-----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, DVdtH06nOQEpK1WpO14WyR4tIKXVHLcmtZwWypSOXVSuDMSw1Aqf3sZiI2Pf4IZO aqwChM1Cu2bwdArzZDyjjA== 0000950135-98-001894.txt : 19980330 0000950135-98-001894.hdr.sgml : 19980330 ACCESSION NUMBER: 0000950135-98-001894 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980327 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BACOU USA INC CENTRAL INDEX KEY: 0001006027 STANDARD INDUSTRIAL CLASSIFICATION: OPHTHALMIC GOODS [3851] IRS NUMBER: 050470688 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-28040 FILM NUMBER: 98575542 BUSINESS ADDRESS: STREET 1: 10 THURBER BLVD CITY: SMITHFIELD STATE: RI ZIP: 02917 BUSINESS PHONE: 4012330333 MAIL ADDRESS: STREET 1: 10 THURBER CITY: SMITHFIELD STATE: RI ZIP: 02917 10-K 1 BACOU USA, INC. 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1997 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 0-28040 BACOU USA, INC. (Exact name of registrant as specified in its charter) DELAWARE 05-0470688 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 10 THURBER BOULEVARD, SMITHFIELD, RI 02917-1896 (Address of principal executive offices) (Zip Code)
02917-1896 (Zip Code) Registrant's telephone number, including area code: (401) 233-0333 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.001 PAR VALUE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock of the registrant held by nonaffiliates of the registrant computed on the basis of $17 1/2 per share (the closing price of such stock on March 2, 1998 on The Nasdaq Stock Market): $87,172,995. As of March 2, 1998, there were 17,593,914 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Proxy Statement for the 1998 Annual Meeting of Stockholders (to be filed with the Securities and Exchange Commission on or before April 30, 1998) is incorporated by reference in Part III hereof. ================================================================================ 2 TABLE OF CONTENTS
DESCRIPTION PAGE NUMBER ----------- ----------- PART I Item 1 Business.................................................... 1 Item 2 Properties.................................................. 9 Item 3 Legal Proceedings........................................... 9 Item 4 Submission of Matters to a Vote of Security Holders......... 9 PART II Item 5 Market for the Registrant's Common Stock and Related Stockholder Matters......................................... 9 Item 6 Selected Financial Data..................................... 10 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 11 Item 8 Financial Statements and Supplementary Data................. 19 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................... 35 PART III Item 10 Directors and Executive Officers of the Registrant.......... 35 Item 11 Executive Compensation...................................... 35 Item 12 Security Ownership of Certain Beneficial Owners and Management.................................................. 35 Item 13 Certain Relationships and Related Transactions.............. 35 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K......................................................... 35 Signatures.............................................................. 40
3 PART I ITEM 1. BUSINESS GENERAL Bacou USA, Inc. (the "Company" or "Bacou") designs, manufactures and sells products that protect the sight, hearing and respiratory systems of workers against occupational hazards, as well as related instrumentation including vision screeners, gas monitors and respiratory test equipment. The Company's products, which are marketed under the brand names Biosystems, Howard Leight Industries, Lase-R Shield, Pro-Tech, Survivair, Titmus and Uvex, are sold principally to industrial safety distributors, fire service distributors and optical laboratories. RECENT DEVELOPMENTS Effective February 27, 1998, the Company acquired substantially all assets and assumed substantially all liabilities of Howard S. Leight & Associates, Inc. d/b/a Howard Leight Industries, a California corporation with its principal business location in San Diego, California, for cash consideration of approximately $120.0 million. Howard Leight Industries is a manufacturer of hearing protection products including disposable ear plugs, reusable ear plugs and ear muffs. Operating results of Howard Leight Industries will be included in the consolidated financial statements of the Company beginning with the acquisition date. During 1997 the Company initiated a project to integrate various aspects of the operations of certain subsidiaries. An initial step in the project is the reorganization of all operating subsidiaries having similar distribution channels into one company. In December 1997 the Company established Bacou USA Safety, Inc. (Bacou Safety), combining Uvex Safety, Inc., Lase-R Shield, Inc., Survivair, Inc. (Survivair), and Pro-Tech Respirators, Inc. into Bacou Safety. The operations of Uvex Safety, Inc. and Lase-R Shield, Inc., with the exception of the manufacturing operations of these businesses, are now conducted as the Uvex Safety Division of Bacou Safety. The operations of Survivair and Pro-Tech Respirators, Inc. are now conducted as the Survivair Division of Bacou Safety. Effective December 10, 1997 the Company organized Uvex Safety Manufacturing, Inc. as a subsidiary of Bacou Safety for the purpose of conducting all manufacturing operations for the production of UVEX(R) brand and Lase-R Shield brand eyewear products. Concurrent with the acquisition of Howard Leight Industries the Company began to operate this business as the Howard Leight Division of Bacou Safety. During 1998 the Company intends to merge Biosystems, Inc. (Biosystems) into Bacou Safety and, subsequently, operate this business as the Biosystems Division of Bacou Safety. Titmus Optical, Inc. will continue to operate as a wholly-owned subsidiary of Bacou. The Company acquired all of the capital stock of Biosystems, a manufacturer of gas monitors and equipment for testing self-contained breathing apparatus, on September 30, 1997. The initial acquisition price was approximately $13.5 million payable in common stock of the Company, however, the initial acquisition price may be increased if the operating results of Biosystems in the year 2000 exceed certain defined thresholds. The Company acquired all of the outstanding capital stock of Comasec Holdings, Inc. (Comasec) on May 30, 1997. The assets of Comasec consisted primarily of its wholly-owned subsidiary Survivair, a manufacturer of respiratory protection products. The acquisition was effected through merger and redemption transactions which have been accounted for as a purchase of all of the outstanding common stock of Comasec for $27.4 million in cash, subject to certain closing adjustments. The Company made a non-material acquisition of the assets of Lase-R Shield, Inc. in June 1997. Collectively the acquisitions of Survivair, Biosystems and Lase-R Shield are referred to as the "1997 Acquisitions." The Company has computer applications that are not currently year 2000 compliant. During 1997 the Company completed an evaluation of its computer applications and initiated a project to correct identified year 2000 deficiencies. A further discussion of this matter has been included within Management's Discussion and Analysis of Financial Condition and Results of Operations. 4 PRODUCTS Protective Eyewear and Vision Screening Equipment The Company sells Uvex brand non-prescription protective eyewear in a wide variety of styles of spectacles and goggles. All Uvex products have polycarbonate lenses, which provide an impact resistant barrier. The lenses are protected by proprietary coatings which provide superior resistance to scratches and fogging. The Company also sells application specific protective eyewear, including laser protective eyewear under the Uvex, LaserVision and Lase-R Shield brands. The Company also sells Titmus brand metal and plastic frames for prescription protective eyewear, which accommodate corrective lenses and, when completed with lenses, meet the standards for protective eyewear. Bacou sells Titmus brand occupational vision screening equipment, used to determine whether an eye exam should be administered for prescribing corrective lenses. Air Purifying Respirators and Supplied Air Respirators The Company sells a complete line of reusable half mask and full face mask air purifying respirators under the Survivair and Pro-Tech brand names, as well as hazard specific cartridges and filters for removing various contaminants from the air. The Company also sells Survivair brand self-contained breathing apparatus for industrial and fire protection applications, as well as air line respirators. Supplied air respirators provide an independent source of breathable air for workers in atmospheres immediately dangerous to their life or health. Gas Detectors and Test Equipment for Self-Contained Breathing Apparatus The Company sells Biosystems brand gas monitors and detectors, which sense and report the levels of certain gases in the atmosphere of a work site and identify hazardous conditions. The Company also sells PosiChek SCBA test-benches, which are computer controlled, automatic test-systems used to dynamically evaluate the proper performance of self-contained breathing apparatus. Hearing Protection The Company sells a full range of Howard Leight Industries brand hearing protection products, which reduce the risk of long-term hearing loss from exposure to excessive noise levels. Products include disposable and reusable earplugs, corded ear plugs, banded ear plugs, and ear muffs. Additionally, the Company sells Howard Leight Industries brand ear plug dispensers for easy distribution of hearing protection to workers. Backlog The Company's backlog totaled approximately $6.0 million at December 31, 1997 and $2.1 million at December 31, 1996. MARKETING, SALES AND DISTRIBUTION The Company's products are sold principally through industrial safety distributors. Additional channels of distribution differ by product line. Laser protective eyewear products are sold in markets serving medicine, industry, research laboratories and universities, and worldwide by laser manufacturers as accessories with their products. Optical laboratories and optical retailers are the main channels for distribution of the Company's frames for prescription protective eyewear. Fire service distributors sell Survivair self-contained breathing apparatus and Biosystems gas detectors and respiratory test equipment. Uvex, Howard Leight, and Pro-Tech products are also marketed in the do-it-yourself consumer and retail markets. Howard Leight Industries products are also sold in the sport shooting market. All of the Company's products are marketed internationally, with Uvex brand products contractually limited to exports in North, South and Central America. MANUFACTURING OPERATIONS Eye Protection Products The Company uses a highly automated injection molding process to manufacture the frames and lenses of its Uvex brand non-prescription protective eyewear. Frame components are molded in nylon, propionate and polyvinylchloride, and the lenses are molded from polycarbonate resin pellets. The Company manufac- 2 5 tures Titmus brand frames for prescription protective eyewear in both metal and plastic. Metal products are made from wire in a process that includes cutting, bending, shaping, soldering, plating and colorizing. Plastic frames are produced by a computer controlled milling operation. Vision screeners are assembled using component parts manufactured by outside vendors. Air Purifying Respirators and Supplied Air Respirators The Company manufactures respirator bodies, cartridge and filter bodies, and certain other parts using injection and compression molding techniques. The Company produces most of its metal regulator parts using computer assisted machining operations. Finished respirators are assembled using these manufactured parts and components manufactured by outside vendors. Cartridges and filters for air purifying respirators are filled using high-speed, automated folding, filling and sealing machines. Gas Detectors and Test Equipment for Self-Contained Breathing Apparatus The Company's gas detection products and test equipment for self-contained breathing apparatus are assembled using component parts manufactured by outside vendors. Component parts are requisitioned using a just-in-time approach, and material tracking is based on kanbans and electronically initiated inventory replenishment. Products are assembled using work cells. Disposable and Reusable Ear Plugs and Ear Muffs The Company manufactures its ear plug products using proprietary, high volume automated machinery and equipment which molds polyurethane foam and polyvinylchloride into ear plugs. Injection molding is used by the Company to produce head bands for its banded ear plug products and ear muff bodies. All products are assembled by the Company, except for two product lines of completed ear muffs which are manufactured by outside vendors. RAW MATERIALS The Company's raw materials are generally available from multiple sources. Although single sources of supply are used for many raw materials, all of the Company's raw materials are currently readily available. The Company currently satisfies its requirements for (i) polycarbonate resin -- the primary raw material for production of non-prescription protective eyewear, (ii) polyurethane pre-polymer -- the primary raw material for production of foam hearing protection products and (iii) certain sensors -- the primary component of gas detection equipment, through single sources of supply. The loss of any source of supply for these and other raw materials, any disruption in such source's business or failure by it to meet the Company's needs on a timely basis, could cause shortages in raw materials and could have a material adverse effect on the Company's results of operations. PRINCIPAL CUSTOMERS The Company had no individual customers that accounted for 10% or more of consolidated net sales in either 1997 or 1996. Sales to W.W. Grainger and its subsidiaries and to United American Sales accounted for 12% and 10%, respectively, of the Company's net sales during the fiscal year ended July 31, 1995. The loss of these or other principal customers could have a material adverse effect on the Company's operations and financial condition. COMPETITION The personal protective equipment industry is highly fragmented, with industry participants ranging in size from small companies focusing on single types of personal protective equipment, to a few large multinational corporations which manufacture and supply many types of personal protective equipment. The Company believes that participants in the personal protective equipment industry compete primarily on the basis of product characteristics (such as design, style, fashion and functional performance), brand name recognition, service and price. 3 6 The Company's astrospec family of eyewear products has enjoyed significant success resulting in many competitive copies produced overseas, imported to the United States and sold at lower price points than comparable UVEX(R) brand products. Although the Company has taken steps to introduce new, lower-priced products to compete in that market segment, astrospec copies may continue to enjoy success in the marketplace against the astrospec family of eyewear products. Sales of the astrospec family of eyewear products, including replacement lenses for such products, as a percentage of consolidated net sales, were 39.6% for the year ended December 31, 1997, 49.5% for the year ended December 31, 1996 and 68.8% for the fiscal year ended July 31, 1995. Sales of the astrospec family of products as a percentage of consolidated net sales has declined in recent years due to increases in net sales resulting from acquired businesses. An actual decline in demand for the astrospec family of products would adversely affect the Company's results of operations and financial condition. To maintain its market position, the Company must be competitive in the area of brand image, distribution, design, style, customer service, quality and price. Individual competitors have advantages and strength in different sectors of the industry, in different products and in different areas, including manufacturing and distribution systems, geographic market presence, customer service and support, breadth of applications, delivery time and price. There can be no assurance that the Company will be able to compete successfully against current and future competitors or that the competitive pressures faced by the Company will not adversely affect its financial condition or operations. INTELLECTUAL PROPERTY It is the Company's policy to protect its intellectual property through a range of measures, including trademarks, patents and confidentiality agreements.These rights are protected through the filing of applications for and registrations of trademarks and patents whenever such filings would provide greater protection than maintaining such information as unpatented trade secrets. The Company owns the trademark UVEX(R) for use in connection with protective eyewear and other safety products in all countries in North, Central and South America. Uvex Sports GmbH & Co. KG and Uvex Arbeitsschutz GmbH (together with their affiliates "Uvex Germany") has the right to use the UVEX(R) name in connection with sports products throughout the world and personal protective equipment products in countries outside of North, Central and South America. Pursuant to its agreement with Uvex Germany, the Company may sell personal protective equipment, including the astrospec family of products, under the UVEX(R) brand name only in North, Central and South America. The agreement also prohibits the Company from selling sports products, such as sunglasses or protective eyewear for sport activities, under the UVEX(R) brand name regardless of geographic area. The Company also relies upon unpatented trade secrets for the protection of certain intellectual property rights. The Company protects its trade secrets by requiring certain of its employees, consultants and other suppliers, customers, agents and advisors to execute confidentiality agreements upon the commencement of employment or other relationships with the Company. These agreements provide that all confidential information developed by or made known to the individual or entity during the course of the relationship with the Company is to be kept confidential and not disclosed to third parties except in certain circumstances. There can be no assurance, however, that these agreements will provide meaningful protection for the Company's proprietary information or adequate remedies in the event of the unauthorized use or disclosure of such information. In addition, no assurance can be given that others will not independently develop substantially equivalent proprietary information and technologies, otherwise gain access to the Company's trade secrets or disclose such technology or that the Company can meaningfully protect its rights to unpatented trade secrets. Further, there can be no assurance that infringement or invalidity claims will not be asserted against the Company in the future. The costs of defending such claims, or an unfavorable determination with respect to litigation based on such claims, could have a material adverse effect on the Company's business and financial condition. ENVIRONMENTAL MATTERS The Company is subject to federal, state and local environmental laws, regulations and ordinances that (i) govern activities or operations that may have adverse environmental effects (such as emissions to air, 4 7 discharges to water, and the generation, handling, storage and disposal of solid and hazardous wastes) or (ii) impose liability for the costs of cleanup or other remediation of contaminated property, including damages from spills, disposals or other releases of hazardous substances or wastes, in certain circumstances without regard to fault. The Company's manufacturing operations routinely involve the handling of chemicals and wastes, some of which are or may become regulated as hazardous substances. The Company has not incurred, and does not expect to incur, any significant expenditures or liabilities for environmental matters. As a result, the Company believes its obligations to comply with environmental regulations will not have a material adverse effect on its business or financial condition. EMPLOYEES At December 31, 1997, the Company employed 940 people on a full-time basis. Approximately 280 employees comprise a bargaining unit represented by the United Steelworkers of America (AFL-CIO-CLC) under a contract which expires on September 13, 2000. The Company considers its relationship with its employees to be good and the Company has not experienced any work stoppages. GOVERNMENT REGULATION AND INDUSTRIAL STANDARDS Government regulation mandating the use of personal protective equipment for certain job classifications and work site environments is the most significant factor in the creation of demand for personal protective equipment. OSHA generally regulates the workplace environments in which personal protective equipment must be worn and specifies the standards which such equipment must meet. Other government agencies further regulate the use of personal protective equipment and issue standards concerning the design and functionality of such equipment. The Company believes it is in compliance in all material respects with the regulations and standards of these agencies, and non-compliance with such regulations and standards in the past has not had a material effect on its business. The primary users of the Company's personal protective equipment products are industrial workers in the United States. As a result, decreases in general employment levels of industrial workers may have an adverse effect on the Company's sales. The Company's sales may also be adversely affected by changes in safety regulations covering industrial workers in the United States and in the level of enforcement of such regulations. Changes in regulations could reduce the need for and the utility of certain products manufactured by the Company. The United States and Canadian regulatory agencies each mandate that the Company's products meet performance standards established by private groups, such as the American National Standards Institute ("ANSI") and the Canadian Standards Association ("CSA"), respectively. The Company's eyewear products are subject to the latest series of applicable standards, which currently include ANSI Industrial Standard Z87.1-1989 and CSA Z94.3-1992. These standards require that protective eyewear be tested for optical performance, high velocity impact, high mass impact and other integral product performance features. The Company maintains and operates on-site testing labs at its Smithfield, Rhode Island and Petersburg, Virginia facilities which are equipped to perform necessary tests. OSHA specifies that respiratory protective equipment must meet application-specific performance standards which are set by NIOSH (National Institute for Occupational Safety and Health). In addition, many respiratory products require approval by NFPA (National Fire Protection Association). In order to achieve regulatory approval, the Company maintains and operates an on-site lab at its Santa Ana, California facility which is equipped to conduct all necessary tests under NIOSH, NFPA and other respiratory standards. The Company's hearing protection products are subject to ANSI Industrial Standard S12.6-1984. The Company's facility in San Diego, California includes a certified audiometric testing lab which exceeds standards and procedures outlined by regulatory requirements and the Audiology Society of America. SEGMENT INFORMATION For purposes of segment reporting, the Company considers its operations to be within a single industry. 5 8 MANAGEMENT The names, positions, ages and business experiences during the past five years of the executive officers of the Company and its principal subsidiaries or divisions, as of March 16, 1998 are set forth below:
NAME POSITION WITH THE COMPANY AGE ---- ------------------------- --- Walter Stepan.............. Vice Chairman, President and Chief Executive Officer; 59 Chairman and Chief Executive Officer of Bacou USA Safety, Inc.; Chairman, President and Chief Executive Officer of Uvex Safety Manufacturing, Inc., President of Uvex Safety, Chairman of Titmus, Chairman of Biosystems Philip B. Barr, Jr......... Executive Vice President, Chief Financial Officer, 46 Treasurer and Secretary; Vice Chairman of Bacou USA Safety, Inc. Jeffrey T. Brown........... Corporate Controller and Chief Accounting Officer 38 Adrien W. Hebert........... Manager of Corporate Development 47 Barry J. Kadets............ Chief Information Officer 55 J. Michael Vittoria........ Director of Human Resources 42 Raymond R. Baker........... Senior Vice President -- Manufacturing and General Manager of Uvex 50 Safety Manufacturing John J. Bell............... President of Survivair 53 Bradford L. Brooks......... President and Chief Executive Officer of Titmus 45 John F. Burt, Jr.*......... President of Biosystems 55 Joseph H. Burt*............ Vice President -- Sales of Biosystems 53 John Dean.................. President and Chief Operating Officer of Bacou USA Safety, Inc., 48 President of Howard Leight Thomas J. Goeltz........... Senior Vice President -- Sales of Titmus 54 Robert Hanover............. Vice President -- Finance and Administration of Howard Leight 50 Robert Hitchcock........... Vice President -- Sales and Marketing of Survivair 54 Philip M. Johnson.......... Vice President -- Research & Development, Coatings and 48 Quality Assurance of Uvex Safety Richard J. Masters......... Vice President -- Marketing of Titmus 55 Ken David Meyers........... Vice President -- Operations of Howard Leight 46 Harry D. Neff, II.......... Senior Vice President -- Sales Uvex Safety 51 Richard F. Sustello........ Vice President -- Marketing of Uvex Safety 41 Steven P. Tolisano......... Vice President -- Finance of Uvex Safety 48 Thomas A. Wagner........... Vice President -- Manufacturing and Distribution of Howard Leight 38 Jeffrey M. Whynall......... Vice President -- Engineering of Biosystems 41 Stephen E. Wiser........... Vice President -- Finance of Survivair 44
Officers are elected annually by the Board of Directors of the respective entity and serve at the discretion of the Board. Mr. Stepan has been Vice Chairman of the Board, President and Chief Executive Officer of the Company since July 1995. Mr. Stepan has been President of Uvex Safety and its predecessors since 1988, and was Chief Executive Officer from 1988 until December 1997 when Uvex Safety was merged into Bacou USA Safety, of which Mr. Stepan is Chairman and Chief Executive Officer. Mr. Stepan has been Chairman of the Board of Titmus since September 1995 and Chairman of the Board of Biosystems since September 1997. From 1966 until his employment by the predecessor of Uvex Safety, Mr. Stepan was employed by Uvex Germany in various executive, sales and marketing capacities, including Vice President of Marketing and 6 9 Sales and President and Chief Executive Officer of a retail optical chain affiliated with Uvex Germany. Mr. Stepan is also a director of Bacou S.A., Bacou Far East Ltd., Uvex Winter Optical, Inc. and Uvex Sports, Inc. Uvex Winter Optical, Inc. and Uvex Sports, Inc. are affiliates of Uvex Germany. Mr. Barr has been the Executive Vice President of the Company since October 1996. He has been Vice President, Chief Financial Officer, Secretary and Treasurer of the Company since joining the Company in August 1995 and Vice Chairman of Bacou USA Safety, Inc. since December 1997. From 1985 to 1995, Mr. Barr was a Partner of Edwards & Angell, the Company's primary outside counsel. Mr. Brown has been corporate controller and Chief Accounting Officer of the Company since joining the Company in August 1995. Prior to joining the Company Mr. Brown was a Senior Manager of KPMG Peat Marwick LLP, the Company's independent accountants and Mr. Brown was employed by KPMG Peat Marwick LLP from June 1982 to August 1995. Mr. Hebert has been Manager of Corporate Development of the Company since April 1997 and was a Financial Consultant to the Company from December 1996 until April 1997. Mr. Hebert was Vice President and Chief Financial Officer of Encon Systems, Inc. form June 1991 until February 1996. Mr. Kadets has been the Chief Information Officer of the Company since May 1997. Mr. Kadets was Chief Information Officer of Encore Computer Corp. from 1990 until May 1997. Mr. Vittoria has been Director of Human Resources of the Company since October 1997. Mr. Vittoria was Human Resources Manager of Promptus Communications from 1995 until employment with the Company, practiced law from 1994 until 1995, and was Senior Human Resources Specialist for Raytheon Company from 1984 until 1993. Mr. Baker has been Senior Vice President - Manufacturing and General Manager of Uvex Safety Manufacturing since 1997. He was Vice President Manufacturing of Uvex Safety from 1991 to 1997 and was Director of Manufacturing from 1989 to 1991. Prior to 1989, Mr. Baker was employed for 16 years by Martin- Copeland Co., a manufacturer of high fashion ophthalmic frames, where he served in various manufacturing capacities including Director of Engineering. Mr. Bell has been President of Survivair since 1992. He joined Survivair in 1983 and served as Vice President of Operations from 1989 to 1992. Mr. Bell has 30 years experience in manufacturing and engineering management including positions with Ford Motor Company and Fairchild Industries. Mr. Brooks has been President and Chief Executive Officer of Titmus since March 1998. Mr. Brooks was Vice President and General Manager of the Automated Systems Division of American Meter Company from 1995 to 1998 and President of Weschler Instruments Company from 1993 to 1995. Mr. Brooks has over 20 years experience in the areas of manufacturing, automation and quality improvement. Mr. John F. Burt, Jr. founded Biosystems in 1981 and has served as President since that date. He has over 30 years experience in the gas detection industry. Mr. Joseph Burt joined Biosystems in 1982 and has served as Vice President of Sales since that date. Prior to joining Biosystems, Mr. Joseph Burt had 15 years experience in the medical electronics industry. Mr. Dean has been Chief Executive Officer of Howard Leight Industries since 1993 and, prior to that time, was the Executive Vice President of Howard Leight Industries. Mr. Goeltz has been Senior Vice President - Sales of Titmus since January, 1997. Prior to January 1997, Mr. Goeltz was Vice President - Sales and Marketing of Titmus since 1989. Mr. Goeltz has held various sales and marketing positions at Titmus since 1976. Mr. Hanover has been Vice President of Finance and Administration of Howard Leight Industries since 1993. From 1983 until 1993 Mr. Hanover was Vice President and Controller of Princess Cruises. Mr. Hitchcock joined Survivair in 1987 and has served as its Vice President of Marketing and Sales since 1989. Mr. Hitchcock has over 30 years experience in the safety products industry. 7 10 Mr. Johnson has been Vice President - Research & Development, Coatings and Quality Assurance of Uvex Safety Manufacturing and its predecessors since August 1992. Mr. Johnson has been employed by Uvex Safety Manufacturing and its predecessors since November 1989. Prior to 1989 Mr. Johnson was employed in various capacities at Gentex Optics, Inc. a manufacturer of coatings for polycarbonate optical lenses, for 18 years, the last ten of which he served as general manager. Mr. Masters joined Titmus in 1994 and has been Vice President - Marketing of Titmus since December 1996. From 1991 to 1994, Mr. Masters was Vice President of Sales and Marketing of Swank Optical. Mr. Meyers has been employed by Howard Leight Industries for 27 years and has served as its Chief Operating Officer since 1993. Prior to becoming Chief Operating Officer Mr. Meyers held several positions at Howard Leight Industries in the areas of research and development, purchasing and materials, and quality control. Mr. Neff has been Senior Vice President - Sales of Uvex Safety since 1997, and Vice President - Sales from 1992 until 1997. From 1990 to 1992, Mr. Neff was Director of Sales/Marketing of a predecessor to Uvex Safety. Prior to 1990, Mr. Neff spent 19 years in various sales and marketing positions at the Safety Products Division of American Optical Corporation, a manufacturer of personal protective equipment, including service as National Sales Manager. Mr. Sustello has been Vice President - Marketing of Uvex Safety since 1994. From 1993 to 1994, Mr. Sustello was Director of Marketing at Miller Equipment Company, a manufacturer of fall protection devices. From 1979 to 1993, Mr. Sustello held various positions with Willson Safety Products, a manufacturer of personal protective equipment. Mr. Tolisano has been Vice President - Finance of Uvex Safety and its predecessors since 1988. He joined a predecessor of Uvex Safety as Controller in 1980. Mr. Wagner joined Howard Leight Industries in March 1995, has served as its Vice President Manufacturing and Distribution since December 1997, and served as Director of Operations since June 1995. Prior to employment with Howard Leight Industries Mr. Wagner held the position of Operations Manager at Mission Furniture. Mr. Whynall has been Vice President of Engineering of Biosystems since September 1997 and served as Engineering Manager from April 1985 until that time. Mr. Wiser joined Survivair in 1987 and has served as its Vice President of Finance since 1989. Mr. Wiser served as Group Controller for Comasec International, S.A. from 1984 to 1989. * Mr. John F. Burt, Jr. and Mr. Joseph Burt are brothers. 8 11 ITEM 2. PROPERTIES The following table sets forth the location of the facilities which the Company owns or leases, the square footage and the principal function of each such facility.
APPROXIMATE LOCATION SQUARE FOOTAGE FUNCTION -------- -------------- -------- Smithfield, Rhode Island............. 127,000 Corporate headquarters; manufacturing, assembly, warehousing and distribution facility for uvex(R) and Lase-R Shield brand products San Diego, California................ 100,000 Manufacturing, assembly, warehousing and distribution of Howard Leight Industries(R) brand products. Tijuana, Mexico...................... 49,000 Light manufacturing and assembly of Howard Leight Industries(R) brand products. Petersburg, Virginia................. 130,000 Manufacturing, assembly, warehousing and distribution facility for Titmus(R) brand products Santa Ana, California................ 93,000 Manufacturing, assembly, warehousing and distribution of Survivair(R) and Pro-Tech(R) brand products Middletown, Connecticut.............. 45,000 Assembly, warehousing and distribution facility for Biosystems(R) brand products Smithfield, Rhode Island............. 32,000 Warehousing facility for uvex(R) brand products Bollington, Cheshire, U.K............ 20,000 Sales office; warehousing and distribution facility Florence, Kentucky................... 20,000 Warehousing and distribution facility Albuquerque, New Mexico.............. 900 Regional sales office Shafer, Minnesota.................... 700 Regional sales office and administrative operations
ITEM 3. LEGAL PROCEEDINGS Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's common stock trades on The NASDAQ National Market Tier of The NASDAQ Stock Market under the symbol BACU. The authorized capital stock of the Company consists of 25,000,000 shares of Common Stock, $.001 par value per share, and 5,000,000 shares of Preferred Stock, $.001 par value per share. For information regarding the U.S. market, high and low quarterly sales prices and dividends, see Note 12 to the consolidated financial statements included in Item 8 herein. As of March 2, 1998, the closing price for the Company's common stock was $17 1/2 per share and there were approximately 24 holders of record. 9 12 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data of the Company and the Predecessor Business for the periods indicated. Effective August 1, 1995, the Company elected to change its fiscal year end from July 31 to December 31. Selected financial data for each of the years ended July 31, 1993, 1994 and 1995, the five months ended December 31, 1995, and the years ended December 31, 1996 and 1997 were derived from financial statements of the Company and the Predecessor Business which were audited by KPMG Peat Marwick LLP, independent certified public accountants, whose report with respect to the fiscal year ended July 31, 1995, the five months ended December 31, 1995, and the years ended December 31, 1996 and 1997 appears elsewhere herein. The selected financial data should be read in conjunction with the Consolidated Financial Statements and related notes thereto, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and other financial information included elsewhere herein.
PREDECESSOR THE COMPANY BUSINESS ------------------------------------------------------------------------------------ ----------- FIVE MONTHS AUGUST 1, YEAR ENDED YEAR ENDED ENDED YEAR ENDED YEAR ENDED APRIL 16 1992 TO DECEMBER 31, DECEMBER 31, DECEMBER 31, JULY 31, JULY 31, TO JULY 31, APRIL 15, 1997(1) 1996 1995(2) 1995(3) 1994 1993 1993 ------------ ------------ ------------ ---------- ----------- ----------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF INCOME DATA: Net sales.................. $130,869 $109,268 $ 36,827 $71,988 $53,927 $13,732 $23,523 Cost of sales.............. 64,467 47,355 18,525 31,016 22,186 7,097 11,261 -------- -------- -------- ------- ------- ------- ------- Gross profit............... 66,402 61,913 18,302 40,972 31,741 6,635 12,262 Operating expenses: Selling.................. 21,658 17,074 5,891 9,781 8,719 1,665 3,962 Research and development............ 1,110 -- -- -- -- -- -- Purchased in-process research and development............ 3,721 -- -- -- -- -- -- General and administrative......... 11,184 9,176 2,609 4,080 3,206 859 1,690 Amortization of intangible assets...... 4,095 4,039 1,515 2,506 1,467 428 -- -------- -------- -------- ------- ------- ------- ------- Total operating expenses........... 41,768 30,289 10,015 16,367 13,392 2,952 5,652 -------- -------- -------- ------- ------- ------- ------- Operating income........... 24,634 31,624 8,287 24,605 18,349 3,683 6,610 Other expense (income), net...................... (376) 45 1,054 1,287 333 116 (70) -------- -------- -------- ------- ------- ------- ------- Income before income taxes and minority interest.... 25,010 31,579 7,233 23,318 18,016 3,567 6,680 Minority interest share of income................... -- -- -- 1,920 6,164 1,257 -- Income taxes............... 10,588 12,202 2,917 8,343 4,371 664 2,719 -------- -------- -------- ------- ------- ------- ------- Net income(5).............. $ 14,422 $ 19,377 $ 4,316 $13,055 $ 7,481 $ 1,646 $ 3,961 ======== ======== ======== ======= ======= ======= ======= Basic earnings per share(4)(5).............. $ 0.83 $ 1.18 $ 0.31 $ 0.94 $ 0.57 $ 0.12 Diluted earnings per share(4)(5).............. $ 0.83 $ 1.18 $ 0.31 $ 0.94 $ 0.57 $ 0.12 Weighted average shares outstanding: Basic...................... 17,383 16,406 13,860 13,860 13,167 13,167 Diluted.................... 17,410 16,436 13,860 13,860 13,167 13,167 BALANCE SHEET DATA (AT END OF PERIOD): Working capital............ $ 34,509 $ 40,820 $ 4,406 $11,838 $13,856 $ 8,601 Total assets............... 152,351 125,109 104,469 76,526 51,173 38,715 Total debt................. -- -- 49,000 27,800 9,170 11,420 Common Stock subject to a put option............... 9,450 -- -- -- -- -- Stockholders' equity....... 122,902 112,407 45,698 41,382 28,327 19,646
- --------------- (1) Includes the operating results of Survivair, Inc. from June 1, 1997 and of Biosystems, Inc. from September 30, 1997. (2) Includes the operating results of Titmus Optical, Inc. from October 1, 1995. (3) Includes the operating results of Pro-Tech Respirators, Inc. from April 1, 1995. Amounts also reflect the acquisition of a one-third minority interest in the business of Uvex Safety effective October 31, 1994. (4) There were no cash dividends declared or paid by the Company during any of the periods presented. 10 13 (5) Excluding acquisition-related non-recurring amounts the Company's net income, and both basic and diluted earnings per share, would have been as follows for each of the periods presented:
PREDECESSOR THE COMPANY BUSINESS ------------------------------------------------------------------------------------ ----------- FIVE MONTHS AUGUST 1, YEAR ENDED YEAR ENDED ENDED YEAR ENDED YEAR ENDED APRIL 16 1992 TO DECEMBER 31, DECEMBER 31, DECEMBER 31, JULY 31, JULY 31, TO JULY 31, APRIL 15, 1997 1996 1995 1995 1994 1993 1993 ------------ ------------ ------------ ---------- ----------- ----------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net income................. $19,498 $19,377 $5,811 $14,096 $7,481 $2,474 $3,961 Basic and diluted earnings per share................ $ 1.12 $ 1.18 $ 0.42 $ 1.02 $ 0.57 $ 0.19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the Company's financial condition and results of operations should be read in conjunction with the Company's consolidated financial statements and notes thereto, as well as the selected financial data, all appearing elsewhere herein. FACTORS THAT MAY AFFECT FUTURE PERFORMANCE Statements contained in this discussion or elsewhere herein that are not historical facts are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In addition, words such as "believes", "anticipates", "expects", and similar expressions are intended to identify forward-looking statements. The Company cautions that a number of important factors could cause the Company's actual results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. Forward-looking statements involve a number of risks and uncertainties including, but not limited to, continued demand for current product lines, the success of new product introductions, the success of the Company's acquisition strategy, competitive pressures, general economic conditions, and regulatory matters. The Company cannot assure that it will be able to anticipate or respond timely to changes in any of the factors listed above, which could adversely affect the operating results in one or more fiscal periods. Results of operations in any past period should not be considered indicative of the results to be expected for future periods. Fluctuations in operating results may also result in fluctuations in the price of the Company's common stock. BACKGROUND Effective February 27, 1998, the Company acquired substantially all assets and assumed substantially all liabilities of Howard S. Leight & Associates, Inc. d/b/a Howard Leight Industries, a California corporation with its principal business location in San Diego, California, for cash consideration of approximately $120.0 million. Howard Leight Industries is a manufacturer of hearing protection products including disposable ear plugs, reusable ear plugs and ear muffs. Operating results of Howard Leight Industries will be included in the consolidated financial statements of the Company beginning with the acquisition date. The Company acquired all of the outstanding capital stock of Comasec Holdings, Inc. (Comasec) on May 30, 1997. The assets of Comasec consisted primarily of its wholly-owned subsidiary Survivair, Inc. (Survivair) a manufacturer of respiratory protection products. The acquisition was effected through merger and redemption transactions which have been accounted for as a purchase of all of the outstanding common stock of Comasec for $27.4 million in cash, subject to certain closing adjustments. The Company also acquired all of the capital stock of Biosystems, Inc. (Biosystems), a manufacturer of gas monitors and equipment for testing self-contained breathing apparatus, on September 30, 1997. The initial acquisition price was approximately $13.5 million payable in common stock of the Company, however, the initial acquisition price may be increased if the operating results of Biosystems in the year 2000 exceed certain defined thresholds. Finally, the Company made a non-material acquisition of the assets of Lase-R Shield, Inc. in June of 1997. Collectively the acquisitions of Survivair, Biosystems and Lase-R Shield are referred to in the following discussion as the "1997 Acquisitions." Operating results for the 1997 Acquisitions have been included in the consolidated financial statements of the Company beginning with the respective acquisition dates. 11 14 The Company acquired the business of Pro-Tech Respirators, Inc. effective March 31, 1995 for approximately $6.8 million, and the Company acquired all of the outstanding capital stock of Titmus Optical, Inc. ("Titmus") effective September 29, 1995 for approximately $27.3 million (collectively, the "1995 Acquisitions"). Operating results for the 1995 Acquisitions have been included in the consolidated financial statements of the Company beginning with the respective acquisition dates. The Company also acquired a one-third interest in the business of Uvex Safety (the "Minority Interest Acquisition") effective October 31, 1994. In connection with the 1997 Acquisitions a portion of the acquisition price was allocated to the fair value of purchased in-process research and development. These amounts were charged to operating expenses in full upon the date of acquisition and are referred to in the accompanying discussion as the "Acquisition-Related R&D Charges". In connection with the 1997 Acquisitions and the 1995 Acquisitions acquired inventories were adjusted to fair values, and these adjustments were subsequently charged to cost of sales when the acquired inventories were sold. These amounts are referred to in the accompanying discussion as the "Acquisition-Related Inventory Adjustments". The Company also recorded acquisition-related charges during 1997 totaling $150,000 that are included with general and administrative expenses. Collectively, the 1997 items are referred to in the following discussion as the "1997 Acquisition-Related Adjustments". In March 1996 the Company completed an initial public offering of its common stock. Proceeds from the sale of 3,450,000 shares, totaling $47.3 million net of expenses of issuance, were used primarily to repay outstanding bank indebtedness. Effective August 1, 1995 the Company changed its fiscal year end from July 31 to December 31. The following discussion compares operating results for the years ended December 31, 1997 and 1996, and the years ended December 31, 1996 and July 31, 1995. A separate discussion has also been included that compares operating results for the transition period, August 1, 1995 to December 31, 1995, with the comparable five-month period in 1994. RESULTS OF OPERATIONS The following table presents selected operating data of the Company and such amounts as percentages of net sales for the periods indicated (in thousands, except percentages).
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, 1997 DECEMBER 31, 1996 JULY 31, 1995 ------------------ ------------------ --------------- Net sales............................. $130,869 100.0% $109,268 100.0% $71,988 100.0% Cost of sales (1)..................... 64,467 49.3 47,355 43.3 31,016 43.1 -------- ----- -------- ----- ------- ----- Gross profit.......................... 66,402 50.7 61,913 56.7 40,972 56.9 -------- ----- -------- ----- ------- ----- Operating expenses: Selling.......................... 21,658 16.6 17,074 15.6 9,781 13.6 Research and development......... 1,110 0.8 -- -- -- -- Purchased in-process research and development(2)................. 3,721 2.8 -- -- -- -- General and administrative(3).... 11,184 8.6 9,176 8.4 4,080 5.6 Amortization of intangible assets......................... 4,095 3.1 4,039 3.7 2,506 3.5 -------- ----- -------- ----- ------- ----- Total operating expenses......... 41,768 31.9 30,289 27.7 16,367 22.7 -------- ----- -------- ----- ------- ----- Operating income...................... 24,634 18.8 31,624 29.0 24,605 34.2 Other expense (income), net........... (376) (0.3) 45 0.1 1,287 1.8 -------- ----- -------- ----- ------- ----- Income before income taxes and minority interest................... 25,010 19.1 31,579 28.9 23,318 32.4 Minority interest share of income..... -- -- -- -- 1,920 2.7 Income taxes.......................... 10,588 8.1 12,202 11.2 8,343 11.6 -------- ----- -------- ----- ------- ----- Net income(4)......................... $ 14,422 11.0% $ 19,377 17.7% $13,055 18.1% ======== ===== ======== ===== ======= =====
- --------------- (1) Includes Acquisition-Related Inventory Adjustments totaling $2,053,000 for the year ended December 31, 1997 and $1,707,000 for the year ended July 31, 1995. 12 15 (2) 1997 amounts represent Acquisition-Related R&D Charges. (3) Includes acquisition-related charges totaling $150,000 for the year ended December 31, 1997. (4) On an after-tax basis, Acquisition-Related Adjustments totaled $5,076,000 for the year ended December 31, 1997 and Acquisition-Related Inventory Adjustments totaled $1,041,000 for the year ended July 31, 1995. FISCAL YEAR ENDED DECEMBER 31, 1997 COMPARED TO FISCAL YEAR ENDED DECEMBER 31, 1996 Net Sales. Net sales increased 19.8% from $109.3 million for the year ended December 31, 1996 to $130.9 million for the year ended December 31, 1997. Sales during 1997 resulting from the 1997 Acquisitions totaled $21.5 million. During the fourth quarter of 1996 the Company withdrew from the business of selling completed prescription eyewear. As a result, net sales declined from the 1996 period to the 1997 period by approximately $3.2 million. Excluding sales from the 1997 Acquisitions and excluding sales in 1996 from the discontinued product line, the Company's net sales increased by 3.6%, principally as a result of increased units shipped. Export sales totaled $15.2 million or 11.6% of net sales for the 1997 period. Excluding sales resulting from the 1997 Acquisitions, export sales increased by 50.0% from 1996 to 1997. Cost of Sales. Cost of sales increased 36.1% from $47.4 million for the year ended December 31, 1996 to $64.5 million for the year ended December 31, 1997. The increase was primarily attributable to increased sales volume and Acquisition-Related Inventory Adjustments resulting from the 1997 Acquisitions. Gross Profit. Gross profit increased 7.2% from $61.9 million for the year ended December 31, 1996 to $66.4 million for the year ended December 31, 1997. Excluding the effect of Acquisition-Related Inventory Adjustments, the Company's gross margin would have been 52.3% in the 1997 period compared with 56.7% in the 1996 period. The Company's gross margin declined from the 1996 period to the 1997 period principally as a result of lower margins at acquired businesses. Inclusion of operating results for the 1997 Acquisitions for a full year in 1998 will, and any future acquisitions may, further reduce the Company's gross margin; however, the acquisition of Howard Leight Industries is expected to favorably influence (exclusive of non-recurring adjustments) the gross margin in 1998. During 1997 the Company experienced a reduction in the average selling price of many of its eyewear product lines as a response to lower priced competitive products. Lower average selling prices resulted in a reduction of the gross margin from 1996 to 1997 of about one percentage point. The Company believes competitive pressures may limit its ability to increase prices to previous levels. In addition to the above factors, the Company's gross margin during 1997 was reduced by higher production costs at Titmus. These higher costs occurred primarily during the first quarter of 1997 and resulted from disruption in production caused by relocation to a new facility and, interruption in production and quality problems both associated with a newly acquired plating line. Operating Expenses. Operating expenses increased 37.9% from $30.3 million for the year ended December 31, 1996 to $41.7 million for the year ended December 31, 1997. Excluding Acquisition-Related R&D Charges totaling $3.7 million, operating expenses increased 25.6% from $30.3 million for the year ended December 31, 1996 to $38.0 million for the year ended December 31, 1997. This increase resulted principally from the 1997 Acquisitions. In addition, selling expenses as a percentage of sales increased from 15.6% in the 1996 period to 16.6% in the 1997 period, principally as a result of expansion of the Company's international sales force, higher advertising and promotion costs, and somewhat higher product development costs. Operating Income. As a result of the foregoing, the Company's operating income decreased 22.1% from $31.6 million for the year ended December 31, 1996 to $24.6 million for the year ended December 31, 1997. Excluding 1997 Acquisition-Related Adjustments, operating income decreased 3.4% from $31.6 million in 1996 to $30.5 million in 1997. Other Expense (Income). Other expense (income) was $(400,000) for the year ended December 31, 1997 and $50,000 for the year ended December 31, 1996. The Company had lower average levels of debt outstanding during the 1997 period, and the change in other expense (income) is primarily due to a decline in 13 16 net interest expense from 1996 to 1997. As explained more fully in the discussion of Liquidity and Capital Resources, the Company borrowed $124.3 million in February 1998 in connection with the acquisition of Howard Leight Industries. As a result, net interest costs during 1998 are expected to be significantly higher than in the 1997 and 1996 periods. Income Taxes. The Company's effective income tax rate was 42.3% during the 1997 period and 38.6% during the 1996 period. The effective rate was higher than the federal statutory rate due to state and local income taxes and, in the 1997 period, because a tax benefit cannot be recorded for the Acquisition-Related R&D Charges totaling $3.7 million. Excluding the effect of Acquisition-Related R&D Charges, the effective income tax rate for 1997 would have been 37.1%. Net Income. As a result of the foregoing, the Company's net income decreased 25.6% from $19.4 million for the year ended December 31, 1996 to $14.4 million for the year ended December 31, 1997. Excluding 1997 Acquisition-Related Adjustments, net income increased from $19.4 million in 1996 to $19.5 million in 1997. FISCAL YEAR ENDED DECEMBER 31, 1996 COMPARED TO FISCAL YEAR ENDED JULY 31, 1995 Net Sales. Net sales increased 51.8% from $72.0 million for the year ended July 31, 1995 to $109.3 million for the year ended December 31, 1996. This increase was primarily the result of inclusion of the operations of Titmus. Sales of non-prescription eyewear, including sales of products introduced late in the second quarter of 1996, also contributed to increased sales during 1996. Net sales were reduced by the effect of the discontinuation of original equipment manufacture (OEM) sales of ski goggles and sales of a certain respiratory product line. Export sales, excluding export sales of Titmus, increased by 64% from the 1995 period to the 1996 period. Export sales represented 7.3% of net sales in the 1996 period and 5.8% of net sales in the 1995 period. Cost of Sales. Cost of sales increased 52.7% from $31.0 million for the year ended July 31, 1995 to $47.4 million for the year ended December 31, 1996. The increase was primarily attributable to increased sales volume resulting from the acquisition of Titmus, which was partially offset by reduced costs associated with the discontinuation of ski goggle and respiratory products discussed above. Gross Profit. Gross profit increased 51.1% from $41.0 million for the year ended July 31, 1995 to $61.9 million for the year ended December 31, 1996. Excluding the effect of Acquisition-Related Inventory Adjustments, the Company's gross margin would have been 56.7 % in the 1996 period and 59.3% in the 1995 period. The Company's gross margin declined from the 1995 period to the 1996 period as a result of including the operations of Titmus, which have lower gross margins than the combined gross margin of the Company's other subsidiaries. The decrease in gross margin resulting from the acquisition of Titmus was offset in part by labor and other cost reductions at other subsidiaries. Operating Expenses. Operating expenses increased 85.1% from $16.4 million for the year ended July 31, 1995 to $30.3 million for the year ended December 31, 1996. The increase resulted primarily from the 1995 Acquisitions and to a lesser extent from additional administrative costs which became necessary as a result of Bacou USA, Inc. becoming a public reporting company. Operating Income. As a result of the foregoing, the Company's operating income increased 28.5% from $24.6 million for the year ended July 31, 1995 to $31.6 million for the year ended December 31, 1996. Other Expense, Net. Other expense, net was $1.3 million for the year ended July 31, 1995 and $50,000 for the year ended December 31, 1996. The 1995 period included net interest expense which totaled $1.5 million. Indebtedness of the Company was repaid in full during April 1996 and therefore net interest expense during the 1996 period was reduced to $0.4 million. 14 17 Minority Interest Share of Income. The minority interest share of income represented the income attributable to the holder of the one-third minority interest in Uvex Safety. Subsequent to October 31, 1994, the Company owned the entire business of Uvex Safety. As a result, no minority interest share of income has been recorded for any periods after October 31, 1994. Income Taxes. The Company's effective income tax rate approximated 39.0% during both periods, and was higher than the federal statutory rate due primarily to state and local income taxes. Net Income. As a result of the foregoing, the Company's net income increased by 48.4% from $13.1 million for the year ended July 31, 1995 to $19.4 million for the year ended December 31, 1996. FIVE MONTHS ENDED DECEMBER 31, 1995 COMPARED TO FIVE MONTHS ENDED DECEMBER 31, 1994 The following table presents selected operating data of the Company and such amounts as percentages of net sales for the periods indicated (in thousands, except percentages).
FIVE MONTHS ENDED DECEMBER 31, --------------------------------- 1995 1994 ---- ---- Net sales.................................................. $36,827 100.0% $27,859 100.0% Cost of sales.............................................. 18,525 50.3 12,693 45.6 ------- ----- ------- ----- Gross profit............................................... 18,302 49.7 15,166 54.4 Operating expenses: Selling.................................................. 5,891 16.0 3,808 13.7 General and administrative............................... 2,609 7.1 1,709 6.1 Amortization of intangible assets........................ 1,515 4.1 828 3.0 ------- ----- ------- ----- Total operating expenses................................. 10,015 27.2 6,345 22.8 ------- ----- ------- ----- Operating income........................................... 8,287 22.5 8,821 31.6 Other expense, net......................................... 1,054 2.9 211 0.7 ------- ----- ------- ----- Income before income taxes and minority interest........... 7,233 19.6 8,610 30.9 Minority interest share of income.......................... -- -- 1,920 6.9 Income taxes............................................... 2,917 7.9 2,609 9.4 ------- ----- ------- ----- Net income................................................. $ 4,316 11.7% $ 4,081 14.6% ======= ===== ======= =====
Net Sales. Net sales increased 32.2% from $27.9 million for the five months ended December 31, 1994 to $36.8 million for the five months ended December 31, 1995. This increase was primarily the result of the 1995 Acquisitions and to a lesser extent increased sales of the astrospec family of products. Export sales represented 6.8% of net sales in the 1995 period and 4.5% of net sales in the 1994 period. During the 1995 period, the Company discontinued OEM sales of ski goggles and sales of a certain respiratory product line. Excluding sales of the discontinued product lines, net sales increased 40.1% from $25.7 million for the 1994 period to $36.0 million for the 1995 period. Cost of Sales. Cost of sales increased 45.9% from $12.7 million for the five months ended December 31, 1994 to $18.5 million for the five months ended December 31, 1995. The increase was primarily attributable to Acquisition-Related Inventory Adjustments (see "Gross Profit" below), increased sales volume and, to a lesser extent, higher raw material costs. The increase in raw material costs was the result of price increases for polycarbonate resin, the primary raw material for manufacturing non-prescription protective eyewear lenses. Gross Profit. Gross profit increased 20.7% from $15.2 million for the five months ended December 31, 1994 to $18.3 million for the five months ended December 31, 1995. Excluding the effect of Acquisition-Related Inventory Adjustments, the Company's gross margin would have been 58.2% in 1994 and 56.4% in 1995. Operating Expenses. Operating expenses increased 57.8% from $6.3 million for the five months ended December 31, 1994 to $10.0 million for the five months ended December 31, 1995. The increase resulted 15 18 primarily from the 1995 Acquisitions, increased amortization expense due to the 1995 Acquisitions and the Minority Interest Acquisition, and to a lesser extent from the addition of employees at Bacou USA, Inc. Operating Income. As a result of the foregoing, the Company's operating income decreased 6.1% from $8.8 million for the five months ended December 31, 1994 to $8.3 million for the five months ended December 31, 1995. Excluding the effect of Acquisition-Related Inventory Adjustments operating income would have been $9.9 million for the 1994 period and $10.7 million for the 1995 period. Other Expense, Net. Other expense, net was $0.2 million and $1.1 million for the five months ended December 31, 1994 and 1995, respectively. These amounts included net interest expense which totaled $0.3 million and $1.1 million, respectively. The increase resulted from additional borrowings to finance the Minority Interest Acquisition and the 1995 Acquisitions. Income Taxes. The Company's effective income tax rate was 39.0% and 40.3% for the five months ended December 31, 1994 and 1995, respectively. The effective rates were higher than the federal statutory rate due primarily to state and local income taxes. Net Income. As a result of the foregoing, the Company's net income increased by 5.8% from $4.1 million for the five months ended December 31, 1994 to $4.3 million for the five months ended December 31, 1995. EFFECTS OF INFLATION Inflation during recent years has been modest and has not had a material impact upon the results of the Company's operations. LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity has historically been derived from internal cash flow provided by operations and from bank borrowings. Earnings before interest, taxes, depreciation and amortization (EBITDA) and before 1997 Acquisition-Related Adjustments, totaled $39.2 million in 1997 and $39.1 million in 1996. Cash used in investing activities increased from $10.9 million for the year ended December 31, 1996 to $35.4 million for the year ended December 31, 1997. The 1997 period includes cash payments for the purchase of Survivair and other direct costs of acquisition incurred in connection with the 1997 Acquisitions totaling $28.6 million. The acquisition of Survivair was financed principally from available cash balances. In connection with the Biosystems acquisition, the Company provided selling shareholders with a put option covering 70 percent of the shares issued in connection with that acquisition, or approximately 578,000 shares. The put options may be exercised within 24 months following the acquisition date at a price approximately equal to $16 3/8 per share. If the put options were exercised in full, the Company would be obligated to repurchase shares at a value totaling approximately $9.5 million. Capital expenditures totaled $10.7 million in the 1996 period and $6.8 million in the 1997 period. Capital spending was higher in the 1996 period as a result of the construction of a new manufacturing facility for Titmus at a cost of approximately $6.0 million. The Company expects capital spending in 1998 to approximate $8.0 to $10.0 million exclusive of capital spending requirements of Howard Leight Industries. At December 31, 1997 the Company had commitments outstanding for the purchase of machinery and equipment totaling approximately $1.1 million. Cash used in financing activities increased from $1.7 million for the year ended December 31, 1996 to $10.0 million for the year ended December 31, 1997. The 1997 period includes the purchase of 554,400 unregistered shares in a privately negotiated transaction from a non-affiliated corporate investor at a purchase price of $14.50 per share, or a total of $8.0 million. Effective September 30, 1997 the Board of Directors also authorized an open market buyback program to purchase up to 300,000 shares of the Company's common stock. As of December 31, 1997, no shares had been purchased under this program. During 1996 the Company repaid indebtedness totaling $49.0 million principally from proceeds, totaling $47.3 million, received in connection with the initial public offering of 3.5 million shares. 16 19 At December 31, 1997 the Company maintained a $28.0 million Revolving Line of Credit (the "Revolving Facility") and a subsidiary maintained a $3.0 million line of credit (the "Subsidiary Facility"), both with Citizens Bank of Rhode Island. In February 1998, the Company terminated the Subsidiary Facility and increased the Revolving Facility to $31.0 million. The Revolving Facility is available to fund acquisitions and for other general corporate purposes. Principal outstanding under the Revolving Facility is due in full on May 31, 2000 and bears interest at a rate per annum equal to three month LIBOR plus 0.7%. The Revolving Facility is subject to annual renewal thereafter and is also subject to various financial and other covenants. In February 1998 the Company entered into a Credit Line Agreement with Banque Nationale de Paris (the "BNP Credit Line"). The BNP Credit Line provides for borrowings in the amount of $110.0 million for the purpose of financing the acquisition of Howard Leight Industries, bears interest at an annual rate equal to three month LIBOR plus 0.3%, requires principal repayments in equal quarterly installments over seven years, and requires interest payments quarterly. In addition, the Company is required to pay quarterly a commitment fee equal to 0.2% per annum on the outstanding balance. In connection with the acquisition of Howard Leight Industries the Company borrowed $14.3 million under the Revolving Facility and $110.0 million under the BNP Credit Line. The Company is pursuing a business strategy which includes acquisitions as an important element. As a result, the Company may incur additional indebtedness, negotiate additional credit facilities or issue additional common or preferred stock in order to fund other investments, if any, resulting from its acquisition strategy. Except for cash requirements to fund potential additional acquisitions the Company believes that its cash flow provided by operating activities and unused borrowing capacity will be sufficient to fund capital expenditures, debt service requirements and other working capital needs during 1998. SEASONALITY The Company's business has been subject to slight seasonal variations which the Company has attributed to fluctuations in industrial activity and with annual weather patterns. Historically, net sales from October through December have been somewhat lower than other periods due to anticipated lower demand in the more inclement winter months and planned inventory reductions by major distributors. In addition to seasonality, the Company's business has been variable period to period due to other factors, including promotional activity undertaken by the Company in response to competitive pressures, market demand, production capacity, inventory levels, and other considerations. YEAR 2000 COMPLIANCE Many existing computer programs use only two digits to identify a year in the date field. These programs were designed and developed without consideration of the impact of the upcoming change in century. If not corrected, many computer applications could fail or create erroneous results at or before the year 2000. The Company has completed an assessment of substantially all of its computer systems and has identified applications that are not currently year 2000 compliant. During 1997 the Company initiated a project, separate from initiatives to correct its year 2000 issues, to install and implement common software at its Survivair, Titmus and Uvex Safety business units. A license agreement for the software was executed in September 1997 and full implementation, including a significant period of pre-testing, is expected to be completed during or prior to the first quarter of 1999. The Company believes that this software is year 2000 compliant and that, upon full implementation at Survivair and Uvex Safety, all of the Company's material year 2000 deficiencies will be corrected. The license fee and costs to implement the software will be capitalized and depreciated over the estimated useful life of the software. The cost of modifying or correcting other applications, which do not become year 2000 compliant upon implementation of the aforementioned software, is currently estimated to be immaterial and will be expensed as incurred. There can be no assurance that the Company will successfully complete implementation of the common software at Survivair and Uvex Safety by dates critical for year 2000 compliance. Failure to complete implementation on a timely basis may have material adverse financial and operational impacts on the Company. In addition, there can be no assurance that year 2000 deficiencies in the systems of other companies on which the Company's systems rely, in particular significant vendors, also will be timely corrected or that 17 20 any such failure to correct deficiencies by another company would not have an adverse effect on the Company's systems. NEW ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standard No. 131, "Disclosures about Segments of an Enterprise and Related Information," (Statement 131) was issued in June 1997. Statement 131 requires disclosure of financial and descriptive information about reportable operating segments and supersedes previously issued accounting principles concerning segment reporting. The Company is required to adopt the provisions of Statement 131 for periods beginning after December 15, 1997 (calendar year 1998 for the Company). Statement 131 will, at most, require certain additional disclosure in the Company's financial statements. 18 21 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
PAGE ---- Independent Auditors' Report................................ 20 Consolidated Balance Sheets................................. 21 Consolidated Statements of Income........................... 22 Consolidated Statements of Stockholders' Equity............. 23 Consolidated Statements of Cash Flows....................... 24 Notes to Consolidated Financial Statements.................. 25
19 22 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Bacou USA, Inc.: We have audited the accompanying consolidated balance sheets of Bacou USA, Inc. and subsidiaries as of December 31, 1997 and 1996 and the related consolidated statements of income, stockholders' equity, and cash flows for the fiscal years ended December 31, 1997 and 1996, for the five months ended December 31, 1995, and for the fiscal year ended July 31, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bacou USA, Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for the fiscal years ended December 31, 1997 and 1996, for the five months ended December 31, 1995, and for the fiscal year ended July 31, 1995 in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Providence, Rhode Island February 17, 1998, except as to notes 2(b) and 7(b) which are as of February 27, 1998 20 23 BACOU USA, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ---------------------------- 1997 1996 ---- ---- ASSETS Current assets: Cash and cash equivalents.............................. $ 1,276,658 $ 21,033,261 Trade accounts receivable, net......................... 16,098,984 10,500,190 Inventories............................................ 23,449,345 17,483,418 Prepaid expenses....................................... 3,501,698 992,174 Deferred income taxes.................................. 1,426,000 762,000 ------------ ------------ Total current assets.............................. 45,752,685 50,771,043 ------------ ------------ Property and equipment, net................................. 35,880,263 27,069,129 Intangible assets, net...................................... 70,718,154 47,268,964 ------------ ------------ Total assets...................................... $152,351,102 $125,109,136 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable....................................... $ 5,522,599 $ 4,015,904 Accrued compensation and benefits...................... 2,938,943 2,495,974 Other accrued expenses................................. 1,752,078 1,786,473 Income taxes payable................................... 1,029,919 1,652,808 ------------ ------------ Total current liabilities......................... 11,243,539 9,951,159 ------------ ------------ Deferred income taxes....................................... 6,051,500 2,084,000 Other liabilities........................................... 2,704,001 666,725 ------------ ------------ Total liabilities................................. 19,999,040 12,701,884 ------------ ------------ Common stock subject to a put option, 578,560 shares in 1997...................................................... 9,450,000 -- ------------ ------------ Stockholders' equity: Preferred stock, $.001 par value, 5,000,000 shares authorized, no shares issued and outstanding Common stock, $.001 par value, 25,000,000 shares authorized, 17,590,714 shares issued and outstanding in 1997 (including shares subject to a put option) and 17,312,200 shares issued and outstanding in 1996................................................. 17,012 17,312 Additional paid-in capital............................. 62,587,655 66,514,906 Retained earnings...................................... 60,297,395 45,875,034 ------------ ------------ Total stockholders' equity........................ 122,902,062 112,407,252 ------------ ------------ Total liabilities and stockholders' equity........ $152,351,102 $125,109,136 ============ ============
See accompanying notes to consolidated financial statements. 21 24 BACOU USA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED FIVE MONTHS DECEMBER 31, ENDED YEAR ENDED --------------------------- DECEMBER 31, JULY 31, 1997 1996 1995 1995 ---- ---- ------------ ---------- Net sales................................. $130,868,486 $109,267,664 $36,827,039 $71,987,838 Cost of sales............................. 64,466,765 47,354,612 18,524,750 31,016,389 ------------ ------------ ----------- ----------- Gross profit......................... 66,401,721 61,913,052 18,302,289 40,971,449 ------------ ------------ ----------- ----------- Operating expenses: Selling.............................. 21,657,611 17,074,478 5,891,489 9,781,321 Research and development............. 1,110,097 -- -- -- Purchased in-process research and development........................ 3,720,656 -- -- -- General and administrative........... 11,184,187 9,175,637 2,609,536 4,079,836 Amortization of intangible assets.... 4,095,464 4,039,351 1,514,552 2,505,585 ------------ ------------ ----------- ----------- Total operating expenses........ 41,768,015 30,289,466 10,015,577 16,366,742 ------------ ------------ ----------- ----------- Operating income.......................... 24,633,706 31,623,586 8,286,712 24,604,707 ------------ ------------ ----------- ----------- Other expenses (income): Interest expense: Bacou, S.A......................... -- -- 409,155 883,724 Other.............................. 155,275 895,629 771,052 820,888 ------------ ------------ ----------- ----------- 155,275 895,629 1,180,207 1,704,612 ------------ ------------ ----------- ----------- Interest income...................... (371,950) (522,258) (86,963) (238,047) Other................................ (159,980) (328,548) (39,672) (179,761) ------------ ------------ ----------- ----------- Total other expense (income), net........................... (376,655) 44,823 1,053,572 1,286,804 ------------ ------------ ----------- ----------- Income before income taxes and minority interest................................ 25,010,361 31,578,763 7,233,140 23,317,903 Minority interest share of income......... -- -- -- 1,920,020 ------------ ------------ ----------- ----------- Income before income taxes................ 25,010,361 31,578,763 7,233,140 21,397,883 Income taxes.............................. 10,588,000 12,201,930 2,916,684 8,343,000 ------------ ------------ ----------- ----------- Net income...................... $ 14,422,361 $ 19,376,833 $ 4,316,456 $13,054,883 ============ ============ =========== =========== Basic earnings per share.................. $ 0.83 $ 1.18 $ 0.31 $ 0.94 ============ ============ =========== =========== Diluted earnings per share................ $ 0.83 $ 1.18 $ 0.31 $ 0.94 ============ ============ =========== =========== Weighted average shares outstanding: Basic..................................... 17,383,105 16,406,022 13,860,000 13,860,000 ============ ============ =========== =========== Diluted................................... 17,410,702 16,436,125 13,860,000 13,860,000 ============ ============ =========== ===========
See accompanying notes to consolidated financial statements. 22 25 BACOU USA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
ADDITIONAL COMMON COMMON PAID-IN RETAINED STOCKHOLDERS' SHARES STOCK CAPITAL EARNINGS EQUITY ------ ------ ---------- -------- ------------- Balances at July 31, 1994.......... 13,860,000 $13,860 $19,186,140 $ 9,126,862 $ 28,326,862 Net income......................... -- -- -- 13,054,883 13,054,883 ---------- ------- ----------- ----------- ------------ Balances at July 31, 1995.......... 13,860,000 13,860 19,186,140 22,181,745 41,381,745 Net income......................... -- -- -- 4,316,456 4,316,456 ---------- ------- ----------- ----------- ------------ Balances at December 31, 1995...... 13,860,000 13,860 19,186,140 26,498,201 45,698,201 Issuance of common stock, net of expenses of issuance............. 3,450,000 3,450 47,294,483 -- 47,297,933 Stock options exercised............ 2,200 2 34,283 -- 34,285 Net income......................... -- -- -- 19,376,833 19,376,833 ---------- ------- ----------- ----------- ------------ Balances at December 31, 1996...... 17,312,200 17,312 66,514,906 45,875,034 112,407,252 Repurchase of shares; retirement of shares to authorized and unissued......................... (554,400) (554) (8,038,246) -- (8,038,800) Issuance of common stock, net of expenses of issuance............. 826,514 248 4,012,029 -- 4,012,277 Stock options exercised............ 6,400 6 98,966 -- 98,972 Net income......................... -- -- -- 14,422,361 14,422,361 ---------- ------- ----------- ----------- ------------ Balances at December 31, 1997...... 17,590,714 $17,012 $62,587,655 $60,297,395 $122,902,062 ========== ======= =========== =========== ============
See accompanying notes to consolidated financial statements. 23 26 BACOU USA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED FIVE MONTHS DECEMBER 31, ENDED YEAR ENDED --------------------------- DECEMBER 31, JULY 31, 1997 1996 1995 1995 ---- ---- ------------ ---------- Cash flows from operating activities: Net income................................. $ 14,422,361 $ 19,376,833 $ 4,316,456 $ 13,054,883 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization............ 8,618,240 7,511,522 2,645,090 4,373,345 Deferred income taxes.................... (289,000) 713,700 (140,126) 574,651 Purchased in-process research and development........................... 3,720,656 -- -- -- Loss (gain) on sale or write down of assets................................ 159,859 362,627 -- (66,583) Minority share of income................. -- -- -- 1,920,020 Change in assets and liabilities, net of effects of acquired companies: Trade accounts receivable............. (97,604) 302,936 1,279,249 1,077,403 Inventories........................... 2,184,485 721,840 1,512,487 (1,273,816) Prepaid expenses...................... (1,113,641) 391,032 (756,863) (71,416) Accounts payable...................... (103,259) 424,965 (819,519) 231,456 Accrued expenses and other liabilities......................... (1,063,653) 476,986 (1,941,394) 19,109 Income taxes.......................... (766,916) 2,095,680 (1,447,310) 555,808 ------------ ------------ ------------ ------------ Net cash provided by operating activities........................ 25,671,528 32,378,121 4,648,070 20,394,860 ------------ ------------ ------------ ------------ Cash flows from investing activities: Capital expenditures....................... (6,836,806) (10,668,275) (1,822,281) (4,634,224) Acquisition of businesses, including direct costs of acquisition, net of cash acquired................................. (28,565,886) (219,050) (26,156,395) (36,533,672) ------------ ------------ ------------ ------------ Net cash used in investing activities........................ (35,402,692) (10,887,325) (27,978,676) (41,167,896) ------------ ------------ ------------ ------------ Cash flows from financing activities: Repayment of long-term debt................ (8,000,000) (49,000,000) (18,800,000) (17,370,000) Proceeds from long-term debt............... 8,000,000 -- 40,000,000 36,000,000 Repayment of notes payable, net............ (2,085,611) -- -- -- Repurchase of common stock................. (8,038,800) -- -- -- Proceeds from issuances of common stock, net of expenses.......................... 98,972 47,332,218 -- 1,200,000 Distributions to Uvex Distribution, Inc.... -- -- -- (3,175,884) ------------ ------------ ------------ ------------ Net cash provided by (used in) financing activities.............. (10,025,439) (1,667,782) 21,200,000 16,654,116 ------------ ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents................................ (19,756,603) 19,823,014 (2,130,606) (4,118,920) Cash and cash equivalents at beginning of period..................................... 21,033,261 1,210,247 3,340,853 7,459,773 ------------ ------------ ------------ ------------ Cash and cash equivalents at end of period... $ 1,276,658 $ 21,033,261 $ 1,210,247 $ 3,340,853 ============ ============ ============ ============ Supplemental disclosures of cash flow information: Cash paid during the period for interest... $ 155,275 $ 916,938 $ 1,158,898 $ 1,704,612 ============ ============ ============ ============ Cash paid during the period for income taxes.................................... $ 11,988,792 $ 9,427,330 $ 4,520,000 $ 7,303,000 ============ ============ ============ ============ Fair value of common stock issued in connection with the acquisition of a business................................. $ 13,500,000 $ -- $ -- $ -- ============ ============ ============ ============
See accompanying notes to consolidated financial statements. 24 27 BACOU USA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Nature of Business and Principles of Consolidation The accompanying consolidated financial statements include the accounts of Bacou USA, Inc. (Bacou) and its wholly owned subsidiaries (collectively, the Company). All significant intercompany transactions and balances have been eliminated in consolidation. Certain prior period balances have been reclassified to conform to the 1997 presentation. Bacou, S.A., a company domiciled in Valence, France, owns a controlling interest (approximately 72% at December 31, 1997) in Bacou. The business of Uvex Safety was conducted by Uvex Distribution, Inc. (the Predecessor Business) until April 15, 1993. On April 15, 1993, the Company acquired a two-thirds interest in such business. On October 31, 1994, the Company acquired the remaining one-third interest and became the sole owner of the business. The Company manufactures and distributes personal protective equipment, including non-prescription protective eyewear, frames for prescription eyewear, laser protective eyewear, supplied air and air purifying respirators, gas monitors and equipment for testing self-contained breathing apparatus. The Company's products are sold principally to industrial safety distributors, fire fighting equipment distributors and optical laboratories. For purposes of segment reporting, the Company considers its operations to be within a single industry. The Company relies on single sources for the supply of several raw materials. The loss of any such source, any disruption in such source's business or failure by it to meet the Company's needs on a timely basis could cause shortages in raw materials and could have a material adverse effect on the Company's results of operations. The Company has 280 employees (representing approximately 30% of total employees) that are covered under a collective bargaining agreement that expires September 13, 2000. (b) Cash and Cash Equivalents For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. (c) Revenue and Trade Receivables The Company recognizes revenue upon shipment of merchandise to its customers. The Company's sales are primarily domestic (export sales represented 11.6% of net sales in 1997 and 7.3% in 1996), with customers located throughout the United States. Export sales from the United States were principally to unaffiliated customers in Canada and certain South American countries. Pursuant to an agreement with the former owner of the Predecessor Business, the Company may sell personal protective equipment under the uvex(R) brand name only in North, Central and South America. The agreement also prohibits the Company from selling sports products such as sunglasses or protective eyewear for sports activities under the uvex(R) brand name regardless of geographic area. Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of trade receivables. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company estimates an allowance for doubtful accounts based on the credit worthiness of its customers as well as general economic conditions. Consequently, an adverse change in those factors could affect the Company's estimate. The allowance for doubtful accounts was $944,638 at December 31, 1997 and $791,531 at December 31, 1996. There were no sales to any individual customer during either of the years ended December 31, 1997 or 1996 that represented 10% or more of consolidated sales. The Company had sales to two customers that individually totaled approximately $8,800,000 and $7,300,000, respectively, during the year ended July 31, 1995, or 12% and 10%, respectively, of total sales during that period. 25 28 BACOU USA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (d) Inventories Inventories are stated at the lower of cost (first-in, first-out) or market (net realizable value). Inventories include the cost of raw materials, direct labor and manufacturing overhead. (e) Property and Equipment Property and equipment are stated at cost, except for property and equipment acquired in connection with purchase business combinations, which are recorded at fair value on the acquisition date. Assets to be disposed of are reported at the lower of carrying amount or estimated fair value less costs to sell. Depreciation is provided over the estimated useful lives of the respective assets using the straight-line method. Leasehold improvements are amortized over the shorter of the lease term or estimated useful life of the asset. (f) Intangible Assets Intangible assets consist principally of customer relationships, acquired technology, and goodwill. Goodwill represents the excess of purchase price over fair value of net assets acquired in connection with purchase business combinations. Intangible assets are amortized using the straight-line method over the estimated periods benefited. The Company evaluates impairment of intangible assets annually, or more frequently if events or changes in circumstances indicate that carrying amounts may no longer be recoverable. Goodwill associated with assets acquired in a purchase business combination is included in impairment evaluations when events or circumstances exist that indicate the carrying amount of those assets may not be recoverable. Recoverability of intangible assets is determined based upon the excess of carrying amounts over expected future net cash flows (undiscounted) of the underlying business or product line. The assessment of the recoverability of intangible assets will be impacted if estimated future net cash flows are not achieved. (g) Income Taxes The Company accounts for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (h) Foreign Currency The Company periodically enters into forward foreign exchange contracts in connection with raw material purchases denominated in foreign currencies. Other than these contracts, the Company has no other involvement with derivative financial instruments. Transaction gains and losses on these contracts are included in determining operating income and were not material during any period presented in the accompanying financial statements. The Company had no open currency contracts at December 31, 1997. (i) Employee Benefit Plans The Company sponsors various defined contribution plans that cover substantially all employees. The Company also sponsors a defined benefit pension plan for bargaining unit employees, which is funded in accordance with the requirements of the Employee Retirement Income Security Act, and has assets that consist principally of bank mutual funds. Pursuant to certain stock incentive plans, the Company has granted 26 29 BACOU USA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) stock options to key employees and directors. The Company accounts for stock option grants using the intrinsic value based method. (j) Earnings Per Share Effective December 31, 1997 the Company adopted the provisions of Statement of Financial Accounting Standard No. 128, "Earnings Per Share," (Statement 128). Statement 128 requires dual presentation of basic earnings per share and diluted earnings per share. Basic earnings per share is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed by increasing the weighted-average number of common shares by the dilutive potential common shares that were outstanding during the period. The provisions of Statement 128 have been applied retroactively to all periods presented. Dilutive potential common shares during all periods presented were limited to the effect of outstanding stock options determined by application of the treasury stock method. Dilutive stock options included in the computation of diluted earnings per share totaled 27,597 in 1997 and 30,103 in 1996. Common stock that is contingently issuable to the former stockholders of Biosystems (see note 2), and the effect of written put options, could each potentially result in dilution of basic earnings per share in the future. These securities were not included in the computation of diluted earnings per share during 1997 because all necessary conditions for issuance of contingent shares had not been satisfied and because the effect of written put options was antidilutive. In April 1996 the Company completed a public offering of its common stock. Proceeds from the sale of 3,450,000 shares were used to repay outstanding bank indebtedness. Assuming the aforementioned sale of common stock and repayment of debt occurred effective January 1, 1996, supplementary basic and diluted earnings per share for the year ended December 31, 1996 would have been $1.15 based upon 17,312,200 weighted average shares outstanding. (k) Financial Instruments Financial instruments of the Company at December 31, 1997 consist of cash, accounts receivable and accounts payable. The carrying amounts of these financial instruments approximate their fair value. (l) Use of Estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. (m) Change in Fiscal Year Effective August 1, 1995, the Company elected to change its fiscal year end from July 31 to December 31. The consolidated results of operations and cash flows for the five months ended December 31, 1995 are not necessarily indicative of results that would be expected for a full year. (2) ACQUISITIONS (a) 1997 Acquisitions On May 30, 1997 the Company completed its acquisition of Comasec Holdings, Inc. (Comasec) and its wholly-owned subsidiary Survivair, Inc. (Survivair), a manufacturer of air purifying and supplied air respiratory protection products. The acquisition was effected through merger and redemption transactions which have been accounted for as a purchase of all of the outstanding common stock of Comasec for $27.4 million in cash, subject to certain closing adjustments. 27 30 BACOU USA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) On September 30, 1997 the Company completed its acquisition of Biosystems, Inc. (Biosystems), a manufacturer of gas monitors and equipment for testing self-contained breathing apparatus. The Company acquired all of the outstanding common stock of Biosystems for an initial price of approximately $13.5 million and payable in common stock of the Company. The Company has issued 826,514 shares of its common stock, having a fair value of approximately $13.5 million, in connection with the acquisition of Biosystems. Shares equal to 70 percent of the total shares issued are subject to a put option. The put option is exercisable at any time within 24 months following the closing date at a price equal to approximately $16 3/8 per share. If the put options were exercised in full, the Company would be obligated to repurchase shares at a value totaling approximately $9.5 million. In addition to the initial price, the Company may be obligated to pay additional amounts if the operating results of Biosystems in the year 2000 exceed certain defined thresholds. Additional payments, if any, are payable in common shares of the Company, except that the sellers may elect to receive up to $12.0 million in cash. In accordance with generally accepted accounting principles, the cash paid and fair value of common stock issued to effect these acquisitions has been allocated to the fair value of assets purchased and liabilities assumed. In each case, the excess of acquisition price over fair value of net assets acquired has been recorded as goodwill and is being amortized over 40 years. Amounts recorded as goodwill are subject to change based on the resolution of various outstanding closing adjustments and in the case of Biosystems, as a result of additional payments that may be made if operating results in the year 2000 exceed defined thresholds. The fair value of purchased in-process research and development was $1.3 million for Survivair and $2.4 million for Biosystems and has been charged to operating expenses at the respective dates of acquisition. The purchase price for these acquisitions has been allocated approximately as shown in the following table.
SURVIVAIR BIOSYSTEMS COMBINED --------- ---------- -------- Working capital................................ $ 4,000,000 $1,000,000 $ 5,000,000 Property and equipment......................... $ 6,100,000 $ 700,000 $ 6,800,000 Identifiable intangible assets................. $ 4,300,000 $3,300,000 $ 7,600,000 Purchased in-process research and development.................................. $ 1,300,000 $2,400,000 $ 3,700,000 Goodwill....................................... $11,700,000 $6,100,000 $17,800,000
The acquisitions have been accounted for as purchases and, accordingly, operating results of the acquired companies have been included in the accompanying financial statements of the Company beginning with the respective acquisition dates. The following table presents pro forma results of operations of the Company as if these acquisitions had occurred as of January 1, 1996. The pro forma operating results include results of operations for the indicated periods with adjusted depreciation on property and equipment, increased amortization of intangible assets, assumed interest expense on the cash purchase price, and increased weighted shares outstanding for shares issued in connection with the acquisitions. Non-recurring charges resulting from the acquisitions have been excluded from the pro forma results. The pro forma information given is unaudited, does not purport to be indicative of the results that actually would have been obtained if the operations were combined during the periods presented, and is not intended to be a projection of future results or trends.
YEAR ENDED DECEMBER 31, --------------------------- 1997 1996 ---- ---- Net sales..................................... $156,000,000 $154,000,000 Net income.................................... $ 20,900,000 $ 20,000,000 Basic and diluted earnings per share.......... $ 1.16 $ 1.16
(b) Subsequent Event Effective February 27, 1998, the Company acquired substantially all assets and assumed substantially all liabilities of Howard S. Leight & Associates, Inc. d/b/a Howard Leight Industries, a California corporation with its principal business location in San Diego, California, for cash consideration of approximately 28 31 BACOU USA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) $120.0 million. Howard Leight Industries is a manufacturer of hearing protection products including disposable ear plugs, reusable ear plugs and ear muffs and had net sales that totaled $46.5 million and $37.6 million for the years ended December 31, 1997 and 1996, respectively. The acquisition was financed by proceeds from bank debt (see Note 7) and will be accounted for as a purchase. Operating results of Howard Leight Industries will be included in the consolidated financial statements of the Company beginning with the acquisition date. (3) INVENTORIES Inventories consist of the following at December 31:
1997 1996 ---- ---- Raw materials and supplies...................... $ 8,571,663 $ 6,005,983 Work-in-process................................. 4,453,527 2,092,083 Finished goods.................................. 10,424,155 9,385,352 ----------- ----------- $23,449,345 $17,483,418 =========== ===========
(4) PROPERTY AND EQUIPMENT Property and equipment consist of the following at December 31:
ESTIMATED USEFUL LIVES (YEARS) 1997 1996 ------------- ---- ---- Machinery and equipment................................ 5-10 $22,058,579 $16,827,422 Dies and molds......................................... 5 10,518,703 6,517,980 Building and leasehold improvements.................... 10-40 8,345,242 7,040,658 Furniture and fixtures................................. 10 1,524,396 987,616 Computer equipment..................................... 5 2,115,421 1,597,189 Vehicles............................................... 3 132,438 170,020 Deposits on equipment.................................. 2,770,960 1,123,721 ----------- ----------- 47,465,739 34,264,606 Less accumulated depreciation and amortization......... 11,585,476 7,195,477 ----------- ----------- $35,880,263 $27,069,129 =========== ===========
Depreciation and amortization of property and equipment totaled $4,522,776 in 1997, $3,472,171 in 1996 and $1,236,430 during the fiscal year ended July 31, 1995. (5) INTANGIBLE ASSETS Intangible assets include the following at December 31:
ESTIMATED USEFUL LIVES (YEARS) 1997 1996 ------------- ---- ---- Customer relationships................................. 10-20 $19,523,000 $19,523,000 Acquired technology.................................... 9-17 17,568,354 10,002,000 Goodwill............................................... 20-40 46,321,064 26,342,764 ----------- ----------- 83,412,418 55,867,764 Less accumulated amortization.......................... 12,694,264 8,598,800 ----------- ----------- $70,718,154 $47,268,964 =========== ===========
29 32 BACOU USA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Amounts for identifiable intangible assets shown above generally were determined by independent valuation at the respective acquisition dates. (6) INCOME TAXES Total federal and state income tax expense consists of the following:
CURRENT DEFERRED TOTAL ------- -------- ----- Fiscal year ended December 31, 1997: Federal............................................. $ 9,600,000 $(259,000) $ 9,341,000 State............................................... 1,277,000 (30,000) 1,247,000 ----------- --------- ----------- $10,877,000 $(289,000) $10,588,000 =========== ========= =========== Fiscal year ended December 31, 1996: Federal............................................. $10,104,770 $ 603,900 $10,708,670 State............................................... 1,383,460 109,800 1,493,260 ----------- --------- ----------- $11,488,230 $ 713,700 $12,201,930 =========== ========= =========== Five months ended December 31, 1995: Federal............................................. $ 2,300,000 $ 82,298 $ 2,382,298 State............................................... 515,000 19,386 534,386 ----------- --------- ----------- $ 2,815,000 $ 101,684 $ 2,916,684 =========== ========= =========== Fiscal year ended July 31, 1995: Federal............................................. $ 6,839,000 $ 338,000 $ 7,177,000 State............................................... 1,034,000 132,000 1,166,000 ----------- --------- ----------- $ 7,873,000 $ 470,000 $ 8,343,000 =========== ========= ===========
Actual income tax expense differs from the expected income tax expense (computed by applying the statutory U.S. Federal corporate income tax rate to income before income taxes) as follows:
YEARS ENDED FIVE MONTHS DECEMBER 31, ENDED -------------------------- DECEMBER 31, YEAR ENDED 1997 1996 1995 JULY 31, 1995 ---- ---- ------------ ------------- Computed expected tax expense.......... $ 8,753,626 $11,052,567 $2,531,599 $ 7,489,259 State income taxes, net of federal income tax benefit................... 810,550 970,618 347,351 757,773 Non-deductible purchased in-process re- search and development............... 1,302,230 -- -- -- Net tax benefit of foreign sales corporation.......................... (187,152) -- -- -- Other.................................. (91,254) 178,745 37,734 95,968 ----------- ----------- ---------- ----------- $10,588,000 $12,201,930 $2,916,684 $ 8,343,000 =========== =========== ========== =========== Effective rate......................... 42.3% 38.6% 40.3% 39.0% =========== =========== ========== ===========
30 33 BACOU USA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The tax effects of temporary differences that generate deferred tax assets and liabilities at December 31 are presented below:
1997 1996 ---- ---- Deferred tax assets: Allowance for doubtful accounts.................. $ 326,000 $ 218,500 Inventory related items.......................... 916,500 632,700 Pension and compensation related expenses........ 412,000 276,900 Accrued costs.................................... 719,000 -- Other............................................ 481,000 370,900 ---------- ---------- Total gross deferred tax assets............. 2,854,500 1,499,000 Less valuation allowance.................... -- -- ---------- ---------- Net deferred tax assets..................... 2,854,500 1,499,000 ---------- ---------- Deferred tax liabilities: Excess of tax over financial statement depreciation................................... 3,012,000 2,647,200 Difference in basis of acquired assets........... 4,375,000 -- Other............................................ 93,000 173,800 ---------- ---------- Total deferred tax liabilities.............. 7,480,000 2,821,000 ---------- ---------- Net deferred tax liability.................. $4,625,500 $1,322,000 ========== ==========
(7) LONG-TERM DEBT (a) December 31, 1997 At December 31, 1997 the Company maintained a $28.0 million Revolving Line of Credit (the "Revolving Facility") and a subsidiary maintained a $3.0 million line of credit (the "Subsidiary Facility"), both with Citizens Bank of Rhode Island. In February 1998, the Company terminated the Subsidiary Facility and increased the Revolving Facility to $31.0 million. The Revolving Facility is available to fund acquisitions and for other general corporate purposes. Principal outstanding under the Revolving Facility is due in full on May 31, 2000 and bears interest at a rate per annum equal to three month LIBOR plus 0.7%. The Revolving Facility is subject to annual renewal thereafter and is also subject to various financial and other covenants. (b) Subsequent Event In February 1998 the Company entered into a Credit Line Agreement with Banque Nationale de Paris (the "BNP Credit Line"). The BNP Credit Line provides for borrowings in the amount of $110.0 million for the purpose of financing the acquisition of Howard Leight Industries, bears interest at an annual rate equal to three month LIBOR plus 0.3%, requires principal repayments in equal quarterly installments over seven years, and requires interest payments quarterly. In addition, the Company is required to pay quarterly a commitment fee equal to 0.2% per annum on the outstanding balance. In connection with the acquisition of Howard Leight Industries the Company borrowed $14.3 million under the Revolving Facility and $110.0 million under the BNP Credit Line. (8) COMMITMENTS AND CONTINGENCIES The Company leases production, office and warehouse space, and certain equipment under non-cancelable operating leases. Minimum future rentals under noncancellable operating leases, by year, are approximately as follows: 1998 - -$1,283,000; 1999 - $1,131,000; 2000 - $1,070,000; 2001 - $999,000; 2002 - $905,000 and thereafter - $920,000. Rent expense totaled approximately $1,522,000 in 1997, $1,015,000 in 1996 and $635,000 for the fiscal year ended July 31, 1995. 31 34 BACOU USA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Outstanding commitments as of December 31, 1997 for the purchase of machinery and equipment were approximately $1,100,000. The Company had outstanding letters of credit equal to approximately $626,000 at December 31, 1997 which were necessary in order to secure business with certain foreign vendors. The Company is currently involved in litigation incidental to its business, which the Company believes is without merit or is adequately covered by insurance. In the opinion of management, the ultimate resolution of such litigation will not have a significant effect on the Company's financial position, results of operations or cash flows. (9) RELATED PARTY TRANSACTIONS As disclosed in note 1, Bacou, S.A. owns a controlling interest in the Company. The Company has periodically had indebtedness outstanding with Bacou, S.A. Interest paid to Bacou, S.A. during the year ended July 31, 1995 and the five months ended December 31, 1995 totaled $883,724 and $409,155, respectively. No such indebtedness was outstanding and no interest was paid to Bacou, S.A. during 1996 and 1997. Obligations outstanding in 1995 and the first quarter of 1996 under certain loan agreements with Banque Nationale de Paris were guaranteed by Bacou S.A. The Company purchases certain inventory items from wholly-owned subsidiaries of Bacou, S.A. These purchases totaled $207,000 in 1997, $625,000 in 1996 and $1,592,000 for the fiscal year ended July 31, 1995. (10) EMPLOYEE BENEFIT PLANS (a) Defined Contribution Plans The Company sponsors various defined contribution plans for all eligible employees. Employer contribution expense totaled approximately $453,000 in 1997, $212,000 in 1996 and $91,000 for the fiscal year ended July 31, 1995. (b) Defined Benefit Plan The Company sponsors a defined benefit pension plan covering bargaining unit employees. Benefits are based on years of service times a predetermined monthly amount. The Company's policy is generally to fund the minimum required contribution subject to any full funding limitation. Assumptions used to develop the projected benefit obligation in 1996 and 1997, were a discount rate of 7.75% and a long-term rate of return on assets of 8.5%. The following table sets forth the funded status of the plan at December 31:
1997 1996 ---- ---- Projected benefit obligation.................. $(1,410,301) $(1,238,952) Plan assets at fair value..................... 843,302 664,151 Unrecognized gain............................. (2,931) (13,519) ----------- ----------- Accrued pension cost.......................... $ (569,930) $ (588,320) =========== ===========
The amount of the accumulated and vested benefit obligations approximate the projected benefit obligation. Periodic pension cost during the years ended December 31, 1997 and 1996 consists of the following:
1997 1996 ---- ---- Service cost....................................... $ 47,730 $ 47,854 Interest cost...................................... 95,738 87,717 Actual return on assets............................ (89,090) (62,189) Net amortization and deferral...................... 32,945 16,226 -------- -------- Periodic pension cost.............................. $ 87,323 $ 89,608 ======== ========
32 35 BACOU USA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (c) Stock Option Plans Effective February 26, 1996 the Company adopted the Bacou USA, Inc. 1996 Stock Incentive Plan (the "Employee Plan"). The Employee Plan provides for stock-based incentive awards to be granted to key employees, including incentive stock options, non-qualified stock options, restricted stock, stock appreciation rights and stock unit awards. In the aggregate, 900,000 shares of common stock have been reserved for issuance under the Employee Plan. Options granted under the Employee Plan generally become fully vested after four years from the date of grant and have a ten year term. On May 23, 1996 the Board of Directors approved and adopted the Bacou USA, Inc. 1996 Non-Employee Director Stock Option Plan (the "Director Plan"). Initially the Director Plan provided that on July 1 of each year, each eligible director would automatically be granted an option to purchase 2,000 shares of the Company's common stock. As a result, options to purchase 8,000 shares were granted on July 1, 1996. On February 24, 1997, the Director Plan was amended to permit the Board of Directors to grant options at their discretion. On that date, the Board of Directors granted options to purchase 92,000 shares under the Plan. The option exercise prices were equal to the fair market value of the common stock on the dates of grant and options vested immediately (except for options granted July 1, 1996 which vested on August 1, 1996). Stock option activity is as follows:
1997 1996 ------------------------------ ------------------------------ NUMBER OF WEIGHTED AVERAGE NUMBER OF WEIGHTED AVERAGE SHARES EXERCISE PRICE SHARES EXERCISE PRICE --------- ---------------- --------- ---------------- Balance outstanding at beginning of year.................................. 388,700 $15.13 -- $ -- Granted................................. 235,000 15.35 405,000 15.12 Exercised............................... (6,400) 15.00 (2,200) 15.00 Canceled................................ (39,400) 15.00 (14,100) 15.00 ------- ------ ------- ------ Balance outstanding at end of year...... 577,900 $15.23 388,700 $15.13 ======= ====== ======= ====== Balance exercisable at end of year...... 299,200 $15.26 80,300 $15.27 ======= ====== ======= ======
The Company accounts for stock option grants using the intrinsic value method and, accordingly, no compensation cost has been recognized for its stock options in the financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options, the Company's net income, and earnings per share (basic and diluted), would have been reduced to $13,362,458 or $0.77 per share in 1997 and $18,760,833 or $1.14 per share in 1996. The per share weighted-average fair value of stock options granted was $6.73 in 1997 and $7.64 in 1996 using the Black Scholes option pricing model with the following weighted-average assumptions: expected dividend yield 0.0%, risk-free interest rate of 5.75% in 1997 and 6.10% in 1996, expected volatility of 0.40 in 1997 and 0.50 in 1996 and an expected life of 5 years in 1997 and 6 years in 1996. The Company's historical volatility from March 27, 1996 (the date of its initial public offering) through December 31, 1997 was approximately 0.38. (11) STOCK SPLIT In connection with the Company's initial public offering of shares of common stock, preferred stock was authorized, the number of authorized shares of common stock was increased from 1,000 to 25,000,000 shares and the par value of such shares was stated as $.001. On February 26, 1996, the Company effected a 13,860-for-1 split of its issued and outstanding common stock. All share and per share data presented in the accompanying consolidated financial statements have been restated to reflect the increased number of authorized and outstanding shares of common stock. 33 36 BACOU USA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (12) QUARTERLY FINANCIAL DATA (UNAUDITED) Following is a summary of quarterly operating results and share data. Quarterly information shown below does not vary from amounts reported on any Form 10-Q previously filed by the Company. There were no dividends paid or declared during 1997 and 1996, and the Company anticipates that it will continue to retain earnings for use in its business and not pay cash dividends for the foreseeable future. The Company completed its acquisition on May 30, 1997 of Survivair, Inc. and on September 30, 1997 of Biosystems, Inc. Acquisition- related charges incurred during 1997 and included below totaled $1.8 million in the second quarter, $3.2 million in the third quarter, $0.9 million in the fourth quarter and $5.9 million for the full year. On an after-tax basis these charges totaled $1.7 million in the second quarter, $2.9 million in the third quarter, $0.5 million in the fourth quarter and $5.1 million for the full year. There were no non-recurring charges during 1996.
QUARTER ----------------------------------------------------- FIRST SECOND THIRD FOURTH FULL YEAR ----- ------ ----- ------ --------- 1997 Net sales................................ $26,380,441 $32,330,445 $35,744,384 $36,413,216 $130,868,486 Gross profit............................. 13,998,493 17,468,989 17,803,185 17,131,054 66,401,721 Income before income taxes............... 6,650,543 7,605,669 5,372,398 5,381,751 25,010,361 Net income............................... 4,131,953 4,245,062 2,453,456 3,591,890 14,422,361 Earnings per share: Basic................................ $ 0.24 $ 0.24 $ 0.14 $ 0.21 $ 0.83 Diluted.............................. $ 0.24 $ 0.24 $ 0.14 $ 0.21 $ 0.83 Market price: High................................. 16 5/8 16 1/4 18 18 1/2 18 1/2 Low.................................. 15 14 3/4 15 3/4 17 14 3/4 1996 Net sales................................ $26,287,840 $28,806,454 $29,319,047 $24,854,323 $109,267,664 Gross profit............................. 14,563,101 16,581,071 16,883,390 13,885,490 61,913,052 Income before income taxes............... 6,731,314 9,213,895 9,189,053 6,444,501 31,578,763 Net income............................... 4,106,227 5,648,582 5,655,533 3,966,491 19,376,833 Earnings per share: Basic................................ $ 0.30 $ 0.33 $ 0.33 $ 0.22 $ 1.18 Diluted.............................. $ 0.30 $ 0.33 $ 0.33 $ 0.22 $ 1.18 Market price: High................................. 19 1/2 18 7/8 17 19 1/2 Low.................................. 15 16 1/2 15 1/2 15
34 37 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT "Election of Directors," "Compensation of Directors and Officers," and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's proxy statement for the Company's 1998 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission on or before April 30, 1998 are hereby incorporated by reference. ITEM 11. EXECUTIVE COMPENSATION "Compensation of Directors and Officers" in the Company's proxy statement for the Company's 1998 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission on or before April 30, 1998 is hereby incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT "Introduction" and "Security Ownership of Certain Beneficial Owners and Management" in the Company's proxy statement for the Company's 1998 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission on or before April 30, 1998 are hereby incorporated by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS "Certain Transactions" in the Company's proxy statement for the Company's 1998 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission on or before April 30, 1998 is hereby incorporated by reference. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. List of Financial Statements The following financial statements are included in Item 8 herein: Independent Auditors' Report on Consolidated Financial Statements Consolidated Balance Sheets Consolidated Statements of Income Consolidated Statements of Stockholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements (a) 2. Financial Statement Schedules Schedule II Valuation and Qualifying Accounts All other schedules are omitted, since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements, and notes thereto. Independent Auditors' Report on Financial Statement Schedule 35 38 (a) 3. Exhibits FORM 10-K EXHIBITS INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 2.1 -- Stock Purchase Agreement dated as of April 14, 1997 among Bacou S.A. and Francis Berend, Pierre Alain Berend, Philippe Berend, Pascal Berend and the other sellers parties thereto (incorporated by reference to Exhibit 2(a) of the Company's Form 8-K filed May 12, 1997) 2.2 -- Agreement dated April 14, 1997 between Bacou S.A. and Bacou USA, Inc. (incorporated by reference to Exhibit 2(b) of the Company's Form 8-K filed May 12, 1997) 2.3 -- First Amendment to Stock Purchase Agreement dated May 30, 1997 (incorporated by reference to Exhibit 2 (c) of the Company's Form 8-K filed June 16, 1997) 2.4 -- Stock Redemption Agreement dated May 30, 1997 between Comasec International, S.A. and Pro-Tech Respirators, Inc. (incorporated by reference to Exhibit 2 (d) of the Company's Form 8-K filed June 16, 1997) 2.5 -- Agreement and Plan of Merger dated as of September 30, 1997 by and among Bacou USA, Inc., ISH Transaction, Inc., Biosystems, Inc. and the Shareholders of Biosystems, Inc. (incorporated by reference to Exhibit 2 (a) of the Company's Form 8-K filed October 15, 1997) 2.6 -- Asset Purchase Agreement dated December 31, 1997 between Bacou USA Safety, Inc. and Howard S. Leight & Associates, Inc. (d/b/a Howard Leight Industries) (incorporated by reference to Exhibit 2 (a) of the Company's Form 8-K filed on March 13, 1998) 2.7 -- Letter Agreement by and between Howard S. Leight and Bacou USA, Inc. (incorporated by reference to Exhibit 2 (b) of the Company's Form 8-K filed on March 13, 1998) 2.8 -- Letter Agreement by and among Howard S. Leight, Bacou S.A. and Engineering Bacou S.A. (incorporated by reference to Exhibit 2 (c) of the Company's Form 8-K filed on March 13, 1998) 2.9 -- First Amendment to Asset Purchase Agreement dated February 27, 1998 (incorporated by reference to Exhibit 2 (d) of the Company's Form 8-K filed on March 13, 1998) 2.10 -- Stock Purchase Agreement dated February 27, 1998 among Bacou USA Safety, Inc., Howard S. Leight & Associates, Inc. (d/b/a Howard Leight Industries), Howard S. Leight and John Dean (incorporated by reference to Exhibit 2 (e) of the Company's Form 8-K filed on March 13, 1998) 2.11 -- Stock Purchase Agreement dated February 27, 1998 among Bacou USA Safety, Inc., Howard S. Leight & Associates, Inc. (d/b/a Howard Leight Industries) and Howard S. Leight (incorporated by reference to Exhibit 2 (f) of the Company's Form 8-K filed on March 13, 1998) 3.1 -- Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3 (a) of the Company's Registration Statement filed on Form S-1 (Commission File No. 333-00470) (the "Company's Registration Statement")) 3.2 -- By-Laws (incorporated by reference to Exhibit 3(b) of the Company's Registration Statement)
36 39
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 4.1 -- Revolving Line of Credit Agreement dated May 21, 1997 by and between Bacou USA, Inc. and Citizens Bank of Rhode Island (incorporated by reference to Exhibit 4 (a) of the Company's Form 10-Q filed August 14, 1997) 4.2 -- First Amendment to Revolving Line of Credit Agreement by and between Bacou USA, Inc. and Citizens Bank of Rhode Island (incorporated by reference to Exhibit 4 (c) of the Company's Form 10-Q filed August 14, 1997) 4.3 -- Second Amendment and Agreement to Revolving Line of Credit Agreement between Bacou USA, Inc. and Citizens Bank of Rhode Island 4.4 -- First Amendment and Agreement to Revolving Credit Note between Bacou USA, Inc. and Citizens Bank of Rhode Island 4.5 -- Credit Line Agreement by and between Bacou USA, Inc. and Banque Nationale de Paris dated February 19, 1998 (incorporated by reference to Exhibit 10 (a) of the Company's Form 8-K filed on March 13, 1998) 10.1.1* -- Employment Agreement dated as of January 1, 1996 by and between the Company and Walter Stepan (incorporated by reference to Exhibit 10 (w) of Company's Registration Statement) 10.1.2* -- First Amendment to Employment Agreement with Walter Stepan (incorporated by reference to Exhibit 4 (g) of Company's Form 10-Q filed November 14, 1997) 10.2.1* -- Employment Agreement dated May 8, 1995 by and between the Company and Philip B. Barr (incorporated by reference to Exhibit 10 (b) of Company's Registration Statement) 10.2.2* -- First Amendment to Employment Agreement with Philip B. Barr (incorporated by reference to Exhibit 10 (x) to Amendment No. 1 to the Company's Registration Statement) 10.2.3* -- Second Amendment to Employment Agreement with Philip B. Barr (incorporated by reference to Exhibit 10 (y) to Amendment No. 1 to the Company's Registration Statement) 10.2.4* -- Third Amendment to Employment Agreement with Philip B. Barr (incorporated by reference to Exhibit 4 (h) of the Company's Form 10-Q filed November 14, 1997) 10.3* -- Employment Agreement dated January 1, 1996 by and between Uvex Safety and Harry D. Neff (incorporated by reference to Exhibit 10 (c) of Company's Registration Statement) 10.4* -- Employment Agreement dated January 1, 1996 by and between Uvex Safety and Raymond R. Baker (incorporated by reference to Exhibit 10 (d) of Company's Registration Statement) 10.5* -- Employment Agreement dated January 1, 1996 by and between Uvex Safety and Steven P. Tolisano (incorporated by reference to Exhibit 10 (e) of Company's Registration Statement) 10.6* -- Officer Incentive Agreement by and between Harry D. Neff and Pro-Tech (incorporated by reference to Exhibit 10 (f) of Company's Registration Statement) 10.7* -- Employment Agreement dated December 31, 1996 between Titmus Optical, Inc. and Michael Mancuso (incorporated by reference to Exhibit 10 (i) of the Company's Form 10-K filed March 31, 1997) 10.8* -- Employment Agreement dated December 19, 1997 between Titmus Optical, Inc. and Richard J. Masters (incorporated by reference to Exhibit 10 (j) of the Company's Form 10-K filed March 31, 1997) 10.9.1* -- Employment Agreement dated October 1, 1995 by and between Titmus Optical, Inc. and Thomas J. Goeltz (incorporated by reference to Exhibit 10 (k) (1) of the Company's Form 10-K filed March 31, 1997) 10.9.2* -- First Amendment to Employment Agreement dated December 18, 1996 between Titmus Optical, Inc. and Thomas Goeltz (incorporated by reference to Exhibit 10 (k) (2) of the Company's Form 10-K filed March 31, 1997)
37 40
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 10.10* -- Employment Agreement dated January 1, 1996 by and between Uvex Safety and Philip M. Johnson (incorporated by reference to Exhibit 10 (l) of the Company's Form 10-K filed March 31, 1997) 10.11* -- Employment Agreement dated January 1, 1996 by and between Uvex Safety and Richard Sustello (incorporated by reference to Exhibit 10 (m) of the Company's Form 10-K filed March 31, 1997) 10.12* -- Employment Agreement dated May 30, 1997 between Survivair, Inc. and Jack Bell (incorporated by reference to Exhibit 4 (a) of the Company's Form 10-Q filed November 14, 1997) 10.13* -- Employment Agreement dated May 30, 1997 between Survivair, Inc. and Robert Hitchcock (incorporated by reference to Exhibit 4 (b) of the Company's Form 10-Q filed November 14, 1997) 10.14* -- Employment Agreement dated May 30, 1997 between Survivair, Inc. and Stephen E. Wiser (incorporated by reference to Exhibit 4 (c) of the Company's Form 10-Q filed November 14, 1997) 10.15* -- Employment Agreement dated October 1, 1997 between Biosystems, Inc. and Jack Burt (incorporated by reference to Exhibit 4 (d) of the Company's Form 10-Q filed November 14, 1997) 10.16* -- Employment Agreement dated October 1, 1997 between Biosystems, Inc. and Joseph Burt (incorporated by reference to Exhibit 4 (e) of the Company's form 10-Q filed November 14, 1997) 10.17* -- Employment Agreement dated October 1, 1997 between Biosystems, Inc. and Jeffrey M. Whynall (incorporated by reference to Exhibit 4 (f) of the Company's Form 10-Q filed November 14, 1997) 10.18* -- Employment Agreement dated February 27, 1998 between Bacou USA Safety, Inc. and John Dean (incorporated by reference to Exhibit 99 (a) of the Company's Form 8-K filed on March 13, 1998) 10.19* -- Employment Agreement dated February 27, 1998 between Bacou USA Safety, Inc. and Robert Hanover (incorporated by reference to Exhibit 99 (b) of the Company's Form 8-K filed on March 13, 1998) 10.20* -- Employment Agreement dated February 27, 1998 between Bacou USA Safety, Inc. and Ken David Meyers (incorporated by reference to Exhibit 99 (c) of the Company's Form 8-K filed on March 13, 1998) 10.21* -- Employment Agreement dated February 27, 1998 between Bacou USA Safety, Inc. and Thomas A. Wagner (incorporated by reference to Exhibit 99 (d) of the Company's Form 8-K filed on March 13, 1998) 10.22* -- Employment Agreement dated February 17, 1998 between Titmus Optical, Inc. and Bradford L. Brooks 10.23 -- Registration Rights Agreement dated July 31, 1994 by and between Walter Stepan and the Company (incorporated by reference to Exhibit 10 (h) (i) of Company's Registration Statement) 10.24 -- Form of Registration Rights Agreement dated February , 1996 among the Principal Stockholder Figa, S.A., Walter Stepan, Heidemarie Stepan, Bettina Stepan, Axel Stepan and the Company (incorporated by reference to Exhibit 10 (i) to Amendment No. 1 of Company's Registration Statement) 10.25 -- Registration Rights Agreement dated September 30, 1997 by and among Bacou USA, Inc. and each person identified therein (incorporated by reference to Exhibit 2 (b) of the Company's Form 8-K filed October 15, 1997) 10.26 -- Corporate Opportunities Agreement dated as of January 1, 1996 between the Principal Stockholder and the Company (incorporated by reference to Exhibit 10 (j) of Company's Registration Statement)
38 41
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 10.27 -- Amended and Restated Agreement of Transfer, Trademarks, Know-How and Related Matters dated November 2, 1995 by and among Uvex Winter Optik GmbH, Uvex Arbeitsschutz GmbH & Co., KG, Uvex Winter Optical, Inc. and Uvex Safety (incorporated by reference to Exhibit 10 (k) of Company's Registration Statement) 10.28 -- License Agreement dated June 1, 1986 between Uvex Winter Optik GmbH and Uvex Winter Optical, Inc., as amended by a First Amendment dated October 31, 1994 (incorporated by reference to Exhibit 10 (l) of Company's Registration Statement) 10.29 -- License Agreement dated July 1, 1992 between Uvex Winter Optik GmbH and Uvex Winter Optical, Inc., as amended by a First Amendment dated October 31, 1994 (incorporated by reference to Exhibit 10 (m) of Company's Registration Statement) 10.30 -- Cooperation Agreement among Uvex Safety, Laservision GmbH, Uvex Winter Optik GmbH and Rupp & Hubrach KG dated March 18, 1991 (incorporated by reference to Exhibit 10 (n) of Company's Registration Statement) 10.31 -- Lease Agreement between Uvex Winter Optical, Inc. and Uvex Safety, LLC dated April 15, 1993, as amended by a First Amendment to Lease Agreement dated as of July 31, 1994, as further amended by a Second Amendment to Lease Agreement dated as of October 31, 1994, and as further amended by a Third Amendment to Lease Agreement dated July 14, 1995 (incorporated by reference to Exhibit 10 (o) of Company's Registration Statement) 10.32 -- Sales Agreement dated January 1, 1998 by and between Uvex Safety Manufacturing, Inc. and General Electric Company 10.33 -- Bacou USA, Inc. 1996 Stock Incentive Plan (incorporated by reference to Exhibit 10 (g) of the Company's Registration Statement) 10.34 -- Bacou USA, Inc. 1996 Non-Employee Director Stock Option Plan (incorporated by reference to Exhibit 10 (x) of the Company's Form 10-K filed March 31, 1997) 10.35 -- 1998 Howard S. Leight Stock Option Plan 10.36* -- Bonus Plan for Executives of Titmus Optical, Inc. and Uvex Safety, Inc. for 1996 and 1997 (incorporated by reference to Exhibit 10 (f) of the Company's Form 10-Q filed November 14, 1996) 10.37* -- Bonus Plan for John Dean for 1998 and 1999 10.38 -- Lease Agreement dated February 27, 1998 by and between Howard S. Leight and Bacou USA Safety, Inc. 10.39* -- Bonus Plan for Executives of Subsidiaries and Divisions of Bacou USA, Inc. for 1998 and 1999 10.40 -- Consultant Agreement dated as of February 27, 1998 between Howard S. Leight and Bacou USA Safety, Inc. (incorporated by reference to Exhibit 99 (e) of the Company's Form 8-K filed March 13, 1998) 11 -- Statement Re: Computation of Per Share Earnings 21 -- Subsidiaries of the Company 23 -- Accountants' Consent 27 -- Financial Data Schedule
- --------------- * Management contract or compensatory plan or arrangement (b) Reports on Form 8-K The registrant filed one report on Form 8-K during the quarterly period ended December 31, 1997. The report, dated September 30, 1997, was filed for the purpose of disclosing the closing of the acquisition of Biosystems, Inc. 39 42 SIGNATURES Pursuant to the requirements of Section 13 or 15(a) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the Town of Smithfield, State of Rhode Island, on this 27th day of March, 1998. BACOU USA, INC. By /s/ PHILIP B. BARR ------------------------------------ PHILIP B. BARR EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE --------- ----- /s/ WALTER STEPAN Vice Chairman, President, Chief Executive - ----------------------------------------------------- Officer, Director WALTER STEPAN /s/ PHILIP B. BARR Executive Vice President, Chief Financial - ----------------------------------------------------- Officer, Treasurer and Secretary, Director PHILIP B. BARR /s/ JEFFREY T. BROWN Corporate Controller and Chief - ----------------------------------------------------- Accounting Officer JEFFREY T. BROWN /s/ PHILIPPE BACOU Chairman of the Board, Director - ----------------------------------------------------- PHILIPPE BACOU /s/ CHRISTOPHE BACOU Director - ----------------------------------------------------- CHRISTOPHE BACOU /s/ KARL F. ERICSON Director - ----------------------------------------------------- KARL F. ERICSON /s/ HOWARD S. LEIGHT Director - ----------------------------------------------------- HOWARD S. LEIGHT /s/ HERBERT A. WERTHEIM Director - ----------------------------------------------------- HERBERT A. WERTHEIM
40 43 Item 14(a) 2. Financial Statement Schedules Financial Statement Schedule II Valuation and Qualifying Accounts
ADDITIONS ADDITIONS BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING COST AND OTHER END OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS(1) DEDUCTIONS(2) PERIOD ----------- ---------- ---------- ----------- ------------- ---------- Bad debt allowance Year ended July 31, 1995.......... $262,000 $114,865 $50,000 $31,865 $395,000 Five months ended December 31, 1995........................... 395,000 158,671 222,585 119,511 656,745 Year Ended December 31 1996....... 656,745 290,761 -- 155,975 791,531 Year ended December 31, 1997...... 791,531 210,765 208,756 266,414 944,638
- --------------- (1) Represents the beginning bad debt allowance of businesses acquired during the period. (2) Deductions consist of uncollectible accounts charged-off during the period, net of recoveries. All other schedules for which provisions are made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions, are inapplicable or not material and therefore have been omitted. 41 44 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Bacou USA, Inc.: Under date of February 17, 1998, except as to notes 2 (b) and 7 (b) which are as of February 27, 1998, we reported on the consolidated balance sheets of Bacou USA, Inc. and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income, stockholders' equity, and cash flows for the fiscal years ended December 31, 1997 and 1996 as contained in the annual report on Form 10-K for the year 1997. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule included in the Form 10-K. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG PEAT MARWICK LLP Providence, Rhode Island February 17, 1998 42 45 EXHIBITS INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 2.1 -- Stock Purchase Agreement dated as of April 14, 1997 among Bacou S.A. and Francis Berend, Pierre Alain Berend, Philippe Berend, Pascal Berend and the other sellers parties thereto (incorporated by reference to Exhibit 2(a) of the Company's Form 8-K filed May 12, 1997) 2.2 -- Agreement dated April 14, 1997 between Bacou S.A. and Bacou USA, Inc. (incorporated by reference to Exhibit 2(b) of the Company's Form 8-K filed May 12, 1997) 2.3 -- First Amendment to Stock Purchase Agreement dated May 30, 1997 (incorporated by reference to Exhibit 2 (c) of the Company's Form 8-K filed June 16, 1997) 2.4 -- Stock Redemption Agreement dated May 30, 1997 between Comasec International, S.A. and Pro-Tech Respirators, Inc. (incorporated by reference to Exhibit 2 (d) of the Company's Form 8-K filed June 16, 1997) 2.5 -- Agreement and Plan of Merger dated as of September 30, 1997 by and among Bacou USA, Inc., ISH Transaction, Inc., Biosystems, Inc. and the Shareholders of Biosystems, Inc. (incorporated by reference to Exhibit 2 (a) of the Company's Form 8-K filed October 15, 1997) 2.6 -- Asset Purchase Agreement dated December 31, 1997 between Bacou USA Safety, Inc. and Howard S. Leight & Associates, Inc. (d/b/a Howard Leight Industries) (incorporated by reference to Exhibit 2 (a) of the Company's Form 8-K filed on March 13, 1998) 2.7 -- Letter Agreement by and between Howard S. Leight and Bacou USA, Inc. (incorporated by reference to Exhibit 2 (b) of the Company's Form 8-K filed on March 13, 1998) 2.8 -- Letter Agreement by and among Howard S. Leight, Bacou S.A. and Engineering Bacou S.A. (incorporated by reference to Exhibit 2 (c) of the Company's Form 8-K filed on March 13, 1998) 2.9 -- First Amendment to Asset Purchase Agreement dated February 27, 1998 (incorporated by reference to Exhibit 2 (d) of the Company's Form 8-K filed on March 13, 1998) 2.10 -- Stock Purchase Agreement dated February 27, 1998 among Bacou USA Safety, Inc., Howard S. Leight & Associates, Inc. (d/b/a Howard Leight Industries), Howard S. Leight and John Dean (incorporated by reference to Exhibit 2 (e) of the Company's Form 8-K filed on March 13, 1998) 2.11 -- Stock Purchase Agreement dated February 27, 1998 among Bacou USA Safety, Inc., Howard S. Leight & Associates, Inc. (d/b/a Howard Leight Industries) and Howard S. Leight (incorporated by reference to Exhibit 2 (f) of the Company's Form 8-K filed on March 13, 1998) 3.1 -- Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3 (a) of the Company's Registration Statement filed on Form S-1 (Commission File No. 333-00470) (the "Company's Registration Statement")) 3.2 -- By-Laws (incorporated by reference to Exhibit 3(b) of the Company's Registration Statement) 4.1 -- Revolving Line of Credit Agreement dated May 21, 1997 by and between Bacou USA, Inc. and Citizens Bank of Rhode Island (incorporated by reference to Exhibit 4 (a) of the Company's Form 10-Q filed August 14, 1997) 4.2 -- First Amendment to Revolving Line of Credit Agreement by and between Bacou USA, Inc. and Citizens Bank of Rhode Island (incorporated by reference to Exhibit 4 (c) of the Company's Form 10-Q filed August 14, 1997) 4.3 -- Second Amendment and Agreement to Revolving Line of Credit Agreement between Bacou USA, Inc. and Citizens Bank of Rhode Island 4.4 -- First Amendment and Agreement to Revolving Credit Note between Bacou USA, Inc. and Citizens Bank of Rhode Island
43 46
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 4.5 -- Credit Line Agreement by and between Bacou USA, Inc. and Banque Nationale de Paris dated February 19, 1998 (incorporated by reference to Exhibit 10 (a) of the Company's Form 8-K filed on March 13, 1998) 10.1.1* -- Employment Agreement dated as of January 1, 1996 by and between the Company and Walter Stepan (incorporated by reference to Exhibit 10 (w) of Company's Registration Statement) 10.1.2* -- First Amendment to Employment Agreement with Walter Stepan (incorporated by reference to Exhibit 4 (g) of Company's Form 10-Q filed November 14, 1997) 10.2.1* -- Employment Agreement dated May 8, 1995 by and between the Company and Philip B. Barr (incorporated by reference to Exhibit 10 (b) of Company's Registration Statement) 10.2.2* -- First Amendment to Employment Agreement with Philip B. Barr (incorporated by reference to Exhibit 10 (x) to Amendment No. 1 to the Company's Registration Statement) 10.2.3* -- Second Amendment to Employment Agreement with Philip B. Barr (incorporated by reference to Exhibit 10 (y) to Amendment No. 1 to the Company's Registration Statement) 10.2.4* -- Third Amendment to Employment Agreement with Philip B. Barr (incorporated by reference to Exhibit 4 (h) of the Company's Form 10-Q filed November 14, 1997) 10.3* -- Employment Agreement dated January 1, 1996 by and between Uvex Safety and Harry D. Neff (incorporated by reference to Exhibit 10 (c) of Company's Registration Statement) 10.4* -- Employment Agreement dated January 1, 1996 by and between Uvex Safety and Raymond R. Baker (incorporated by reference to Exhibit 10 (d) of Company's Registration Statement) 10.5* -- Employment Agreement dated January 1, 1996 by and between Uvex Safety and Steven P. Tolisano (incorporated by reference to Exhibit 10 (e) of Company's Registration Statement) 10.6* -- Officer Incentive Agreement by and between Harry D. Neff and Pro-Tech (incorporated by reference to Exhibit 10 (f) of Company's Registration Statement) 10.7* -- Employment Agreement dated December 31, 1996 between Titmus Optical, Inc. and Michael Mancuso (incorporated by reference to Exhibit 10 (i) of the Company's Form 10-K filed March 31, 1997) 10.8* -- Employment Agreement dated December 19, 1997 between Titmus Optical, Inc. and Richard J. Masters (incorporated by reference to Exhibit 10 (j) of the Company's Form 10-K filed March 31, 1997) 10.9.1* -- Employment Agreement dated October 1, 1995 by and between Titmus Optical, Inc. and Thomas J. Goeltz (incorporated by reference to Exhibit 10 (k) (1) of the Company's Form 10-K filed March 31, 1997) 10.9.2* -- First Amendment to Employment Agreement dated December 18, 1996 between Titmus Optical, Inc. and Thomas Goeltz (incorporated by reference to Exhibit 10 (k) (2) of the Company's Form 10-K filed March 31, 1997) 10.10* -- Employment Agreement dated January 1, 1996 by and between Uvex Safety and Philip M. Johnson (incorporated by reference to Exhibit 10 (l) of the Company's Form 10-K filed March 31, 1997) 10.11* -- Employment Agreement dated January 1, 1996 by and between Uvex Safety and Richard Sustello (incorporated by reference to Exhibit 10 (m) of the Company's Form 10-K filed March 31, 1997) 10.12* -- Employment Agreement dated May 30, 1997 between Survivair, Inc. and Jack Bell (incorporated by reference to Exhibit 4 (a) of the Company's Form 10-Q filed November 14, 1997) 10.13* -- Employment Agreement dated May 30, 1997 between Survivair, Inc. and Robert Hitchcock (incorporated by reference to Exhibit 4 (b) of the Company's Form 10-Q filed November 14, 1997)
44 47
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 10.14* -- Employment Agreement dated May 30, 1997 between Survivair, Inc. and Stephen E. Wiser (incorporated by reference to Exhibit 4 (c) of the Company's Form 10-Q filed November 14, 1997) 10.15* -- Employment Agreement dated October 1, 1997 between Biosystems, Inc. and Jack Burt (incorporated by reference to Exhibit 4 (d) of the Company's Form 10-Q filed November 14, 1997) 10.16* -- Employment Agreement dated October 1, 1997 between Biosystems, Inc. and Joseph Burt (incorporated by reference to Exhibit 4 (e) of the Company's form 10-Q filed November 14, 1997) 10.17* -- Employment Agreement dated October 1, 1997 between Biosystems, Inc. and Jeffrey M. Whynall (incorporated by reference to Exhibit 4 (f) of the Company's Form 10-Q filed November 14, 1997) 10.18* -- Employment Agreement dated February 27, 1998 between Bacou USA Safety, Inc. and John Dean (incorporated by reference to Exhibit 99 (a) of the Company's Form 8-K filed on March 13, 1998) 10.19* -- Employment Agreement dated February 27, 1998 between Bacou USA Safety, Inc. and Robert Hanover (incorporated by reference to Exhibit 99 (b) of the Company's Form 8-K filed on March 13, 1998) 10.20* -- Employment Agreement dated February 27, 1998 between Bacou USA Safety, Inc. and Ken David Meyers (incorporated by reference to Exhibit 99 (c) of the Company's Form 8-K filed on March 13, 1998) 10.21* -- Employment Agreement dated February 27, 1998 between Bacou USA Safety, Inc. and Thomas A. Wagner (incorporated by reference to Exhibit 99 (d) of the Company's Form 8-K filed on March 13, 1998) 10.22* -- Employment Agreement dated February 17, 1998 between Titmus Optical, Inc. and Bradford L. Brooks 10.23 -- Registration Rights Agreement dated July 31, 1994 by and between Walter Stepan and the Company (incorporated by reference to Exhibit 10 (h) (i) of Company's Registration Statement) 10.24 -- Form of Registration Rights Agreement dated February , 1996 among the Principal Stockholder Figa, S.A., Walter Stepan, Heidemarie Stepan, Bettina Stepan, Axel Stepan and the Company (incorporated by reference to Exhibit 10 (i) to Amendment No. 1 of Company's Registration Statement) 10.25 -- Registration Rights Agreement dated September 30, 1997 by and among Bacou USA, Inc. and each person identified therein (incorporated by reference to Exhibit 2 (b) of the Company's Form 8-K filed October 15, 1997) 10.26 -- Corporate Opportunities Agreement dated as of January 1, 1996 between the Principal Stockholder and the Company (incorporated by reference to Exhibit 10 (j) of Company's Registration Statement) 10.27 -- Amended and Restated Agreement of Transfer, Trademarks, Know-How and Related Matters dated November 2, 1995 by and among Uvex Winter Optik GmbH, Uvex Arbeitsschutz GmbH & Co., KG, Uvex Winter Optical, Inc. and Uvex Safety (incorporated by reference to Exhibit 10 (k) of Company's Registration Statement) 10.28 -- License Agreement dated June 1, 1986 between Uvex Winter Optik GmbH and Uvex Winter Optical, Inc., as amended by a First Amendment dated October 31, 1994 (incorporated by reference to Exhibit 10 (l) of Company's Registration Statement) 10.29 -- License Agreement dated July 1, 1992 between Uvex Winter Optik GmbH and Uvex Winter Optical, Inc., as amended by a First Amendment dated October 31, 1994 (incorporated by reference to Exhibit 10 (m) of Company's Registration Statement)
45 48
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 10.30 -- Cooperation Agreement among Uvex Safety, Laservision GmbH, Uvex Winter Optik GmbH and Rupp & Hubrach KG dated March 18, 1991 (incorporated by reference to Exhibit 10 (n) of Company's Registration Statement) 10.31 -- Lease Agreement between Uvex Winter Optical, Inc. and Uvex Safety, LLC dated April 15, 1993, as amended by a First Amendment to Lease Agreement dated as of July 31, 1994, as further amended by a Second Amendment to Lease Agreement dated as of October 31, 1994, and as further amended by a Third Amendment to Lease Agreement dated July 14, 1995 (incorporated by reference to Exhibit 10 (o) of Company's Registration Statement) 10.32 -- Sales Agreement dated January 1, 1998 by and between Uvex Safety Manufacturing, Inc. and General Electric Company 10.33 -- Bacou USA, Inc. 1996 Stock Incentive Plan (incorporated by reference to Exhibit 10 (g) of the Company's Registration Statement) 10.34 -- Bacou USA, Inc. 1996 Non-Employee Director Stock Option Plan (incorporated by reference to Exhibit 10 (x) of the Company's Form 10-K filed March 31, 1997) 10.35 -- 1998 Howard S. Leight Stock Option Plan 10.36* -- Bonus Plan for Executives of Titmus Optical, Inc. and Uvex Safety, Inc. for 1996 and 1997 (incorporated by reference to Exhibit 10 (f) of the Company's Form 10-Q filed November 14, 1996) 10.37* -- Bonus Plan for John Dean for 1998 and 1999 10.38 -- Lease Agreement dated February 27, 1998 by and between Howard S. Leight and Bacou USA Safety, Inc. 10.39* -- Bonus Plan for Executives of Subsidiaries and Divisions of Bacou USA, Inc. for 1998 and 1999 10.40 -- Consultant Agreement dated as of February 27, 1998 between Howard S. Leight and Bacou USA Safety, Inc. (incorporated by reference to Exhibit 99 (e) of the Company's Form 8-K filed March 13, 1998) 11 -- Statement Re: Computation of Per Share Earnings 21 -- Subsidiaries of the Company 23 -- Accountants' Consent 27 -- Financial Data Schedule
- --------------- * Management contract or compensatory plan or arrangement 46 EX-4.3 2 SECOND AMENDMENT & AGREEMENT TO CREDIT NOTE 1 EXHIBIT 4.3 SECOND AMENDMENT AND AGREEMENT TO REVOLVING LINE OF CREDIT AGREEMENT This Second Amendment and Agreement to Revolving Line of Credit Agreement is made as of the ____ day of February, 1998, by and between CITIZENS BANK OF RHODE ISLAND, a Rhode Island financial institution with offices at One Citizens Plaza, Providence, Rhode Island 02903 (the "Lender"); and BACOU USA, INC., a Delaware corporation with offices at 10 Thurber Boulevard, Smithfield, Rhode Island 02917 (the "Borrower"). WITNESSETH THAT: WHEREAS, the Lender and the Borrower are parties to a certain Revolving Line of Credit Agreement dated as of May 21, 1997, as amended by letter agreement dated July 21, 1997 (as amended, the "Loan Agreement") pursuant to which the Lender agreed INTER ALIA, to make certain loans from time to time to the Borrower; and WHEREAS, the Lender and Borrower desire to amend the Loan Agreement on the terms and conditions hereinafter set forth. NOW, THEREFORE, for value received, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereby agree as follows: 1. All capitalized terms used herein without definition shall have the definitions assigned by the Loan Agreement. 2. Effective the date hereof, the following defined terms set forth in Section 1 of the Credit Agreement are hereby amended or added in their entirety, as applicable, to read as follows: "FOREIGN EXCHANGE CONTRACT" Foreign Exchange Contract means the agreement of the Lender to sell, and the Borrower to buy, foreign currency on a forward contract basis. "OPERATING CASH FLOW" Operating Cash Flow means net profit (as determined in accordance with generally accepted accounting principles consistently applied) of the Borrower for the prior twelve (12) months before reduction for interest, taxes, depreciation and amortization and other non-cash expenses. "REVOLVING CREDIT LIMIT" Revolving Credit Limit means the sum of Thirty-One Million and 00/100ths Dollars ($31,000,000)." "REVOLVING CREDIT NOTE" Revolving Credit Note means that certain promissory note dated May 21, 1997 as amended by First Amendment and 2 Agreement dated February __, 1998 made by Borrower in favor of the Lender in the maximum principal amount of Thirty-One Million and 00/100ths Dollars ($31,000,000), evidencing the Revolving Credit Loans. "REVOLVING CREDIT TERMINATION DATE" Revolving Credit Termination Date means May 31, 2000, unless extended in writing by the Lender. "TOTAL DEBT SERVICE" Total Debt Service means the total of Borrower's interest expense (on all interest bearing debt) plus current maturities of long term debt and capitalized leases." 3. Effective the date hereof, Section 2.1 of the Loan Agreement is amended to read in its entirety as follows: "2.1 REVOLVING CREDIT COMMITMENT. Subject to the terms and conditions of this Agreement, the Lender agrees to make Revolving Credit Loans to Borrower on a revolving basis from time to time from the date hereof to and including the Revolving Credit Termination Date, in an aggregate principal amount up to but not exceeding at any one time outstanding the Revolving Credit Limit. During the aforesaid period, Borrower may use the Revolving Credit Commitment by borrowing, paying and repaying the Revolving Credit Loans (and by surrendering Letters of Credit and by settling Foreign Exchange Contracts) in whole or in part and by reborrowing (or by requesting additional Letters of Credit on its account or by entering into Foreign Exchange Contracts), all in accordance with the terms and conditions of this Agreement." 4. Effective the date hereof, Section 2.3(f) the Loan Agreement is amended to read in its entirety as follows: "(f) Each request for the Lender to enter into a Foreign Exchange Contract hereunder shall be accompanied by the completion of the standard application relating thereto. Each such Foreign Exchange Contract shall be in form and substance satisfactory to the Lender in accordance with this usual and customary practice, and shall contain such terms and conditions, and shall specify such prices, as may be offered to Borrower from time to time by the Lender in its sole discretion. In the event of any inconsistency between this Agreement and the Foreign Exchange Contracts, the Foreign Exchange Contracts shall prevail and govern. The Borrower hereby agrees to pay to the Lender all sums due and payable under, and to pay on demand all interest, fees and other usual and customary fees and transaction charges of the Lender as set forth in, each Foreign Exchange Contract as in effect from time to time. If any restriction is imposed upon the Lender or the Borrower by any Federal, state or other regulatory authority or any applicable law which, in the sole judgment of the Lender, prevents the Lender from entering into any further Foreign Exchange Contracts, then the Lender shall so notify the Borrower or the Borrower shall notify the -2- 3 Lender, as the case may be, and the Lender shall not thereafter be obligated to enter into any further Foreign Exchange Contracts in violation of any such restriction so long as such restriction shall remain in effect." 5. Effective the date hereof, Section 2.4 the Loan Agreement is amended to read in its entirety as follows: "2.4 LIMITATIONS ON REVOLVING CREDIT LOANS. Notwithstanding anything contained in this Agreement to the contrary, the aggregate amount of the Revolving Credit Loans made or outstanding at any time hereunder and under the Revolving Credit Note shall not exceed the Revolving Credit Limit. In no event shall the sum of the aggregate principal amount of all outstanding Revolving Credit Loans plus the aggregate face amount of all issued undrawn Letters of Credit plus twenty percent (20%) of the outstanding Foreign Exchange Contracts exceed at any time the Revolving Credit Limit. In the event that the aggregate sum of the Revolving Credit Loans outstanding plus the aggregate face amount of all issued undrawn Letters of Credit plus twenty percent (20%) of the outstanding Foreign Exchange Contracts at any time exceeds the Revolving Credit Limit, the Borrower shall immediately pay to the Lender an amount equal to the amount by which such sum exceeds the Revolving Credit Limit, so that Borrower shall always be in compliance with the Revolving Credit Limit." 6. Effective the date hereof, Section 2.7 the Loan Agreement is amended to read in its entirety as follows: "2.7 PURPOSE OF REVOLVING CREDIT LOANS. The purpose of the Revolving Credit Commitment and all Revolving Credit Loans is to provide working capital for Borrower's business operations, to finance acquisitions of other entities with Lender's consent, to finance capital asset purchases, to provide Borrower with Letters of Credit from time to time and to allow the Borrower to enter into Foreign Exchange Contracts from time to time." 7. Effective the date hereof, Section 5.13 of the Loan Agreement which contained a leverage ratio shall be deleted in its entirety and replaced with a Debt Service ratio to read in its entirety as follows: "5.13. DEBT SERVICE COVERAGE. Maintain, at December 31st of each year, a ratio of the Borrower's Operating Cash Flow for the prior twelve (12) months to the Borrower's Total Debt Service for the prior twelve (12) months of not less than 1.25:1." -3- 4 8. Effective the date hereof, Section 6.8 of the Loan Agreement is amended in its entirety to read as follows: "6.8. FISCAL LOSS. Neither Borrower nor Bacou USA Safety, Inc. shall incur a Fiscal Loss in any of its fiscal years." 9. The obligation of Lender to amend the Loan Agreement is subject to the following conditions precedent: (a) AUTHORIZATION. On or prior to the date hereof, Borrower shall have furnished to Lender copies of all corporate documents and proceedings taken by Borrower, certified by Borrower's secretary authorizing all such borrowings and actions, and the execution, delivery and performance of the Loan Documents and such other documents as Lender or its counsel may reasonably request. (b) CERTIFICATE. The representations and warranties contained in SECTION 3 of the Loan Agreement shall be true and correct on the date hereof and on each date on which Borrower requests a Loan hereunder; and no event that constitutes or which with the mere giving of notice of lapse of time, or both, would constitute an Event of Default under this Agreement shall have occurred or shall exist on such date. Upon request of Lender, Borrower shall deliver to Lender certificates of Borrower's secretary, to the foregoing effect. (c) LOAN DOCUMENTS. On or prior to the date hereof, Borrower shall execute and deliver to Lender this First Amendment and Agreement to Revolving Line of Credit Agreement and a First Amendment and Agreement to Revolving Credit Note, and any other instruments or documents related to the foregoing instruments or this Agreement. (d) FINANCIAL STATEMENTS. On or prior to the date hereof, Lender shall receive a copy of the Borrower's audited financial statements as of December 31, 1997 of Borrower. 10. All references to the "Loan Agreement" in the Loan Agreement, the Revolving Credit Note and all other documents and agreements executed or delivered in connection herewith shall from and after the effective date hereof refer to the Loan Agreement, as amended hereby. 11. Except as amended hereby, the Loan Agreement shall remain in full force and effect and is in all respects hereby ratified and affirmed. 12. The Borrower covenants and agrees to pay all out-of-pocket expenses, costs and charges incurred by the Lender (including reasonable fees and disbursements of counsel) in connection with the preparation and implementation of this Second Amendment and Agreement to Loan Agreement. -4- 5 IN WITNESS WHEREOF, the undersigned parties have caused this Second Amendment and Agreement to Revolving Line of Credit Agreement to be executed by their duly authorized officers as of the date first above written. WITNESS: BACOU USA, INC. _________________________________ By: /s/ Walter Stepan ----------------------------------- Walter Stepan Title: Vice Chairman, President and Chief Executive Officer _________________________________ By: /s/ Philip B. Barr, Jr. ----------------------------------- Philip B. Barr, Jr. Title: Executive Vice President and Chief Financial Officer CITIZENS BANK OF RHODE ISLAND By: /s/ William J. DuBlois ----------------------------------- Title: Vice President -5- EX-4.4 3 FIRST AMENDMENT & AGREEMENT TO CREDIT NOTE 1 EXHIBIT 4.4 FIRST AMENDMENT AND AGREEMENT TO REVOLVING CREDIT NOTE For good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the undersigned CITIZENS BANK OF RHODE ISLAND, a Rhode Island financial institution with offices at One Citizens Plaza, Providence, Rhode Island 02903 (the "Lender"); and BACOU USA, INC., a Delaware corporation with offices at 10 Thurber Boulevard, Smithfield, Rhode Island 02917 (the "Borrower"), hereby amend, effective the date hereof, that certain Revolving Credit Note dated May 21, 1997 (the "Note") issued by the Borrower to the Lender, as follows: (a) by deleting from the upper left hand corner of the first page of the Note the numbers "$28,000,000" and inserting in lieu thereof the numbers "$31,000,000"; (b) by deleting from the sixth line of the first paragraph of the Note the words and numbers "Twenty-Eight Million Dollars ($28,000,000)" and inserting in lieu thereof the words and numbers "Thirty-One Million Dollars ($31,000,000)"; and (c) by amending the third paragraph of the Note to read in its entirety as follows: "Interest, at the applicable rate, coming due under this Revolving Credit Note shall be paid monthly, in arrears, commencing on the last day of February, 1998, and continuing on the last day of each successive month thereafter (each such payment date is herein called an "Installment Date") until the entire principal balance due under this Revolving Credit Note is paid in full; provided, however, that the entire principal balance of this Revolving Credit Note and all interest and charges due hereunder shall be due and payable on the 31st day of May, 2000 (the "Maturity Date"), unless otherwise extended by Lender in writing." Except as amended hereby, the Note shall remain in full force and effect and is in all respects hereby ratified and affirmed. The foregoing merely modifies the Note and is not intended to be, nor does it act as, a substitution for the same. 2 IN WITNESS WHEREOF, the undersigned parties have caused this First Amendment and Agreement to Revolving Credit Note to be executed by their duly authorized officers as of the ____ day of February, 1998. WITNESS: BACOU USA, INC. _________________________________ By: /s/ Walter Stepan ----------------------------------- Walter Stepan Title: Vice Chairman, President and Chief Executive Officer _________________________________ By: /s/ Philip B. Barr, Jr. ----------------------------------- Philip B. Barr, Jr. Title: Executive Vice President and Chief Financial Officer CITIZENS BANK OF RHODE ISLAND By: /s/ Bruce Hallworth ----------------------------------- Title: Senior Vice President -2- EX-10.22 4 EMPLOYMENT AGREEMENT WITH BRAD BROOKS 1 EXHIBIT 10.22 EMPLOYMENT AGREEMENT THIS AGREEMENT made as of this 17th day of February, 1998, by and between Bradford L. Brooks ("Executive"), currently residing at 3295 Hood Road, Medina, Ohio 44256, and Titmus Optical, Inc., a corporation organized under the laws of Delaware (the "Company"), with its principal offices at 3811 Corporate Drive, Petersburg, VA 23805. W I T N E S S E T H : WHEREAS, Company wishes to secure the services of Executive as President and Chief Executive Officer for the period provided in this Agreement; and WHEREAS, Executive is willing to enter into this Agreement for such period and on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual promises herein contained, Company and Executive hereby agree as follows: 1. EMPLOYMENT. During the period of employment set forth in Section 2 of this Agreement, Company shall employ Executive, and Executive shall serve as President and Chief Executive Officer of Company. Executive shall promptly relocate his permanent residence to the Petersburg, Virginia area. Executive agrees to faithfully perform the duties assigned to him to the best of his ability and, except for vacations and periods of temporary illness, to devote his full time and attention to the business of Company. Ancillary employment such as writing, teaching or lecturing, as well as the acceptance of honorific titles may be undertaken by the Executive only with the approval of the Chief Executive Officer of Bacou USA, Inc. or his designee ("Chairman"). Executive also agrees that he will not engage in any other business activities without the prior approval of the Chairman. Executive may only serve as an officer, director, trustee or committee member, or in any similar position, of a reasonable number (maximum two) of trade associations and religious, charitable, educational, civic or other non-business organizations, subject to the approval of the Chairman. The Executive represents and warrants to Company that he is now under no contract or agreement nor will he execute any contract or agreement that will in any manner interfere, conflict with or prevent him from performing his duties under the terms and conditions of this Agreement, recognizing that his performance hereunder will require the devotion of his full time and attention during and beyond regular business hours during the Term (as hereinafter defined), including extensive travel. 2. PERIOD OF EMPLOYMENT. The Executive's employment under this Agreement shall initially cover the period beginning on the date when Executive is available to begin 2 work on a full-time basis at the Company's facility in Petersburg, Virginia (which shall be not later than March 9, 1998) to December 31, 1999 (the "Initial Term"). On January 1, 2000, and at the end of each year thereafter, the period of employment shall be automatically extended, without further action by either party, for successive one year periods (each a "Renewal Term") unless at least six months prior to the end of any Term either party shall have served written notice on the other of its election to allow this Agreement to terminate at the end of such Term. The Initial Term and any Renewal Terms are hereinafter sometimes collectively referred to as the "Term." If either party notifies the other party that it shall not extend the period of employment, Company may, at its option, decide that the Executive shall take a leave-of-absence for part or all of the remaining time of his employment, continuing to receive all compensation as if actively working. Any amounts paid by the Company pursuant to this Section after Executive is relieved of his duties shall be credited against any amounts payable under Section 4(g) hereof and in no event shall the amount payable pursuant to this paragraph exceed any amount payable under Section 4(g) hereof. 3. TERMINATION. The period of employment shall be terminated upon the first to occur of the following: (i) The expiration of the period of employment pursuant to Section 2 of this agreement. (ii) The Executive's death. (iii) The Executive becoming permanently disabled. Permanent disability shall mean physical or mental incapacity of a nature which prevents Executivefrom performing his duties under this Agreement for a period of more than six months in any twelve month period. (iv) The Executive's employment being terminated by Company for cause. Termination for cause shall mean termination by action of the Board of Directors of Company because of the willful failure of Executive to perform his duties and obligations under this Agreement (including but not limited to his obligation to promptly relocate his permanent residence to the Petersburg, Virginia area) or failure to execute in a reasonable and responsible manner the policies of the Company or gross negligence in the performance of his duties under this Agreement or the commission by Executive of a felony. 4. COMPENSATION AND BENEFITS. -2- 3 (a) The Executive shall receive regular compensation (the "Base Salary") at the initial rate of One Hundred Sixty Thousand Dollars ($160,000.00) per annum during the Initial Term. The Base Salary shall be payable in arrears less the usual payroll deductions at the same times and in the same manner as salaries paid to other employees of the Company. The Executive shall participate in any wage increases applicable generally to salaried employees of Company. The Base Salary prevailing at any time shall be reviewed annually for a possible increase beginning in January 1999. (b) In addition to the Base Salary, the Executive shall be entitled to receive annual incentive compensation payments ("Incentive Compensation") at such times and in such amounts as may be determined pursuant to the Bonus Plan for Executives of subsidiaries of Bacou USA, Inc., as in effect for the applicable year (the "Company Plan"; a copy of the Company Plan for 1998 and 1999 is attached to this Agreement as Exhibit B), provided, however, that for 1998 the Executive shall be entitled to Incentive Compensation equal to the greatest of the following three amounts: (i) The amount determined pursuant to the Company Plan; or (ii) the amount determined pursuant to Exhibit C attached to this Agreement; or (iii) $30,000. Executive acknowledges that, by agreeing to participate in the Company Plan he thereby waives any rights to participate in any other incentive compensation plan of the Company, except for the special potential alternative bonus calculation for 1998 as specified herein and on Exhibit C attached to this Agreement. (c) Incentive Compensation shall be paid by Company for the prior fiscal year within ten (10) days after a decision is made by the Board of Directors of Company as to the amount of such Incentive Compensation, but in any event no later than the earlier of the annual meeting of the Board of Directors of Company or March 31. (d) The Executive shall be entitled to participate in any stock option plan which Bacou USA, Inc. may adopt for Company at levels to be determined by the Board of Directors of Company in their sole discretion. In connection with the execution of this Agreement and subject to the execution of the Stock Option Agreement attached hereto as Exhibit D, Executive shall be granted options to purchase fifteen thousand (15,000) shares of common stock of Bacou at a per share price equal to $17.750 per share, subject to vesting 20% on August 17, 1998 and 20% each on the first through fourth anniversaries of the date of this Agreement. -3- 4 (e) The Executive shall be entitled to participate in all savings, thrift, retirement or pension, short term and long term disability, health and accident, Blue Cross/Blue Shield, Major Medical or other hospitalization, holiday, vacation, and other fringe benefit programs generally available to senior executives of Company in accordance with and subject to the terms and conditions of such programs. (f) In addition, the Executive shall be entitled to receive the following benefits: (i) The Executive shall have the use of a company car, subject to the Automobile Policy of Bacou USA, Inc. (ii) The Executive shall be entitled to vacation pursuant to the Bacou USA, Inc. Executive Vacation Policy. Vacation days will be taken at a time convenient for both the Executive and Company. To the extent the Executive does not take all vacation days the remaining days will be carried forward for an unlimited period or be paid to the Executive at the level of his Base Salary valid for the fiscal year in which vacation days are not taken. (iii) When traveling on Company business, the Executive will be provided coach-class airfare on domestic trips; business class airfare will be provided on international trips. (iv) The Executive is authorized to incur reasonable expenses in connection with and for the promotion of the business of Company, including expenses for meals and lodging (regular hotel room, no suites), entertainment, and similar items as required from time to time by the Executive's duties. Company shall reimburse the Executive for all such expenses upon the presentation of an account therefor, together with appropriate supporting documentation. (v) The Executive will receive relocation assistance in accordance with the terms and conditions of the Relocation Assistance Agreement attached hereto as Exhibit A. (g) In the event that either (a) during the term of this Agreement the Executive is discharged by the Company for reasons other than those set forth in Section 3(iv) hereof or (b) the Company fails to renew this Agreement pursuant to Section 2 of this Agreement, then the Company agrees to pay the Executive a severance payment equal to twelve (12) months of direct salary and benefits, payable at normal payroll intervals during the severance period. However, in the event that the Executive is able to find other full time employment, the Company's obligation to pay the severance benefit shall cease and be limited to the actual number of weeks the Executive is unemployed -4- 5 following his discharge by the Company, pro-rated to the nearest whole week. To support the Executive's efforts to find new employment the Company will cover cost associated with an Executive Outplacement Service reasonably acceptable to both Company and Executive. 5. LIMITATIONS ON AUTHORITY. Pursuant to the Bylaws of Company, the Executive and the Chairman of the Board of Directors or his designee shall constitute the Executive Committee of the Board. Except as otherwise provided herein, approval by the Chairman or the Executive Vice President of Bacou must be obtained prior to the Executive taking any of the following actions on behalf of the Company: (a) Acquisition or disposition of real property or any rights deriving therefrom, or changing title in any such real property. (b) Making unplanned capital expenditures or any commitment therefore in an amount greater than $5,000 for any individual expenditure and $50,000 in the aggregate in any fiscal year; (c) Borrowing or guaranteeing any borrowings from or on behalf of any party, or altering the terms of any loan agreements for such borrowings except for any such loans or borrowings as shall be agreed upon by the Board of Directors of Company; (d) Hiring or terminating executive personnel with annual salary in excess of $50,000; (e) Granting retirement benefits or other non-earned income to any individual which is not available to all employees; (f) Modification of any qualified plan or other benefit plan, e.g., health insurance; (g) Acquiring the assets or shares of another Company or partnership; (h) Acquiring or disposing of the assets or shares of the Company or selling any fixed asset of the Company below book value; (i) Entering into or terminating agreements of any kind or nature with a monthly financial obligation in excess of U.S. $5,000 for more than six (6) months except purchase orders for materials required for the manufacture of products for sale in the ordinary course of business; -5- 6 (j) Making basic changes in the administration, organization, production, and distribution of Company or any of its affiliates, as well as closing or curtailing the functions of Company or any of its affiliates; (k) Filing any lawsuit; (l) Making cash or non-cash corporate contributions above the annually budgeted amount; (m) When there is a large volume of sales, the making of decisions requiring both extraordinary risks and extraordinary expenditures; (n) Entering into any transaction on behalf of Company or its affiliates which is not in the usual course of its business; (o) Adoption or modification of the annual budget. Notwithstanding the foregoing, approval is not required for any action provided for in the approved and applicable annual budget or annual plan of Company. In addition, should the Chairman or Executive Vice President be unavailable, if an emergency arises which requires the Executive to take immediate action in which approval as set forth in this Section would otherwise be required, the Executive is no longer bound by the limitations described above and is authorized to make a decision in the best interests of Company. The Executive will immediately inform the Chairman and the Executive Vice President of Bacou USA, Inc. of any such decisions made by him. 6. NON-DISCLOSURE OF INFORMATION. It is understood that the business of Company and its affiliates is of a confidential nature. During the period of the Executive's employment with Company, the Executive may have received and/or may secure confidential information concerning Company or any of Company's affiliates or subsidiaries which, if known to competitors thereof, would damage Company or its said affiliates or subsidiaries. The Executive agrees that during and after the term of this Agreement he will not (except as authorized by Company or in the proper performance of his duties or except as ordered by a court or other body of competent jurisdiction or as otherwise required by law), directly or indirectly, divulge, disclose or appropriate to his own use, or to the use of any third party, any secret, proprietary or confidential information or knowledge obtained by him during the term hereof concerning such confidential matters of Company or its subsidiaries or affiliates, including, but not limited to, information pertaining to trade secrets, systems, manuals, confidential reports, methods, processes, designs, equipment lists, operating procedures, equipment and methods used and preferred by Company's customers. Upon termination of this Agreement, the Executive shall promptly deliver to Company all materials of a secret -6- 7 or confidential nature relating to the business of Company or any of its subsidiaries or affiliates which are, directly or indirectly, in the possession or under the control of the Executive. The provisions of this paragraph shall continue to apply after the Executive ceases to be employed by Company for a period of three (3) years except in respect of any information or knowledge disclosed to the public, other than through an unauthorized disclosure by the Executive. 7. TRADE SECRETS. The Executive covenants that he shall, while employed by Company, assign, transfer, and set over to Company or its designee all right, title and interest in and to all trade secrets, secret processes, inventions, improvements, patents, patent applications, trademarks, trademark applications, copyrights, copyright registrations, discoveries and/or other developments (hereinafter "Inventions") which he may, thereafter, alone or in conjunction with others, during or outside normal working hours, conceive, make, acquire or suggest at any time which relate to the products, processes, work, research, or other activities of Company or any of its subsidiaries or affiliates. Any and all Inventions which are of a proprietary nature and which the Executive may conceive, may acquire or suggest, either alone or in conjunction with others, during his employment with Company (whether during or outside normal working hours) relating to or in any way pertaining to or connected with Company's business, shall be the sole and exclusive property of Company or its designee and the Executive, whenever requested to do so by Company, shall, without further compensation or consideration properly execute any and all applications, assignments or other documents which Company or its designee shall deem necessary in order to apply for and obtain Letters Patent of the United States and/or comparable rights afforded by foreign countries for the Inventions, or in order to assign and convey to Company or its designee the sole and exclusive right, title and interest in and to the Inventions. This obligation shall continue beyond the termination of this Agreement with respect to Inventions conceived or made by the Executive during the term of his employment by Company, and shall be binding upon his assigns, executors, administrators, and other legal representatives. 8. NON-COMPETITION. (a) During the term of this Agreement or any renewal thereof and, at Company's option for a period of up to one year thereafter, should the Executive's contract be terminated or not be renewed, the Executive agrees that he will not within the geographical area of the United States, engage, either directly or indirectly, individually or as an owner, partner, joint venturer, employee, officer, director, stockholder, consultant, independent contractor or lender of or to any corporation, holding Company or other business entity which is in a business similar to that of Company or any of its affiliates. In the event that Company chooses to exercise its option to prevent the Executive from competing with Company following termination or non-renewal of his employment, Company shall notify the Executive in writing within two (2) weeks following his last day of employment or within two (2) weeks of notice by Company of its decision that the Executive shall take a leave-of-absence, in either case specifying the -7- 8 period of up to one year following termination, resignation, or non-renewal of employment during which such competitive activity shall be prohibited. In the event Company exercises its option, Company shall continue to pay Executive his Base Salary at the time of termination, resignation or non-renewal for the period during which the Executive is prohibited from competition with Company. Notwithstanding the foregoing, the Executive (as hereinbefore described in Section 2(d)) may own five (5%) percent of the securities of any business in competition with the business of Company or any of its affiliates, which securities are regularly traded on a public exchange, provided that any such ownership shall not result in the Executive becoming a record or beneficial owner at any time of more than five (5%) percent of equity securities of said business entity. (b) The Executive shall not during the term of his Employment under this Agreement or any renewal thereof, and for a period of three (3) years thereafter, employ, retain or arrange to have any other person or entity employ or retain any person who was employed by Company or any of its affiliated companies having an annual compensation of at least U.S. $50,000 per annum during the term of this Agreement or any renewal thereof. (c) If any provision of this Section is held to be unenforceable because of the scope, duration or area of its applicability or otherwise, the legal entity making that determination will have the power to modify the scope, duration or area, or all of them, and the provision will then apply in its modified form. 9. PROPERTY. All letters, memoranda, documents, business notes (including all copies thereof) and other information contained on any other computer media including computer disks and hard drives of the Executive in any manner relating to the duties of Executive under this agreement are the property of Company. 10. NOTICES. Any notices or other communications required to be given pursuant to this Agreement shall be in writing and shall be deemed given: (i) upon delivery, if by hand; (ii) three (3) business days after mailing, if sent by registered or certified mail, postage prepaid, return receipt requested; (iii) one (1) business day after mailing, if sent via overnight courier; or (iv) upon transmission, if sent by telex or facsimile except that if such notice or other communication is received by telex or facsimile after 5:00 p.m. on a business day at the place of receipt, it shall be effective as of the following business day. All notices and other communications hereunder shall be given as follows: -8- 9 (a) If to the Company, to it at: Bacou USA, Inc. 10 Thurber Boulevard Smithfield, RI 02917 Attention: President Telephone No.: 401-233-0333 Telecopier No.: 401-232-2230 with a copy to: Edwards & Angell 2700 Hospital Trust Tower Providence, Rhode Island 02903 Attention: Susan A. Keller, Esq. Telephone No.: (401) 274-9200 Telecopier No.: (401) 276-6611 (b) If to the Executive, to him at: 3295 Hood Road Medina, OH 44256 Telephone No.: 330-725-8308 with a copy to: ---------------------------------- ---------------------------------- ---------------------------------- Telephone No.: ( ) Telecopier No.: ( ) Any party may change its address for receiving notice by written notice given to the other names above in the manner provided above. 11. FULL AND COMPLETE AGREEMENT; AMENDMENT. This Agreement (together with the Exhibits attached hereto) constitutes the full and complete understanding and agreement of the parties and supersedes all prior understandings and agreements. This Agreement may be modified only by a written instrument executed by both parties (except Exhibit B which is subject to modification from time to time by Bacou USA, Inc.) -9- 10 12. CONSTRUCTION. This Agreement shall be construed under the laws of the Commonwealth of Virginia. 13. ARBITRATION. Notwithstanding the fact that the parties shall be entitled to equitable relief in order to enforce certain provisions hereunder (e.g., temporary restraining orders or injunctive relief), any dispute, controversy or claim arising out of or relating to this Agreement, or the breach hereof, shall be settled by arbitration in accordance with the "Commercial Arbitration Rules" of the American Arbitration Association in effect on the date of this Agreement, except as varied below. The site of any such arbitration shall be Richmond, Virginia and any award shall be deemed to be a Richmond, Virginia award. There shall be a single arbitrator who shall be admitted to practice law in Virginia, with no less than ten (10) years experience in the handling of commercial or corporate matters or disputes. The arbitrator shall render a written decision stating his reasons therefor, and shall render an award within six (6) months of the request for arbitration, and such award shall be final and binding upon both parties. Judgment upon the award rendered by the arbitrator may be entered in any court of competent jurisdiction in any state of the United States or country or application may be made to such court for a judicial acceptance of the award and an enforcement, as the law of such jurisdiction may require or allow. The substantive law to be applied to any case determined pursuant to this Section 13 is that of Commonwealth of Virginia. The expense of arbitration shall be borne by the respective parties except to the extent that the arbitrators shall determine that the entire expense shall be borne by a single party. 14. BINDING NATURE. This Agreement shall be binding upon and shall inure to the benefit of the parties and their respective heirs, personal representatives, successors and assigns. IN WITNESS WHEREOF, Company and the Executive have duly executed this Agreement as of the day and year first written above. TITMUS OPTICAL, INC. By: /s/ W. Stepan -------------------------------- Walter Stepan, Chairman EXECUTIVE: /s/ Bradford L. Brooks - ----------------------------------- Bradford L. Brooks -10- EX-10.32 5 SALES AGREEMENT 1 EXHIBIT 10.32 GE PLASTICS - -------------------------------------------------------------------------------- SALES AGREEMENT UVEX SAFETY MANUFACTURING, INC. GE PLASTICS 10 THURBER BLVD. ONE PLASTICS AVENUE SMITHFIELD, RI 02917-1896 PITTSFIELD, MA 01201 GENERAL ELECTRIC COMPANY (GE PLASTICS) AGREES TO SELL TO UVEX SAFETY MANUFACTURING, INC. (CUSTOMER) AND CUSTOMER AGREES TO PURCHASE THE PRODUCTS SPECIFIED ACCORDING TO THE TERMS AND CONDITIONS OF THIS AGREEMENT. DURATION OF AGREEMENT: EFFECTIVE DATE: 01/01/98 EXPIRATION DATE: 12/31/98 PRODUCT LINES COVERED: ATTACHMENT "A" LEXAN(R) RESIN UVEX SAFETY MANUFACTURING, INC. AGREES TO PURCHASE 95% OF ITS POLYCARBONATE SUPPLY THROUGH GE PLASTICS. THIS COMMITMENT IS ESTIMATED AT 1.5MM POUNDS FOR 1998. ATTACHMENT "B" XENOY(R) RESIN UVEX SAFETY MANUFACTURING, INC.'S COMMITMENT OF XENOY RESIN IS ESTIMATED AT 100,000 POUNDS FOR 1998 AND IS BASED UPON THE SATISFACTORY PERFORMANCE OF A NEW APPLICATION THAT HAS YET TO BE PROVEN. CUSTOMER TERMS: PAYMENT: 1.00% DISCOUNT 10 DAYS, NET 30 FROM DATE OF INVOICE. SHIPPING: DELIVERY FOB SHIPPING POINT. MINIMUM FREIGHT PREPAID TO DESTINATIONS WITHIN THE CONTIGUOUS UNITED STATES BY CARRIER OF GE PLASTICS CHOICE. CONDITIONS OF SALE: PLEASE SEE REVERSE. PERFORMANCE OF THIS AGREEMENT IS CONTINGENT UPON MEETING THE REQUIREMENTS OF THE PARTIES IN AN ECONOMICAL AND REASONABLE MANNER. EITHER PARTY MAY REQUEST ADJUSTMENTS TO THIS AGREEMENT IF, IN ITS SOLE JUDGEMENT, CONDITIONS HAVE CHANGED SIGNIFICANTLY SINCE THE SIGNING OF THIS AGREEMENT. IF AFTER THIRTY (30) DAYS THE PARTIES DO NOT AGREE TO THE ADJUSTMENTS, OR WHEN THE REQUESTED ADJUSTMENT HAS BEEN REJECTED, WHICHEVER COMES EARLIER, THE REQUESTING PARTY MAY TERMINATE THIS AGREEMENT BY GIVING THIRTY (30) DAYS WRITTEN NOTICE. APPROVED: /s/ W. Stepan /s/ D. Butler 1/19/98 APPROVED: /s/ Thomas Schleicher ------------------------------------- ------------------------ UVEX SAFETY MANUFACTURING, INC. GENERAL ELECTRIC COMPANY DATE: 1-13-98 DATE: 1-13-98 ------------------------------------- ------------------------
(R) REGISTERED TRADEMARK OF GENERAL ELECTRIC COMPANY 2 GE PLASTICS STANDARD CONDITIONS OF SALE - -------------------------------------------------------------------------------- FORMATION OF CONTRACT An order placed by Buyer with GE Plastics, an operating business of General Electric Company, shall be deemed accepted only upon GE Plastics' written acceptance of the order and the terms of that acceptance shall govern. GE Plastics accepts orders or supplies products to Buyer only under the condition that Buyer agrees to be bound by and comply with these Conditions of Sale together with those documents or parts of documents which specify the products and which have been signed or accepted by GE Plastics in writing (hereinafter collectively the "Sales Agreement"). GE Plastics' receipt of a purchase order or its shipment of products to Buyer does not constitute an acceptance by GE Plastics of the terms and conditions of Buyer's purchase order or any proposal. Reference in Buyer's order to any such terms and conditions of purchase or proposal shall in no way constitute a modification of any of these Conditions of Sale. ANY ATTEMPTED MODIFICATION OF THESE CONDITIONS OF SALE PROPOSED BY BUYER IN A PURCHASE ORDER CONTAINING TERMS AND CONDITIONS INCONSISTENT WITH OR IN ADDITION TO THESE CONDITIONS OF SALE SHALL NOT BE BINDING UPON GE PLASTICS UNLESS SPECIFICALLY ACCEPTED BY GE PLASTICS IN WRITING. GE PLASTICS OBJECTS TO ANY TERMS AND CONDITIONS INCONSISTENT WITH OR IN ADDITION TO THESE CONDITIONS OF SALE. PRICES AND DELIVERY Unless otherwise agreed in writing, (i) prices for products shall be GE Plastics' list prices current at the time of shipment in US Dollars, F.O.B. point of shipment (freight and insurance prepaid and allowed to points in the continental United States) and (ii) payment terms shall be net thirty (30) days from the date of the invoice. Shipping costs to other locations or by means or routes other than those selected by GE Plastics shall be borne by Buyer. GE Plastics shall separately indicate on its invoice(s) any Federal, state or local tax, transportation tax, or other tax, which is required to be imposed. Title to products purchased hereunder and all risk of loss or damage with respect thereto shall pass to Buyer at the time product is transferred by GE Plastics to a commercial transportation carrier for shipment to Buyer. All delivery dates are approximate. In no event shall GE Plastics be liable for consequential, special, incidental or exemplary damages based on any delay in delivery or failure to deliver product under this Agreement. WARRANTY GE Plastics warrants that the products will conform to GE Plastics' specifications therefor in effect at the time of delivery of the product or such other specifications as may be mutually agreed upon in writing. Buyer shall inspect all product delivered hereunder for damage, defect or shortage immediately upon receipt by Buyer, and shall immediately provide GE Plastics with notice of any such damage, defect or shortage. The conditions of any test of the products for conformance with specifications shall be mutually agreed upon and GE Plastics shall be notified of, and may be represented at, all tests that may be made. If any product is determined not to conform to GE Plastics' specifications or such other specifications as may be mutually agreed upon in writing within the earlier of (i) six (6) months from date of shipment or (ii) the date of use of the product by Buyer, such product shall be replaced by GE Plastics without additional cost to Buyer, or, at GE Plastics' option, GE Plastics shall refund the purchase price therefor. This remedy is Buyer's exclusive remedy for breach of warranty. Defective products shall not be returned by Buyer until authorized in advance by GE Plastics. Returned products to the extent possible should be intact in form as shipped and retain the GE Plastics identity. THE WARRANTY STATED HEREIN IS IN LIEU OF ALL OTHER WARRANTIES, WRITTEN OR ORAL, STATUTORY, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. LIMITATION OF LIABILITY, REMEDY AND DAMAGES GE Plastics' liability to Buyer under this Sales Agreement or arising out of possession or use of the product or any technical advice relating thereto is limited to the warranty obligations set forth above in the Warranty Article and in no event shall such liability, whether based in contract, warranty, negligence or other tort, strict liability or otherwise, exceed the purchase price for the product in question. Upon the expiration of the applicable warranty period specified herein, all such liability, whether based in contract, negligence or other tort, strict liability, breach of warranty or otherwise, shall be deemed waived unconditionally and absolutely. The foregoing shall constitute the sole and exclusive remedy of the Buyer and the sole and exclusive liability of GE Plastics. IN NO EVENT SHALL GE PLASTICS BE LIABLE FOR CONSEQUENTIAL, SPECIAL, INCIDENTAL OR EXEMPLARY DAMAGES, INCLUDING, BUT NOT LIMITED TO, LOSS OF PROFITS, LOSS OF SAVINGS OR REVENUE, LOSS OF USE OF THE PRODUCT OR ANY ASSOCIATED EQUIPMENT, COST OF ANY SUBSTITUTE FOR THE PRODUCT, DOWNTIME, CLAIMS OF THIRD PARTIES OR INJURY TO PROPERTY. THIS LIMITATION SHALL APPLY NOTWITHSTANDING A FINDING THAT ANY REMEDY FAILS OF ITS ESSENTIAL PURPOSE. TECHNICAL ADVICE AND OTHER SERVICES Buyer agrees that it is not relying upon any representation, statement or other assertion made by GE Plastics with respect to the products and their suitability and that Buyer has made its own inquiry, testing and investigation into, and based thereon has formed an independent judgment concerning, the products and the suitability of the products for the use, conversion or processing intended by Buyer, and will not assert any claim against GE Plastics or hold GE Plastics liable in any manner with respect to any information, testing or designs furnished (or failed to be furnished) by GE Plastics including, without limitation, technical advice or recommendations. Statements made by GE Plastics concerning possible or suggested uses of materials or designs described herein are not to be construed as constituting a license under any patent covering such use nor as recommendations for use of such materials or designs in the infringement of any patent. PATENTS GE Plastics shall defend any suit or proceeding brought against the Buyer insofar as such suit or proceeding is based on a claim that any product, or any part thereof, in the form as delivered by GE Plastics to Buyer, constitutes an infringement of any patent of the United States, if notified promptly in writing and given information and assistance (at GE Plastics' expense) and exclusive authority for the defense of any infringement claim and all negotiations relating to its settlement, and GE Plastics shall pay all damages and costs awarded therein against the Buyer. In case a product, or any part thereof, in such suit or proceeding is held to constitute infringement and the use of the product or part is enjoined, GE Plastics shall at its own option and expense either procure for the Buyer the right to continue using the product or part, or replace same with a non-infringing product, or modify it so it becomes non-infringing, or accept return of the product from Buyer and refund the purchase price and the transportation cost thereof to the Buyer. The foregoing states the entire liability of GE Plastics for patent infringement by the products or any part thereof. GE shall not be responsible under this provision for, and Buyer shall hold GE Plastics harmless against, any expense or loss, including attorney's fees, resulting from infringement of any intellectual property rights, including patents, trade secrets or trademarks, if such infringement arises from GE Plastics' compliance with Buyer's specifications or instructions. VARIATIONS Unless otherwise specified in writing, any variation over or under in quantities shipped not exceeding 10% of the quantities ordered shall constitute compliance with the order and the unit price will apply to the quantity actually delivered. TERMINATION FOR DEFAULT Either party may terminate this Sales Agreement upon thirty (30) days' prior written notice, in the event the other party breaches any material term or condition of this contract, PROVIDED, HOWEVER, that during such notice period, the party in default may cure its default and thereby abate the termination; PROVIDED, FURTHER, that if such default shall require a longer period to remedy, so long as the party in default has taken reasonable steps within such period to commence the curing of the default, the termination shall be abated, as long as such steps continue to be taken. If Buyer is in default hereunder, GE Plastics may suspend shipments of product during such cure period without liability to Buyer. FORCE MAJEURE Neither Buyer nor GE Plastics shall be liable for its failure to perform its obligations (except the obligation to pay money), either in whole or in part, under the terms of this Sales Agreement if such failure is a result of causes beyond its reasonable control, such as an act of God, act of the other party, labor disruption, strike, fire, flood, war, government regulation, the delay in or inability to obtain labor, machinery, material, product or services through its usual and regular sources or any other condition or cause beyond its reasonable control, said causes being hereafter referred to as "Force Majeure" and the quantities of material affected by Force Majeure shall be deleted from the Sales Agreement quantities. In the event the Force Majeure condition is not alleviated on or before the expiration of sixty (60) days, then the party not affected by the Force Majeure condition may, at its option, terminate this Sales Agreement upon written notice to the other party, such termination to be without further liability to either party. If for any reason supplies of the products deliverable hereunder or feedstock from which such products are derived from any of GE Plastics' sources are curtailed or cut off or are inadequate to meet GE Plastics' own requirements and its obligations to its customers, GE Plastics' obligation hereunder shall be reduced to the extent necessary in GE Plastics' reasonable judgment to apportion fairly among GE Plastics' own requirements and its regular customers such products as can be made available in the ordinary and usual course of GE Plastics' business from any such sources of supply. PRODUCT WARNINGS AND INSTRUCTIONS GE Plastics agrees to furnish Buyer with Material Safety Data Sheets ("MSDS's") for the product where applicable. The products may be, or become, considered hazardous material or hazardous substances under various laws and regulations when handled or processed. The Buyer agrees to familiarize itself (without further reliance on GE Plastics) with any hazards of the products, their processing and applications and the containers in which the products are shipped. The Buyer agrees to pass the MSDS's to all those required by law to receive same and to inform and train its employees and properly warn and instruct its customers as to hazards identified in the MSDS's or discovered by Buyer in its investigations. The Buyer further agrees to properly manage and dispose of all wastes and/or residues resulting from its use of the products in accordance with applicable laws and regulations. SECURITY AND TITLE Security, title and right of possession of the products shall remain with GE Plastics and the products shall remain the personal property of GE Plastics until all payments hereunder (including deferred payment, whether evidenced by notes or otherwise) shall have been received in full by GE Plastics and the Buyer agrees to do all acts necessary to perfect and maintain such security right and title in GE Plastics. GOVERNMENT PROCUREMENT REQUIREMENTS Buyer acknowledges that products supplied by GE Plastics may not meet applicable government procurement requirements and that GE Plastics may not be able to supply information required by government procurement regulations. If GE Plastics has not expressly agreed in writing with Buyer that its products shall meet certain government procurement requirements or that GE Plastics will provide Buyer with information under government procurement regulations, GE Plastics shall have no liability whatsoever with respect to any requirements related to or arising from government procurement regulations. INTERNATIONAL TRADE Buyer will insure that all GE Plastics commodities, technology or software exported from the United States are exported in accordance with the U.S. Export Administration Regulations. Diversion contrary to U.S. Law is prohibited. GENERAL Cancellation of any order, or return of any conforming product purchased hereunder, will be subject to acceptance by GE Plastics and to a restocking charge in accordance with GE Plastic's policy as then in effect. This Sales Agreement contains the complete and exclusive agreement among the parties and supersedes all prior understandings whether written or oral as to the subject matter hereof. Unless GE Plastics has provided written consent, any partial or complete assignment of right(s) or delegation of obligation(s), shall be void. This Sales Agreement may not be changed, renewed, extended or modified in any manner, orally or otherwise, except by an instrument in writing signed by a duly authorized representative of GE Plastics. Neither course of performance, nor course of dealing, nor usage of trade shall be used to qualify, explain or supplement any of the terms of this Sales Agreement. Any failure of GE Plastics, at any time or from time to time, to require the performance of the Buyer of any other items and conditions of the contract shall not constitute a waiver by GE Plastics of these Conditions of Sale and shall not affect or impair this Sales Agreement in any way. Each provision hereof shall apply to the full extent permitted by law, and the invalidity in whole or in part of any provisions shall not affect the remainder of such provision or any other provision. This Sales Agreement shall be interpreted and governed by the laws of the State of New York, excluding its conflicts of laws rules. Rev. 11/04/96 GEP Sid Conditions of Sale 3 ATTACHMENT "A" AGREEMENT #: 33089 CUSTOMER #: 90099 SUPERSEDES #: 29976 PRODUCT LINE: LEXAN(R) RESIN MINIMUM ORDER/SHIPMENT QUANTITY BRACKET INVOICE PRICE PER LB 2200 5500 GRADE COLOR EFF EXP 5499 &ABOVE OQ4120R GP 01/01/98 12/31/98 N/A 1.8900 2200 5500 GRADE COLOR EFF EXP 5499 &ABOVE OQ4120R ST 01/01/98 12/31/98 1.9900 1.9900 2200 5500 GRADE COLOR EFF EXP 5499 &ABOVE OQ4320 ST 01/01/98 12/31/98 1.9900 1.9900 2200 5500 GRADE COLOR EFF EXP 5499 &ABOVE OQ4620R ST 01/01/98 12/31/98 1.9900 1.9900 2200 5500 GRADE COLOR EFF EXP 5499 &ABOVE OQ4620R GP 01/01/98 12/31/98 1.9900 1.9900 2200 5500 GRADE COLOR EFF EXP 5499 &ABOVE 103R GP 01/01/98 12/31/98 N/A 1.8900 2200 5500 GRADE COLOR EFF EXP 5499 &ABOVE 103R ST 01/01/98 12/31/98 1.9900 1.9900 ADDITIONAL GRADE/COLOR COMBINATIONS MAY BE ADDED TO THIS AGREEMENT AS MUTUALLY AGREED UPON BY UVEX SAFETY MANUFACTURING, INC. AND GE PLASTICS. PRICE PROTECTION: PRICES SPECIFIED HEREIN ARE FIRM THROUGH 12/31/98. GUARANTEE OF SUPPLY: GE PLASTICS GUARANTEES THAT WE WILL MAKE AVAILABLE TO UVEX SAFETY MANUFACTURING, INC., UNDER THE TERMS OF THIS AGREEMENT, 2MM POUNDS OF POLYCARBONATE DURING THE TERM OF THE AGREEMENT, PROVIDED THAT UVEX SAFETY MANUFACTURING, INC. COMPLIES WITH THE OBLIGATIONS HERE UNDER. 4 ATTACHMENT "B" AGREEMENT #: 33569 CUSTOMER #: 90099 SUPERSEDES #: NONE PRODUCT LINE: XENOY(R) RESIN MINIMUM ORDER/SHIPMENT QUANTITY BRACKET INVOICE PRICE PER LB 11000 GRADE COLOR EFF EXP &ABOVE 2735 1001 01/01/98 12/31/98 1.9500 PRICE PROTECTION: PRICES SPECIFIED HEREIN ARE FIRM THROUGH 12/31/98. 5 PRODUCTIVITY: GE Plastics and UVEX Safety Manufacturing, Inc. agree to mutually participate in a Productivity Program which will attempt to improve productivity at UVEX Safety Manufacturing, Inc. site. Each party agrees to provide sufficient personnel and time to develop projects sufficient to meet the Productivity Goal. The goal of this program shall be to achieve quantifiable cost savings of $64,000 by 12/31/98. Savings credit shall be measured and tracked by UVEX Safety Manufacturing, Inc. and approved by GE Plastics. Savings credit for an approved project shall be equal to any GE Plastics investment plus any estimated savings that will generate over a 12 month period. UVEX Safety Manufacturing, Inc. agrees to promptly implement any approved projects and if it fails to do so, UVEX Safety Manufacturing, Inc. shall still provide GE Plastics productivity credit in the amount of the estimated annual savings. In the event that the Productivity Goal is not achieved by 12/31/98, GE Plastics agrees to compensate UVEX Safety Manufacturing, Inc. for the difference between the Productivity Goal and the Savings Credit in the form of a credit memo by January 31, 1999. This productivity guarantee is void in the event the Productivity Goal is not achieved due to lack of commitment by UVEX Safety Manufacturing, Inc. as determined in GE Plastics reasonable discretion. The cost saving must be quantified using fair market value for machine and labor rates and other costs as represented by SPI & SPE market data. EX-10.35 6 1998 HOWARD S. LEIGHT STOCK OPTION PLAN 1 EXHIBIT 10.35 BACOU USA, INC. 1998 HOWARD S. LEIGHT STOCK OPTION PLAN 1. PURPOSE. This Non-Qualified Stock Option Plan, to be known as the 1998 Howard S. Leight Stock Option Plan (hereinafter, the "Plan"), is intended to promote the interests of Bacou USA, Inc. (hereinafter, the "Company") by providing an inducement to obtain and retain the services of Howard S. Leight (the "Consultant") to serve as a consultant to the Company. 2. AVAILABLE SHARES. The total number of shares of Common Stock, par value $0.001 per share, of the Company (the "Common Stock") for which an option may be granted under the Plan shall not exceed 50,000 shares, subject to adjustment in accordance with paragraph 10 hereof. Shares subject to this Plan are authorized but unissued shares or shares that were once issued and subsequently reacquired by the Company. If any option granted under the Plan is surrendered before exercise or lapse without exercise, in whole or in part, the shares reserved therefor shall continue to be available hereunder. 3. ADMINISTRATION. The Plan shall be administered by either the Chairman, the President or the Executive Vice President of the Company (the "Authorized Officer"). The Authorized Officer shall, subject to the provisions of the Plan, have the power to construe this Plan, to determine all questions hereunder, and to adopt and amend such rules and regulations for the administration of this Plan as it may deem desirable. No member of the Board of Directors of the Company (the "Board") nor any Authorized Officer shall be liable for any action or determination made in good faith with respect to this Plan or the option granted under it. 4. GRANT OF OPTION. Effective as of February 27, 1998, the Company shall grant an option to purchase 50,000 shares of Common Stock to the Consultant. 5. OPTION PRICE. The purchase price of the Common Stock covered by the option granted pursuant to the Plan shall be $17.00 per share. The option price will be subject to adjustment in accordance with the provisions of paragraph 10 of this Plan. For purposes of Section 9(a) of the Plan, if, at the time an option is granted under the Plan, the Company's Common Stock is publicly traded, "fair market value" shall be determined as of the last business day for which the prices or quotes discussed in this sentence are available prior to the date such option is granted and shall mean (i) the average (on that date) of the high and low prices of the Common Stock on the principal national securities exchange on which the Common Stock is traded, if the Common Stock is then traded on a national securities exchange; or (ii) the last reported sale price (on that date) of the Common Stock on the Nasdaq Stock Market, if the Common Stock is not then traded on a national securities exchange; or (iii) the closing bid price (or average of bid prices) last quoted (on that date) by an established quotation service for over-the-counter securities, if the Common Stock is not reported on the Nasdaq Stock market. If the shares of Common Stock are not traded either over-the-counter or on a national securities exchange at the time that an option is granted under the Plan, "fair market value" shall be deemed to be the fair value of the Common Stock as determined by the Authorized Officer after taking 2 into consideration all factors which it deems appropriate, including, without limitation, recent sale and offer prices of the Common Stock in private transactions negotiated at arm's length. 6. PERIOD OF OPTION. Unless sooner terminated in accordance with the provisions of paragraph 8 hereof, an option granted hereunder shall expire on the date which is ten (10) years after the date of grant of the option, unless earlier terminated by the Consultant. 7. (a) VESTING AND EXERCISE OF OPTIONS. Options granted hereunder shall vest in the optionee and thus become exercisable as of the date of grant. (b) NON-TRANSFERABILITY OF OPTIONS. Any option granted pursuant to this Plan shall not be assignable or transferable other than by will or the laws of descent and distribution or pursuant to a domestic relations order and shall be exercisable during the optionee's lifetime only by him. 8. TERMINATION OF OPTION RIGHTS. (a) CESSATION OF SERVICE. In the event the Consultant ceases to serve as a Consultant for any reason other than death, permanent disability or as a result of subparagraph (c) hereof, any option or portion thereof which has not been exercised at that time may be exercised by the optionee within 90 days of the date the optionee ceased to be a Consultant; and all unexercised options shall terminate after such 90 days shall have expired. (b) DEATH OR DISABILITY. In the event that the Consultant ceases to serve as a Consultant by reason of his death or permanent disability, any option granted to the Consultant which remains unexercised at that time shall be exercisable by the Consultant (or by his personal representative, heir or legatee, in the event of death) within twelve (12) months of the Consultant's death or permanent disability and all such options shall terminate after such twelve months shall have expired. (c) ACTIONS OF THE DIRECTOR. In the event of a material breach by the Consultant of the Consulting Agreement between the Company and the Consultant, the Authorized Officer may cancel any option, whether or not vested, in whole or in part. Such cancellation shall be effective as of the date specified by the Authorized Officer. 9. EXERCISE OF OPTION. (a) METHOD OF EXERCISE. Subject to the terms and conditions hereof, an option granted hereunder shall be exercisable in whole or in part by giving written notice to the Company by mail or in person addressed to Bacou USA, Inc., at its principal executive offices, stating the number of shares with respect to which the option is being exercised, accompanied by payment in full for such shares. Payment may be (a) in United States dollars in cash or by check, (b) in whole or in part in shares of the Common Stock of the Company already owned by the person or persons exercising the option or shares subject to the option being exercised (subject to such restrictions and guidelines as the Company may adopt from time to time), valued at fair market value determined in accordance with the provisions of paragraph 5 hereof, or (c) -2- 3 consistent with applicable law, through the delivery of an assignment to the Company of a sufficient amount of the proceeds from the sale of the Common Stock acquired upon exercise of the option and an authorization to the broker or selling agent to pay that amount to the Company, which sale shall be at the participant's direction at the time of exercise. There shall be no such exercise at any one time as to fewer than one hundred (100) shares or all of the remaining shares then purchasable by the person or persons exercising the option, if fewer than one hundred (100) shares. The Company's transfer agent shall, on behalf of the Company, prepare a certificate or certificates representing such shares acquired pursuant to exercise of the option, shall register the optionee as the owner of such shares on the books of the Company and shall cause the fully executed certificate(s) representing such shares to be delivered to the optionee as soon as practicable after payment of the option price in full. The holder of an option shall not have any rights of a stockholder with respect to the shares covered by the option, except to the extent that one or more certificates for such shares shall be delivered to him or her upon the due exercise of the option. (b) WITHHOLDING. At the time the option is exercised, in whole or in part, or at any time thereafter as requested by the Company, the optionee shall make adequate provision for the foreign, federal and state tax withholding obligations of the Company, if any, which arise in connection with the option, including, without limitation, obligations arising upon (i) the exercise, in whole or in part, of the option, (ii) the transfer, in whole or in part, of any shares of Common Stock acquired on exercise of the option, (iii) the operation of any law or regulation providing for the imputation of interest, or (iv) the lapsing of any restriction with respect to any shares of Common Stock acquired on exercise of the option. 10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION AND OTHER EVENTS. Upon the occurrence of any of the following events, an optionee's rights with respect to options granted to him hereunder shall be adjusted as hereinafter provided: (a) STOCK DIVIDENDS AND STOCK SPLITS. If the shares of Common Stock shall be subdivided or combined into a greater or smaller number of shares subsequent to February 27, 1998 or if the Company shall issue any shares of Common Stock as a stock dividend on its outstanding Common Stock subsequent to February 27, 1998, the number of shares of Common Stock deliverable upon the exercise of options shall be appropriately increased or decreased proportionately, and appropriate adjustments shall be made in the purchase price per share to reflect such subdivision, combination or stock dividend. (b) RECAPITALIZATION ADJUSTMENTS. In the event of a reorganization, recapitalization, or any other change in the corporate structure of the Company, to the extent permitted by Rule 16b-3 under the Securities Exchange Act of 1934, adjustments in the number and kind of shares authorized and covered by this Plan, and in the option price of the outstanding option under this Plan necessary to maintain the proportionate interest of the optionee and preserve, without exceeding, the value of such option, shall be made. Notwithstanding the foregoing, no such adjustment shall be made which would, within the meaning of any applicable provisions of the Internal Revenue Code of 1986, as amended, constitute a modification, extension or renewal of the option or a grant of additional benefits to the holder of the option. -3- 4 (c) ISSUANCES OF SECURITIES. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares subject to the option. No adjustments shall be made for dividends paid in cash or in property other than securities of the Company. (d) ADJUSTMENTS. Upon the happening of any of the foregoing events, the class and aggregate number of shares set forth in paragraph 2 of this Plan that are subject to an option which previously has been or subsequently may be granted under this Plan shall also be appropriately adjusted to reflect such events. The Board shall determine the specific adjustments to be made under this paragraph 10 and its determination shall be conclusive. 11. CHANGE OF CONTROL. In the event of a change of control, the option shall be nonforfeitable and exercisable in full except to the extent previously exercised, forfeited or terminated. The Board may, in its sole discretion, arrange with the surviving, continuing, successor, or purchasing corporation or parent corporation thereof, as the case may be (the "Acquiring Corporation"), for the Acquiring Corporation to assume the Company's rights and obligations under any outstanding Option Agreement or substitute an option for the Acquiring Company's stock for the option. Any option shall terminate and cease to be outstanding effective as of the date of the change of control to the extent that the option is neither assumed or substituted for by the Acquiring Corporation nor exercised as of the date of the change of control. 12. RIGHTS AS A STOCKHOLDER. The optionee shall have no rights as a stockholder with respect to any shares of Common Stock covered by the option until the date of issuance of a certificate or certificates for the shares for which the option has been exercised. No adjustment shall be made for dividends or distributions or other rights for which the record date is prior to the date such certificate or certificates are issued, except as provided in paragraph 10 above. 13. RESTRICTIONS ON ISSUANCE OF SHARES. (a) COMPLIANCE WITH LAWS. Notwithstanding the provisions of paragraphs 4 and 9 of this Plan, the Company shall have no obligation to deliver any certificate or certificates upon exercise of an option until one of the following conditions shall be satisfied: (i) The issuance of shares with respect to which the option has been exercised is at the time of the issue of such shares effectively registered under applicable Federal and state securities laws as now in force or hereafter amended; or (ii) Counsel for the Company shall have given an opinion that the issuance of such shares is exempt from registration under Federal and state securities laws as now in force or hereafter amended; and the Company has complied with all applicable laws and regulations with respect thereto, including, without limitation, all regulations required by -4- 5 any stock exchange upon which the Company's outstanding Common Stock is then listed. (b) REPRESENTATIONS AND WARRANTIES. As a condition to exercise of the option, the optionee shall satisfy any qualifications that may be necessary or appropriate to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto, as requested by the Corporation. 14. LEGEND ON CERTIFICATES. The certificates representing shares issued pursuant to the exercise of an option granted hereunder shall carry such appropriate legend, and such written instructions shall be given to the Company's transfer agent, as may be deemed necessary or advisable by counsel to the Company in order to comply with the requirements of the Securities Act of 1933 or any state securities laws. 15. REPRESENTATION OF OPTIONEE. If requested by the Company, the optionee shall deliver to the Company written representations and warranties upon exercise of the option that are necessary to show compliance with Federal and state securities laws, including representations and warranties to the effect that a purchase of shares under the option is made for investment and not with a view to their distribution (as that term is used in the Securities Act of 1933). 16. DISPOSITION. The optionee shall dispose of the shares of Common Stock acquired on exercise of the option only in accordance with the provisions of this Plan and any applicable corporate policy concerning trading in shares of the Company. 17. TERMINATION AND AMENDMENT OF PLAN. Options may no longer be granted under this Plan after February 27, 2008, and this Plan shall terminate when all options granted or to be granted hereunder are no longer outstanding. The Company may at any time terminate this Plan or make such modification or amendment thereof as it deems advisable; PROVIDED, HOWEVER, that the Company may not, without approval by the affirmative vote of the holders of a majority of the shares of Common Stock present in person or by proxy and voting on such matter at a meeting, (a) increase the maximum number of shares for which options may be granted under this Plan (except by adjustment pursuant to Section 10), (b) materially modify the requirements as to eligibility to participate in this Plan, (c) materially increase benefits accruing to the Consultant under this Plan or (d) amend this Plan in any manner which would cause Rule 16b-3 under the Securities Exchange Act (or any successor or amended provision thereof) to become inapplicable to this Plan; and PROVIDED FURTHER that the provisions of this Plan specified in Rule 16b-3(c)(2)(ii)(A) (or any successor or amended provision thereof under the Securities Exchange Act of 1934) including without limitation, provisions as to eligibility, amount, price and timing of awards, may not be amended more than once every six months, other than to comport with changes in the Internal Revenue Code, the Employee Retirement Income Security Act, or the rules thereunder. Termination or any modification or amendment of this Plan shall not, without consent of a participant, affect his or her rights under an option previously granted to him or her. 18. WITHHOLDING OF INCOME TAXES. Upon the exercise of an option, the Company, in accordance with Section 3402(a) of the Internal Revenue Code, may require the optionee to pay -5- 6 withholding taxes in respect of amounts considered to be compensation includable in the optionee's gross income. 19. COMPLIANCE WITH REGULATIONS. It is the Company's intent that the Plan comply in all respects with Rule 16b-3 under the Securities Exchange Act of 1934 (or any successor or amended provision thereof) and any applicable Securities and Exchange Commission interpretations thereof. If any provision of this Plan is deemed not to be in compliance with Rule 16b-3, the provision shall be null and void. 20. GOVERNING LAW. The validity and construction of this Plan and the instruments evidencing options shall be governed by the laws of the State of Delaware, without giving effect to the principles of conflicts of law thereof. Date Approved by Board of Directors of the Company: February 23, 1998 -6- EX-10.37 7 BONUS PLAN FOR JOHN DEAN 1 EXHIBIT 10.37 BONUS PLAN FOR JOHN DEAN FOR 1999 AND 1998 FEBRUARY 21, 1998 The Board of Directors of Bacou USA, Inc. has approved and adopted a bonus Plan for John Dean ("Executive"), who serves as President and Chief Operating Officer of Bacou USA Safety, Inc. which provides for incentive compensation up to a maximum of 125% of base salary. This Plan will be administered by the Compensation Committee of the Board of Directors of Bacou USA, Inc. The annual bonus will be determined based upon the criteria described below. Any percentage to be applied pursuant to this Plan shall be applied to the amount of base salary paid by HLI (not including its predecessor business) to the Executive during the fiscal year for which the bonus is paid. Although the Executive is employed at a subsidiary with more than one operating division, the criteria will reflect only financial results of Howard Leight Industries division of Bacou USA Safety, Inc. ("HLI") for 1998 and 1999. As HLI was not affiliated with Bacou USA, Inc. for part of the applicable fiscal year or part or all of the prior fiscal year, then predecessor results will be used by Bacou USA, Inc. to prepare comparable pro forma results for purposes of applying this Plan. The criteria are as follows: 1. The operating profit of HLI, determined in accordance with GAAP, expressed as a percentage of net sales; provided, however, that operating profit shall be determined before amortization of intangible assets established pursuant to purchase accounting rules and before interest on intercompany debt. If the operating profit is: - up to 5% = no bonus is being paid under this criteria - above 5%, up to 10% = 10% of base salary will be paid - above 10%, up to 15% = 20% of base salary will be paid - above 15%, up to 20% = 30% of base salary will be paid - above 20%, up to 25% = 40% of base salary will be paid - above 25%, up to 30% = 50% of base salary will be paid - above 30% = 65% of base salary will be paid 2. The growth of HLI's net sales, determined by comparing the net sales for the bonus year against the prior fiscal year, with an additional bonus equal to one of the following amounts: - up to 5.0% = no bonus is being paid under this criteria - above 5%, up to 10% = 5% of base salary will be paid - above 10%, up to 15% = 10% of base salary will be paid - above 15%, up to 20% = 20% of base salary will be paid 2 - above 20% = 25% of base salary will be paid 3. The growth of HLI's operating profit, determined by comparing the operating profit for the bonus year against the prior fiscal year, with an additional bonus equal to one of the following amounts: - growth up to 5% = no bonus is being paid under this criteria - growth above 5%, up to 10% = 10% of base salary will be paid - growth above 10%, up to 15% = 15% of base salary will be paid - growth above 15%, up to 20% = 20% of base salary will be paid - growth above 20%, up to 25% = 25% of base salary will be paid - growth above 25%, up to 30% = 30% of base salary will be paid - growth above 30% = 35% of base salary will be paid 4. Discretionary special bonus for engagements in addition to an executive's main job, as per the recommendation of the CEO of Bacou USA, Inc. 5. Discretionary adjustment of the amounts determined under paragraphs 1-3 as per the recommendation of the CEO of Bacou USA, Inc. -2- EX-10.38 8 LEASE AGREEMENT DATED 2/22/98 1 EXHIBIT 10.38 LEASE AGREEMENT THIS LEASE AGREEMENT (this "Lease") is dated as of the close of business on the 27th of February, 1998 by and between HOWARD S. LEIGHT, an individual (hereinafter referred to as "Landlord"), and BACOU USA SAFETY, INC., a Delaware corporation (hereinafter referred to as "Tenant"). W I T N E S S E T H ARTICLE I GRANT AND TERM -------------- SECTION 1.01 LEASED PREMISES Landlord demises and leases to Tenant, and Tenant rents from Landlord, the premises situated at 21 Spiral Drive, Florence, Boone County, Kentucky and as more fully described in EXHIBIT A attached hereto and incorporated herein by reference (hereinafter referred to as the "Leased Premises"). SECTION 1.02 TERM The term of this Lease shall commence on the close of business on the 27th day of February, 1998 and end on the 28th day of February, 2003 (hereinafter referred to as the "Initial Term"). SECTION 1.03 OPTION TO RENEW So long as no Event of Default has occurred and is continuing, Landlord grants to Tenant two (2) successive options to extend the term of this Lease for a period of five (5) years each, from March 1, 2003 through February 29, 2008 (the "First Extended Term") and from March 1, 2008 to February 28, 2013 (the "Second Extended Term"). Tenant may exercise Tenant's option to extend the term of this Lease for the First Extended Term by giving notice of such exercise on or before September 1, 2002 and may exercise Tenant's option to extend the term of this Lease for the Second Extended Term by giving notice of such exercise on or before September 1, 2007. If an Event of Default has occurred and is continuing on the date on which Tenant is required to give notice of its exercise of Tenant's option to extend the term set forth above or on the commencement date of the First Extended Term or the Second Extended Term, as the case may be, then Tenant shall not have the right to extend the term of the Lease. The First Extended Term and the Second Extended Term shall be subject to all the other terms of the Lease except for the monthly rent which shall be adjusted upon the commencement of each of the First Extended Term and the Second Extended Term in accordance with Section 2.04 hereof. 2 ARTICLE II RENT ---- SECTION 2.01 RENT Tenant covenants to pay Landlord during the term of this Lease, on or before the first day of each month in advance at the place for service of notice to Landlord as hereinafter provided or at such other place as Landlord may direct, rent in the amount of $8,333 per month; PROVIDED, HOWEVER, that this rent shall be adjusted on the annual anniversary of the date of this Lease to the extent necessary to reflect any increase in the Consumer Price Index (All Products) for the region in which the Leased Premises are located. In no event shall the rent charged hereunder be decreased from rent charged for the preceding lease year. SECTION 2.02 SECURITY DEPOSIT Tenant shall deposit (the "Security Deposit") with Landlord upon execution hereof an amount equal to one (1) month's rent as security for Tenant's faithful performance of Tenant's obligations hereunder. The Security Deposit shall not earn interest for the benefit of Tenant. No trust relationship is created herein between Landlord and Tenant with respect to the Security Deposit. If the rent is adjusted pursuant to Sections 2.01 or 2.04 hereof, then Tenant shall deposit with Landlord on the date which Tenant is required to make the first payment of adjusted rent an amount equal to the increase in the rent so that at all times the amount of the Security Deposit is equal to one month's rent. SECTION 2.03 LATE CHARGE Tenant agrees to pay as additional rent, a late charge for the use of said Leased Premises in an amount equal to five (5%) percent of any payment of rent required under Section 2.01 hereof which is not received by Landlord within five (5) days after written notice to Tenant that such rent is due. Such additional rent shall be paid as compensation for Landlord's additional administrative expenses incurred because of Tenant's failure to pay such rent as required by Section 2.01 or Section 2.04 hereof. SECTION 2.04 RENT FOR EXTENDED TERMS Landlord and Tenant shall negotiate the rent for each of the First Extended Term and the Second Extended Term in good faith. In the event that Landlord and Tenant cannot negotiate a mutually agreeable rent by October 1, 2003 with respect to the First Extended Term and October 1, 2008 with respect to the Second Extended Term, then Landlord and Tenant shall each select an appraiser within ten (10) days. The appraisers shall then select a third appraiser and the three appraisers shall have thirty (30) days to determine the fair market rent for the Leased Premises. The rent for each of the First Extended Term and the Second Extended Term shall be equal to the greater of the fair market rent determined by the appraisers and the rent for the last year of the Initial Term or the First Extended Term, as the case may be. -2- 3 ARTICLE III CONDUCT OF BUSINESS BY TENANT ----------------------------- SECTION 3.01 USE OF PREMISES Tenant agrees that the Leased Premises shall be used and occupied in a manner reasonably necessary to the furtherance of Tenant's business and other purposes as may be incidental thereto. SECTION 3.02 SUBLETTING The Leased Premises may not be sublet in whole or in part without the prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed. Notwithstanding the foregoing, Tenant shall have the right to sublet the Leased Premises to any affiliate of Tenant or to any party acquiring all or substantially all of the assets of the Howard Leight Division of Tenant. Should Landlord be requested to review any request for subletting, Tenant agrees to pay to Landlord the sum of $500 as attorney's fees to review any such request. SECTION 3.03 ASSIGNMENT This Lease and any interest therein of Tenant may not be assigned in whole or in part without the prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed. Notwithstanding the foregoing, Tenant shall have the right, without the prior written consent of Landlord, to assign this Lease to any affiliate of Tenant or to any party acquiring all or substantially all of the assets of the Howard Leight Division of Tenant. Tenant shall also have the right, without the prior written consent of Landlord, to collaterally assign this Lease or grant a leasehold mortgage or deed of trust with respect to the Lease to any institutional lender extending credit to Tenant or to any affiliate of Tenant. In connection with any such financing, Landlord agrees to execute and deliver a landlord's consent and waiver containing such terms as any such lender may reasonably require, including, without limitation, a waiver of any liens on the personal property of Tenant and an undertaking by Landlord to recognize any such lender as the tenant under this Lease in the event that such lender succeeds to the rights of Tenant hereunder. Any financing of the Lease or any assignment of the Lease shall be subject to and subordinate to the leasehold estate created by this Lease. Notwithstanding any assignment of this Lease by Tenant, Tenant shall not be relieved from any obligations of Tenant hereunder. Should Landlord be requested to review any request for assignment, Tenant agrees to pay to Landlord the sum of $500 as attorney's fees to review any such request. SECTION 3.04 ACCEPTANCE OF LEASED PREMISES Tenant has inspected the Leased Premises and accepts them "as is" and "where is." -3- 4 SECTION 3.05 ACCEPTANCE OF BUSINESS PARK REQUIREMENTS It is expressly understood by Tenant that the Leased Premises are part of a business park development currently known as Turfway Business Park (the "Park"). This Lease shall be subject and subordinate to those certain Protective Covenants for Turfway Business Park which have been recorded with the Boone County Clerk and to the by-laws, rules and regulations of the Park (collectively referred to herein the "Park Documents"). It is understood that such rules and regulations may be amended from time to time. Tenant agrees to comply with all the requirements of the Park Documents, as amended, including the payment of any charges which are required thereunder. Such charges shall be considered as additional rent. ARTICLE IV ALTERATIONS ----------- SECTION 4.01 ALTERATIONS Tenant shall make no material alterations (including additions) in or to the Leased Premises without first obtaining the written consent of Landlord, which consent shall not be unreasonably withheld or delayed. In applying for such consent, Tenant shall furnish plans and specifications in reasonable detail. Any alterations made shall be and remain the property of Landlord. All alternations must be approved in accordance with the requirements of the Park Documents and any governmental agency having jurisdiction over the Leased Premises. Prior to any construction, Tenant shall furnish proof of such compliance to Landlord. ARTICLE V TENANT'S OBLIGATIONS -------------------- SECTION 5.01 TRIPLE NET LEASE Except as otherwise provided herein, this Lease, for all purposes and at all times, shall be deemed and construed to be a "triple net" lease and Tenant shall pay all rent, taxes, utilities, repairs and maintenance expenses, and insurance payments due hereunder, and shall pay and save and hold Landlord harmless from any and all liabilities, charges, repairs, maintenance, assessments, impositions, or expenses or deductions of any kind and nature whatsoever against the Leased Premises including all charges due under the Park Documents and the Joint Maintenance and Access Agreement dated as of November 3, 1997 by and between TRP Associates and Landlord recorded with the Boone County Clerk. SECTION 5.02 MAINTENANCE BY TENANT Tenant will promptly perform any maintenance or repair becoming necessary upon the building (the "Building") and the improvements which are a part of the Leased Premises, which shall include maintenance or repair of all partitions, doors, fixtures, equipment and appurtenances thereof (including glass and window moldings, lighting, heating and plumbing fixtures, and any air conditioning systems). Notwithstanding anything in this Lease to the -4- 5 contrary, Landlord shall be responsible for the payment of any and all reasonable costs incurred by Tenant in connection with the performance of the maintenance, repairs and replacements of a structural nature to the Building except to the extent that any such damage shall occur as a result of Tenant's gross negligence or intentional misuse of the structural components of the Building. SECTION 5.03 DISCHARGE OF MECHANIC'S LIEN Tenant shall promptly pay all contractors and materialmen so as to minimize the possibility of a lien attaching to the Leased Premises, and should any lien be made or filed, Tenant shall bond against or discharge the same within ten (10) days after written request by Landlord. SECTION 5.04 SURRENDER At the termination of this Lease, Tenant shall surrender the Leased Premises in good condition and repair, reasonable wear and tear and damage by fire, casualty or condemnation excepted. If, at the termination of this Lease, the Leased Premises have been damaged by fire, casualty or condemnation, then Tenant shall pay any insurance or condemnation proceeds received by Tenant as a result of such damage less its reasonable costs of collecting such proceeds or assign its rights to any insurance or condemnation proceeds payable to Tenant as a result of such damage and pay Landlord an amount equal to the deductible under any applicable insurance policy. SECTION 5.05 ULTRAHAZARDOUS ACTIVITY Tenant shall not engage in any ultrahazardous activity at the Leased Premises during the term of this Lease. SECTION 5.06 INDEMNIFICATION BY TENANT Except to the extent that Landlord is covered by insurance, Tenant will indemnify Landlord and save Landlord harmless from and against any and all claims, actions, damages, liability and expense in connection with the loss of life, personal injury, and/or damage to property arising from or out of any occurrence in, upon or at the Leased Premises, or the occupancy or use by Tenant of the Leased Premises or any part thereof, or occasioned wholly or in part by the gross negligence or willful misconduct of Tenant, Tenant's agents, contractors, employees, servants, lessees or concessionaires. In case Landlord shall, without fault on Landlord's part, be made a party to any litigation commenced by or against Tenant, then Tenant shall protect and hold Landlord harmless and shall pay all costs, expenses and reasonable attorney's fees incurred or paid by Landlord in connection with such litigation. SECTION 5.07 INDEMNIFICATION BY LANDLORD Except to the extent that Tenant is covered by insurance, Landlord will indemnify Tenant and save Tenant harmless from and against any and all claims, actions, damages, liability and -5- 6 expense in connection with the loss of life, personal injury, and/or damage to property arising from or out of any occurrence in, upon or at the Leased Premises, or the occupancy or use by Tenant of the Leased Premises or any part thereof, or occasioned wholly or in part by the gross negligence or willful misconduct of Landlord, Landlord's agents, contractors, employees, servants, lessees or concessionaires. In case Tenant shall, without fault on Tenant's part, be made a party to any litigation commenced by or against Landlord, then Landlord shall protect and hold Tenant harmless and shall pay all costs, expenses and reasonable attorney's fees incurred or paid by Tenant in connection with such litigation. SECTION 5.08 UTILITY CHARGES Tenant shall be solely responsible for, and shall promptly pay, all charges for heat, sewer, water, gas and electricity, and any other utility used or consumed in or for the Leased Premises during the term hereof. SECTION 5.09 WASTE OR NUISANCE Tenant shall not commit or suffer to be committed any waste upon the Leased Premises or any nuisance, or any other act or thing which may disturb the quiet enjoyment of any person owning or occupying real estate adjacent to the Leased Premises. SECTION 5.10 GOVERNMENTAL REGULATIONS Tenant shall, at Tenant's sole cost and expense, comply with all of the requirements of all county, municipal, state, federal, and other applicable governmental authorities, now in force, or which may hereafter be in force, pertaining to the Leased Premises, and shall faithfully observe in the use of the Leased Premises all municipal and county ordinances and state and federal statutes now in force or which may hereafter be in force. SECTION 5.11 TAXES Tenant shall pay when due as additional rent hereunder, all property taxes assessed against the Leased Premises and any increases in tax rates and assessments and any and all other assessments and charges of whatsoever nature relating to the Leased Premises. Tenant agrees to furnish to Landlord copies of all paid tax bills upon written request by Landlord. SECTION 5.11 INSURANCE Tenant, at Tenant's sole cost and expense, for the mutual benefit of Landlord and Tenant, shall maintain a policy or policies of general public liability insurance against claims for personal injury or death or property damage occurring upon, in or about the Leased Premises. Such policy or policies shall have limits of liability of not less than One Million Dollars ($1,000,000) for personal injury or death of any one person, not less than One Million Dollars ($1,000,000) for any one incidence and not less than Five Hundred Thousand Dollars ($500,000) for property damage. Tenant shall insure the Building against loss or damage by fire and such other perils as -6- 7 may be covered by the usual extended coverage endorsement to the standard fire insurance policy in an amount equal to one hundred percent (100%) of the full replacement cost of the Building. Tenant shall maintain property damage insurance in an amount sufficient to fully reimburse Tenant for all damage or destruction to Tenant's personal property kept at the Leased Premises. ARTICLE VI QUIET ENJOYMENT SECTION 6.01 QUIET ENJOYMENT Upon payment by Tenant of the rent herein provided, and upon the observance and performance of all the covenants, terms and conditions on Tenant's part to be observed and performed, Tenant shall peaceably and quietly hold and enjoy the Leased Premises for the term hereby demised without hindrance or interruption by Landlord or any other person or persons lawfully or equitably claiming by, through or under Landlord, subject nevertheless to the terms and conditions of this Lease. ARTICLE VII DEFAULT OF TENANT SECTION 7.01 DEFAULT AND RIGHT TO RE-ENTER (a) If any of the following events (each an "Events of Default") shall occur: (i) Tenant shall fail to pay rent when due, which failure shall remain uncured within ten (10) days after written notice of such deficiency or delinquency; (ii) Tenant shall fail to comply with any of the other terms, covenants or conditions of this Lease or the Park Documents for a period of thirty (30) days after written notice from Landlord; PROVIDED, HOWEVER, if Tenant shall have commenced and be diligently pursuing a cure within ten (10) days of such notice and Tenant shall be delayed in completing such cure within such thirty (30) day period as a result of a force majeure event, then so long as Tenant shall continue to diligently attempt to cure such failure, such thirty (30) day period shall be extended for a maximum of ninety (90) days before such failure to comply shall constitute an Event of Default; (iii) Tenant shall abandon the Leased Premises before the end of the term of this Lease; (iv) the filing by or against Tenant of any proceeding in bankruptcy or under any state or Federal law relating to the relief of debtors, or the appointment of a receiver of any of Tenant's property so as to affect the fulfillment of Tenant's obligations hereunder; PROVIDED, HOWEVER, in the event that an involuntary bankruptcy proceeding is -7- 8 filed against Tenant, Tenant shall have one hundred twenty (120) days in which to have such proceeding dismissed before the same shall constitute an Event of Default; or (v) Tenant shall be adjudicated a bankrupt or insolvent according to law, or if a creditor shall obtain an assignment of or attachment of or levy on Tenant's interest herein, which assignment, attachment, or levy shall not have been relieved or removed within one hundred twenty (120) days; then and in any of said cases Landlord may terminate this Lease without further notice to Tenant and lawfully enter onto the Leased Premises and repossess the same as of the former estate of Landlord, expel Tenant and those claiming under and through Tenant, remove Tenant's effects, without being guilty in any manner of trespass and without prejudice to any remedies which might otherwise be used for arrears of Rent or breach of covenants. Landlord shall make a commercially reasonable effort to lease the Leased Premises or portion thereof, in any such case of an Event of Default. (b) If an Event of Default shall have occurred and be continuing at the time of the delivery of the Termination Notice (as defined below), Landlord shall have the right at Landlord's election to give Tenant written notice (the "Termination Notice") of Landlord's intention to terminate this Lease on the date specified in the Termination Notice. Thereupon, this Lease and the estate hereby granted shall terminate on such date as completely and with the same effect as if such date were the date fixed herein for the expiration of the term of this Lease and all rights of Tenant hereunder shall terminate, but Tenant shall remain liable as provided herein. (c) If an Event of Default shall have occurred and be continuing at the time of the delivery of the Possession Notice (as defined below), Landlord shall have the immediate right, whether or not this Lease shall have been terminated pursuant to Section 7.01(b), at Landlord's election, to give Tenant written notice (the "Possession Notice") of Landlord's intent to (i) re-enter and repossess the Leased Premises or any part thereof by force (except as prohibited by law), summary proceedings, ejections or otherwise and/or (ii) remove all persons and property therefrom, Tenant hereby expressly waiving any and all notices, other than the Possession Notice, to quit, cure or vacate provided by current or any future law. Landlord shall be under no liability by reason of any such re-entry, repossession or removal. No such re-entry or taking of possession of the Leased Premises by Landlord shall be construed as an election on Landlord's part to terminate this Lease unless the Termination Notice has been given to Tenant pursuant to Section 7.01(b). (d) At any time or from time to time after the repossession of the Leased Premises or any part thereof pursuant to Section 7.01(c), whether or not the Lease shall have been terminated pursuant to Section 7.01(b), Landlord may (but shall be under no obligation to) relet the Leased Premises or any part thereof for the account of Tenant, in the name of Tenant or Landlord or otherwise, without notice to Tenant (except as otherwise required herein), for such term or terms (which may be greater or less than the period which would otherwise have constituted the balance of the term of this Lease) and on such conditions (which may include concessions or free rent) and for such uses Landlord, in Landlord's reasonable discretion, may determine, and -8- 9 Landlord may collect and receive any rents payable by reason of such reletting. So long as Landlord exercises commercially reasonable efforts, Landlord shall not be responsible or liable for any failure to relet the Leased Premises or any part thereof or for any failure to collect any rent due upon any such reletting. (e) No termination of this Lease pursuant to Section 7. 01(b), by operation of law or otherwise, and no repossession of the Leased Premises or any part thereof pursuant to Section 7.01(c) or otherwise, and no reletting of the Leased Premises or any part thereof pursuant to Section 7.01(d) shall relieve Tenant of Tenant's liabilities and obligations hereunder, all of which shall survive such termination, repossession or reletting. (f) In the event of any such termination or repossession, Tenant will pay to Landlord the rent required to be paid by Tenant to and including the date of such termination or repossession; and, thereafter, Tenant shall, until the end of what would have been the term of this Lease in the absence of such termination or repossession, and whether or not the Leased Premises or any part thereof shall have been relet, be liable to Landlord for, and shall pay to Landlord, as liquidated and agreed current damages: (i) the rent which would be payable under this Lease by Tenant (including, without limitation, taxes, insurance, charges under the Park Documents and expenses and costs to repair and maintain the Leased Premises) in the absence of such termination or repossession, less (ii) the net proceeds, if any, of any reletting effected for the account of Tenant pursuant to Section 7.01(d), after deducting from such proceeds all Landlord's reasonable expenses incurred in connection with such reletting (including, without limitation, all reasonable repossession costs, commissions, attorneys' fees and expenses, employees' expenses, alteration costs and expense of preparation for such reletting). Tenant will pay such current damages on the days on which the rent would have been payable under this Lease in the absence of such termination or repossession, and Landlord shall be entitled to recover the same from Tenant on each such day. (g) Notwithstanding anything to the contrary stated herein, if an Event of Default shall have occurred and be continuing, whether or not Tenant shall have abandoned the Leased Premises, Landlord may elect to continue this Lease in effect for so long as Landlord does not terminate this Lease pursuant to Section 7.01(b) and Landlord may enforce all of Landlord's rights and remedies hereunder including without limitation the right to recover all rent payable hereunder as the same become due. (h) In addition to the foregoing remedies, Landlord may elect to terminate this Lease and recover from Tenant the present value at the time of award by the court having jurisdiction thereof (determined using the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%)), of the amount by which the unpaid rent called for herein for the balance of what would have been the term of this Lease in the absence of such termination, after the time of such award, exceeds the amount of the fair market rental value for the same period. -9- 10 (i) Except as set forth in this Section 7.01, or as available to Landlord in equity, Landlord shall have no other legal remedies against Tenant upon the occurrence and continuance of an Event of Default. ARTICLE VIII GENERAL ------- SECTION 8.01 NOTICES All notices, demands and requests hereunder shall be in writing and shall be given by United States registered or certified Mail, or by overnight delivery to: To Landlord: Howard S. Leight 6000 Cavalleri Road Malibu, California 90265 with a copy to Murray D. Fischer, Esq. 433 North Camden Drive, Suite 888 Beverly Hills, California 90210 To Tenant: Bacou USA Safety, Inc. c/o Bacou USA, Inc. 10 Thurber Boulevard Smithfield, Rhode Island 02917 Attention: Philip B. Barr, Jr., Esq. with a copy to: Edwards & Angell 2700 Hospital Trust Tower Providence, RI 02903 Attention: Richard M.C. Glenn, III, Esq. or such other address as may be designated in writing by the parties hereto. SECTION 8.02 WAIVER The waiver by Landlord of any breach of any term, covenant or conditions herein contained shall not be deemed to be a waiver of such term, covenant or condition or any -10- 11 subsequent breach of the same or any other term, covenant or condition herein contained. The subsequent acceptance of rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, other than the failure of Tenant to pay the particular rent so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such rent. No covenant, term or condition of this Lease shall be deemed to have been waived by Landlord unless such waiver is in writing and signed by Landlord. SECTION 8.03 GOVERNING LAW This Lease shall be governed by the laws of the Commonwealth of Kentucky. SECTION 8.04 AMERICANS WITH DISABILITIES ACT It shall be the responsibility of Tenant to comply, at its expense, with the obligations imposed by the Americans with Disabilities Act of 1990 (the "ADA") with respect to the Leased Premises and Tenant's employees and operation. These obligations include, but are not limited to, responsibilities under Title I and III of the ADA and the regulations thereunder, for making readily achievable changes to remove architectural barriers in the Leased Premises, for providing required auxiliary aids and services, for making reasonable modifications to Tenant's policies, practices and procedures, and for insuring that, to the maximum extent feasible, all alterations to the Leased Premises are readily accessible to individuals with disabilities and are in compliance with the ADA accessibility guidelines. Tenant shall defend and indemnify Landlord against all claims, losses, expenses and liabilities arising from any alleged discrimination on the basis of disability and the full and equal enjoyment of the goods, services, facilities, privileges, advantages or accommodations of the Leased Premises. SECTION 8.05 ENVIRONMENTAL A. Landlord warrants and represents that any use, storage, treatment or transportation of Hazardous Substances (as defined in paragraph C below) which has occurred in or on the Leased Premises prior to the date hereof has been in compliance with all applicable federal, state, and local laws, regulation and ordinances. Landlord additionally warrants and represents that no release, leak, discharge, spill disposal or emission of Hazardous Substances has occurred in, on or under the Leased Premises and that the Leased Premises is free of Hazardous Substances as of the date hereof. B. Landlord and Tenant, each respectively agree to indemnify and hold harmless Tenant and Landlord, as the case may be, from any and all claims, damages, fines, judgments, penalties, costs, liabilities or losses (including, without limitation, any and all sums paid for settlement of claims, consultant and expert fees) arising during or after the term of this Lease from or in connection with the presence or suspected presence of Hazardous Substances in or on the Leased Premises, unless the Hazardous Substances are present solely as a result of the negligence, willful misconduct or other acts of Tenant or Landlord (which, for purposes of this paragraph, shall be deemed to include Howard S. Leight & Associates, Inc., a California -11- 12 corporation), or of Tenant's or Landlord's agents, employees, contractors or invitees, as the case may be. Without limitation of the foregoing, this indemnification shall include any and all costs incurred due to any investigation of the Leased Premises or any cleanup, removal or restoration mandated by a federal, state or local agency or political subdivision, unless the Hazardous Substances are present solely as a result of the negligence, willful misconduct or other acts of Tenant or Landlord, or of Tenant's or Landlord's agents, employees, contractors, or invitees. This indemnification shall specifically include, but shall not be limited to, any and all costs due to Hazardous Substances which flow, diffuse, migrate or percolate into, onto or under the Leased Premises after this Lease commences. C. "Hazardous Substances" shall mean any flammable or explosive materials, petroleum or petroleum products, oil, crude oil, natural gas or synthetic gas usable for fuel, radioactive materials, hazardous wastes or substances or toxic wastes or substances, including without limitation, any substances now or hereafter defined as or included in the definition of "hazardous substances", "hazardous wastes", "hazardous material", "toxic materials", or "toxic substances" under any applicable federal, state or local laws or regulations now or hereafter in effect. SECTION 8.06 HOLDING OVER At the end of the term, or any extension, if Tenant holds over for any reason, it is hereby agreed that in the absence of a written Agreement to the contrary that tenancy shall be for month-to-month only and not a renewal of this Lease, nor an extension for any further term. In that case, Tenant shall pay base rent in an amount equal to 125% of the last base rent payable prior to the end of the term or any extension, plus any and other expenses and/or additional rents as called out for in the Lease Agreement, and it is agreed that the month-to-month tenancy shall be subject to every other term, covenant, and condition contained in the Lease except for the option or lease extension. Tenant also agrees to pay all damages sustained by Landlord by reason of such retention, including direct, indirect and consequential damages. SECTION 8.07 CASUALTY (a) If less than twenty (20%) of the Building is damaged by fire or other casualty and (i) such damage cannot be repaired within one hundred twenty (120) days of the date of such fire or other casualty or (ii) if such fire or other casualty is not covered by an insurance policy of either Tenant or Landlord, then either Landlord or Tenant shall have the right to terminate this Lease; PROVIDED, HOWEVER, either Landlord or Tenant at its option may elect to cause the Leased Premises to be repaired provided that such repairs can be completed within a reasonable period of time and, if either party so elects, the this Lease shall continue in full force and effect. In the event that Landlord or Tenant elects to repair the Leased Premises, then the electing party shall give written notice to the other party of its election to do so within thirty (30) days from the date of the fire or other casualty. During any such period of repair or restoration, base rent shall be adjusted to reflect the extent of the damage to the Leased Premises. -12- 13 (b) If twenty percent (20%) or more of the Building is damaged by fire or other casualty and if such fire or other casualty is covered by an insurance policy of either Tenant or Landlord and the damage may be repaired or restored within two hundred forty (240) days after commencement of the repair or restoration, then Landlord shall diligently proceed to repair and restore the Leased Premises provided that the insurance proceeds are turned over to Landlord. If Landlord determines that the Leased Premises cannot be repaired or restored within that period, then Landlord or Tenant shall have the right to terminate this Lease by written notice to the other given within thirty (30) days after the date of such damage. During any such period of repair or restoration, base rent shall be adjusted to reflect the extent of the damage to the Leased Premises. (c) In the event that there is no insurance and there is a total destruction of the Building, either party may terminate this Lease by giving the other party thirty (30) days written notice from the date of the destruction. Should neither party terminate this Lease and either party elect to rebuild the Building and the Building can be rebuilt within two hundred forty (240) days from the date of commencement of construction, then the Lease shall continue in full force and effect except that base rent shall be abated during the construction period. Upon total destruction of the Building, Tenant's obligation to pay rent and other charges under this Lease shall terminate as of the date of the damage or destruction or as of the date Tenant ceases to do business at the Leased Premises whichever date is later. (d) All repairs and restorations of the Leased Premises shall be done in accordance with all applicable building and zoning codes then in effect. SECTION 8.08 CONDEMNATION If the whole or a substantial part of the Leased Premises shall be taken under the power of eminent domain, or shall be conveyed to a governmental agency to avoid such taking, and such taking shall cause the remaining Leased Premises to be unsuitable and inadequate for use by Tenant for the purposes for which the Leased Premises were leased, Tenant shall have the option to terminate this Lease on the date Tenant is required to yield possession. If a part of the Leased Premises shall be taken but the remaining portion of the Leased Premises is in Tenant's reasonable opinion adequate for Tenant's use, then this Lease shall terminate as to the part taken or conveyed on the date Tenant shall yield possession, and Landlord shall make such repairs and alterations as may be necessary to make the part not taken usable, and the rent payable hereunder shall be reduced in proportion to the part of the Leased Premises taken. All compensation awarded for such taking of the fee and leasehold shall belong to and be, the property of Landlord without any deduction therefrom for any present or future estate of Tenant and Tenant hereby assigns to Landlord all Tenant's right, title and interest to any such award. Notwithstanding the foregoing, Tenant shall have the right to recover from the condemning authority, but not from Landlord, such compensation as may be specifically awarded to Tenant on account of interruption of Tenant's business, for moving and relocation expenses, and for depreciation to and removal of Tenant's goods and trade fixtures. -13- 14 SECTION 8.09 NON-DISTURBANCE If Landlord grants any mortgage or deed of trust with respect to the Leased Premises, Landlord shall furnish a non-disturbance agreement in favor of Tenant pursuant to which the holder of such mortgage or deed of trust agrees not to disturb the possession of the Leased Premises by Tenant so long as Tenant performs Tenant's obligations hereunder. SECTION 8.10 NOTICE OF LEASE Upon the request of either party, Landlord and Tenant each agree to execute and deliver a notice of this Lease complying with the requirements of applicable law and record such notice of lease with the appropriate recording office. SECTION 8.11 SUCCESSORS AND ASSIGNS This Lease shall be binding upon and shall inure to the benefit of the heirs, successors and assigns of the parties hereto. SECTION 8.12 ENTIRE AGREEMENT This Lease contains the entire and only agreement between the parties with respect to the Leased Premises and the subject matter hereof, and no oral statements or any prior written matter not contained in this Lease shall have any force or effect. This Lease shall not be modified in any way except by writing signed by both parties. SECTION 8.13 CAPTIONS FOR CONVENIENCE The captions of the articles and sections of this Lease are for convenience only, and the words contained therein shall in no way be held to explain, modify, amplify or aid in the interpretation, construction or meaning of the terms and conditions of this Lease. SECTION 8.14 SEVERABILITY If any term or provision of this Lease or the application thereof to any person or circumstance shall to any extent, be invalid or unenforceable, the remainder of this Lease or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Lease shall be valid and be enforced to the fullest extent permitted by law. SECTION 8.15 DUPLICATE COUNTERPARTS This Lease may be executed in one or more counterparts, each of which shall be an original, and all of which shall constitute one and the same instrument. -14- 15 SECTION 8.16 ATTORNEY'S FEES In the event any dispute arising out of this Lease shall result in a lawsuit, all costs and expenses (including reasonable attorney's fees) incurred by the prevailing party in connection therewith shall be reimbursed by the other party. IN WITNESS WHEREOF, Landlord and Tenant have signed and sealed this Lease as of the day and year first above written. Landlord: /s/ Howard S. Leight ---------------------------- Howard S. Leight Tenant: BACOU USA SAFETY, INC. By: /s/ W. Stepan ------------------------ Print Name: W. Stepan Title: President -15- 16 EXHIBIT A DESCRIPTION OF LEASED PREMISES That certain parcel of land situated on the westerly side of Spiral Drive in Florence, Kentucky and being all of Lot 5, Phase L, Turfway Business Park as described in Plat Slide 422-B of the Boone County Clerk's records at Burlington, Kentucky and containing approximately 1.824 acres and all the improvements situated thereon, including, without limitation, a building containing approximately 20,000 square feet. The Leased Premises are leased together with the benefit of and subject to all easements, limitations, conditions and restrictions of record, including, without limitation, the Protective Covenants for Turfway Business Park and the Joint Access and Maintenance Agreement by and between TRP Associates and Landlord dated as of November 3, 1997. EX-10.39 9 BONUS PLAN FOR EXECUTIVES 1 EXHIBIT 10.39 ------------- BONUS PLAN FOR EXECUTIVES OF SUBSIDIARIES AND --------------------------------------------- DIVISIONS OF BACOU USA, INC. FOR 1998 AND 1999 ---------------------------------------------- February 23, 1998 ----------------- The Board of Directors of Bacou USA, Inc. has approved and adopted a bonus Plan for certain executives of its operating subsidiaries and divisions who serve at the President or Vice President levels. In order to be eligible to receive any amount under this Plan, an Executive must be designated a participant pursuant to a written employment arrangement and be employed at a subsidiary or of Bacou USA on December 31 of the year for which the bonus is determined. The Bonus Plan will be administered by the Compensation Committee of the Board of Directors of Bacou USA, Inc. in its discretion, and all determinations by such Committee shall be final and not subject to appeal. The annual bonus for each covered executive will be determined based upon the criteria described below. Any percentage to be applied pursuant to this Plan shall be applied to the amount of base salary paid by the subsidiary or division of Bacou USA (not including any unaffiliated predecessor business) to the Executive during the fiscal year for which the bonus is paid. If the executive is employed at a subsidiary with more than one operating division, the criteria will reflect either subsidiary or divisional financial results, depending upon the executive's employment agreement, hiring letter or job description. If the subsidiary or division was not affiliated with Bacou USA, Inc. for part of the applicable fiscal year of part or all of the prior fiscal year, then predecessor results will be used by Bacou USA, Inc. to prepare comparable pro forma results for purposes of applying this Plan. The criteria are as follows: 1. The operating profit of either the subsidiary or division which employs the executive, determined in accordance with GAAP and expressed as a percentage of net sales; provided, however, that operating profit shall be determined before amortization of intangible assets established pursuant to purchase accounting rules, before interest on intercompany debt and before income taxes. This criterion shall result in a bonus percentage of one of the following amounts, depending upon the applicable operating profit percentage from the following chart: * up to 5% =no bonus is being paid under this criteria * above 5%, up to 10% =5% of base salary will be paid * above 10%, up to 15% =10% of base salary will be paid * above 15%, up to 20% =15% of base salary will be paid * above 20%, up to 25% =20% of base salary will be paid * above 25%, up to 30% =25% of base salary will be paid * above 30%, up to 35% =30% of base salary will be paid 2 Bonus Plan for Executives of Subsidiaries and Divisions of Bacou USA, Inc. for 1998 and 1999 February 23, 1998 Page Two * above 35% = 35% of base salary will be paid 2. The growth of the subsidiary's or division's net sales, determined by comparing the net sales for the bonus year against the prior fiscal year, with an additional bonus equal to one of the following amounts: * up to 5.0% = no bonus is being paid under this criteria * above 5%, up to 10% = 5% of base salary will be paid * above 10%, up to 15% = 7% of base salary will be paid * above 15% = 10% of base salary will be paid 3. The growth of the subsidiary's or division's operating profit, determined by comparing the operating profit for the bonus year against the prior fiscal year, with an additional bonus equal to one of the following amounts: * growth up to 5.0% = no bonus is being paid under this criteria * growth above 5%, up to 10% = 5% of base salary will be paid * growth above 10%, up to 15% = 10% of base salary will be paid * growth above 15% = 15% of base salary will be paid 4. Discretionary special bonus for engagements in addition to an executive's main job, as per the recommendation of the CEO of Bacou USA, Inc. 5. Discretionary adjustment of the amounts determined under paragraphs 1-3 as per the recommendation of the CEO of Bacou USA, Inc. -2- EX-11 10 COMPUTATION OF EARNINGS 1 EXHIBIT 11 BACOU USA, INC. STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS DECEMBER 31, 1997
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1997 1996 1997 1996 ----------- ----------- ----------- ----------- BASIC: Weighted average shares outstanding 17,590,208 17,312,200 17,383,105 16,406,022 ===================================================== Net income $ 3,591,890 $ 3,966,491 $14,422,361 $19,376,833 Per share amount $ 0.21 $ 0.22 $ 0.83 $ 1.18 ===================================================== DILUTED: Weighted average shares outstanding 17,590,208 17,312,200 17,383,105 16,406,022 Net effect of dilutive stock options based on the treasury stock method using the average market price 66,741 30,115 27,597 30,103 ----------------------------------------------------- Total 17,656,949 17,342,315 17,410,702 16,436,125 ===================================================== Net income $ 3,591,890 $ 3,966,491 $14,422,361 $19,376,833 ===================================================== Per share amount $ 0.21 $ 0.22 $ 0.83 $ 1.18 =====================================================
EX-21 11 SUBSIDIARIES OF THE COMPANY 1 EXHIBIT 21 SUBSIDIARIES OF THE COMPANY SUBSIDIARY STATE OF INCORPORATION ---------- ---------------------- (1) Bacou USA Safety, Inc. Delaware (2) Uvex Safety Manufacturing, Inc. Rhode Island (3) Titmus Optical, Inc. Delaware (4) Biosystems, Inc. Pennsylvania (5) Bacou USA Finance, Inc. Minnesota (6) Bacou Foreign Sales Corporation U.S. Virgin Islands EX-23 12 CONSENT OF KPMG PEAT MARWICK 1 EXHIBIT 23 ACCOUNTANTS' CONSENT The Board of Directors Bacou USA, Inc.: We consent to incorporation by reference in the registration statement (333-09251) on Form S-8 of Bacou USA, Inc. of our report dated February 17, 1998, except as to notes 2(b) and 7(b) which are as of February 27, 1998, relating to the consolidated balance sheets of Bacou USA, Inc. and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income, stockholders' equity, and cash flows for the fiscal year ended December 31, 1997 and 1996, for the five months ended December 31, 1995, and for the fiscal year ended July 31, 1995, and our report on the related schedule dated February 17, 1998, which reports appear in the December 31, 1997 annual report on Form 10-K of Bacou USA, Inc. KPMG PEAT MARWICK LLP Providence, Rhode Island March 25, 1998 EX-27 13 FINANCIAL DATA SCHEDULE
5 0001006027 BACOU USA, INC. 1 U.S. DOLLARS 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 1 1,276,658 0 16,098,984 944,638 23,449,345 45,752,685 47,465,739 11,585,476 152,351,102 11,243,539 0 0 0 17,012 122,885,050 152,351,102 130,868,486 130,868,486 64,466,765 64,466,765 0 0 155,275 25,010,361 10,588,000 14,422,361 0 0 0 14,422,361 0.83 0.83
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