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EXHIBIT 10.6
MEMBER AGREEMENT
XXXXX X. XXXXXX
INTRODUCTION
THIS AGREEMENT, is by and among AAi.FOSTERGRANT, Inc., a Rhode Island
corporation, ("AAi"), and Xxxxx X. Xxxxxx, a resident of the State of New York,
("Xxxxxx") and Houdini Capital LTD, a New York corporation ("Capital").
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 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. Simultaneously, Xxxxx
X. Xxxxxx assigned his remaining 20% Percentage Interest in Capital in exchange
for 100% of the authorized and issued shares of stock of Capital.
Consequent to the above-described transactions, AAi is the owner of a
majority of the membership interests of Fantasma. Xxxxxx is an officer and
employee of the Company and owns 100% of the authorized and issued shares of
capital stock of Capital. AAi is prepared to offer additional membership
interests to Capital upon the terms and subject to the conditions set forth
below.
AGREEMENT
A. OPTION TO PURCHASE BY CAPITAL.
1. Provided the Company's EBIT meets or exceeds the following Target EBIT
for the applicable Year set forth below, Capital shall have the following
options to purchase from AAi up to eight percent (8%) of total membership
interests of the Company (the "Percentage") for the Purchase Prices set forth
below with the respective exercise dates ("Exercise Date") set forth below:
Option Year Exercise Date Percentage Target EBIT Purchase Price
------ ---- ------------- ---------- ----------- --------------
#1. 1998 30 days after the date the 2 2/3% $2,549,812 $92,422
EBIT calculations are provided
to Xxxxxx
#2. 1999 30 days after the date the 2 2/3% * $92,422
EBIT calculations are provided
to Xxxxxx
--------
* 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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Option Year Exercise Date Percentage Target EBIT Purchase Price
------ ---- ------------- ---------- ----------- --------------
#3. 2000 30 days after the date the 2 2/3% * $92,422
EBIT calculations are provided
to Xxxxxx
2. Notwithstanding the foregoing, in the event that Dreyer's employment
with the Company is terminated by the Company pursuant to SECTION 5.b of the
Employment Agreement between Xxxxxx and the Company dated this date, then
Capital shall have the option to purchase the balance of the 8% 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 its exercise of such option or the purchase of
membership interests after such exercise, all of its 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.
3. Notwithstanding the foregoing, at any time, whether or not the Target
EBIT have been met, Capital shall have the option to purchase the entire balance
of the 8% Percentage that he has not theretofore purchased, provided that if it
does not exercise such option by the Exercise Date or purchase the membership
interests after such exercise, the options with respect thereto shall terminate,
and upon such purchase all of its rights to the options set forth in SECTION 1
shall terminate. The Purchase Price per one percent (1%) membership interest
pursuant to this SECTION 3 shall be the greater of (a) $34,615 or (b) four times
the Company's EBIT divided by 100.
4. If Xxxx Xxxxxxxx has not elected to purchase all of the 5% of
membership interests under the options granted to him by AAi under the
Membership Agreement between him and AAi , dated this date, Capital shall be
entitled to purchase the excess of 5% over what Xxxx Xxxxxxxx previously
purchased, by Capital electing to do so with an Exercise Date of sixty (60) days
after Xxxx Xxxxxxx'x Exercise Date. The purchase price per 1% membership
interest shall be four times the Company's EBIT divided by 100.
5. Except as set forth in SECTIONS A.2 AND 3, the Company's EBIT meeting
or exceeding the Target EBIT set forth above for the applicable Year shall be an
absolute precondition to the option for that Year, and there shall be no 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 a separate option, and shall not be
transferable or assignable. Each Option shall be exercisable in a writing
delivered by Capital 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 of
the option granted hereby 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 Capital 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 Capital's rights to the options, and all rights to receive
membership interests from AAi pursuant to any
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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, a membership interest in the Company or the capital stock of Capital,
without AAi's consent; (b) Dreyer's death; (c) the termination (for any reason)
of Dreyer's employment with the Company, its affiliates and any respective
successors in interest; (d) at any time AAi holds more than 81% of all
membership interests in the Company; or (e) 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 not include amortization of goodwill or expenses associated with
AAi's acquisition of its membership interests in the Company, but 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.
6. 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 with the amount of stock to be issued hereunder to be 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
after the filing of AAi's registration statement with the United States
Securities and Exchange Commission in connection with AAi's initial public
offering, such exercise to be effective at or before the initial public
offering, then at the initial public offering price).
B. TRANSFER OF MEMBERSHIP INTERESTS.
1. Upon the death or disability of Xxxxxx (as defined in Dreyer's
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 Dreyer's inability to perform major
functions of his job description for a period of six (6) consecutive months, as
determined by the Chairman of his employer), or the termination of Dreyer's
employment with the Company, its affiliates and their respective successors or
any reason, Capital shall transfer and assign to AAi all, and not less than all,
of its membership interests in the Company and any rights to additional
interests in the Company, for a purchase price equal to the following, and AAi
shall purchase and pay such purchase price:
a. Death or disability - the Purchase Price shall be an amount equal to
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 prevailing prime rate as published in the Wall Street
Journal.
b. If Xxxxxx resigns or otherwise terminates his employment, or his
employment is terminated by employer for Cause or his Employment
Agreement, dated this date, expires and AAi's offer of continued
employment is not accepted, unless AAi elects to convert pursuant to
SECTION C.1.d. (ii), below - the Purchase Price shall be an amount
equal to the Valuation, calculated as of the
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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.
c. If Dreyer's employment is terminated by employer for other than Cause
or his Employment Agreement, dated this date, expires and AAi does not
offer continued employment, unless Xxxxxx elects to convert pursuant to
SECTION C.1.c. (ii), below - 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 prevailing 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 Dreyer's
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 Xxxxxx and the Company, its
affiliates or their respective successors.
3. For purposes of SECTION B and SECTION C, the "Determination 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"), Xxxxxx and AAi shall each have the option to exchange all, but
not less than all, of the capital stock of Capital for AAi common stock, as set
forth below:
a. The option shall be exercised in writing;
b. The option shall be exercisable only with respect to the
conversion of all, and not less than all, of the capital stock
of Capital;
c. The option may be exercised by Capital only (i) upon the
filing of a registration statement by AAi with the United
States Securities and Exchange Commission, (ii) during the six
(6) month period commencing with the effective date of AAi's
IPO or (iii) during the six (6) month period after (x)
Dreyer's termination of employment by employer for other than
Cause or (y) expiration of Dreyer's employment agreement and
the Company not offering continued employment at terms
reasonably equivalent to the then expiring agreement;
d. The option may be exercisable by AAi (i) upon the filing of a
registration statement by AAi with the United States
Securities and Exchange Commission (ii) during the (i) six (6)
month period commencing with the effective date of AAi's IPO
or (iii) during the six (6) month period after (x) Xxxxxx
resigns or otherwise terminates his employment or his
employment is terminated by employer for Cause or (y)
expiration of Dreyer's
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employment agreement and Company's offer of continued
employment at terms reasonably equivalent to the then expiring
agreement is not accepted by Xxxxxx;
e. The conversion shall take place on the basis of Dreyer's
receiving a number of common shares of AAi equal to the
product 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 or, if after the filing of AAi's registration statement
with the United States Security Exchange Commission to be
effective at or before the IPO, at the IPO price;
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 or as may be required under state or federal
securities laws.
g. The option to convert at the IPO will be exercisable within
twenty (20) days after the earlier of (i) AAi's notice to
Capital of its intent to file a registration statement or (ii)
the date of filing of the registration statement. AAi shall
provide financial information to Capital.
2. For purposes of this SECTION C, the "Determination Date" shall mean the
date of the exercise of the option.
3. Capital's registration rights with respect to AAi common stock are the
subject of a Piggyback Registration Agreement dated this date.
D. RESTRICTIONS ON TRANSFERS.
No Transfer of an option set forth at SECTION A, a membership interest in the
Company or any capital stock of Capital 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 product of (a) the percentage of all
membership interests of the Company held by Capital 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
quarter 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 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 Xxxxxx
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)
Bankruptcy as defined at EXHIBIT B and (b) 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; REPRESENTATIONS AND WARRANTIES.
1. As collateral for Capital's and Dreyer's obligations under this
Agreement, including without limitation Capital's obligation to transfer its
membership interests in the Company to AAi in certain circumstances as described
in SECTION B and Dreyer's obligation to exchange the capital stock of Capital
under SECTION C.1 Xxxxxx does hereby pledge, assign, transfer and grant a
security interest in and general collateral security for the performance of such
obligations, or any amendment or modification thereof in 100% of the issued and
outstanding capital stock in Capital (the "Capital Stock"), which outstanding
equity interest is issued and represented by a stock certificate which Xxxxxx
shall deliver to AAi upon the execution hereof accompanied by all necessary or
desirable instruments of transfer or assignment, duly executed in blank and any
required UCC financing statements. and (2) Capital does hereby pledge, sign,
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 the
membership interest in the Company held by Capital, which outstanding membership
interest are not certificated and for which Capital shall deliver to AAi upon
execution hereof all necessary or desirable instruments of transfer or
assignment and any required UCC financing statements.
2. Xxxxxx and Capital, jointly and severally, represent and warrant 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) the authorized
capital stock of Capital consists of 200 shares authorized of which 100 shares
are issued and outstanding and fully paid and non-assessable; (ii) Xxxxxx is the
owner of 100% of the issued and outstanding capital stock of Capital free and
clear of all liens and encumbrances or other interests of third parties; (iii)
Xxxxxx has the full power and lawful rights to pledge, assign and grant a
security interest in the Capital Stock to AAi hereunder; (iv) Xxxxxx will
warrant and defend the title to the Capital stock against the claims and demands
of any person, firm, corporation, trust, partnership or other entity; (v) there
are no restrictions on the transfer, assignment or pledge of such Capital stock;
(vi) the pledge agreement specified above will be duly noted in the books and
records of Capital; and (vii) Capital is a holding company, and shall no conduct
any business other than to hold membership interests in the Company and to
engage in activities directly related thereto, and shall not incur any
liabilities other than those associated with the previously-described
activities. In addition to its other remedies available to AAi at law or in
equity for a breach of this Agreement by either Capital or Xxxxxx, 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 Capital stock when
delivered to AAi pursuant to this Agreement is not free and clear of
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all liens, claims and encumbrances and is not fully paid and non-assessable, or
the membership interests in the Company held by Capital are not free and clear
of all liens, claims and encumbrances or Capital shall have total liabilities in
excess of $100 or Xxxxxx or Capital are the subject of a Bankruptcy as defined
at EXHIBIT B, all of the rights of Capital to exercise the options set forth in
this Agreement shall terminate and all rights of Xxxxxx and/or Capital hereunder
shall terminate, or AAi may elect, instead of purchasing the capital stock of
Capital from Xxxxxx, to instead purchase all of the membership interests in the
Company held by Capital, free and clear of all liens, claims and encumbrances.
3. AAi agrees to provide, or cause to be provided, services and loans for
working capital to meet the projections agreed upon by AAi and Xxxxxx.
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 Xxxxxx:
Xxxxx X. Xxxxxx
000 X. 00xx Xxxxxx, Xxx. 00X
Xxx Xxxx, N.Y. 10021
TO CAPITAL:
Houdini Capital LTD
c/o Xxxxx X. Xxxxxx
000 Xxxx 00xx Xxxxxx, Xxx. 00X
Xxx Xxxx, XX 00000
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WITH COPY TO:
` Feltman, Karesh, Major & Xxxxxxx, LLP
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
Fax: 000-000-0000
Attention: Xxxxxx Xxxxxxxx
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 outside the State of Rhode Island or the District of Rhode
Island by
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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 the other agreements executed between
the parties 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.
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 XxXxxxx
------------------------------------
Title: Chief Financial Officer and
Treasurer
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/s/ Xxxxx X. Xxxxxx
---------------------------------------
Xxxxx X. Xxxxxx
HOUDINI CAPITAL LTD.
By /s/ Xxxxx X. Xxxxxx
------------------------------------
Xxxxx X. Xxxxxx, President
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EXHIBIT B
BANKRUPTCY
"BANKRUPTCY" means, with reference to Xxxxxx: (a) the entry of an order
for relief (or similar court order) against Xxxxxx which authorizes a case
brought under Chapter 7, 11 or 13 of Title 11 of the United States Code to
proceed; (b) the commencement of a federal, state or foreign bankruptcy,
insolvency, reorganization, arrangement or liquidation proceeding by such
Member; (c) the commencement of a federal, state or foreign bankruptcy,
insolvency, reorganization, arrangement or liquidation proceeding against Xxxxxx
if such proceeding is not dismissed within 60 days after the commencement
thereof; (d) the entry of a court decree or court order which remains unstayed
and in effect for a period of 30 consecutive days: (i) adjudging Xxxxxx
insolvent under any federal, state or foreign law relating to bankruptcy,
insolvency, reorganization, arrangement, liquidation, receivership or the like;
(ii) approving as properly filed a petition seeking reorganization, arrangement,
adjustment or composition of, or in respect of, Xxxxxx or Dreyer's properties
under any federal, state or foreign law relating to insolvency, reorganization,
arrangement, liquidation, receivership or the like; (iii) appointing a receiver,
liquidator, assignee, trustee, conservator, or sequester (or other similar
official) of Xxxxxx, or of all, or of a substantial part, of Dreyer's
properties; or (iv) ordering the winding up, dissolution or liquidation of the
affairs of Xxxxxx; (e) the written consent by Xxxxxx to the institution against
it of any proceeding of the type described in the preceding CLAUSE (a), (b), (c)
or (d); (f) the written consent by Xxxxxx to the appointment of a receiver,
liquidator, assignee, trustee, conservator or sequester (or other similar
official) of Xxxxxx, or of all, or of a substantial part, of its properties; (g)
the making by Xxxxxx of an assignment for the benefit of creditors; (h) the
admission in writing by Xxxxxx of its inability to pay its debts generally as
they come due; (i) the taking of any corporate or other action by Xxxxxx in
furtherance of any of the foregoing; or (j) if Xxxxxx becomes insolvent by the
taking of any act or the making of any Transfer, or otherwise, as "insolvency"
is or may be defined pursuant to the Federal Bankruptcy Code, the Federal
Bankruptcy Act, the Uniform Fraudulent Conveyances Act, any state or federal
act, or the ruling of any court.
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