AAi.FosterGrant, Poised for Growth, Completes Turnaround with $52 Million Debt-For-Equity Swap.

Business Editors

SMITHFIELD, R.I.--(BUSINESS WIRE)--June 5, 2002

AAi.FosterGrant, Inc., a leading marketer of branded optical products and costume jewelry, announced today that it has successfully completed its turnaround by arranging a $52 million debt-for-equity swap and a $4 million equity investment. The transaction paves the way for the Company to accelerate the growth of the FosterGrant brand, an American icon.

"This marks the rebirth of FosterGrant," said John Ranelli, the Company's President and CEO who was recently named Chairman. "The debt-for-equity swap and capital investment give the Company fresh resources to invest in the FosterGrant brand and to pursue growth. We will advance our industry-leading product development by providing consumers more fashion and features for their dollar, communicate our brand story to more people and expand our distribution in current and new markets."

The debt-for-equity swap was the final stage in the Company's three-stage turnaround strategy. The first stage demonstrated the ability to earn a profit by focusing on the optical and jewelry businesses while eliminating other unprofitable businesses and reducing expenses. The second stage concentrated on enhancing customer credibility by increasing sell-through and on-time deliveries. The third stage focused on improving the balance sheet. The resulting operational and financial performances have been exceptionally effective in returning the Company to profitability. From 1999 to 2001, management improved EBITDA from a negative $1.6 million to a positive $9.2 million (before restructuring charges and one-time adjustments), reduced total debt from $88.9 million to $29 million and boosted gross margin from 28.5 percent to 34.5 percent. Operationally, the Company improved order accuracy from 88 percent to 98 percent and on-time delivery performance from 74 percent to 99 percent.

The hallmark of the Company's new marketing efforts will be a contemporary version of the classic FosterGrant advertising campaign, "Who's that Behind Those FosterGrants?" The campaign, slated to begin later this month, will feature supermodel Cindy Crawford and four-time NASCAR Winston Cup Champion Jeff Gordon. "Who's That Behind Those FosterGrants?" one of the most successful advertising campaigns of all time, began in the 1960s and featured celebrities such as Elvis Presley and Sophia Loren.

Aside from the advertising campaign, Ranelli said the Company "will excite consumers of sunglasses, reading glasses and jewelry by increasing features in our already value-packed products and excite retailers by generating incremental revenue and higher levels of product sell-through."

"John Ranelli led a remarkable turnaround at FosterGrant," said Michael Cronin, managing partner and co-founder of Weston Presidio, a private equity firm which invested an additional $4 million in equity into the Company. "We have great confidence in the management team and anticipate an exceptional return on our investment."

An overwhelming 99 percent of bondholders agreed to the debt-for-equity swap, allowing the Company to retire $51.53 million of its 10- 3/4 percent senior notes due in 2006. Interest expense will be reduced by approximately $6 million annually, to $2 million. The transaction did not affect employees, customers and suppliers, which continued doing business as usual with FosterGrant since the Company announced negotiations toward a debt-for-equity swap in January.

"Over the past three years, we proved AAi.FosterGrant could become a profitable company by focusing on our core businesses and executing with excellence," said Ranelli. "At the same time, we proved that we could meet, then exceed, our customers' expectations. Now that we have the industry's strongest balance sheet, look for us to prove the real strength of the FosterGrant brand and our jewelry products."

AAi.FosterGrant, based in Smithfield, RI, owns one of the leading brands of sun and reading glasses in the United States and is also a leading designer of costume jewelry. The FosterGrant brand provides the consumer with eyewear representing exceptional styling, quality and features at competitive prices.

EDITORS NOTE: Print examples of the new ad campaign are available upon request.

SOURCE: AAi.FosterGrant, Inc.