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EXHIBIT 10.7
MEMBER AGREEMENT
INTRODUCTION
THIS AGREEMENT is by and between AAi.FOSTERGRANT, Inc. a Rhode Island
corporation, ("AAi"), and Xxxx Xxxxxxxx, a resident of Shoreview, Minnesota,
("Michaels").
RECITALS
AAi purchased a 67.0% membership interest in Fantasma, LLC, a Delaware
limited liability company, (the "Company") from Overdrive Capital Corp. pursuant
to an AGREEMENT (Purchase and Sale of Percentage Interest), dated the date
hereof, by and between Overdrive Capital Corp., as seller, and AAi, as buyer,
and AAi purchased a 13.0% membership interest from Xxxxx X. Xxxxxx pursuant to
an AGREEMENT (Purchase and Sale of Percentage interest), dated the date hereof,
by and between Xxxxx X. Xxxxxx, as seller, and AAi, as buyer.
Consequent to the above-described transactions, AAi is the owner of a
majority of the membership interests of the Company. Michaels is an officer and
employee of the Company. AAi is prepared to offer membership interests to
Michaels upon the terms and subject to the conditions set forth below.
AGREEMENTS
IT IS MUTUALLY agreed by and between the parties hereto as follows:
A. OPTIONS TO PURCHASE BY MICHAELS.
1. AAi shall make available to Michaels for purchase the following
percentage membership interests of the Company, for the prices set forth below
upon the terms and conditions set forth below. For the period commencing on the
date hereof, and ending ninety (90) days thereafter ("First Exercise Date"),
Michaels shall have the option to purchase two percent (2%) of the membership
interests of the Company ("2% Option"). Michaels shall additionally have the
following options to purchase additional membership interests, provided the
following Target EBIT are met, ("Performance Options"):
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Pertinent
Options Year Exercise Date Percentage Target Ebit
------- ---- ------------- ---------- -----------
1 1998 30 days after the 1% $2,549,812
date the EBIT
calculations are
provided to Michaels *
2 1999 30 days after the 1%
date the EBIT
calculations are
provided to Michaels
3 2000 30 days after the 1% *
date the EBIT
calculations are
provided to Michaels
(Hereinafter, the First Exercise Date and the Pertinent Exercise Date are
referred to as the "Exercise Date".)
2. The Purchase Price shall be $34,615 per 1% membership interest. All
options shall be exercised by written notice by Michaels to AAi by the
applicable Exercise Date. With respect to the 2% Option, AAi or the Company
shall assist in a loan to Michaels to fund the Purchase Price, or shall loan
funds to Michaels, subject to receiving a promissory note and pledge of the
membership interests to secure such loan in form and substance satisfactory to
the lender.
3. Upon the exercise of any option to purchase a membership interest in
the Company, Michaels shall become a party to the Amended and Restated Operating
Agreement of the Company then in effect by executing the Agreement in the form
attached hereto as EXHIBIT C.
4. Notwithstanding the foregoing, in the event that Michaels' employment
with the Company is terminated by the Company pursuant to SECTION 5.B of the
Employment Agreement between Michaels and the Company dated this date, then
Michaels shall have the option to purchase all or a portion of the balance of
the 3% Percentage that it has not theretofore purchased, with an Exercise Date
of twenty (20) days after the said termination of employment. Upon the earlier
of the expiration of the Exercise Date without his exercise of such option or
the purchase of membership interests after such exercise, all of his rights to
the options set forth above shall terminate. The Purchase Price per one percent
(1%) membership interest pursuant to this paragraph shall be the greater of (a)
$34,615 or (b) four times EBIT divided by 100; PROVIDED HOWEVER, if his
employment is so terminated within one (1) year from the date hereof the
Purchase
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* TO BE BASED ON SALES CONSISTENT WITH EXHIBIT A-1, AND EXPENSES CONSISTENT,
ON A PERCENTAGE OF NET SALES BASIS, WITH EXHIBIT A-2.
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the expiration of the Exercise Date without his exercise of such option or the
purchase of membership interests after such exercise, all of his rights to the
options set forth above shall terminate. The Purchase Price per one percent (1%)
membership interest pursuant to this paragraph shall be the greater of (a)
$34,615 or (b) four times EBIT divided by 100; PROVIDED HOWEVER, if his
employment is so terminated within one (1) year from the date hereof the
Purchase Price for the first 1% Percentage shall be $34,615 and for the balance
shall be as set forth earlier in this sentence.
6. Each option shall be a separate option, and shall be not be
transferable or assignable. The Company's EBIT meeting or exceeding the Target
EBIT set forth above for the applicable Year shall be an absolute precondition
to each Performance Option for that Year, and there shall be no Performance
Option for any Year for which the Company's EBIT did not meet or exceed the
Target EBIT for such Year. Each Option shall be exercisable in a writing by
Michaels to AAi no earlier than 30 days before the Exercise Date set forth above
and no later than the Exercise Date set forth above. The exercise shall not be
valid unless accompanied by a certified or bank check payable to AAi in the
amount to the Purchase Price set forth above. If an option is not validly
exercised by the Exercise Date set forth above, the option shall expire and may
not be later exercised. The options are personal to Michaels and no Transfer
shall be effective without the prior written consent of AAi, which consent may
be withheld in its sole and absolute discretion. All of Michaels' rights to the
options, and all rights to receive membership interests from AAi pursuant to any
exercise of the options, shall automatically and irrevocably expire immediately
at the earlier of the following: (a) any Transfer or attempted Transfer of an
option or a membership interest in the Company without AAi's consent; (b)
Michaels' death; (c) subject to the provisions of SECTION A.5, the termination
(for any reason) of Michaels' employment with the Company, its affiliates and
any respective successors in interest; or (d) the Company's tangible net worth
as calculated by the Company's independent auditors in accordance with generally
accepted accounting principles consistently applied becomes less than $400,000
at the end of any fiscal year. For purposes of this SECTION A, calculation of
EBIT shall include expenses of affiliated companies allocated to the Company;
PROVIDED, HOWEVER, for specific categories of expenses set forth on EXHIBIT A,
attached hereto, such expenses shall not exceed the percentages represented by
the amounts set forth in such expense categories set forth on EXHIBIT A.
Notwithstanding the foregoing, at and after an initial public offering of AAi's
common stock, all options outstanding thereunder, including but not limited to
any that have been exercised, but membership interests not purchased or
transferred, shall be satisfied through the issuance of shares of AAi's common
stock determined by taking the aggregate purchase price payable pursuant to the
option and dividing it by the average selling price of a share of AAi common
stock during the ten (10) trading days immediately prior to the exercise (or, if
the exercise is at the date of the initial public offering, then at the initial
public offering price).
B. TRANSFER OF MICHAELS' MEMBERSHIP INTERESTS.
1. Upon the death, disability (as defined in Michaels' employment
agreement with the Company, its affiliates or their respective successors then
currently in effect or, if there is no such employment agreement then currently
in effect, defined as Michaels' inability to perform major
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functions of his job description for a period of six (6) consecutive months, as
determined by the President or Chairman of his employer), or the termination of
Michaels' employment with the Company, its affiliates and their respective
successors or any reason, Michaels shall transfer and assign to AAi all, and not
less than all, of his membership interests in the Company and any rights to
additional interests in the Company, and AAi shall purchase, for a purchase
price equal to the following:
a. Death or disability - the Purchase Price shall be an amount
equal the Valuation, calculated as of the date of death or
disability, and shall be payable, in twenty-four (24) equal
monthly installments commencing sixty (60) days from the date
of disability, with interest equal to the prime rate as
published in the Wall Street Journal.
x. Xxxxxxxx resigns or otherwise terminates his employment, or
his employment is terminated by employer for Cause - the
Purchase Price shall be amount equal to the Valuation,
calculated as of the date of termination of employment, and
shall be paid in thirty-six (36) equal monthly installments
without interest, commencing on the second anniversary of his
termination.
x. Xxxxxxxx' employment is terminated by employer for other than
Cause or his Employment Agreement, dated this date, - the
Purchase Price shall be an amount equal to the Valuation,
calculated as of the date of termination of employment, and
shall be paid in twenty-four (24) equal monthly installments
commencing sixty (60) days after his termination, with
interest at an annual rate equal to the prime rate published
in the Wall Street Journal.
2. For purposes of this SECTION B, "Cause" shall mean the events or
circumstances referred to as cause for employer's termination of Michaels'
employment in the then current employment agreement or, if there is not such a
then current employment agreement, then it shall mean the events or
circumstances referred to as cause for employer's termination of his employment
in the last effective employment agreement between Michaels and the Company, its
affiliates or their respective successors.
3. For purposes of this SECTION B, the "Date" shall mean the date of death
or disability under SECTION B.1.A. and the date of termination under SECTIONS
1.B. AND 1.C.
C. AAI INITIAL PUBLIC OFFERING.
1. In the event that there is an initial public offering of AAi's common
stock ("IPO"), AAi and Michaels each shall have the options to convert all, but
not less than all, of Michaels' membership interests in the Company into AAi
common stock, as set forth below:
a. The option shall be exercised in writing;
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b. The option shall be exercisable only with respect to the
conversion of all, and not less than all, of Michaels'
membership interests in the Company;
c. The option may be exercised by Michaels only (i) at the IPO
and (ii) during the six (6) month period commencing at the
date of the IPO";
d. The option may be exercisable by AAi (i) at the IPO or (ii)
during the (i) six (6) month period commencing at the date of
the IPO";
e. The conversion shall take place on the basis of Michaels'
receiving a number of common shares of AAi equal to the
resultant of (i) the Valuation divided by (ii) the average
selling price of a share of AAi's common stock during the ten
(10) trading days immediately prior to the exercise of the
option;
f. The AAi common stock shall not be registered and may not be
readily transferable or tradable, and shall be subject to such
restrictions on transfer as may be imposed by AAi's
underwriters of as may be required under state or federal
securities laws.
g. The option to convert at the IPO will be exercisable within
ten (10) days after the earlier of (i) AAi's notice to Xxxxxxx
of its intent to file a registration statement or (ii) the
date of filing of the registration statement.
2. For purposes of this SECTION C, the "Determination Date" shall mean the
date of the IPO the exercise of the option.
D. RESTRICTIONS ON TRANSFER.
No Transfer of an option set forth in SECTION A or a membership interest in the
Company shall be effective without the prior written consent of AAi, which
consent may be withheld in its sole and absolute discretion. Any Transfer or
attempted Transfer without AAi's prior written consent shall be null and void
and of no effect.
E. DEFINITIONS. For purposes of SECTIONS A, B, C AND D:
1. "Valuation" shall mean the resultant of (a) the percentage of all
membership interests of the Company held by Michaels MULTIPLIED BY (b) four (4)
times EBIT.
2. "EBIT" shall mean earnings of the Company before interest and taxes for
the twelve (12) month period ending at the end of the last complete calendar
month immediately preceding the applicable Determination Date.
3. The Valuation and EBIT shall be determined by AAi using generally
accepted accounting principles applied on a consistent basis and, in the event
of any dispute, shall be determined in such manner by AAi's regularly retained
independent accounting firm, whose determination shall be final and binding upon
the parties.
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4. "Transfer" shall mean any sale, pledge, assignment, gift, bequest or
other Transfer, in whole or in part, directly or indirectly, including but not
limited to a transfer by operation of law or otherwise to the estate of Michaels
in a Transfer by a personal representative or creditor representative.
Notwithstanding the generality of the foregoing, any one or more of the
following events or conditions shall be deemed to constitute a Transfer: (a) the
filing of a petition in bankruptcy by or against Michaels or any assignment by
Michaels for the benefit of his creditors; (b) any transfer, award, or
confirmation to Michaels' spouse pursuant to a decree of divorce, dissolution,
or separate maintenance or pursuant to a property settlement or separation
agreement; (c) a determination that Michaels is incompetent, and for this
purpose an individual shall be deemed to be incompetent if (i) a conservator of
the person or estate has been appointed for the individual, (ii) a court with
jurisdiction has determined that the individual is incompetent or lacks capacity
or (iii) two licensed physicians have certified in writing that in their opinion
the individual is substantially unable to manage his financial resources or
resist fraud or undue influence; (d) any testamentary or other similar
disposition upon Michaels' death to a person other than his estate; and (e) any
other event which, were it not for the provisions of this Agreement, would cause
or result in a sale, assignment, pledge, encumbrance, award, confirmation or
other transfer, for consideration or otherwise, to any person, whether
voluntarily, involuntarily or by operation of law under circumstances not
constituting an approved means of Transfer under this Agreement.
F. PLEDGE AGREEMENT.
1. As collateral for Michaels' obligations under this Agreement, including
without limitation Michael's obligation to transfer his membership interests in
the Company to AAi in certain circumstances as described in SECTIONS B AND C.
Michael does hereby pledge, assign, transfer and grant a security in and as
collateral security for the performance of such obligations, or any amendment or
modification thereof, in 100% of his membership interest in the Company, which
outstanding membership interest are not certificated and for which Xxxxxxx shall
deliver to AAi upon execution hereof and from time to time hereafter all
necessary or desirable instruments of transfer or assignment and any required
UCC financing statements.
2. Michaels represents and warrants to AAi as follows, which
representations and warranties shall continue to be true and correct in all
respects during the term of this Agreement: (i) Michaels has the full power and
lawful rights to pledge, assign and grant a security interest as specified
above; (ii) Michaels will warrant and defend the title to such membership
interests against the claims and demands of any person, firm, corporation,
trust, partnership or other entity; and (iii) the pledge agreement specified
above will be duly noted in the books and records of the Company. In addition to
its other remedies available to AAi at law or in equity for a breach of this
Agreement by Michaels, AAi's obligations hereunder are specifically contingent
on the above-noted representations and warranties being true and correct. In the
event that any of these representations or warranties are not true, or the
membership interests in the Company held by Michaels are not free and clear of
all liens, claims and encumbrances or Michaels is the subject of a Bankruptcy as
defined at EXHIBIT B, all of the rights of Michaels to exercise the options set
forth in this Agreement shall terminate and all rights of Michaels hereunder
shall terminate, or AAi may
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elect, to purchase all of the membership interests in the Company held by
Michaels, free and clear of all liens, claims and encumbrances.
G. MISCELLANEOUS.
1. Notices. Any notice or other communication required or permitted to be
given hereunder shall be given in writing and shall be delivered by registered
mail, postage prepaid, return receipt requested, or by telefacsimile, addressed
as follows:
TO AAi: AAi.FOSTERGRANT, Inc.
000 Xxxxxx Xxxxxxxxxx Xxxxxxx
Xxxxxxxxxx, Xxxxx Xxxxxx 00000
Telefacsimile: 000-000-0000
Attn: Xx. Xxxxxx Xxxxx
WITH COPY TO:
Xxxxxxxx, Xxxxx & Xxxxxx
0000 Xxxxx Xxxxxx
Xxxxxxxxxx, Xxxxx Xxxxxx 00000
Telefacsimile: 401-277-9600
Attn: Xxxxx Xxxxxxxx Xx., Esq.
TO MICHAELS:
Xxxx Xxxxxxxx
0000 Xxxxxxxx Xxxxx
Xxxxxxxxx, Xxxxxxxxx 00000
Telefacsimile: 000-000-0000
or to such other address as the parties shall designate by written notice as
provided in this PARAGRAPH. Any such notice, proposal or communication shall be
deemed delivered and given on, or when so delivered by telefacsimile with a copy
to follow by mail or on, the fifth (5th) business day after deposit thereof,
postage prepaid by registered mail, return receipt requested.
2. GOVERNING LAW. This Agreement has been made in and its validity,
interpretation, construction and performance shall be governed by and be in
accordance with the laws of the State of Rhode Island, without reference to its
laws governing conflicts of law. Each party irrevocably agrees that any legal
action or proceedings against with respect to this Agreement may be brought in
the courts of the State of Rhode Island, or in any United States District Court
of Rhode Island, and, by its execution and delivery of this Agreement, each
party hereby irrevocably submits to each such jurisdiction and hereby
irrevocably waives any and all objections which it may have as to venue in any
of the above courts. Each party further consents and agrees that any process or
notice of motion or other application to either of said courts or any judge
thereof, or any notice in connection with any proceedings hereunder, may be
served inside or
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outside the State of Rhode Island or the District of Rhode Island by registered
or certified mail, return receipt requested, postage prepaid, and be effective
as of the receipt thereof, or in such other manner as may be permissible under
the rules of said courts. Each party hereby waives trial by jury in any action
or proceeding in connection with this Agreement.
3. INTEGRATION. This Agreement, and other agreements executed between the
parties and dated this date, constitute the entire agreement between the parties
with respect to the subject matter hereof, and any and all agreements, oral or
written, in relation thereto are hereby expressly superseded and canceled. Any
amendment hereto shall be evidenced by a writing signed by a duly authorized
representative of the party affected.
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4. SEVERABILITY. If any term of provision of this Agreement, or the
application thereof to any person or under any circumstance, shall to any extent
be invalid or unenforceable, the remainder of this Agreement, or the application
of such terms to the persons or under circumstances other than those as to which
it is invalid or unenforceable, shall be considered severable and shall not be
affected thereby, and each term of this Agreement shall be valid and enforceable
to the fullest permitted by law. The invalid or unenforceable provisions shall,
to the extent permitted by law, be deemed amended and given such interpretation
as to achieve the economic intent of this Agreement.
5. THIRD PARTY BENEFICIARIES. Each party hereto intends that this
Agreement shall not benefit or create any right or cause of action in or on
behalf of any person other than the parties hereto.
6. HEADINGS. Any headings in this Agreement are inserted for convenience
and shall not control or affect the meaning or construction of any provision of
this Agreement.
7. SEVERAL COUNTERPARTS. This Agreement may be executed in one or more
counterparts and by different parties on different counterparts, all of which
shall constitute a single agreement. In enforcing this Agreement, it shall be
necessary to produce and account for only one counterpart hereof executed by the
party against which enforcement is sought.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the 23rd day of June, 1998.
AAi.FOSTERGRANT, Inc.
By /s/ Xxxxx X. XxXxxxx
-----------------------------------
Title: Chief Financial Officer
and Treasurer
/s/ Xxxx Xxxxxxxx
--------------------------------------
Xxxx Xxxxxxxx
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