effect in fiscal 1996 and 1995. (m) RECLASSIFICATIONS Certain 1995 balances have been reclassified to conform with the 1996 financial statement presentation. (n) STOCK OPTIONS Options granted under the Company's Stock Option Plans are accounted for under APB 25, "Accounting for Stock Issued to Employees", and related interpretations. In November 1995, the Financial Accounting Standards Board issued Statement 123, Accounting for Stock-Based Compensation, which will require additional proforma disclosures for companies that will continue to account for employee stock options under the intrinsic value method specified in APB 25. The Company plans to continue to apply APB 25 and the only effect of adopting Statement 123 in 1997 will be the new disclosure requirements. NOTE 3 - ACQUISITIONS On June 21, 1995, the Company acquired 100% of the capital stock of EMA. The purchase price consisted of the following: Cash $ 400,000 Market value of common stock issued 1,600,000 Expenses incurred 11,902 ------------ Total $ 2,011,902 ============ The acquisition was accounted for using the purchase method. The cost of the acquisition has been allocated on the basis of the estimated fair value of the assets acquired and liabilities assumed, at the date of acquisition as follows: F-10 NOTE 3 - ACQUISITIONS - Continued Current assets $ 2,494,540 Other assets 83,993 Current liabilities (2,733,911) Covenant not to compete agreement 350,000 Cost in excess of net assets acquired 1,817,280 ------------- Total $ 2,011,902 ============= The covenant not to compete agreement is being amortized on a straight line basis over it's five year term. The cost in excess of net assets acquired is being amortized over twenty-five years on a straight line basis. In 1996 the goodwill and covenant not to compete were written-down to zero (see note 2(i). EMA's results of operations have been included in the Company's consolidated results of operations since the date of acquisition. The following summarized, unaudited pro forma results of operations for the fiscal year ended June 30, 1995, assuming the acquisition occurred as of the beginning of the period: 1995 ------------ Net Sales $ 12,960,815 Net (loss) income $ (1,338,430) Net (loss) income per share of common stock $ (0.81) NOTE 4 - PROPERTY AND EQUIPMENT Property and equipment consists of the following at June 30, 1996 and 1995: 1996 1995 ----------- ----------- Furniture and fixtures $ 409,404 $ 245,785 Machinery and equipment 382,589 339,591 Leasehold improvements 27,845 22,244 Automobiles 63,306 80,936 ----------- ----------- 883,144 688,556 Less: Accumulated depreciation 642,841 359,854 ----------- ----------- Property and equipment, net $ 240,303 $ 328,702 =========== =========== Included in machinery and equipment are various assets held under capital leases with a net book value at June 30, 1996 and 1995 of approximately $58,059 and $106,000, respectively. Assets under capital lease obligation are amortized using a straight line method over the estimated useful lives, or term of the lease, which ever is shorter. F-11 NOTE 5 - INCOME TAXES As of June 30, 1996, the Company has net operating loss carryforwards for federal income tax purposes of approximately $3,012,698, which subject to limitations are available to offset taxable income and income taxes, if any, through the year 2011. The net change in the valuation allowance was $1,509,595 and $207,790 in the years ended June 30, 1996 and 1995, respectively. The net change during the year ended June 30, 1996 was due to the reversal of taxable temporary differences. The net increase in the valuation allowance is necessary because it is more likely than not that the related deferred tax assets will not be realized. Components of income tax (benefit) expense are as follows:
1996 1995 ----------------------------------------- ------------------------------------------ CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL ------- -------- ----- ------- -------- ----- Federal $ (95,555) $ 42,459 $ 53,096 $ (84,620) $(65,381) $ (150,001) State - - - 7,277 (2,716) 4,561 --------- --------- --------- --------- -------- ---------- Total (benefit) $ (95,555) $ 42,459 $ 53,096 $ (77,343) $(68,097) $ (145,440) expense --------- --------- --------- --------- -------- ----------
The provision for Federal income taxes for the years ended June 30, 1996 and 1995 differs from that computed at the statutory federal corporate tax rate as follows:
1996 1995 ------------------------------ ------------------------------ AMOUNT PERCENT AMOUNT PERCENT ------------- ------- ----------- ------- Provision at statutory rate $ (2,612,700) (34.0)% $ (301,946) (34.3)% State income taxes, net of Federal benefit - - 7,277 .8 Over accrual of prior year tax refund - - 50,519 5.7 Expiration of replacement period for involuntary conversion of assets - - 37,630 4.3 Goodwill amortization 1,308,076 17.0 28,480 3.3 Inventories principally due to additional costs inventoried for tax purposes and reserve for slow moving inventories 583,896 7.6 - - Net operating loss 623,755 8.1 - - Payroll accrual 35,700 .5 - - Effect of graduated tax rates 5,645 .1 - - Other 2,532 .0 32,600 3.7 ------------- ---- ----------- ----- $ (53,096) (0.7)% $ (145.440) (16.5)% ============= ==== =========== =====
F-12 NOTE 5 - INCOME TAXES - Continued The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:
1996 1995 ---------- --------- Deferred tax assets: Accounts receivable, principally due to allowance for doubtful accounts and sales returns $ 65,141 $ 73,850 Inventories, principally due to additional costs inventoried for tax purposes pursuant to the Tax Reform Act of 1986 and reserve for slow-moving inventories 963,417 145,658 Net operating loss carry forwards 1,029,020 338,670 Other 58,908 45,278 ---------- --------- Total gross deferred tax assets 2,116,486 603,456 Less: Valuation allowance (2,023,386) (513,789) ---------- --------- Net deferred tax assets 93,100 89,667 Deferred tax liabilities: Property and equipment, principally due to differences in depreciation and the deferral of gain recognized from insurance proceeds on damage to property and equipment $ (93,100) $ (47,209) ---------- --------- Total gross deferred tax liabilities (93,100) (47,209) ---------- --------- Net deferred tax assets (liabilities) $ - $ (42,458) ========== =========
NOTE 6 - LINES OF CREDIT AND NOTES PAYABLE On September 27, 1995, the Company renewed its credit facility for a period of one year. The line of credit allows the Company to borrow up to $3,500,000, and is collateralized by a pledge of all of the Company's assets. Borrowings under this agreement are limited to the sum of 75% of accounts receivable, and 50% of inventory on hand, not to exceed $2,000,000. Interest on the line of credit is 3/4% above the bank's prime lending rate, which was 8.25% at June 30, 1996. The undrawn balance of the credit facility at June 30, 1996 was $924,000. F-13 NOTE 6 - LINES OF CREDIT AND NOTES PAYABLE - Continued At June 30, 1995, the Company had a $150,000 line of credit collateralized by all of the assets of EMA. This line of credit was repaid in 1996. Notes payable as of June 30, 1996 and 1995 are comprised of the following:
1996 1995 ----------- ------------ Note payable to bank bearing interest at 3% over the certificate of deposit rate, due on demand, collateralized by certificate of deposit of $65,000. $ 65,000 $ 65,000 Note payable to bank bearing interest at 8.5%, payable in monthly installments of $225 including interest, maturing in July 1997. 2,736 5,092 Note payable to bank bearing interest at 11.1%, payable in monthly installments of $483 including interest, maturing in August 1999. 15,030 18,500 Note payable due to vendor (related party), non interest bearing, payable monthly in equal installments of $39,804, maturing in February 1998, net of unamortized discount of $145,060. 836,654 1,128,674 ------------ ------------ 919,420 1,217,266 Less: Current portion (474,741) (463,250) ------------ ------------ Long-term portion $ 444,679 $ 754,016 ============ ============
The aggregate maturities of notes payable at June 30, 1996 are summarized as follows: 1997 474,741 1998 444,679 ------------ $ 919,420 ============ NOTE 7 - CAPITAL LEASE OBLIGATIONS The Company leases office equipment under various capital leases. The net present value of the minimum lease payments as of June 30, 1996 amounted to $29,507, and will be repaid by June 30, 1997. F-14 NOTE 8 - CONCENTRATION OF CREDIT RISK Sales to one customer amounted to 13% and 11% of the Company's net sales for the years ended June 30, 1996 and 1995, respectively. Sales to another customer amounted to 15% and 13% for the years ended June 30, 1996 and 1995, respectively. No other customers accounted for more than 10% of total net sales for the fiscal years 1996 and 1995. The majority of the Company's sales are in the United States, although they have licensing rights to sell in Canada, Central and South America, and the Caribbean. NOTE 9 - RELATED PARTY TRANSACTIONS During the years ended June 30, 1996 and 1995, the Company purchased approximately $3,318,000 or 35%, and $3,687,000 or 63%, respectively, of eyeglass frames from a party affiliated through the ownership of common stock. Due to related parties at June 30, 1996 and 1995 includes approximately $450,000 and $520,000, respectively, of amounts due to this affiliated party for these purchases. Due to related parties at June 30, 1995 includes $400,000 due to the selling principals of EMA in connection with the Company's acquisition of EMA. This balance was paid by the Company in July 1995. In 1996 the Company issued 246,154 shares of common stock to a vendor in settlement of $400,000 of accounts payable. No gain or loss was recognized on this transaction. At June 30, 1996 the client has accrued $130,000 for amounts due to the former Chief Executive Officer of the Company under a compensation settlement agreement. NOTE 10 - PROFIT-SHARING PLAN The Company adopted a qualified profit-sharing plan effective July 1, 1989, covering all employees who have attained twenty-one years of age and have completed one year of employment. The plan permits the Company to contribute, at its election, up to 15% of the annual compensation of all participants. During the years ended June 30, 1996 and 1995, the Company elected not to contribute to the profit-sharing plan. Participant vesting in Company contributions is as follows: YEARS OF SERVICE VESTED PERCENT ---------------- -------------- 1 0% 2 20 3 40 4 60 5 80 6 and thereafter 100 F-15 NOTE 11 - CAPITAL TRANSACTIONS On March 14, 1994 the Company completed a private placement consisting of Series A Cumulative Convertible 3% Preferred Stock (the "Preferred Stock") and units each consisting of $12,500 Principal Amount 8% Five Year Convertible Subordinated Debentures (the "Debentures"). As a result of the private placement, the Company raised, net of fees, $2,821,000. Each share of Preferred Stock is convertible into one share of the Company's common stock. The Debentures are convertible into the Company's common stock at $3.50 per share or 285.71 shares per $1,000 principal amount of the Debentures. In the event of any liquidation, the holders of shares of the preferred stock, are entitled to receive out of assets of the Company available for distribution to stockholders before any distribution of assets is made to holders of common stock, liquidating distribution in the amount of $2.50 per share plus accumulated and unpaid dividends. Effective as of June 21, 1995, the Company consummated the acquisition through its wholly-owned subsidiary, Ocean Private Label, Inc. ("Ocean Private Label"), of all of the issued and outstanding capital stock of European Manufacturers Agency, Inc. ("EMA"). In accordance with the terms of that certain Agreement and Plan of Reorganization (the "Agreement"), dated as of June 21, 1995, by and among the Company, Ocean Private Label and the shareholders of EMA, the acquisition of the capital stock of EMA was structured as a tax free reorganization within the meaning of the Internal Revenue Code of 1986, as amended. Pursuant to said Agreement, EMA was merged into Ocean Private Label and Ocean acquired all of the issued and outstanding capital stock of EMA in exchange for an aggregate 533,333 shares of Common Stock of Ocean (the "Ocean Shares") and $400,000 in cash, representing a purchase price of approximately $2,000,000. With respect to the Ocean shares, 500,000 of said Ocean Shares were placed in escrow (the "Escrow Shares"). The Escrow Shares were issued in the name of the Selling Shareholders of EMA, who possess all voting, dividend and liquidation rights, preferences and privileges for all of the 500,000 shares at June 30, 1995. The Escrow Shares are to be released on each of the four subsequent anniversary dates of the closing in accordance with a specified formula, providing for a minimum of 250,000 shares and a maximum of 600,000 shares, depending on the average market price of the stock, as defined. Concurrent with the sale of EMA, the Selling Shareholders separately entered into employment agreements with EMA providing for a minimum four year term and bonuses based upon the operational results of EMA. With regard to the Escrow Shares, in the event that either Selling Shareholders employment is terminated by the Company with cause, or is terminated by said Selling Shareholder voluntarily, the Escrow Shares will be released in accordance with the anniversary dates and terms described above. In the event either Selling Shareholders employment is terminated by the Company without cause, any and all Escrow Shares maintained in escrow shall be released and delivered to said Selling Shareholder. On June 21, 1996, the first anniversary of the closing as stated above, 125,000 shares have been released from escrow. The Company has agreed to file a registration statement covering the Escrow Shares, and has agreed to repurchase certain Escrow Shares from the holders thereof at a price of $3.00 per share (the approximate market price per share of the Ocean Shares at the date of the EMA acquisition) in the event the registration statement is not declared effective by the Securities and Exchange Commission within one year after the closing of the acquisition. The registration of these shares became effective subsequent to the one year time frame, however, the holders have waived their right to have the Company repurchase the shares. F-16 NOTE 11 - CAPITAL TRANSACTIONS - Continued D'Arrigo Moda Italia ("D'Arrigo"), a major supplier of EMA, agreed to exchange $1,150,000 of EMA's accounts payable balance for $1,150,000 in Series B Convertible 2% Preferred Stock. Each share of Preferred Stock is convertible into one share of the Companys common stock. In the event of any liquidation, the holders of shares of the Preferred Stock are entitled to receive out of assets of the Company available for distribution to stockholders before any distribution of assets is made to holders of common stock, liquidating distribution in the amount of $5.00 per share. In addition, the remaining accounts payable balance at June 30, 1995 of $1,523,734 was converted into a non-interest bearing note payable due to D'Arrigo of $1,128,674, payable in 32 equal monthly payments, and $250,000 in cash. On July 2, 1996, DArrigo forgave the Company 6 monthly payments amounting to $239,729, resulting in a gain of approximately $100,000. In return, the Company gave DArrigo a 20% discount on the strike price of $3.00 on 70% of the Preferred Stock. NOTE 12 - SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses include approximately $804,000 and $719,000 of commissions expense, $1,677,000 and $1,282,000 of salaries expense, and $432,000 and $488,000 of advertising expense during the years ended June 30, 1996 and 1995, respectively. NOTE 13 - COMMITMENTS AND CONTINGENCIES The Company currently leases their main office and warehouse space, on a five year term, at a monthly rent of $7,570. In addition, the Company leases a small warehouse storage facility, at a monthly rent of $812. This six month lease is renewable, and expires in November 1996. EMA currently leases it's main offices and warehouse space under a renewable lease which expires in December 1996. The following is a schedule of future minimum lease payments as of June 30, 1996, for operating leases having initial noncancelable lease terms in excess of one year: YEAR ENDING JUNE 30, -------------------- 1997 101,178 1998 52,990 ---------- Total minimum payments $ 154,168 ========== Rent expense charged to operations was approximately $123,000 and $101,000 for the years ended June 30, 1996 and 1995, respectively. The Company has acquired the exclusive rights to use certain trade names and trademarks, for use in the manufacture and sale of certain optical products. The agreements require the Company to maintain specified levels of product liability insurance, and to pay royalties of 3 to 7.5 percent on the sales of the specified license products with guaranteed minimum royalties aggregating as follows: F-17 NOTE 13 - COMMITMENTS AND CONTINGENCIES - Continued YEAR ENDING JUNE 30, -------------------- 1997 $ 333,350 1998 78,500 1999 86,000 2000 95,000 On September 29, 1993, the Company and Revlon, Inc. amended the license agreement between the parties made as of July 6, 1992, to extend the territory of the Company's exclusive license to encompass the world. The Company intends to sublicense these rights in certain countries to distributors of eyeglass frames. In consideration for the expansion of the license, the Company agreed to pay Revlon a non-refundable fee of Five Hundred Thousand Dollars (U.S. $500,000), payable in full by the end of the 1995 calendar year as follows: $100,000 was paid during fiscal 1994, and the balance of Four Hundred Thousand Dollars ($400,000) to be paid in incremental amounts equal to the signing fees received by the Company from foreign sublicenses. The Company's extension of its license dated July 6, 1992 to extend the territory to encompass the world expired on December 31, 1995, with no renewal. In addition, there were no receipts, expenditures, or outstanding liabilities relating to the Revlon worldwide license during the fiscal year ended June 30, 1995 or June 30, 1996. The Company does however, maintain its exclusive right to sell Revlon eyeglass frames in the United States and Canada. During the quarter ended December 31, 1995, the Company's license agreement with Revlon for the United States and Canada, was renewed for a one-year term ending December 31, 1996. The license agreement may be renewed for an additional three-year term if certain criteria are met. No assurance can be given that such criteria will be met, and that therefore such renewals can be negotiated. However, management believes that there would be no material adverse effect on the Company's long-term future business should the contract be deemed not to have been renewed. In April 1994, the Company entered into three-year agreements with its executive officers at base annual salaries ranging from $46,000 each for its two Vice Presidents to $175,000 for its Chief Executive Officer. During fiscal year ended June 30, 1996 the employment term of the Companys Chief Executive Officer was terminated and a settlement of $130,000 was negotiated and fully accrued for at fiscal year June 30, 1996. The executive officers may participate in such profit-sharing, pension or other incentive compensation plans as may be provided by the Company to its executives. F-18 NOTE 13 - COMMITMENTS AND CONTINGENCIES - Continued In June 1995, EMA entered into a four year employment agreement with its President, Robert D. Winn, and it's Vice President, Mary S. Winn. Pursuant to their employment agreements, the President and Vice President of EMA are to receive annual compensation of $104,000 each. In addition to the annual compensation set forth in the employment agreements, the President and Vice President shall be entitled to an annual bonus during the term of employment equal to 7.5% of the earnings before income tax in excess of $300,000 generated by EMA for each given fiscal year. If either the President or Vice President was employed by EMA for less than a full year, then the amount of any said bonus shall be prorated. In the event either the President or Vice President dies or is deemed permanently disabled during his/her term of employment with EMA, then the annual compensation of the surviving executive shall be increased to $150,000 per annum. NOTE 14 - STOCK OPTION PLAN In July 1991, the board of directors and stockholders of the Company adopted a Stock Option Plan (the "1991 Plan"), pursuant to which 54,000 (adjusted for stock dividend) shares of common stock of the Company were reserved for issuance. In November 1992, the Board adopted a new plan (the "1992 Plan"; the 1991 Plan and the 1992 Plan are jointly known as the "Plan"), which was approved by the stockholders in February 1993, and which provided the issuance of 240,000 (adjusted for stock dividend) shares. The number of shares issuable under the 1992 Plan was increased to 750,000 at the Company's Annual Shareholders' Meeting held in December 1993, and to 1,000,000 shares at the annual meeting held November 30, 1994. Both Plans are intended to promote the growth and profitability of the Company, to provide employees of the Company who are largely responsible for the management, growth and protection of its business with an incentive to continue to make substantial contributions to the success of the Company, and to provide those key employees with an equity interest in the Company. The Plans are administered by a Stock Option Committee appointed by the Company's board of directors (the "Committee"). The Committee has the authority to designate the key employees eligible to participate in the Plan, to prescribe the terms of award, to interpret the Plan, and to make all other determinations for administering the Plans. The Plan provides for granting of stock options that may be either "Incentive Stock Options" within the meaning of Section 422A of the Internal Revenue Code of 1986 (the "Code"), or "Non-Statutory Stock Options", which do not satisfy the provisions of Section 422A of the Code. Incentive Stock Options are required to be issued at an option exercise price per share equal to the fair market value of a share of common stock on the date of grant, except that the exercise price of options granted to any employee who owns (or under pertinent Code provisions, is deemed to own) more than 10% of the outstanding common stock must equal at least 110% of fair market value at the date of grant. Non-Statutory Stock Options may be issued at such option exercise price as the Committee determines. Exercise of a stock option will be subject to terms and conditions established by the Committee and set forth in the instrument evidencing the stock option. Stock options may be exercised with either cash or shares of the Company's common stock or any other form of payment authorized by the Committee. The date of expiration of a stock option will be fixed by the Committee but may not be longer than ten years from the date of the Plan. F-19 NOTE 14 - STOCK OPTION PLAN - Continued In September and November of 1993, the Company issued 200,000 and 100,000 stock options, respectively. Due to the lower market price of the Company's stock, the Company canceled and repriced all of the outstanding stock options, and issued 414,000 options (an approximate 20% reduction in the number of shares originally issued) in May 1994, at the lower market price of $3.125 per share (which approximated the market value of the Company's stock at the grant date), as a further incentive for the key employees of the Company. The following table is a summary of Stock Options:
NUMBER EXERCISE PRICE OF OPTIONS PER OPTION ---------- --------------- Outstanding at July 1, 1994 414,000 $3.1250 Non-Statutory Stock Options Granted during fiscal year ended June 30, 1995 330,000 $2.0000 - 3.6250 Expired or canceled during fiscal year ended June 30, 1995 (2,361) $3.1250 - 3.6250 ------- Outstanding at June 30, 1995 741,639 $2.0000 - 3.6250 ------- Non-Statutory Stock Options Expired or canceled during fiscal year ended June 30, 1995 (18,000) $2.0000 - 3.6250 ------- Outstanding at June 30, 1996 723,639 $2.0000 - 3.6250 ======= Exercisable at June 30, 1996 723,639 $2.0000 - 3.6250 =======
NOTE 15 - FOURTH QUARTER ADJUSTMENTS The Company recorded fourth quarter adjustments in fiscal year 1995 of approximately $125,000 to increase the provision for slow-moving inventory, approximately $55,000 to increase the provision for doubtful accounts receivable, approximately $219,000 to expense certain prepaid assets, and an income tax benefit of approximately $145,000 to adjust income tax accounts based upon the Companys results of operations. During the fourth quarter ended June 30, 1996, the Company recorded additional reserves for the following: slow-moving inventory of $400,000, allowance for doubtful accounts of $20,000, and defective inventory of $400,000. In addition, the Company wroteoff $3,805,782 in goodwill and covenant not to compete (see Note 2(i)), and accrued an additional $80,000 for the settlement made with the terminated Chief Executive Officer of the Company. F-20
OCEAN OPTIQUE DISTRIBUTORS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS March 31, 1997 and June 30, 1996 ASSETS MARCH 31, JUNE 30, 1997 1996 -------------- --------- (Unaudited) Current assets Cash & cash equivalents $ 176,866 360,627 Certificate of deposit - restricted 65,000 65,000 Accounts receivable (net of allowance for doubtful accounts of $183,216 and $173,109 respectively) 2,403,327 2,317,691 Inventory 4,235,713 5,848,481 Prepaid expenses & other current assets 1,279,248 135,732 Deferred income taxes 93,100 93,100 Income tax receivable - 194,888 -------------- --------- Total current assets 8,253,254 9,015,519 Property and equipment, net 185,282 240,303 Security deposits 14,853 14,728 Debt issue cost, net 122,282 145,310 -------------- --------- Total assets $ 8,575,671 9,415,860 ============== ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Bank line of credit 2,766,500 2,682,500 Accounts payable 1,843,599 2,007,699 Due to related parties 712,522 1,153,512 Accrued expenses 450,371 502,443 Notes payable to related party, current portion 391,975 391,975 Notes payable, current portion 77,136 82,766 Capital lease obligations, current portion 449 29,507 -------------- --------- Total current liabilities 6,242,552 6,850,402 8% Convertible subordinated debentures 743,752 843,750 Notes payable to related party, long-term portion 146,031 444,679 Deferred income taxes 93,100 93,100 -------------- --------- Total liabilities 7,225,435 8,231,931 Commitments and contingencies - - Stockholders' equity: Series A cumulative convertible 3% preferred stock (liquidation value - $1,575,000) 1,409,398 1,474,398 Series B 2% convertible preferred stock (liquidation value - $1,150,000) 1,150,000 1,150,000 Common stock, no par value; 10,000,000 shares authorized, 3,372,785 and 2,808,761 shares issued and outstanding at March 31, 1997 and June 30, 1996, respectively 7,920,476 7,230,478 Retained earnings (accumulated deficit) (9,129,638) (8,670,947) -------------- --------- Total stockholders' equity 1,350,236 1,183,929 Total liabilities and stockholders' equity $ 8,575,671 9,415,860 ============== =========
The accompanying notes are an integral part of these statements. F-21
OCEAN OPTIQUE DISTRIBUTORS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For the nine months ended March 31, 1997 and 1996 1997 1996 ------------- ---------- Net sales $ 9,473,152 10,644,836 ------------- ---------- Cost of goods sold 6,436,893 7,989,156 ------------- ---------- Gross profit 3,036,259 2,655,680 Selling, general and administrative expenses 3,190,283 4,282,532 ------------- ---------- (154,024) (1,626,852) Interest expense, net (285,167) (404,895) ------------- ---------- Income (loss) before income taxes (439,191) (2,031,747) Income tax benefit (expense) - - ------------- ---------- Net income (loss) $ (439,191) (2,031,747) Dividends paid on convertible preferred stock 19,500 35,632 ------------- ---------- Net income (loss) applicable to common stockholders $ (458,691) (2,067,379) ============= ========== Net income (loss) per share of common stock $ (0.17) (0.95) ============= ========== Weighted average number of common shares outstanding 2,778,500 2,126,818 ============= ==========
The accompanying notes are an integral part of these statements. F-22
OCEAN OPTIQUE DISTRIBUTORS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the nine months ended March 31, 1997 and 1996 1997 1996 ---------- ------- Cash flows from operating activities: Net loss $ (458,691) (2,067,379) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 81,920 324,674 Changes in assets and liabilities, net of effects from acquisition of business: Decrease in short-term investments - 869,839 Increase in accounts receivable, net (85,636) (391,194) Decrease (increase) in inventory 1,612,768 (79,567) Decrease (increase) in prepaid expenses, security deposits and intangible assets (1,143,641) 124,272 Increase (decrease) in accounts payable and accrued expenses (216,172) 352,178 Increase (decrease) in due to related parties (140,990) 911,420 Increase in income taxes 194,888 102,220 ---------- ------- Net cash provided by (used in) operating activities (155,554) 146,463 ---------- ------- Cash flows from investing activities: Goodwill adjustments - (321,636) Capital expenditures (3,871) (25,707) ---------- ------- Net cash provided by (used in) investing activities (3,871) (347,343) ---------- ------- Cash flows from financing activities: Payments on bank line of credit and notes payable (220,278) (68,064) Payments under capital lease obligation (29,058) (35,657) Issuance of common stock 225,000 - Proceeds from borrowings from foreign currency dealer - 4,575 ---------- ------- Net cash provided by (used in) financing activities (24,336) (99,146) ---------- ------- Net decrease in cash and cash equivalents (183,761) (300,026) Cash and cash equivalents, beginning of period 360,627 1,748,781 ---------- ------- Cash and cash equivalents, end of period $ 176,866 1,448,755 ========== ======= Supplemental disclosure of cash flow information: Cash refund received during the period for income taxes, net $ (194,888) (98,000) ========== ======= Issuance of common stock in settlement of due to related parties $ 300,000 400,000 ========== ======= Cash paid during the period for interest $ 314,180 441,781 ========== =======
The accompanying notes are an integral part of these statements. F-23 OCEAN OPTIQUE DISTRIBUTORS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-QSB and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. However, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of Management, necessary for a fair statement of results for the interim periods. The results of operations for the nine months ended March 31, 1997 are not necessarily indicative of the results to be expected for the full year. These statements should be read in conjunction with the financial statements and notes thereto included in the Company's Form 10-KSB, as amended, for the fiscal year ended June 30, 1996. (2) ORGANIZATION Ocean Optique Distributors, Inc. (the "Company") was incorporated under the laws of the State of Florida on May 31, 1988. The Company is an importer and distributor of eyeglass frames. On June 21, 1995, the Company acquired 100% of the capital stock of European Manufacturers Agency, Inc. ("EMA"), a Florida corporation. EMA is engaged in the business of distributing and marketing private label ophthalmic frames and related items and continues to conduct such business as a wholly-owned subsidiary of the Company. (3) BANK LINE OF CREDIT On June 29, 1994, and as subsequently amended in September 1995 and September 1996, the Company refinanced its credit facility. This line of credit, which has been extended to May 31, 1997, allows the Company to borrow up to $2,750,000, is secured by a pledge of all the Company's assets. Borrowings under this agreement are limited to the sum of 75% of accounts receivable, and 50% of inventory on hand, not to exceed $2,000,000. Interest on the line of credit is 2% above the bank's prime lending rate. The Company has been advised by its lender that it does not currently intend to renew the line of credit, and the Company is presently finalizing the terms of a new line of credit with another lender. The Company anticipates that this line of credit will have a term of three years, at an interest rate of 2% above the bank's prime lending rate. F-24 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Stockholders Solovision Optical, Inc. Miami, Florida We have audited the accompanying balance sheet of Solovision Optical, Inc. as of December 31, 1996, and the related statements of operations and retained earnings (deficit) and cash flows for each of the two years in the period then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material aspects, the financial position of Solovision Optical, Inc. as of December 31, 1996, and the results of its operations and its cash flows for each of the two years in the period then ended, in conformity with generally accepted accounting principles. RACHLIN COHEN & HOLTZ Miami, Florida June 10, 1997 F-25
SOLOVISION OPTICAL, INC. BALANCE SHEETS MARCH 31, 1997 AND DECEMBER 31, 1996 MARCH 31, DECEMBER 31, 1997 1996 ---- ---- (UNAUDITED) ASSETS Current Assets: Cash $ 55,232 $ 6,295 Accounts receivable 123,643 139,126 Due from affiliates 35,254 39,352 Inventory 420,271 497,244 Deferred income taxes 6,000 - Prepaid expenses and other current assets 3,811 3,811 ------------- ---------- Total current assets 644,211 685,828 Property and Equipment 110,235 115,559 Other Assets 10,655 10,830 ------------- ---------- $ 765,101 $ 812,217 ============= ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 52,922 $ 163,467 Income taxes payable 5,500 13,500 Accrued liabilities 106,010 111,261 Notes payable to affiliates 285,409 176,654 Current maturities of long-term debt 13,105 19,851 ------------- ---------- Total current liabilities 462,946 484,733 ------------- ---------- Long-Term Debt 7,238 8,313 ------------- ---------- Commitments and Subsequent Events Stockholders' Equity: Common stock, $1.00 par value, 1,000 shares authorized, 100 shares issued and outstanding 100 100 Additional paid-in capital 299,900 299,900 Retained earnings (deficit) (5,083) 19,171 ------------- ---------- Total stockholders' equity 294,917 319,171 ------------- ---------- $ 765,101 $ 812,217 ============= ==========
See notes to financial statements. F-26
SOLOVISION OPTICAL, INC. STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT) THREE MONTHS ENDED MARCH 31, 1997 AND 1996 AND YEARS ENDED DECEMBER 31, 1996 AND 1995 THREE MONTHS ENDED YEAR ENDED MARCH 31, DECEMBER 31, ------------------ ------------------- 1997 1996 1996 1995 ---- ---- ---- ---- (Unaudited) Net Sales $ 499,135 $ 667,855 $ 2,593,962 $ 1,274,641 Cost of Goods Sold 342,947 427,687 1,741,571 808,676 ----------- ----------- ----------- ----------- Gross Profit 156,188 240,168 852,391 465,965 ----------- ----------- ----------- ----------- Selling, General and Administrative Expenses 171,277 155,992 706,243 480,198 Depreciation and Amortization 5,499 4,319 17,562 3,686 ----------- ----------- ----------- ----------- 176,776 160,311 723,805 483,884 ----------- ----------- ----------- ----------- Income (Loss) from Operations (20,588) 79,857 128,586 (17,919) Interest Expense 9,666 1,034 10,692 - ----------- ----------- ----------- ----------- Income (Loss) Before Income Taxes (30,254) 78,823 117,894 (17,919) Provision (Credit) for Income Taxes (6,000) 24,500 33,000 (3,000) ----------- ----------- ----------- ----------- Net Income (Loss) (24,254) 54,323 84,894 (14,919) Retained Earnings (Deficit), Beginning 19,171 (65,723) (65,723) (50,804) ----------- ----------- ----------- ----------- Retained Earnings (Deficit), Ending $ (5,083) $ (11,400) $ 19,171 $ (65,723) =========== =========== =========== =========== Earnings (Loss) Per Share $ (242.54) $ 543.23 $ 848.94 $ (149.19) =========== =========== =========== ===========
See notes to financial statements. F-27
SOLOVISION OPTICAL, INC. STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 1997 AND 1996 AND YEARS ENDED DECEMBER 31, 1996 AND 1995 THREE MONTHS ENDED YEAR ENDED MARCH 31, DECEMBER 31, --------- ------------ 1997 1996 1996 1995 ---- ---- ---- ---- (UNAUDITED) Cash Flows From Operating Activities: Net income (loss) $ (24,254) $ 54,323 $ 84,894 $ (14,919) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Provision for inventory obsolescence - 22,219 88,875 - Depreciation and amortization 5,499 4,319 17,562 3,686 Deferred income taxes (6,000) 19,500 19,500 (3,000) Changes in operating assets and liabilities: Decrease (increase) in: Accounts receivable 15,483 (26,837) 10,777 (136,562) Inventory 76,973 118,669 131,726 (320,406) Prepaid expenses and other current assets - (17,320) (3,811) 9,594 Other assets - - (1,230) 3,693 Increase (decrease) in: Accounts payable (110,545) (148,614) (191,824) 349,508 Accrued liabilities (5,251) (9,354) 7,486 79,621 Income taxes payable (8,000) 5,000 13,500 - --------- -------- --------- --------- Net cash provided by (used in) operating activities (56,095) 21,905 177,455 (28,785) --------- -------- --------- --------- Cash Flows From Investing Activities: Expenditures for property and equipment - - (10,825) (7,245) Advances to affiliates - (5,062) (140,352) (13,104) Repayment of advances to affiliates 4,098 - 13,104 - --------- -------- --------- --------- Net cash provided by (used in) investing activities 4,098 (5,062) (138,073) (20,349) --------- -------- --------- --------- Cash Flows From Financing Activities: Increase (decrease) in bank overdraft - (9,771) (24,473) 24,473 Proceeds from notes payable - - 13,198 - Repayment of notes payable (7,821) (6,420) (28,034) - Borrowing from affiliates 108,755 - 5,722 17,496 --------- -------- --------- --------- Net cash provided by (used in) financing activities 100,934 (16,191) (33,587) 41,969 --------- -------- --------- --------- Increase (Decrease) in Cash 48,937 652 5,795 (7,165) Cash, Beginning 6,295 500 500 7,665 --------- -------- --------- --------- Cash, Ending $ 55,232 $ 1,152 $ 6,295 $ 500 ========= ======== ========= ========= Supplemental Disclosure of Cash Flows Information: Cash paid during the period for interest: Interest $ 7,542 $ 1,000 $ 4,316 $ - ========= ======== ========= ========= Income Taxes $ 8,000 $ - $ - $ - ========= ======== ========= =========
See notes to financial statements. F-28 SOLOVISION OPTICAL, INC. NOTES TO FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND CAPITALIZATION Solovision Optical, Inc., (the "Company") was incorporated under the laws of the State of Florida on October 10, 1994. The Company's articles of incorporation provide for the issuance of 1,000 authorized shares of common stock, with a par value of $1.00 per share. BUSINESS The Company is engaged in importing, exporting, marketing and distributing eyeglass frames and, to a lesser degree, optical equipment. INVENTORY Inventory, which consists of eyeglass frames and optical equipment, is stated at the lower of cost or market. Cost is determined by the first-in, first-out method, and market by estimated net realizable value. Cost of goods sold during 1996 includes a provision for inventory obsolescence of approximately $89,000. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost and depreciated on the straight line method over the estimated useful lives of the assets. Gain or loss on disposition of assets is recognized currently. Maintenance and repairs are charged to expense as incurred. Major replacements and betterments are capitalized and depreciated over the remaining useful lives of the assets. INCOME TAXES Deferred income taxes result primarily from timing differences in the recognition of expenses for tax and financial reporting purposes and from operating losses that are available to offset future taxable income. These timing differences and operating losses are accounted for in accordance with Financial Accounting Standards Board Statement No. 109, "ACCOUNTING FOR INCOME TAXES", which requires the liability method of computing deferred income taxes. Under the liability method, deferred taxes are adjusted for tax rate changes as they occur. F-29 SOLOVISION OPTICAL, INC. NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONCENTRATION OF CREDIT RISK Approximately eighty percent of the Company's customers are required to pay for goods on delivery. The Company extends credit to the remaining twenty percent of its customers based on an evaluation of the customer's financial condition. The Company monitors exposure to credit losses and maintains allowances for anticipated losses considered necessary under the circumstances. As of December 31, 1996 and March 31, 1997 (unaudited), no allowance for losses was considered necessary. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and related notes to the financial statements. Actual results may differ from those estimates. UNAUDITED INFORMATION The accompanying financial statements as of and for the three months ended March 31, 1997 and 1996 are unaudited. However, in the opinion of management, all adjustments (consisting of normal recurring accruals and adjustments) necessary for a fair presentation of financial position, results of operations and cash flows have been made. The results of operations for interim periods are not necessarily indicative of results to be expected for a full year. EARNINGS (LOSS) PER SHARE Earnings (loss) per share has been computed based upon the weighted average number of shares of common stock outstanding during the periods. The number of shares used in the computation was 100 shares for all periods. NOTE 2. PROPERTY AND EQUIPMENT
ESTIMATED USEFUL LIFE MARCH 31, DECEMBER 31, (YEARS) 1997 1996 ------- ---- ---- (UNAUDITED) Furniture and fixtures 10 $ 10,378 $ 10,378 Equipment 5 70,734 70,734 Auto and trucks 5 17,210 17,210 Leasehold improvements 10 38,157 38,157 -------- -------- 136,479 136,479 Less accumulated depreciation 26,244 20,920 -------- -------- $110,235 $115,559 ======= =======
F-30 NOTE 3. NOTES PAYABLE TO AFFILIATES MARCH 31, DECEMBER 31, 1997 1996 ---- ---- (UNAUDITED) Due to stockholder $168,962 $ 71,000 Due to related entity 100,000 100,000 Other 16,447 5,654 -------- --------- $285,409 $176,654 ======== ========= NOTE 4. LONG-TERM DEBT
MARCH 31, DECEMBER 31, 1997 1996 ---- ---- (UNAUDITED) Note payable to finance company; interest at 9.75%; monthly payments of $333; final maturity in April 2000; secured by an automobile. $10,609 $11,338 Note payable to an individual, assumed from a related entity (see note 7); interest at 10%; monthly payments of $2,484; final maturity in July 1997; unsecured 9,734 16,826 ------- ------ 20,343 28,164 Less current portion 13,105 19,851 ------ ------ Long-term debt $ 7,238 $ 8,313 ======= =======
Maturities of notes payable for the respective twelve month periods are as follows: 1997 $ - $ 19,851 1998 13,105 3,334 1999 3,417 3,674 2000 3,491 1,305 2001 330 - ------- ------- $20,343 $28,164 ======= =======
NOTE 5. INCOME TAXES The provision (credit) for income taxes is comprised of the following: THREE MONTHS ENDED YEAR ENDED MARCH 31, DECEMBER 31, --------- ------------ 1997 1996 1996 1995 ---- ---- ---- ---- (UNAUDITED) Current $ - $ 8,500 $17,000 $ - Deferred (6,000) 16,000 16,000 (3,000) ------- ------ ------ ------ $(6,000) $24,500 $33,000 $(3,000) ====== ====== ====== ====== F-31 NOTE 5. INCOME TAXES In 1995 and 1994, the Company incurred net losses and accordingly recorded a deferred tax asset because the realization of such loss carryforward was considered to be more likely than not. The provision (credit) for deferred income taxes in 1995 resulted from the change in the deferred tax asset arising from the increase in the loss carryforward and in 1996 from subsequent utilization of the loss carryforward. NOTE 6. STATEMENTS OF CASH FLOW
Non-cash financing and investing activities are as follows: Year Ended December 31, 1996 Acquisition of inventory: Forgiveness of notes receivable from related entities $101,000 Issuance of a note payable to a related entity 100,000 -------- $201,000 ======== Acquisition of property: Write off of a due to a related party $ (24,000) Assumption of a note payable of a related entity 43,000 Issuance of a note to a related party 71,000 -------- $ 90,000 ======== Year Ended December 31, 1995 Settlement of stock subscription receivable by receipt of inventory $ 50,000 ======== Three Months Ended March 31, 1996 (unaudited) Acquisition of property: Write off of a due to a related party $ (24,000) Assumption of a note payable of a related entity 43,000 Issuance of a note to a related party 71,000 -------- $ 90,000 ========
NOTE 7. RELATED PARTY TRANSACTIONS ACQUISITION OF PROPERTY AND EQUIPMENT During 1996, the Company acquired approximately $90,000 of property and equipment from an entity affiliated through common ownership. In connection with this acquisition, the Company satisfied a $24,000 due to this related entity. In addition, the Company incurred a liability of approximately $71,000 to this related entity's sole stockholder (included in notes payable to affiliates at December 31, 1996), and assumed a note payable to a third party of approximately $43,000. At December 31, 1996, the balance on the note was $16,826 (see Note 5). F-32 NOTE 7. RELATED PARTY TRANSACTIONS SALES TO AFFILIATES During the year ended December 31, 1996, the Company sold approximately $25,000 of eyeglass frames to an entity affiliated through common ownership. ACQUISITION OF INVENTORY During 1996, the Company acquired approximately $201,000 of inventory from an entity affiliated through common ownership. The Company recorded this transaction by writing off approximately $101,000 of receivables from two related entities and recording a note payable of $100,000 to another related entity. This note is due on demand, bears interest at the rate of 8.5% and is included in notes payable to affiliates at December 31, 1996. Interest expense for the year ended December 31, 1996 amounted to $6,375. STOCK SUBSCRIPTION RECEIVABLE During 1995, $50,000 of inventory was received in payment for a stock subscription receivable which was outstanding at December 31, 1994. DUE TO AFFILIATES During 1995, the Company borrowed money from an entity affiliated through common ownership for working capital purposes. At December 31, 1995, approximately $24,000 was due to this related entity. EXPENSE ALLOCATION The Company is covered under an umbrella policy which also covers other entities affiliated to the Company through common ownership. Insurance costs are allocated to each entity based on square footage. Insurance expense for 1996 and 1995 was $12,595 and $14,276, respectively. In addition, certain other expenses such as legal, accounting and salaries are allocated between the Company and other affiliated entities. These expenses are allocated based upon management's estimate of the actual costs incurred and time devoted by individual employees to the respective activities of the companies. LEASE The Company rents office, warehouse and showroom space from an entity affiliated to the Company through common ownership. Rent expense for the years ended December 31, 1996 and 1995 was $93,325 and $56,435, respectively, and for the three months ended March 31, 1997 and 1996 was $24,000 and $21,325 (unaudited), respectively. At December 31, 1996, approximately $24,000 of accrued rent was due to this related entity and is included in accrued liabilities. F-33 NOTE 7. RELATED PARTY TRANSACTIONS The lease expires on October 1, 1999 and is renewable for an additional sixty months. Minimum rental commitments for the remaining three year term of the lease are as follows: 1997 $ 96,000 1998 96,000 1999 72,000 -------- $264,000 ======== NOTE 8. PENSION AND PROFIT SHARING PLANS Effective January 1, 1996, the Company adopted a defined contribution profit sharing plan and a defined contribution pension plan. Both plans cover all employees who have attained the age of twenty-one and have completed one year of employment. Employer contribution under the profit sharing plan is determined each plan year by the Company. Employer contributions under the pension plan is 10% of the annual compensation of all participants. Participant vesting in Company contributions under both plans are as follows: VESTED PERCENT -------------- Years of Service: 1 0% 2 20 3 40 4 60 5 80 6 and thereafter 100 For the year ended December 31, 1996, the Company accrued contributions to the profit sharing plan and the pension plan of $32,093 and $21,227, respectively. NOTE 9. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS The information set forth below provides disclosure of the estimated fair value of the Company's financial instruments presented in accordance with the requirements of Statement of Financial Accounting Standards (SFAS) No. 107. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 1996 and March 31, 1997 (unaudited). Since the reported fair values of financial instruments are based upon a variety of factors, they may not represent actual values that could have been realized as of December 31, 1996 and March 31, 1997 (unaudited) or that will be realized in the future. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash, accounts receivable, accounts payable and debt maturing within one year. Fair values were assumed to approximate carrying values for these financial instruments since they are short-term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand. F-34 NOTE 9. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS--(CONTINUED) The fair value of non-current debt instruments have been estimated using discounted cash flow models incorporating discount rates based on current market interest rates for similar types of instruments or quoted market prices, when applicable. At December 31, 1996 and March 31, 1997 (unaudited), the differences between the estimated fair value and the carrying value of non-current debt instruments were considered immaterial in relation to the Company's financial position. NOTE 10. SUBSEQUENT EVENTS RELATED PARTY TRANSACTIONS Subsequent to December 31, 1996, the Company borrowed $100,000 from a major stockholder for working capital purposes. The note is due on demand and is non-interest bearing. Subsequent to December 31, 1996, the Company advanced $20,000 to an entity affiliated to the Company through common ownership. PENDING MERGER On April 16, 1997, the Company and an affiliated company entered into a non-binding letter of intent to merge with Ocean Optique Distributors, Inc. (Ocean). Ocean is a publicly-held company that is engaged in importing, marketing and distributing high quality ophthalmic frames and sunglasses in the mid- and premium-priced categories. Following the consummation of the merger, the Company and the affiliate will become wholly-owned subsidiaries of Ocean, and the present stockholders of the Company and the affiliated company will own shares that shall in no event equal less than 60% of the total voting power of Ocean's then outstanding capital stock. F-35 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Stockholders Sorrento Eyewear, Inc. Miami, Florida We have audited the accompanying balance sheet of Sorrento Eyewear, Inc. as of December 31, 1996, and the related statements of operations and retained earnings and cash flows from inception (October 25, 1996) to December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material aspects, the financial position of Sorrento Eyewear, Inc. as of December 31, 1996, and the results of its operations and its cash flows for the period then ended, in conformity with generally accepted accounting principles. RACHLIN COHEN & HOLTZ Miami, Florida June 10, 1997 F-36
SORRENTO EYEWEAR, INC. BALANCE SHEETS MARCH 31, 1996 AND DECEMBER 31, 1996 MARCH 31, DECEMBER 31, 1997 1996 ---- ---- (UNAUDITED) ASSETS Current Assets: Cash $ - $ 1,108 Accounts receivable 116,173 28,247 Due from affiliates 14,800 6,387 Stock subscription receivable (subsequently received) - 1,000 Inventory 187,978 61,969 Prepaid expenses and other current assets 10,000 20,000 ---------- ----------- Total current assets 328,951 118,711 ========== =========== Property and Equipment 9,494 9,650 Other Assets 1,310 1,383 ---------- ----------- $ 339,755 $ 129,744 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 18,411 $ 25,733 Bank overdraft 15,862 - Income taxes payable 7,500 2,600 Accrued liabilities 4,818 2,311 Notes payable to affiliates 148,294 85,000 ---------- ----------- Total current liabilities 194,885 115,644 ---------- ----------- Long-Term Debt 100,000 - ---------- ----------- Commitments and Subsequent Events Stockholders' Equity: Common stock, $1 par value, 1,000 shares authorized, issued and outstanding 1,000 1,000 Retained earnings 43,870 13,100 ---------- ----------- Total stockholders' equity 44,870 14,100 ---------- ----------- $ 339,755 $ 129,744 ========== ===========
See notes to financial statements. F-37 SORRENTO EYEWEAR, INC. STATEMENTS OF OPERATIONS AND RETAINED EARNINGS THREE MONTHS ENDED MARCH 31, 1997 AND FROM INCEPTION (OCTOBER 25, 1996) TO DECEMBER 31, 1996 1997 1996 ---- ---- (UNAUDITED) Net Sales $ 313,801 $ 67,756 Cost of Goods Sold 236,857 46,182 ---------- ---------- Gross Profit 76,944 21,574 ---------- ---------- Operating Expenses: Selling, general and administrative 38,318 5,524 Depreciation 356 350 ---------- ---------- 38,674 5,874 ---------- ---------- Income before Income Taxes 38,270 15,700 Provision for Income Taxes 7,500 2,600 ---------- ---------- Net Income 30,770 13,100 Retained Earnings, Beginning 13,100 - ---------- ---------- Retained Earnings, Ending $ 43,870 $ 13,100 ========== ========== Earnings Per Share $ 30.77 $ 13.10 ========== ========== See notes to financial statements. F-38
SORRENTO EYEWEAR, INC. STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 1997 AND FROM INCEPTION (OCTOBER 25, 1996) TO DECEMBER 31, 1996 1997 1996 ---- ---- (UNAUDITED) Cash Flows From Operating Activities: Net income $ 30,770 $ 13,100 Adjustments to reconcile net income to net cash used in operating activities: Depreciation 350 350 Changes in operating assets and liabilities: Decrease (increase) in: Accounts receivable (87,926) (28,247) Inventory (126,009) (61,969) Other current assets 10,000 (20,000) Other 73 (1,383) Increase (decrease) in: Accounts payable (7,322) 25,733 Income taxes payable 4,900 2,600 Accrued liabilities 2,507 2,311 ---------- ---------- Net cash used in operating activities (172,657) (67,505) ---------- ---------- Cash Flows From Investing Activities: Expenditures for property and equipment (194) - Advances to affiliates (7,413) (6,387) ---------- ---------- Net cash used in investing activities (7,607) (6,387) ---------- ---------- Cash Flows From Financing Activities: Borrowing from affiliates 63,294 75,000 Increase in bank overdraft 15,862 - Proceeds from note payable 100,000 - ---------- ---------- Net cash provided by financing activities 179,156 75,000 ---------- ---------- Increase (Decrease) in Cash (1,108) 1,108 Cash, Beginning 1,108 - ---------- ---------- Cash, Ending $ - $ 1,108 ========== ========== Supplemental Disclosures of Cash Flow Information: Cash paid during the period for Income Taxes $ 2,600 $ - ========== ========== Issuance of note payable to stockholder in exchange for property and equipment $ - $ 10,000 ========== ==========
See notes to financial statements. F-39 SORRENTO EYEWEAR, INC. NOTES TO FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND CAPITALIZATION Sorrento Eyewear Inc., (the "Company") was incorporated under the laws of the State of Florida on October 25, 1996. The Company's articles of incorporation provide for the issuance of 1,000 authorized shares of common stock, with a par value of $1.00 per share. BUSINESS The Company is engaged in importing, exporting, marketing and distributing eyeglass frames. INVENTORY Inventory, which consists of eyeglass frames, is stated at the lower of cost or market. Cost is determined by the first-in, first-out method, and market by estimated net realizable value. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost and depreciated on the straight line method over the estimated useful lives of the assets. Gain or loss on disposition of assets is recognized currently. Maintenance and repairs are charged to expense as incurred. Major replacements and betterments are capitalized and depreciated over the remaining useful lives of the assets. INCOME TAXES Income tax expense is based on pre-tax financial accounting income. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. There were no temporary differences as of December 31, 1996 and March 31, 1997 (unaudited). CONCENTRATION OF CREDIT RISK Approximately eighty percent of the Company's customers are required to pay for goods on delivery. The Company extends credit to the remaining twenty percent of its customers based on an evaluation of the customer's financial condition. The Company monitors exposure to credit losses and maintains allowances for anticipated losses considered necessary under the circumstances. As of December 31, 1996 and March 31, 1997 (unaudited), no allowance for losses was considered necessary. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and related notes to the financial statements. Actual results may differ from those estimates. F-40 SORRENTO EYEWEAR, INC. NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES UNAUDITED INFORMATION The accompanying financial statements as of and for the three months ended March 31, 1997 are unaudited. However, in the opinion of management, all adjustments (consisting of normal recurring accruals and adjustments) necessary for a fair presentation of financial position, results of operations and cash flows have been made. The results of operations for interim periods are not necessarily indicative of results to be expected for a full year. Comparative financial statements for the interim period for 1996 are not presented inasmuch as the Company was not in existence during such period. EARNINGS PER SHARE Earnings per share has been computed based upon the weighted average number of shares of common stock outstanding during the periods. The number of shares used in the computation was 1,000 shares for all periods. NOTE 2. PROPERTY AND EQUIPMENT
ESTIMATED USEFUL LIFE MARCH 31, DECEMBER 31, (YEARS) 1997 1996 ------- ---- ---- (UNAUDITED) Furniture and fixtures 7 $ 7,434 $ 7,240 Equipment 5 2,760 2,760 -------- -------- 10,194 10,000 Less accumulated depreciation 700 350 -------- -------- Property and equipment, net $ 9,494 $ 9,650 ======== ========
NOTE 3. NOTES PAYABLE TO AFFILIATES
MARCH 31, DECEMBER 31, 1997 1996 ---- ---- (UNAUDITED) Note payable to major stockholder; secured by all assets of the Company (see Note 4) $ 75,000 $ 75,000 Note payable to major stockholder for acquisition of property and equipment (see Note 4) 10,000 10,000 Note payable to major stockholder for working capital purpose (see Note 6) 63,294 -------- -------- $148,294 $ 85,000 ======== ========
NOTE 4. RELATED PARTY TRANSACTIONS PURCHASES FROM RELATED PARTY During the year ended December 31, 1996, the Company purchased approximately $25,000 of eyeglass frames from an entity affiliated to the Company through common ownership. ACQUISITION OF PROPERTY AND EQUIPMENT During 1996, one of the Company's major stockholders sold certain property and equipment to the Company. These items were recorded at their estimated fair market value of $10,000 at the date of transfer. The Company issued a note payable to this stockholder for the same amount. The note is due on demand and is non-interest bearing. F-41 SORRENTO EYEWEAR, INC. NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 4. RELATED PARTY TRANSACTIONS NOTES PAYABLE TO AFFILIATES At December 31, 1996, due to related parties includes $75,000 of notes payable to one of the Company's major stockholders. These notes are due in October 1997, are non-interest bearing, and are secured by all assets of the Company. LEASE The Company rents office, warehouse and showroom space on a month-to-month basis from an entity related to the Company through common ownership. Rent expense for 1996 was $2,236 and for 1997 was $7,242 (unaudited). NOTE 5. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS The information set forth below provides disclosure of the estimated fair value of the Company's financial instruments presented in accordance with the requirements of Statement of Financial Accounting Standards (SFAS) No. 107. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 1996 and March 31, 1997 (unaudited). Since the reported fair values of financial instruments are based upon a variety of factors, they may not represent actual values that could have been realized as of December 31, 1996 and March 31, 1997 (unaudited) or that will be realized in the future. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash, accounts receivable, accounts payable and debt maturing within one year. Fair values were assumed to approximate carrying values for these financial instruments since they are short-term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand. The fair value of non-current debt instruments have been estimated using discounted cash flow models incorporating discount rates based on current market interest rates for similar types of instruments or quoted market prices, when applicable. At December 31, 1996 and March 31, 1997 (unaudited), the differences between the estimated fair value and the carrying value of non-current debt instruments were considered immaterial in relation to the Company's financial position. NOTE 6. SUBSEQUENT EVENTS RELATED PARTY TRANSACTIONS AND LONG-TERM DEBT Subsequent to December 31, 1996, the Company borrowed $100,000 from a bank, evidenced by a promissory note. The note is secured by a certificate of deposit purchased by one of the F-42 SORRENTO EYEWEAR, INC. NOTES TO FINANCIAL STATEMENTS (Continued) company's major stockholders. The note bears interest at the bank's six-month certificate of deposit rate plus two percent (capped at eighteen percent), and matures on January 2002. Subsequent to December 31, 1996, the Company borrowed approximately $63,000 from one of the Company's major stockholders for working capital purposes. Subsequent to December 31, 1996, the Company borrowed $20,000 from an entity affiliated through the ownership of common stock. PENDING MERGER On April 16, 1997, the Company and an affiliated company entered into a non-binding letter of intent to merge with Ocean Optique Distributors, Inc. (Ocean). Ocean is a publicly-held company that is engaged in importing, marketing and distributing high quality ophthalmic frames and sunglasses in the mid- and premium- priced categories. Following the consummation of the merger, the Company and the affiliate will become wholly-owned subsidiaries of Ocean, and the present stockholders of the Company and the affiliated company will own shares that shall in no event equal less than 60% of the total voting power of Ocean's then outstanding capital stock. F-43 NO DEALER, SALESMAN, OR ANY OTHER PERSON HAS BEEN AUTHORIZED BY THE COMPANY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING MADE HEREBY, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE SPECIFICALLY OFFERED HEREBY OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SALE WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE ANY OF THE DATES AS OF WHICH INFORMATION IS FURNISHED OR SINCE THE DATE OF THIS PROSPECTUS. TABLE OF CONTENTS PAGE Prospectus Summary............................ Risk Factors.................................. Forward-Looking Statements.................... Acquisition of Solovision..................... Use of Proceeds............................... Management's Discussion and Analysis of Financial Condition and Results of Operation........................ Business...................................... Management.................................... Principal Securityholders..................... Selling Securityholders....................... Plan of Distribution.......................... Certain Transactions.......................... Description of Securities..................... Experts....................................... Legal Matters................................. Index to Financial Statements.................F-1 OCEAN OPTIQUE DISTRIBUTORS, INC. 5,861,102 SHARES COMMON STOCK ------------------------- PROSPECTUS ------------------------- _______, 1997 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS As authorized by Section 607.0831 of the Florida Business Corporation Act, Directors and Officers of the Company are indemnified against liability under certain circumstances. The Company's Restated Articles of Incorporation, as amended, provide for the indemnification of the Company's Directors and Officers. ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The Company will bear the following estimated expenses incurred in connection with this offering: ITEM AMOUNT* ---- ------- SEC registration fee.............................. $ 3,193.88 Printing ......................................... $ 1,000.00 Legal fees and expenses........................... $ 15,000.00 Accounting fees and expenses...................... $ 5,000.00 Blue sky fees and expenses........................ $ 1,000.00 Miscellaneous..................................... $ 4,806.12 Total........................................... $ 30,000.00 - -------------------- * Estimated, except the SEC registration fee. None of the Selling Securityholders will pay any of the expenses of this offering, but the Selling Securityholders will bear the cost of any brokerage commissions or discounts incurred in connection with the sale of their Common Stock and their respective legal expenses. ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES In March 1997, the Company agreed to exchange $300,000 of debt to D'Arrigo for 300,000 shares of the Company's Common Stock. The Company also negotiated the settlement of certain accounts payable resulting in a write-off of approximately $96,000 of the Company's outstanding accounts payable and the acquisition of 77,419 shares of the Company's Common Stock at $1-15/16 per share, the then current market price. In April 1997, Trevi S.P.A.,a supplier of frames, forgave approximately $185,000 of the Company's accounts payable and received 125,000 shares of Company's Common Stock to offset same. In April 1997, the Company, pursuant to its Stock Option Plans, issued to eight of its employees options to acquire an aggregate of 66,779 shares of the Company's Common Stock. In April 1996, SFL exchanged $400,000 of the Company's accounts payable to SFL for 246,154 shares of the Company's Common Stock. The Company has periodically issued options to certain of its employees pursuant to the Company's Stock Option Plans. In May 1995, the Company, pursuant to its Stock Option Plans, issued to 11 of its employees options to acquire an aggregate of 150,000 shares of the Company's Common Stock. During the quarter ended September 30, 1996, the Company, in consideration of 10,000 eyeglass frames tendered by SFL, granted to SFL the option to purchase 110,000 Shares of Common Stock of the Company at a price of $1.30 per share. This option is exercisable for three years. All of the foregoing securities were issued without registration under the Securities Act by reason of an exemption from registration afforded by the provisions of Section 4(2) thereof, as transactions by an issuer not involving a public offering, the recipient of securities having delivered appropriate investment representations to the Company with respect thereto and having consented to the imposition of restrictive legends upon the certificates evidencing such securities. ITEM 27. EXHIBITS. 2.1 Agreement and Plan of Merger dated as of June 26, 1997 by and among Ocean Optique Distributors, Inc.; Ocean Aquisition Corporation; Solovision Optical, Inc.; Solomon Ovadia; and Leon Wildstein and Ovadia Family Trust* 3.1 Restated Articles of Incorporation, as amended.* 3.2 By-Laws.(1) 5.1 Opinion of Broad and Cassel.* 10.1 Stock Option Plan.(1) 10.2 Exclusive Licensing Agreement with Jacques Fath and translation.(1) 10.3 Business Property Lease, dated August 19, 1993, between Turnpike-McNeil Development, Ltd., and Ocean Optique Distributors, Inc.(2) 10.4 License Agreement between Classic Optical, Inc., and Hallmark Cards, Incorporated (Crayola License), dated January 29, 1991.(2) 10.5 License Agreement between Classic Optical, Inc., and Chevrolet (Geo), dated March 25, 1992.(2) 10.6 Commercial Lease between Miami Opti Mart, Inc. and Ocean Optique Distributors, Inc. dated as of June 27, 1997.* 10.7 Robert Winn Employment Agreement.(3) 10.8 Employment Agreement dated as of June 26, 1997 between Ocean Optique Distrubors, Inc. and Solomon Ovadia.* 10.9 EMA Acquisition Agreement.(3) 10.10 Loan and Security Agreement between Ocean Optique Distributors, Inc., Classic Optical, Inc., European Manufacturers Agency, Inc., and Coast Business Credit, dated as of May 28, 1997.* 10.11 First Amendment to Schedule to Loan and Security Agreement dated as of June 25, 1997.* 11.1 Statement re: Computation of Per Share Earnings.(4) 21.1 Subsidiaries of the Registrant.* II-2 23.1 Consent of Grant Thornton LLP.* 23.2 Consent of Rachlin, Cohen & Holtz.* 23.3 Consent of Broad and Cassel (see Exhibit 5.1).* 24.1 Power of Attorney (included in the signature page hereof). 27.1 Financial Data Schedule (for Commission Use Only). - -------------------- * Filed herewith. (1) Incorporated by reference to the Registrant's Registration Statement on Form S-18 (SEC File No. 33-41164), declared effective September 24, 1991. (2) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended June 30, 1993. (3) Incorporated by reference to the Registrant's Current Report on Form 8-K dated June 21, 1995. (4) Filed with Registrant's Annual Report on Form 10-KSB for the fiscal year ended June 30, 1996, and the Registrant's Quarterly Report filed on Form 10-QSB for the quarter ended March 31, 1997. II-3 ITEM 28. UNDERTAKINGS (A) The Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement to: (i) Include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended (the "Securities Act"); (ii) Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement; or (iii) Include any additional or changed material information with respect to the plan of distribution. (2) For the purposes of determining any liability under the Securities Act, each post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (B) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the small business issuer of expenses incurred or paid by a director, officer or controlling person of the small business issuer in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the small business issuer will, unless in the option of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of filing on Form SB-2 and has authorized this Registration Statement to be signed on its behalf by the undersigned, in the City of Miami, State of Florida, on this 16th day of July, 1997. OCEAN OPTIQUE DISTRIBUTORS, INC. -------------------------------- Registrant By: /s/ KENNETH J. GORDON ------------------------------------------ Kenneth J. Gordon, Chief Financial Officer POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints Kenneth J. Gordon and Solomon Ovadia, and either of them, as such person's true and lawful attorney-in-fact and agent with full power of substitution and resubstitution for such person and in his name, place and stead in any and all capacities to execute in the name of each such person who is then an officer or director of the Registrant any and all amendments (including post-effective amendments) to this Registration Statement, and any registration statement relating to the offering hereunder pursuant to Rule 462 under the Securities Act of 1933, as amended, and to file the same with all exhibits thereto and other attorneys-in-fact and agents and each of them full power and authority to do and perform each and every act and thing required or necessary to be done in and about the premises as fully as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute or substitutes, may lawfully do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates stated.
SIGNATURE TITLE DATE - ------------------------------------ -------------------------- --------------- /S/ SOLOMON OVADIA President and Director July 16, 1997 - ------------------------------------ Solomon Ovadia /S/ KENNETH J. GORDON Principal Accounting July 16, 1997 - ------------------------------------ Officer, Chief Financial Kenneth J. Gordon Officer and Director /S/ RICHARD RUSSO Director July 16, 1997 - ------------------------------------ Richard Russo [SIGNATURES CONTINUED] II-5 SIGNATURE TITLE DATE - ------------------------------------ -------------------------- --------------- /S/ LEON WILDSTEIN Director July 16, 1997 - ------------------------------------ Leon Wildstein /S/ ROBERT D. WINN Director July 16, 1997 - ------------------------------------ Robert D. Winn
II-6 OCEAN OPTIQUE DISTRIBUTORS, INC. INDEX TO EXHIBITS* EXHIBIT NUMBER DESCRIPTION - ------- ----------- 2.1 Agreement and Plan of Merger dated as of June 26, 1997 by and among Ocean Optique Distributors, Inc., Ocean Aquisition Corporation, Solovision Optical, Inc., Solomon Ovadia, Leon Wildstein, and Ovadia Family Trust. 3.1 Restated Articles of Incorporation, as amended. 5.1 Opinion of Broad and Cassel. 10.8 Employment Agreement dated as of June 26, 1997 between Ocean Optique Distributors, Inc. and Solomon Ovadia. 10.10 Loan and Security Agreement between Ocean Optique Distributors, Inc., Classic Optical, Inc., European Manufacturers Agency, Inc., and Coast Business Credit, dated as of May 28, 1997. 10.11 First Amendment to Schedule to Loan and Security Agreement dated as of June 25, 1997. 21.1 Subsidiaries of the Registrant. 23.1 Consent of Grant Thornton LLP. 23.2 Consent of Rachlin, Cohen & Holtz. 23.3 Consent of Broad and Cassel (see Exhibit 5.1). - ---------------------- * All other exhibits listed in Item 27 of Part II of the Registration Statement on Form SB-2 are incorporated by reference to documents previously filed as indicated therein or will be filed by amendment. EX-2.1 2 EXHIBIT 2.1 AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER is dated as of June 26, 1997 (the "Agreement") by and among OCEAN OPTIQUE DISTRIBUTORS, INC., a Florida corporation ("Ocean"); OCEAN ACQUISITION CORPORATION, a Florida corporation ("OAC"); SOLOVISION OPTICAL, INC., a Florida corporation ("Solovision"); SOLOMON OVADIA ("Ovadia"); and LEON WILDSTEIN ("Wildstein") and OVADIA FAMILY TRUST (collectively, the "Shareholders"). RECITALS: The respective Boards of Directors of Ocean, OAC and Solovision deem it desirable and in the best interests of their respective corporations and shareholders that OAC merge with and into Solovision (the "Merger") in a statutory merger in accordance with the laws of the State of Florida (the "Applicable Statutes"). The parties desire that the Merger provided for herein shall qualify as a tax-free reorganization within the meaning of Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended. NOW, THEREFORE, in consideration of the mutual benefits to be derived hereby and the mutual representations, warranties, covenants and agreements herein contained, the parties agree as follows: ARTICLE I MERGER 1.1 MERGER AND SURVIVING CORPORATION. (a) Pursuant to the Applicable Statutes, OAC shall merge with and into Solovision, and Solovision shall be the surviving corporation after the Merger (the "Surviving Corporation") and shall continue to exist as a corporation created and governed by the laws of the State of Florida under the name "Solovision Optical, Inc." (b) The Articles of Incorporation of the Surviving Corporation, from and after the Effective Time of the Merger (as hereinafter defined), shall be the Articles of Incorporation of Solovision. (c) The Bylaws of the Surviving Corporation, from and after the Effective Time of the Merger, shall be the Bylaws of Solovision. -1- 1.2 EFFECTIVENESS OF MERGER. Articles of Merger substantially in the form set forth in Exhibit 1.2 hereto shall be delivered on the Closing Date (as hereinafter defined) to the Secretary of State of Florida for filing in accordance with the Applicable Statutes. The Merger shall become effective upon the acceptance of such filing by the Secretary of State of Florida, which shall be the "Effective Time of the Merger." 1.3 SHARES OF THE CONSTITUENT AND SURVIVING CORPORATIONS. The manner and basis of converting and exchanging the shares of Solovision and the status of OAC's shares shall be as follows: (a) The shares of common stock, $1.00 par value per share, of Solovision (the "Solovision Common Stock") outstanding at the Effective Time of the Merger shall be converted into and become, without action on the part of the holders thereof, an aggregate of 3,137,977 shares of the common stock, no par value per share, of Ocean (the "Ocean Common Stock") plus 1,000,000 shares of Series C Non-Cumulative Convertible Preferred Stock, no par value per share, of Ocean (the "Ocean Preferred Stock"). Shares of Ocean Preferred Stock will be entitled to vote together with the Ocean Common Stock as a single class on all matters presented to a vote of shareholders, except as provided by law, and each share of Ocean Preferred Stock shall be entitled to 7.155058 votes. Each share of Ocean Preferred Stock shall be automatically converted into 7.155058 shares of Ocean Common Stock upon the filing of an amendment to Ocean's Articles of Incorporation increasing the number of authorized shares of Ocean Common Stock to not less than 25,000,000 shares, and shall further have the rights and preferences as set forth in Exhibit 1.3(a) hereto. The aggregate consideration (the "Ocean Shares") payable by Ocean and OAC in consideration of the Merger shall in no event equal less than 60% of the outstanding voting capital stock of Ocean, on a fully diluted basis, after giving effect to the Merger. Each share of Solovision Common Stock outstanding at the Effective Date of the Merger shall be converted into and become 21,346.78 shares of Ocean Common Stock and 6,802.72 shares of Ocean Preferred Stock. (b) Any shares of Solovision Common Stock held in the treasury of Solovision at the Effective Time of the Merger shall be cancelled and retired, and no shares or other securities of Ocean shall be issuable with respect thereto. Prior to the Closing (as hereinafter defined), all outstanding warrants, options and convertible securities issued by Solovision shall have been cancelled. (c) Each share of common stock, $.01 par value per share, of OAC (the "OAC Common Stock") outstanding at the Effective Time of the Merger shall be converted into and become one share of common stock, $1.00 par value per share, of the Surviving Corporation, without action on the part of the holder thereof. (d) At the Closing, each holder of shares of Solovision Common Stock who shall have delivered certificate(s) in negotiable form representing all of such shares of Solovision Common Stock held by such shareholder shall be entitled to receive in exchange therefor a certificate or certificates representing such shareholder's pro rata portion of the Ocean Shares -2- to be issued as specified in Section 1.3(a) hereof. Until so delivered, each such outstanding certificate that immediately prior to the Effective Time of the Merger represented shares of Solovision Common Stock shall be deemed for all corporate purposes, but subject to the further provisions of this Article I, to evidence the ownership of that number of Ocean Shares specified in Section 1.3(a) hereof for each share of Solovision Common Stock included therein. 1.4 EFFECT OF MERGER. (a) Except as herein otherwise specifically set forth, the corporate identity, existence, purposes, powers, franchises, rights and immunities of Solovision shall continue unaffected and unimpaired by the Merger, and the corporate identity, existence, purposes, powers, franchises, rights and immunities of OAC shall be merged into Solovision, and Solovision, as the Surviving Corporation and a wholly owned subsidiary of Ocean, shall be fully vested therewith. The separate existence and corporate organization of OAC (except insofar as they may be continued by statute) shall cease as of the Effective Time of the Merger. (b) At the Effective Time of the Merger: (i) All and singular, the rights, privileges, goodwill and franchises and all property, real, personal and mixed, and all debts due on whatever accounts and all other things in action, belonging to Solovision shall be, and they hereby are, bargained, conveyed, granted, confirmed, transferred, assigned and set over to and vested in the Surviving Corporation by operation of law and without further act or deed, and all property and rights, and all and every other interest of Solovision shall be the property, rights and interests of the Surviving Corporation as they were of Solovision; (ii) No action or proceeding, whether civil or criminal, pending at the Effective Time of the Merger by or against either OAC or Solovision, or any shareholder, officer or director thereof, shall abate or be discontinued by the Merger, but may be enforced, prosecuted, settled or compromised as if the Merger had not occurred, or the Surviving Corporation may be substituted in such action or proceeding in place of Solovision; and (iii) All rights of employees and creditors and all liens upon the property of Solovision shall be preserved unimpaired, limited to the property affected by such liens at the Effective Time of the Merger, and all the debts, liabilities and duties of Solovision shall be enforceable against the Surviving Corporation to the same extent as if all such debts, liabilities and duties had been incurred or contracted by it. 1.5 FURTHER ASSURANCES. Solovision, Ovadia and the Shareholders agree that, from time to time, as and when requested by the Surviving Corporation or by its successors and assigns, the last acting officers of Solovision, the corresponding officers of the Surviving Corporation, or the Shareholders, as applicable, shall, in the name of Solovision, execute and deliver, or cause to be executed and delivered, at the sole expense of the Surviving Corporation, -3- all deeds, assignments and other instruments and shall take or cause to be taken all such other and further actions as the Surviving Corporation may deem necessary or appropriate in order more fully to vest in and confirm to the Surviving Corporation title to and possession of all the property, rights, privileges, immunities, powers, purposes, franchises and all and every other interest of Solovision referred to in Section 1.4 hereof and otherwise to carry out the intent and purposes of this Agreement. 1.6 DIRECTORS OF SURVIVING CORPORATION. The persons constituting the Board of Directors of the Surviving Corporation, who shall hold office from the Effective Time of the Merger in accordance with its Bylaws until the next annual meeting of shareholders and until their respective successors shall have been elected and shall have qualified, shall be the persons who constituted the Board of Directors of Solovision immediately prior to the Effective Time of the Merger. 1.7 CLOSING; CLOSING DATE. The closing (the "Closing") provided for herein shall take place at the offices of Broad and Cassel, 201 South Biscayne Boulevard, Suite 3000, Miami, Florida 33131 at 10:00 a.m. on the date of this Agreement, or on such other date and at such other time as may be mutually agreed to by the parties. Such date is referred to in this Agreement as the "Closing Date." ARTICLE II REPRESENTATIONS AND WARRANTIES OF SOLOVISION AND OVADIA For the purposes of this Article II, any reference to "Solovision" in a particular representation and warranty shall, where appropriate, also include Sorrento Eyewear, Inc., a Florida corporation ("Sorrento"), an affiliate of Solovision that was merged into Solovision in June 1997 prior to the date of this Agreement, unless there is also an express reference to Sorrento in the particular text. Solovision, Ovadia and the Ovadia Family Trust, jointly and severally, make the following representations and warranties to Ocean and OAC: 2.1 VALID CORPORATE EXISTENCE; QUALIFICATION. Solovision is a corporation duly organized, validly existing and, except as set forth on Schedule 2.1 attached hereto, in good standing under the laws of the State of Florida. Solovision has the corporate power to carry on its business as now conducted and to own its assets. Solovision is not qualified to conduct business in any foreign jurisdiction, there being no foreign jurisdictions in which the failure to qualify would have a material adverse effect on Solovision and its assets, properties or business, and there has not been any claim by any jurisdiction to the effect that Solovision is required to qualify or otherwise be authorized to do business as a foreign corporation therein. The copies of Solovision's Articles of Incorporation, as amended to date (certified by the Secretary of State of Florida), and Solovision's Bylaws, as amended to date (certified by Solovision's Secretary), -4- are true and complete copies of those documents as in effect on the date hereof. The minute books of Solovision contain accurate records of all meetings of its Board of Directors and all committees thereof and of its shareholders since its incorporation, and accurately reflect all transactions referred to therein. 2.2 CAPITALIZATION. The authorized capital stock of Solovision consists of 1,000 shares of Solovision Common Stock, of which 147 shares are currently issued and outstanding and will be issued and outstanding as of the Closing. All of such issued and outstanding shares of Solovision Common Stock are duly authorized, validly issued, fully paid and nonassessable and are owned of record and beneficially by the holders thereof as set forth on Schedule 2.2 hereto. Except as set forth on Schedule 2.2, there are no subscriptions, options, warrants, rights or calls or other commitments or agreements to which Solovision is a party or by which it is bound, calling for the issuance, transfer, sale or other disposition of any class of securities of Solovision, and there are no outstanding securities of Solovision convertible or exchangeable, actually or contingently, into shares of Solovision Common Stock or any other securities of Solovision. All transfer taxes, if any, with respect to transfers of capital stock of Solovision made prior to the date hereof have been paid. 2.3 SUBSIDIARIES. Solovision has no subsidiaries and does not directly or indirectly control any corporations, partnerships or other business entities. 2.4 CONSENTS. No consent of any governmental or other regulatory agencies, foreign or domestic, or any other third parties is required to be received by or on the part of Solovision to enable Solovision to enter into and carry out this Agreement. 2.5 CORPORATE AUTHORITY; BINDING NATURE OF AGREEMENT. Solovision has the power to enter into this Agreement and to carry out its obligations hereunder. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby has been duly authorized by the Board of Directors and shareholders of Solovision, and no other corporate proceedings on the part of Solovision or its shareholders are necessary to authorize the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. This Agreement constitutes the valid and binding obligation of each of Solovision, Ovadia and the Shareholders and is enforceable against each of Solovision, Ovadia and the Shareholders and in accordance with its terms. 2.6 FINANCIAL STATEMENTS. The audited financial statements of Solovision at December 31, 1996 and 1995, and for the years then ended, and of Sorrento at December 31, 1996, and for the year then ended, and the unaudited financial statements of each of Solovision and Sorrento at March 31, 1997, and for the three months then ended (collectively, the "Solovision Financial Statements"), copies of which are attached hereto as Schedule 2.6, (a) are true, correct and complete, (b) are in accordance with the books and records of Solovision and Sorrento, (c) fairly, completely and accurately present the financial position of Solovision and Sorrento as of such dates and the results of their operations for such periods, and (d) were prepared in conformity with generally accepted accounting principles consistently applied throughout the -5- periods covered thereby and with the requirements of Regulation S-B, promulgated by the Securities and Exchange Commission (the "SEC"). Such audited financial statements have been audited by Rachlin & Cohen, independent certified public accountants, whose report thereon is included therein. 2.7 LIABILITIES. As of March 31, 1997 (the "Solovision Balance Sheet Date"), neither Solovision nor Sorrento had any material debts, liabilities or obligations, contingent or absolute, other than those debts, liabilities and obligations reflected or reserved against in the balance sheet of Solovision or Sorrento, as the case may be, as of the Solovision Balance Sheet Date (the "Solovision Balance Sheet"). On or before the Closing Date, each of Ovadia and Wildstein shall have contributed to the capital of Solovision or Sorrento, as appropriate, any shareholder loans made to either of those corporations by him or any of his affiliates, except for a $100,000 loan to Solovision from SAO Lens & Equipment Co. 2.8 ACTIONS SINCE THE SOLOVISION BALANCE SHEET DATE. Except as otherwise expressly provided or set forth in, or required by, this Agreement, or as set forth in Schedule 2.8 hereto, since the Solovision Balance Sheet Date, neither Solovision nor Sorrento has: (a) issued or sold, or agreed to issue or sell, any of its capital stock, options, warrants, rights or calls to purchase such stock, any securities convertible or exchangeable into such capital stock or other corporate securities, or effected any subdivision or other recapitalization affecting its capital stock; (b) incurred any material obligation or liability, absolute or contingent, except those arising in the ordinary and usual course of business or in connection with the transactions contemplated hereby; (c) discharged or satisfied any lien or encumbrance, except in the ordinary and usual course of business, or paid or satisfied any liability, absolute or contingent, other than liabilities as of the Solovision Balance Sheet Date and current liabilities incurred since the Solovision Balance Sheet Date in the ordinary and usual course of business; (d) made any wage or salary increases or granted any bonuses other than wage and salary increases and bonuses granted in accordance with its normal salary increase and bonus policies; (e) mortgaged, pledged or subjected to any lien, pledge, charge or other encumbrance any of its properties or assets, or permitted any of its property or assets to be subjected to any lien, pledge, charge or other encumbrance, except in the ordinary and usual course of business; (f) sold, assigned or transferred any of its properties or assets, except in the ordinary and usual course of business; (g) other than this Agreement or the transactions contemplated hereby, entered into any transaction or course of conduct not in the ordinary and usual course of business; (h) waived any rights of substantial value, or cancelled, modified or waived any indebtedness for borrowed money held by it, except in the ordinary and usual course of business; (i) declared, paid or set aside any dividends or other distributions or payments on its capital stock, or redeemed or repurchased, or agreed to redeem or repurchase, any shares of its capital stock; (j) made any loans or advances to any person, or assumed, guaranteed, endorsed or otherwise became responsible for the obligations of any person; or (k) incurred any indebtedness for borrowed money (except endorsement, for collection or deposit, of negotiable instruments received in the ordinary and usual course of business). Copies of each of Solovision's and Sorrento's accounts payable list as of June 26, 1997, are attached as part of Schedule 2.8. -6- 2.9 ADVERSE DEVELOPMENTS. Since the Solovision Balance Sheet Date, there have been no material adverse changes in the assets, properties, operations or financial condition of Solovision, and no event has occurred that could be reasonably expected to have a material adverse effect upon the business of Solovision and neither Solovision, after reasonable inquiry, Ovadia nor any of the Shareholders is aware of any development or threatened development of a nature that has, or that could be reasonably expected to have, a material adverse effect upon the business of Solovision or upon any of its assets, properties, operations or financial condition. 2.10 TAXES. Except as set forth in Schedule 2.10 hereto, all taxes, including, without limitation, income, property, sales, use, franchise, capital stock, excise, value added, employees' income withholding, social security and unemployment taxes imposed by the United States, by any state, locality or foreign country, or by any other taxing authority, which have or may become due or payable by Solovision and all interest and penalties thereon, whether disputed or not, have been paid in full or adequately provided for by reserves shown in the Solovision Financial Statements; all deposits required by law to be made by Solovision or with respect to estimated income, franchise and employees' withholding taxes have been duly made; and all tax returns, including estimated tax returns, required to be filed have been duly filed. No extension of time for the assessment of deficiencies for any year is in effect. Except as set forth in Schedule 2.10, no deficiency notice is proposed, or, to the knowledge of Solovision, after reasonable inquiry, or to the knowledge of Ovadia or any of the Shareholders, threatened against Solovision. Except as set forth on Schedule 2.10, the federal and state income tax returns of Solovision have never been audited. 2.11 OWNERSHIP OF ASSETS; TRADEMARKS, PATENTS. Schedule 2.11 hereto sets forth a true and complete list of all personal property owned by Solovision with a value greater than $5,000. Except as set forth in Schedule 2.11, Solovision owns outright, and has good and marketable title to all of its assets, properties and businesses (including all assets reflected in the Solovision Balance Sheet, except as the same may have been disposed of in the ordinary and usual course of business since the Solovision Balance Sheet Date), free and clear of all liens, mortgages, pledges, claims, conditional sales agreements, restrictions on transfer or other encumbrances or charges whatsoever. Schedule 2.11 sets forth a true and complete list and brief description of all patents, copyrights, trademarks, trade names or other similar intangible assets that are owned by Solovision or in which Solovision has an interest. Except as set forth in Schedule 2.11, no other person, firm or corporation has any proprietary or other interest in any such intangible assets. Such assets so owned are sufficient to permit Solovision to conduct its business as now conducted. Except as set forth in Schedule 2.11, Solovision is not a party to or bound by any license or agreement requiring the payment to any person, firm or corporation of any royalty. Solovision is not infringing upon any patent, copyright, trade name or trademark or otherwise is violating the rights of any third party with respect thereto, and no proceedings have been instituted and no claim has been received by Solovision alleging any such violation. 2.12 INSURANCE. Schedule 2.12 hereto sets forth a true and complete list and brief description of all policies of fire, liability and other forms of insurance held by Solovision. Except as set forth in Schedule 2.12, such policies are valid, outstanding and enforceable -7- policies, as to which premiums have been paid currently, are with reputable insurers believed by Solovision, after reasonable inquiry, to be financially sound and are consistent with the practices of similar concerns engaged in substantially similar operations as those currently conducted by Solovision. Except as set forth in Schedule 2.12, neither Solovision, after reasonable inquiry, Ovadia nor any of the Shareholders is aware of any state of facts or of the occurrence of any event that might reasonably (a) form the basis for any material claim against Solovision not fully covered by insurance for liability on account of any express or implied warranty or tortious omission or commission, or (b) result in a material increase in insurance premiums. 2.13 LITIGATION; COMPLIANCE WITH LAW. Except as set forth in Schedule 2.13 hereto, there are no actions, suits, proceedings or governmental investigations relating to Solovision or any of its properties, assets or businesses pending or, to the knowledge of Solovision, after reasonable inquiry, or to the knowledge of Ovadia or any of the Shareholders, threatened, or any order, injunction, award or decree outstanding against Solovision or against or relating to any of its properties, assets or businesses; and neither Solovision, Ovadia nor any of the Shareholders is aware of any basis for any such action, suit, proceeding, governmental investigation, order, injunction or decree. Solovision is not in violation of any law, regulation, ordinance, order, injunction, decree, award, or other requirement of any governmental body, court or arbitrator relating to its properties, assets or business, the violation of which would have a material adverse effect on Solovision. 2.14 REAL PROPERTY. Schedule 2.14 hereto sets forth a brief description of all real properties that are owned by or leased to Solovision, including Solovision's interest therein. Except as set forth in Schedule 2.14, Solovision does not own outright the fee simple title in and to any real property. The real property leases described in Schedule 2.14 that relate to the leased properties described therein are in full force and effect, and all amounts payable thereunder have been paid. All uses of such real property by Solovision conform in all material respects to the terms of the leases relating thereto and, to the knowledge of Solovision, Ovadia and the Shareholders, conform in all material respects to all applicable building and zoning ordinances, laws and regulations. None of such leases may be expected to result in the expenditure of material sums for the restoration of the premises upon the expiration of their respective terms. 2.15 AGREEMENTS AND OBLIGATIONS; PERFORMANCE. Except as listed and briefly described in Schedule 2.15 hereto (the "Solovision Listed Agreements"), Solovision is not a party to, or bound by, any: (a) written or oral agreement or other contractual commitment, understanding or obligation that involves aggregate payments or receipts in excess of $5,000 (such agreements are listed in Schedule 2.15); (b) contract, arrangement, commitment or understanding that involves aggregate payments or receipts in excess of $5,000 that cannot be cancelled on 30 days' or less notice without penalty or premium or any continuing obligation or liability (such agreements are listed in Schedule 2.15); (c) contractual obligation or contractual liability of any kind to any shareholders of Solovision; (d) contract, arrangement, commitment or understanding with their customers or any officer, employee, shareholder, director, representative or agent -8- thereof for the repurchase of products, sharing of fees, the rebating of charges to such customers, bribes, kickbacks from such customers or other similar arrangements; (e) contract for the purchase or sale of any materials, products or supplies that contains, or that commits or will commit them for, a fixed term (such agreements are listed in Schedule 2.15); (f) contract of employment with any officer or employee not terminable at will without penalty or premium or any continuing obligation or liability; (g) deferred compensation, bonus or incentive plan or agreement not cancelable at will without penalty or premium or any continuing obligation or liability; (h) management or consulting agreement not terminable at will without penalty or premium or any continuing obligation or liability; (i) lease for real or personal property (including borrowings thereon), license or royalty agreement; (j) agreement, commitment or understanding relating to indebtedness for borrowed money; (k) union or other collective bargaining agreement; (l) contract that, by its terms, requires the consent of any party thereto to the consummation of the transactions contemplated hereby; (m) contract containing covenants limiting the freedom of Solovision to engage or compete in any line or business or with any person in any geographical area; (n) contract or option relating to the acquisition or sale of any business; (o) voting trust agreement or similar shareholders' agreement; (p) option for the purchase of any asset, tangible or intangible; or (q) other contract, agreement, commitment or understanding that materially affects any of its properties, assets or business, whether directly or indirectly, or that was entered into other than in the ordinary course of business. A true and correct copy of each of the written Solovision Listed Agreements has been delivered to Ocean. Solovision has in all material respects performed all obligations required to be performed by it to date under all of the Solovision Listed Agreements, is not in default in any material respect under any of the Solovision Listed Agreements, and has received no notice of any default or alleged default thereunder which has not heretofore been cured or which notice has not heretofore been withdrawn. Neither Solovision, after reasonable inquiry, Ovadia nor any of the Shareholders is aware of any material default under any of the Solovision Listed Agreements by any other party thereto or by any other person, firm or corporation bound thereunder except as set forth in the Solovision Financial Statements. Copies of lists of Solovision's or Sorrento's customers or suppliers have been delivered to Ocean. 2.16 CONDITION OF ASSETS. Except for servicing requirements, all machinery and equipment used by Solovision in the conduct of its business are in good operating condition and repair, ordinary wear and tear excepted. The inventories of Solovision are and will be in usable and saleable condition, and each item of such inventory is saleable at least at the value at which it is carried on its books. 2.17 ACCOUNTS RECEIVABLE. All of the accounts receivable of Solovision reflected in the Solovision Financial Statements, except those owed to it since the dates thereof, which are subject to the reserves reflected in the Solovision Financial Statements, constitute bona fide accounts receivable resulting from bona fide sales of services or goods in the ordinary course of its business, and neither Solovision, after reasonable inquiry, Ovadia nor any Shareholder knows, nor does it have reason to know, of any valid defense or right of set-off to the rights of Solovision to collect such accounts receivable in full, less such reserves. Copies of each of -9- Solovision's and Sorrento's accounts receivable list as of June 26, 1997, are attached hereto as Schedule 2.17. 2.18 PERMITS AND LICENSES. Schedule 2.18 hereto sets forth a true and complete list of all permits, licenses, orders, franchises and approvals from all federal, state, local and foreign governmental regulatory bodies held by Solovision. Solovision has all permits, licenses, orders and approvals of all federal, state, local and foreign governmental or regulatory bodies required to carry on its business as currently conducted and to sell its services and products; all such permits, licenses, orders, franchises and approvals are in full force and effect, and, to the knowledge of Solovision, Ovadia and the Shareholders, no suspension or cancellation of any of such permits, licenses, orders, franchises and approvals is threatened; and Solovision is in compliance in all material respects with all requirements, standards and procedures of the federal, state, local and foreign governmental bodies that have issued such permits, licenses, orders, franchises and approvals. Schedule 2.11 also sets forth a brief description of all vans, automobiles, trucks or other vehicles owned or leased by Solovision and the state of title thereof. 2.19 INTEREST IN ASSETS. Except as set forth in Schedule 2.14 hereto with respect to the real property leased by Solovision, no officer, director or holder of capital stock of Solovision or any affiliate thereof owns any property or rights, tangible or intangible, used in or related, directly or indirectly, to the business of Solovision. 2.20 SALARY INFORMATION. Schedule 2.20 hereto contains a true and complete list of the names and current salary rates of and bonus commitments to all present officers of Solovision and all other employees whose base annual compensation exceeds $30,000. 2.21 EMPLOYEE BENEFIT PLANS. Except as set forth in Schedule 2.21 hereto, Solovision does not maintain, or make any employer contributions under, any "pension" or "welfare" benefit plans, as defined by the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). 2.22 NO BREACH. Neither the execution and delivery of this Agreement, nor compliance by Solovision with any of the provisions hereof, nor the consummation of the transactions contemplated hereby, will: (a) violate or conflict with any provision of the Articles of Incorporation or Bylaws of Solovision; (b) violate or, alone or with notice or the passage of time, result in the material breach or termination of, or otherwise give any contracting party the right to terminate, or declare a default under, the terms of any agreement or other document or undertaking, oral or written, to which Solovision is a party or by which it or any of its properties or assets may be bound (except for such violations, conflicts, breaches or defaults as to which required waivers or consents by other parties have been, or will, prior to the Closing, be, obtained); -10- (c) result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of Solovision; (d) violate any judgment, order, injunction, decree or award against, or binding upon, Solovision or any of its properties or assets; or (e) violate any law or regulation of any jurisdiction relating to Solovision or its securities, assets or properties, the violation of which would have a material adverse effect on Solovision. 2.23 BROKERS. Except as set forth in Schedule 2.23 hereto, neither Solovision, Ovadia nor any of the Shareholders has engaged, consented to or authorized any broker, finder, investment banker or other third party to act on its behalf, directly or indirectly, as a broker or finder in connection with the transactions contemplated by this Agreement, and Solovision, Ovadia and the Shareholders agree to indemnify Ocean and OAC against, and to hold them harmless from, any claim for brokerage or similar commissions or other compensation that may be made against Ocean or OAC by any third party in connection with the transactions contemplated hereby, which claim is based upon any action by Solovision, Ovadia or any of the Shareholders. 2.24 UNTRUE OR OMITTED FACTS. No representation, warranty or statement furnished by or to be furnished by Solovision, Ovadia or any of the Shareholders in this Agreement or in any certificate, schedule or document delivered pursuant to this Agreement contains any untrue statement of a material fact, or omits to state a fact necessary in order to make such representations, warranties or statements not misleading. Without limiting the generality of the foregoing, there is no fact known to Solovision, after reasonable inquiry, Ovadia or any of the Shareholders that has had, or that may be reasonably expected to have, a material adverse effect on Solovision or any of its assets, properties, operations or businesses that has not been disclosed in this Agreement. ARTICLE III REPRESENTATIONS AND WARRANTIES OF OCEAN AND OAC Ocean and OAC, jointly and severally, make the following representations and warranties to Solovision: 3.1 VALID CORPORATE EXISTENCE; QUALIFICATION. Ocean and OAC are corporations duly organized, validly existing and, except as set forth on Schedule 3.1 attached hereto, in good standing under the laws of the State of Florida. Each of Ocean and OAC has the corporate power to carry on its business as now conducted and to own its assets. Ocean and OAC are not qualified to conduct business in any foreign jurisdiction, there being no foreign jurisdictions in which the failure to qualify would have a material adverse effect on Ocean or OAC. There has -11- not been any claim by any jurisdiction to the effect that Ocean is required to qualify or otherwise be authorized to do business as a foreign corporation therein. The copies of Ocean's and OAC's Articles of Incorporation, as amended to date (as certified by the Secretary of State of Florida) and Ocean's and OAC's Bylaws, as amended to date (as certified by the Secretary of Ocean and OAC, respectively), which have heretofore been delivered to Solovision, are true and complete copies of those documents as now in effect. The minute books of Ocean and OAC contain accurate records of all meetings of their respective Boards of Directors and all committees thereof and of their respective shareholders since their incorporation, and accurately reflect all transactions referred to therein. 3.2 CAPITALIZATION. The authorized capital stock of OAC consists of 1,000 shares of OAC Common Stock, 100 shares of which are issued and outstanding and owned of record and beneficially by Ocean. All of such issued and outstanding shares of OAC Common Stock are duly authorized, validly issued, fully paid and nonassessable. The authorized capital stock of Ocean consists of 10,000,000 shares of Ocean Common Stock, of which 3,767,589 shares are issued and outstanding and 3,094,434 are reserved for issuance, and 5,000,000 shares of Ocean Preferred Stock, of which 1,164,508 shares have been issued and a lesser number of which are currently outstanding as a result of conversions to date into shares of Ocean Common Stock of shares of Ocean's Series A Cumulative Convertible 3% Preferred Stock (the "Series A Preferred Stock"). The number of issued and outstanding shares of Ocean Common Stock may increase, and the number of shares of Ocean Common Stock reserved for issuance may decrease by a like number, because of certain pending conversions into Ocean Common Stock of certain 8% Five-Year Convertible Subordinated Debentures and certain shares of the Series A Preferred Stock. All of such issued and outstanding shares of Ocean Common Stock and Ocean Preferred Stock are duly authorized, validly issued, fully paid and nonassessable. The Ocean Shares to be issued and delivered as contemplated by Section 1.3 hereof are duly and validly authorized and, when so issued and delivered, will be duly and validly issued, fully paid and nonassessable and there will not be any preemptive rights with respect to the Ocean Shares. Except as set forth in Schedule 3.2 hereto, there are no subscriptions, options, warrants, rights or calls or other commitments or agreements to which Ocean or OAC is a party or by which either of them is bound, calling for the issuance, transfer, sale or other disposition of any class of securities of Ocean or OAC. Except as set forth in Schedule 3.2, there are no outstanding securities of Ocean convertible or exchangeable, actually or contingently, into shares of Ocean Common Stock, Ocean Preferred Stock, OAC Common Stock or any other securities of Ocean or OAC. All transfer taxes, if any, with respect to transfers of capital stock of Ocean or OAC made prior to the date hereof have been paid. 3.3 SUBSIDIARIES. Schedule 3.3 hereto sets forth a complete list of the names, jurisdictions of incorporation and capital stock of all corporations, partnerships and other business entities controlled by Ocean (collectively, the "Ocean Subsidiaries"). Each of the Ocean Subsidiaries are corporations duly organized, validly existing and, except as set forth on Schedule 3.1 attached hereto, in good standing under the laws of the jurisdiction of their incorporation and have the corporate power to carry on their business as now conducted and to own their assets. Each of the Ocean Subsidiaries are duly qualified to do business and are in -12- good standing as foreign corporations in the jurisdictions set forth on Schedule 3.3, such jurisdictions being the only foreign jurisdictions in which the failure to qualify would have a material adverse effect on the Ocean Subsidiaries and their respective assets, properties or businesses, and there has not been a claim by any jurisdiction to the effect that they are required to qualify or otherwise be authorized to do business as a foreign corporation therein. All of the outstanding capital stock of each of the Ocean Subsidiaries is validly issued, fully paid and non-assessable and all of the shares of such capital stock that are owned by Ocean or the Ocean Subsidiaries are free and clear of all liens, claims, charges or encumbrances of any nature whatsoever. There are no outstanding securities convertible into shares of capital stock or any subscriptions, options, warrants, rights or calls, or other commitments or agreements to which Ocean or any of the Ocean Subsidiaries are a party or by which it or any of them are bound, calling for the issuance, transfer, sale or disposition of any of the capital stock or other securities of any of the Ocean Subsidiaries. Copies of the Articles of Incorporation and Bylaws, as amended to date, of each of the Ocean Subsidiaries, which have heretofore been delivered to Solovision, are true and complete copies of those documents, as in effect on the date hereof. The minute books of the Ocean Subsidiaries contain accurate records of all meetings of their respective Boards of Directors and all committees thereof and of their shareholders since their respective dates of incorporation, and accurately reflect all transactions referred to therein. Except as set forth on Schedule 3.3 and except for investments in the Ocean Subsidiaries, neither Ocean nor any of the Ocean Subsidiaries have made any investments in, or owns, any of the capital stock of, or any other proprietary interest in any other corporation, partnership or other business entity. 3.4 CONSENTS. Schedule 3.4 hereto sets forth a true and complete list of all consents of governmental and other regulatory agencies, foreign or domestic, and of other third parties (other than OAC's shareholders) required to be received by or on the part of Ocean or OAC to enable them to enter into and carry out this Agreement in all material respects. All such requisite consents have been, or prior to the Closing will have been, obtained. 3.5 CORPORATE AUTHORITY; BINDING NATURE OF AGREEMENT. Each of Ocean and OAC has the corporate power to enter into this Agreement and to carry out their respective obligations hereunder. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by the Boards of Directors of Ocean and OAC and no other corporate proceedings on the part of Ocean or OAC are necessary to authorize the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. This Agreement constitutes the valid and binding obligations of each of Ocean and OAC and is enforceable against them in accordance with its terms. 3.6 FINANCIAL STATEMENTS. The audited consolidated financial statements of Ocean at June 30, 1996 and 1995, and for the years then ended, and the unaudited consolidated financial statements of Ocean at March 31, 1997, and for the nine months then ended (collectively, the "Ocean Financial Statements"), copies of which are attached hereto as Schedule 3.6, (a) are true, correct and complete, (b) are in accordance with the books of records of Ocean and the Ocean Subsidiaries, (c) fairly, completely and accurately present the financial position of Ocean and -13- the Ocean Subsidiaries as of such dates and the results of its operations for such periods, and (d) were prepared in conformity with generally accepted accounting principles consistently applied throughout the periods covered thereby and with the requirements of Regulation S-B, promulgated by the SEC. Such audited financial statements have been audited by Grant Thornton LLP, independent certified public accountants, whose report thereon is included therein. 3.7 LIABILITIES. As at March 31, 1997 (the "Ocean Balance Sheet Date"), Ocean and the Ocean Subsidiaries have no material debts, liabilities or obligations, contingent or absolute, other than those debts, liabilities and obligations reflected or reserved against in Ocean's consolidated balance sheet at the Ocean Balance Sheet Date (the "Ocean Balance Sheet"). 3.8 ACTIONS SINCE THE OCEAN BALANCE SHEET DATE. Except as otherwise expressly provided or set forth in, or required by, this Agreement, or as set forth in Schedule 3.8 hereto, since the Ocean Balance Sheet Date, neither Ocean nor any of the Ocean Subsidiaries have: (a) issued or sold, or agreed to issue or sell any of their capital stock, options, warrants, rights or calls to purchase such stock, any securities convertible or exchangeable into such capital stock or other corporate securities, or effected any subdivision or other recapitalization affecting its capital stock; (b) incurred any material obligation or liability, absolute or contingent, except those arising in the ordinary and usual course of business or in connection with the transactions contemplated hereby; (c) discharged or satisfied any lien or encumbrance, except in the ordinary and usual course of business, or paid or satisfied any liability, absolute or contingent, other than liabilities as at the Ocean Balance Sheet Date and current liabilities incurred since the Ocean Balance Sheet Date in the ordinary and usual course of business; (d) made any wage or salary increases or granted any bonuses other than wage and salary increases and bonuses granted in accordance with its normal salary increase and bonus policies; (e) mortgaged, pledged or subjected to any lien, pledge, charge or other encumbrance any of its properties or assets, or permitted any of their property or assets to be subjected to any lien, pledge, charge or other encumbrance, except in the ordinary and usual course of business; (f) sold, assigned or transferred any of their properties or assets, except in the ordinary and usual course of business; (g) other than this Agreement or the transactions contemplated thereby, entered into any transaction or course of conduct not in the ordinary and usual course of business; (h) waived any rights of substantial value, or cancelled, modified or waived any indebtedness for borrowed money held by it, except in the ordinary and usual course of business; (i) declared, paid or set aside any dividends or other distributions or payments on its capital stock, or redeemed or repurchased, or agreed to redeem or repurchase, any shares of their capital stock; (j) made any loans or advances to any person, or assumed, guaranteed, endorsed or otherwise became responsible for the obligations of any person; or (k) incurred any indebtedness for borrowed money (except for endorsement, for collection or deposit, of negotiable instruments received in the ordinary and usual course of business). Copies of the accounts payable lists of Ocean as of June 14, 1997, and of Classic Optical, Inc., a Michigan corporation ("Classic Optical") as of June 16, 1997, are attached as part of Schedule 3.8. As of the close of business on June 25, 1997, Ocean had at least $400,000 from the combination of cash, cash equivalents and credit availability under the Coast Business Credit loan. -14- 3.9 ADVERSE DEVELOPMENTS. Since the Ocean Balance Sheet Date, there have been no material adverse changes in the assets, properties, operations or financial condition of Ocean or the Ocean Subsidiaries, and no event has occurred that could be reasonably expected to have a material adverse effect upon the business of Ocean or the Ocean Subsidiaries, and Ocean is not aware, after reasonable inquiry, of any development or threatened development of a nature that has, or that could be reasonably expected to have, a material adverse effect upon the business of Ocean or the Ocean Subsidiaries or upon any of their respective assets, properties, operations or financial condition. 3.10 TAXES. Except as set forth in Schedule 3.10 hereto, all taxes, including, without limitation, income, property, sales, use, franchise, capital stock, excise, value added, employees' income withholding, social security and unemployment taxes imposed by the United States, by any state, locality or foreign country, or by any other taxing authority, which have or may become due or payable by Ocean or the Ocean Subsidiaries and all interest and penalties thereon, whether disputed or not, have been paid in full or adequately provided for by reserves shown in the Ocean Financial Statements; all deposits required by law to be made by Ocean or the Ocean Subsidiaries or with respect to estimated income, franchise and employees' withholding taxes have been duly made; and all tax returns, including estimated tax returns, required to be filed have been duly filed. No extension of time for the assessment of deficiencies for any year is in effect. Except as set forth in Schedule 3.10, no deficiency is proposed or to the knowledge of Ocean, after reasonable inquiry, threatened against Ocean or the Ocean Subsidiaries. Except as set forth on Schedule 3.10, the federal and state income tax returns of Ocean and the Ocean Subsidiaries have never been audited. 3.11 OWNERSHIP OF ASSETS, TRADEMARKS, PATENTS. Schedule 3.11 hereto, sets forth a true and complete list of all personal property owned by Ocean and the Ocean Subsidiaries with a value greater than $20,000. Except as set forth in Schedule 3.11, each of Ocean and the Ocean Subsidiaries own outright, and have good and marketable title to all of their respective assets, properties and businesses (including all assets reflected in the Ocean Balance Sheet, except as the same may have been disposed of in the ordinary and usual course of business since the Ocean Balance Sheet Date) free and clear of all liens, mortgages, pledges, claims, conditional sales agreements, restrictions on transfer or other encumbrances or charges whatsoever. Schedule 3.11 sets forth a true and complete list and brief description of all patents, copyrights, trademarks, trade names or other similar intangible assets that are owned by Ocean or the Ocean Subsidiaries or in which either it or the Ocean Subsidiaries have an interest. Except as set forth on Schedule 3.11, no other person, firm or corporation has any proprietary or other interest in any such intangible assets. Such assets so owned are sufficient to permit Ocean and the Ocean Subsidiaries to conduct its business as now conducted. Except as set forth on Schedule 3.11, neither Ocean nor any of the Ocean Subsidiaries is a party to or bound by any license or agreement requiring the payment to any person, firm or corporation of any royalty. Neither Ocean nor any of the Ocean Subsidiaries are infringing upon any patent, copyright, trade name or trademark or otherwise is violating the rights of any third party with respect thereto, and no proceedings have instituted and no claim has been received by Ocean or the Ocean Subsidiaries alleging any such violation. 3.12 INSURANCE. Schedule 3.12 hereto sets forth a true and complete list and brief description of all policies of fire, liability and other forms of insurance held by Ocean and the Ocean Subsidiaries. Except as set forth in Schedule 3.12, such policies are valid, outstanding -15- and enforceable policies, as to which premiums have been paid currently, are with reputable insurers believed by Ocean, after reasonable inquiry, to be financially sound and are consistent with the practices of similar concerns engaged in substantially similar operations as those currently conducted by Ocean and the Ocean Subsidiaries. Except as set forth in Schedule 3.12, Ocean is not aware, after reasonable inquiry, of any state of facts or of the occurrence of any event that might reasonably (a) form the basis for any material claim against Ocean or any of the Ocean Subsidiaries not fully covered by insurance for liability on account of any express or implied warranty or tortious omission or commission, or (b) result in a material increase in insurance premiums. 3.13 LITIGATION; COMPLIANCE WITH LAW. Except as set forth in Schedule 3.13 hereto, there are no actions, suits, proceedings or governmental investigations relating to Ocean or the Ocean Subsidiaries or any of their respective properties, assets or businesses pending or, to the knowledge of Ocean, threatened, or any order, injunction, award or decree outstanding, against Ocean or the Ocean Subsidiaries or against or relating to any of their respective properties, assets or businesses; and Ocean is not aware, after reasonable inquiry, of any basis for any such action, suit, proceeding, governmental investigation, order, injunction or decree. Neither Ocean nor any of the Ocean Subsidiaries are in violation of any law, regulation, ordinance, order, injunction, decree, award, or other requirement of any governmental body, court or arbitrator relating to their respective properties, assets or business, the violation of which would have a material adverse effect on Ocean or the Ocean Subsidiaries. 3.14 REAL PROPERTY. Schedule 3.14 hereto sets forth a brief description of all real properties that are leased to Ocean or the Ocean Subsidiaries. Neither Ocean nor any of the Ocean Subsidiaries own outright the fee simple title in and to any real property. The real property leases described in Schedule 3.14 that relate to the leased properties described therein are now in full force and effect, and all amounts payable thereunder have been paid. All uses of such real property by Ocean or the Ocean Subsidiaries conform in all material respects to the terms of the leases relating thereto and, to the best knowledge of Ocean, conform in all material respects to all applicable building and zoning ordinances, laws and regulations. None of such leases may be expected to result in the expenditure of material sums for the restoration of the premises upon the expiration of their respective terms. 3.15 AGREEMENTS AND OBLIGATIONS; PERFORMANCE. Except as listed and briefly described in Schedule 3.15 hereto (the "Ocean Listed Agreements"), neither Ocean nor any of the Ocean Subsidiaries are a party to, or bound by any: (a) written or oral agreement or other contractual commitment, understanding or obligation that involves aggregate payments or receipts in excess of $25,000 (such agreements are listed in Schedule 3.15); (b) contract, arrangement, commitment or understanding which involves aggregate payments or receipts in excess of $25,000 that cannot be cancelled on 30 days or less notice without penalty or premium or any continuing obligation or liability (such agreements are listed in Schedule 3.15); (c) contractual obligation or contractual liability of any kind to any of its shareholders; (d) contract, arrangement, commitment or understanding with its customers or any officer, employee, shareholder, director, representative or agent thereof for the repurchase of products, sharing of -16- fees, the rebating of charges to such customers, bribes, kickbacks from such customers or other similar arrangements; (e) contract for the purchase or sale of any materials, products or supplies that contain, or that commits or will commit it for, a fixed term (such agreements are listed in Schedule 3.15); (f) contract of employment with any officer or employee not terminable at will without penalty or premium or any continuing obligation or liability; (g) deferred compensation, bonus or incentive plan or agreement not cancelable at will without penalty or premium or any continuing obligation or liability; (h) management or consulting agreement not terminable at will without penalty or premium or any continuing obligation or liability; (i) lease for real or personal property (including borrowings thereon), license or royalty agreement; (j) agreement, commitment or understanding relating to indebtedness for borrowed money; (k) union or other collective bargaining agreement; (l) contract that, by its terms, requires the consent of any party thereto to the consummation of the transactions contemplated hereby; (m) contract containing covenants limiting the freedom of Ocean or any of the Ocean Subsidiaries to engage or compete in any line or business or with any person in any geographical area; (n) contract or option relating to the acquisition or sale of any business; (o) voting trust agreement or similar shareholders' agreement; (p) option for the purchase of any asset, tangible or intangible; or (q) other contract, agreement, commitment or understanding that materially affects any of their properties, assets or business, whether directly or indirectly, or that was entered into other than in the ordinary course of business. A true and correct copy of each of the written Ocean Listed Agreements have been delivered to Solovision. Each of Ocean and the Ocean Subsidiaries has in all material respects performed all obligations required to be performed by them to date under all of the Ocean Listed Agreements, are not in default in any material respect under any of the Ocean Listed Agreements and have received no notice of any default or alleged default thereunder which has not heretofore been cured or which notice has not heretofore been withdrawn. Ocean, after reasonable inquiry, does not know of any material default under any of the Ocean Listed Agreements, by any other party thereto or by any other person, firm or corporation bound thereunder except as set forth in the Ocean Financial Statements. Copies of all contracts of employment to which either Ocean or any of the Ocean Subsidiaries is a party are attached as part of Schedule 3.15. 3.16 CONDITION OF ASSETS. Except for servicing requirements, all machinery and equipment used by Ocean and the Ocean Subsidiaries in the conduct of their respective business are in good operating condition and repair, ordinary wear and tear excepted. Except as set forth in Schedule 3.16 attached hereto, the inventories of each of Ocean and the Ocean Subsidiaries are and will be in usable and saleable condition, and such inventory in the aggregate is saleable at least at the value at which it is carried on their books, subject to reasonable and customary reserves for the return of inventory. 3.17 ACCOUNTS RECEIVABLE. All of the accounts receivable of Ocean reflected in the Ocean Financial Statements, except those owed to it since the dates thereof, which are subject to the reserves reflected in the Ocean Financial Statements, constitute bona fide accounts receivable resulting from bona fide sales of services or goods in the ordinary course of its business, and Ocean, after reasonable inquiry, does not know, nor does it have reason to know of any valid defense or right of set-off to the rights of Ocean and the Ocean Subsidiaries to -17- collect such accounts receivable in full, less such reserves. Copies of the accounts receivable lists of Ocean and Classic Optical as of May 31, 1997, are attached hereto as Schedule 3.17. 3.18 PERMITS AND LICENSES. Schedule 3.18 hereto sets forth a true and complete list of all permits, licenses, orders, franchises and approvals from all federal, state, local and foreign governmental regulatory bodies held by Ocean and the Ocean Subsidiaries. Each of Ocean and the Ocean Subsidiaries have all material permits, licenses, orders and approvals of all federal, state, local and foreign governmental or regulatory bodies required of them to carry on their business as presently conducted; all such permits, licenses, orders, franchises and approvals are in full force and effect, and to the knowledge of Ocean, no suspension or cancellation of any of such permits, licenses, orders, franchises and approvals is threatened; and each of Ocean and the Ocean Subsidiaries are in compliance in all material respects with all requirements, standards and procedures of the federal, state, local and foreign governmental bodies that have issued such permits, licenses, orders, franchises and approvals. 3.19 INTEREST IN ASSETS. Except as set forth in Schedule 3.19 hereto, no shareholder, officer or director of Ocean or any of the Ocean Subsidiaries nor any affiliate thereof owns any property or rights, tangible or intangible, used in or related directly or indirectly, to the business of Ocean and the Ocean Subsidiaries. 3.20 SALARY INFORMATION. Schedule 3.20 hereto contains a list of the names and current salary rates of and bonus commitments to all present officers of Ocean and all other employees whose base annual compensation exceeds $30,000. 3.21 EMPLOYEE BENEFIT PLANS. Except as set forth in Schedule 3.21 hereto, neither Ocean nor any of the Ocean Subsidiaries maintain, or make any employer contributions under, any "pension" or "welfare" benefit plans, as defined by ERISA. 3.22 NO BREACH. Neither the execution and delivery of this Agreement, nor compliance by Ocean or OAC with any of the provisions hereof, nor the consummation of the transactions contemplated hereby, will: (a) violate or conflict with any provision of the Articles of Incorporation or Bylaws of Ocean, OAC or any of the Ocean Subsidiaries; (b) violate or, alone or with notice or the passage of time, result in the material breach or termination of, or otherwise give any contracting party the right to terminate, or declare a default under, the terms of any agreement or other document or undertaking, oral or written to which Ocean or any of the Ocean Subsidiaries are a party or by which any of their respective properties or assets may be bound (except for such violations, conflicts, breaches or defaults as to which required waivers or consents by other parties have been, or will, prior to the Closing, be, obtained); -18- (c) result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of Ocean or any of the Ocean Subsidiaries; (d) violate any judgment, order, injunction, decree or award against, or binding upon, Ocean or any of the Ocean Subsidiaries or upon their respective properties or assets; or (e) violate any law or regulation of any jurisdiction relating to Ocean or any of its Subsidiaries, their respective securities, assets or properties, the violation of which would have a material adverse effect on Ocean or any of the Ocean Subsidiaries. 3.23 BROKERS. Except as set forth in Schedule 3.23 hereto, Ocean has not engaged, consented to or authorized any broker, finder, investment banker or other third party to act on its behalf, directly or indirectly, as a broker or finder in connection with the transactions contemplated by this Agreement, and Ocean agrees to indemnify and hold harmless Solovision and its shareholders from and against any claim for brokerage or similar commissions or other compensation that may be made against Solovision by any third party in connection with the transactions contemplated hereby, which claim is based upon any action by Ocean. 3.24 UNTRUE OR OMITTED FACTS. No representation, warranty or statement furnished by or to be furnished by Ocean or OAC in this Agreement or in any certificate, schedule or document delivered pursuant to this Agreement contains any untrue statement of a material fact, or omits to state a fact necessary in order to make such representations, warranties or statements not misleading. Without limiting the generality of the foregoing, there is no fact known to Ocean and OAC, after reasonable inquiry, that has had, or that may be reasonably expected to have, a material adverse effect on Ocean or any of the Ocean Subsidiaries or any of their respective assets, properties, operations or businesses that has not been disclosed in this Agreement. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF OVADIA AND THE SHAREHOLDERS Ovadia and each of the Shareholders severally make the following representations and warranties to Ocean and OAC: 4.1 OWNERSHIP OF SOLOVISION COMMON STOCK. Each of the Shareholders owns his or its shares of Solovision Common Stock free and clear of all liens, pledges, security interests, claims, restrictions on transfer or other adverse claims, encumbrances or charges whatsoever. There are no outstanding options, rights or calls or other commitments or agreements of any kind with respect to the shares of Solovision Common Stock owned by such Shareholder. -19- 4.2 RELATED BUSINESSES. Solovision and Sorrento are the sole entities that have been engaged in any aspect of the optical business during 1997 and that are directly or indirectly affiliated with, related to, controlled by or under common control with, or that directly or indirectly controls, Solovision, Sorrento, Ovadia or any of the Shareholders. 4.3 UNTRUE OR OMITTED FACTS. No representation, warranty or statement furnished by or to be furnished by Ovadia or any of the Shareholders in this Agreement or in any certificate, schedule or document delivered pursuant to this Agreement contains any untrue statement of a material fact, or omits to state a fact necessary in order to make such representations, warranties or statements not misleading. Ovadia and the Ovadia Family Trust makes the following representations and warranties to Ocean and OAC: 4.4 LIABILITIES FROM PREVIOUS OPERATIONS. Solovision has no debts, liabilities or obligations, contingent or absolute, arising from the conduct of business by, or any transactions between Solovision or Sorrento and, any of the entities listed on Schedule 4.4 attached hereto or pursuant to any of the unincorporated names, regardless of the form of any entity using any of those names, listed on Schedule 4.4 attached hereto. ARTICLE V CLOSING DELIVERIES 5.1 ITEMS TO BE DELIVERED BY SOLOVISION. At the Closing, Solovision will deliver to Ocean: (a) at least one counterpart original signed by Ovadia of a three-year Employment Agreement between Ocean and Ovadia providing an annual salary for Ovadia of $175,000 in substantially the form of Exhibit 5.1(a) attached hereto (the "Ovadia Employment Agreement"); (b) the written opinion of counsel for Solovision, dated the Closing Date, in substantially the form of Exhibit 5.1(b) attached hereto; (c) certified copies of all corporate action necessary to authorize the execution, delivery and performance of this Agreement by Solovision and the consummation of the transactions contemplated hereby; (d) executed investment letters from each of the Shareholders, Kevin R. Fischer and Linda L. Fischer in substantially the form of Exhibit 5.1(d); -20- (e) executed letter agreement among Ovadia, Kevin R. Fischer and Linda L. Fischer in substantially the form of Exhibit 5.1(e); (f) documentary evidence that Ovadia and Wildstein have contributed any debt owed either of them or any of their affiliates by Solovision or Sorrento, except $100,000 owed by Solovision to SAO Lens & Equipment Co., to Solovision's equity capital; (g) at least one counterpart original executed by Miami Opti-Mart, Inc., a Florida corporation ("Miami Opti-Mart"), of the lease for office space at 2 N.E. 40th Street, Miami, Florida 33137, between Miami Opti-Mart and Ocean (the "Opti-Mart Lease"); (h) the Articles of Merger required by Section 1.2 hereof; and (i) all other documents reasonably requested by Ocean or its legal counsel in order to consummate the transactions contemplated by this Agreement. 5.2 ITEMS TO BE DELIVERED BY OCEAN. At the Closing, Ocean or OAC will deliver to Solovision: (a) certificates evidencing the Ocean Shares; (b) at least one counterpart original executed by Ocean of the Ovadia Employment Agreement; (c) certified copy of action by Ocean's Directors appointing Ovadia and Wildstein as Directors and a certificate dated the Closing Date, signed by the President of Ocean, certifying that Ocean's Board of Directors is composed of five members, who are Kenneth J. Gordon, Richard Russo, Robert D. Winn, Ovadia and Wildstein; (d) a certificate dated the Closing Date, signed by the President of Ocean, as to the completion on or before the Closing Date of Ocean's refinancing with Coast Business Credit, accompanied by Coast Business Credit's consent to the transaction contemplated by this Agreement; (e) the written opinion of counsel for Ocean and OAC, dated the Closing Date, in substantially the form of Exhibit 5.2(a) attached hereto; -21- (f) certified copies of all corporate action necessary to authorize the execution, delivery and performance of this Agreement by Ocean and OAC and the consummation of the transactions contemplated hereby; (g) documentary evidence that the shares of Ocean Common Stock being issued as part of the Ocean Shares and the shares of Ocean Common Stock underlying the shares of Ocean Preferred Stock issued as part of the Ocean Shares have been approved for listing on the Nasdaq SmallCap Market(R); (h) at least one counterpart original executed by Ocean of the Opti-Mart Lease; (i) the Articles of Merger required by Section 1.2 hereof; and (j) all other documents reasonably requested by Ocean or its legal counsel in order to consummate the transactions contemplated by this Agreement. ARTICLE VI POST-CLOSING COVENANTS Ocean, Ovadia and Wildstein agree that, subsequent to the Closing Date: 6.1 DIRECTORS' MEETINGS. Ocean's Board of Directors shall hold monthly meetings for at least one year following the Closing Date. At or before each such meeting, Ocean's management shall provide appropriate written reports to Ocean's Board of Directors concerning Ocean's business. 6.2 AUTHORITY TO SIGN CHECKS. Two signatures shall be required on all checks issued by Ocean, except as otherwise authorized by Ocean's Board of Directors. 6.3 RELATED TRANSACTIONS. Any transaction between Ocean and any of its directors or officers, or any affiliate of any of them, including but not limited to any monetary advances by Ocean, must be approved by a disinterested majority of Ocean's Board of Directors prior to the consummation of any such transaction. 6.4 REGISTRATION OF OCEAN COMMON STOCK. Ocean shall include the Ocean Common Stock in the Registration Statement on Form SB-2 (the "Registration Statement") that it currently has in process. Ocean shall use its reasonable best efforts to file the Registration Statement with the SEC as soon as practicable after the date of this Agreement and to cause the Registration Statement to become effective as soon thereafter as reasonably practicable. 6.5 INCREASE IN AUTHORIZED COMMON STOCK. As soon as reasonably practicable after the date of this Agreement, Ocean shall take all actions necessary to amend its Articles of Incorporation to increase its authorized common stock to at least 25,000,000 shares. -22- ARTICLE VII SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION 7.1 SURVIVAL. The parties agree that their respective representations, warranties, covenants and agreements contained in this Agreement, or in any certificate, schedule or other documents delivered pursuant to this Agreement, shall survive the Closing for a period of one year, with the exception of those regarding taxes set forth in Sections 2.10 and 3.10 hereof, which shall survive until the expiration of the respective periods within which such taxes may be assessed, and those made by Ovadia in Sections 4.2 and 4.4 hereof, which shall survive indefinitely. 7.2 INDEMNIFICATION. (a) Ovadia and the Shareholders, jointly and severally, hereby indemnify and hold harmless Ocean, OAC and the directors, officers, employees, and agents of Ocean and OAC in respect of any and all adverse charges, complaints, notices, actions, suits, proceedings, hearings, investigations, claims, demands, judgments, orders, decrees, stipulations, injunctions, damages, dues, penalties, fines, costs, amounts paid in settlement, liabilities, obligations, taxes, liens, losses, expenses, and fees, including all attorneys' fees and court costs, in any court or quasi-judicial or administrative agency of any federal, state, local or foreign jurisdiction or before an arbitrator (the "Adverse Consequences") that are incurred by any of them in connection with any of the following and that in the aggregate exceed $25,000: (i) Any misrepresentation or breach of any representation or warranty made by Ovadia, a Shareholder or Solovision in this Agreement or in any Schedule, Exhibit, or other document attached hereto or delivered to Ocean or OAC by Ovadia, a Shareholder, Solovision or any officer of Solovision in connection with the transactions contemplated hereby. (ii) Any misrepresentation contained in any statement in writing or certificate furnished by either Ovadia, a Shareholder or any officer of Solovision pursuant to this Agreement or in connection with the transactions contemplated by this Agreement. (iii) Any misrepresentation in or omission from any list, Schedule, Exhibit, certificate or other instrument required to be furnished or specifically contemplated to have been furnished pursuant to this Agreement to Ocean, OAC or any of their respective authorized representatives. (iv) Any litigation involving either Ocean or OAC because of the execution and delivery by Ovadia, a Shareholder or Solovision of this Agreement or the consummation of the transactions contemplated hereby. (v) The operations of Solovision prior to the Effective Date, other than any liabilities of Solovision existing on the Effective Date that had been incurred in the -23- ordinary course of business, in each case subject to any reserve that had been established by Solovision in the ordinary course of business prior to the Effective Date. (b) Ovadia and the Ovadia Family Trust, jointly and severally, hereby indemnify and hold harmless Ocean, OAC, on a dollar-for-dollar basis, and the directors, officers, employees, and agents of Ocean and OAC in respect of any and all Adverse Consequences that are incurred by any of them in connection with (i) any misrepresentation or breach of the representation or warranty made by Ovadia and the Ovadia Family Trust in Section 2.2, 4.2 or 4.4 of this Agreement or (ii) any claim against Ovadia personally arising from activities prior to the date of this Agreement. (c) Ovadia and the Shareholders, jointly and severally, hereby indemnify and hold harmless Ocean, OAC and the directors, officers, employees, and agents of Ocean and OAC in respect of any and all Adverse Consequences that are incurred by any of them as a result of the exercise of shareholder dissenters' rights by any of the shareholders of Solovision. (d) Ocean and OAC hereby jointly and severally indemnify and hold harmless Ovadia, the Shareholders, Solovision and the directors, officers, employees, and agents of Solovision in respect of any and all Adverse Consequences that are incurred by any of them in connection with any of the following and that in the aggregate exceed $100,000: (i) Any misrepresentation or breach of any representation or warranty made by Ocean or OAC in this Agreement or in any Schedule, Exhibit, or other document attached hereto or delivered to Ovadia or a Shareholder by Ocean, OAC or any officer of either Ocean or OAC in connection with the transactions contemplated hereby. (ii) Any misrepresentation contained in any statement in writing or certificate furnished by an officer of either Ocean or OAC pursuant to this Agreement or in connection with the transactions contemplated by this Agreement. (iii) Any misrepresentation in or omission from any list, Schedule, Exhibit, certificate or other instrument required to be furnished or specifically contemplated to have been furnished pursuant to this Agreement to Ovadia, a Shareholder, Solovision or any of their authorized representatives. (iv) Any litigation involving Ovadia, a Shareholder or Solovision because of the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. (e) Whenever any claims shall arise for indemnification hereunder, the party seeking indemnification ("Indemnitee") shall promptly notify the other party ("Indemnitor") of the claim and, when known, the facts constituting the basis for such claim. If any claim for indemnification hereunder results from or is in connection with any claim or Adverse Consequence by a person who is not a party to this Agreement ("Third-Party Claim"), such -24- notice shall also specify, if known, the amount or an estimate of the amount of the liability arising therefrom. The Indemnitee shall give the other party prompt notice of any such claim and the Indemnitor shall undertake the defense thereof by representatives of its own choosing, reasonably satisfactory to the Indemnitee, at the expense of the Indemnitor. The Indemnitee shall have the right to participate in any such defense of a Third-Party Claim with advisory counsel of its own choosing, at its own expense. If Indemnitor, within a reasonable time after notice of any such Third-Party Claim, fails to defend, the Indemnitee or any subsidiary or affiliate of the Indemnitee shall have the right to undertake the defense, compromise or settlement of such Third-Party Claim on behalf of, and for the account of, Indemnitor, at the expense and risk of Indemnitor. Indemnitor shall not, without the Indemnitee's written consent, settle or compromise any such Third-Party Claim or consent to entry of any judgment that does not include, as an unconditional term thereof, the giving by the claimant or the plaintiff to Indemnitee of an unconditional release from all liability in respect of such Third-Party Claim. Notwithstanding any provision herein to the contrary, failure of Indemnitee to give any notice required by this section shall not constitute a waiver of Indemnitee's right to indemnification or a defense to any claim by Indemnitee hereunder, except to the extent that the Indemnitor has been prejudiced thereby. (f) All indemnification hereunder, except as otherwise expressly provided in this Section 7.2(f), shall be effected upon demand by payment of cash, delivery of a cashier's check or wire transfer in the amount of the indemnification liability. Any indemnification of Ocean pursuant to Section 7.2(b) or (c) of this Agreement may instead, at Ovadia's sole option, be effected by surrendering to Ocean for cancellation such number of the shares of Ocean Common Stock that the Ovadia Family Trust receives pursuant to the transactions contemplated by this Agreement, whether by issuance at Closing or later mandatory conversion of the Ocean Preferred Stock, as shall equal the amount of the indemnification due Ocean. For purposes of the foregoing sentence, such shares of Ocean Common Stock shall be valued at the closing bid price per share of the Ocean Common Stock on the date upon which demand for indemnification is made. (g) The indemnities contained herein shall survive the Closing and any investigation made in connection with the transactions contemplated by this Agreement. 7.3 POST-CLOSING INDEMNIFICATION FOR FORMER OCEAN DIRECTORS. For four years after the Effective Time of the Merger, Ocean shall indemnify and hold harmless Neil B. Lande, Bruce Schindler and Mary S. Winn, who are either current or former directors of Ocean who will no longer be serving as such after the Effective Time of the Merger with respect to acts or omissions occurring prior to the Effective Time of the Merger (including, without limitation, the transactions contemplated by this Agreement) to the fullest extent permitted by Florida law in effect as of the Effective Time of the Merger. -25- ARTICLE VIII MISCELLANEOUS PROVISIONS 8.1 EXPENSES. Each of the parties shall bear its own expenses in connection with this Agreement and the transactions contemplated hereby. 8.2 CONFIDENTIAL INFORMATION. Each party agrees that such party and its representatives will hold in a fiduciary capacity and in strict confidence all information, knowledge, data and documents received from the other parties and, if the transactions herein contemplated shall not be consummated, each party will continue to hold such information and documents in strict confidence and will return to such other parties all such documents (including the schedules and exhibits attached to this Agreement) then in such receiving party's possession without retaining copies thereof; provided, however, that each party's obligations under this Section 8.2 to maintain such confidentiality shall not apply to any information or documents that are in the public domain at the time furnished by the others or that become in the public domain thereafter through any means other than as a result of any act of the receiving party or of its agents, officers, directors or shareholders constituting a breach of this Agreement, or that are required by applicable law to be disclosed. The parties agree that the remedy at law for any breach of the provisions of this Section 8.2 will be inadequate, and Ocean, OAC or Solovision shall be entitled to injunctive relief to compel the breaching party to perform or refrain from action required or prohibited hereunder. 8.3 PUBLICITY. The parties agree that no publicity, releases or other public announcement concerning the Agreement or the transactions contemplated by this Agreement shall be issued by either party without the express prior written consent of both the form and substance of the same, by Solomon Ovadia on behalf of Solovision and its shareholders and by Kenneth J. Gordon on behalf of Ocean, except that in the case of any publicity, release or other public announcement required by applicable law, such approval shall not be unreasonably withheld or delayed. 8.4 FURTHER ASSURANCES. The parties hereto will execute and deliver such further instruments and do such further acts and things as may be reasonably required to carry out the intent and purposes of this Agreement. 8.5 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings with respect to the subject matter hereof. The representations, warranties, covenants and agreements set forth in this Agreement and in the financial statements, schedules or exhibits delivered pursuant hereto constitute all the representations, warranties, covenants and agreements of the parties and upon which the parties have relied and except as may be specifically provided herein, no change, modification, amendment, addition or termination of this Agreement or any part thereof shall be valid unless in writing and signed by or on behalf of the party to be charged therewith. -26- 8.6 WAIVER. The failure of any party at any time or times to require performance of any provision hereof shall in no manner affect the right of such party at a later time to enforce the same. No waiver of any nature, whether by conduct or otherwise, in any one or more instances shall be deemed to be or construed as a further or continuing waiver of any such condition or of any breach of any other term, representation or warranty of this Agreement. 8.7 NOTICES. Any and all notices or other communications or deliveries required or permitted to be given or made pursuant to any of the provisions of this Agreement shall be deemed to have been duly given or made for all purposes if sent by certified or registered mail, return receipt requested and postage prepaid, overnight courier, Express Mail, hand delivered or sent by facsimile with receipt confirmed as follows: If to Ocean at: 14250 S.W. 119th Avenue Miami, Florida 33186 Attention: Kenneth J. Gordon Telephone: (305) 255-3272 Telecopier: (305) 251-3670 With a copy to: Broad and Cassel 201 S. Biscayne Boulevard, Suite 3000 Miami, Florida 33131 Attention: A. Jeffry Robinson, P.A. Telephone: (305) 373-9437 Telecopier: (305) 373-9493 -27- If to Solovision, Ovadia and/or the Shareholders, at: 2 N.E. 40th Street Miami, Florida 33137 Attention: Solomon Ovadia Telephone: (305) 573-0222 Telecopier: (305) 573-0320 With a copy to: Judith Kenney, Esq. Montello & Kenney, P.A. 701 Brickell Avenue, Suite 1200 Miami, Florida 33131 Telephone: (305) 373-0300 Telecopier: (305) 373-3739 or at such other address as any party may specify by notice given to the other parties in accordance with this Section 8.6. The date of giving of any such notice shall be the date of the actual receipt thereof. 8.8 ATTORNEYS' FEES. All costs and expenses incurred in the enforcement of this Agreement, including reasonable attorneys' fees, shall be paid to the prevailing party by the non- prevailing party, upon demand. 8.9 CHOICE OF LAW. This Agreement shall be governed, interpreted and construed in accordance with the laws of the State of Florida, except that body of law relating to choice of law. Should any clause, section or part of this Agreement be held or declared to be void or illegal for any reason, all other clauses, sections or parts of this Agreement which can be effected without such illegal clause, section or part shall nevertheless continue in full force and effect. 8.10 NO ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors, assigns, heirs and personal representatives; provided, however, that no party may assign any of its or his rights or delegate any of its or his duties under this Agreement without the prior written consent of the other parties. 8.11 HEADINGS. The headings or captions under sections of this Agreement are for convenience and reference only and do not in any way modify, interpret or construe the intent of the parties or effect any of the provisions of this Agreement. -28- IN WITNESS WHEREOF, this Agreement has been duly executed on behalf of each of the parties hereto, as of the date first above written. OCEAN OPTIQUE DISTRIBUTORS, INC. By: \s\KENNETH J. GORDON -------------------------------- Kenneth J. Gordon, President OCEAN ACQUISITION CORPORATION By: \s\KENNETH J. GORDON -------------------------------- Kenneth J. Gordon, President SOLOVISION OPTICAL, INC. By: \s\SOLOMON OVADIA -------------------------------- Solomon Ovadia, President \s\SOLOMON OVADIA -------------------------------- SOLOMON OVADIA \s\LEON WILDSTEIN -------------------------------- LEON WILDSTEIN OVADIA FAMILY TRUST By: \s\SOLOMON OVADIA -------------------------------- SOLOMON OVADIA, Trustee -29- SCHEDULES AND EXHIBITS TO AGREEMENT AND PLAN OF MERGER The schedules and exhibits to the Agreement and Plan of Merger have not been filed with this Registration Statement pursuant to Item 601 of Regulation S-B of the Securities Act of 1933, as amended, but will be provided to the Commission upon request. SOLOVISION SCHEDULES TITLE - -------------------- ----- 2.1 Valid Corporate Existence 2.2 Capitalization 2.6 Solovision and Sorrento Financial Statements 2.8 Actions Since the Solovision Balance Sheet Date 2.10 Taxes 2.11 Solovision Personal Property with Value Greater Than $5,000 and Liens Thereon 2.12 Insurance Policies 2.13 Pending or Threatened Litigation Against Solovision 2.14 Real Property 2.15 Solovision Listed Agreements 2.17 Accounts Receivable as of June 26, 1997 2.18 Solovision Permits and Licenses 2.20 Salary Information 2.21 Employee Benefit Plans 2.23 Brokers/Finders 4.4 List of Entities and Fictitious Names For Which Solovision Has No Obligation OCEAN OPTIQUE SCHEDULES - ----------------------- 3.1 Valid Corporate Existence; Qualification 3.2 Ocean Convertible/Exchangeable Shares 3.3 Subsidiaries 3.4 Consents 3.6 Financial Statements 3.8 Actions Subsequent to the March 31, 1997 Ocean Balance Sheet Date 3.10 Taxes 3.11 Ownership of Assets, Trademarks, Patents, Etc. 3.12 Insurance 3.13 Litigation; Compliance With Law 3.14 Real Property 3.15 Agreements and Obligations; Performance 3.16 Condition of Assets OCEAN OPTIQUE SCHEDULES - ----------------------- (cont'd.) 3.17 Accounts Receivable 3.18 Permits and Licenses 3.19 Salary Information 3.20 Interest in Assets 3.21 Employee Benefit Plans 3.23 Brokers EXHIBITS - -------- 5.1(a) Employment Agreement between Ocean Optique Distributors, Inc. and Solomon Ovadia 5.1(b) Solovision Opinion of Counsel 5.1(d) Investment Letters From Solovision Shareholders 5.1(e) Letter Agreement Among Solomon Ovadia, Kevin Fischer and Linda Fischer 5.2(a) Ocean Opinion of Counsel EX-3.1 3 RESTATED ARTICLES OF INCORPORATION EXHIBIT 3.1 RESTATED ARTICLES OF INCORPORATION OF OCEAN OPTIQUE DISTRIBUTORS, INC., A FLORIDA CORPORATION The undersigned, the President of Ocean Optique Distributors, Inc., a Florida corporation (the "Corporation"), pursuant to Section 607.1007 of the Florida Business Corporation Act, hereby adopts the following Restated Articles of Incorporation: ARTICLE I CORPORATE NAME The name of the Corporation is Ocean Optique Distributors, Inc. ARTICLE II PRINCIPAL OFFICE/MAILING ADDRESS The principal office address and mailing address of the Corporation is 14250 S.W. 119th Avenue, Miami, Florida 33186. ARTICLE III NATURE OF CORPORATE BUSINESS The Corporation may engage in or transact any or all activities or business under the laws of the United States and of the State of Florida. ARTICLE IV AUTHORIZED CAPITAL The Corporation's authorized capital shall consist of 10,000,000 shares of common stock and 5,000,000 shares of preferred stock, all without par value. The Board of Directors may issue shares of preferred stock in one or more series, from time to time, with such relative rights, limitations and preferences as it may determine. The Board of Directors has designated an aggregate of 800,000 shares of the authorized but unissued shares of preferred stock of the Corporation, no par value per share, as "Series A Cumulative Convertible 3% Preferred Stock" with the rights and preferences set forth on the attached Statement of Designation, which is incorporated by reference herein. The Board of Directors has designated an aggregate of 230,000 shares of the authorized but unissued shares of preferred stock of the Corporation, no par value per share, as "Series B Cumulative Convertible 2% Preferred Stock" with the rights and preferences set forth on the attached Statement of Designation, which is incorporated by reference herein. ARTICLE V EXISTENCE The Corporation shall have perpetual existence unless sooner dissolved according to law. ARTICLE VI LIABILITY OF DIRECTORS Unless otherwise provided by statute, a director shall not be personally liable for monetary damages to the Corporation or any other person for any statement, vote, decision, or failure to act regarding corporate management or policy. ARTICLE VII VOTING FOR DIRECTORS Members of the Board of Directors shall be elected at the Annual Meeting of the Corporation's shareholders, and shall be elected by the affirmative vote of a majority of the shares entitled to vote thereat. ARTICLE VIII REGISTERED AGENT AND REGISTERED OFFICE The Corporation's Registered Agent and Registered Office in the State of Florida shall continue as follows: REGISTERED AGENT: Ray Hyman REGISTERED OFFICE: 14250 S.W. 119th Avenue Miami, Florida 33186 ARTICLE IX TERM OF DIRECTORS The number of directors of the Corporation shall be as set forth in the Corporation's Bylaws. Effective as of the Annual Meeting of the Shareholders in 1993, the Board of Directors shall be divided into three classes, designated Class I, Class II and Class III, as nearly equal in number as possible and the term of the office of one class shall expire at each Annual Meeting of Shareholders, and in all cases as to each director until his successor shall be elected and shall qualify, or until his earlier resignation, removal from office, death or incapacity. Additional -2- directorships resulting from an increase in number of directors shall be apportioned among the classes as equally as possible. The initial term of office of directors of Class I shall expire at the Annual Meeting of Shareholders in 1994, that of Class II shall expire at the Annual Meeting of Shareholders in 1995, and that of Class III shall expire at the Annual Meeting of Shareholders in 1996. At each Annual Meeting of Shareholders the number of directors equal to the number of directors of the class whose term expires at the time of such meeting (or, if less, the number of directors properly nominated and qualified for election) shall be elected to hold office until the third succeeding Annual Meeting of Shareholders after their election. The foregoing Restated Articles of Incorporation were adopted by the Board of Directors and the Shareholders of the Company as required by applicable law. OCEAN OPTIQUE DISTRIBUTORS, INC., A FLORIDA CORPORATION By:/s/ Ray Hyman, Jr. ------------------------------- Ray Hyman, Jr., President -3- STATEMENT OF DESIGNATION OF THE SERIES A CUMULATIVE CONVERTIBLE 3% PREFERRED STOCK OF OCEAN OPTIQUE DISTRIBUTORS, INC. 1. DESIGNATION. An aggregate of 800,000 shares of the authorized but unissued shares of preferred stock of Ocean Optique Distributors, Inc., a Florida corporation (the "Company"), no par value per share, is hereby designated as "Series A Cumulative Convertible 3% Preferred Stock" (the "Preferred Stock"). 2. DIVIDENDS. a. DIVIDEND RATE. Holders of shares of the Preferred Stock are entitled to receive, when and if declared by the Board of Directors, out of funds legally available therefor, cash dividends or, in the Company's sole discretion, cash equivalent value stock dividends of Common Stock at the rate of $0.075 per share per annum, payable in semi-annual installments on June 30th and December 31st, commencing June 30, 1994. b. CURRENT MARKET PRICE. The number of shares of Common Stock to be issued as a stock dividend shall be determined by the current market price of a share of Common Stock on the record date for such stock dividend. The current market price of a share of Common Stock on the record date shall be the closing sale price on such day as reported by Nasdaq or on any other exchange on which the shares of Common Stock may be traded. c. NO FRACTIONAL SHARES. No fractional shares will be issued for dividends. The amount of any dividends represented by such fractional shares will be payable in cash. d. DIVIDENDS TO BE CUMULATIVE. Dividends on the Preferred Stock will be cumulative from the date of initial issuance of the Preferred Stock. Except as set forth above, unless full cumulative dividends on the Preferred Stock have been paid, dividends (other than in Common Stock) may not be paid or declared or set aside for payment and other distributions may not be made upon the Common Stock or on any other stock of the Company ranking junior to or on a parity with the Preferred Stock as to dividends, nor may any Common Stock or any other stock of the Company ranking junior to or on a parity with the Preferred Stock as to dividends be redeemed, purchased or otherwise acquired for any consideration by the Company (except by conversion into or exchange for stock of the Company ranking junior to the Preferred Stock as to dividends). e. HOLDERS OF RECORD. Dividends will be payable to holders of record as they appear on the stock books of the Company on June 1st and December 1st, respectively. -4- f. SURPLUS. Under Florida law, the Company may declare and pay dividends on shares of its capital stock out of available surplus, which is the amount by which the total assets of the Company exceed the sum of the total debt of the Company and its stated capital. g. PRO-RATA DISTRIBUTION. If dividends are not paid in full upon the Preferred Stock and any other preferred stock ranking on a parity as to dividends with the Preferred Stock, all dividends declared upon shares of Preferred Stock and such other preferred stock will be declared pro rata so that in all cases the amount of dividends declared per share on the Preferred Stock and such other preferred stock bear to each other. 3. VOTING RIGHTS. Holders of shares of Preferred Stock will have no voting rights until they convert their shares of Preferred Stock into Common Stock. 4. CONVERSION RIGHTS. a. MANNER OF CONVERSION. The Preferred Stock shall be convertible at any time, at the option of the holder, upon not less than 15 nor more than 30 days' prior written notice mailed, along with the Preferred Stock, to the Company. Before any holder of Preferred Stock shall be entitled to convert the same as provided herein, he shall surrender the certificate or certificates for such Preferred Stock at the Company's duly appointed transfer agent, or at the office of the Company if a transfer agent has not been appointed, which certificate or certificates shall be duly endorsed to the Company or in blank or accompanied by proper instruments of transfer to the Company or in blank, unless the Company shall waive such requirement, and shall give written notice to the Company at the aforesaid offices to convert said Preferred Stock, and shall state in writing therein the name or names in which he wishes the certificate or certificates for Common Stock to be issued. The Company has agreed to forward the appropriate documentation to its transfer agent within three business days of its receipt of the notice of conversion. The Company will, as soon as practicable after such surrender of certificates for Preferred Stock accompanied by the written notice and the statement above prescribed, issue and deliver at the office of any transfer agent appointed as aforesaid, or at such other office or offices, if any, to the person for whose account such Preferred Stock was so surrendered, or to his nominee or nominees, certificates for the highest number of whole shares of Common Stock, as the case may be, to which he shall be entitled as aforesaid. Subject to the following provisions of this paragraph, such conversion shall be deemed to have been made as of the date of such surrender of the Preferred Stock to be converted and the rights of the converting holder of the shares of the Preferred Stock as such holder shall cease and the person or persons in whose name or names the certificates for shares of Common Stock, as the case may be, upon conversion of such Preferred Stock are to be issued shall be treated for all purposes as the record holder or holders of such Common Stock at the close of business on such date. The Company shall not be required to convert, and no surrender of Preferred Stock shall be effective for that purpose, while the stock transfer books of the Company are closed for any purpose; but the surrender of Preferred Stock for conversion during any period while such books are so closed shall become effective for conversion immediately upon the reopening of such books, as if the conversion had been made on the date such Preferred Stock was surrendered, -5- and at the conversion rate in effect at the date of such surrender. The Preferred Stock may be converted in whole or in part, so long as at least 10% of a holder's Preferred Stock are converted at any given time. b. CONVERSION RATE. The conversion rate shall be one share of the Company's Common Stock for each share of Preferred Stock, subject to adjustment in certain events. On conversion, no payment or adjustment for dividends shall be made. The conversion rate will be subject to adjustment in certain events, including: the issuance of stock as a dividend on the Common Stock; stock splits, subdivisions or combinations of the Common Stock; or the distribution to all holders of Common Stock of evidences of indebtedness of the Company, cash (excluding ordinary cash dividends), other assets or rights or warrants to subscribe for or purchase any securities (other than those referred to above). No fractional shares of Common Stock will be issued upon conversion but, in lieu thereof, the Company at its option may round up the fractional share or pay an appropriate amount in cash based upon the reported last sales price of the shares of Common Stock on the day of conversion. Whenever the conversion rate is adjusted as herein provided, the Company shall forthwith file with any transfer agent or agents for the Preferred Stock appointed as aforesaid a certificate signed by the President or one of the Vice Presidents of the Company and by its Treasurer or an Assistant Treasurer, stating the adjusted conversion rate determined as provided in this Section 4, and in reasonable detail the facts requiring such adjustment. Such transfer agents shall be under no duty to make any inquiry or investigation as to the statements contained in any such certificate or as to the manner in which any computation was made, but may accept such certificate as conclusive evidence of the statements therein contained, and each transfer agent shall be fully protected with respect to any and all acts done or action taken or suffered by it in reliance thereon. No transfer agent in its capacity as transfer agent shall be deemed to have any knowledge with respect to any change of capital structure of the Company unless and until it receives a notice thereof pursuant to the provisions of this Section 4 subparagraph b. and in the absence of any such notice each transfer agent may conclusively assume that there has been no such change. c. RECLASSIFICATION, CONSOLIDATION OR MERGER. In case of any reclassification of the Common Stock, any consolidation of the Company with, or merger of the Company into, any other entity, any merger of any entity into the Company (other than a merger which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock), any sale or transfer of all or substantially all of the assets of the Company or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or other property then provision shall be made such that the holder of each share of Preferred Stock then outstanding shall have the right thereafter, during the period such share of Preferred Stock shall be convertible, to convert such share only into the kind and amount of securities, cash and other property receivable upon such reclassification, consolidation, merger, sale, transfer or share exchange by a holder of the number of shares of Common Stock into which such shares of Preferred Stock might have been converted immediately prior to such reclassification, consolidation, merger, sale, transfer or share exchange. -6- d. RIGHTS OF HOLDERS. Holders of the Preferred Stock converted into Common Stock will be entitled to the same rights applicable at the time of conversion to other holders of Common Stock. The holders of the shares of the Preferred Stock have no preemptive rights with respect to any securities of the Company. e. RESERVATION OF SHARES. The Company shall at all times reserve and keep available, out of its authorized and unissued or treasury shares of Common Stock or other stock or securities deliverable upon conversion pursuant to this Section, solely for the purpose of effecting the conversion of the Preferred Stock, such number of shares as shall from time to time be sufficient to effect the conversion of all shares of Preferred Stock from time to time outstanding. The Company shall from time to time, in accordance with the laws of Florida, increase the authorized amount of its Common Stock if at any time the number of shares of Common Stock remaining unissued or treasury shares of Common Stock shall not be sufficient to permit the conversion of all the then outstanding Preferred Stock. f. TAXES. The Company will pay any and all issue and other taxes that may be payable in respect of any issue of delivery of shares of Common Stock on conversion of Preferred Stock pursuant thereto. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of Common Stock in a name other than that in which the Preferred Stock so converted was registered, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Company the amount of any such tax, or has established, to the satisfaction of the Company, that such tax has been paid. 5. STATUS OF CONVERTED SHARES. Any shares of Preferred Stock that at any time shall have been converted pursuant to Section 4 or that have been otherwise repurchased by the Company shall, after such conversion or repurchase, have the status of authorized but unissued shares of Preferred Stock, without designation as to series until such shares are once more designated as part of a particular series by the Board of Directors. 6. LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of shares of the Preferred Stock are entitled to receive out of assets of the Company available for distribution to stockholders, before any distribution of assets is made to holders of Common Stock or any other junior stock, liquidating distributions in the amount of $2.50 per share plus accumulated and unpaid dividends. If upon any liquidation, dissolution or winding up of the Company, the assets distributable to the holders of the Preferred Stock and any other preferred stock ranking as to any such distribution on a parity with the Preferred Stock are insufficient to fully pay the preferential amount, the holders of the Preferred Stock and of such other preferred stock will share ratably in such distribution of assets in proportion to the full respective preferential amounts to which they are entitled. After payment of the full amount of the liquidating distribution to which they are entitled, the holders of shares of the Preferred Stock will not be entitled to any further participation in any distribution of assets by the Company. Neither a consolidation or merger of the Company with another corporation nor a sale or transfer of all -7- or part of the Company's assets for cash or securities will be considered a liquidation, dissolution or winding up of the Company. The right of the Company, and the rights of its creditors and stockholders (including holders of the Preferred Stock), to participate in the distribution of the assets of any subsidiary of the Company upon any liquidation or reorganization of such subsidiary, or otherwise, will be subject to the prior claims of creditors of such subsidiary (except to the extent the Company may itself be a creditor with recognized claims against such subsidiary). 7. REDEMPTION RIGHTS. The Preferred Stock may not be redeemed by the Company. 8. NO SINKING FUND. The shares of Preferred Stock shall not be entitled to the benefit of any sinking fund to be applied to the purchase or redemption of such shares. -8- STATEMENT OF DESIGNATION OF THE SERIES B CUMULATIVE CONVERTIBLE 2% PREFERRED STOCK OF OCEAN OPTIQUE DISTRIBUTORS, INC. 1. DESIGNATION. An aggregate of 230,000 shares of the authorized but unissued shares of preferred stock of Ocean Optique Distributors, Inc., a Florida corporation (the "Company"), no par value per share, is hereby designated as Series B Cumulative Convertible 2% Preferred Stock (the "Series B Preferred Stock"). 2. DIVIDENDS. a. DIVIDEND RATE. Holders of shares of the Series B Preferred Stock are entitled to receive, when and if declared by the Board of Directors of the Company, out of funds legally available therefor, cash dividends at a rate of $0.10 per share of Series B Preferred Stock per annum payable in quarterly installments on September 30th, December 31st, March 31st and June 30th of each year, commencing September 30, 1995. b. DIVIDENDS TO BE CUMULATIVE. Dividends on the shares of Series B Preferred Stock will be cumulative from the date of issuance. Unless full cumulative dividends on the Company's Series A Cumulative Convertible 3% Preferred Stock (the "Series A Preferred Stock") and on the Series B Preferred Stock have been paid, dividends may not be paid or declared or set aside for payment and other distributions may not be made upon the Common Stock or on any other stock of the Company ranking junior to or on a parity with the Series B Preferred Stock as to dividends or liquidation preference, nor may any Common Stock or any other stock of the Company ranking junior to or on a parity with the Series A Preferred Stock and Series B Preferred Stock as to dividends or liquidation preference be redeemed, purchased or otherwise acquired for any consideration by the Company (except by conversion into or exchange for stock of the Company ranking junior to the Series A Preferred Stock and Series B Preferred Stock as to dividends or liquidation preference). c. HOLDERS OF RECORD. Dividends will be payable to holders of record as they appear on the stock books of the Company on the first day of the calendar month in which dividends are to be paid pursuant to Section 2.a, unless such date is not a business day, in which event on the next succeeding business day. d. RANK; PRO-RATA DISTRIBUTION. Unless otherwise provided by law or in any instrument evidencing the Series A Preferred Stock, the Series B Preferred Stock will be of equal rank to the Series A Preferred Stock as to payment of dividends and rights upon liquidation. If dividends are not paid in full upon the Series B Preferred Stock and any other preferred stock ranking on a parity as to dividends or liquidation preference with the Series B Preferred Stock, all dividends (including any accumulation resulting from unpaid dividends for -9- prior quarters) on shares of Series B Preferred Stock and such other preferred stock will be declared pro rata so that in all cases the amount of dividends declared per share on the Series B Preferred Stock and such other preferred stock will be of equal proportion. 3. VOTING RIGHTS. Holders of shares of Series B Preferred Stock will have no voting rights until they convert their shares of Series B Preferred Stock into Common Stock. 4. CONVERSION RIGHTS. a. MANNER OF CONVERSION. The Series B Preferred Stock shall be convertible at any time after November 30, 1996, at the option of the holder, upon not less than 15 nor more than 30 days' prior written notice mailed, along with the certificate or certificates representing the shares of Series B Preferred Stock to be converted, to the Company. Before any holder of Series B Preferred Stock shall be entitled to convert the same as provided herein, he shall surrender the certificate or certificates for such Series B Preferred Stock at the Company's duly appointed transfer agent, or at the office of the Company if a transfer agent has not been appointed, which certificate or certificates shall be duly endorsed to the Company or in blank with signatures medallion guaranteed, or accompanied by proper instruments of transfer to the Company or in blank, with signatures medallion guaranteed, unless the Company shall waive any of such requirements, and shall give written notice to the Company at the aforesaid offices to convert said Series B Preferred Stock stating therein the name or names in which he wishes the certificate or certificates for Common Stock to be issued. The Company has agreed to forward the appropriate documentation to its transfer agent after its receipt of the notice of conversion. The Company will, as soon as practicable after such surrender of certificates for Series B Preferred Stock accompanied by the above-prescribed written notice, issue and deliver at the office of any transfer agent appointed as aforesaid, or at such other office or offices, if any, to the person for whose account such Series B Preferred Stock was so surrendered, or to his nominee or nominees, certificates for the highest number of whole shares of Common Stock, as the case may be, to which he shall be entitled as aforesaid. Subject to the following provisions of this section and provided that all appropriate documentation has been received, a conversion shall be deemed to have been made as of the date of such surrender of the Series B Preferred Stock to be converted and the rights of the converting holder of the shares of the Series B Preferred Stock as a holder of Series B Preferred Stock shall cease, and the person or persons to whom the certificates representing the shares of Common Stock received upon conversion of such Series B Preferred Stock are to be issued shall be treated for all purposes as the record holder or holders of such Common Stock at the close of business on such date. The Company shall not be required to convert, and no surrender of Series B Preferred Stock shall be effective for that purpose, while the stock transfer books of the Company are closed for any purpose; but the surrender of Series B Preferred Stock for conversion during any period while such books are so closed shall become effective for conversion immediately upon the reopening of such books, as if the conversion had been made on the date such Series B Preferred Stock was surrendered, and at the conversion rate in effect on the date of such surrender. Any purported transfer or assignment of any shares of Common Stock underlying the Series B Preferred Stock between the date of surrender of the Series B Preferred Stock and the time of -10- issuance of the certificate representing the shares of Common Stock will be effected by the Company only in the event such transfer or assignment is, in the sole discretion of the Company, in accordance with applicable law. b. CONVERSION RATE. The conversion rate shall be one share of the Company's Common Stock for each share of Series B Preferred Stock, subject to adjustment as provided herein. On conversion, no payment or adjustment for dividends shall be made. In the event the market price per share of Common Stock, as defined below, as of the effective date of conversion is less than $5.00 per share, subject to adjustment in the event of stock splits, stock dividends, recapitalizations or redemptions, then the Company shall issue such shares of Common Stock upon conversion of the Series B Preferred Stock equal to (i) the number of shares of Series B Preferred Stock then issued and outstanding multiplied by $5.00, (ii) divided by the then-current market price of the Common Stock. The market price per share of the Company's Common Stock shall equal the average asked prices of the Common Stock during the 30 consecutive business days immediately prior to the date of conversion. The conversion rate will be subject to adjustment in certain events, including the issuance of shares as a dividend on the Common Stock or stock splits, subdivisions or combinations of the Common Stock. No fractional shares of Common Stock will be issued upon conversion but, in lieu thereof, the Company at its option may round up the fractional share or pay an appropriate amount in cash based upon the reported last bid price of the shares of Common Stock on the day of conversion. Whenever the conversion rate is adjusted as herein provided, the Company shall forthwith file with any transfer agent for the Series B Preferred Stock a certificate signed by the President or one of the Vice Presidents of the Company and by its Treasurer or an Assistant Treasurer, stating the adjusted conversion rate determined as provided in this Section 4, and in reasonable detail the facts requiring such adjustment. Such transfer agent shall be under no duty to make any inquiry or investigation as to the statements contained in any such certificate or as to the manner in which any computation was made, but may accept such certificate as conclusive evidence of the statements therein contained. No transfer agent in its capacity as transfer agent shall be deemed to have any knowledge with respect to any change of capital structure of the Company unless and until it receives a notice thereof pursuant to the provisions of this Section 4.b and in the absence of any such notice, each transfer agent may conclusively assume that there has been no such change. c. RECLASSIFICATION, CONSOLIDATION OR MERGER. In case of any reclassification of the Common Stock, any consolidation of the Company with, or merger of the Company into, any other entity, any merger of any entity into the Company (other than a merger that does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock), any sale or transfer of all or substantially all of the assets of the Company or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or other property, then provision shall be made such that the holder of each share of Series B Preferred Stock then outstanding shall have the right thereafter, during the period such share of Series B Preferred Stock shall be convertible, to convert such share only into the kind and amount of securities, cash and other property receivable upon such reclassification, consolidation, merger, sale, transfer or share exchange by a holder of the number of shares of -11- Common Stock into which such shares of Series B Preferred Stock might have been converted immediately prior to such reclassification, consolidation, merger, sale, transfer or share exchange. d. RIGHTS OF HOLDERS. Holders of the Series B Preferred Stock converted into Common Stock will be entitled to the same rights applicable at the time of conversion to other holders of Common Stock. The holders of the shares of the Series B Preferred Stock have no preemptive rights with respect to any securities of the Company. e. TAXES. The Company will pay any and all issue and other taxes that may be payable in respect of any issue or delivery of shares of Common Stock upon conversion of Series B Preferred Stock. The Company shall not, however, be required to pay any tax that may be payable in respect of any transfer involved in the issue and delivery of Common Stock in a name other than that in which the Series B Preferred Stock so converted was registered, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Company the amount of any such tax, or has established, to the satisfaction of the Company, that such tax has been paid. 5. STATUS OF CONVERTED SHARES. Any shares of Series B Preferred Stock that at any time shall have been converted pursuant to Section 4 or that have been otherwise repurchased by the Company shall, after such conversion or repurchase, have the status of authorized but unissued shares of preferred stock, without designation as to series until such shares are once more designated as part of a particular series by the Board of Directors. 6. LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of shares of the Series B Preferred Stock are entitled to receive out of assets of the Company available for distribution to stockholders, before any distribution of assets is made to holders of Common Stock or any other junior stock, liquidating distributions in the amount of $5.00 per share plus accumulated and unpaid dividends. If upon any liquidation, dissolution or winding up of the Company, the assets distributable to the holders of the Series B Preferred Stock and any other preferred stock ranking as to any such distribution on a parity with the Series B Preferred Stock are insufficient to fully pay the preferential amount, the holders of the Series B Preferred Stock and of such other preferred stock will share ratably in such distribution of assets in proportion to the full respective preferential amounts to which they are entitled. After payment of the full amount of the liquidating distribution to which they are entitled, the holders of shares of the Series B Preferred Stock will not be entitled to any further participation in any distribution of assets by the Company. Neither a consolidation or merger of the Company with another corporation, nor a sale or transfer of all or part of the Company's assets for cash or securities will be considered a liquidation, dissolution or winding up of the Company. The right of the Company, and the rights of its creditors and stockholders (including holders of the Series B Preferred Stock), to participate in the distribution of the assets of any subsidiary of the Company upon any liquidation or reorganization of such subsidiary, or -12- otherwise, will be subject to the prior claims of creditors of such subsidiary (except to the extent the Company may itself be a creditor with recognized claims against such subsidiary). 7. REDEMPTION RIGHTS. The Series B Preferred Stock may not be redeemed by the Company. 8. NO SINKING FUND. The shares of Series B Preferred Stock shall not be entitled to the benefit of any sinking fund to be applied to the purchase or redemption of such shares. -13- ARTICLES OF AMENDMENT TO RESTATED ARTICLES OF INCORPORATION OF OCEAN OPTIQUE DISTRIBUTORS, INC., A FLORIDA CORPORATION The undersigned, the President of Ocean Optique Distributors, Inc., a Florida corporation (the "Corporation"), desiring to amend the Restated Articles of Incorporation of the Corporation pursuant to Section 607.0602 of the Florida Business Corporation Act, states as follows: 1. The name of the Corporation is Ocean Optique Distributors, Inc. 2. The Restated Articles of Incorporation of the Corporation are amended by deleting the paragraph in Article IV with respect to the Series B Cumulative Convertible 2% Preferred Stock in its entirety and inserting the following two paragraphs in its place and stead: The Board of Directors has designated an aggregate of 162,478 shares of the authorized but unissued shares of preferred stock of the Corporation, no par value per share, as "Series B-1 Cumulative Convertible 2% Preferred Stock" with the rights and preferences set forth on the attached Statement of Designation, which is incorporated by reference herein. The Board of Directors has designated an aggregate of 67,522 shares of the authorized but unissued shares of preferred stock of the Corporation, no par value per share, as "Series B-2 Cumulative Convertible 2% Preferred Stock" with the rights and preferences set forth on the attached Statement of Designation, which is incorporated by reference herein. 3. This amendment to the Restated Articles of Incorporation of the Corporation was adopted on June 2, 1996. 4. This amendment was adopted by Written Consent of the Board of Directors. Shareholder approval of this amendment is not required. OCEAN OPTIQUE DISTRIBUTORS, INC., A FLORIDA CORPORATION By: /s/ KENNETH J. GORDON ----------------------------- Kenneth J. Gordon, President 2 STATEMENT OF DESIGNATION OF THE SERIES B-1 CUMULATIVE CONVERTIBLE 2% PREFERRED STOCK OF OCEAN OPTIQUE DISTRIBUTORS, INC. 1. DESIGNATION. An aggregate of 162,478 shares of the authorized but unissued shares of preferred stock of Ocean Optique Distributors, Inc., a Florida corporation (the "Company"), no par value per share, is hereby designated as Series B-1 Cumulative Convertible 2% Preferred Stock (the "Series B-1 Preferred Stock"). 2. DIVIDENDS. a. DIVIDEND RATE. Holders of shares of the Series B-1 Preferred Stock are entitled to receive, when and if declared by the Board of Directors of the Company, out of funds legally available therefor, cash dividends at a rate of $0.10 per share of Series B-1 Preferred Stock per annum payable in quarterly installments on September 30th, December 31st, March 31st and June 30th of each year, commencing September 30, 1995. b. DIVIDENDS TO BE CUMULATIVE. Dividends on the shares of Series B-1 Preferred Stock will be cumulative from the date of issuance. Unless full cumulative dividends on the Company's Series A Cumulative Convertible 3% Preferred Stock (the "Series A Preferred Stock") and on the Series B-1 Preferred Stock have been paid, dividends may not be paid or declared or set aside for payment and other distributions may not be made upon the Common Stock or on any other stock of the Company ranking junior to or on a parity with the Series B-1 Preferred Stock as to dividends or liquidation preference, nor may any Common Stock or any other stock of the Company ranking junior to or on a parity with the Series A Preferred Stock and Series B-1 Preferred Stock as to dividends or liquidation preference be redeemed, purchased or otherwise acquired for any consideration by the Company (except by conversion into or exchange for stock of the Company ranking junior to the Series A Preferred Stock and Series B-1 Preferred Stock as to dividends or liquidation preference). c. HOLDERS OF RECORD. Dividends will be payable to holders of record as they appear on the stock books of the Company on the first day of the calendar month in which dividends are to be paid pursuant to Section 2.a, unless such date is not a business day, in which event on the next succeeding business day. d. RANK; PRO-RATA DISTRIBUTION. Unless otherwise provided by law or in any instrument evidencing the Series A Preferred Stock, the Series B-1 Preferred Stock will be of equal rank to the Series A Preferred Stock as to payment of dividends and rights upon liquidation. If dividends are not paid in full upon the Series B-1 Preferred Stock and any other preferred stock ranking on a parity as to dividends or liquidation preference with the Series B-1 Preferred Stock, all dividends (including any accumulation resulting from unpaid dividends for prior quarters) on shares of Series B-1 Preferred Stock and such other preferred stock will be declared pro rata so that in all cases the amount of dividends declared per share on the Series B-1 Preferred Stock and such other preferred stock will be of equal proportion. 3. VOTING RIGHTS. Holders of shares of Series B-1 Preferred Stock will have no voting rights until they convert their shares of Series B-1 Preferred Stock into Common Stock. 4. CONVERSION RIGHTS. a. MANNER OF CONVERSION. The Series B-1 Preferred Stock shall be convertible at any time after November 30, 1996, at the option of the holder, upon not less than 15 nor more than 30 days' prior written notice mailed, along with the certificate or certificates representing the shares of Series B-1 Preferred Stock to be converted, to the Company. Before any holder of Series B-1 Preferred Stock shall be entitled to convert the same as provided herein, he shall surrender the certificate or certificates for such Series B-1 Preferred Stock at the Company's duly appointed transfer agent, or at the office of the Company if a transfer agent has not been appointed, which certificate or certificates shall be duly endorsed to the Company or in blank with signatures medallion guaranteed, or accompanied by proper instruments of transfer to the Company or in blank, with signatures medallion guaranteed, unless the Company shall waive any of such requirements, and shall give written notice to the Company at the aforesaid offices to convert said Series B-1 Preferred Stock stating therein the name or names in which he wishes the certificate or certificates for Common Stock to be issued. The Company has agreed to forward the appropriate documentation to its transfer agent after its receipt of the notice of conversion. The Company will, as soon as practicable after such surrender of certificates for Series B-1 Preferred Stock accompanied by the above-prescribed written notice, issue and deliver at the office of any transfer agent appointed as aforesaid, or at such other office or offices, if any, to the person for whose account such Series B-1 Preferred Stock was so surrendered, or to his nominee or nominees, certificates for the highest number of whole shares of Common Stock, as the case may be, to which he shall be entitled as aforesaid. Subject to the following provisions of this section and provided that all appropriate documentation has been received, a conversion shall be deemed to have been made as of the date of such surrender of the Series B-1 Preferred Stock to be converted and the rights of the converting holder of the shares of the Series B-1 Preferred Stock as a holder of Series B-1 Preferred Stock shall cease, and the person or persons to whom the certificates representing the shares of Common Stock received upon conversion of such Series B-1 Preferred Stock are to be issued shall be treated for all purposes as the record holder or holders of such Common Stock at the close of business on such date. The Company shall not be required to convert, and no surrender of Series B-1 Preferred Stock shall be effective for that purpose, while the stock transfer books of the Company are closed for any purpose; but the surrender of Series B-1 Preferred Stock for conversion during any period while such books are so closed shall become effective for conversion immediately upon the reopening of such books, as if the conversion had been made on the date such Series B-1 Preferred Stock was surrendered, and at the conversion rate in effect on the date of such surrender. Any purported transfer or assignment of any shares of Common Stock underlying the Series B-1 Preferred Stock between the date of surrender of the Series B-1 -2- Preferred Stock and the time of issuance of the certificate representing the shares of Common Stock will be effected by the Company only in the event such transfer or assignment is, in the sole discretion of the Company, in accordance with applicable law. b. CONVERSION RATE. The conversion rate shall be 2.064384 shares of the Company's Common Stock for each share of Series B-1 Preferred Stock, subject to adjustment as provided herein. On conversion, no payment or adjustment for dividends shall be made. The conversion rate will be subject to adjustment in certain events, including the issuance of shares as a dividend on the Common Stock or stock splits, subdivisions or combinations of the Common Stock. No fractional shares of Common Stock will be issued upon conversion but, in lieu thereof, the Company at its option may round up the fractional share or pay an appropriate amount in cash based upon the reported last bid price of the shares of Common Stock on the day of conversion. Whenever the conversion rate is adjusted as herein provided, the Company shall forthwith file with any transfer agent for the Series B-1 Preferred Stock a certificate signed by the President or one of the Vice Presidents of the Company and by its Treasurer or an Assistant Treasurer, stating the adjusted conversion rate determined as provided in this Section 4, and in reasonable detail the facts requiring such adjustment. Such transfer agent shall be under no duty to make any inquiry or investigation as to the statements contained in any such certificate or as to the manner in which any computation was made, but may accept such certificate as conclusive evidence of the statements therein contained. No transfer agent in its capacity as transfer agent shall be deemed to have any knowledge with respect to any change of capital structure of the Company unless and until it receives a notice thereof pursuant to the provisions of this Section 4.b and in the absence of any such notice, each transfer agent may conclusively assume that there has been no such change. c. RECLASSIFICATION, CONSOLIDATION OR MERGER. In case of any reclassification of the Common Stock, any consolidation of the Company with, or merger of the Company into, any other entity, any merger of any entity into the Company (other than a merger that does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock), any sale or transfer of all or substantially all of the assets of the Company or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or other property, then provision shall be made such that the holder of each share of Series B-1 Preferred Stock then outstanding shall have the right thereafter, during the period such share of Series B-1 Preferred Stock shall be convertible, to convert such share only into the kind and amount of securities, cash and other property receivable upon such reclassification, consolidation, merger, sale, transfer or share exchange by a holder of the number of shares of Common Stock into which such shares of Series B-1 Preferred Stock might have been converted immediately prior to such reclassification, consolidation, merger, sale, transfer or share exchange. d. RIGHTS OF HOLDERS. Holders of the Series B-1 Preferred Stock converted into Common Stock will be entitled to the same rights applicable at the time of conversion to other holders of Common Stock. The holders of the shares of the Series B-1 Preferred Stock have no preemptive rights with respect to any securities of the Company. -3- e. TAXES. The Company will pay any and all issue and other taxes that may be payable in respect of any issue or delivery of shares of Common Stock upon conversion of Series B-1 Preferred Stock. The Company shall not, however, be required to pay any tax that may be payable in respect of any transfer involved in the issue and delivery of Common Stock in a name other than that in which the Series B-1 Preferred Stock so converted was registered, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Company the amount of any such tax, or has established, to the satisfaction of the Company, that such tax has been paid. 5. STATUS OF CONVERTED SHARES. Any shares of Series B-1 Preferred Stock that at any time shall have been converted pursuant to Section 4 or that have been otherwise repurchased by the Company shall, after such conversion or repurchase, have the status of authorized but unissued shares of preferred stock, without designation as to series until such shares are once more designated as part of a particular series by the Board of Directors. 6. LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of shares of the Series B-1 Preferred Stock are entitled to receive out of assets of the Company available for distribution to stockholders, before any distribution of assets is made to holders of Common Stock or any other junior stock, liquidating distributions in the amount of $5.00 per share plus accumulated and unpaid dividends. If upon any liquidation, dissolution or winding up of the Company, the assets distributable to the holders of the Series B-1 Preferred Stock and any other preferred stock ranking as to any such distribution on a parity with the Series B-1 Preferred Stock are insufficient to fully pay the preferential amount, the holders of the Series B-1 Preferred Stock and of such other preferred stock will share ratably in such distribution of assets in proportion to the full respective preferential amounts to which they are entitled. After payment of the full amount of the liquidating distribution to which they are entitled, the holders of shares of the Series B-1 Preferred Stock will not be entitled to any further participation in any distribution of assets by the Company. Neither a consolidation or merger of the Company with another corporation, nor a sale or transfer of all or part of the Company's assets for cash or securities will be considered a liquidation, dissolution or winding up of the Company. The right of the Company, and the rights of its creditors and stockholders (including holders of the Series B-1 Preferred Stock), to participate in the distribution of the assets of any subsidiary of the Company upon any liquidation or reorganization of such subsidiary, or otherwise, will be subject to the prior claims of creditors of such subsidiary (except to the extent the Company may itself be a creditor with recognized claims against such subsidiary). 7. REDEMPTION RIGHTS. The Series B-1 Preferred Stock may not be redeemed by the Company. 8. NO SINKING FUND. The shares of Series B-1 Preferred Stock shall not be entitled to the benefit of any sinking fund to be applied to the purchase or redemption of such shares. -4- STATEMENT OF DESIGNATION OF THE SERIES B-2 CUMULATIVE CONVERTIBLE 2% PREFERRED STOCK OF OCEAN OPTIQUE DISTRIBUTORS, INC. 1. DESIGNATION. An aggregate of 67,522 shares of the authorized but unissued shares of preferred stock of Ocean Optique Distributors, Inc., a Florida corporation (the "Company"), no par value per share, is hereby designated as Series B-2 Cumulative Convertible 2% Preferred Stock (the "Series B-2 Preferred Stock"). 2. DIVIDENDS. a. DIVIDEND RATE. Holders of shares of the Series B-2 Preferred Stock are entitled to receive, when and if declared by the Board of Directors of the Company, out of funds legally available therefor, cash dividends at a rate of $0.10 per share of Series B-2 Preferred Stock per annum payable in quarterly installments on September 30th, December 31st, March 31st and June 30th of each year, commencing September 30, 1995. b. DIVIDENDS TO BE CUMULATIVE. Dividends on the shares of Series B-2 Preferred Stock will be cumulative from the date of issuance. Unless full cumulative dividends on the Company's Series A Cumulative Convertible 3% Preferred Stock (the "Series A Preferred Stock") and on the Series B-2 Preferred Stock have been paid, dividends may not be paid or declared or set aside for payment and other distributions may not be made upon the Common Stock or on any other stock of the Company ranking junior to or on a parity with the Series B-2 Preferred Stock as to dividends or liquidation preference, nor may any Common Stock or any other stock of the Company ranking junior to or on a parity with the Series A Preferred Stock and Series B-2 Preferred Stock as to dividends or liquidation preference be redeemed, purchased or otherwise acquired for any consideration by the Company (except by conversion into or exchange for stock of the Company ranking junior to the Series A Preferred Stock and Series B-2 Preferred Stock as to dividends or liquidation preference). c. HOLDERS OF RECORD. Dividends will be payable to holders of record as they appear on the stock books of the Company on the first day of the calendar month in which dividends are to be paid pursuant to Section 2.a, unless such date is not a business day, in which event on the next succeeding business day. d. RANK; PRO-RATA DISTRIBUTION. Unless otherwise provided by law or in any instrument evidencing the Series A Preferred Stock, the Series B-2 Preferred Stock will be of equal rank to the Series A Preferred Stock as to payment of dividends and rights upon liquidation. If dividends are not paid in full upon the Series B-2 Preferred Stock and any other preferred stock ranking on a parity as to dividends or liquidation preference with the Series B-2 Preferred Stock, all dividends (including any accumulation resulting from unpaid dividends for prior quarters) on shares of Series B-2 Preferred Stock and such other preferred stock will be declared pro rata so that in all cases the amount of dividends declared per share on the Series B-2 Preferred Stock and such other preferred stock will be of equal proportion. 3. VOTING RIGHTS. Holders of shares of Series B-2 Preferred Stock will have no voting rights until they convert their shares of Series B-2 Preferred Stock into Common Stock. 4. CONVERSION RIGHTS. a. MANNER OF CONVERSION. The Series B-2 Preferred Stock shall be convertible at any time after November 30, 1996, at the option of the holder, upon not less than 15 nor more than 30 days' prior written notice mailed, along with the certificate or certificates representing the shares of Series B-2 Preferred Stock to be converted, to the Company. Before any holder of Series B-2 Preferred Stock shall be entitled to convert the same as provided herein, he shall surrender the certificate or certificates for such Series B-2 Preferred Stock at the Company's duly appointed transfer agent, or at the office of the Company if a transfer agent has not been appointed, which certificate or certificates shall be duly endorsed to the Company or in blank with signatures medallion guaranteed, or accompanied by proper instruments of transfer to the Company or in blank, with signatures medallion guaranteed, unless the Company shall waive any of such requirements, and shall give written notice to the Company at the aforesaid offices to convert said Series B-2 Preferred Stock stating therein the name or names in which he wishes the certificate or certificates for Common Stock to be issued. The Company has agreed to forward the appropriate documentation to its transfer agent after its receipt of the notice of conversion. The Company will, as soon as practicable after such surrender of certificates for Series B-2 Preferred Stock accompanied by the above-prescribed written notice, issue and deliver at the office of any transfer agent appointed as aforesaid, or at such other office or offices, if any, to the person for whose account such Series B-2 Preferred Stock was so surrendered, or to his nominee or nominees, certificates for the highest number of whole shares of Common Stock, as the case may be, to which he shall be entitled as aforesaid. Subject to the following provisions of this section and provided that all appropriate documentation has been received, a conversion shall be deemed to have been made as of the date of such surrender of the Series B-2 Preferred Stock to be converted and the rights of the converting holder of the shares of the Series B-2 Preferred Stock as a holder of Series B-2 Preferred Stock shall cease, and the person or persons to whom the certificates representing the shares of Common Stock received upon conversion of such Series B-2 Preferred Stock are to be issued shall be treated for all purposes as the record holder or holders of such Common Stock at the close of business on such date. The Company shall not be required to convert, and no surrender of Series B-2 Preferred Stock shall be effective for that purpose, while the stock transfer books of the Company are closed for any purpose; but the surrender of Series B-2 Preferred Stock for conversion during any period while such books are so closed shall become effective for conversion immediately upon the reopening of such books, as if the conversion had been made on the date such Series B-2 Preferred Stock was surrendered, and at the conversion rate in effect on the date of such surrender. Any purported transfer or assignment of any shares of Common Stock underlying the Series B-2 Preferred Stock between the date of surrender of the Series B-2 -2- Preferred Stock and the time of issuance of the certificate representing the shares of Common Stock will be effected by the Company only in the event such transfer or assignment is, in the sole discretion of the Company, in accordance with applicable law. b. CONVERSION RATE. The conversion rate shall be 3.096635 shares of the Company's Common Stock for each share of Series B-2 Preferred Stock, subject to adjustment as provided herein. On conversion, no payment or adjustment for dividends shall be made. The conversion rate will be subject to adjustment in certain events, including the issuance of shares as a dividend on the Common Stock or stock splits, subdivisions or combinations of the Common Stock. No fractional shares of Common Stock will be issued upon conversion but, in lieu thereof, the Company at its option may round up the fractional share or pay an appropriate amount in cash based upon the reported last bid price of the shares of Common Stock on the day of conversion. Whenever the conversion rate is adjusted as herein provided, the Company shall forthwith file with any transfer agent for the Series B-2 Preferred Stock a certificate signed by the President or one of the Vice Presidents of the Company and by its Treasurer or an Assistant Treasurer, stating the adjusted conversion rate determined as provided in this Section 4, and in reasonable detail the facts requiring such adjustment. Such transfer agent shall be under no duty to make any inquiry or investigation as to the statements contained in any such certificate or as to the manner in which any computation was made, but may accept such certificate as conclusive evidence of the statements therein contained. No transfer agent in its capacity as transfer agent shall be deemed to have any knowledge with respect to any change of capital structure of the Company unless and until it receives a notice thereof pursuant to the provisions of this Section 4.b and in the absence of any such notice, each transfer agent may conclusively assume that there has been no such change. c. RECLASSIFICATION, CONSOLIDATION OR MERGER. In case of any reclassification of the Common Stock, any consolidation of the Company with, or merger of the Company into, any other entity, any merger of any entity into the Company (other than a merger that does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock), any sale or transfer of all or substantially all of the assets of the Company or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or other property, then provision shall be made such that the holder of each share of Series B-2 Preferred Stock then outstanding shall have the right thereafter, during the period such share of Series B-2 Preferred Stock shall be convertible, to convert such share only into the kind and amount of securities, cash and other property receivable upon such reclassification, consolidation, merger, sale, transfer or share exchange by a holder of the number of shares of Common Stock into which such shares of Series B-2 Preferred Stock might have been converted immediately prior to such reclassification, consolidation, merger, sale, transfer or share exchange. d. RIGHTS OF HOLDERS. Holders of the Series B-2 Preferred Stock converted into Common Stock will be entitled to the same rights applicable at the time of conversion to other holders of Common Stock. The holders of the shares of the Series B-2 Preferred Stock have no preemptive rights with respect to any securities of the Company. -3- e. TAXES. The Company will pay any and all issue and other taxes that may be payable in respect of any issue or delivery of shares of Common Stock upon conversion of Series B-2 Preferred Stock. The Company shall not, however, be required to pay any tax that may be payable in respect of any transfer involved in the issue and delivery of Common Stock in a name other than that in which the Series B-2 Preferred Stock so converted was registered, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Company the amount of any such tax, or has established, to the satisfaction of the Company, that such tax has been paid. 5. STATUS OF CONVERTED SHARES. Any shares of Series B-2 Preferred Stock that at any time shall have been converted pursuant to Section 4 or that have been otherwise repurchased by the Company shall, after such conversion or repurchase, have the status of authorized but unissued shares of preferred stock, without designation as to series until such shares are once more designated as part of a particular series by the Board of Directors. 6. LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of shares of the Series B-2 Preferred Stock are entitled to receive out of assets of the Company available for distribution to stockholders, before any distribution of assets is made to holders of Common Stock or any other junior stock, liquidating distributions in the amount of $5.00 per share plus accumulated and unpaid dividends. If upon any liquidation, dissolution or winding up of the Company, the assets distributable to the holders of the Series B-2 Preferred Stock and any other preferred stock ranking as to any such distribution on a parity with the Series B-2 Preferred Stock are insufficient to fully pay the preferential amount, the holders of the Series B-2 Preferred Stock and of such other preferred stock will share ratably in such distribution of assets in proportion to the full respective preferential amounts to which they are entitled. After payment of the full amount of the liquidating distribution to which they are entitled, the holders of shares of the Series B-2 Preferred Stock will not be entitled to any further participation in any distribution of assets by the Company. Neither a consolidation or merger of the Company with another corporation, nor a sale or transfer of all or part of the Company's assets for cash or securities will be considered a liquidation, dissolution or winding up of the Company. The right of the Company, and the rights of its creditors and stockholders (including holders of the Series B-2 Preferred Stock), to participate in the distribution of the assets of any subsidiary of the Company upon any liquidation or reorganization of such subsidiary, or otherwise, will be subject to the prior claims of creditors of such subsidiary (except to the extent the Company may itself be a creditor with recognized claims against such subsidiary). 7. REDEMPTION RIGHTS. The Series B-2 Preferred Stock may not be redeemed by the Company. 8. NO SINKING FUND. The shares of Series B-2 Preferred Stock shall not be entitled to the benefit of any sinking fund to be applied to the purchase or redemption of such shares. -4- ARTICLES OF AMENDMENT TO RESTATED ARTICLES OF INCORPORATION OF OCEAN OPTIQUE DISTRIBUTORS, INC., A FLORIDA CORPORATION The undersigned, the President of Ocean Optique Distributors, Inc., a Florida corporation (the "Corporation"), desiring to amend the Restated Articles of Incorporation of the Corporation pursuant to Section 607.0602 of the Florida Business Corporation Act, states as follows: 1. The name of the Corporation is Ocean Optique Distributors, Inc. 2. The Restated Articles of Incorporation of the Corporation are amended by inserting the following at the end of Article IV: ARTICLE IV AUTHORIZED CAPITAL The Board of Directors has designated an aggregate of 1,000,000 shares of the authorized but unissued shares of preferred stock of the Corporation, no par value per share, as "Series C Non-Cumulative Convertible Preferred Stock" with rights and preferences set forth on the attached Statement of Designation, which is incorporated by reference herein. 3. This amendment to the Restated Articles of Incorporation of the Corporation was adopted on June 19, 1997. 4. This amendment was adopted by Written Consent of the Board of Directors. Shareholder approval of this amendment is not required. OCEAN OPTIQUE DISTRIBUTORS, INC., A FLORIDA CORPORATION By: /s/ KENNETH GORDON ------------------------------ Kenneth Gordon, President STATEMENT OF DESIGNATION OF THE SERIES C NON-CUMULATIVE CONVERTIBLE PREFERRED STOCK OF OCEAN OPTIQUE DISTRIBUTORS, INC. 1. DESIGNATION. An aggregate of 1,000,000 shares of the authorized but unissued shares of preferred stock of Ocean Optique Distributors, Inc., a Florida corporation (the "Company"), no par value per share, is hereby designated as "Series C Non-Cumulative Convertible Preferred Stock" (the "Series C Preferred Stock"). 2. DIVIDENDS. a. DIVIDEND RATE. Holders of shares of the Series C Preferred Stock are entitled to receive dividends on the same basis and terms as those provided to holders of shares of common stock of the Company (the "Common Stock"), when, as and if declared by the Board of Directors out of funds legally available therefor. b. DIVIDENDS TO BE NON-CUMULATIVE. Dividends on the Series C Preferred Stock will be non-cumulative. c. HOLDERS OF RECORD. Dividends will be payable to holders of record as they appear on the stock books of the Company on the record date for any such dividends. d. SURPLUS. Under Florida law, the Company may declare and pay dividends on shares of its capital stock out of available surplus, which is the amount by which the total assets of the Company exceed the sum of the total debt of the Company and its stated capital. e. RANK; PRO-RATA DISTRIBUTION. The Series C Preferred Stock will be subordinate to the Company's Series A Cumulative Convertible 3% Preferred Stock (the "Series A Preferred Stock") and the Company's Series B Cumulative Convertible 2% Preferred Stock (the "Series B Preferred Stock"), and of equal rank to the Common Stock, as to payment of dividends. If dividends are not paid in full upon the Series C Preferred Stock, any other preferred stock ranking on a parity as to dividends with the Series C Preferred Stock, all dividends declared upon shares of Series C Preferred Stock and the Common Stock, such other preferred stock and the Common Stock will be declared pro rata so that in all cases the amount of dividends declared per share on the Series C Preferred Stock, such other preferred stock and the Common Stock shall be equal. 3. VOTING RIGHTS. Holders of shares of Series C Preferred Stock will be entitled to vote together with the Company's Common Stock as a single class on all matters presented to a vote of the shareholders, except as otherwise provided by law, and each share of Series C Preferred Stock shall be entitled to 7.155058 votes. 4. CONVERSION RIGHTS. a. MANNER OF CONVERSION. Each share of Series C Preferred Stock shall be automatically converted into 7.155058 shares of the Company's Common Stock upon the filing of Articles of Amendment to the Company's Articles of Incorporation increasing the number of authorized shares of the Company's Common Stock to not less than 25,000,000 shares. Subject to the following provisions of this paragraph, such conversion shall be deemed to have been made as of the effective date of such Articles of Amendment and the rights of the converting holder of the shares of the Series C Preferred Stock as such holder shall cease and the person or persons in whose name or names the certificates for shares of Common Stock, as the case may be, upon conversion of such Series C Preferred Stock are to be issued shall be treated for all purposes as the record holder or holders of such Common Stock at the close of business on such date. The Company has agreed to forward the appropriate documentation to its transfer agent within three business days of the effective date of such Articles of Amendment. The Company will, as soon as practicable after surrender of certificates for Series C Preferred Stock, duly endorsed to the Company or in blank with signatures medallion guaranteed, or accompanied by proper instruments of transfer to the Company or in blank, with signatures medallion guaranteed, issue and deliver at the office of any transfer agent appointed as aforesaid, or at such other office or offices, if any, to the person for whose account such Series C Preferred Stock was so surrendered, or to his nominee or nominees, certificates for the highest number of whole shares of Common Stock, as the case may be, to which he shall be entitled as aforesaid. b. CONVERSION RATE. The conversion rate shall be 7.155058 shares of the Company's Common Stock for each share of Series C Preferred Stock, subject to adjustment in certain events. On conversion, no payment or adjustment for dividends shall be made. The conversion rate will be subject to adjustment in certain events, including: the issuance of stock as a dividend on the Common Stock; stock splits, subdivisions or combinations of the Common Stock; or the distribution to all holders of Common Stock of evidences of indebtedness of the Company, cash (excluding ordinary cash dividends), other assets or rights or warrants to subscribe for or purchase any securities (other than those referred to above). No fractional shares of Common Stock will be issued upon conversion but, in lieu thereof, the Company at its option may round up the fractional share or pay an appropriate amount in cash based upon the reported last sales price of the shares of Common Stock on the day of conversion. Whenever the conversion rate is adjusted as herein provided, the Company shall forthwith file with any transfer agent or agents for the Series C Preferred Stock appointed as aforesaid a certificate signed by the President or one of the Vice Presidents of the Company and by its Treasurer or an Assistant Treasurer, stating the adjusted conversion rate determined as provided in this Section 4, and in reasonable detail the facts requiring such adjustment. Such transfer agents shall be under no duty to make any inquiry or investigation as to the statements contained in any such certificate or as to the manner in which any computation was made, but may accept 2 such certificate as conclusive evidence of the statements therein contained, and each transfer agent shall be fully protected with respect to any and all acts done or action taken or suffered by it in reliance thereon. No transfer agent in its capacity as transfer agent shall be deemed to have any knowledge with respect to any change of capital structure of the Company unless and until it receives a notice thereof pursuant to the provisions of this Section 4 subparagraph b. and in the absence of any such notice each transfer agent may conclusively assume that there has been no such change. c. RECLASSIFICATION, CONSOLIDATION OR MERGER. In case of any reclassification of the Common Stock, any consolidation of the Company with, or merger of the Company into, any other entity, any merger of any entity into the Company (other than a merger which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock), any sale or transfer of all or substantially all of the assets of the Company or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or other property then provision shall be made such that the holder of each share of Series C Preferred Stock then outstanding shall have the right thereafter, to convert such share only into the kind and amount of securities, cash and other property receivable upon such reclassification, consolidation, merger, sale, transfer or share exchange by a holder of the number of shares of Common Stock into which such shares of Series C Preferred Stock might have been converted, had the above-referenced Articles of Amendment been filed and become effective, immediately prior to such reclassification, consolidation, merger, sale, transfer or share exchange. d. RIGHTS OF HOLDERS. Holders of the Series C Preferred Stock converted into Common Stock will be entitled to the same rights applicable at the time of conversion to other holders of Common Stock. The holders of the shares of the Series C Preferred Stock have no preemptive rights with respect to any securities of the Company. e. TAXES. The Company will pay any and all issue and other taxes that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of Series C Preferred Stock pursuant thereto. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of Common Stock in a name other than that in which the Series C Preferred Stock so converted was registered, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Company the amount of any such tax, or has established, to the satisfaction of the Company, that such tax has been paid. 5. STATUS OF CONVERTED SHARES. Any shares of Series C Preferred Stock that at any time shall have been converted pursuant to Section 4 or that have been otherwise repurchased by the Company shall, after such conversion or repurchase, have the status of authorized but unissued shares of Series C Preferred Stock, without designation as to series until such shares are once more designated as part of a particular series by the Board of Directors. 6. LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of shares of the Series C Preferred Stock are entitled to receive out of assets of the Company available for distribution 3 to stockholders, before any distribution of assets is made to holders of Common Stock or any other junior stock, liquidating distributions in the amount of $0.01 per share. The Series C Preferred Stock will be subordinate to the Company's Series A Preferred Stock and Series B Preferred Stock as to liquidation rights. If upon any liquidation, dissolution or winding up of the Company, the assets distributable to the holders of the Series C Preferred Stock and any other preferred stock ranking as to any such distribution on a parity with the Series C Preferred Stock are insufficient to fully pay the preferential amount, the holders of the Series C Preferred Stock and of such other preferred stock will share ratably in such distribution of assets in proportion to the full respective preferential amounts to which they are entitled. After payment of the full amount of the liquidating distribution to which they are entitled, the holders of shares of the Series C Preferred Stock will not be entitled to any further participation in any distribution of assets by the Company. Neither a consolidation or merger of the Company with another corporation nor a sale or transfer of all or part of the Company's assets for cash or securities will be considered a liquidation, dissolution or winding up of the Company. The right of the Company, and the rights of its creditors and shareholders (including holders of the Series C Preferred Stock), to participate in the distribution of the assets of any subsidiary of the Company upon any liquidation or reorganization of such subsidiary, or otherwise, will be subject to the prior claims of creditors of such subsidiary (except to the extent the Company may itself be a creditor with recognized claims against such subsidiary). 7. REDEMPTION RIGHTS. The Series C Preferred Stock may not be redeemed by the Company. 8. NO SINKING FUND. The shares of Series C Preferred Stock shall not be entitled to the benefit of any sinking fund to be applied to the purchase or redemption of such shares. 4 EX-5.1 4 BROAD AND CASSEL 201 South Biscayne Boulevard Suite 3000 Miami, Florida 33131 July 16, 1997 Ocean Optique Distributors, Inc. 14250 S.W. 119th Avenue Miami, Florida 33185 Re: Ocean Optique Distributors, Inc. (the "Company") Registration Statement on Form SB-2 Ladies and Gentlemen: You have requested our opinion with respect to the shares of the Company's common stock, no par value per share (the "Common Stock"), included in the Registration Statement on Form SB-2 (the "Form SB-2") filed with the U.S. Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended (the "Securities Act"). As counsel to the Company, we have examined the original or certified copies of such records of the Company, and such agreements, certificates of public officials, certificates of officers or representatives of the Company and others, and such other documents as we deem relevant and necessary for the opinions expressed in this letter. In such examination, we have assumed the genuineness of all signatures on original documents, and the conformity to original documents of all copies submitted to us as conformed or photostatic copies. As to various questions of fact material to such opinions, we have relied upon statements or certificates of officials and representatives of the Company and others. Based on, and subject to the foregoing, we are of the opinion that the issued and outstanding shares of Common Stock being registered on behalf of the Selling Securityholders as described in the Form SB-2 have been duly and validly issued, and are fully paid and non-assessable. Furthermore, we are of the opinion that the shares of Common Stock being registered in the Form SB-2 that are issuable upon exercise or conversion of the Company's Preferred Stock, warrants, or options, as the case may be, shall, upon such issuance as described in the Form SB-2, be duly and validly issued and fully paid and nonassessable. Ocean Optique Distributors, Inc. July 16, 1997 Page 2 In rendering this opinion, we advise you that members of this Firm are members of the Bar of the State of Florida, and we express no opinion herein concerning the applicability or effect of any laws of any other jurisdiction, except the securities laws of the United States of America referred to herein. This opinion has been prepared and is to be construed in accordance with the Report on Standards for Florida Opinions, dated April 8, 1991, issued by the Business Law Section of The Florida Bar (the "Report"). The Report is incorporated by reference into this opinion. We hereby consent to the filing of this opinion as an exhibit to the Form SB-2. We also consent to the use of our name under the caption "Legal Matters" in the Prospectus constituting part of the Form SB-2. In giving such consent, we do not thereby admit that we are included within the category of persons whose consent is required under Section 7 of the Securities Act, or the rules and regulations promulgated thereunder. Very truly yours, /s/ Broad and Cassel BROAD AND CASSEL EX-10.6 5 COMMERCIAL LEASE THIS LEASE is made as of the 27th day of June, 1997, between MIAMI OPTI MART, INC., a Florida corporation, hereinafter called "Lessor" or "Landlord", and OCEAN OPTIQUE DISTRIBUTORS, INC., a Florida corporation, hereinafter called "Lessee" or "Tenant". DESCRIPTION OF LEASED PREMISES Lessor, in consideration of the agreements of Lessee herein contained, hereby leases and demises to Lessee the Premises located at 2 N.E. 40th Street, Miami, Florida, Second Floor and Third Floor consisting of approximately 16, 550 square feet (the "Premises") , reserving to Lessor the rental hereinafter set forth, the lease to be upon all of the terms and conditions herein contained. The Premises is a portion of the property legally described in Exhibit "An attached hereto, and further delineated in the plan attached hereto as Exhibit "B". TERM The Premises is leased for a five (5) year term to commence on the later of July 1, 1997 or the date that the Lessee occupies the Premises (the "Commencement Date"), and to end on June 30, 2002, or on such earlier time and date as this lease may terminate as provided below, except that, if any such date shall fall on a Sunday or on a legal holiday, then this lease shall end on the next business day preceding the above described date. LESSEE'S COVENANTS/RENT/SECURITY 1.0 RENTAL. Lessee shall pay to Lessor total rental as set forth below, plus Florida sales tax in the amount of six and one-half percent (6.5%) (or such other amount that is applicable at the time), in monthly payments in the amounts specified below, to commence on the Commencement Date, and on the 1st day of each month thereafter, together with all other amounts payable by Lessee pursuant to the terms of this lease. All payments will be in advance on or before the first day of each month, and shall be paid without set-off or deduction for any reason whatsoever. Monthly Rental shall be Ten Thousand Three Hundred Dollars ($10,300.00), plus applicable sales tax. If the rent remains unpaid on the tenth (10th) day of the month for which it is due, Lessee shall pay a five percent (5%) late fee as additional rent. Lessor and Lessee agree that such late fee is a reasonable charge to reimburse Lessor for its costs and expenses of the Lessee's late payment. Acceptance by the Lessor of such late charge shall not constitute a waiver of the Lessee's default with respect to such overdue amount nor prevent Lessor from exercising any of its rights and remedies granted herein or by law. 1.1 RENT PAYMENT. Lessee shall pay the rent herein reserved, in advance and without demand, promptly upon the days the same becomes due and payable, to Lessor at 2 N.E. 40th Street, Dade County, Florida 33137, or at such address as may from time to time be designated by Lessor. 1.2 UTILITY BILLS. All application and connection for necessary utilities shall be in the name of the Lessee only. Lessee shall pay all charges for gas, sewer, water, and telephone during the term of this lease and during any time that Lessee occupies the Premises, before any of said charges becomes delinquent. Lessor shall provide electricity service to Lessee. 1.3 USE. Lessee shall use and occupy the building for the sale of optical related goods, equipment and service and any lawful purpose necessary to carry out this business purpose. 1.4 ASSIGNMENT/SUBLETTING. Lessee shall not sublet the Premises or any part thereof or assign any interest in this lease (whether by sale of assets, merger, consolidation or otherwise, or by sale or disposition of control or ownership) without first having obtained the written consent of Lessor, which shall not be unreasonably withheld. Any such assignment or sublet without the consent of the Lessor shall be void and, at the option of the Lessor, shall terminate the lease. 1.5 SURRENDER. Upon the expiration of the term of this lease, or any other cancellation, Lessee will, without demand, quietly and peacefully deliver possession of the Premises (including any improvements that may be made by Lessee) to Lessor in as good condition as when received, ordinary wear and tear only excepted. If Lessee fails to so surrender the premises, it shall be liable to the Lessor for all consequential damages. Any holding-over by Lessee shall be considered under law as a tenancy from month-to-month with all conditions and provisions of this lease in full force and effect, but at a monthly rental rate equal to 200% of the then current rental rate in effect. 1.6 WASTE. Lessee shall commit or permit no waste or injury to the Premises, and Lessee shall not make any alterations, additions, or improvements, inside or outside, including without limitation any holes in or penetrations of the roof, without the prior written consent of Lessor. 1.7 LESSEE'S COMPLIANCE. Lessee will not use the Premises for any illegal, immoral or improper purposes, and Lessee will execute and comply with, at Lessee's own cost and expense, all 2 laws, rules, orders, ordinances and regulations now in force or at any time issued, applicable to the Lessee's occupancy of the Premises, by the Municipal, County, State and Federal governments and of each and every department, bureau and office thereof, and with any requirements of any fire underwriters, bureau. Tenant shall not be responsible for any violations of rules, orders, ordinances or regulations due to actions or improvements made by the Lessor, but shall only be responsible for those caused by actions of the Lessee, its agents and employees. 1.8 LIABILITY. Lessee agrees to indemnify and save Lessor harmless from any and all liability for any damage to any person or property, during the term and any renewal, occasioned by or resulting from the breakage, leakage or obstruction of the water, gas or sewer pipes or of the roof or rain ducts, or any fire sprinkler or other quenching system, or other leakage or overflow or otherwise, in or about the Premises, but only if caused by Lessee, or from any negligence, tortious acts, or improper conduct on the part of Lessee or Lessee's employees, subtenants (if any) , or agents, on, in, or about the Premises or any part thereof. 1.9 RIGHT TO ENTRY. Lessee shall permit Lessor and Lessor's representatives and independent contractors, at any time during usual business hours, upon adequate notice to Lessee, except that no notice need be given in case of an emergency, and without interfering with Lessee's business operations, to enter the Premises for the purpose of inspection; making repairs; and exhibiting the Premises for sale, lease, appraisal or mortgage. Lessor shall have the right to post and keep upon the Premises a "For Rent" sign at any time within sixty (60) days before the expiration of the lease, or upon a default which is not timely cured. 1.10 ATTORNEYS' FEES. Lessee shall pay all and singular the costs, charges and expenses, including attorneys' fees (including those in connection with any appeal) reasonably incurred or paid at any time by Lessor due to the failure on the part of Lessee to pay rent, but only if litigation is commenced. In all other litigated matters, the prevailing party shall be entitled to its reasonable attorney's fees and court costs at all trial and appellate levels. 1.11 WAIVER. The failure of Lessor to insist in any one or more instances upon the strict performance of any one or more of the covenants, terms and agreements of this lease, shall not be construed as a waiver of such covenants, terms or agreements, but the same shall continue in full force and effect, and no waiver by Lessor of any of the provisions hereof shall in any event be deemed to have been made (by acceptance of rent or otherwise) unless the same be expressed in writing, signed by Lessor, and all remedies provided for by the terms of this lease shall be cumulative. 3 1.12 CONDITION OF PREMISES. Lessee shall at all times keep the interior of the Premises in a clean and orderly condition befitting a property of this type. 1.13 LIABILITY INSURANCE. Lessee shall maintain at its own expense throughout the term of this lease general public liability insurance for personal injury and property damage to protect both Lessor and Lessee (and Lessor's Mortgagee, if required) against damage, costs and attorneys, fees arising out of accidents of any kind occurring on or about the Premises. Said liability insurance shall be written by a company or companies acceptable to Lessor naming Lessor as an additional insured and will have liability limits of not less than $1,000,000.00 for injury or death, and $500, 000. 00 for property damage. A certificate showing such insurance in force shall be delivered to Lessor prior to commencement of the lease term, and such certificate shall be maintained with Lessor throughout the term of this Lease. The certificate shall require thirty (30) days' written notice from the insurer to Lessor of any cancellation or reduction in coverage. LESSOR'S COVENANTS 2.0 QUIET ENJOYMENT. Lessor hereby covenants that for so long as Lessee timely performs the covenants herein set forth, Lessee shall peaceably and quietly have, hold and enjoy the Premises, for the term of the lease, without any interruption by Lessor or persons claiming through or under Lessor. 2.1 UTILITIES. Lessor agrees to cause the necessary mains, conduits and other facilities to be provided to supply water and electricity and to measure electricity to the Premises. 2.2 RIGHT OF FIRST REFUSAL. In the event that the Lessor gives or receives an offer to sell to a third party the building and/or real property ( the "Property")of which the leased premises is a part, the Lessee shall have the option to purchase the Property upon the same terms as the third-party offer. Before giving or accepting any third-party offer to purchase the Property, Lessor shall deliver to Lessee a written notice containing the terms of the offer and the name and address of the third party. Any counteroffers shall, for purposes of this section, be considered new offers requiring notice to Lessee and giving rise to the Lessee's right of first refusal. Lessee shall have ten (10) days from receipt of notice of a third-party offer to purchase the Property in which to notify Lessor, in writing, of its intent either to purchase the Property on the offered terms or to waive its right of first refusal. 4 MUTUAL COVENANTS/OTHER COVENANTS AND CONDITIONS/MISCELLANEOUS 3.0 WAIVER OF SUBROGATION. Lessor and Lessee each waive any claim against the other for property damage to the extent that such claim is covered by valid and collectible insurance carried for the benefit of the party entitled to make such claim and provided that the insurer pays such claim; on condition, further, that this waiver shall not apply if the policy of such insurance would be invalidated by the operation of said waiver. 3.1 MECHANICS' LIEN. No person furnishing labor, services or materials in connection with repairs or improvements to the Premises, on Lessee's behalf, shall be entitled to any lien or other claim against Lessor's interest in the Premises unless such person has a direct contract with Lessor, and Lessee shall have no right to subject the Lessor's interest to any lien. Lessee shall notify all contractors of the foregoing provision. In the event an alleged lien is filed against the Premises under the Mechanics' Lien Law or any other statute by reason of an alleged contract with Lessee, Lessee shall hold Lessor harmless against such alleged claim, including all costs and reasonable attorneys' fees, and upon notice from Lessor to Lessee, Lessee shall within twenty (20) days cause any such lien that is of record to be discharged or transferred to other security as provided by the Florida Statutes so as to free the title to the Premises of any such alleged claim of lien. All laborers, mechanics, and materialmen may be put on notice of the provisions of this paragraph by the recordation, at Lessor's option, of a memorandum of this lease in the Dade County Public Records, and Lessee shall execute and acknowledge such a memorandum if requested. 3.2 NOTICES. Any notice required or permitted under this lease shall be in writing and shall be deemed to have been duly given if delivered personally or sent by certified mail, return receipt requested, to Lessor, at the place designated for the payment of rent, or to Lessee, if delivered to the Premises, or to such other address as either party may designate in writing. 3.3 REMOVAL OF FIXTURES. Lessee shall have the right to install office furniture, furnishings, and machinery and equipment necessary or convenient to the use permitted under paragraph 1.3, all of which shall remain the property of Lessee, but if any damage results to the Premises by reason of installation or removal of such office furniture, furnishings, machinery and equipment, Lessee shall repair the same at its own expense prior to the expiration of the lease term and immediately upon quitting the Premises. In the event that Lessor consents as required under paragraph 1.6 to any alterations, additions, fixtures and improvements to the Premises, then all such alterations, additions, fixtures and improvements 5 shall immediately become and remain part of the real estate and the property of Lessor. 3.4 REPAIRS. (a) Lessor shall, at its expense, keep the foundations, exterior wall, and the roof in good order and repair, and shall make structural repairs and replacements necessary to keep in good order and repair the Premises and the pipes and ducts running through the Premises but not including Lessee's service connections therewith and excluding additions and improvements, or repairs necessitated because of damage caused by any act, omission or negligence of Lessee. No liability of Lessor to Lessee shall accrue, however, under this covenant, unless and until Lessee has given written notice to Lessor of the specific repair required to be made and a reasonable time allowed thereafter to commence same. If Lessor is required to make repairs by reason of any act, omission or negligence of Lessee the cost of such repairs shall be borne by Lessee and shall be due and payable immediately upon receipt of Lessor's notification of the amount due. (b) Throughout the term of the Lease, Lessee shall maintain in good repair all portions of the Premises not required to be maintained in good repair by Lessor, including, without limitation, the air conditioning, electrical wiring, glass, pumps, plumbing, doors, windows, sidewalks, driveways, lawns, shrubbery, and walls. The Lessee, at its sole cost and expense, shall maintain all portions of the leased Premises in a clean and orderly condition, free of dirt, rubbish and unlawful obstructions during the term of this lease. In the event that the cost of any such repairs required to be made by Lessee is paid by Lessor, then Lessee shall reimburse Lessor for said total cost of repairs in addition to the rent which is required under paragraph 1.0 and if payment of said repairs remains unpaid on the tenth (10th) day of the month for which it is due, interest on the amount owing shall be due and payable by Lessee at the rate of twelve percent (12%-) per annum. (c) Either party shall give the other party at least fifteen (15) days' written notice of needed repairs and the party required to make the repairs shall have a reasonable time thereafter to cause work on said repairs to be commenced, unless it is an emergency, and once commenced, said work shall be continued and completed with reasonable dispatch provided that the party responsible for the repairs shall not be liable for failure to complete such repairs by reason of a force majeure as stated in paragraph 3.5 below. 6 3.5 FORCE MAJEURE. The term "force majeure" as used in this lease shall include acts of God, strikes, lockouts or other industrial disturbances, acts of the public enemy, wars, blockades, riots, acts of armed forces, epidemics, delays by carriers, inability to obtain materials, acts of public authorities and any other causes, whether or not enumerated in this paragraph, which causes are beyond the control of the party required to perform. 3.6 CASUALTY LOSS. In the event of a partial destruction of the Premises during the term hereof, from any cause, Lessor shall repair the same, providing that such repairs can be made within sixty (60) days under existing governmental laws and regulations (subject to force majeure), and during such time the lease shall not terminate, but Lessee shall be entitled to a proportionate reduction of rent while such repairs are being made. If such repairs cannot be made within said sixty (60) days, Lessor, at its option, may make such repairs within a reasonable time, this lease continuing in effect with rent proportionately abated, or if the repairs cannot be made within sixty (60) days, then either party may terminate this lease. In the event that the building in which the demised Premises may be situated is destroyed to an extent of not less than one-third of the replacement cost thereof, Lessor may elect to terminate this lease whether the demised Premises be injured or not. A total destruction of the building in which the Premises may be situated shall terminate this lease. Lessor shall promptly notify Lessee after a loss as to which option Lessor elects. 3.7 CONDEMNATION. In the event that the Premises or any part thereof are taken for any public or quasi-public use by condemnation or by right of eminent domain, or purchase in avoidance or settlement of a condemnation or eminent domain proceeding, Lessor and Lessee agree as follows: (a) If all of the Premises or such a part of the leased Premises are taken so as to render the Premises unsuitable for the business of Lessee, then this lease shall be canceled, and rent shall abate as of the date of taking. (b) In the event of a partial taking which does not render the Premises unsuitable for the business of Lessee, a fair and just proportion of the rent shall abate as of the date of taking, and Lessor shall have the option either to continue this lease (in which event Lessor shall proceed to repair the damage to the Premises caused by such partial taking) , or to cancel this lease as of the date of taking, with rent abating as of that date. Lessor shall notify promptly Lessee after a taking as to which option Lessor elects. Lessor shall not be liable to Lessee in the event any force majeure delays completion of repairs. 7 (c) In no event shall Lessee be entitled to any award or part of any award or settlement paid to Lessor on account of any condemnation or taking. 3.8 DEFAULT. If any one or more of the following events shall happen: (a) if default shall be made in the payment of any rents herein reserved upon the date the same become due and payable and such default continues for a period of ten (10) days, after written notice; or (b) if default shall be made by Lessee in the performance of or compliance with any of the covenants, agreements, terms or conditions contained in this lease other than those referred to in the foregoing subparagraph (a) and such default shall continue for a period of ten (10) days after written notice thereof from Lessor to Lessee; or (c) if Lessee shall file a voluntary petition in bankruptcy or shall be adjudicated a bankrupt or insolvent, or shall file any petition or answer seeking any reorganization, arrangement, composition, readjustment, liquidation, wage earner's plan, dissolution or similar relief under the present or any future federal bankruptcy act or any other present or future applicable federal, state or other statute or law, or shall seek or consent to or acquiesce in the appointment of any trustee, receiver or liquidator of Lessee or of all or any substantial part of Lessee's properties or of the Premises; or (d) if within forty-five (45) days after commencement of any proceeding against Lessee seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under the present or any future federal bankruptcy act or any other present or future applicable federal, state or other statute or law, such proceeding shall not have been dismissed, or stayed on appeal, or if, within forty-five (45) days after the appointment, without the consent or acquiescence of Lessee, of any trustee, receiver or liquidator of Lessee or of all or any substantial part of Lessee's properties or of the demised property, such appointment shall not have been vacated or stayed on appeal or otherwise, or if, within forty-five (45) days after the expiration of any such stay such appointment shall not have been vacated; or (e) if Lessee's interest in the Premises shall be seized under any levy, execution, attachment or other process of court and the same shall not be promptly vacated or stayed on appeal or otherwise, or if Lessee's interest in the Premises 8 is sold by judicial sale and the sale is not promptly vacated or stayed on appeal or otherwise; then in any such event Lessor may at any time thereafter terminate this lease and retake possession, accelerate rent, sue for distress of rent, sue for possession, or pursue any other remedy afforded by law. Any such termination shall apply to any extension or renewal of the term herein demised, and to any right or option on the part of Lessee that may be contained in this lease or any agreement. Nothing herein contained shall be construed as precluding Lessor from having such remedy as may be and become necessary in order to preserve Lessor's right or the interest of Lessor, in the Premises and in this lease, even before the expiration of the grace or notice periods provided for in this lease, if under particular circumstances then existing the allowance of such grace or the giving of such notice will prejudice or will endanger the rights and estate of Lessor in this lease and in the Premises. There shall be no default under the lease by the Lessor unless the Lessor fails to perform obligations required by the Lessor within a reasonable time, but in no event later than ten (10) days after written notice by Lessee to Lessor and any mortgagee, specifying the alleged default; provided, however, that if the nature of the Lessor's obligation is such that more than ten (10) days are required for performance, then the Lessor shall not be in default if Lessor commences performance within such lo-day period and thereafter diligently prosecutes the same to completion. 3.9 TAXES AND INSURANCE PREMIUMS. Commencing in 1998, Lessee shall be responsible for its proportionate share of all increases in real estate property taxes attributable to the Premises above the base year, which shall be 1997 for purposes hereof. Lessee's proportionate share shall be 40.0%. Payment shall be due at Lessor's office before November 20 of each year billed; Lessor shall provide Lessee with at least ten (10) days written notice of the amount due with a copy of the tax bill. Lessee shall pay promptly all personal property taxes in connection with the Premises and its own personal property. Lessee shall maintain its own insurance on its personal property. Lessor shall insure the Premises, as required by its lender. All amounts owing by Lessee for its portion of real estate taxes, if any, pursuant to this paragraph, and any other amounts due from Lessee to Lessor at any time under this Lease, shall be deemed to be rent to be paid under paragraphs 1.0 and 1.1 hereof. Lessee shall pay all taxes imposed by Florida Statutes Section 212.031, and any amendments thereto, and any tax substituted in lieu thereof on the rent due under this lease. 3.10 ABANDONING AND VACATING. If Lessee: (a) should vacate, abandon, or desert the Premises; or 9 (b) ceases the continual operation of its business therein, then in any such event, Lessee shall be in default and Lessor may immediately retake possession of the Premises and may, at its option, pursue any other remedy pursuant to the lease or available by law under default. 3.11 SUBORDINATION TO MORTGAGE. This lease is subordinate and inferior to any mortgage or other financing on the property of which the Premises is a part, including any renewal or extension or future advance thereon. This provision is self-operative and no additional documentation shall be required; however, Lessee covenants to execute any reasonable agreement requested by the mortgagee to further evidence the agreements of this paragraph. The Lessee shall not be entitled to place any mortgage, pledge any security interest in, or otherwise encumber the leasehold estate. Lessee shall attorn to any mortgagee which becomes the owner of the Premises. 3.12 SIGNS. Lessee shall have the right from time to time during the term of the lease to maintain such signs in such places as may be approved by Lessor, in its sole discretion, in writing. No sign may be maintained that will structurally impair or affect the Premises. Each and every sign maintained by Lessee shall be removed at the expiration of the lease term and the Premises repaired and restored, where such sign was attached, to as good condition as before the sign was installed. All signs shall be in accordance with and as approved by relevant zoning authorities. 3.13 BROKERS/INDEMNITY. Lessee and Lessor represent and warrant that neither Lessee nor Lessor or any of their representatives employees or agents has dealt or consulted with any real estate broker in connection with this lease. Without limiting the effect of the foregoing, Lessee and Lessor hereby agree to indemnify and hold each other harmless against any claim or demand made by any real estate broker or agent claiming to have dealt or consulted with the other party, or any of its representatives, employees or agents contrary to the foregoing representation and warranty. 3.14 ENTIRE AGREEMENT. This lease, and any exhibits hereto, contains the entire agreement between Lessor and Lessee with respect to the Premises and extinguishes all prior negotiations with respect thereto. No modification hereof shall be valid unless it is in writing signed by the party against whom the enforcement is sought. Time is of the essence. 3.15 EFFECT AND CONSTRUCTION. The provisions of this lease shall inure to the benefit of and shall be binding upon the parties hereto and their respective heirs, legal representatives, successors and assigns. No person, firm, corporation or court officer holding under or through the Lessee in violation of any of 10 the terms, provisions or conditions of this lease shall have any right, interest or equity in or to this lease, the terms of this lease or the Premises. The underlined paragraph headings are inserted for convenience of reference only and shall not be deemed to limit or expand upon any of the provisions of this lease. 3.16 RADON GAS. Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of radon gas that exceed federal and state guidelines have been found in buildings in Florida. Additional information regarding radon gas and radon testing may be obtained from your county public health unit. This information is provided for informational purposes pursuant to section 404.056(8), Florida Statutes. 3.17 ENVIRONMENTAL. Lessee shall strictly comply with all federal, state, county, city and/or district regulations, laws, and ordinances with regard to toxic or hazardous wastes or to environmental protection of the land, ground water and aquifer (collectively, the "Environmental Laws"). In the event that the Lessee is found in violation of any Environmental Laws, then Lessee shall indemnify and hold Lessor harmless from all losses, damages, liabilities and expenses, including reasonable attorney's fees and court costs, plus consultant's fees, which may arise or be claimed against Lessor or the Premises as a result of such a breach of Environmental Laws. This paragraph shall survive termination of the lease. 3.18 AUTHORITY. Lessee warrants and represents that it has authority to enter into this lease, that it does not violate any bylaws, articles or other agreements of the Lessee. The person signing below has authority to execute this lease and bind the Lessee. 3.19 OPTION TO RENEW. Provided that Lessee is not in default in the performance of this lease, Lessee shall have the option to renew the lease for one additional term of five (5) years commencing at the expiration of the initial lease term. All of the terms and conditions of the lease shall apply during the renewal term, except that the monthly rent shall be ten percent (10%) more than the monthly rental set forth in Paragraph 1.0 of this lease. The option to renew shall be exercised by written notice given by Lessee to Lessor not less than sixty (60) days prior to the expiration of initial lease term. 3.20 PARKING. Lessee shall be entitled to the use of ninety percent (90%) of the covered parking spaces on the Premises. 11 EXECUTED as of the date first above written in several counterparts, anyone of which shall be deemed an original, but all constituting only one instrument. Executed in the presence of: MIAMI OPTI MART, INC. By: /s/ SOLOMON OVADIA - ----------------------------- ----------------------------- Solomon Ovadia, President - ----------------------------- (As to Lessor) OCEAN OPTIQUE DISTRIBUTORS, INC. By: /s/ KENNETH GORDON - ----------------------------- ----------------------------- Kenneth Gordon, President - ----------------------------- (As to Lessee) 12 EX-10.8 6 EXHIBIT 10.8 I. EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into this 26th day of June, 1997 by and between OCEAN OPTIQUE DISTRIBUTORS, INC., a Florida corporation ("Company"), and SOLOMON OVADIA ("Employee"). WITNESSETH: WHEREAS, the Company is engaged in the business of importing, marketing and distributing high quality ophthalmic (or eyeglass) frames and sunglasses ("Company's Business"); and WHEREAS, subject to the terms and conditions hereinafter set forth, the Company desires to employ Employee, and Employee desires to be employed by the Company. NOW, THEREFORE, in consideration of the mutual promises set forth herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. RECITALS. The foregoing recitals are true and correct and are incorporated herein by this reference. 2. EMPLOYMENT. The Company hereby employs the Employee, and the Employee hereby accepts employment, as the President of the Company, upon the terms and conditions of this Agreement. 3. AUTHORITY AND POWER DURING EMPLOYMENT PERIOD. The duties of the Employee shall be subject to the direction of the Company's Board of Directors and the Employee shall perform all duties as may be mutually agreed upon between the Employee and the Company's Board of Directors. The Employee shall devote full attention and render exclusive, full-time services to the Company and shall be an employee solely of the Company according to the terms of this Agreement. 4. COMPENSATION. In exchange for the performance of Employee's duties hereunder, the Company hereby agrees to pay Employee the following Compensation: (a) BASE SALARY. The Company shall pay Employee a gross annual base salary ("Salary") of One Hundred Seventy-Five Thousand Dollars ($175,000). Salary shall be paid by the Company in accordance with the Company's regular payroll practices, but not less often than once every two (2) weeks. The Company's Board of Directors shall review Employee's Salary annually and may increase it if the Employee's performance justifies such an increase. (b) DISCRETIONARY BONUS. In addition to the Salary described in Section 4(a), Employee may be eligible to receive an annual bonus solely and exclusively at the discretion of the Company's Board of Directors. (c) WITHHOLDING. The Company shall deduct or withhold from all Compensation payable hereunder all amounts required to be deducted or withheld from Compensation pursuant to state or federal law. (d) OTHER BENEFITS. (i) FRINGE BENEFITS. Employee shall be eligible to participate, on the same basis and subject to the same qualifications as the other executive officers of the Company, in all other employee benefits made available to executive officers of the Company, including any pension, profit-sharing plan, life, health, medical, dental, hospitalization or surgical insurance plan or policy, and any vacation or fringe benefit plans or programs, whether now existing or hereafter established for participation of executive officers. (ii) EXPENSE REIMBURSEMENT. It is contemplated that, in connection with his employment hereunder, Employee may incur business, entertainment and travel expenses. The Company agrees to reimburse Employee in full for all preapproved reasonable, ordinary and necessary business, entertainment and other related expenses, including travel expenses, incurred or expended by him incident to the performance of his duties hereunder, and incurred or expended in accordance with the Company's policies with respect to such expenses, upon submission by Employee to the Company of such vouchers or expense statements satisfactorily evidencing such expenses as may be reasonably required by the Company or its accountants. (iii) VACATION. It is understood and agreed by the parties hereto that during the term of Employee's employment hereunder he shall be entitled to four (4) weeks of paid vacation each full calendar year, to be taken at such times as the Company and Employee shall have mutually agreed to beforehand. Unused vacation time in any calendar year shall not be carried over to any subsequent calendar year, and Employee shall not be entitled to the economic equivalent of any vacation time not used within a calendar year. (iv) STOCK OPTIONS. If the Company's audited annual income before income taxes for its fiscal year ended June 30, 1998, is at least $3,000,000, then the Company shall grant Employee options to purchase shares of the Company's common stock. -2- Employee shall receive options to purchase 100,000 shares of the Company's common stock for the first $3,000,000 of such income before income taxes and additional options for such income before income taxes in excess of $3,000,000 at the rate of an option to purchase one share of the Company's common stock for each additional $30 of such income before income taxes. If the such income before income taxes is less than $3,000,000, the Company does not have to grant Employee any options; however, the Company's Board of Directors otherwise retains the right to grant options to Employee if the Board of Directors determines such grant to be in the best interests of the Company and all of its shareholders. Any such options granted to Employee shall be granted within 30 calendar days after the Company's independent auditors deliver audited financial statements for such fiscal year to the Company. The options shall have an exercise price per share equal to the fair market value of the Company's common stock on the date of grant, shall vest and be exercisable upon grant, and shall be exercisable for a period of five years from the date of grant. 5. TERM. This Agreement shall commence on the date hereof and shall continue to be in effect for three (3) years from the date of this Agreement ("Term"), unless terminated prior to the end of the Term in accordance with Section 6 of this Agreement. 6. TERMINATION. (a) BY COMPANY - FOR CAUSE. The Company shall have the right to terminate the employment of Employee for cause immediately upon providing written notice to Employee. For purposes of this Agreement, "cause" shall mean the occurrence of any of the following, each of which shall be deemed a breach of this Agreement: (i) Employee's commission of any act of corporate theft, misappropriation of funds, breach of duty as an officer of the Company or other willful misconduct, act of dishonesty or intentional harm against or to the Company; (ii) Employee's conviction of or pleading nolo contendere to any felony; (iii) Employee's failure to perform his duties hereunder on account of an incapacitating physical or mental condition for sixty (60) or more work days in any six (6) month period ("Permanent Disability"). If there is any dispute as to whether the Employee has suffered a permanent disability, the Employee shall submit to an examination by a physician whose selection shall be agreed upon by both the Employee and the Company, and whose determination shall be binding; or -3- (iv) Employee's failure to abide by the Company's policies or procedures, including, but not limited to the Company's policy against sexual harassment and discrimination. In the event the Company elects to terminate Employee's employment hereunder for cause, the Company shall give written notice to such effect to Employee, which notice shall describe in reasonable detail the actions of Employee constituting cause. Termination for cause pursuant to this provision shall terminate any and all rights that Employee has pursuant to this Agreement, including any options to purchase shares of the Company's common stock that may have previously been granted to him. In the event the Company elects to terminate Employee's employment hereunder without cause, the Company shall give written notice to such effect to Employee. On the effective date of termination, the Company shall pay Employee severance in the amount of $175,000 in cash. In addition, the provisions of Section 7(b) of this Agreement will no longer apply to Employee. Other than as provided in this paragraph, on the effective date of termination, Employee shall have no further rights pursuant to this Agreement. This Agreement shall also terminate upon the Employee's death. (b) BY EMPLOYEE - FOR CAUSE. Employee shall have the right to terminate his employment under this Agreement for cause immediately upon sending written notice to the Company in the event the Company fails, within thirty (30) days of written notice from Employee, to cure any breach of its obligations under this Agreement. 7. CONFIDENTIAL INFORMATION AND COMPETITION. (a) CONFIDENTIAL INFORMATION. Employee hereby acknowledges that he will or may be making use of, acquiring and adding to confidential information of a special and unique nature and value affecting and relating to the Company and its operations, including, but not limited to, the Company's Business, the identity of the Company's customers and suppliers, the Company's data base information, prices paid by the Company for inventory, its business practices, marketing strategies, expansion plans, the Company's contracts, business records and other records, the Company's trade secrets, inventions, techniques used in the Company's Business, know-how and technologies, whether or not patentable, and other similar information relating to the Company and the Company's Business (all the foregoing regardless of whether same was known to Employee prior to the date hereof or is or becomes known to third parties is hereinafter referred to collectively as "Confidential Information"). Employee further recognizes and acknowledges that all Confidential Information is the exclusive property of the Company, is material and confidential, and greatly affects the -4- legitimate business interests, goodwill and effective and successful conduct of the Business of the Company. Accordingly, Employee hereby covenants and agrees that he will use the Confidential Information only for the benefit of the Company and shall not at any time, directly or indirectly, either during the Term of this Agreement or afterward, divulge, reveal or communicate any Confidential Information to any person, firm, corporation or entity whatsoever, or use any Confidential Information for his own benefit or for the benefit of others. (b) COMPETITION. Employee hereby acknowledges and agrees that the Company would suffer irreparable injury if Employee competes with the Company. As a material inducement to the Company to enter into this Agreement, Employee hereby covenants and agrees that, unless the Company and its successors and assigns shall cease to engage in the Company's Business, or unless Employee's engagement hereunder is terminated by the Company in violation of this Agreement or by Employee in accordance with Section 6(b) hereof, during the period beginning on the date hereof and continuing until two years following the date of the expiration or sooner termination of this Agreement, he shall not: (i) directly or indirectly, operate, be employed by, provide consulting services to, organize, maintain, establish, manage, own, participate in, or in any manner whatsoever, individually or through any corporation, firm or organization of which he shall be affiliated in any manner whatsoever, have any interest in, whether as owner, operator, partner, stockholder, director, trustee, officer, lender, employee, principal, agent, consultant or otherwise, any other business or venture which engages in the Company's Business or is otherwise in competition with the Company or any assigns of the Company at the time of the expiration or sooner termination of this Agreement, unless such activity shall have been previously agreed to in writing by the Company and its successors and assigns; (ii) directly or indirectly, divert business from the Company or its successors or assigns, or solicit business from, divert the business of, or attempt to convert to other methods of using the same or similar services as are provided by the Company, any client or account of the Company; or (iii) directly or indirectly, solicit for employment, employ or otherwise engage the services of, any employees or consultants of the Company or its successors or assigns. (c) INJUNCTION AND ATTORNEY'S FEES. In view of the irreparable injury to the Company that would result from a breach or threatened breach of Employee of the covenants or agreements under Sections 7 (a) or (b) hereof, and because there is not an adequate remedy at law to protect the Company from the ongoing -5- breach of those covenants, Employee acknowledges that a permanent injunction is an appropriate remedy for such a breach or threatened breach. These remedies shall be in addition to and not in limitation of any other rights or remedies to which the Company is or may be entitled at law or in equity under this Agreement. With respect to any such litigation, the provisions of Section 12(m) hereof shall apply, regardless of whether this Agreement had earlier expired or been terminated. (d) REASONABLENESS OF RESTRICTIONS. Employee has carefully read and considered the provisions of Sections 7 (a), (b) and (c) hereof and, having done so, agrees that the covenants set forth in those Sections are fair and reasonable and are reasonably required to protect the legitimate business interests of the Company. Employee agrees that the covenants set forth in Sections 7 (a), (b) and (c) hereof do not unreasonably impair the ability of Employee to conduct any unrelated business or to find gainful work in his field. The parties hereto agree that if a court of competent jurisdiction holds any of the covenants set forth in Sections 7 (a) or (b) unenforceable, the court shall substitute an enforceable covenant that preserves, to the maximum lawful extent, the scope, duration and all other aspects of the covenants deemed unenforceable, and that the covenant substituted by the court shall be immediately enforceable against Employee. The foregoing shall not be deemed to affect the right of the parties hereto to appeal any decision by a court concerning this Agreement. (e) SURVIVAL. This Section 7 shall survive the termination of this Agreement and Employee's employment hereunder. Employee acknowledges and agrees that the provisions of this Section 7 are specifically intended by both the Company and Employee to benefit, and be enforceable by, not only the Company, but also the Company's successors and assigns. 8. RIGHTS TO INVENTIONS, PATENTS AND COPYRIGHTS. (a) Employee shall promptly disclose in writing to the Company: all ideas, inventions, discoveries, devices, machines, apparatus, methods, compositions, know-how, works, processes and improvements to any thereof, whether or not patentable or copyrightable, that he may conceive, make, develop, invent, reduce-to-practice, author or discover, whether solely or jointly or commonly with others, during his employment with the Company, or within one calendar year following the termination of his employment with the Company, which relates to the business of the Company at the time of termination (the items specified in this Section 8(a) are hereinafter collectively referred to as "Inventions"). All Inventions are the sole and exclusive property of the Company. -6- (b) Employee shall promptly assign, transfer and set over unto the Company, its successors and assigns, all of his rights, title and interest in and to all Inventions, all applications for letters patent or copyrights, foreign and domestic, which have or may be filed on such Inventions, all divisionals, continuations, continuations-in-part, stream-line continuations, substitutions, refiles, derivatives, and extensions thereof, all copyrights, all letters patent of the United States and its territorial possessions and all letters patent of foreign countries which may be granted therefor, and all reexaminations and reissues of said letters patent, including the subject matter of any and all claims which may be obtained in every such domestic and foreign patent, the same to be held and enjoyed by the Company for its own and exclusive use and advantage, and for the exclusive use and advantage of its successors, assigns and other legal representatives, to the full end of the term or terms for which said copyrights and letters patent of the United States, territories and foreign countries are or may be granted, reexamined or reissued, as fully and entirely as the same would have been held and enjoyed by Employee, if the assignment had not been made. (c) During and subsequent to the Term hereof, Employee authorizes and requests the Commissioner of Patents to issue to the Company all letters patent of the United States on all Inventions and on all divisionals, continuations, continuations-in-part, stream-line continuations, substitutions, refiles, derivatives, extensions, reexaminations and reissues thereof, and hereby covenants that he has not executed and will not execute any agreement in conflict therewith. (d) Employee further covenants and agrees that he will, during and subsequent to the Term hereof, without demanding any other consideration therefor, at any time, upon request, execute, or cause to be executed, and deliver any and all papers that may be necessary or desirable to perfect the title to any Invention and to such letters patent and copyrights as may be granted therefor, in the Company, its successors, assigns or other legal representatives, and that if the Company, its successors, assigns, or other legal representatives shall desire to file any divisional, continuation, continuation-in-part, stream-line continuation, substitute, refile, extension, reexamination, reissue, or derivative application, or to secure a reissue or reexamination of such letters patent, or to file a disclaimer relating thereto, Employee will upon request, sign, or cause to be signed, all papers, make or cause to be made all rightful oaths, and do all lawful acts requisite for such action. (e) Employee does further covenant and agree, that he will, at any time during and subsequent to the Term hereof, upon request, communicate to the Company, its successors, assigns, or other legal representatives, such facts relating to the Inventions, letters patent and copyrights or to the history thereof, as may be -7- known to him, and testify, at the Company's expense, as to the same in any interference or other litigation or proceeding in which Employee is not a party and does not have an interest, when requested to do so. 9. MISCELLANEOUS. (a) NOTICES. All notices, demands or other communications given hereunder shall be in writing and shall be deemed to have been duly given only upon hand delivery thereof or upon the first business day after mailing by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: To Company: Ocean Optique Distributors, Inc. 14250 S.W. 119th Ave. Miami, Florida 33186 Attn.: Kenneth J. Gordon To Employee: Solomon Ovadia 2 N.E. 40th Street Miami, Florida 33137 or to such other address or such other person as any party shall designate, in writing, to the other for such purposes and in the manner hereinabove set forth. (b) ENTIRE AGREEMENT. This Agreement sets forth all the promises, covenants, agreements, conditions and understandings between the parties hereto with respect to the subject matter contained herein, and supersedes all prior and contemporaneous agreements, understandings, inducements or conditions with respect to said subject matter, expressed or implied, oral or written, except as herein contained. (c) BINDING EFFECT; NO ASSIGNMENT. This Agreement shall be binding upon the parties hereto, their heirs, administrators, successors and assigns. No party may assign or transfer its interests herein, or delegate its duties hereunder, without the written consent of the other party. Any assignment or delegation of duties in violation of this provision shall be null and void. (d) AMENDMENT. The parties hereby irrevocably agree that no attempted amendment, modification, termination, discharge or change (collectively, "Amendment") of this Agreement shall be valid and effective, unless the parties shall unanimously agree in writing to such Amendment. -8- (e) NO WAIVER. No waiver of any provision of this Agreement shall be effective unless it is in writing and signed by the party against whom it is asserted, and any such written waiver shall only be applicable to the specific instance to which it relates and shall not be deemed to be a continuing or future waiver. (f) GENDER AND USE OF SINGULAR AND PLURAL. All pronouns shall be deemed to refer to the masculine, feminine, neuter, singular or plural, as the identity of the party or parties, or their personal representatives, successors and assigns may require. (g) COUNTERPARTS. This Agreement and any amendments may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument. (h) HEADINGS. The article and section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of the Agreement. (i) GOVERNING LAW. This Agreement shall be construed in accordance with the laws of the State of Florida and any proceeding arising between the parties in any manner pertaining or related to this Agreement shall, to the extent permitted by law, be held in Dade County, Florida. (j) FURTHER ASSURANCES. The parties hereto will execute and deliver such further instruments and do such further acts and things as may be reasonably required to carry out the intent and purposes of this Agreement. (k) NO THIRD PARTY BENEFICIARY. This Agreement is made solely and specifically among and for the benefit of the parties hereto, and their respective successors and assigns subject to the express provisions hereof relating to successors and assigns, and no other person shall have any rights, interest or claims hereunder or be entitled to any benefits under or on account of this Agreement as a third-party beneficiary or otherwise. (l) PROVISIONS SEVERABLE. This Agreement is intended to be performed in accordance with, and only to the extent permitted by, all applicable laws, ordinances, rules, and regulations of the jurisdiction in which the parties do business. If any provision of this Agreement, or the application thereof to any person or circumstances shall, for any reason or to any extent, be invalid or unenforceable, the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected thereby, but rather shall be enforced to the greatest extent permitted by law. -9- (m) LITIGATION. If any party hereto is required to engage in litigation against any other party hereto, either as plaintiff or as defendant, in order to enforce or defend any rights under this Agreement, and such litigation results in a final judgment in favor of such party ("Prevailing Party"), then the party or parties against whom said final judgment is obtained shall reimburse the Prevailing Party for all direct, indirect or incidental expenses incurred, including, but not limited to, all attorneys' fees, court costs and other expenses incurred throughout all negotiations, trials or appeals undertaken in order to enforce the Prevailing Party's rights hereunder. (n) REPRESENTATION BY EMPLOYEE. Employee hereby represents and warrants that he is not a party to any agreement, contract or understanding, whether of employment or otherwise, which would in any way restrict or prohibit him from undertaking or performing employment with the Company in accordance with the terms and conditions of this Agreement. -10- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. WITNESSES: COMPANY: OCEAN OPTIQUE DISTRIBUTORS, INC., a Florida corporation /s/ JUDITH KENNEY By:\S\KENNETH J. GORDON, PRESIDENT - ------------------------- ------------------------------- /s/ WILLIAM C. PHILLIPPI Kenneth J. Gordon, - ------------------------- President EMPLOYEE: /s/ JUDITH KENNEY \S\SOLOMON OVADIA - ------------------------ ----------------- /s/ WILLIAM C. PHILLIPPI SOLOMON OVADIA - ------------------------ -11- EX-10.10 7 EXHIBIT 10.10 COAST BUSINESS CREDIT /Registered Mark/ LOAN AND SECURITY AGREEMENT BORROWER: OCEAN OPTIQUE DISTRIBUTORS, INC. ADDRESS: 14250 S.W. 119TH AVENUE MIAMI, FLORIDA 33186 BORROWER: CLASSIC OPTICAL, INC. ADDRESS: 14250 S.W. 119TH AVENUE MIAMI, FLORIDA 33186 BORROWER: EUROPEAN MANUFACTURERS AGENCY, INC. ADDRESS: 14250 S.W. 119TH AVENUE MIAMI, FLORIDA 33186 DATE: MAY 28, 1997 THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between COAST BUSINESS CREDIT, a division of Southern Pacific Thrift & Loan Association ("Coast"), a California corporation, with offices at 12121 Wilshire Boulevard, Suite 1111, Los Angeles, California 90025, and the three (3) borrowers named above (jointly and severally, the "Borrower") whose chief executive office is located at the above address ("Borrower's Address"). The Schedule to this Agreement (the "Schedule") shall for all purposes be deemed to be a part of this Agreement, and the same is an integral part of this Agreement. (Definitions of certain terms used in this Agreement are set forth in Section 8 below.) 1. LOANS. 1.1 LOANS. Coast will make loans to Borrower (the "Loans"), in amounts determined by Coast in its sole discretion, up to the amounts (the "Credit Limit") shown on the Schedule, provided no Default or Event of Default has occurred and is continuing. 1.2 INTEREST. All Loans and all other monetary Obligations shall bear interest at the rate shown on the Schedule, except where expressly set forth to the contrary in this Agreement. Interest shall be payable monthly, on the last day of the month. Interest may, in Coast's discretion, be charged to Borrower's loan account, and the same shall thereafter bear interest at the same rate as the other Loans. Regardless of the amount of Obligations that may be outstanding from time to time, Borrower shall pay Coast minimum monthly interest during the term of this Agreement with respect to the Receivable Loans in the amount set forth on the Schedule (the "Minimum Monthly Interest"). 1.3 FEES. Borrower shall pay Coast the fee(s) shown on the Schedule, which are in addition to all interest and other sums payable to Coast and are not refundable. 2. SECURITY INTEREST. 2.1 SECURITY INTEREST. To secure the payment and performance of all of the Obligations when due, Borrower hereby grants to Coast a security interest in all of Borrower's interest in the following, whether now owned or hereafter acquired, and wherever located: All Receivables, Inventory, Equipment, and General Intangibles, including, without limitation, all of Borrower's investment properties, Deposit Accounts, and all money, and all property now or at any time in the future in Coast's possession (including claims and credit balances), and all proceeds of any of the foregoing (including proceeds of any insurance policies, proceeds of proceeds, and claims against third parties), all products of any of the foregoing, and all books and records related to any of the foregoing (all of the foregoing, together with all other property in which Coast may now or in the future be granted a lien or security interest, is referred to herein, collectively, as the "Collateral"). 3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER. In order to induce Coast to enter into this Agreement and to make Loans, Borrower represents and warrants to Coast as follows, and Borrower covenants that the following representations will continue to be true, and that Borrower will at all times comply with all of the following covenants: 3.1 CORPORATE EXISTENCE AND AUTHORITY. Borrower, if a corporation, is and will continue to be, duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. Borrower is and will continue to be qualified and licensed to do business in all jurisdictions in which any failure to do so would have a material adverse effect on Borrower. The execution, delivery and performance by Borrower of this Agreement, and all other documents contemplated hereby (i) have been duly and validly authorized, (ii) are enforceable against Borrower in accordance with their terms (except as enforcement may be limited by equitable principles and by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to creditors' rights generally), and (iii) do not violate Borrower's articles or certificate of incorporation, or Borrower's by-laws, or any law or any material agreement or instrument which is binding upon Borrower or its property, and (iv) do not constitute grounds for acceleration of any material indebtedness or obligation under any material agreement or instrument which is binding upon Borrower or its property. 3.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in the heading to this Agreement is its correct name. Listed on the Schedule are all prior names of Borrower and all of Borrower's present and prior trade names. Borrower shall give Coast 30 days' prior written notice before changing its name or doing business under any other name. Borrower has complied, and will in the future comply, with all laws relating to the conduct of business under a fictitious business name. 3.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth in the heading to this Agreement is Borrower's chief executive office. In addition, Borrower has places of business and Collateral is located only at the locations set forth on the Schedule. Borrower will give Coast at least 30 days prior written notice before opening any additional place of business, changing its chief executive office, or moving any of the Collateral to a location other than Borrower's Address or one of the locations set forth on the Schedule. 3.4 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower is now, and will at all times in the future be, the sole owner of all the Collateral, except for items of Equipment which are leased by Borrower. The Collateral now is and will remain free and clear of any and all liens, charges, security interests, encumbrances and adverse claims, except for Permitted Liens. Coast now has, and will continue to have, a first-priority perfected and enforceable security interest in all of the Collateral, subject only to the Permitted Liens, and Borrower will at all times defend Coast and the Collateral against all claims of others. None of the Collateral now is or will be affixed to any real property in such a manner, or with such intent, as to become a fixture. Borrower is not and will not become a lessee under any real property lease pursuant to which the lessor may obtain any rights in any of the Collateral and no such lease now prohibits, restrains, impairs or will 2 prohibit, restrain or impair Borrower's right to remove any Collateral from the leased premises. Whenever any Collateral is located upon premises in which any third party has an interest (whether as owner, mortgagee, beneficiary under a deed of trust, lien or otherwise), Borrower shall, whenever requested by Coast, use its best efforts to cause such third party to execute and deliver to Coast, in form acceptable to Coast, such waivers and subordinations as Coast shall specify, so as to ensure that Coast's rights in the Collateral are, and will continue to be, superior to the rights of any such third party. Borrower will keep in full force and effect, and will comply with all the terms of, any lease of real property where any of the Collateral now or in the future may be located. 3.5 MAINTENANCE OF COLLATERAL. Borrower will maintain the Collateral in good working condition, and Borrower will not use the Collateral for any unlawful purpose. Borrower will immediately advise Coast in writing of any material loss or damage to the Collateral. 3.6 BOOKS AND RECORDS. Borrower has maintained and will maintain at Borrower's Address complete and accurate books and records, comprising an accounting system in accordance with generally accepted accounting principles. 3.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial statements now or in the future delivered to Coast have been, and will be, prepared in conformity with generally accepted accounting principles (except, in the case of unaudited financial statements, for the absence of footnotes and subject to normal year-end adjustments) and now and in the future will fairly reflect the financial condition of Borrower, at the times and for the periods therein stated. Between the last date covered by any such statement provided to Coast and the date hereof, there has been no material adverse change in the financial condition or business of Borrower. Borrower is now and will continue to be solvent. 3.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has timely filed, and will timely file, all tax returns and reports required by foreign, federal, state and local law, and Borrower has timely paid, and will timely pay, all foreign, federal, state and local taxes, assessments, deposits and contributions now or in the future owed by Borrower. Borrower may, however, defer payment of any contested taxes, provided that Borrower (i) in good faith contests Borrower's obligation to pay the taxes by appropriate proceedings promptly and diligently instituted and conducted, (ii) notifies Coast in writing of the commencement of, and any material development in, the proceedings, and (iii) posts bonds or takes any other steps required to keep the contested taxes from becoming a lien upon any of the Collateral. As of the date hereof, Borrower is unaware of any claims or adjustments proposed for any of Borrower's prior tax years which could result in additional taxes becoming due and payable by Borrower. Borrower has paid, and shall continue to pay all amounts necessary to fund all present and future pension, profit sharing and deferred compensation plans in accordance with their terms, and Borrower has not and will not withdraw from participation in, permit partial or complete termination of, or permit the occurrence of any other event with respect to, any such plan which could result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency. Borrower shall, at all times, utilize the services of an outside payroll service providing for the automatic deposit of all payroll taxes payable by Borrower. 3.9 COMPLIANCE WITH LAW. Borrower has complied, and will comply, in all material respects, with all provisions of all material foreign, federal, state and local laws and regulations relating to Borrower, including, but not limited to, those relating to Borrower's ownership of real or personal property, the conduct and licensing of Borrower's business, and environmental matters. 3.10 LITIGATION. Except as disclosed in the Schedule, there is no claim, suit, litigation, proceeding or investigation pending or to best of Borrower's knowledge) threatened by or against or affecting Borrower in any court or before any 3 governmental agency (or any basis therefor known to Borrower) which may result, either separately or in the aggregate, in any material adverse change in the financial condition or business of Borrower, or in any material impairment in the ability of Borrower to carry on its business in substantially the same manner as it is now being conducted. Borrower will promptly inform Coast in writing of any claim, proceeding, litigation or investigation in the future threatened or instituted by or against Borrower involving any single claim of Fifty Thousand Dollars ($50,000.00) or more, or involving One Hundred Thousand Dollars ($100,000.00) or more in the aggregate. 3.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely for lawful business purposes. Borrower is not purchasing or carrying any "margin stock" (as defined in Regulation G of the Board of Governors of the Federal Reserve System) and no part of the proceeds of any Loan will be used to purchase or carry any "margin stock" or to extend credit to others for the purpose of purchasing or carrying any "margin stock." 4. RECEIVABLES. 4.1 REPRESENTATIONS RELATING TO RECEIVABLES. Borrower represents and warrants to Coast as follows: Each Receivable with respect to which Loans are requested by Borrower shall, on the date each Loan is requested and made, represent an undisputed bona fide existing unconditional obligation of the Account Debtor created by the sale, delivery, and acceptance of goods or the rendition of services in the ordinary course of Borrower's business. 4.2 REPRESENTATIONS RELATING TO DOCUMENTS AND LEGAL COMPLIANCE. Borrower represents and warrants to Coast as follows: All statements made and all unpaid balances appearing in all invoices, instruments and other documents evidencing the Receivables are and shall be true and correct and all such invoices, instruments and other documents and all of Borrower's books and records are and shall be genuine and in all respects what they purport to be. All sales and other transactions underlying or giving rise to each Receivable shall fully comply with all applicable laws and governmental rules and regulations. All signatures and indorsements on all documents, instruments, and agreements relating to all Receivables are and shall be genuine, and all such documents, instruments and agreements are and shall be legally enforceable in accordance with their terms. 4.3 SCHEDULES AND DOCUMENTS RELATING TO RECEIVABLES. Borrower shall deliver to Coast transaction reports and loan requests, schedules of Receivables, and schedules of collections, all on Coast's standard forms; provided, however, that Borrower's failure to execute and deliver the same shall not affect or limit Coast's security interest and other rights in all of Borrower's Receivables, nor shall Coast's failure to advance or lend against a specific Receivable affect or limit Coast's security interest and other rights therein. Loan requests received after 10:30 AM will not be considered by Coast until the next Business Day. Together with each such schedule, or later if requested by Coast, Borrower shall furnish Coast with copies (or, at Coast's request, originals) of all contracts, orders, invoices, and other similar documents, and all original shipping instructions, delivery receipts, bills of lading, and other evidence of delivery, for any goods the sale or disposition of which gave rise to such Receivables, and Borrower warrants the genuineness of all of the foregoing. Borrower shall also furnish to Coast an aged accounts receivable trial balance in such form and at such intervals as Coast shall request. In addition, Borrower shall deliver to Coast, upon Coast's request, the originals of all instruments, chattel paper, security agreements, guarantees and other documents and property evidencing or securing any Receivables, upon receipt thereof and in the same form as received, with all necessary indorsements, all of which shall be with recourse. Borrower shall also provide Coast with copies of all credit memos as and when requested by Coast. 4.4 COLLECTION OF RECEIVABLES. Borrower shall have the right to collect all Receivables, 4 unless and until an Event of Default has occurred. Borrower shall hold all payments on, and proceeds of, Receivables in trust for Coast, and Borrower shall deliver all such payments and proceeds to Coast within one Business Day after receipt by Borrower, in their original form, duly endorsed to Coast, to be applied to the Obligations in such order as Coast shall determine. Coast may, in its discretion, require that all proceeds of Collateral be deposited by Borrower into a lockbox account, or such other "blocked account" as Coast may specify, pursuant to a blocked account agreement in such form as Coast may specify. Coast will use good faith efforts to enable Borrower to maintain its blocked account at Republic National Bank of Miami provided Coast is able to enter into an agreement, in form and substance satisfactory to Coast, with Republic National Bank of Miami for the maintenance of that account. Coast or its designee may, at any time with prior notice to Borrower notify Account Debtors that Coast has been granted a security interest in the Receivables. 4.5. REMITTANCE OF PROCEEDS. All proceeds arising from the disposition of any Collateral shall be delivered to Coast within one Business Day after receipt by Borrower, in their original form, duly endorsed to Coast, to be applied to the Obligations in such order as Coast shall determine. Borrower agrees that it will not commingle proceeds of Collateral with any of Borrower's other funds or property, but will hold such proceeds separate and apart from such other funds and property and in a constructive trust for Coast. Nothing in this Section limits the restrictions on disposition of Collateral set forth elsewhere in this Agreement. 4.6 DISPUTES. Borrower shall notify Coast promptly of all disputes or claims relating to Receivables. Borrower shall not forgive (completely or partially), compromise or settle any Receivable for less than payment in full, or agree to do any of the foregoing, except that Borrower may do so, provided that: (i) Borrower does so in good faith, in a commercially reasonable manner, in the ordinary course of business, and in arm's length transactions, which are reported to Coast on the regular reports provided to Coast; (ii) no Default or Event of Default has occurred and is continuing; and (iii) taking into account all such discounts settlements and forgiveness, the total outstanding Loans will not exceed the Credit Limit. Coast may, at any time after the occurrence of an Event of Default, settle or adjust disputes or claims directly with Account Debtors for amounts and upon terms which Coast considers advisable in its reasonable credit judgment and, in all cases, Coast shall credit Borrower's Loan account with only the net amounts received by Coast in payment of any Receivables. 4.7 RETURNS. Provided no Event of Default has occurred and is continuing, if any Account Debtor returns any Inventory to Borrower in the ordinary course of its business, Borrower shall promptly determine the reason for such return and promptly issue a credit memorandum to the Account Debtor in the appropriate amount. In the event any attempted return occurs after the occurrence of any Event of Default, Borrower shall (i) hold the returned Inventory in trust for Coast, (ii) segregate all returned Inventory from all of Borrower's other property, (iii) conspicuously label the returned Inventory as subject to Coast's security interest, and (iv) immediately notify Coast of the return of any Inventory, specifying the reason for such return, the location and condition of the returned Inventory, and on Coast's request deliver such returned Inventory to Coast. 4.8 VERIFICATION. Coast may, from time to time, verify directly with the respective Account Debtors the validity, amount and other matters relating to the Receivables, by means of mail, telephone or otherwise, either in the name of Borrower or Coast or such other name as Coast may choose. 4.9 NO LIABILITY. Coast shall not under any circumstances be responsible or liable for any shortage or discrepancy in, damage to, or loss or destruction of, any goods, the sale or other disposition of which gives rise to a Receivable, or for any error, act, omission, or delay of any kind occurring in the settlement, failure to settle, collection or failure to collect any Receivable, or for settling any Receivable in good faith for less than the full amount thereof, nor 5 shall Coast be deemed to be responsible for any of Borrower's obligations under any contract or agreement giving rise to a Receivable. Nothing herein shall, however, relieve Coast from liability for its own negligence or willful misconduct. 5. ADDITIONAL DUTIES OF THE BORROWER. 5.1 FINANCIAL AND OTHER COVENANTS. Borrower shall at all times comply with the financial and other covenants set forth in the Schedule. 5.2 INSURANCE. Borrower shall, at all times insure all of the tangible personal property Collateral and carry such other business insurance, with insurers reasonably acceptable to Coast, in such form and amounts as Coast may reasonably require, and Borrower shall provide evidence of such insurance to Coast, so that Coast is satisfied that such insurance is, at all times, in full force and effect. All liability insurance policies of Borrower shall name Coast as an additional insured, and all property casualty and related insurance policies of Borrower shall name Coast as a loss payee thereon and Borrower shall cause a lenders loss payee endorsement in form reasonably acceptable to Coast. Upon receipt of the proceeds of any such insurance, Coast shall apply such proceeds in reduction of the Obligations as Coast shall determine in its sole discretion, except that, provided no Default or Event of Default has occurred and is continuing, Coast shall release to Borrower insurance proceeds with respect to Equipment and Inventory totaling less than Fifty Thousand Dollars ($50,000.00), which shall be utilized by Borrower for the replacement of the Equipment with respect to which the insurance proceeds were paid. Coast may require reasonable assurance that the insurance proceeds so released will be so used. If Borrower fails to provide or pay for any insurance, Coast may, but is not obligated to, obtain the same at Borrower's expense. Borrower shall promptly deliver to Coast copies of all reports made to insurance companies. 5.3 REPORTS. Borrower, at its expense, shall provide Coast with the written reports set forth in the Schedule, and such other written reports with respect to Borrower (including budgets, sales projections, operating plans and other financial documentation), as Coast shall from time to time reasonably specify. 5.4 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times, and on one Business Day's notice, Coast, or its agents, shall have the right to inspect, audit and copy Borrower's books and records and the Collateral (the "Audits"). However, Coast shall use reasonable good faith efforts to give Borrower three (3) Business Days notice of regularly scheduled Audits. Coast shall take reasonable steps to keep confidential all confidential information obtained in any Audit, but Coast shall have the right to disclose any such information to its auditors, regulatory agencies, and attorneys, and pursuant to any subpoena or other legal process. The Audits shall be at Borrower's expense and the charge for the Audits shall be Seven Hundred Fifty Dollars ($750.00) per person per day (or such higher amount as shall represent Coast's then current standard charge for the same), plus reasonable out of pocket expenses. Borrower will not enter into any agreement with any accounting firm, service bureau or third party to store Borrower's books or records at any location other than Borrower's Address, without first notifying Coast of the same and obtaining the written agreement from such accounting firm, service bureau or other third party to give Coast the same rights with respect to access to books and records and related rights as Coast has under this Loan Agreement. 5.5 NEGATIVE COVENANTS. Borrower shall not, without Coast's prior written consent, do any of the following: (i) merge or consolidate with another corporation or entity, except in a transaction in which (A) the shareholders of the Borrower hold at least 50% of the common stock and all other capital stock of the surviving corporation immediately after such merger or 6 consolidation, and (B) the Borrower is the surviving corporation; (ii) acquire any assets, except (A) in the ordinary course of business, or (B) in a transaction or a series of transactions not involving the payment of an aggregate amount in excess of Fifty Thousand Dollars ($50,000.00) . (iii) enter into any material other transaction outside the ordinary course of business; (iv) sell or transfer any Collateral, except for the sale of finished Inventory in the ordinary course of Borrower's business, and except for the sale of obsolete or unneeded Equipment in the ordinary course of business; (v) store any Inventory or other Collateral with any warehouseman or other third party; (vi) sell any Inventory on a sale-or-return, guaranteed sale or other contingent basis; (vii) make any loans of any money or other assets, except (A) advances to customers or suppliers in the ordinary course of business, (B) travel advances, employee relocation loans and other employee loans and advances in the ordinary course of business, and (C) loans to employees, officers and directors for the purpose of purchasing equity securities of the Borrower; (viii) incur any debts, outside the ordinary course of business, which would have a material, adverse effect on Borrower or on the prospect of repayment of the Obligations; (ix) guarantee or otherwise become liable with respect to the obligations of another party or entity; (x) pay or declare any dividends on Borrower's Common stock (except for dividends payable solely in stock of Borrower, amongst Borrowers or upon Preferred Stock currently issued with the express written consent of Coast); (xi) redeem, retire, purchase or otherwise acquire, directly or indirectly, any of Borrower's stock, except that Borrower may repurchase stock owned by employees, directors and consultants of Borrower pursuant to terms of employment, consulting or other stock restriction agreements at such time as any such employee, director or consultant terminates his or her affiliation with the Borrower, for an aggregate purchase price not to exceed Fifty Thousand Dollars ($50,000.00) in any fiscal year; (xii) make any change in Borrower's capital structure which would have a material adverse effect on Borrower or on the prospect of repayment of the Obligations; or (xiii) dissolve to elect to dissolve. Transactions permitted by the foregoing provisions of this Section are only permitted if no Default or Event of Default would occur as a result of such transaction. 5.6 LITIGATION COOPERATION. Should any third-party suit or proceeding be instituted by or against Coast with respect to any Collateral or relating to Borrower, Borrower shall, without expense to Coast, make available Borrower and its officers, employees and agents an Borrower's books and records, to the extent that Coast may deem them reasonably necessary in order to prosecute or defend any such suit or proceeding. 5.7 INDEMNITY. Borrower hereby agrees to indemnify Coast and hold Coast harmless from and against any and all claims, debts, liabilities, demands, obligations, actions, causes of action, penalties, reasonable costs and expenses (including reasonable attorneys' fees), of every nature, character and description, which Coast may sustain or incur based upon or arising out of any of the Obligations, any actual or alleged failure to collect and pay over any withholding or other tax relating to Borrower or its employees, any relationship or agreement between Coast and Borrower, any actual or alleged failure of Coast to comply with any writ of attachment or other legal process relating to Borrower or any of its property, or any other matter, cause or thing 7 whatsoever occurred, done, omitted or suffered to be done by Coast relating to Borrower or the Obligations (except any such amounts sustained or incurred as the result of the negligence or willful misconduct of Coast). Notwithstanding any provision in this Agreement to the contrary, the indemnity agreement set forth in this Section shall survive any termination of this Agreement and shall for all purposes continue in full force and effect. 5.8 FURTHER ASSURANCES. Borrower agrees, at its expense, on request by Coast, to execute all documents and take all actions, as Coast, may deem reasonably necessary or useful in order to perfect and maintain Coast's perfected security interest in the Collateral, and in order to fully consummate the transactions contemplated by this Agreement. 6. TERM. 6.1 MATURITY DATE. This Agreement shall continue in effect until the maturity date set forth on the Schedule (the "Maturity Date"); provided that the Maturity Date shall automatically be extended, and this Agreement shall automatically and continuously renew, for successive additional terms of one year each, unless one party gives written notice to the other, not less than one hundred twenty (120) days prior to the next Maturity Date, that such party elects to terminate this Agreement effective on the next Maturity Date. If this Agreement is renewed under this Section 6.1, Borrower shall pay to Coast a renewal fee (the "Renewal Fee") in the amount shown in the Schedule. The Renewal Fee shall be due and payable on the effective date of renewal and thereafter shall incur interest at a rate equal to the rate applicable to the Receivable Loans. 6.2 EARLY TERMINATION. This Agreement may be terminated prior to the Maturity Date as follows: (i) by Borrower, effective three Business Days after written notice of termination is given to Coast; or (ii) by Coast at any time after the occurrence of an Event of Default, without notice, effective immediately. If this Agreement is terminated by Borrower or by Coast under this Section 6.2, Borrower shall pay to Coast a termination fee (the "Early Termination Fee") in the amount shown on the Schedule. The Early Termination Fee shall be due and payable on the effective date of termination and thereafter shall bear interest at a rate equal to the rate applicable to the Receivable Loans. 6.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier effective date of termination, Borrower shall pay and perform in full all Obligations, whether evidenced by installment notes or otherwise, and whether or not all or any part of such Obligations are otherwise then due and payable. Without limiting the generality of the foregoing, if on the Maturity Date, or on any earlier effective date of termination, there are any outstanding Letters of Credit issued by Coast or issued by another institution based upon an application, guarantee, indemnity or similar agreement on the part of Coast, then on such date Borrower shall provide to Coast cash collateral in an amount equal to the face amount of all such Letters of Credit plus all interest, fees and cost due or to become due in connection therewith, to secure all of the Obligations relating to said Letters of Credit, pursuant to Coast's then standard form cash pledge agreement. Notwithstanding any termination of this Agreement, all of Coast's security interests in all of the Collateral and all of the terms and provisions of this Agreement shall continue in full force and effect until all Obligations have been paid and performed in full; provided that, without limiting the fact that Loans are subject to the discretion of Coast, Coast may, in its sole discretion, refuse to make any further Loans after termination. No termination shall in any way affect or impair any right or remedy of Coast, nor shall any such termination relieve Borrower of any Obligation to Coast, until all of the Obligations have been paid and performed in full. Upon payment and performance in full of all the Obligations and termination of this Agreement, Coast shall promptly deliver to Borrower termination statements, requests for reconveyances and such other documents as may be required to fully terminate Coast's security interests. 7. EVENTS OF DEFAULT AND REMEDIES. 8 7.1 EVENTS OF DEFAULT. The occurrence of any of the following events shall constitute an "Event of Default" under this Agreement, and Borrower shall give Coast immediate written notice thereof: (a) Any material warranty, representation, statement, report or certificate made or delivered to Coast by Borrower or any of Borrower's officers, employees or agents, now or in the future, shall be untrue or misleading in a material respect; or (b) Borrower shall fail to pay when due any Loan or any interest thereon or any other monetary Obligation; or (c) the total Loans and other Obligations outstanding at any time shall exceed the Credit Limit; or (d) Borrower shall fail to deliver the proceeds of Collateral to Coast as provided in Section 4.5 above, or shall fail to give Coast access to its books and records or Collateral as provided in Section 5.4 above, or shall breach any negative covenant set forth in Section 5.5 above; or (e) Borrower shall fail to comply with the financial covenants (if any) set forth in the Schedule or shall fail to perform any other non-monetary Obligation which by its nature cannot be cured; or (f) Borrower shall fail to perform any other non-monetary Obligation, which failure is not cured within ten (10-) Business Days after the date due; or (g) Any levy, assessment, attachment, seizure, lien or encumbrance (other than a Permitted Lien) is made on all or any part of the Collateral which is not cured within ten (10) Business Days after the occurrence of the same; or (h) Any default or event of default occurs under any obligation secured by a Permitted Lien, which is not cured within any applicable cure period or waived in writing by the holder of the Permitted Lien; or (i) Borrower breaches any material contract or obligation, which has or may reasonably be expected to have a material adverse effect on Borrower's business or financial condition; or (j) Dissolution, termination of existence, insolvency or business failure of Borrower; or appointment of a receiver, trustee or custodian, for all or any part of the property of, assignment for the benefit of creditors by, or the commencement of any proceeding by Borrower under any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, now or in the future in effect; or (k) The commencement of any proceeding against Borrower or any guarantor of any of the Obligations under any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, now or in the future in effect, which is not cured by the dismissal thereof within thirty (30) days after the date commenced; or (l) Revocation or termination of, or limitation or denial of liability upon, any guaranty of the Obligations or any attempt to do any of the foregoing, or commencement of proceedings by any guarantor of any of the Obligations under any bankruptcy or insolvency law; or (m) Revocation or termination of, or limitation or denial of liability upon, any pledge of any certificate of deposit, securities or other property or asset of any kind pledged by any third party to secure any or all of the Obligations, or any attempt to do any of the foregoing, or commencement of proceedings by or against any such third party under any bankruptcy or insolvency law; or (n) Borrower makes any payment on account of any indebtedness or obligation which has been subordinated to the Obligations, other than as permitted in the applicable subordination agreement, or if any Person who has subordinated such indebtedness or obligations terminates or in any way limits his subordination agreement; or 9 if any Person who has subordinated such indebtedness or obligations terminates or in any way limits his subordination agreement; or (o) There shall be a change in the record or beneficial ownership of an aggregate of more than twenty percent (20%) of the outstanding shares of stock of Borrower, in one or more transactions, compared to the ownership of outstanding shares of stock of Borrower in effect on the date hereof, without the prior written consent of Coast; or (p) Borrower shall generally not pay its debts as they become due, or Borrower shall conceal, remove or transfer any part of its property, with intent to hinder, delay or defraud its creditors, or make or suffer any transfer of any of its property which may be fraudulent under any bankruptcy, fradulent conveyance or similar law; or (q) There shall be a material adverse change in Borrower's business or financial condition; or (r) Coast, acting in good faith and in a commercially reasonable manner, deems itself insecure because of the occurrence of an event prior to the effective date hereof of which Coast had no knowledge on the effective date or because of the occurrence of an event on or subsequent to the effective date. Coast may cease making any Loans hereunder during any of the above cure periods, and thereafter if an Event of Default has occurred. 7.2 REMEDIES. Upon the occurrence, and during the continuance, of any Event of Default, Coast, at its option, and without notice or demand of any kind (all of which are hereby expressly waived by Borrower), may do any one or more of the following: (a) Cease making Loans or otherwise extending credit to Borrower under this Agreement or any other document or agreement; (b) Accelerate and declare all or any part of the Obligations to be immediately due, payable, and performable, notwithstanding any deferred or installment payments allowed by any instrument evidencing or relating to any Obligation; (c) Take possession of any or all of the Collateral wherever it may be found, and for that purpose Borrower hereby authorizes Coast without judicial process to enter onto any of Borrower's premises without interference to search for, take possession of, keep, store, or remove any of the Collateral, and remain on the premises or cause a custodian to remain on the premises in exclusive control thereof, without charge for so long as Coast deems it reasonably necessary in order to complete the enforcement of its rights under this Agreement or any other agreement; provided, however, that should Coast seek to take possession of any of the Collateral by Court process, Borrower hereby irrevocably waives: (i) any bond and any surety or security relating thereto required by any statute, court rule or otherwise as an incident to such possession; (ii) any demand for possession prior to the commencement of any suit or action to recover possession thereof; and (iii) any requirement that Coast retain possession of, and not dispose of, any such Collateral until after trial or final judgment; (d) Require Borrower to assemble any or all of the Collateral and make it available to Coast at places designated by Coast which are reasonably convenient to Coast and Borrower, and to remove the Collateral to such locations as Coast may deem advisable; (e) Complete the processing, manufacturing or repair of any Collateral prior to a disposition thereof and, for such purpose and for the purpose of removal, Coast shall have the right to use Borrower's premises, vehicles, hoists, lifts, cranes, equipment and all other property without charge; (f) Sell, lease or otherwise dispose of any of the Collateral, in its condition at the time Coast 10 obtains possession of it or after further manufacturing, processing or repair, at one or more public and/or private sales, in lots or in bulk, for cash, exchange or other property, or on credit and to adjourn any such sale from time to time without notice other than oral announcement at the time scheduled for sale. Coast shall have the right to conduct such disposition on Borrower's premises without charge, for such time or times as Coast deems reasonable, or on Coast's premises, or elsewhere and the Collateral need not be located at the place of disposition. Coast may directly or through any affiliated company purchase or lease any Collateral at any such public disposition, and if permissible under applicable law, at any private disposition. Any sale or other disposition of Collateral shall not relieve Borrower of any liability Borrower may have if any Collateral is defective as to title or physical condition or otherwise at the time of sale; (g) Demand payment of, and collect any Receivables and General Intangibles comprising Collateral and, in connection therewith, Borrower irrevocably authorizes Coast to endorse or sign Borrower's name on all collections, receipts, instrument and other documents, to take possession of and open mail addressed to Borrower and remove therefrom payments made with respect to any item of the Collateral or proceeds thereof, and, in Coast's sole discretion, to grant extensions of time to pay, compromise claims and settle Receivables and the like for less than face value; (h) Offset against any sums in any of Borrower's general, special or other Deposit Accounts with Coast; and (i) Demand and receive possession of any of Borrower's federal and state income tax returns and the books and records utilized in the preparation thereof or referring thereto. All reasonable attorneys' fees, expenses, costs, liabilities and obligations incurred by Coast with respect to the foregoing shall be due from the Borrower to Coast on demand. Coast may charge the same to Borrower's loan account, and the same shall thereafter bear interest at the same rate as is applicable to the Receivable Loans. Without limiting any of Coast's rights and remedies, from and after the occurrence of any Event of Default, the interest rate applicable to the Obligations shall be increased by an additional three percent per annum. 7.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower and Coast agree that a sale or other disposition (collectively, "sale") of any Collateral which complies with the following standards will conclusively be deemed to be commercially reasonable: (a) Notice of the sale is given to Borrower at least seven (7) days prior to the sale, and, in the case of a public sale, notice of the sale is published at least seven (7) days before the sale in a newspaper of general circulation in the county where the sale is to be conducted; (b) Notice of the sale describes the collateral in general, non-specific terms; (c) The sale is conducted at a place designated by Coast, with or without the Collateral being present; (d) The sale commences at any time between 8:00 a.m. and 6:00 p.m; (e) Payment of the purchase price in cash or by cashier's check or wire transfer is required; (f) With respect to any sale of any of the Collateral, Coast may (but is not obligated to) direct any prospective purchaser to ascertain directly from Borrower any and all information concerning the same. Coast shall be free to employ other methods of noticing and selling the Collateral, in its discretion, if they are commercially reasonable. 7.4 POWER OF ATTORNEY. Upon the occurrence, and during the continuance, of any Event of Default, without limiting Coast's other rights and remedies, Borrower grants to Coast an irrevocable power of attorney coupled with an interest, authorizing and permitting Coast (acting through any of its employees, attorneys or agents) at any time, at its 11 option, but without obligation, with or without notice to Borrower, and at Borrower's expense, to do any or all of the following, in Borrower's name or otherwise, but Coast agrees to exercise the following powers in a commercially reasonable manner: (a) Execute on behalf of Borrower any documents that Coast may, in its sole discretion, deem advisable in order to perfect and maintain Coast's security interest in the Collateral, or in order to exercise a right of Borrower or Coast, or in order to fully consummate all the transactions contemplated under this Agreement, and all other present and future agreements; (b) Execute on behalf of Borrower any document exercising, transferring or assigning any option to purchase, sell or otherwise dispose of or to lease (as lessor or lessee) any real or personal property which is part of Coast's Collateral or in which Coast has an interest; (c) Execute on behalf of Borrower, any invoices relating to any Receivable, any draft against any Account Debtor and any notice to any Account Debtor, any proof of claim in bankruptcy, any Notice of Lien, claim of mechanic's, materialman's or other lien, or assignment or satisfaction of mechanic's, materialman's or other lien; (d) Take control in any manner of any cash or non-cash items of payment or proceeds of Collateral; endorse the name of Borrower upon any instruments, or documents, evidence of payment or Collateral that may come into Coast's possession; (e) Endorse all checks and other forms of remittances received by Coast; (f) Pay, contest or settle any lien, charge, encumbrance, security interest and adverse claim in or to any of the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same; (g) Grant extensions of time to pay, compromise claims and settle Receivables and General Intangibles for less than face value and execute all releases and other documents in connection therewith; (h) Pay any sums required on account of Borrower's taxes or to secure the release of any liens therefor, or both; (i) Settle and adjust, and give releases of, any insurance claim that relates to any of the Collateral and obtain payment therefor; (j) Instruct any third party having custody or control of any books or records belonging to, or relating to, Borrower to give Coast the same rights of access and other rights with respect thereto as Coast has under this Agreement; and (k) Take any action or pay any sum required of Borrower pursuant to this Agreement and any other present or future agreements. Any and all reasonable sums paid and any and all reasonable costs, expenses, liabilities, obligations and attorneys' fees incurred by Coast with respect to the foregoing shall be added to and become part of the Obligations, and shall be payable on demand. Coast may charge the foregoing to Borrower's loan account and the foregoing shall thereafter bear interest at the same rate applicable to the Receivable Loans. In no event shall Coast's rights under the foregoing power of attorney or any of Coast's other rights under this Agreement be deemed to indicate that Coast is in control of the business, management or properties of Borrower. 7.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of any sale of the Collateral shall be applied by Coast first to the reasonable costs, expenses, liabilities, obligations and attorneys' fees incurred by Coast in the exercise of its rights under this Agreement, second to the interest due upon any of the Obligations, and third to the principal of the Obligations, in such order as Coast shall determine in its sole discretion. Any surplus shall be paid to Borrower or other persons legally entitled thereto; Borrower shall remain liable to Coast for any deficiency. If, Coast, in its sole discretion, directly or indirectly enters into a deferred payment or other credit transaction with any purchaser at any sale of Collateral, 12 Coast shall have the option, exercisable at any time, in its sole discretion, of either reducing the Obligations by the principal amount of purchase price or deferring the reduction of the Obligations until the actual receipt by Coast of the cash therefor. 7.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set forth in this Agreement, Coast shall have all the other rights and remedies accorded a secured party under the California Uniform Commercial Code and under all other applicable laws, and under any other instrument or agreement now or in the future entered into between Coast and Borrower, and all of such rights and remedies are cumulative and none is exclusive. Exercise or partial exercise by Coast of one or more of its rights or remedies shall not be deemed an election, nor bar Coast from subsequent exercise or partial exercise of any other rights or remedies. The failure or delay of Coast to exercise any rights or remedies shall not operate as a waiver thereof, but all rights and remedies shall continue in full force and effect until all of the Obligations have been fully paid and performed. 8. DEFINITIONS. As used in this Agreement, the following terms have the following meanings: "ACCOUNT DEBTOR" means the obligor on a Receivable. "AFFILIATE" means, with respect to any Person, a relative, partner, shareholder, director, officer, or employee of such Person, or any parent or subsidiary of such Person, or any Person controlling, controlled by or under common control with such Person. "BUSINESS DAY" means a day on which Coast is open for business. "CLOSING DATE" date of the initial funding under this Agreement. "CODE" means the Uniform Commercial Code as adopted and in effect in the State of California from time to time. "COLLATERAL" has the meaning set forth in Section 2.1 above. "DEFAULT" means any event which with notice or passage of time or both, would constitute an Event of Default. "DEPOSIT ACCOUNT" has the meaning set forth in Section 9105 of the Code. "ELIGIBLE INVENTORY" means Inventory which Coast, in its sole judgment, deems eligible for borrowing, based on such considerations as Coast may from time to time deem appropriate. Without limiting the fact that the determination of which Inventory is eligible for borrowing is a matter of Coast's discretion, Inventory which does not meet the following requirements will not be deemed to be Eligible Inventory: Inventory which (i) consists of finished goods, in good, new and salable condition which is not perishable, not obsolete or unmerchantable; (ii) meets all applicable governmental standards; (iii) has been manufactured in compliance with the Fair Labor Standards Act; (iv) conforms in all respects to the warranties and representations set forth in this Agreement; (v) is at all times subject to Coast's duly perfected, first priority security interest; and (vi) is situated at a one of the locations set forth on the Schedule. "ELIGIBLE RECEIVABLES" means Receivables arising in the ordinary course of Borrower's business from the sale, lease or rental of goods or rendition of services, which Coast, in its good faith business judgment, shall deem eligible for borrowing, based on such considerations as Coast may from time to time deem appropriate. Without limiting the fact that the determination of which Receivables are eligible for borrowing is a matter of Coast's discretion, Receivables that are in excess of sixty (60) days past due date, one hundred twenty (120) days past invoice date or do not otherwise meet the requirements specified in Sections 1 and 7 of the Schedule, will be expressly excluded from Eligible Receivables. 13 "ENTITY" means any person, partnership, trust or corporation and its affiliates, subsidiaries, parents, stockholders, officers or directors. "EQUIPMENT" means all of Borrower's present and hereafter acquired machinery, molds, machine tools, motors, furniture, equipment, furnishings, fixtures, trade fixtures, motor vehicles, tools, parts, dyes, jigs, goods and other tangible personal property (other than Inventory) of every kind and description used in Borrower's operations or owned by Borrower and any interest in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions or improvements to any of the foregoing, wherever located. "EVENT OF DEFAULT" means any of the events set forth in Section 7.1 of this Agreement. "GENERAL INTANGIBLES" means all general intangibles of Borrower, whether now owned or hereafter created or acquired by Borrower, including, without limitation, all choses in action, causes of action, corporate or other business records, Deposit Accounts, inventions, designs, drawings, blueprints, patents, patent applications, trademarks and the goodwill of he business symbolized thereby, names, trade names, trade secrets, goodwill, copyrights, registrations, licenses, franchises, customer lists, security and other deposits, rights in all litigation presently or hereafter pending for any cause or claim (whether in contract, tort or otherwise), and all judgments now or hereafter arising therefrom, all claims of Borrower against Coast, rights to purchase or sell real or personal property, rights as a licensor or licensee of any kind, royalties, telephone numbers, proprietary information, purchase orders, and all insurance policies and claims (including without limitation life insurance, key man insurance, credit insurance, liability insurance, property insurance and other insurance), tax refunds and claims, computer programs, discs, tapes and tape files, claims under guaranties, security interests or other security held by or granted to Borrower, all rights to indemnification and all other intangible property of every kind and nature (other than Receivables). "INVENTORY" means all of Borrower's now owned and hereafter acquired goods, merchandise or other personal property, wherever located, to be furnished under any contract of service or held for sale or lease (including without limitation all raw materials, work in process, finished goods and goods in transit, and including without limitation all farm products), and all materials and supplies of every kind, nature and description which are or might be used or consumed in Borrower's business or used in connection with the manufacture, packing, shipping, advertising, selling or finishing of such goods, merchandise or other personal property, and all warehouse receipts, documents of title and other documents representing any of the foregoing. "MATERIAL ADVERSE EFFECT" means a material adverse effect on (i) the business, assets, conditions (financial or otherwise) or results of operations of Borrower or any subsidiary of Borrower, (ii) the ability of Borrower to perform its obligations under this Agreement (including, without limitation, repayment of the Obligations as they come due) or (iii) the validity or enforceability of this Agreement or any other material agreement or document entered into by any party in connection herewith, or the rights or remedies of Coast hereunder or thereunder. "MAXIMUM DOLLAR AMOUNT" has the meaning set forth in Section 1 of the Schedule. "OBLIGATIONS" means all present and future Loans, advances debts, liabilities, obligations, guaranties, covenants, duties and indebtedness at any time owing by Borrower to Coast, whether evidenced by this Agreement or any note or other instrument or document, whether arising from an extension of credit, opening of a letter of credit, banker's acceptance, loan, guaranty, indemnification or otherwise, whether direct or indirect (including, without limitation, those acquired by assignment and any participation by Coast in Borrower's debts owing to others), absolute or contingent, due or to become due, including, without limitation, all interest, charges, expenses, fees, attorney's fees, expert witness fees, audit fees, letter of credit fees, collateral monitoring fees, closing fees, facility fees, termination fees, minimum interest charges 14 and any other sums chargeable to Borrower under this Agreement or under any other present or future instrument or agreement between Borrower and Coast. "PERMITTED LIENS" means the following: (a) purchase money security interests in specific items of Equipment; (b) leases of specific items of Equipment; (c) liens for taxes not yet payable; (d) additional security interests and liens consented to in writing by Coast, which consent shall not be unreasonably withheld; (e) security interests being terminated substantially concurrently with this Agreement; (f) liens of materialmen, mechanics, warehousemen, carriers, or other similar lien arising in the ordinary course of business and securing obligations which are not delinquent; (g) liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by liens of the type described above in clauses (a) or (b) above, provided that any extension, renewal or replacement lien is limited to the property encumbered by the existing lien and the principal amount of the indebtedness being extended, renewed or refinanced does not increase; (h) liens in favor of customs and revenue authorities which secure payment of customs duties in connection with the importation of goods. Coast will have the right to require, as a condition to its consent under subparagraph (d) above, that the holder of the additional security interest or lien sign an intercreditor and/or subordination agreement on Coast's then standard form, acknowledge that the security interest is subordinate to the security interest in favor of Coast, and agree not to take any action to enforce its subordinate security interest so long as any Obligations remain outstanding, and that Borrower agree that any uncured default in any obligation secured by the subordinate security interest shall also constitute an Event of Default under this Agreement. "PERSON" means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, government, or any agency or political division thereof, or any other entity "REAL PROPERTY" means Borrower's real property located at 14250 S.W. 119th Avenue, Miami, Florida 33186. "RECEIVABLES" means all of Borrower's now owned and hereafter acquired accounts (whether or not earned by performance), letters of credit, contract rights, chattel paper, instruments, securities, documents and all other forms of obligations at any time owing to Borrower, all guaranties and other security therefor, all merchandise returned to or repossessed by Borrower, and all rights of stoppage in transit and all other rights or remedies of an unpaid vendor, lienor or secured party. "TANGIBLE NET WORTH" means consolidated stockholders' equity plus subordinated debt acceptable to Coast less goodwill, patents, trademarks, copyrights, franchises, formulas, leaseholds, non-compete agreements, engineering plans, deferred tax benefits and organization costs. OTHER TERMS. All accounting terms used in this Agreement, unless otherwise indicated, shall have the meanings given to such terms in accordance with generally accepted accounting principles, consistently applied. All other terms contained in this Agreement, unless otherwise indicated, shall have the meanings provided by the Code, to the extent such terms are defined therein. 9. GENERAL PROVISIONS. 9.1 INTEREST COMPUTATION. In computing interest on the Obligations, all checks, wire 15 transfers and other items of payment received by Coast (including proceeds of Receivables and payment of the Obligations in full) shall be deemed applied by Coast on account of the Obligations three (3) Business Days after receipt by Coast of immediately available funds, and, for purposes of the foregoing, any such funds received after 10:30 AM on any day shall be deemed received on the next Business Day. Coast shall not, however, be required to credit Borrower's account for the amount of any item of payment which is unsatisfactory to Coast in its sole discretion, and Coast may charge Borrower's loan account for the amount of any item of payment which is returned to Coast unpaid. 9.2 APPLICATION OF PAYMENTS. All payments with respect to the Obligations may be applied, and in Coast's sole discretion reversed and re-applied, to the Obligations, in such order and manner as Coast shall determine in its sole discretion. 9.3 CHARGES TO ACCOUNTS. Coast may, in its discretion, require that Borrower pay monetary Obligations in cash to Coast, or charge them to Borrower's Loan account, in which event they will bear interest at the same rate applicable to the Loans. Coast may also, in its discretion, charge any monetary Obligations to Borrower's Deposit Accounts maintained with Coast. 9.4 MONTHLY ACCOUNTINGS. Coast shall provide Borrower monthly with an account of advances, charges, expenses and payments made pursuant to this Agreement. Such account shall be deemed correct, accurate and binding on Borrower and an account stated (except for reverses and reapplications of payments made and corrections of errors discovered by Coast), unless Borrower notifies Coast in writing to the contrary within thirty days after each account is rendered, describing the nature of any alleged errors or omissions. 9.5 NOTICES. All notices to be given under this Agreement shall be in writing and shall be given either personally or by reputable private delivery service or by regular first-class mail, or certified mail return receipt requested, addressed to Coast or Borrower at the addresses shown in the heading to this Agreement, or at any other address designated in writing by one party to the other party. Notices to Coast shall be directed to the Commercial Finance Division, to the attention of the Division Manager or the Division Credit Manager. All notices shall be deemed to have been given upon delivery in the case of notices personally delivered, or at the expiration of one Business Day following delivery to the private delivery service, or two Business Days following the deposit thereof in the United States mail, with postage prepaid. 9.6 SEVERABILITY. Should any provision of this Agreement be held by any court of competent jurisdiction to be void or unenforceable, such defect shall not affect the remainder of this Agreement, which shall continue in full force and effect. 9.7 INTEGRATION. This Agreement and such other written agreements, documents and instruments as may be executed in connection herewith are the final, entire and complete agreement between Borrower and Coast and supersede all prior and contemporaneous negotiations and oral representations and agreements, all of which are merged and integrated in this Agreement. THERE ARE NO ORAL UNDERSTANDINGS, REPRESENTATIONS OR AGREEMENTS BETWEEN THE PARTIES WHICH ARE NOT SET FORTH IN THIS AGREEMENT OR IN OTHER WRITTEN AGREEMENTS SIGNED BY THE PARTIES IN CONNECTION HEREWITH. 9.8 WAIVERS. The failure of Coast at any time or times to require Borrower to strictly comply with any of the provisions of this Agreement or any other present or future agreement between Borrower and Coast shall not waive or diminish any right of Coast later to demand and receive strict compliance therewith. Any waiver of any default shall not waive or affect any other default, whether prior or subsequent, and whether or not similar. None of the provisions of this Agreement or any other agreement now or in the future executed by Borrower and delivered to Coast shall be deemed to have been waived by any act or knowledge of Coast or its agents or employees, but only by a specific written waiver signed by an authorized officer of Coast and delivered to 16 Borrower. Borrower waives demand, protest, notice of protest and notice of default or dishonor, notice of payment and nonpayment, release, compromise, settlement, extension or renewal of any commercial paper, instrument, account, General Intangible, document or guaranty at any time held by Coast on which Borrower is or may in any way be liable, and notice of any action taken by Coast, unless expressly required by this Agreement. 9.9 NO LIABILITY FOR ORDINARY NEGLIGENCE. Neither Coast, nor any of its directors, officers, employees, agents, attorneys or any other Person affiliated with or representing Coast shall be liable for any claims, demands losses or damages, of any kind whatsoever, made, claimed, incurred or suffered by Borrower or any other party through the ordinary negligence of Coast, or any of its directors, officers, employees, agents, attorneys or any other Person affiliated with or representing Coast, but nothing herein shall relieve Coast from liability for its own gross negligence or willful misconduct. 9.10 AMENDMENT. The terms and provisions of this Agreement may not be waived or amended, except in a writing executed by Borrower and a duly authorized officer of Coast. 9.11 TIME OF ESSENCE. Time is of the essence in the performance by Borrower of each and every obligation under this Agreement. 9.12 ATTORNEYS FEES, COSTS AND CHARGES. Borrower shall reimburse Coast for all reasonable attorneys' fees and all filing, recording, search, title insurance, appraisal, audit, and other reasonable costs incurred by Coast, pursuant to, or in connection with, or relating to this Agreement (whether or not a lawsuit is filed), including, but not limited to, any reasonable attorneys' fees and costs Coast incurs in order to do the following: prepare and negotiate this Agreement and the documents relating to this Agreement; obtain legal advice in connection with this Agreement or Borrower; enforce, or seek to enforce, any of its rights; prosecute actions against, or defend actions by, Account Debtors; commence, intervene in, or defend any action or proceeding; initiate any complaint to be relieved of the automatic stay in bankruptcy; file or prosecute any probate claim, bankruptcy claim, third-party claim, or other claim; examine, audit, copy, and inspect any of the Collateral or any of Borrower's books and records; protect, obtain possession of, lease, dispose of, or otherwise enforce Coast's security interest in, the Collateral; and otherwise represent Coast in any litigation relating to Borrower. If either Coast or Borrower files any lawsuit against the other predicated on a breach of this Agreement, the prevailing party in such action shall be entitled to recover its reasonable costs and attorneys' fees, including (but not limited to) reasonable attorneys' fees and costs incurred in the enforcement of, execution upon or defense of any order, decree, award or judgment. Borrower shall also pay Coast's standard charges for returned checks and for wire transfers, in effect from time to time. All attorneys' fees, costs and charges to which Coast may be entitled pursuant to this Paragraph may be charged by Coast to Borrower's loan account and shall thereafter bear interest at the same rate as the Receivable Loans. 9.13 BENEFIT OF AGREEMENT. The provisions of this Agreement shall be binding upon and inure to the benefit of the respective successors, assigns, heirs, beneficiaries and representatives of Borrower and Coast; provided, however, that Borrower may not assign or transfer any of its rights under this Agreement without the prior written consent of Coast, and any prohibited assignment shall be void. No consent by Coast to any assignment shall release Borrower from its liability for the Obligations. 9.14 PUBLICITY. Coast is hereby authorized, at its expense, to issue appropriate press releases and to cause a tombstone to be published announcing the consummation of this transaction and the aggregate amount thereof. 9.15 JOINT AND SEVERAL LIABILITY. If Borrower consists of more than one Person, they shall be cross-collateralized and cross-defaulted, their liability shall be joint and several, and the compromise of any claim with, or the release of, any Borrower shall not 17 constitute a compromise with, or a release of, any other Borrower. 9.16 LIMITATION OF ACTIONS. Any claim or cause of action by Borrower against Coast, its directors, officers, employees, agents, accountants or attorneys, based upon, arising from, or relating to this Loan Agreement, or any other resent or future document or agreement, or any other transaction contemplated hereby or thereby or relating hereto or thereto, or any other matter, cause or thing whatsoever, occurred, done, omitted or suffered to be done by Coast, its directors, officers, employees, agents, accountants or attorneys, shall be barred unless asserted by Borrower by the commencement of an action or proceeding in a court of competent jurisdiction by the filing of a complaint within one year after the first act, occurrence or omission upon which such claim or cause of action, or any part thereof, is based, and the service of a summons and complaint on an officer of Coast, or on any other person authorized to accept service on behalf of Coast, within thirty (30) days thereafter. Borrower agrees that such one-year period is a reasonable and sufficient time for Borrower to investigate and act upon any such claim or cause of action. The one-year period provided herein shall not be waived, tolled, or extended except by the written consent of Coast in its sole discretion. This provision shall survive any termination of this Loan Agreement or any other present or future agreement. 9.17 PARAGRAPH HEADING; CONSTRUCTION. Paragraph headings are only used in this Agreement for convenience. Borrower and Coast acknowledge that the headings may not describe completely the subject matter of the applicable paragraph, and the headings shall not be used in any manner to construe, limit, define or interpret any term or provision of this Agreement. The term "including", whenever used in this Agreement, shall mean "including (but not limited to)". This Agreement has been fully reviewed and negotiated between the parties and no uncertainty or ambiguity in any term or provision of this Agreement shall be construed strictly against Coast or Borrower under any rule of construction or otherwise. 9.18 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts and transactions hereunder and all rights and obligations of Coast and Borrower shall be governed by the laws of the State of California. As a material part of the consideration to Coast to enter into this Agreement, Borrower (i) agrees that all actions and proceedings relating directly or indirectly to this Agreement shall, at Coast's option, be litigated in courts located within California, and that the exclusive venue therefor shall be Los Angeles County; (ii) consents to the jurisdiction and venue of any such court and consents to service of process in any such action or proceeding by personal delivery or any other method permitted by law; and (iii) waives any and all rights Borrower may have to object to the jurisdiction of any such court, or to transfer or change the venue of any such action or proceeding. 18 9.19 MUTUAL WAIVER OF JURY TRIAL. BORROWER AND COAST EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY I ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN COAST AND BORROWER, OR ANY CONDUCT, ACTS OR OMISSIONS OF COAST OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH COAST OR BORROWER, IN ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE. BORROWER: BORROWER: OCEAN OPTIQUE DISTRIBUTORS, INC. EUROPEAN MANUFACUTURERS AGENCY, INC. BY: /s/ KENNETH J. GORDON - ------------------------------ NAME: KENNETH J. GORDON TITLE: CHIEF FINANCIAL OFFICER BY: /s/ KENNETH J. GORDON -------------------------------- NAME: KENNETH J. GORDON TITLE: CHIEF FINANCIAL OFFICER BORROWER: COAST: CLASSICAL OPTICAL, INC. COAST BUSINESS CREDIT, A DIVISION OF SOUTHERN PACIFIC THRIFT & LOAN ASSOCIATION BY: /s/ KENNETH J. GORDON - ------------------------------ NAME: KENNETH J. GORDON TITLE: CHIEF FINANCIAL OFFICER 19 BY: /s/ ROBERT D. PETERS - ------------------------------ NAME: ROBERT D. PETERS TITLE: VICE PRESIDENT 20 EX-10.11 8 EXHIBIT 10.11 FIRST AMENDMENT TO SCHEDULE TO LOAN AND SECURITY AGREEMENT Borrower: Ocean Optique Distributors, Inc. Address: 14250 S.W. 119th Avenue Miami, Florida 33186 Borrower: Classic Optical, Inc. Address: 14250 S.W. 119th Avenue Miami, Florida 33186 Borrower: European Manufacturing Agency, Inc. Address: 14250 S.W. 119th Avenue Miami, Florida 33186 Date: June 25, 1997 THIS FIRST AMENDMENT TO THE SCHEDULE TO THE LOAN AND SECURITY AGREEMENT is entered into as of the above date between COAST BUSINESS CREDIT, a division of Southern Pacific Thrift & Loan Association ("Coast"), a California corporation, with offices at 12121 Wilshire Boulevard, Suite 1111, Los Angeles, California 90025, and Ocean Optique Distributors, Inc., Classic Optical, Inc. and European Manufacturers Agency, Inc. (jointly and severally the "Borrower") whose chief executive office is located at the above address ("Borrower's Address"). This Amendment shall for all purposes be deemed to be a part of the Schedule to the Loan and Security Agreement ("Schedule"), and the same is an integral part of the Schedule. CONSENT AND APPROVAL Pursuant to Section 5.5 (iii) of the Loan and Security Agreement, Coast hereby consents and approves Borrower's request to enter into a material other transaction outside the ordinary course of business pursuant to that Agreement and Plan of Merger dated as of June , 1997 between Ocean Optique Distributors, Inc., a Florida Corporation, Ocean Acquisition Corp., a Florida Corporation, Solovision Optical, Inc., a Florida Corporation, and Solomon Ovadia, Leon Wildstein, Kevin Fischer and Linda Fischer ("Merger"), a true and correct copy of which is attached hereto as Exhibit "A", provided Borrower satisfies the conditions specified below. CONDITIONS PRECEDENT TO EFFECTIVENESS OF FIRST AMENDMENT. 1. Borrower shall at the time of the Merger, and at all times thereafter during the Term of the Loan and Security Agreement, as it may be extended, maintain a minimum consolidated net worth of One Million Four Hundred Thousand Dollars ($1,400,000). 2. The Warrants issued to Coast on May 28, 1997 shall, as a result of the Merger, be protected under the standard anti-dilution provisions contained in such Warrants and Borrower shall provide Coast with written confirmation, in form and substance acceptable to Coast, thereof. Borrower: Coast: OCEAN OPTIQUE DISTRIBUTORS, INC. COAST BUSINESS CREDIT, a division of Southern Pacific Thrift & Loan Association By: /S/KENNETH J. GORDON By: /S/ ROBERT B. MARKS -------------------- ------------------- Kenneth J. Gordon, CFO Robert B. Marks, Senior Vice President Borrower: CLASSIC OPTICAL, INC. By: /S/KENNETH J. GORDON -------------------- Kenneth J. Gordon, CFO Borrower: EUROPEAN MANUFACTURERS AGENCY, INC. By: /S/KENNETH J. GORDON -------------------- Kenneth J. Gordon, CFO -2- EX-21.1 9 EXHIBIT 21.1 SUBSIDIARIES OF THE REGISTRANT NAME OF CORPORATION STATE OF INCORPORATION - ------------------- ---------------------- Classic Optical, Inc. Michigan European Manufacturers Agency, Inc. Florida Solovision Optical, Inc. Florida EX-23.1 10 We have issued our report dated September 10, 1996, accompanying the financial statements of Ocean Optique Distributors, Inc. contained in the Registration Statement and Prospectus. We consent to the use of the aforementioned report in the Registration Statement and Prospectus, and to the use of our name as it appears under the caption "Experts". /s/ GRANT THORNTON LLP Miami, Florida July 16, 1997 EX-23.2 11 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We hereby consent to the use in the Prospectus constituting part of this Registration Statement on Form SB-2 of our reports dated June 10, 1997 relating to the financial statements of Solovision Optical, Inc. and Sorrento Eyewear, Inc. appearing in such Prospectus. We also consent to the references to us under the heading "Experts" in such Prospectus. /s/ RACHLIN COHEN & HOLTZ RACHLIN COHEN & HOLTZ Miami, Florida July 14, 1997 -----END PRIVACY-ENHANCED MESSAGE-----