-----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, H+aJzNmcI6N79vNHq7vAFyMmnlx5HUpCD6QJI9tWrGY37b/lwk9n6SpJAqnUBNk5 7SxeuRv2gHa4XiEpjegx4A== 0000950135-99-001628.txt : 19990331 0000950135-99-001628.hdr.sgml : 19990331 ACCESSION NUMBER: 0000950135-99-001628 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990330 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: 001-14311 FILM NUMBER: 99577868 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 FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [X] ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 [ ] 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 (I.R.S. Employer incorporation or organization) Identification Number) 10 THURBER BOULEVARD, SMITHFIELD, RI 02917-1896 (Address of principal executive offices) (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 common stock of the registrant held by non-affiliates of the registrant computed on the basis of $20.75 per share (the closing price of such stock on March 8, 1999 on The New York Stock Exchange): $103,933,949. As of March 8, 1999, there were 17,621,465 shares of Common Stock outstanding. ------------------------ DOCUMENTS INCORPORATED BY REFERENCE Proxy Statement for the 1999 Annual Meeting of Stockholders (to be filed with the Securities and Exchange Commission on or before April 30, 1999) is incorporated by reference in Part III hereof. ================================================================================ 2 TABLE OF CONTENTS
DESCRIPTION PAGE NUMBER ----------- ----------- PART I Item 1 Business......................................................................... 1 Item 2 Properties....................................................................... 10 Item 3 Legal Proceedings................................................................ 10 Item 4 Submission of Matters to a Vote of Security Holders.............................. 10 PART II Item 5 Market for the Registrant's Common Stock and Related Stockholder Matters......... 11 Item 6 Selected Financial Data.......................................................... 11 Item 7 Management's Discussion and Analysis of Financial Condition and Results of 12 Operations....................................................................... Item 7A Quantitative and Qualitative Disclosures About Market Risk....................... 19 Item 8 Financial Statements and Supplementary Data...................................... 20 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial 38 Disclosure....................................................................... PART III Item 10 Directors and Executive Officers of the Registrant............................... 38 Item 11 Executive Compensation........................................................... 38 Item 12 Security Ownership of Certain Beneficial Owners and Management................... 38 Item 13 Certain Relationships and Related Transactions................................... 38 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.................. 38 Signatures ................................................................................. 42
2 3 PART I ITEM 1. BUSINESS GENERAL Bacou USA, Inc. ("Bacou", "we", "our" or "us") designs, manufactures and sells safety products that protect the sight, hearing and respiratory systems of workers against occupational hazards, as well as related instrumentation including gas monitors and test equipment for self-contained breathing apparatus. Our safety products, which are marketed under the brand names Biosystems, Howard Leight(R), Lase-R Shield(TM), Pro-Tech(R), Survivair(R) and uVEX(R), are sold principally to industrial safety and fire service distributors. We also design, manufacture and sell optical products under the Titmus(R) brand name, including eyeglass frames and components which are sold principally to optical laboratories, and vision screening equipment. RECENT DEVELOPMENTS On February 25, 1999, we announced we had entered into an agreement to acquire Perfect Fit Glove Co., Inc. and certain affiliates and related assets ("Perfect Fit"), manufacturers and distributors of protective gloves and other related products worldwide with fiscal year 1998 combined net sales of $47.3 million. Perfect Fit brings with it an experienced management team, a solid history of favorable operating results, a broad line of products, a well-respected brand name and an estimated third ranking market share for sales of cut- and abrasion-resistant work gloves within the United States industrial market for non-disposable gloves. We believe that Perfect Fit furthers our plan to expand our range of protective equipment products within existing distribution channels. As with our other safety products, the primary distribution channel for Perfect Fit products is the industrial safety market in which we share a significant number of common customers. We are acquiring the assets of Perfect Fit for an approximate purchase price of $37.8 million in cash plus the assumption of the sellers' balance sheet liabilities, currently estimated at $16.0 million. We have agreed to pay an additional earnout of up to $6.0 million to the extent actual consolidated cash flow of the acquired business for 1999 exceeds certain specified targets. In connection with the acquisition, we will enter into employment agreements with four of the key executives of Perfect Fit. The acquisition will be accounted for under the purchase method of accounting and is expected to close during the second quarter of 1999. We intend to finance this acquisition by a loan from Banque Nationale de Paris at an interest rate per annum of three-month LIBOR plus approximately 0.5%. Effective February 27, 1998, we acquired substantially all assets and assumed substantially all liabilities of Howard Leight Industries ("Howard Leight"), a manufacturer of hearing protection products (including disposable, reusable and banded ear plugs, and ear muffs) for cash consideration of $125.9 million, $5.9 million of which represented the refinancing of Howard Leight indebtedness. SEGMENT INFORMATION Bacou has two reportable segments, which include the safety products segment and the optical frames and instruments segment. The safety products segment consists of businesses operating within our Bacou USA Safety, Inc. subsidiary ("Bacou Safety") and which sell products principally to industrial and fire safety distributors. Products manufactured within this segment include protective eyewear, hearing protection, respirators and gas monitors. The optical frames and instruments segment consists of our Titmus Optical, Inc. subsidiary ("Titmus"). Titmus manufactures eyeglass frames and components, which are sold principally to optical laboratories, and vision screening equipment. Eyeglass frames and components are purchased by optical laboratory customers who fit complete frames with prescription lenses. Financial information relating to our reportable segments and our international activities can be found in note 10 to the consolidated financial statements included with Item 8 herein. 3 4 PRODUCTS -- SAFETY SEGMENT Protective Eyewear Bacou sells UVEX(R) 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. We also sell application specific protective eyewear, including laser protective eyewear under the UVEX(R), LaserVision and Lase-R Shield(TM) brands. Hearing Protection Bacou sells a full range of Howard Leight(R) brand hearing protection products, which products reduce the risk of long-term hearing loss from exposure to excessive noise levels. These products include disposable and reusable ear plugs, corded ear plugs, banded ear plugs and ear muffs. Additionally, we sell Howard Leight(R) brand ear plug dispensers for easy distribution of hearing protection to workers. Air Purifying Respirators and Supplied Air Respirators Bacou sells a complete line of reusable half mask and full-face mask air purifying respirators under the Survivair(R) and Pro-Tech(R) brand names, as well as hazard specific cartridges and filters for removing various contaminants from the air. We also sell Survivair(R) 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 Bacou 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. We also sell PosiChek test-benches, which are computer controlled, automatic test-systems used to dynamically evaluate the proper performance of self-contained breathing apparatus. PRODUCTS -- OPTICAL FRAMES AND INSTRUMENTS SEGMENT Bacou sells Titmus(R) brand metal and plastic eyeglass frames and components for prescription protective eyewear, which accommodate corrective lenses and, when completed with lenses, meet the standards for protective eyewear. We sell Titmus(R) brand occupational vision screening equipment, used to determine whether an eye exam should be administered for prescribing corrective lenses. BACKLOG Our backlog totaled approximately $6.6 million at December 31, 1998 and $6.0 million at December 31, 1997. MARKETING, SALES AND DISTRIBUTION Bacou's safety 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. Fire service distributors sell Survivair self-contained breathing apparatus and Biosystems gas detectors and test equipment for self-contained breathing apparatus. UVEX(R), Howard Leight(R), and Pro-Tech(R) brand products are also marketed in the do-it-yourself retail markets for home safety products. Howard Leight(R) products are also sold in the shooting market. Optical laboratories and optical retailers are the main channels for distribution of Titmus(R) brand eyeglass frames and components for prescription protective eyewear. All of our products are marketed internationally, with UVEX(R) brand products contractually limited to distribution in North, South and Central America. The sale of our products to purchasers in France is restricted under a corporate opportunities agreement with Bacou S.A. 4 5 MANUFACTURING OPERATIONS Protective Eyewear We use a highly automated injection molding process to manufacture the frames and lenses of our UVEX(R) brand non-prescription protective eyewear. Frame components are molded in nylon, propionate and polyvinylchloride, and the lenses are molded from polycarbonate resin pellets. We use a highly automated, integrated assembly and packaging system for certain of our high-volume products. Disposable and Reusable Ear Plugs and Ear Muffs Bacou manufactures its ear plug products using proprietary, high volume automated machinery and equipment which mold polyurethane foam and polyvinylchloride into ear plugs. We use injection molding to produce head bands for banded ear plug products and ear muff bodies. We assemble all such products, except for one product line of completed ear muffs, which are manufactured by an outside vendor. Air Purifying Respirators and Supplied Air Respirators Bacou manufactures respirator bodies, cartridge and filter bodies, and certain other parts using injection and compression molding techniques. We produce most of our metal regulator parts using computer assisted machining operations. We assemble finished respirators 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 Our 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 a work-in-process inventory management system and electronically initiated inventory replenishment. We utilize work cells for assembly of these products. Eyeglass Frames and Components and Vision Screening Equipment Bacou manufactures Titmus(R) brand eyeglass frames and components 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. A computer controlled milling operation produces plastic products. We assemble vision screeners using component parts manufactured by outside vendors. RAW MATERIALS Although we rely primarily on single sources for the supply of several raw materials, all of our raw materials are currently readily available. We currently satisfy substantially all of our requirements for (i) polycarbonate resin (the primary raw material used in the production of non-prescription optical lenses), (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. We have agreed to enter into a supply agreement with Howard Leight Enterprises, Inc. ("HLE") (a corporation which is owned by Howard S. Leight, a director of Bacou, along with one current and two former employees of our Howard Leight Industries division) pursuant to which we intend to purchase polyurethane pre-polymer from HLE for a period of five years. HLE is only beginning to produce polyurethane pre-polymer and, therefore, a supply agreement has not yet been executed. The loss of any single source for supply of raw materials, any disruption in such source's business or its failure to meet our needs on a timely basis could cause shortages in raw materials and could have a material adverse effect on our business, financial condition or results of operations. Although we have plans in place to deal with such contingencies, there can be no assurance that such precautions will be adequate or that alternative sources of supply can be located or developed in a timely manner. 5 6 PRINCIPAL CUSTOMERS Bacou had no individual customers that accounted for 10% or more of consolidated net sales in either 1996, 1997 or 1998. However, the loss of any of its principal customers could have a material adverse effect on our 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 several large multinational corporations which manufacture and supply many types of personal protective equipment. We believe 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. The Uvex(R) 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 prices than comparable UVEX(R) brand products. Although we have 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. To maintain our market position, we must be competitive in the area of brand image, distribution, design, style, customer service, quality and price. Individual competitors have advantages and strengths 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 we will be able to compete successfully against current and future competitors or that the competitive pressures we face will not adversely affect our financial condition or operations. INTELLECTUAL PROPERTY Our policy is to protect our intellectual property through a range of measures, including trademarks, patents and confidentiality agreements. We protect these rights through the filing of applications for and registrations of trademarks and patents whenever such filings would provide greater protection than maintaining such information as trade secrets. We have the right to use the trademark UVEX(R) 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") have 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, Bacou may sell personal protective equipment under the UVEX(R) brand name only in North, Central and South America. The agreement also prohibits Bacou from selling sports products, such as sunglasses or protective eyewear for sport activities, under the UVEX(R) brand name regardless of geographic area. We also own a number of other patents and trademarks as a result of the acquisitions of Uvex, Survivair, Biosystems and Howard Leight. The Survivair name is registered in the United States, Canada and Mexico and thirteen other countries in Europe and South America. The Biosystems PosiChek product has received patent protection in the United States. The "Leight" name and numerous other product names associated with Howard Leight are registered in the United States. Our Titmus subsidiary owns numerous trademarks under the Titmus(R) name for many of its products in the United States and throughout the world. Bacou also relies upon unpatented trade secrets for the protection of certain intellectual property rights. We protect our trade secrets by requiring certain of our employees, consultants and other suppliers, customers, agents and advisors to execute confidentiality agreements upon the commencement of employment or other relationships with us. These agreements provide that all confidential information developed by or made known to the individual or entity during the course of the Bacou relationship is to be kept confidential and not 6 7 disclosed to third parties except in certain specified circumstances. There can be no assurance, however, that these agreements will provide meaningful protection for our 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 our trade secrets or disclose such technology or that we can meaningfully protect our rights to unpatented trade secrets. Further, there can be no assurance that infringement or invalidity claims will not be asserted against us 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 our business and financial condition. ENVIRONMENTAL MATTERS We are 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, 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. Our manufacturing operations routinely involve the handling of chemicals and wastes, some of which are or may become regulated as hazardous substances. We have not incurred, and do not expect to incur, any significant expenditures or liabilities for environmental matters. As a result, we believe that our obligations to comply with environmental regulations will not have a material adverse effect on our business or financial condition. EMPLOYEES At December 31, 1998, Bacou employed 1,942 people on a full-time basis. Approximately 245 employees comprise a bargaining unit represented by the United Steelworkers of America (AFL-CIO-CLC) under a contract which expires on September 13, 2000. We consider the relationship with our employees to be good and we have 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 and continuation of demand for personal protective equipment in the United States. The Occupational Safety and Health Administration ("OSHA") generally regulates the workplace environments in the United States in which personal protective equipment must be worn and specifies the standards which such equipment must meet. Other United States governmental agencies further regulate the use of personal protective equipment and issue standards concerning the design and functionality of such equipment. We believe we are in compliance in all material respects with the regulations and standards of these agencies. The United States and Canadian regulatory agencies each mandate that our products meet performance standards established by private groups, such as the American National Standards Institute ("ANSI") and the Canadian Standards Association ("CSA"), respectively. Our 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. We maintain and operate on-site testing labs at our Smithfield, Rhode Island and Petersburg, Virginia facilities that are equipped to perform necessary tests. Our hearing protection products are subject to ANSI Industrial Standard S12.6-1984 (R 1990). Our 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. OSHA specifies that respiratory protective equipment must meet application-specific performance standards which are set by the National Institute for Occupational Safety and Health. In addition, many respiratory products require approval by the National Fire Protection Association. In order to achieve 7 8 regulatory approval, we maintain and operate an on-site lab at our Santa Ana, California facility that is equipped to conduct most necessary tests. EXECUTIVE OFFICERS The names, positions, ages and business experiences during the past five years of the executive officers of Bacou and its principal subsidiaries or divisions, as of March 8, 1999 are set forth below:
NAME POSITION WITH THE COMPANY AGE ---- ------------------------- --- Walter Stepan.................. Vice Chairman, President and Chief Executive Officer; 60 Chairman, President and Chief Executive Officer of Bacou Safety; Chairman of Uvex Safety Manufacturing, Inc.; Chairman of Titmus Philip B. Barr................. Executive Vice President, Chief Operating Officer, Chief 47 Financial Officer and Secretary; Vice Chairman, Secretary and Treasurer of Bacou Safety; Secretary and Treasurer of Titmus John J. Bell................... President of Survivair Division and Executive Vice President 53 of Bacou Safety Alan H. Bennett................ President of Uvex Safety Division and Executive Vice 56 President of Bacou Safety; Chief Executive Officer of Uvex Safety Manufacturing, Inc. Bradford L. Brooks............. President and Chief Executive Officer of Titmus and 55 Executive Vice President of Bacou Safety Jeffrey T. Brown............... Director of Financial Reporting , Chief Accounting Officer 39 and Treasurer John F. Burt, Jr............... President of Biosystems division and Executive Vice 56 President of Bacou Safety George R. Ebel................. President of Uvex Safety Manufacturing, Inc. 58 Adrien W. Hebert............... Vice President -- Finance and Corporate Controller 48 Thomas W. Klein................ President of Howard Leight division and Bacou International 50 Division; Executive Vice President of Bacou Safety Winfield W. Major.............. General Counsel 51 Harry D. Neff, II.............. Senior Vice President -- Sales of Bacou Safety (with 52 responsibility for Uvex Safety and Howard Leight sales force)
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 Bacou since July 1995. Mr. Stepan served as President of Uvex Safety and its predecessors from 1988 until February, 1999, and was Chief Executive Officer from 1988 until December 1997 when Uvex Safety was merged into Bacou Safety, of which Mr. Stepan is Chairman, President and Chief Executive Officer. He has served as Chairman of Uvex Safety Manufacturing, Inc. since December, 1997. Mr. Stepan has been Chairman of the Board of Titmus since September 1995. 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 Bacou since October 1996. He has been Vice President, Chief Financial Officer and Secretary of Bacou since August 1995, was Treasurer of Bacou from August 1995 until May 1998, and has served as Chief Operating Officer since February, 1999. He has served as Vice Chairman of Bacou Safety since December 1997. He has served as Secretary and Treasurer of Titmus since September 1995. From 1985 to 1995, Mr. Barr was a Partner of Edwards & Angell, our primary outside counsel. 8 9 Mr. Bell has been President of Survivair since 1992. He has served as Executive Vice President of Bacou Safety since May, 1998. He joined Survivair in 1983 and served as Vice President of Operations from 1989 to 1992. Mr. Bennett has been President of the Uvex Safety division and Executive Vice President of Bacou Safety since February, 1999. Prior to that time, he served as President of Safety Supply America/Figgie International Division. Mr. Brooks has been President and Chief Executive Officer of Titmus since March 1998. He has served as Executive Vice President of Bacou Safety since May, 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. Brown has been Director of Corporate Reporting and Treasurer since May 1998. He served as Corporate Controller from August 1995 until May 1998 and has been Chief Accounting Officer of Bacou since August 1995. Prior to joining Bacou, Mr. Brown was a Senior Manager of KPMG LLP, our independent accountants, where he was employed from June 1982 to August 1995. Mr. Burt founded Biosystems in 1981 and has served as President since that date. He has served as Executive Vice President of Bacou Safety since May, 1998. Mr. Ebel has been president of Uvex Safety Manufacturing, Inc. since October 1998. Mr. Ebel was group president of MDC Industrial, a subsidiary of McDonnell Douglas High Volume Plastic and Metal Industrial Products, from 1990 to 1998. Mr. Hebert has served as Vice President of Finance and Corporate Controller since May 1998. He was Manager of Corporate Development of Bacou from April 1997 to May 1998 and was a Financial Consultant to Bacou from December 1996 until April 1997. Mr. Hebert was Vice President and Chief Financial Officer of Encon Systems, Inc. from June 1991 until February 1996. Mr. Klein has served as the President of the Howard Leight division since July 1998 and briefly served as President of the Uvex Safety division from June 1998 to July 1998. He has served as Executive Vice President of Bacou Safety since June, 1998. Prior to joining Bacou, Mr. Klein spent more than 20 years at 3M, where his latest position was Tape Group Director for Latin America and Africa. Mr. Major has served as General Counsel since June 1998. From 1994 to 1998 he was Counsel to the law firm of Edwards & Angell, our primary outside counsel. Prior to that position, he served as General Counsel to Old Stone Corporation from 1981 to 1993, serving as Executive Vice President from 1990 to 1993. Mr. Neff has been Senior Vice President of Sales for Bacou Safety since January 1998. He served as Senior Vice President -- Sales of Uvex Safety since 1997, and Vice President - Sales from 1992 until 1997. 9 10 ITEM 2. DESCRIPTION OF PROPERTIES The following table sets forth the location of the facilities that Bacou owns or leases, the square footage and the principal function of each such facility. All facilities are used for the safety segment other than the Petersburg, Virginia facility, which is used for the optical frames and instruments segment.
APPROXIMATE OWNED OR LOCATION SQUARE FOOTAGE LEASED FUNCTION -------- -------------- -------- -------- Smithfield, Rhode Island............ 127,000 Leased Corporate headquarters; manufacturing, assembly, warehousing and distribution facility for protective eyewear San Diego, California............... 100,000 Owned Manufacturing, assembly, warehousing and distribution for hearing protection products Tijuana, Mexico..................... 49,000 Leased Manufacturing and assembly for hearing protection products Petersburg, Virginia................ 130,000 Owned Manufacturing, assembly, warehousing and distribution facility for eyeglass frames and components and vision screening equipment Santa Ana, California............... 93,000 Leased Manufacturing, assembly, warehousing and distribution for respiratory protection products Middletown, Connecticut............. 45,000 Leased Assembly, warehousing and distribution facility for gas monitors Smithfield, Rhode Island............ 32,000 Leased Warehousing facility Bollington, Cheshire, U.K........... 20,000 Leased Sales office; warehousing and distribution facility Florence, Kentucky.................. 20,000 Leased Warehousing and distribution facility Albuquerque, New Mexico............. 900 Leased Regional sales office Shafer, Minnesota................... 700 Leased 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. 10 11 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Our common stock trades on The New York Stock Exchange under the symbol BAU. The authorized capital stock of Bacou 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 high and low sales prices of our common stock and dividends for each quarterly period, see Note 11 to the consolidated financial statements included in Item 8 herein. As of March 17, 1999, the closing price for our common stock was $14 15/16 per share and there were approximately 18 holders of record. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data of Bacou for the periods indicated. Selected financial data for each of the years ended July 31, 1994 and 1995, the five months ended December 31, 1995, and the years ended December 31, 1996, 1997, and 1998 were derived from financial statements of Bacou which were audited by KPMG LLP, independent certified public accountants, whose report with respect to the years ended December 31, 1996, 1997, and 1998 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.
FIVE MONTHS YEAR ENDED ENDED YEAR ENDED JULY 31, DECEMBER 31, DECEMBER 31, ----------------- ------------ ------------------------------ 1994 1995(1) 1995(2) 1996 1997(3) 1998(4) ------- ------- ------------ -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF INCOME DATA: Net sales........................... $53,927 $71,988 $36,827 $109,268 $130,869 $219,581 Cost of sales....................... 22,186 31,016 18,525 47,355 64,467 105,856 ------- ------- ------- -------- -------- -------- Gross profit........................ 31,741 40,972 18,302 61,913 66,402 113,725 Operating expenses: Selling........................ 8,719 9,781 5,891 17,074 21,658 35,660 General and administrative..... 3,206 4,080 2,609 9,176 11,184 22,895 Research and development....... -- -- -- -- 1,110 4,000 Purchased in-process research and development.............. -- -- -- -- 3,721 4,680 Amortization of intangibles assets....................... 1,467 2,506 1,515 4,039 4,095 7,748 ------- ------- ------- -------- -------- -------- Total operating expenses................ 13,392 16,367 10,015 30,289 41,768 74,983 ------- ------- ------- -------- -------- -------- Operating income.................... 18,349 24,605 8,287 31,624 24,634 38,742 Other expense (income), net......... 333 1,287 1,054 45 (376) 6,054 ------- ------- ------- -------- -------- -------- Income before income taxes and minority interest................. 18,016 23,318 7,233 31,579 25,010 32,688 Minority interest share of income... 6,164 1,920 -- -- -- -- Income taxes........................ 4,371 8,343 2,917 12,202 10,588 11,678 ------- ------- ------- -------- -------- -------- Net income(5)....................... $ 7,481 $13,055 $ 4,316 $ 19,377 $ 14,422 $ 21,010 ======= ======= ======= ======== ======== ======== Earnings per share: Basic and diluted(5)(6)........ $ 0.57 $ 0.94 $ 0.31 $ 1.18 $ 0.83 $ 1.19 Weighted average shares outstanding: Basic.......................... 13,167 13,860 13,860 16,406 17,383 17,601 Diluted........................ 13,167 13,860 13,860 16,436 17,411 17,723
11 12
FIVE MONTHS YEAR ENDED ENDED YEAR ENDED JULY 31, DECEMBER 31, DECEMBER 31, ----------------- ------------ ------------------------------ 1994 1995(1) 1995(2) 1996 1997(3) 1998(4) ------- ------- ------------ -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) BALANCE SHEET DATA (END OF PERIOD): Working capital..................... $13,856 $11,838 $ 4,406 $ 40,820 $ 34,509 $ 31,092 Total assets........................ 51,173 76,526 104,469 125,109 152,351 293,770 Total long-term debt, excluding current installments.............. 9,170 27,800 49,000 -- -- 92,050 Common stock subject to a put option............................ -- -- -- -- 9,450 9,450 Stockholders' equity................ 28,327 41,382 45,698 112,407 122,902 144,462
- --------------- (1) Includes the operating results of Pro-Tech 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. (2) Includes the operating results of Titmus from October 1, 1995. (3) Includes the operating results of Survivair from June 1, 1997 and operating results of Biosystems from September 30, 1997. (4) Includes the operating results of Howard Leight from February 27, 1998. (5) Excluding acquisition-related items and a severance charge recorded in 1998 in connection with the 1998 termination of the President and Chief Operating Officer of Bacou Safety, and including the operating results of the acquired companies as described above, Bacou's net income, and both basic and diluted earnings per share, would have been as follows for each of the periods presented (see Management's Discussion and Analysis of Financial Condition and Results of Operations):
YEAR ENDED FIVE MONTHS YEAR ENDED JULY 31, ENDED DECEMBER 31, ---------------- DECEMBER 31, --------------------------- 1994 1995 1995 1996 1997 1998 ------ ------- ------------ ------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net income................... $7,481 $14,096 $5,811 $19,377 $19,498 $25,793 Earnings per share: Basic........................ $ 0.57 $ 1.02 $ 0.42 $ 1.18 $ 1.12 $ 1.46 Diluted...................... 0.57 1.02 0.42 1.18 1.12 1.46
- --------------- (6) Bacou neither declared nor paid any cash dividends during any of the periods presented. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and notes thereto, as well as our selected financial data, all appearing elsewhere herein. 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. We caution you that a number of important factors could cause our actual results to differ materially from those expressed in any forward-looking statements made by us, or on our behalf. Forward-looking statements involve a number of risks and uncertainties including, but not limited to, the following: - continued demand for our current product lines; - the success of our new product introductions; - the success of our acquisition strategy; - continued availability and favorable pricing of raw materials; - our ability and the ability of our key vendors to successfully respond to year 2000 issues; - competitive pressures; - general economic conditions; and - regulatory matters. 12 13 We cannot assure you that we will be able to anticipate or respond timely to changes in any of the factors listed above, which could adversely affect our operating results in one or more fiscal periods. Our operating results 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 our common stock. BACKGROUND Effect of Acquisitions We are pursuing a business strategy that includes acquisitions as an important element. As described more fully below, we completed six acquisitions during the past three years, which significantly increased our product offerings and size. Annual net sales volume has increased from $72.0 million (actual) for the fiscal year ended July 31, 1995 to net sales on a pro forma basis equal to $226.9 million for the year ended December 31, 1998. Our gross margin and operating margin for the fiscal year ended July 31, 1995, were 56.9% and 34.2%, respectively. Historical margins attributable to the operations of businesses acquired by us have generally been lower than margins at our platform Uvex Safety business. In addition, intangible assets totaling $146.1 million have been recorded subsequent to July 31, 1995, resulting in a significant increase in amortization expense. Integration of acquired businesses into our existing Uvex Safety business, and an increase in amortization expense, have each resulted in a decline in our margins from the fiscal year ended July 31, 1995. On February 25, 1999, we announced that we had entered into an agreement to acquire Perfect Fit Glove Co., Inc. and certain affiliates and related assets ("Perfect Fit"), manufacturers and distributors of protective gloves and other related products worldwide. Historical gross margins and operating margins of Perfect Fit have been lower than the consolidated margins of Bacou. Although we expect our gross, operating and net profit to increase as a result of our acquisition of Perfect Fit, we expect that inclusion of the operating results of this business will further reduce our consolidated margins in 1999. See "--Liquidity and Capital Resources". Effective February 27, 1998, we acquired substantially all assets and assumed substantially all liabilities of Howard Leight, a manufacturer of hearing protection products (including disposable, reusable and banded ear plugs, and ear muffs) for cash consideration of $125.9 million, $5.9 million of which represented the refinancing of Howard Leight indebtedness. We acquired all of the outstanding capital stock of Comasec Holdings, Inc. ("Comasec") on May 30, 1997 for cash consideration of $27.4 million. The assets of Comasec consisted primarily of its wholly owned subsidiary, Survivair, a manufacturer of respiratory protection products. On September 30, 1997, we also acquired all of the capital stock of Biosystems, a manufacturer of gas monitors and equipment for testing self-contained breathing apparatus, in exchange for 826,514 shares of our common stock having a fair market value equal to $13.5 million. The initial acquisition price for Biosystems may be increased if the operating results of this business in the year 2000 exceed certain defined thresholds. Finally, we acquired Lase-R Shield for $1.0 million in June of 1997. We acquired all of the outstanding capital stock of Titmus (effective September 29, 1995) for approximately $27.3 million and substantially all of the assets of Pro-Tech (effective March 31, 1995) for approximately $6.8 million. Operating results for each of the above acquisitions have been included in our consolidated financial statements beginning with the respective acquisition dates. Certain non-recurring costs, principally relating to the above acquisitions, have been included in our 1997 and 1998 operating results. In connection with the acquisition of Howard Leight and certain of the 1997 acquisitions, a portion of the acquisition price was allocated to the fair value of purchased in-process research and development. These amounts, totaling $3.7 million in 1997 and $4.7 million in 1998, were charged to operating expenses in full upon the date of acquisition. In connection with each of the acquisitions, acquired inventories were adjusted to fair values, and these adjustments were subsequently charged to cost of sales 13 14 when the acquired inventories were sold. These amounts were equal to $2.1 million in 1997 and $1.0 million in 1998. We paid cash bonuses in the amount of $0.6 million to certain senior executives of Howard Leight in connection with that acquisition, which have been included with general and administrative expenses. We also recorded acquisition-related charges during 1997 totaling $150,000 that are included with general and administrative expenses. The following discussion provides an analysis of our actual operating results, and also analyzes our operating results excluding the effect of these acquisition-related items. RESULTS OF OPERATIONS The following table presents selected operating data of Bacou and such amounts as percentages of net sales for the periods indicated (in thousands, except percentages).
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1998 ------------------ ------------------ ------------------ Net sales.............................. $109,268 100.0% $130,869 100.0% $219,581 100.0% Cost of sales (1)...................... 47,355 43.3 64,467 49.3 105,856 48.2 -------- ----- -------- ----- -------- ----- Gross profit........................... 61,913 56.7 66,402 50.7 113,725 51.8 Operating expenses: Selling.............................. 17,074 15.6 21,658 16.6 35,660 16.2 General and administrative(2)........ 9,176 8.4 11,184 8.6 22,895 10.4 Research and development............. -- -- 1,110 0.8 4,000 1.8 Purchased in-process research and development(3).................... -- -- 3,721 2.8 4,680 2.1 Amortization of intangible assets.... 4,039 3.7 4,095 3.1 7,748 3.6 -------- ----- -------- ----- -------- ----- Total operating expenses..... 30,289 27.7 41,768 31.9 74,983 34.1 -------- ----- -------- ----- -------- ----- Operating income....................... 31,624 29.0 24,634 18.8 38,742 17.7 Other expense (income), net............ 45 0.1 (376) (0.3) 6,054 2.8 -------- ----- -------- ----- -------- ----- Income before income taxes............. 31,579 28.9 25,010 19.1 32,688 14.9 Income taxes........................... 12,202 11.2 10,588 8.1 11,678 5.3 -------- ----- -------- ----- -------- ----- Net income............................. $ 19,377 17.7% $ 14,422 11.0% $ 21,010 9.6% ======== ===== ======== ===== ======== =====
- --------------- (1) Includes acquisition-related costs totaling $2,053,000 (1.6% of net sales) for the year ended December 31, 1997, and $1,013,000 (0.5% of net sales) for the year ended December 31, 1998. (2) Includes acquisition-related charges totaling $150,000 (0.1% of net sales) for the year ended December 31, 1997, and non-recurring charges for termination benefits totaling $1,425,000 (0.6% of net sales) and acquisition-related bonuses totaling $600,000 (0.3% of net sales) for the year ended December 31, 1998. (3) Amounts for all periods represent acquisition-related charges for acquired in-process research and development. YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997 Net Sales. Our net sales increased 67.8% from $130.9 million for the year ended December 31, 1997 to $219.6 million for the year ended December 31, 1998. Net sales in our safety segment increased 90.5% from $99.4 million in 1997 to $189.4 million in 1998, principally the result of acquired businesses and new product introductions, while net sales in our optical frames and instruments segment declined by 4.0% from $31.5 million in 1997 to $30.2 million in 1998. Export sales represented 11.5% of net sales in 1997 and 15.1% of net sales in 1998, and increased by 119.4% from 1997 to 1998 due principally to acquired businesses. Of the $90.0 million increase in net sales of safety products, $75.4 million was the result of acquired businesses. Operating results of Howard Leight were included for ten months in 1998 and results of Survivair and Biosystems were included for the full year in 1998, compared to the 1997 period, which only included Survivair for seven months and Biosystems for three months. The remaining growth in sales of safety products of 14.7% was principally the result of new product introductions, including UVEX(R) lines of astrospec 3000 14 15 protective eyewear with the colors and logos of National Football League teams, Bandit and Bandido protective eyewear, the Survivair 7000 series air purifying respirator line, and the Panther self-contained breathing apparatus. Cost of Sales. Our cost of sales increased 64.2% from $64.5 million for the year ended December 31, 1997, to $105.9 million for the year ended December 31, 1998, primarily as a result of higher sales volume. Gross Profit. Our gross profit increased 71.3% from $66.4 million for the year ended December 31, 1997, to $113.7 million for the year ended December 31, 1998. Excluding acquisition-related items, our gross margin was approximately 52.3% in both 1997 and 1998. Because of relatively higher margins attributable to hearing protection products, our acquisition of the Howard Leight business has improved our overall gross margin. This improvement however, was offset by the effect of our acquisition of the Biosystems and Survivair businesses, due to the lower margins attributable to respiratory and gas monitor products. Operating Expenses. Our operating expenses increased 79.5% from $41.8 million for the year ended December 31, 1997 to $75.0 million for the year ended December 31, 1998, primarily as a result of operating expenses attributable to acquired businesses. In June 1998, we announced the termination of employment of the president and chief operating officer of Bacou Safety. The 1998 period includes a charge equal to $1.4 million for termination payments due to this former officer. In addition, the 1998 period includes acquisition-related charges for acquired in-process research and development totaling $4.7 million and acquisition-related bonuses totaling $0.6 million. The 1997 period also includes acquisition-related charges for acquired in-process research and development totaling $3.7 million. Excluding these charges, operating expenses as a percentage of net sales increased from 29.1% for the year ended December 31, 1997 to 31.1% for the year ended December 31, 1998. This increase was due primarily to higher levels of spending for research and development at acquired businesses and increased amortization expense. Amortization expense increased 89.2% from $4.1 million in 1997 to $7.7 million in 1998 as a result of additions to intangible assets in connection with businesses we recently acquired. Operating Income. Our operating income increased 57.3% from $24.6 million for the year ended December 31, 1997 to $38.7 million for the year ended December 31, 1998. Excluding acquisition-related items in both years and excluding the 1998 termination benefits discussed above, our operating income increased 52.0% from $30.6 million for the year ended December 31, 1997 to $46.5 million for the year ended December 31, 1998 and our operating margin declined from 23.4% for the year ended December 31, 1997 to 21.2% for the year ended December 31, 1998. Other Expense (Income), Net. Other expense (income), net was ($376,000) for the year ended December 31, 1997 and $6.1 million for the year ended December 31, 1998. The 1998 period includes net interest expense totaling $6.2 million, whereas the 1997 period includes net interest income totaling ($216,000). The increase in net interest expense from 1997 to 1998 is due principally to debt we incurred in connection with the acquisition of Howard Leight. See "-- Liquidity and Capital Resources." Income Taxes. Our effective income tax rate was 42.3% in 1997 and 35.7% in 1998. Our effective rate in both periods was higher than the federal statutory rate of 35.0% due to state and local income taxes. In addition, our effective rate in the 1997 period was higher because a tax benefit could not be recorded for charges totaling $3.7 million and relating to acquired in-process research and development. Net Income. Our net income increased 45.7% from $14.4 million for the year ended December 31, 1997 to $21.0 million for the year ended December 31, 1998. Excluding acquisition-related items in both years and excluding the 1998 termination benefits discussed above, our net income increased 32.3% from $19.5 million in 1997 to $25.8 million in 1998. YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996 Net Sales. Our 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. Net sales of our safety segment increased 28.1% from $77.6 million in 1996 to $99.4 million in 1997, while net sales of our optical frames and instruments segment 15 16 declined from $31.7 million in 1996 to $31.5 million in 1997. Export sales represented 7.3% of net sales in 1996 and 11.5% of net sales in 1997, and increased by 90.0% from 1996 to 1997. Net sales of safety products increased principally as a result of acquired businesses, as the 1997 acquisitions of Biosystems and Survivair contributed incremental sales totaling $21.5 million. During the fourth quarter of 1996 we withdrew from the business of selling completed prescription eyewear, and as a result, net sales of our optical frames and instruments segment declined from the 1996 period to the 1997 period by approximately $3.1 million. Excluding the effect of businesses acquired in 1997, and excluding sales in 1996 from discontinued product lines, our net sales increased by 3.6%, principally as a result of increased units shipped. Cost of Sales. Our 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 costs resulting from the 1997 acquisitions of Biosystems and Survivair. Gross Profit. Our gross profit increased 7.3% 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 items, our gross margin would have been 52.3% in 1997 compared with 56.7% in 1996. Our gross margin declined from 1996 to 1997 principally as a result of lower margins at acquired businesses. During 1997 we also experienced a reduction in the average selling price of many of our protective 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. We believe competitive pressures may limit our ability to increase prices to previous levels. In addition to these factors, our gross margin during 1997 was reduced as a result of higher costs to produce eyeglass frames and components. 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. Our operating expenses increased 37.9% from $30.3 million for the year ended December 31, 1996 to $41.8 million for the year ended December 31, 1997. Excluding acquisition-related charges for acquired in-process research and development 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 operating expenses attributable to Biosystems and Survivair; each acquired by us during 1997. In addition, selling expenses as a percentage of sales increased from 15.6% in 1996 to 16.6% in 1997, principally as a result of expansion of our international sales force, higher advertising and promotion costs, and somewhat higher product development costs. Operating Income. As a result of the foregoing, our 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 acquisition-related items, operating income decreased 3.4% from $31.6 million in 1996 to $30.5 million in 1997. Other Expense (Income), Net. Other expense (income), net was $45,000 for the year ended December 31, 1996 and ($376,000) for the year ended December 31, 1997. We 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 net interest expense from 1996 to 1997. Income Taxes. Our effective income tax rate was 38.6% in 1996 and 42.3% in 1997. Our effective rate in both periods was higher than the federal statutory rate due to state and local income taxes and, in the 1997 period, because a tax benefit could not be recorded for charges totaling $3.7 million and relating to acquired in-process research and development. Excluding the effect of these charges, our effective income tax rate for 1997 would have been 37.1%. Net Income. Primarily as a result of acquisition-related items, our 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 items, our net income increased from $19.4 million in 1996 to $19.5 million in 1997. 16 17 EFFECTS OF INFLATION Inflation during recent years has been modest and has not had a material impact upon the results of our operations. LIQUIDITY AND CAPITAL RESOURCES Our liquidity historically has been derived from cash flow provided by operations and, periodically, from bank borrowings utilized to finance acquisitions of businesses. We utilize EBITDA (earnings before interest, taxes, depreciation and amortization) as a measure of our cash flow provided by operations. Our EBITDA (prior to the effect of non-recurring items) increased 54.7% from $39.2 million for the year ended December 31, 1997 to $60.6 million for the year ended December 31, 1998. This increase was principally due to inclusion of the operating results of acquired businesses. We used cash equal to $6.5 million for working capital purposes during the year ended December 31, 1998. Our net use of cash for working capital purposes resulted principally from increases in accounts receivable and inventories. Our accounts receivable balances were higher at December 31, 1998 than at December 31, 1997 principally as a result of sales volume during the fourth quarter of 1998 that was substantially higher than the comparable period in 1997. Inventory levels increased from 1997 to 1998 principally due to planned increases in response to higher order rates and due to initial stocking for new product introductions. We used cash equal to $135.5 million during the year ended December 31, 1998, and $35.4 million during the year ended December 31, 1997, for investing activities. The year ended December 31, 1998, includes cash payments totaling $120.0 million that we made in connection with the acquisition of Howard Leight. We made cash payments for the acquisition of Survivair, totaling $27.4 million, during the year ended December 31, 1997. Our capital expenditures totaled $14.4 million for the year ended December 31, 1998 and $6.8 million for the year ended December 31, 1997. In connection with our acquisition of Biosystems we provided former shareholders of Biosystems put options covering 578,560 shares issued in connection with that acquisition. The put options may be exercised at any time through September 30, 1999, at a price equal to approximately $16.38 per share. If the put options were exercised in full, we would be required to make cash payments totaling approximately $9.5 million to repurchase these shares, and we expect that such payment would be funded by bank borrowings. In February 1998 we entered into an agreement with Banque Nationale de Paris pursuant to which the bank made a term loan (the "BNP Loan") in the principal amount of $110.0 million. The BNP Loan requires quarterly interest payments at an effective annual rate equal to three-month LIBOR plus 0.5% and requires principal repayments in equal quarterly installments over seven years. We also maintain a $31.0 million revolving line of credit facility (the "Revolving Facility") with Citizens Bank of Rhode Island. The Revolving Facility is available to fund acquisitions and for other general corporate purposes, bears interest at a rate per annum equal to three-month LIBOR plus 0.7% and is due in full on May 31, 2000. In connection with our acquisition of Howard Leight we borrowed a total of $124.3 million, consisting of the $110.0 million BNP Loan and $14.3 million on the Revolving Facility. We repaid principal during the year ended December 31, 1998, equal to $17.7 million. Principal repayments consisted of payments totaling $11.8 million on the BNP Loan and $5.9 million of indebtedness we assumed in connection with the acquisition of Howard Leight. At December 31, 1998, we had debt outstanding totaling $107.8 million consisting of $98.2 million on the BNP Loan and $9.6 million on the Revolving Facility. We have entered into an agreement to acquire Perfect Fit for an approximate purchase price of $37.8 million in cash plus the assumption of the sellers' balance sheet liabilities, currently estimated at $16.0 million. We expect this acquisition will close on or about April 1, 1999, and anticipate borrowing an amount approximating the cash purchase price from Banque Nationale de Paris. We expect the loan would be a seven-year term loan, with equal quarterly installments of principal and with an effective annual interest rate equal to three-month LIBOR plus approximately 0.5%. 17 18 We are pursuing a business strategy that includes acquisitions as an important element. As a result, we may incur additional indebtedness, may be required to negotiate additional credit facilities, or may issue additional common or preferred stock in order to fund potential future investments resulting from our acquisition strategy. We believe we would have access to sufficient capital to consummate future acquisitions in addition to the Perfect Fit acquisition. Except for cash requirements to fund acquisitions, we believe that our cash flow provided by operating activities together with unused borrowing capacity will be sufficient to fund our working capital requirements, debt service requirements and capital expenditures for the foreseeable future. SEASONALITY Our business has been subject to slight seasonal variations, which we have attributed to fluctuations in industrial activity and annual weather patterns. Historically, our 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, our business has been variable period to period due to other factors, including promotional activity undertaken by certain of our business units 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. We initiated a comprehensive project in June 1997 to address our year 2000 compliance. The project consists of four phases including: - assessment phase -- identification of areas of non-compliance (based upon a combination of our own analysis and direct communication with vendors that developed and support our software) and evaluation of risk; - planning phase -- development of specific steps to correct non-compliance, including a timetable; - implementation phase -- execution of steps developed during the planning phase, and - testing phase -- conducting tests to validate year 2000 compliance. The project considers both our primary information systems (software for all financial systems, network software and equipment, personal computers and incumbent software, etc.) and other applications dependent upon embedded software (manufacturing equipment, telephone systems, security systems, etc.). We have completed the assessment and planning phases of this project. Results of the assessment phase initially identified applications, principally at our Survivair and Uvex Safety divisions, which were not year 2000 compliant. During 1997, we initiated a project to install and implement common software at all of our business units and we signed a license agreement with J.D. Edwards & Company for such software in September 1997. Full implementation of this software was completed at our Survivair division on January 1, 1999, and we expect that full implementation at our Uvex Safety division will be completed during the second quarter of 1999. J.D. Edwards & Company has represented that this software is year 2000 compliant and that its processes used to achieve year 2000 readiness are certified by the Information Technology Association of America. We believe that implementation of this software at our Survivair division has corrected its material year 2000 deficiencies, and further believe that upon full implementation of this software at our Uvex Safety division we will have corrected all of our remaining material year 2000 deficiencies, except any that exist at Perfect Fit which we will address following consummation of the acquisition. We have incurred costs totaling approximately $2.7 million through December 31, 1998 for implementation of the software at our Survivair and Uvex Safety business units, and we estimate the remaining costs necessary to complete full implementation to be approximately $0.5 million. Except for the cost of training, 18 19 these costs will be capitalized and depreciated over the estimated useful life of the software. The cost of training is estimated to be $0.3 million and will be expensed as incurred. Although there can be no assurance that we will successfully complete implementation of the common software at our Uvex Safety business unit by dates critical for year 2000 compliance, implementation is currently progressing in accordance with timetables established by us. Although failure to complete implementation on a timely basis may have material adverse financial and operational impacts on us, we believe such failure is not reasonably likely. We believe the possible effects of unsuccessful implementation of this software by our Uvex Safety division would be temporary and may include the following for that business: - an inability to process transactions; - an inability to order raw materials; - an inability to timely process orders and billings, or - an inability to deliver finished products to customers. The implementation phase for other applications with embedded software is ongoing and expected to be completed by the end of the second quarter of 1999. The cost of modifying or correcting deficiencies in these applications is currently estimated to be immaterial and such costs will principally be expensed as incurred. Our business is also dependent upon the systems of third parties. With the exception of a few significant vendors, we believe that year 2000 deficiencies in these systems would not represent a material financial or business risk to us. With regard to these few vendors, we are assessing their year 2000 readiness based upon direct communication with each such vendor. We believe that the most reasonably likely worst case result relating to year 2000 would be the failure of certain applications with embedded software, or failure of third party systems on which our systems rely. Failure of applications with embedded software could result in temporary disruption to an aspect of our operations, such as disruption in operation of certain manufacturing equipment. Failure of the information systems of a vendor could result in the temporary interruption of supply of material or services required by us. Although there can be no assurance that these failures would not have an adverse effect on our business, we believe the effect of such failure would not be material to our business. We have developed informal contingency plans relating to any such failure, which include reliance upon redundant systems, short-term reliance upon manual systems and reliance upon alternate vendors. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk can result from fluctuations in interest rates, foreign currency exchange rates, commodity prices or other market exposures. Uncertainties that are either nonfinancial or nonquantifiable, such as political, economic, tax, other regulatory or credit risks are not included in the following assessment of our market risks. We believe our only market risk exposure is the risk of adverse fluctuations in interest rates. At December 31, 1998, we had debt outstanding totaling $107.8 million consisting of $98.2 million on the BNP Loan and $9.6 million on the Revolving Facility. Interest rates on this debt are variable based upon three-month LIBOR. Three-month LIBOR approximated 5.25% at December 31, 1998. We have prepared sensitivity analyses of our interest rate exposure for 1999 to assess the impact of hypothetical changes in interest rates. Based upon the results of these analyses, a 10% adverse change in interest rates from the December 31, 1998 rate would result in a reduction of our 1999 after-tax earnings of approximately $350,000 or $0.02 per share. 19 20 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
PAGE ---- Independent Auditors' Report................................ 21 Consolidated Balance Sheets................................. 22 Consolidated Statements of Income........................... 23 Consolidated Statements of Stockholders' Equity............. 24 Consolidated Statements of Cash Flows....................... 25 Notes to Consolidated Financial Statements.................. 26-37
20 21 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 1998 and the related consolidated statements of income, stockholders' equity , and cash flows for each of the years in the three-year period ended December 31, 1998. 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 1998 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1998, in conformity with generally accepted accounting principles. KPMG LLP Providence, Rhode Island February 5, 1999 21 22 BACOU USA, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, ------------------- 1997 1998 ---- ---- ASSETS Current assets: Cash and cash equivalents................................. $ 1,277 $ 1,090 Trade accounts receivable, net............................ 16,099 27,110 Inventories............................................... 23,449 38,246 Other current assets...................................... 3,502 1,251 Deferred income taxes..................................... 1,426 2,138 -------- -------- Total current assets.............................. 45,753 69,835 Property and equipment, net................................. 35,880 53,998 Intangible assets, net...................................... 70,718 169,937 -------- -------- Total assets...................................... $152,351 $293,770 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current installments of long-term debt.................... $ -- $ 15,714 Accounts payable.......................................... 5,523 8,959 Accrued compensation and benefits......................... 2,939 8,234 Other accrued expenses.................................... 1,752 4,008 Income taxes payable...................................... 1,030 1,828 -------- -------- Total current liabilities......................... 11,244 38,743 Long-term debt.............................................. -- 92,050 Deferred income taxes....................................... 6,051 6,311 Other liabilities........................................... 2,704 2,754 -------- -------- Total liabilities................................. 19,999 139,858 -------- -------- Common stock subject to a put option........................ 9,450 9,450 -------- -------- 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 in 1997 and 17,610,465 shares in 1998 issued and outstanding (including shares subject to a put option)............................... 17 17 Additional paid-in capital................................ 62,588 63,258 Retained earnings......................................... 60,297 81,187 -------- -------- Total stockholders' equity........................ 122,902 144,462 -------- -------- Total liabilities and stockholders' equity........ $152,351 $293,770 ======== ========
See accompanying notes to consolidated financial statements. 22 23 BACOU USA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31, ------------------------------ 1996 1997 1998 ---- ---- ---- Net sales................................................... $109,268 $130,869 $219,581 Cost of sales............................................... 47,355 64,467 105,856 -------- -------- -------- Gross profit................................................ 61,913 66,402 113,725 Operating expenses: Selling................................................... 17,074 21,658 35,660 General and administrative................................ 9,176 11,184 22,895 Research and development.................................. -- 1,110 4,000 Purchased in-process research and development............. -- 3,721 4,680 Amortization of intangible assets......................... 4,039 4,095 7,748 -------- -------- -------- Total operating expenses.......................... 30,289 41,768 74,983 -------- -------- -------- Operating income............................................ 31,624 24,634 38,742 Other expenses (income): Interest expense.......................................... 896 156 6,291 Interest income........................................... (522) (372) (112) Other, net................................................ (329) (160) (125) -------- -------- -------- Total other expense (income), net................. 45 (376) 6,054 -------- -------- -------- Income before income taxes.................................. 31,579 25,010 32,688 Income taxes................................................ 12,202 10,588 11,678 -------- -------- -------- Net income........................................ $ 19,377 $ 14,422 $ 21,010 ======== ======== ======== Basic earnings per share.................................... $ 1.18 $ 0.83 $ 1.19 ======== ======== ======== Diluted earnings per share.................................. $ 1.18 $ 0.83 $ 1.19 ======== ======== ======== Weighted average shares outstanding: Basic....................................................... 16,406 17,383 17,601 ======== ======== ======== Diluted..................................................... 16,436 17,411 17,723 ======== ======== ========
See accompanying notes to consolidated financial statements. 23 24 BACOU USA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS)
ADDITIONAL COMMON COMMON PAID-IN RETAINED STOCKHOLDERS' SHARES STOCK CAPITAL EARNINGS EQUITY ------ ------ ---------- -------- ------------- Balances at December 31, 1995................. 13,860 $14 $19,186 $26,498 $ 45,698 Issuance of common stock, net of expenses of issuance.................................... 3,450 3 47,295 --..... 47,298 Stock options exercised....................... 2 -- 34 -- 34 Net income.................................... -- -- -- 19,377 19,377 ------ --- ------- ------- -------- Balances at December 31, 1996................. 17,312 17 66,515 45,875 112,407 Repurchase of shares; retirement of shares to authorized and unissued..................... (554) (1) (8,038) -- (8,039) Issuance of common stock, net of expenses of issuance.................................... 827 1 4,012 -- 4,013 Stock options exercised....................... 6 -- 99 -- 99 Net income.................................... -- -- -- 14,422 14,422 ------ --- ------- ------- -------- Balances at December 31, 1997................. 17,591 17 62,588 60,297 122,902 Repurchase of shares; retirement of shares to authorized and unissued..................... (3) -- (46) -- (46) Fair value of stock options granted pursuant to a consulting agreement................... -- -- 337 -- 337 Stock options exercised....................... 22 -- 379 -- 379 Other......................................... -- -- -- (120) (120) Net income.................................... -- -- -- 21,010 21,010 ------ --- ------- ------- -------- Balances at December 31, 1998................. 17,610 $17 $63,258 $81,187 $144,462 ====== === ======= ======= ========
See accompanying notes to consolidated financial statements. 24 25 BACOU USA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEARS ENDED DECEMBER 31, ----------------------------- 1996 1997 1998 ---- ---- ---- Cash flows from operating activities: Net income................................................ $19,377 $14,422 $ 21,010 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.......................... 7,511 8,618 14,154 Deferred income taxes.................................. 714 (289) (176) Purchased in-process research and development.......... -- 3,721 4,680 Loss on sale or write down of assets................... 363 160 -- Change in assets and liabilities, net of effects of acquired companies: Trade accounts receivable............................ 303 (98) (6,677) Inventories.......................................... 722 2,185 (10,162) Other current assets................................. 391 (1,114) 2,815 Accounts payable..................................... 425 (103) 1,949 Accrued expenses and other liabilities............... 477 (1,063) 4,745 Income taxes......................................... 2,095 (767) 797 ------- ------- --------- Net cash provided by operating activities......... 32,378 25,672 33,135 ------- ------- --------- Cash flows from investing activities: Capital expenditures...................................... (10,668) (6,837) (14,386) Acquisition of businesses, including direct costs of acquisition, net of cash acquired...................... (219) (28,566) (121,094) ------- ------- --------- Net cash used in investing activities............. (10,887) (35,403) (135,480) ------- ------- --------- Cash flows from financing activities: Repayment of long-term debt............................... (49,000) (8,000) (17,725) Proceeds from long-term debt.............................. -- 8,000 110,000 Advances (repayments) under notes payable, net............ -- (2,085) 9,550 Repurchase of common stock................................ -- (8,039) (46) Proceeds from issuance of common stock, net of expenses... 47,332 99 379 ------- ------- --------- Net cash provided by (used in) financing activities...................................... (1,668) (10,025) 102,158 ------- ------- --------- Net increase (decrease) in cash and cash equivalents........ 19,823 (19,756) (187) Cash and cash equivalents at beginning of year.............. 1,210 21,033 1,277 ------- ------- --------- Cash and cash equivalents at end of year.................... $21,033 $ 1,277 $ 1,090 ======= ======= ========= Supplemental disclosures of cash flow information: Cash paid during the year for interest.................... $ 917 $ 155 $ 5,796 ======= ======= ========= Cash paid during the year for income taxes................ $ 9,427 $11,989 $ 11,308 ======= ======= ========= Fair value of stock options granted pursuant to a consulting agreement................................... $ -- $ -- $ 337 ======= ======= ========= Fair value of common stock issued in connection with the acquisition of a business.............................. $ -- $13,500 $ -- ======= ======= =========
See accompanying notes to consolidated financial statements. 25 26 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. The Company manufactures and distributes safety products, including non-prescription protective eyewear, laser protective eyewear, supplied air and air purifying respirators, gas monitors and equipment for testing self-contained breathing apparatus. The Company also manufactures eyeglass frames and components for prescription eyewear and vision screening equipment. 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 245 employees (representing approximately 13% of total employees) that are covered under a collective bargaining agreement that expires September 13, 2000. Bacou, S.A., a company domiciled in Valence, France, owns a controlling interest (approximately 72% at December 31, 1998) in Bacou. The Company purchases certain inventory items from wholly-owned subsidiaries of Bacou, S.A. These purchases totaled $625,000 in 1996, $207,000 in 1997 and $24,000 in 1998. Sales by the Company to Bacou, S.A. totaled $60,000 in 1996, $270,000 in 1997 and $967,000 in 1998. (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 with customers located throughout the United States. Pursuant to an agreement with the former owner of the Uvex Safety 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 $945,000 at December 31, 1997 and $1,150,000 at December 31, 1998. (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. 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 26 27 BACOU USA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 intellectual property and patents, customer relationships, tradenames 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 purchases denominated in foreign currencies. Other than these contracts, the Company has no other involvement with derivative financial instruments. Transaction gains and losses were not material during any period presented in the accompanying financial statements. The Company had no material open currency contracts at December 31, 1998. (i) Employee Benefit Plans The Company grants stock options pursuant to certain stock incentive plans. Except for stock options granted pursuant to a consulting agreement, the Company accounts for stock option grants using the intrinsic value-based method. The Company sponsors 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. On January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 132, "Employers' Disclosures about Pension and Other Postretirement Benefits" (Statement 132). Statement 132 revises employers' disclosures about defined benefit pension plans, however, did not change the method of accounting for such plans. 27 28 BACOU USA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (j) Earnings Per Share The accompanying financial statements include a dual presentation of basic earnings per share and diluted earnings per share. Basic earnings per share are computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share are computed by increasing the weighted-average number of common shares by the dilutive potential common shares that were outstanding during the period. 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 30,103 in 1996, 27,597 in 1997 and 121,812 in 1998. 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 and 1998 because all necessary conditions for issuance of contingent shares had not been satisfied and because the effect of written put options was antidilutive. (k) Financial Instruments Financial instruments of the Company consist of cash, accounts receivable, accounts payable and long-term debt. The carrying amounts of these financial instruments approximate their fair value. (l) Research and Development Research and development costs are expensed as incurred and totaled $1,110,000 in 1997 and $4,000,000 in 1998. (m) 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. (2) ACQUISITIONS (a) 1997 and 1998 Acquisitions Effective February 27, 1998, the Company acquired substantially all assets and assumed substantially all liabilities of Howard Leight Industries ("Howard Leight"), a manufacturer of hearing protection products (including disposable, reusable and banded ear plugs, and ear muffs) for cash consideration of $125.9 million, $5.9 million of which represented the refinancing of Howard Leight indebtedness (the "Leight Acquisition"). The acquisition was financed principally by proceeds from bank debt. Effective September 30, 1997, the Company acquired all of the capital stock of Biosystems, Inc. ("Biosystems"), a manufacturer of gas monitors and equipment for testing self-contained breathing apparatus, in exchange for 826,514 shares of its common stock having a fair market value equal to $13.5 million. The initial acquisition price may be increased if the operating results of Biosystems in the year 2000 exceed certain defined thresholds. The Company also acquired all of the outstanding capital stock of Comasec Holdings, Inc. ("Comasec") on May 30, 1997 for cash consideration of $27.4 million. The assets of Comasec consisted primarily of its wholly owned subsidiary, Survivair, Inc. ("Survivair"), a manufacturer of respiratory protection products. Finally, the Company acquired Lase-R Shield for $1.0 million in June of 1997. The 28 29 BACOU USA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) acquisitions of Biosystems, Survivair and Lase-R Shield are referred to collectively as the "1997 Acquisitions." In connection with the Biosystems acquisition the Company provided former shareholders of Biosystems put options covering 578,560 of the shares issued in connection with that acquisition. The put options may be exercised at any time through September 30, 1999, at a price equal to approximately $16.38 per share. In accordance with generally accepted accounting principles, the cash paid and fair value of common stock issued to effect the Leight Acquisition and the 1997 Acquisitions was 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 was recorded as goodwill and is being amortized over 30-40 years. The fair value of purchased in-process research and development was $4.7 million for Howard Leight, $2.4 million for Biosystems and $1.3 million for Survivair. Acquired in-process research and development projects had not yet reached technological feasibility and had no alternative future uses, accordingly, the fair value assigned to these projects was expensed as of the respective acquisition dates. There were no individually significant in-process research and development projects, except for a project to develop a new generation of Howard Leight Air Soft(TM) ear plugs. The value of this project was determined based upon future cash flows expected to result from development of the project, discounted at a risk-adjusted rate equal to 21%, and based upon an assumption that the project was 73% complete as of the date of acquisition. The percent complete was based upon an assessment of (i) cost incurred through the acquisition date, (ii) estimated remaining cost to complete, (iii) complexity of the work completed to date and (iv) difficulty of completing the remaining development. The purchase price for the acquisitions of Howard Leight, Biosystems and Survivair has been allocated approximately as shown in the following table (in thousands).
HOWARD LEIGHT BIOSYSTEMS SURVIVAIR ------------- ---------- --------- Working capital...................................... $ 6,200 $1,000 $ 4,000 Property and equipment............................... $10,100 $ 700 $ 6,100 Identifiable intangible assets....................... $89,000 $3,300 $ 4,300 Purchased in-process research and development........ $ 4,700 $2,400 $ 1,300 Long-term debt....................................... $(5,900) $ -- $ -- Goodwill............................................. $15,900 $6,100 $11,700
The Leight Acquisition and the 1997 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 the acquisitions of Howard Leight and Survivair had occurred as of January 1, 1997. Pro forma operating results of Biosystems or Lase-R Shield do not materially affect the information presented below. 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 and assumed interest expense on the cash purchase price. 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, ------------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) 1997 1998 ------------------------------------- ---- ---- Net sales................................................... $189,900 $226,900 Net income.................................................. $ 16,000 $ 20,600 Basic and diluted earnings per share........................ $ 0.92 $ 1.17
29 30 BACOU USA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Excluding acquisition-related items in both years and excluding non-recurring termination benefits in 1998, proforma net income would have been $21.2 million in 1997 and $25.4 million in 1998, and proforma basic and diluted earnings per share would have been $1.22 in 1997 and $1.44 in 1998. (b) Subsequent Event (unaudited) On February 25, 1999, the Company announced it had entered into an agreement to acquire Perfect Fit Glove Co., Inc. and certain affiliates and related assets ("Perfect Fit"), manufacturers and distributors of protective gloves and other related products worldwide with fiscal year 1998 net sales of $47.3 million. The Company will be acquiring the assets of Perfect Fit for an approximate purchase price of $37.8 million in cash plus the assumption of the sellers' balance sheet liabilities, currently estimated at $16.0 million. The Company has agreed to pay an additional earnout of up to $6.0 million to the extent actual consolidated cash flow of the acquired business for 1999 exceeds certain specified targets. In connection with the acquisition, the Company will enter into employment agreements with the four key executives of Perfect Fit. The acquisition will be accounted for under the purchase method of accounting and is expected to close during the second quarter of 1999. The acquisition is expected to be financed by a loan from Banque Nationale de Paris at an interest rate per annum of three-month LIBOR plus approximately 0.5%. (3) INVENTORIES Inventories included the following at December 31 (in thousands):
1997 1998 ---- ---- Raw materials and supplies.................................. $ 8,572 $16,407 Work-in-process............................................. 4,453 5,165 Finished goods.............................................. 10,424 16,674 ------- ------- $23,449 $38,246 ======= =======
(4) PROPERTY AND EQUIPMENT Property and equipment included the following at December 31 (in thousands):
ESTIMATED USEFUL LIVES (YEARS) 1997 1998 ------------- ---- ---- Machinery and equipment................................ 5-10 $22,059 $28,622 Dies and molds......................................... 5 10,519 13,274 Buildings and leasehold improvements................... 10-40 8,345 15,337 Furniture and fixtures................................. 10 1,524 2,576 Computer equipment..................................... 5 2,115 2,897 Vehicles............................................... 3 132 249 Deposits on equipment.................................. 2,771 8,997 ------- ------- 47,465 71,952 Less accumulated depreciation and amortization......... 11,585 17,954 ------- ------- $35,880 $53,998 ======= =======
Depreciation and amortization of property and equipment totaled $3,472,000 in 1996, $4,523,000 in 1997 and $6,406,000 in 1998. 30 31 BACOU USA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (5) INTANGIBLE ASSETS The value of identifiable intangible assets is generally determined by independent appraisal upon the date of acquisition. Intangible assets included the following at December 31 (in thousands):
ESTIMATED USEFUL LIVES (YEARS) 1997 1998 ------------- ---- ---- Intellectual property and patents..................... 9-30 $17,568 $102,371 Customer relationships................................ 10-20 19,523 19,523 Tradenames and other intangibles...................... 20-30 -- 4,618 Goodwill.............................................. 20-40 46,321 63,926 ------- -------- 83,412 190,438 Less accumulated amortization......................... 12,694 20,501 ------- -------- $70,718 $169,937 ======= ========
(6) INCOME TAXES Total federal and state income tax expense included the following (in thousands):
CURRENT DEFERRED TOTAL ------- -------- ----- Year ended December 31, 1996: Federal.................................................. $10,105 $ 604 $10,709 State.................................................... 1,383 110 1,493 ------- ----- ------- $11,488 $ 714 $12,202 ======= ===== ======= Year ended December 31, 1997: Federal.................................................. $ 9,600 $(259) $ 9,341 State.................................................... 1,277 (30) 1,247 ------- ----- ------- $10,877 $(289) $10,588 ======= ===== ======= Year ended December 31, 1998: Federal.................................................. $10,735 $(149) $10,586 State.................................................... 1,119 (27) 1,092 ------- ----- ------- $11,854 $(176) $11,678 ======= ===== =======
Actual income tax expense differs from expected income tax expense (computed by applying the statutory U.S. Federal corporate income tax rate to income before income taxes) as follows (in thousands, except percentages):
YEARS ENDED DECEMBER 31, ----------------------------- 1996 1997 1998 ------- ------- ------- Computed expected tax expense......................... $11,052 $ 8,754 $11,441 State income taxes, net of federal income tax benefit............................................. 971 810 710 Non-deductible purchased in-process research and development......................................... -- 1,302 -- Net tax benefit of foreign sales corporation.......... -- (187) (394) Other................................................. 179 (91) (79) ------- ------- ------- $12,202 $10,588 $11,678 ======= ======= ======= Effective rate........................................ 38.6% 42.3% 35.7% ======= ======= =======
31 32 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 as follows (in thousands):
1997 1998 ------ ------ Deferred tax assets: Allowance for doubtful accounts........................... $ 326 $ 412 Inventory related items................................... 917 1,241 Pension and compensation related expenses................. 412 954 Accrued costs............................................. 719 722 Other..................................................... 481 402 ------ ------ Total gross deferred tax assets........................ 2,855 3,731 ------ ------ Less valuation allowance............................... -- -- ------ ------ Net deferred tax assets................................ 2,855 3,731 ------ ------ Deferred tax liabilities: Excess of tax over financial statement depreciation and amortization........................................... 3,012 5,375 Difference in basis of acquired assets.................... 4,375 2,412 Other..................................................... 93 117 ------ ------ Total deferred tax liabilities......................... 7,480 7,904 ------ ------ Net deferred tax liability............................. $4,625 $4,173 ====== ======
(7) LONG-TERM DEBT In February 1998 the Company entered into an agreement with Banque Nationale de Paris pursuant to which the bank made a term loan (the "BNP Loan") in the principal amount of $110.0 million. The BNP Loan requires quarterly payments at an effective annual rate equal to three-month LIBOR plus 0.5% and requires principal repayments in equal quarterly installments over seven years. The Company also maintains a $31.0 million revolving line of credit facility (the "Revolving Facility") with Citizens Bank of Rhode Island. The Revolving Facility is available to fund acquisitions and for other general corporate purposes, bears interest at a rate per annum equal to three-month LIBOR plus 0.7% and is due in full on May 31, 2000. Principal outstanding at December 31, 1998, totaled $98,214,000 under the BNP Loan and $9,550,000 under the Revolving Facility. Aggregate maturities of long-term debt for each of the five years subsequent to December 31, 1998 are as follows: 1999 -- $15,714,000; 2000 -- $25,264,000; 2001 -- $15,714,000; 2002 - -- $15,714,000; 2003 -- $15,714,000 and thereafter $19,644,000. (8) COMMITMENTS AND CONTINGENCIES The Company leases production, office and warehouse space, and certain equipment under non-cancelable operating leases. Minimum future rentals under non-cancelable operating leases, by year, are approximately as follows: 1999 -- $1,520,000; 2000 -- $1,359,000; 2001 -- $865,000; 2002 -- $738,000; 2003 -- $577,000 and thereafter -- $350,000. Rent expense totaled approximately $1,015,000 in 1996, $1,522,000 in 1997 and $1,920,000 in 1998. Outstanding commitments as of December 31, 1998 for the purchase of property, machinery and equipment were approximately $6,900,000. The Company had outstanding letters of credit equal to approximately $1,400,000 at December 31, 1998, 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 32 33 BACOU USA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) such litigation will not have a material effect on the Company's financial position, results of operations or cash flows. (9) EMPLOYEE BENEFIT PLANS (a) Defined Contribution Plans The Company sponsors defined contribution plans for all eligible employees. Employer contribution expense totaled approximately $212,000 in 1996, $453,000 in 1997 and $836,000 in 1998. Increases in contribution expense have occurred principally as a result of greater numbers of participants resulting from the acquisitions described in note 2. (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 to fund the minimum required contribution subject to any full funding limitation. Assumptions used to develop the projected benefit obligation were a discount rate of 7.75% in 1996 and 1997, a discount rate of 6.75% in 1998, and a long-term rate of return on assets of 8.5% during all years presented. The following table sets forth the benefit obligation, assets at fair value, and funded status of the plan at December 31 (in thousands):
1997 1998 ---- ---- BENEFIT OBLIGATION Benefit obligation at beginning of year..................... $1,239 $1,410 Service cost................................................ 48 47 Interest cost............................................... 96 109 Benefit payments............................................ (16) (29) Actuarial loss.............................................. 43 224 ------ ------ Benefit obligation at end of year........................... $1,410 $1,761 ====== ====== ASSETS AT FAIR VALUE Fair value of assets at beginning of year................... $ 664 $ 843 Actual return on assets..................................... 89 71 Contributions............................................... 106 156 Benefit payments............................................ (16) (29) ------ ------ Fair value of assets at end of year......................... $ 843 $1,041 ====== ====== FUNDED STATUS Benefit obligation.......................................... $1,410 $1,761 Assets at fair value........................................ 843 1,041 ------ ------ Net underfunded obligation.................................. $ 567 $ 720 ====== ====== Accrued benefit liability included in the balance sheet..... $ 567 $ 720 ====== ======
Periodic pension cost during the years ended December 31, 1996, 1997 and 1998 included the following (in thousands):
1996 1997 1998 ---- ---- ---- Service cost................................................ $48 $48 $47 Interest cost............................................... 88 96 109 Actual return on assets..................................... (62) (89) (71) Net amortization and deferral............................... 16 33 (1) --- --- --- Periodic pension cost....................................... $90 $88 $84 === === ===
33 34 BACOU USA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (c) Stock Option Plans The Bacou USA, Inc. 1996 Stock Incentive 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, 1,350,000 shares of the Company's 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. The Company also sponsors the Bacou USA, Inc. 1996 Non-Employee Director Stock Option Plan (the "Director Plan") and the 1998 Howard S. Leight Stock Option Plan (the "Leight Plan"). In the aggregate, 300,000 shares of common stock have been reserved for issuance under the Director Plan and 50,000 shares have been reserved under the Leight Plan. Options granted under the Director Plan and the Leight Plan became fully vested on the date of grant and have a ten-year term. Following is a summary of stock option activity:
1996 1997 1998 ---------------------------- ---------------------------- ---------------------------- NUMBER OF WEIGHTED AVERAGE NUMBER OF WEIGHTED AVERAGE NUMBER OF WEIGHTED AVERAGE SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE --------- ---------------- --------- ---------------- --------- ---------------- Outstanding at beginning of year............... -- $ -- 388,700 $15.13 577,900 $15.23 Granted.............. 405,000 15.12 235,000 15.35 470,000 17.52 Exercised............ (2,200) 15.00 (6,400) 15.00 (22,500) 15.53 Canceled............. (14,100) 15.00 (39,400) 15.00 (36,000) 16.28 ------- ------ ------- ------ ------- ------ Outstanding at end of year............... 388,700 $15.13 577,900 $15.23 989,400 $16.27 ======= ====== ======= ====== ======= ====== Exercisable at end of year............... 80,300 $15.27 299,200 $15.26 525,500 $15.90 ======= ====== ======= ====== ======= ======
Following is a summary of options outstanding at December 31, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE - -------------------------------------------------------------------------- ------------------------------ WEIGHTED AVERAGE WEIGHTED WEIGHTED NUMBER REMAINING YEARS AVERAGE NUMBER AVERAGE RANGE OF OUTSTANDING OF CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE EXERCISE PRICES ----------- ------------------- -------------- ----------- -------------- $14.75 - 15.00........ 414,200 7.58 $14.95 253,200 $14.94 15.63 - 17.31........ 179,000 8.71 16.31 152,000 16.15 17.50 - 20.81........ 396,200 9.13 17.64 120,300 17.61 ------- ---- ------ ------- ------ $14.75 - 20.81........ 989,400 8.41 $16.27 525,500 $15.90 ======= ==== ====== ======= ======
The Company accounts for substantially all stock option grants using the intrinsic value-based method and, accordingly, no compensation cost has been recognized for such 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 $18,761,000 or $1.14 per share in 1996, $13,362,000 or $0.77 per share in 1997 and $19,729,000 or $1.12 per share in 1998. The per share weighted-average fair value of stock options granted was $7.64 in 1996, $6.73 in 1997 and $7.42 in 1998. The Black Scholes option pricing model was used to determine the fair value of stock options, including the following weighted-average assumptions: expected dividend yield 0.0%; risk-free interest rate of 6.1% in 1996, 5.75% in 1997 and 4.75% in 1998; expected volatility of 0.50 in 1996 and 0.40 in 1997 and 1998; and an expected life of 6 years in 1996 and 5 years in 1997 and 1998. The Company's historical volatility from March 27, 1996 (the date of its initial public offering) through December 31, 1998 was approximately 0.37. 34 35 BACOU USA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (10) SEGMENT DATA The Company has acquired seven separate businesses from its inception in April 1993 through the period ended December 31, 1998. Acquired businesses generally were operated initially as separate subsidiaries of the Company. In 1997 the Company initiated a plan of reorganization for the purpose of combining businesses having similar operating characteristics and market opportunities. The reorganization resulted in the combination of four businesses during 1997 and two businesses during 1998, into a single operating subsidiary named Bacou USA Safety, Inc. ("Bacou Safety"). During 1998 the Company also initiated actions to combine the various sales-forces and develop a common marketing strategy for its Bacou Safety business. During 1998 the Company adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (Statement 131). Under provisions of Statement 131 the Company has two reportable segments, which include the safety products segment and the optical frames and instruments segment. The safety products segment consists of businesses which operate within the Company's Bacou Safety subsidiary and which sell products principally to industrial and fire safety distributors. Products manufactured within this segment include consumable products (protective eyewear and hearing protection) and technical products (respirators and gas monitors). The optical frames and instruments segment consists of the Company's Titmus Optical, Inc. (Titmus) subsidiary. Titmus manufactures eyeglass frames and components, which are sold principally to optical laboratories, and vision screening equipment. Eyeglass frames and components are purchased by optical laboratory customers who fit complete frames with prescription lenses. The Company evaluates segment performance based upon a measure of profit represented by operating income prior to non-recurring gains and losses, intangible amortization expense, interest and taxes. Accounting policies for reportable segments are consistent with the policies described in note 1 to the consolidated financial statements. 35 36 BACOU USA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Presented below is a summary of financial data for the Company's reportable segments. Adjustments to reconcile segment operating income to consolidated operating income include amortization expense totaling $4,039,000 in 1996, $4,095,000 in 1997 and $7,748,000 in 1998, and also include non-recurring items totaling $360,000 in 1996, $5,924,000 in 1997 and $7,716,000 in 1998. Information presented below as "All Other" includes all non-operating entities. Amounts shown below for total assets exclude intercompany receivables and investments in wholly-owned subsidiaries.
OPTICAL FRAMES AND SAFETY INSTRUMENTS RECONCILING CONSOLIDATED SEGMENT SEGMENT(1) ALL OTHER ADJUSTMENTS TOTAL (IN THOUSANDS) ------- ----------- --------- ----------- ------------ 1996 Net sales................................ $ 77,563 $31,705 $ -- $ -- $109,268 Operating income (loss).................. 33,481 4,216 (1,674) (4,399) 31,624 Depreciation............................. 2,660 794 18 -- 3,472 Total assets............................. 69,871 33,775 21,463 -- 125,109 Capital expenditures..................... 2,922 7,730 16 -- 10,668 1997 Net sales................................ $ 99,378 $31,491 $ -- $ -- $130,869 Operating income (loss).................. 34,035 3,056 (2,438) (10,019) 24,634 Depreciation............................. 3,487 1,020 16 -- 4,523 Total assets............................. 113,694 35,266 3,391 -- 152,351 Capital expenditures..................... 4,488 2,092 257 -- 6,837 1998 Net sales................................ $189,363 $30,218 $ -- $ -- $219,581 Operating income (loss).................. 57,005 2,523 (5,322) (15,464) 38,742 Depreciation............................. 5,194 1,185 27 -- 6,406 Total assets............................. 250,172 41,938 1,660 -- 293,770 Capital expenditures..................... 12,381 1,742 263 -- 14,386
- --------------- (1) Includes sales of discontinued product lines totaling $3,100,000 in 1996. There were no sales to any individual customer during any of the years in the three-year period ended December 31, 1998 that represented 10% or more of consolidated sales. The Company has no material long-lived assets located in foreign countries. The Company attributes net sales to an individual country based upon the location of the customer and sales to all foreign countries totaled $7,942,000 in 1996, $15,087,000 in 1997 and $33,102,000 in 1998. 36 37 BACOU USA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (11) QUARTERLY FINANCIAL RESULTS AND MARKET 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, except that the Company amended previously filed quarterly reports during 1998 to give effect to new guidance issued by the Securities and Exchange Commission in September 1998 concerning valuation of purchased in-process research and development, resulting in a $1.6 million increase to previously reported net income. There were no dividends paid or declared during any period presented 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.
QUARTER ------------------------------------- FIRST SECOND THIRD FOURTH FULL YEAR (IN THOUSANDS, EXCEPT PER SHARE DATA) ----- ------ ----- ------ --------- 1997 Net sales....................................... $26,380 $32,330 $35,744 $36,415 $130,869 Gross profit.................................... 13,998 17,469 17,803 17,132 66,402 Income before income taxes...................... 6,650 7,606 5,372 5,382 25,010 Net income...................................... 4,132 4,245 2,453 3,592 14,422 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 1998 Net sales....................................... $49,515 $58,864 $56,899 $54,303 $219,581 Gross profit.................................... 24,816 31,017 30,161 27,731 113,725 Income before income taxes...................... 4,138 9,572 10,486 8,492 32,688 Net income...................................... 2,736 6,099 6,675 5,500 21,010 Earnings per share: Basic......................................... $ 0.15 $ 0.35 $ 0.38 $ 0.31 $ 1.19 Diluted....................................... $ 0.15 $ 0.35 $ 0.38 $ 0.31 $ 1.19 Market price: High.......................................... 18 1/8 22 3/4 25 3/8 21 7/8 25 3/8 Low........................................... 15 3/4 15 7/8 17 1/8 15 15
The Company completed acquisitions of Survivair, Biosystems and Howard Leight on May 29, 1997, September 30, 1997 and February 27, 1998, respectively. For comparative purposes, net income and earnings per share (basic and diluted) excluding non-recurring items related to these acquisitions and excluding a severance charge equal to $1.4 million in 1998, would have been as follows:
QUARTER ----------------------------------- FIRST SECOND THIRD FOURTH FULL YEAR (IN THOUSANDS, EXCEPT PER SHARE DATA) ----- ------ ----- ------ --------- 1997 Net income.......................................... $4,132 $5,883 $5,351 $4,132 $19,498 Earnings per share.................................. $ 0.24 $ 0.34 $ 0.31 $ 0.23 $ 1.12 1998 Net income.......................................... $6,425 $7,196 $6,675 $5,500 $25,796 Earnings per share.................................. $ 0.36 $ 0.41 $ 0.38 $ 0.31 $ 1.46
37 38 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 Bacou's proxy statement for its 1999 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission on or before April 30, 1999 are hereby incorporated by reference. ITEM 11. EXECUTIVE COMPENSATION "Compensation of Directors and Officers" in Bacou's proxy statement for its 1999 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission on or before April 30, 1999 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 Bacou's proxy statement for its 1999 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission on or before April 30, 1999 are hereby incorporated by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS "Certain Transactions" in Bacou's proxy statement for its 1999 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission on or before April 30, 1999 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 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 3. Exhibits 38 39 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) 2.12 -- Asset Purchase Agreement dated as of February 24, 1999 by and among Perfect Fit Glove Co., Inc. and the other seller parties thereto, and Bacou USA Safety, Inc. 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 -- Bylaws (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)
39 40
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 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 (incorporated by reference to Exhibit 4.3 of the Company's Form 10-K filed March 27, 1998) 4.4 -- First Amendment and Agreement to Revolving Credit Note between Bacou USA, Inc. and Citizens Bank of Rhode Island (incorporated by reference to Exhibit 4.4 of the Company's Form 10-K filed March 27, 1998) 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) 10.1.3* -- Second Amendment to Employment Agreement with Walter Stepan dated as of August 25, 1998 (incorporated by reference to Exhibit 10.2 of the Company's Form 10-Q filed November 16, 1998) 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 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) 10.5* -- 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) 10.6* -- Employment Agreement dated February 17, 1998 between Titmus Optical, Inc. and Bradford L. Brooks (incorporated by reference to Exhibit 10.22 of the Company's Form 10-K filed March 27, 1998) 10.7.1* -- 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) 10.7.2* -- Letter Agreement dated May 19, 1998 between Bacou USA Safety, Inc. and John Dean 10.7.3* -- Bonus Plan for John Dean for 1998 and 1999 (incorporated by reference to Exhibit 10.37 of the Company's Form 10-K filed March 27, 1998)
40 41
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 10.8.1* -- Employment Agreement dated June 3, 1998 between Bacou USA Safety, Inc. and Thomas W. Klein (incorporated by reference to Exhibit 10.1 of the Company's Form 10-Q filed on August 5, 1998) 10.8.2* -- First Amendment to Employment Agreement with Thomas W. Klein dated August 3, 1998 (incorporated by reference to Exhibit 10.1 of the Company's Form 10-Q filed November 16, 1998) 10.8.3* -- Second Amendment to Employment Agreement with Thomas W. Klein dated January 1, 1999 10.9* -- Employment Agreement dated February 1, 1999 between Bacou USA Safety, Inc. and Alan H. Bennett 10.10 -- 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) 10.11 -- 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) 10.12 -- 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) 10.13 -- 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) 10.14 -- 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) 10.15 -- 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) 10.16 -- 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) 10.17 -- 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) 10.18 -- 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) 10.19* -- Bacou USA, Inc. 1996 Stock Incentive Plan (incorporated by reference to Exhibit10 (g) of the Company's Registration Statement) 10.20* -- 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) 10.21* -- 1998 Howard S. Leight Stock Option Plan (incorporated by reference to Exhibit 10.35 of the Company's Form 10-K filed March 27, 1998) 10.22 -- Purchase and Sale Agreement dated November 20, 1998 by and between Uvex Winter Optical, Inc. and Uvex Safety Manufacturing, Inc. 10.23 -- Lease Agreement dated February 27, 1998 by and between Howard S. Leight and Bacou USA Safety, Inc. (incorporated by reference to Exhibit 10.38 of the Company's Form 10-K filed March 27, 1998)
41 42
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 10.24* -- Bonus Plan for Executives of Subsidiaries and Divisions of Bacou USA, Inc. for 1998 and 1999 (incorporated by reference to Exhibit 10.39 of the Company's Form 10-K filed March 27, 1998) 10.25* -- 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 Company filed three reports on Form 8-K during the quarterly period ended December 31, 1998, all for the purpose of disclosing the contents of Press Releases issued by the Company. The first report, dated October 7, 1998, reported the Company's sales for the third quarter of 1998, as well as the withdrawal of the Company's August 5, 1998 registration statement and the continuation of its stock buyback program. The second report, dated October 14, 1998, reported the financial results of the Company for the third quarter and nine months year-to-date. The third report, dated November 4, 1998, reported that the Company had been selected by Forbes Magazine as one of the 200 best small businesses in the United States. 42 43 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 26 day of March, 1999. 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, Chief Operating Officer, Secretary, PHILIP B. BARR Director /s/ JEFFREY T. BROWN Director of Financial Reporting, Treasurer - --------------------------------------------- and Chief Accounting Officer JEFFREY T. BROWN /s/ PHILIPPE BACOU Chairman of the Board, Director - --------------------------------------------- PHILIPPE BACOU Director - --------------------------------------------- CHRISTOPHE BACOU /s/ KARL F. ERICSON Director - --------------------------------------------- KARL F. ERICSON /s/ HOWARD S. LEIGHT Director - --------------------------------------------- HOWARD S. LEIGHT Director - --------------------------------------------- ALFRED J. VERRECCHIA /s/ HERBERT A. WERTHEIM Director - --------------------------------------------- HERBERT A. WERTHEIM
43 44 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 (IN THOUSANDS) Year ended December 31 1996............ 657 291 -- 156 792 Year ended December 31, 1997........... 792 211 209 267 945 Year ended December 31, 1998........... 945 266 150 211 1,150
- --------------- (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 are not material and therefore have been omitted. 44 45 INDEPENDENT AUDITORS' REPORT The Board of Directors Bacou USA, Inc.: Under date of February 5, 1999, we reported on the consolidated balance sheets of Bacou USA, Inc. and subsidiaries as of December 31, 1997 and 1998, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1998, which are included in the December 31, 1998 annual report on Form 10-K of Bacou USA, Inc. 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 the 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 LLP Providence, Rhode Island February 5, 1999 45 46 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) 2.12 -- Asset Purchase Agreement dated as of February 24, 1999 by and among Perfect Fit Glove Co., Inc. and the other seller parties thereto, and Bacou USA Safety, Inc. 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 -- Bylaws (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)
46 47
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 4.3 -- Second Amendment and Agreement to Revolving Line of Credit Agreement between Bacou USA, Inc. and Citizens Bank of Rhode Island (incorporated by reference to Exhibit 4.3 of the Company's Form 10-K filed March 27, 1998) 4.4 -- First Amendment and Agreement to Revolving Credit Note between Bacou USA, Inc. and Citizens Bank of Rhode Island (incorporated by reference to Exhibit 4.4 of the Company's Form 10-K filed March 27, 1998) 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) 10.1.3* -- Second Amendment to Employment Agreement with Walter Stepan dated as of August 25, 1998 (incorporated by reference to Exhibit 10.2 of the Company's Form 10-Q filed November 16, 1998) 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 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) 10.5* -- 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) 10.6* -- Employment Agreement dated February 17, 1998 between Titmus Optical, Inc. and Bradford L. Brooks (incorporated by reference to Exhibit 10.22 of the Company's Form 10-K filed March 27, 1998) 10.7.1* -- 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) 10.7.2* -- Letter Agreement dated May 19, 1998 between Bacou USA Safety, Inc. and John Dean 10.7.3* -- Bonus Plan for John Dean for 1998 and 1999 (incorporated by reference to Exhibit 10.37 of the Company's Form 10-K filed March 27, 1998) 10.8.1* -- Employment Agreement dated June 3, 1998 between Bacou USA Safety, Inc. and Thomas W. Klein (incorporated by reference to Exhibit 10.1 of the Company's Form 10-Q filed on August 5, 1998) 10.8.2* -- First Amendment to Employment Agreement with Thomas W. Klein dated August 3, 1998 (incorporated by reference to Exhibit 10.1 of the Company's Form 10-Q filed November 16, 1998)
47 48
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 10.8.3* -- Second Amendment to Employment Agreement with Thomas W. Klein dated January 1, 1999 10.9* -- Employment Agreement dated February 1, 1999 between Bacou USA Safety, Inc. and Alan H. Bennett 10.10 -- 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) 10.11 -- 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) 10.12 -- 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) 10.13 -- 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) 10.14 -- 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) 10.15 -- 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) 10.16 -- 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) 10.17 -- 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) 10.18 -- 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) 10.19* -- Bacou USA, Inc. 1996 Stock Incentive Plan (incorporated by reference to Exhibit10 (g) of the Company's Registration Statement) 10.20* -- 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) 10.21* -- 1998 Howard S. Leight Stock Option Plan (incorporated by reference to Exhibit 10.35 of the Company's Form 10-K filed March 27, 1998) 10.22 -- Purchase and Sale Agreement dated November 20, 1998 by and between Uvex Winter Optical, Inc. and Uvex Safety Manufacturing, Inc. 10.23 -- Lease Agreement dated February 27, 1998 by and between Howard S. Leight and Bacou USA Safety, Inc. (incorporated by reference to Exhibit 10.38 of the Company's Form 10-K filed March 27, 1998) 10.24* -- Bonus Plan for Executives of Subsidiaries and Divisions of Bacou USA, Inc. for 1998 and 1999 (incorporated by reference to Exhibit 10.39 of the Company's Form 10-K filed March 27, 1998) 10.25* -- 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
48 49
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 21 -- Subsidiaries of the Company 23 -- Accountants' Consent 27 -- Financial Data Schedule
- --------------- * Management contract or compensatory plan or arrangement. 49 EX-2.12 2 ASSET PURCHASE AGREEMENT 1 EXHIBIT 2.12 ASSET PURCHASE AGREEMENT by and among PERFECT FIT GLOVE CO., INC. SCHAS CIRCULAR INDUSTRIES, INC. X-PERT INDUSTRIAL PRODUCTS LIMITED PERFECT INDUSTRIAL PRODUCTS, INC. YADKIN LEASING COMPANY, INC. FRANK A. STUCKE JOSEPH P. HOERNER EDWARD MESANOVIC and BACOU USA SAFETY, INC. Dated as of February 24, 1999 2 TABLE OF CONTENTS SECTION PAGE - ------- ---- Preamble 1 Article I PURCHASE AND SALE 1 Article II DESCRIPTION OF ASSETS; EXCLUDED ASSETS 2 Section 2.01. Assets Section 2.02. Excluded Assets Article III ASSUMPTION OF LIABILITIES 2 Section 3.01. Assumed Liabilities Section 3.02. Non-Assumed Liabilities Article IV INSTRUMENTS OF TRANSFER AND ASSUMPTION 3 Section 4.01. Transfer Documents Section 4.02. Assumption Documents Article V PURCHASE PRICE; ALLOCATION 4 Section 5.01. Purchase Price Section 5.02. Payment of Purchase Price Section 5.03. Allocation of Purchase Price Section 5.04. Purchase Price Adjustment Section 5.05. Earnout Article VI CLOSING 6 3 Article VII SELLING GROUP'S REPRESENTATIONS 7 Section 7.01. Organization; Qualification Section 7.02. Consents, Authorization, Execution and Delivery of Agreement Section 7.03. Subsidiaries and Interests in Other Companies Section 7.04. Title to Assets; Condition of Assets. Section 7.05. Real Property--Owned Section 7.06. Real and Personal Property--Leased Section 7.07. Existing Contracts Section 7.08. Governmental Licenses Section 7.09. Compliance with Laws. Section 7.10. No Violation of Existing Agreements. Section 7.11. Litigation and Legal Proceedings Section 7.12. Environmental Compliance Section 7.13. Employees Section 7.14. Employee Benefits Section 7.15. Tax Matters Section 7.16. Financial Statements Section 7.17. Customers/Agents/Suppliers Section 7.18. Insurance Section 7.19. Brokers Section 7.20. Undisclosed Liabilities Section 7.21. Proprietary Rights -iii- 4 Section 7.22. Accounts Receivable and Bad Debts Section 7.23. Certain Business Relationships with Selling Group Section 7.24. Warranty and Product Liability Claims Section 7.25. Absence of Certain Business Practices Section 7.26. Year 2000 Compatibility Section 7.27. Disclosure Article VIII PURCHASER'S REPRESENTATIONS 16 Section 8.01. Organization; Qualification Section 8.02. Consents; Authorization; Execution and Delivery of Agreement Section 8.03. Brokers Article IX CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATION TO CLOSE 17 Section 9.01. Accuracy of Representations and Warranties; Performance of this Agreement Section 9.02. Resolutions Section 9.03. Incumbency Certificates Section 9.04. Consents Section 9.05. Due Diligence Section 9.06. No Material Adverse Change Section 9.07. Opinion of Counsel to Selling Group Section 9.08. Closing Escrow Agreement Section 9.09. Real Property -iv- 5 Section 9.10. Employment Agreements Section 9.11. HSR Act Notification Section 9.12. Environmental Assessment Section 9.13. Good Standing Certificates Article X CONDITIONS PRECEDENT TO SELLING GROUP'S OBLIGATION TO CLOSE 19 Section 10.01. Accuracy of Representations and Warranties; Performance of this Agreement Section 10.02. Directors' Resolutions Section 10.03. Incumbency Certificate Section 10.04. Opinion of Counsel to Purchaser Section 10.05. HSR Act Notification Section 10.06. Employment Agreements Article XI CASUALTY LOSSES 20 Article XII INDEMNIFICATION 21 Section 12.01. Indemnification by Selling Group Section 12.02. Indemnification by Purchaser Section 12.03. Notice of Claims; Defense of Third Party Section 12.04. Closing Escrow Agreement Article XIII CONFIDENTIALITY, PRESS RELEASES 24 Section 13.01. Confidentiality Section 13.02. Press Releases Section 13.03. Required Disclosures Article XIV BROKERS' FEES 24 -v- 6 Article XV COVENANTS OF SELLING GROUP 25 Section 15.01. Conduct of Business Section 15.02. No Solicitation Section 15.03. Access and Information Section 15.04. Financial Statements Section 15.05. Use of Business Name Section 15.06. Change of Selling Group Names Section 15.07. Bank Accounts Section 15.08. Payment to Alico Section 15.09. Post-Closing Schedules Article XVI MISCELLANEOUS 27 Section 16.01. Additional Instruments of Transfer Section 16.02. Notices Section 16.03. Expenses Section 16.04. Transfer Taxes Section 16.05. Collection Procedures Section 16.06. Specific Performance Section 16.07. Governing Law Section 16.08. Assignment Section 16.09. Successors and Assigns Section 16.10. Amendments; Waivers Section 16.11. Entire Agreement -vi- 7 Section 16.12. Counterparts Section 16.13. Severability Section 16.14. Section Headings Section 16.15. Interpretation Section 16.16. Further Assurances Section 16.17. Third Parties Section 16.18. Mediation Section 16.19. Arbitration Section 16.20. Termination DEFINED TERMS 35 SCHEDULES 38 EXHIBITS 64 -vii- 8 SCHEDULES 2.01 Itemized Assets to be Purchased 2.02 Excluded Assets 3.01 Assumed Liabilities 3.02 Non-Assumed Liabilities 5.03 Allocation of Purchase Price 7.02 Consents Needed 7.04(a) Liens 7.04(b) Building, Zoning Compliance 7.05 Owned Real Property 7.06 Leased Real Property 7.07 Existing Contracts 7.08 Governmental Licenses 7.09 Compliance with Laws 7.10 Violations of Existing Contracts 7.11 Litigation 7.12 Environmental Compliance 7.13 Employees 7.16(a)(i) Historical Financial Statements 7.16(a)(ii) Current Financial Statements -viii- 9 7.16(c) Ordinary Business Practices--Financial Statements 7.16(d) Dividends or distributions--Financial Statements 7.17 Customers/Agents/Suppliers 7.21. Intellectual Property Rights 7.22 Accounts Receivable and Bad Debts 7.23 Affiliate Relationships 7.24(a) Warranties and Product Liability Claims 7.24(b) Incidents involving Personal Injury 7.25 Certain Business Practices 7.27 Other Disclosures 15.01(e) Compensation 15,01(f) Acts or Omissions 15.01(g) Dividends or Distributions -ix- 10 EXHIBITS 4.01(a) Assignment and Bill of Sale 4.02 Assumption Agreement 5.02 Closing Escrow Agreement 5.05 Earnout Calculation 9.10(a) Employment Agreement with Joseph P. Hoerner 9.10(b) Employment Agreement with Frank A. Stucke 9.10(c) Employment Agreement with William Alico 9.10(d) Employment Agreement with Edward Mesanovic -x- 11 ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered into as of February 24, 1999 by and among (i) Perfect Fit Glove Co., Inc., a New York corporation ("PFG"), (ii) SCHAS Circular Industries, Inc., a North Carolina corporation ("SCHAS"), (iii) X-Pert Industrial Products Limited, a New York corporation ("X-PERT"), (iv) Perfect Industrial Products, Inc., a New York corporation ("PIP") (PFG, SCHAS, X-Pert, and PIP, collectively "GLOVE SELLERS"), (v) Frank A. Stucke, an individual residing in West Seneca, New York ("Stucke") and Joseph P. Hoerner, an individual residing in Orchard Park, New York ("Hoerner") who together constitute the majority stockholders of PFG and all of the stockholders of SCHAS and X-Pert, along with (vi) Edward Mesanovic, an individual residing in Tonawanda, New York ("Mesanovic"), the sole shareholder of PIP (collectively Stucke, Hoerner and Mesanovic, the "STOCKHOLDERS"), (vii) Yadkin Leasing Company, Inc., a North Carolina corporation ("YADKIN") (the Glove Sellers and Yadkin, collectively the "OPERATING COMPANIES" and the Operating Companies and Stockholders, collectively "SELLING GROUP") and (viii) Bacou USA Safety, Inc., a Delaware corporation ("PURCHASER"). WHEREAS, Glove Sellers manufacture and market protective gloves and other related products in the United States and throughout the world ("GLOVE BUSINESS"). Yadkin engages in leasing activities in connection with the Glove Business in North Carolina ("Leasing Business"). Stucke and Hoerner own and manage real property in Cheektowaga, New York and SCHAS leases property in Wilkesboro, North Carolina relating to the Glove Business ("REAL ESTATE BUSINESS") (the Glove Business, the Leasing Business and the Real Estate Business, collectively the "BUSINESS"); and WHEREAS, Purchaser desires to purchase from Selling Group, and Selling Group desires to sell to Purchaser, substantially all of the assets and rights of Selling Group relating to the Business, all subject to the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the premises and mutual covenants and agreements herein set forth and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereby agree as follows: ARTICLE I PURCHASE AND SALE Subject to the terms and conditions set forth in this Agreement, Selling Group agrees to sell, convey, assign, transfer and deliver to Purchaser, and Purchaser agrees to purchase from Selling Group at the Closing, all of Selling Group's right, title and interest in and to the Assets, free and clear of all debts, liabilities, obligations, and taxes other than Assumed Liabilities, and free and clear of LIENS (other than Permitted Liens). -1- 12 ARTICLE II DESCRIPTION OF ASSETS; EXCLUDED ASSETS SECTION 2.01. ASSETS. The assets to be conveyed to Purchaser shall include all real and personal tangible and intangible assets, properties and rights owned by Selling Group of whatever description (including without limitation, all permits and licenses, material agreements, contracts and leases (provided that consents to assignment have been obtained to the extent required by law or by the terms of such documents or that Purchaser has agreed to assume the obligations thereunder post-Closing while consents are being obtained), real property and personal property as set forth on Schedule 2.01 hereto), cash, customer records, machinery, equipment, vehicles, computers and software, furniture, fixtures, supplies, inventory and all other physical assets, agreements, contracts and leases that are not deemed material, interests, systems and documents regarding real property, Intellectual Property, credits and other prepaid items, claims and rights of recovery, purchase orders, accounts receivable, rights to bill and receive payment for products shipped and/or services performed but unbilled or unpaid, advertising, marketing and promotional materials, all rights to receive warranties, guarantees or indemnification, and all goodwill as a going concern which relate in any way to the ownership, use or operation of the Business, except assets specifically excluded pursuant to Section 2.02 hereof as of the date hereof plus or minus such assets acquired or disposed of in the ordinary course of business on or prior to the Closing (collectively, the "ASSETS"). Such Assets shall be free and clear of all Liens, other than Permitted Liens, as of the Closing. SECTION 2.02. EXCLUDED ASSETS. The properties and assets specifically listed and described in SCHEDULE 2.02 hereto which relate to the Business shall not be included in the Assets, shall be retained by Selling Group and shall not be sold, assigned or transferred to Purchaser (the "EXCLUDED ASSETS"). ARTICLE III ASSUMPTION OF LIABILITIES SECTION 3.01. ASSUMED LIABILITIES. At Closing, Purchaser shall assume and agree to perform and discharge the following to the extent not previously performed or discharged as of the Closing: (i) all obligations of Selling Group which accrue and are to be performed from and after the Closing under those permits and licenses, material agreements, contracts and leases either set forth on SCHEDULE 2.01 attached hereto or those agreements, contracts and leases of a non-material nature which are not required by this Agreement to be set forth on SCHEDULE 2.01 (all of such assets referred to in item (i) being referred to hereinafter as the "ASSUMED CONTRACTS"); (ii) all liabilities of Selling Group as reflected on the Closing Date Balance Sheet; and (iii) such items as are set forth on Schedule 3.01 (such items (i) through (ii) are collectively referred to herein as the "ASSUMED LIABILITIES"). -2- 13 SECTION 3.02. NON-ASSUMED LIABILITIES. Other than as may be required by Section 12.01(d) hereof, Purchaser shall not be liable for any other liabilities, debts, contracts, agreements, including without limitation any contracts or agreements set forth on SCHEDULE 2.02, or other obligations of Selling Group of any nature whatsoever, other than the Assumed Liabilities (the "NON-ASSUMED LIABILITIES") AS SET FORTH ON SCHEDULE 3.01, including without limitation the following Non-Assumed Liabilities: (a) liabilities and obligations for federal, state, or local income taxes arising in connection with the Business for periods ending on or prior to the Closing or arising as a result of the transactions contemplated by this Agreement, (b) liabilities and obligations, the existence of which constitutes a breach of any representation or warranty made by any Selling Group member in this Agreement or in any document delivered by it pursuant hereto, (c) liabilities and obligations incurred in connection with the preparation of this Agreement, and the consummation of the transactions contemplated hereby, except for reasonable legal and accounting fees not to exceed $75,000 and reasonable accounting fees for work performed by Skrobacz & Company specifically requested by Purchaser pursuant to Section 7.16(a)(iii) and (iv) of this Agreement, (d) liabilities and obligations based upon tortious or illegal conduct, (e) except for that certain agreement dated January, 1998 by and between SCHAS and Bryant Miller, the liabilities and obligations arising under any agreement with employees in the nature of a golden parachute or similar payment, (f) except for such employment terms as Purchaser may agree upon, any liabilities and obligations with respect to those employees of any Selling Group member listed in SCHEDULE 3.02 (certain family members), (g) any liabilities and obligations for any violation of any Environmental Law in connection with the Business occurring prior to the Closing Date, and (h) any environmental liabilities and obligations in connection with the Business occurring prior to the Closing Date relating to the Assets, any of which arise out of conduct which occurred or conditions which existed on or before Closing, even if such liability, obligation, conduct or condition is first discovered or a claim is first asserted after the Closing. ARTICLE IV INSTRUMENTS OF TRANSFER AND ASSUMPTION SECTION 4.01. TRANSFER DOCUMENTS. (a) At the Closing, Selling Group will deliver to Purchaser (i) one or more Bills of Sale in substantially the form attached hereto as EXHIBIT 4.01 (a "BILL OF SALE"), (ii) all such other good and sufficient instruments of sale, transfer and conveyance, including, without limitation, assignments of leases and deed(s) of real property, in such form and including such matters as Purchaser shall reasonably request and as shall be reasonably acceptable to Selling Group, as shall be effective to vest in Purchaser all of Selling Group's right and title to, and interest in, the Assets; and (iii) all contracts and commitments, instruments, books and records (except as otherwise provided in Section 2.02 hereof) and other data included in the Assets. (b) Notwithstanding anything to the contrary in this Agreement, this Agreement shall not constitute an agreement to assign or transfer any Government Document or any claim, right or benefit arising thereunder or resulting therefrom if an assignment or transfer or an attempt to make such an assignment or transfer without the consent of a third party would -3- 14 constitute a breach or violation thereof or affect adversely the rights of Purchaser or any Selling Group member thereunder; and any transfer or assignment to Purchaser by any Selling Group member of any interest under any Government Document that requires the consent of a third party shall be made subject to such consent or approval being obtained. In the event any such consent or approval is not obtained on or prior to the Closing Date, each Selling Group member shall continue to use all reasonable efforts to obtain any such approval or consent after the Closing Date until such time as such consent or approval has been obtained, and each Selling Group member will cooperate with Purchaser in any reasonable manner to provide that the Purchaser shall receive the interest of any Government Document, including performance by each Selling Group member, as the case may be, as agent, PROVIDED that Purchaser shall undertake to pay or satisfy the corresponding liabilities for the enjoyment of such benefit to the extent Purchaser would have been responsible therefor if such consent or approval had been obtained. SECTION 4.02. ASSUMPTION DOCUMENTS. At the Closing, Purchaser and Selling Group will execute and deliver (a) an Assumption Agreement in substantially the form attached hereto as EXHIBIT 4.02 (the "ASSUMPTION AGREEMENT") and (b) all such other good and sufficient instruments of assumption in such form and including such matters as Selling Group shall reasonably request and as shall be reasonably acceptable to Purchaser in order to effect the assumption of the Assumed Liabilities by Purchaser. ARTICLE V PURCHASE PRICE; ALLOCATION SECTION 5.01. PURCHASE PRICE. The total purchase price for the Assets shall be Thirty- Seven Million Eight Hundred Thousand Dollars ($37,800,000) PLUS the assumption of the Assumed Liabilities as set forth in Section 3.01 , as adjusted in accordance with the provisions of Section 5.04 (as adjusted, the "PURCHASE PRICE"). SECTION 5.02. PAYMENT OF PURCHASE PRICE. The following portions of the Purchase Price shall be payable by Purchaser at the Closing, as follows: (a) By the wire transfer delivery of Thirty-Five Million Eight Hundred Thousand Dollars ($35,800,000) in immediately available funds to such bank account or accounts as per written instructions of Selling Group, given to Purchaser at least five days prior to the Closing; and (b) By the wire transfer delivery of Two Million Dollars ($2,000,000) (the "CLOSING ESCROW PAYMENT") to Marine Midland Bank as escrow agent (the "CLOSING ESCROW AGENT") to be held, invested and disbursed pursuant to the terms of the Closing Escrow Agreement substantially in the form of EXHIBIT 5.02 hereto (the "CLOSING ESCROW AGREEMENT"). SECTION 5.03. ALLOCATION OF PURCHASE PRICE. The parties agree to allocate the aggregate of the Purchase Price and the Assumed Liabilities (collectively, the "AGGREGATE -4- 15 PURCHASE PRICE"), among the respective portions of the Business in accordance with an allocation schedule to be prepared by Purchaser at its expense. Such allocation schedule shall be prepared in accordance with the applicable provisions of the Code and the allocation shall be determined according to the procedures set forth in Schedule 5.03. SECTION 5.04. PURCHASE PRICE ADJUSTMENT. (a) Purchaser and Selling Group acknowledge that it will not be possible to determine the Net Worth of the Operating Companies as of the Closing Date until after the Closing. For purposes of the Closing, Purchaser and Selling Group have estimated the Net Worth to be Nine Million Seven Hundred Twenty Two Thousand Dollars ($9,722,000) (the "ESTIMATED NET WORTH"). Accordingly, within approximately ninety (90) days after the Closing Date, Purchaser, at its expense, shall cause Skrobacz & Company accountants to prepare and deliver to Selling Group combined audited financial statements (with all material eliminations made) for PFG and SCHAS and the unaudited financial statements for X-Pert, PIP and Yadkin for the period beginning on January 1, 1999 and ending on the Closing Date prepared in accordance with GAAP consistent with past practice (except for certain accruals and prepaid expenses set forth on Schedule 3.01) (such financial statements, the "CLOSING DATE FINANCIAL STATEMENTS"). The balance sheet included in such Closing Date Financial Statements (the "CLOSING DATE BALANCE SHEET") shall identify Net Worth at the close of such period ("CLOSING DATE NET WORTH") as set forth in Section 7.16(a)(iv). The Excluded Assets shall be deducted from the Closing Date Net Worth and the Non-Assumed Liabilities shall be added to the Closing Date Net Worth to determine the Deliverable Net Worth. (b) Selling Group shall complete its review of the Closing Date Financial Statements within sixty (60) days after its receipt thereof. If Selling Group agrees with the Closing Date Financial Statements, or if Selling Group does not object to the same within such sixty (60) day period, then the Closing Date Financial Statements and Closing Date Net Worth reflected therein shall be deemed final and adopted by Purchaser and Selling Group. (c) If Selling Group believes that any amendment should be made to the Closing Date Financial Statements, Selling Group shall give Purchaser written notice of such proposed amendments, and the reasons therefor, within the same sixty (60) day period. If Purchaser agrees with the proposed amendments, these shall be made and the Closing Date Financial Statements, as amended, will be deemed final and adopted by Purchaser and Selling Group. If any proposed amendments are disputed by Purchaser, the parties shall negotiate in good faith to resolve all disputed amendments. (d) If, after a period of thirty (30) days following the date on which Selling Group has given Purchaser written notice of any proposed amendments to the Closing Date Financial Statements, any such amendments still remain disputed, then the disputed items shall be referred to an independent auditor, which shall be a nationally recognized accounting firm, to be mutually agreed between Purchaser and Selling Group or selected by an arbitrator selected by Purchaser and Selling Group. The independent auditor shall function as an arbitrator whose decision shall be final and binding on the parties. The independent auditor shall render a written decision -5- 16 which shall be based upon proper compliance with this Section 5.04. The fees and expenses of the independent auditor shall be split equally by the parties, unless the independent auditor shall determine that a party has acted in bad faith with respect to any claim or defense, in which case the party which has been determined to have acted in bad faith shall be obligated to pay all of the fees and expenses. (e) No later than ten (10) days after the Closing Date Financial Statements have been adopted, as provided in Section 5.04(b), (c) or (d), as the case may be, if the Estimated Net Worth exceeds the Closing Date Net Worth (the "Net Worth Shortfall"), Purchaser shall instruct the Closing Escrow Agent to promptly release and pay Purchaser the amount of the Net Worth Shortfall from the first One Million Dollars ($1,000,000) of the Escrowed Funds (as such term is defined in the Closing Escrow Agreements) and any remainder left over reflecting the difference between One Million Dollars ($1,000,000) and the Net Worth Shortfall shall be paid to Selling Group. Interest that has accrued on the total $1,000,000 escrow deposit shall be allocated to the parties according to the amounts paid to each party by the Closing Escrow Agent. (f) No later than ten (10) days after the Closing Date Financial Statements have been adopted, as provided in Section 5.04(b), (c) or (d), as the case may be, if the Estimated Net Worth is less than the Closing Date Net Worth, then Purchaser shall instruct the Closing Escrow Agent to promptly release and pay Selling Group $1,000,000 of the Escrowed Funds, as well as all interest income accrued thereon. SECTION 5.05. EARNOUT. (a) In addition to the Purchase Price, Purchaser shall pay Selling Group an earnout (the "Earnout") based on a comparison of the actual consolidated cash flow of the Business ("EBITDA") for 1999 with a target of $8,758,000 subject to such adjustments as agreed upon by the parties, all as set forth in EXHIBIT 5.05. (b) As and to the extent earned, the dollar value of the Earnout shall be payable in cash to Selling Group as soon as practicable following the determination of the EBITDA of the Operating Companies for 1999, which is expected to be no later than February 29, 2000. (c) For purposes of computing the Earnout, the EBITDA shall be equal to the consolidated pro forma EBITDA earnings of the Operating Companies for the period January 1 through December 31, 1999. To make this calculation, Purchaser shall prepare, at its expense, a PRO FORMA consolidating income statement for the Business of the Operating Companies for the period January 1 through December 31, 1999 in accordance with GAAP, such accounting principles to be applied consistently with past practice (including certain accrued expenses and liabilities set forth on Schedule 3.01). ARTICLE VI CLOSING Subject to the terms and conditions hereof, the closing (the "Closing") shall take place at the offices of Phillips Lytle Hitchcock Blaine & Huber LLP, 3400 Marine Midland Center, -6- 17 Buffalo, New York 14203, on April 1, 1999 (or such other date as shall be agreed upon by the parties (the "CLOSING DATE")). At Closing, each party shall deliver or cause to be delivered to the other party the instruments of transfer and assumption referenced in Article IV of this Agreement and the other deliveries required hereunder and Purchaser shall deliver the Purchase Price as required pursuant to Section 5.02. ARTICLE VII SELLING GROUP'S REPRESENTATIONS Each member of the Selling Group (except for Edward Mesanovic, who makes these representations only as they may pertain to PIP), jointly and severally represents and warrants (such representations and warranties to survive the Closing as set forth herein) that: SECTION 7.01. ORGANIZATION, QUALIFICATION. Each of the Operating Companies is duly organized, validly existing and in good standing under the laws of its respective jurisdiction of incorporation and qualification, and each corporate Selling Group member has all necessary corporate power and authority and each individual Selling Group member has all necessary power and authority to own and operate its or his properties and to carry on its or his business as now being conducted or proposed to be conducted and to carry out the transactions contemplated by this Agreement. Each Selling Group member has the full power and authority to execute and deliver and, perform its or his respective obligations under this Agreement and to undertake the transactions contemplated hereby. SECTION 7.02. CONSENTS, AUTHORIZATION, EXECUTION AND DELIVERY OF AGREEMENT. Except as set forth on SCHEDULE 7.02 hereto, all necessary consents and approvals have been obtained by each Selling Group member for the execution and delivery of this Agreement. The execution, delivery and performance of this Agreement by Selling Group and the transfer of the Assets to Purchaser have been duly and validly authorized and approved by all necessary corporate and stockholder action (with respect to the Operating Companies). This Agreement is a valid and binding obligation of each Selling Group member, enforceable against each such member in accordance with its terms except as enforceability may be limited by applicable bankrupcty, insolvency, reorganization, arrangement or similar laws affecting the rights of creditors generally and subject to the discretion of courts to award equitable remedies. SECTION 7.03. SUBSIDIARIES AND INTERESTS IN OTHER COMPANIES. The Corporate Selling Group members have no subsidiaries, and the Selling Group members do not own or control any shares or other securities of, or have any other proprietary interest in, any corporation, partnership, limited liability company, joint venture, business association or other Person related to the Business (other than their ownership or control of another Selling Group member). SECTION 7.04. TITLE TO ASSETS; CONDITION OF ASSETS. (a) Each Selling Group member has, and will convey or cause to be conveyed to Purchaser at Closing, as the case may be, good and marketable title to the Assets owned by it, free and clear of all Liens other than Permitted Liens. All Liens in effect on the date hereof which are to be discharged at Closing are listed on -7- 18 SCHEDULE 7.04(a) hereto. The tangible personal property included among the Assets is in good working condition and repair, reasonable wear and tear excepted. The Assets constitute all of the assets which are used or useful in the operation of the Business as it is currently being conducted by Selling Group. Except as disclosed on SCHEDULE 7.23, no officer, director, stockholder, partner or employee of any Selling Group member or any other Person, other than a member of Selling Group, owns, leases or has any rights in any property, or other assets used in or useful to the Business other than the Excluded Assets. (b) Except as set forth on SCHEDULE 7.04(b), all of the buildings, fixtures and improvements owned or leased by Selling Group, and all heating and air conditioning equipment, plumbing, electrical and other mechanical facilities and the roof, walls and other structural components of the real property which are part of, or located in such buildings, or improvements that are owned or leased by Selling Group, substantially comply with applicable zoning laws and the building, health, fire and, subject to the limitations set forth in the representations of Selling Group in Section 7.12, environmental protection codes of all applicable governmental jurisdictions, have no structural defects and do not require any repair other than routine maintenance and the repair of ordinary wear and tear. SECTION 7.05. REAL PROPERTY - OWNED. (a) The Owned Real Property set forth on SCHEDULE 2.01 and the use thereof are both in compliance with all applicable Real Property Laws, and no Selling Group member has received any work orders or notice of any defect in the construction or state of repair of any of the Owned Real Property or notice of any violation or claimed violation of any Real Property Law or of any changes or proposed changes to Real Property Laws which will adversely affect the current use of any of the Owned Real Property. The Owned Real Property and their continued use, occupancy and operation as currently used, occupied and operated do not constitute a nonconforming use under any Real Property Law and the continued existence, use, occupancy and operation of each Improvement, and the right and ability to repair and/or rebuild such Improvement in the event of casualty, is not dependent on any special permit, exception, approval or variance. To the Knowledge of any Selling Group member, there is no pending or anticipated change in any Real Property Law which would have an adverse effect upon the ownership, alteration, use, occupancy or operation of any of the Owned Real Property or any portion thereof, or upon the reconstruction of any Improvement in the event of a casualty. No dispute currently exists with any governmental entity with respect to any Real Property Law or the application thereof to any of the Owned Real Property. There are no encroachments upon any of the Owned Real Property and the Improvements situated upon such Owned Real Property do not encroach upon or violate any rights or way, easements or the lands of others. There are no violations of law or rule with respect to water supply, sewage or waste disposal facilities. No portion of any of the Owned Real Property has suffered any damage by fire or other casualty which has not heretofore been completely repaired and restored to its original condition. Except as set forth on SCHEDULE 7.05, no portion of any of the Owned Real Property is located in a special flood hazard area as designated by federal governmental authorities nor is any portion of the Owned Real Property subject to conservation authority regulation. -8- 19 (b) No Selling Group member has received any notice of any special assessment or condemnation from a governmental entity with respect to any of the Owned Real Property. (c) Except as set forth on SCHEDULE 7.05, no Selling Group member owns, holds or is obligated under, or is a party to, any option, right of first refusal or other contractual right to purchase, acquire, sell or dispose of all or any part of the Owned Real Property or any interest therein and no Selling Group member is a lessor, sublessor or grantor under any contract granting to another Person any right to the possession, use, occupancy or enjoyment of all or any part of the Owned Real Property or any interest therein. SECTION 7.06. REAL AND PERSONAL PROPERTY - LEASED. Set forth on SCHEDULE 2.01 are true and accurate listings of all real and personal property leases to which a Selling Group member is a party setting forth (i) the name of the lessor and (ii) with respect to the real property leases, a description of the property leased. Except as set forth on SCHEDULE 7.06 all of the leases set forth on such Schedules are in full force and effect and are valid, binding and enforceable in accordance with their respective terms, (ii) all accrued and currently payable rents and other payments required by such leases have been paid, (iii) Selling Group and, to Selling Group's Knowledge, each other party thereto have materially complied with all respective covenants and provisions of such leases, (iv) neither Selling Group nor, to Selling Group's Knowledge, any other party is in material default in any respect under any such leases, (v) no party has asserted any defense, set off, or counter claim thereunder, (vi) no waiver, indulgence or postponement of any obligations thereunder has been granted by any party, and (vii) the validity or enforceability of any such lease will be in no way affected by the sale of the Assets to Purchaser, provided all required consents have been obtained from the other parties to such lease. SECTION 7.07. EXISTING CONTRACTS. SCHEDULE 2.01 hereto set forth all contracts, commitments and agreements (written and oral) (except those terminable with notice provided in thirty (30) or fewer days) in effect on the date hereof with Selling Group's customers, all leases to which a Selling Group member is a party, and all other contracts, commitments and agreements (written and oral) to which a Selling Group member is a party which relate to the ownership of the Assets or the operation of the Business that are being assigned to Purchaser (the "Existing Contracts"). Except as disclosed on SCHEDULE 7.07, no officer, director, partner or employee of a Selling Group member or any Person (other than Selling Group members) controlling, controlled by or affiliated with or family member of any such officer, director or employee has any contractual relationship relating to the ownership or operation of the Business that is being sold, transferred or assigned to Purchaser. Selling Group has heretofore delivered to Purchaser true and correct copies of the Existing Contracts. Except as disclosed on SCHEDULE 7.07, Selling Group has no knowledge of any material breach or threatened breach by the other parties to any Existing Contracts. The Existing Contracts are in full force and effect and Selling Group is in compliance with each of its respective material obligations under such Existing Contracts. Except for the Existing Contracts, no Selling Group member has entered into any other contract, commitment or agreement relating to the ownership of the Assets or the operation of the Business, including, but not limited to, leases or guaranty agreements. There are no claims by third parties that a Selling Group member is required to enter into other agreements to enable it to continue to own the Assets and operate the Business as it is presently being operated. -9- 20 SECTION 7.08. GOVERNMENTAL LICENSES. Selling Group holds all Authorizations which are required in connection with the ownership of the Assets. All Authorizations are in full force and effect. Except as set forth on SCHEDULE 7.08, the ownership of the Assets and the operation of the Business by Selling Group are not subject to specific industry regulation or supervision by any federal or state governmental unit. SECTION 7.09. COMPLIANCE WITH LAWS. Except as set forth on Schedule 7.09, to the best of Selling Group's knowledge, it is currently complying with, has complied with, and is not in default under or in violation of any statute, law (including environmental or employment laws), ordinance, decree, order, rule or regulation of any governmental body applicable to the Assets or the Business. SECTION 7.10. NO VIOLATION OF EXISTING CONTRACTS. Except as set forth on SCHEDULE 7.10, the execution, delivery and performance of this Agreement by Selling Group and Selling Group's transfer of the Assets to Purchaser (i) will not violate any provision of any law (ii) will not, with or without the giving of notice or the passage of time, or both, conflict with or result in any breach of any of the terms or conditions of, or constitute a default under any Existing Contract, and (iii) will not result in the creation of any Lien upon the Assets or the Business other than Permitted Liens. SECTION 7.11. LITIGATION AND LEGAL PROCEEDINGS. There is no outstanding judgment against any Selling Group member or any director, officer, partner or stockholder of a Selling Group member affecting the Business or the Assets or which questions the validity of any action taken or to be taken by a Selling Group member pursuant to or in connection with the provisions of this Agreement. Except as set forth on SCHEDULE 7.11, there is no litigation, proceeding or investigation pending, or, to Selling Group's knowledge, threatened, against a Selling Group member or any director, officer, partner or stockholder of a Selling Group member affecting the Business or the Assets or which questions the validity of any action taken or to be taken by Selling Group pursuant to or in connection with the provisions of this Agreement. Except as set forth on SCHEDULE 7.11, there are no proceedings pending to which a Selling Group member or any director, officer, partner or stockholder of a Selling Group member is a party or, to Selling Group's Knowledge, threatened, nor has Selling Group received written notice of any demand by any governmental agency, utility or other party, to terminate, modify or adversely change the terms and conditions of any Selling Group member's rights with respect to the Authorizations or Existing Contracts. SECTION 7.12. ENVIRONMENTAL COMPLIANCE. Except as otherwise disclosed in SCHEDULE 7.12 attached hereto, (a) any Hazardous Substance generated, used, treated, stored, or disposed of during Selling Group's ownership, occupation or use of the Assets or the Business has been and is being used, treated, stored or disposed of in material compliance with all Environmental Laws, and; (b) Selling Group has received no notice of any material violation of any applicable Environmental Laws relative to the Assets or the Business. Based upon Selling Group's information and belief, (y) no friable asbestos or polychlorinated biphenyl, and no underground storage tank, is contained in or located on or under any property or facility owned, occupied, -10- 21 used or leased by Selling Group, and (z) during Selling Group's ownership, occupation or use of the Assets or the Business, there has never been a release of any Hazardous Substances in, on, under, off or around any property or facility used, occupied, owned or leased by Selling Group. All environmental permits applicable to the Selling Group's use of the Owned Real Property and Leased real property have been obtained, are in full force and effect and are set forth on Schedule 7.12. Except as otherwise disclosed in SCHEDULE 7.12 attached hereto, and to the best of Selling Group's knowledge and belief, no Hazardous Substance has been generated, stored, disposed of or released, except in accordance with applicable Environmental Laws, in, on, under, off or around the land and buildings comprising the main assembly plant in Cheektowaga, New York at any time prior to the time that such plant was owned, occupied, used and/or leased by the Selling Group. SECTION 7.13. EMPLOYEES. SCHEDULE 7.13 sets forth a true and complete list of the names and current salaries of all salaried employees of Selling Group, and a list of average hourly pay rates for hourly employees, involved in the operation of the Business. Except as set forth on SCHEDULE 7.13, such employees are employees at will. Set forth on Schedule 7.13 is a list of employees' accrued but unused vacation. Selling Group has withheld all amounts required by law or agreement to be withheld by it from the wages, salaries and other payments to its employees and is not liable for any arrears of wages or any taxes for failure to comply with any of the foregoing. There are no collective bargaining agreements covering any of the employees of Selling Group. Selling Group has not breached or otherwise failed to comply with any provision of any collective bargaining agreement or other labor union contract applicable to any of its employees. No consent of any union (or similar group or organization) is required in connection with the consummation of the transactions contemplated hereby. There are no pending, or, to Selling Group's Knowledge threatened or anticipated, and to the best knowledge of Selling Group, there is no factual basis for, any (a) employment discrimination (including age, sex, racial or handicap discrimination) charges or complaints against or involving Selling Group, before any federal, state, or local board, department, commission or agency or (b) unfair labor practice charges or complaints, disputes or grievances affecting Selling Group. There are no pending, or, to Selling Group's Knowledge, threatened or anticipated (a) union representation petitions respecting the employees of Selling Group, (b) efforts being made to organize any of the employees of Selling Group, or (c) strikes, slow downs, work stoppages, or lockouts or threats affecting Selling Group. SECTION 7.14. EMPLOYEE BENEFITS. (a) Each "employee pension benefit plan" (as defined in Section 3(2) of ERISA) that any member of Selling Group maintains or contributes to and has ever maintained or contributed to with respect to the Business is named as follows: the Perfect Fit Glove Co., Inc. 401(k) Plan (the "401(k) Plan" and the Perfect Fit Glove Co., Inc. Profit-Sharing Plan and Trust (the "Profit Sharing Plan") (both collectively, the "Retirement Plans"). No member of Selling Group, nor any trade or business (whether or not incorporated) which is, or was at any relevant time, aggregated with each Operating Company pursuant to Section 414(b), (c), (m) or (o) of the Code, maintains or contributes to, has ever maintained or contributed to, or had an obligation to maintain or contribute to, any multi-employer plan within -11- 22 the meaning of Section 4001(3) of ERISA or to any "employee pension benefit plan" that is subject to Title IV of ERISA or the minimum funding requirements of Section 412 of the Code and Section 302 of ERISA. (b) (i) With respect to the Retirement Plans, no liability currently exists for Selling Group for any breach of fiduciary duty under Title I of ERISA and no event has occurred and no condition exists, which could subject Selling Group to any liability or breach of fiduciary duty under Title I of ERISA; (ii) with respect to the Retirement Plans, there is no liability under Title IV of ERISA. SECTION 7.15. TAX MATTERS. Except as set forth on SCHEDULE 7.15, (a) each Selling Group member has timely filed all Tax (as defined below) returns and statements which it is required to file; (b) all such returns are materially complete and accurate and disclose all Taxes required to be paid for the periods covered thereby; (c) no Selling Group member has waived any statute of limitations in respect of Taxes or agreed to an extension of time with respect to a Tax assessment or deficiency; (d) no assessment of any additional Taxes for periods for which returns have been filed has been asserted and no basis exists therefor; (e) to Selling Group's knowledge, there are no unresolved questions or claims raised by any Taxing authority concerning the Tax liability of any Selling Group member, (f) all Taxes which Selling Group members are required by law to withhold or to collect for payment have been duly withheld and collected, and have been paid and (g) each of Glove Sellers (except PIP and X-Pert) has made a valid election to be taxed as an "S Corporation" (as defined in Section 1361 of the Code) and will be classified for Federal income tax purposes as an S Corporation for the period from the date of its election through the Closing Date. Each Selling Group member has paid all Taxes due prior to the date hereof and will pay when due (or contest in good faith by appropriate proceedings) all Taxes which may become due on or before the Closing Date. SECTION 7.16. FINANCIAL STATEMENTS. (a) (i) Purchaser has heretofore been furnished with true and complete copies of the preliminary unaudited balance sheet of PFG as of September 30, 1997 and September 30, 1998 and for SCHAS as of December 31, 1997 and September 30, 1998 and the related statements of income and retained earnings for the years (or periods, as the case may be) then ended, and the combined balance sheet of the Operating Companies as of December 4, 1998 (the "Base Period")(the "Base Period Financial Statements"), each of such balance sheet and income statement being attached hereto as SCHEDULE 7.16(a)(i), (THE "HISTORICAL FINANCIAL STATEMENTS"). From and after the Base Period, the Stockholders have not taken any dividends, distributions or withdrawals from any of the Operating Companies except to pay salaries and rent in the normal course of business or to pay income taxes on account of their position as stockholders of the following S Corporations: PFG and SCHAS (ii) Not less than one (1) week prior to the Closing, at Selling Group's cost, Purchaser shall be furnished with the audited balance sheet of PFG as of -12- 23 September 30, 1998 and for SCHAS as of December 31, 1998 and the related statements of income and retained earnings and cash flows for the year then ended prepared in accordance with generally accepted accounting principles consistent with past practices (except for certain accruals and prepaid expenses set forth on Schedule 3.01 and a review of opening inventory) as set forth on Schedule 7.16(a)(ii) (collectively, the "Current Financial Statements"); (iii) On or before July 1, 1999, at Purchaser's cost, Purchaser will be furnished with the audited balance sheet of PFG as of December 31, 1998 and March 31, 1999 and SCHAS as of March 31, 1999 and the related statements of income and retained earnings and cash flows for the period then ended prepared in accordance with generally accepted accounting principles consistent with past practice; and (iv) On or before July 1, 1999, at Purchaser's cost, Purchaser will be furnished with a Schedule of the combined companies comprising the Business of Selling Group in substantially the same form as the Base Period Financial Statements setting forth combined Closing Date Net Worth of Selling Group. (b) Each of the Historical and Current Financial Statements delivered under Section 7.16 (a)(i) and (ii) hereof was prepared in accordance with GAAP applied on a basis consistent with prior periods and past practices and, with respect to the Current Financial Statements, subject to usual and customary year-end adjustments and except for the omission of certain footnotes and other presentation items required by GAAP with respect to audited financial statements; each of the balance sheets included in such Historical and Current Financial Statements fairly presents in all material respects the financial condition of Selling Group, as at the close of business on the date thereof; and each of the statements of income included in such Historical and Current Financial Statements fairly presents in all material respects the results of operations of Selling Group, for the fiscal period then ended. (c) Except as set forth on SCHEDULE 7.16(c) since December 31, 1998, Selling Group has not, except in the ordinary course of business consistent with past practice: (i) sold, assigned or transferred any of its Assets (except for the Excluded Assets or for assets sold or disposed of and replaced by other assets of comparable use and value) or canceled any material debts or material claims; (ii) waived any material rights, whether or not in the ordinary course of business; (iii) entered into any other transaction, or entered into any transaction with any officer, director, partner or shareholder of a Selling Group member, or any affiliate or family member of any such Person; -13- 24 (iv) suffered any material damage, destruction or casualty loss with respect to the Assets, whether or not covered by insurance; (v) obligated itself or the Business to give free or reduced price goods to customers or distributors with respect to the Business; or (vi) entered into any agreement or understanding to do any of the foregoing. (d) Except as set forth on Schedule 7.16(d), since December 4, 1998, PFG, SCHAS, X-Pert and PIP and since December 31, 1998, Yadkin, and Hoerner and Stucke as owners of the Owned Real Property, have not made any dividend or distribution of any of the Assets to any officer, director or shareholder of a Selling Group member or any affiliate or family member of such officer, director or shareholder. SECTION 7.17. CUSTOMERS/AGENTS/SUPPLIERS. SCHEDULE 7.17 attached hereto sets forth a true, accurate, and complete list of (a) the names of the top twenty-five (25) customers and distributors receiving goods from Selling Group (ranked by dollars) during 1998 , (b) the names of all agents and representatives who service customers on behalf of Selling Group, if any, and (c) the names of the top ten (10) suppliers of raw materials, supplies or other goods or services to Selling Group (ranked by dollars) in connection with the Business, during 1998. SECTION 7.18. INSURANCE. Selling Group has delivered previously to Purchaser all policies of title, liability, fire, worker's compensation and other forms of insurance (including bonds) which insure against risks and liabilities to an extent and in a manner customary in the industry and which are reasonably adequate to provide coverage against risks of a nature to which Selling Group would normally be exposed in the operation of the Business. All such insurance policies and binders are in full force and effect. Selling Group has complied in all material respects with each of such insurance policies and binders and has not failed to give any notice or present any claim thereunder in a due and timely manner. To the best of Selling Group's knowledge, there are no outstanding unpaid claims under any of such insurance policies or binders and Selling Group has not received any notice of cancellation or non-renewal of any such policy or binder. To Selling Group's knowledge, there is no inaccuracy in any application for such policies or binders which would reasonably be expected to materially adversely affect coverage thereunder. No insurance carrier has canceled or reduced any insurance coverage for Selling Group or has given any notice or other indication of its intention to cancel or reduce any such coverage in the past five years. SECTION 7.19. BROKERS. Selling Group has not engaged any agent, broker or other person acting pursuant to the express or implied authority of Selling Group which is or may be entitled to a commission or broker or finder's fee in connection with the transactions contemplated by this Agreement or otherwise with respect to the sale of the Assets or the Business. SECTION 7.20. UNDISCLOSED LIABILITIES. Selling Group has no liabilities or obligations of any nature, whether absolute, accrued, contingent or otherwise, which are not reflected or -14- 25 reserved against on the Current Financial Statements, except for non-material liabilities and obligations that have arisen in the ordinary and usual course of business and consistent with past practice (none of which results from, arises out of, relates to, is in the nature of, or is caused by any breach of contract, breach of warranty, tort, infringement or violation of law) and except for liabilities and obligations directly related to the transactions contemplated hereby, as set forth on the Schedules hereto. SECTION 7.21. PROPRIETARY RIGHTS. Except as set forth on SCHEDULE 7.21, Selling Group lawfully possesses, and the Assets will include, all Intellectual Property rights that are used or useful in the conduct of the Business. Except as set forth on Schedule 7.21, none of the Intellectual Property rights owned by Selling Group infringes upon the rights of any third party. Except as set forth on SCHEDULE 7.21, Selling Group does pay any royalty to any Person with respect to any of the Intellectual Property rights, Selling Group does not receive royalties with respect thereto and Selling Group has not licensed or sublicensed any of the Intellectual Property rights to any Person. SECTION 7.22. ACCOUNTS RECEIVABLE AND BAD DEBTS. Except for a mortgage note in the approximate face amount of $133,000 involving real property on South Park Avenue, Buffalo, New York, all notes and accounts receivable of Selling Group shown on the Current Financial Statements or thereafter acquired were or (to the extent not heretofore collected) are valid and genuine, were acquired in the ordinary course of business and are subject to no asserted counterclaims, defenses or setoffs (subject to reserves for bad debts as will be taken into account in the determination of Current Assets at Closing in accordance with Section 5.04). SCHEDULE 7.22 attached hereto sets forth a true, materially complete and accurate list of all such reserves and a list of the accounts receivable and the aging of such customer receivables as of February 22, 1999. SECTION 7.23. CERTAIN BUSINESS RELATIONSHIPS WITH SELLING GROUP. Except as set forth in SCHEDULE 7.23 attached hereto, none of the officers, directors or stockholders of a Selling Group member, its affiliates or family members, has been involved in any business arrangement or relationship with a Selling Group member within the past 12 months. SECTION 7.24. WARRANTY AND PRODUCT LIABILITY CLAIMS. (a) Except as disclosed on SCHEDULE 7.24(a), there are no written warranties or guaranties, expressed or implied, with respect to any products manufactured or sold or services rendered in connection with the Business, and no claims are pending or asserted or, to the Knowledge of Selling Group, threatened that any product of Selling Group was defective or caused any injury or harm to any Person or property, including all such claims or allegations relating to returns, express or implied warranty violations, failure to warn or similar matters. To the Knowledge of each member of Selling Group, no Person has any basis upon which to make any such claims. All pending or, to the Knowledge of any Selling Group member, threatened or asserted claims set forth on SCHEDULE 7.24(a) are covered by insurance and are not subject to any deductibles other than the amount of the deductible set forth opposite such claim on such Schedule. There are no statements, citations or decisions specifically directed to Selling Group -15- 26 by any governmental entity stating that any product manufactured, marketed or distributed at any time by any Selling Group member is defective or unsafe or fails to meet any standards promulgated by any such governmental entity. There have been no recalls with respect to any product manufactured, marketed or distributed within the past five (5) years by any Selling Group member with a value greater than $10,000 and to the knowledge of Selling Group, no such recall is threatened. (b) SCHEDULE 7.24(b) sets forth all incidents involving personal injury since January 1, 1995 that have alleged to have been, or that, to the Knowledge of any Selling Group member, could be alleged to have been, caused by any product manufactured or sold by a Selling Group member or by any services rendered by a Selling Group member, regardless of whether a claim therefor has been asserted or threatened against any Person. SECTION 7.25. ABSENCE OF CERTAIN BUSINESS PRACTICES. Except as set forth on SCHEDULE 7.25, no Selling Group member, any officer, employee or agent of any Selling Group member, or any other person acting on their behalf, has, directly or indirectly, within the past five years given or agreed to give any gift or similar benefit to any customer, supplier, governmental employee or other person who is or may be in a position to help or hinder the Business (or assist any Selling Group member in connection with any actual or proposed transaction relating to the Business) (i) which subjected or might have subjected any Selling Group member to any damage or penalty in any civil, criminal or governmental litigation or proceeding, (ii) which if not given in the past, might have had a Material Adverse Effect, (iii) which if not continued in the future, might have a Material Adverse Effect or subject any Selling Group member to suit or penalty in any private or governmental litigation or proceeding, (iv) for any of the purposes described in Section 162(c) of the Code or (v) for the purpose of establishing or maintaining any concealed fund or concealed bank account. SECTION 7.26. YEAR 2000 COMPATIBILITY. To the Knowledge of each Selling Group member, all of the computer-based systems of each Selling Group member will have been upgraded on or before September 30, 1999 at a cost of not more than $10,000 so that such systems operating and effectively processing data for dates on and after January 1, 2000, including without limitation the processing, accepting, calculating, storing and outputting of times or dates on or after such date and any time periods determined or to be determined based on such times or dates. SECTION 7.27. DISCLOSURE. Except as set forth on Schedule 7.27, no provision of this Agreement relating to Selling Group, the Business or the Assets or any other document, Schedule, Exhibit or other information furnished by Selling Group to Purchaser in connection with the execution, delivery and performance of this Agreement, or the consummation of the transactions contemplated hereby, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact required to be stated in order to make the statement, in light of the circumstances in which it is made, not misleading. In connection with the preparation of this Agreement and the documents, descriptions, opinions, certificates, Exhibits, Schedules or written material prepared by Selling Group and appended hereto or delivered or to be delivered hereunder, Selling Group agrees it will disclose to Purchaser any fact known to -16- 27 Selling Group which Selling Group knows or believes would adversely affect Purchaser's decision to proceed with the execution of this Agreement. There is no fact now known to Selling Group relating to the Business or Assets which in Selling Group's reasonable opinion adversely affects the condition of the Assets, or the ownership, operation or financial condition of the Business which has not been disclosed to Purchaser or set forth in the Exhibits or Schedules attached hereto. All Schedules attached hereto are accurate and complete as of the date hereof. ARTICLE VIII PURCHASER'S REPRESENTATIONS Purchaser hereby represents and warrants that: SECTION 8.01. ORGANIZATION; QUALIFICATION. Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Purchaser has all corporate power and authority to (i) own and operate its properties, (ii) carry on its business as it is now being conducted, and (iii) carry out the transactions contemplated by this Agreement and to own and operate the Assets and the Business, subject to obtaining all necessary consents required for the transfer by Selling Group of the Assets, if any. SECTION 8.02. CONSENTS; AUTHORIZATION; EXECUTION AND DELIVERY OF AGREEMENT. All necessary consents and approvals have been obtained by Purchaser for the execution and delivery of this Agreement. The execution and delivery of this Agreement by Purchaser has been duly and validly authorized and approved by all necessary corporate action. Purchaser has full power and authority to execute and deliver and perform its obligations under this Agreement. This Agreement is a valid and binding obligation of Purchaser, enforceable against it in accordance with its terms. SECTION 8.03. BROKERS. Purchaser has not engaged any agent, broker or other person acting pursuant to the express or implied authority of Purchaser which is or may be entitled to a commission or broker or finder's fee in connection with the transactions contemplated by this Agreement or otherwise with respect to the sale of the Assets or the Business. ARTICLE IX CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATION TO CLOSE The obligation of Purchaser under this Agreement with respect to the purchase and sale of the Assets shall be subject to the fulfillment on or prior to the Closing of each of the following conditions, any of which may be waived in writing by Purchaser: SECTION 9.01. ACCURACY OF REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF THIS AGREEMENT. All of the representations and warranties made by Selling Group in this Agreement shall be true and correct at and as of the Closing. Selling Group shall have complied with and performed all of the agreements and covenants required by this Agreement to be performed or -17- 28 complied with by it on or prior to the Closing. Purchaser shall have been furnished with a certificate executed by the President of each of the Operating Companies dated as of the Closing, certifying to the fulfillment of the foregoing conditions. SECTION 9.02. RESOLUTIONS. The Operating Companies shall deliver to Purchaser copies of the resolutions of the board of directors and stockholders of each (including a unanimous written consent of the stockholders of PFG) authorizing the execution, delivery and performance of this Agreement and all instruments and documents to be delivered in connection herewith and the transactions contemplated hereby, duly certified by an officer of each Operating Company. SECTION 9.03. INCUMBENCY CERTIFICATES. Purchaser shall have received a certificate or certificates of an officer of each Operating Company, certifying as to the genuineness of the signatures of officers of each of the Operating Companies authorized to take certain actions or execute any certificate, document, instrument or agreement to be delivered pursuant to this Agreement, which incumbency certificate shall include the true signatures of such officers. Purchaser shall have received a certificate of the Stockholders, certifying that they are, as the case may be, the sole owners of the Operating Companies and the Owned Real Property. SECTION 9.04. CONSENTS. Selling Group shall have delivered to Purchaser such instruments, consents and approvals of third parties (the form and substance of which shall be reasonably satisfactory to Purchaser) as are reasonably necessary to assign to Purchaser without modification thereof, as of the Closing, the Assets and the Assumed Contracts, and Purchaser shall have obtained all Authorizations reasonably necessary for the consummation of the transactions contemplated by this Agreement. SECTION 9.05. DUE DILIGENCE. Purchaser and its agents and representatives shall have conducted a satisfactory legal, tax, accounting, environmental, regulatory and business due diligence review of the Assets and the Business including, without limitation, the Business properties, and customers, the results of which shall be satisfactory to the Purchaser. If as a result of such due diligence review, Purchaser decides to terminate the Agreement or believes that a material change must be made to the Agreement, then Purchaser shall notify Selling Group of such determination within thirty (30) days after the execution of the Agreement or ten (10) days after receipt of final Schedules, as the case may be. Without limiting the generality of the foregoing, Purchaser shall be satisfied that the Assets constitute all assets and property necessary to operate the Business as Purchaser contemplates. If, during the course of its due diligence review, Purchaser obtains knowledge of a clear and material breach by Selling Group of any of the Selling Group's representations set forth herein (but not including knowledge of facts that may lead to a material breach), Purchaser shall provide the information upon which such knowledge is based to Selling Group. SECTION 9.06. NO MATERIAL ADVERSE CHANGE. There shall not have been any material adverse change in the financial condition, assets, business, properties or prospects of the Business or Assets, from December 4, 1998 to the Closing. -18- 29 SECTION 9.07. OPINION OF COUNSEL TO SELLING GROUP. Purchaser shall have been furnished with an opinion of Phillips Lytle Hitchcock Blaine & Huber LLP, counsel to Selling Group, dated as of the Closing and addressed to Purchaser, and to any institution designated by Purchaser which has provided financing in connection with the transactions contemplated by this Agreement, in a form to be mutually agreed upon. SECTION 9.08. CLOSING ESCROW AGREEMENT. Selling Group shall have executed and delivered the Closing Escrow Agreement to Purchaser. SECTION 9.09. REAL AND PERSONAL PROPERTY. Selling Group shall have delivered to the Purchaser: (a) the Assignment and Bill of Sale assigning to Purchaser all of Selling Group's right, title and interest in and to the Existing Contracts, Intellectual Property and all other agreements and instruments constituting the Assets, dated as of the Closing Date; (b) the Assumption Agreement; (c) an assignment of lease, dated as of the Closing Date, with respect to each Lease, in form reasonably satisfactory to Purchaser, together with any necessary transfer declarations or other filings; (d) certificates of title to all motor vehicles included in the Assets to be transferred to Purchaser hereunder, duly endorsed for transfer to Purchaser as of the Closing date; (e) a tax and title search which covers the Owned Real Property, fully guaranteed by a title insurance corporation licensed under Article 64 of the Insurance Law. The first set-out of the search shall be the first recorded source of title in the County Clerk's Office. The last continuation of the search shall be dated after the date hereof. Selling Group shall also provide local tax certificates where not covered by the search. (f) a survey of the Owned Real Property prepared by a professional who is licensed or otherwise authorized under the New York Education Law to practice land surveying ("Surveyor"). The survey shall be dated within four years prior to the Closing Date (provided that any such survey includes the current configuration of the buildings thereon and subject to any requirement imposed by any lender to Purchaser), be prepared according to Bar Association of Erie County standards and shall show the Owned Real Property and location of all buildings, other structures and improvements affecting it, along with Selling Group's affidavit of discharge. -19- 30 (g) Subject to the rights of the Erie County IDA, good and marketable title to the Owned Real Property in fee simple, free and clear of all liens and encumbrances, except as stated in this Agreement. Purchaser will accept the Owner Real Property subject to (i) restrictions of record, provided they do not conflict with the present improvements or uses, or intended uses or intended improvements (as defined in Paragraph 13 of the Bar Association of Erie County Contract) and have not been violated, unless their enforcement is barred by law; (ii) easements and rights-of-way of record for water lines, sanitary sewer lines, drainage, gas pipeline, electrical lines and telephone lines, provided they are or may be used to service the Owned Real Property and provided the present improvements, or intended uses or intended improvements are or will not be on the easements or rights of way; (h) title insurance in such form and substance as set forth in the Erie County Bar Association Real Estate Contract; (i) cure of any title defects to which Purchaser shall have objected within ten (10) days of receipt of written notice from Purchaser of such objection; (h) a Warranty Deed with lien covenant, together with such documentation reasonably necessary for Selling Group to comply with this Agreement. (k) such other documents or instruments as may be reasonably necessary to give effect to the intent of this Agreement. SECTION 9.10. EMPLOYMENT AGREEMENTS. Each of Hoerner, Stucke and William Alico ("Alico") shall have entered into an Employment Agreement with Purchaser according to the terms as set forth in EXHIBITS 9.10(a), (b) AND (c), respectively (which exhibits shall be attached to this Agreement prior to Closing). SECTION 9.11. HSR ACT NOTIFICATION. The applicable waiting period and the extensions thereof shall have expired or have been terminated pursuant to the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976, as amended (the "HSR Act"). SECTION 9.12. ENVIRONMENTAL ASSESSMENT. Purchaser shall have conducted a Phase I environmental assessment (which shall include a record and site investigation and analysis), at the expense of Selling Group (such expense to be reimbursed by Purchaser upon the Closing), and as reasonably warranted by the results of such Phase I assessment, a Phase II assessment, of the Owned Real Property and all leased real property and the results of such environmental assessment shall be satisfactory to Purchaser in its sole discretion. -20- 31 Section 9.13. GOOD STANDING CERTIFICATES. Selling Group shall have provided to Purchaser, with respect to each corporate member of Selling Group, a good standing certificate issued by the Secretary of State of the state of incorporation of each such member, and a tax good standing certificate or franchise tax report showing all reports filed and all franchise taxes paid issued by the taxing authority of the state in which each such member has its principal business offices. ARTICLE X CONDITIONS PRECEDENT TO SELLING GROUP'S OBLIGATION TO CLOSE The obligations of Selling Group under this Agreement with respect to the sale of the Assets shall be subject to the fulfillment on or prior to the Closing of each of the following conditions, any of which may be waived in writing by Selling Group: SECTION 10.01. ACCURACY OF REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF THIS AGREEMENT. All of the representations and warranties by Purchaser contained in this Agreement shall be true and correct in all material respects at and as of the Closing. Purchaser shall have complied with and performed in all material respects all of the agreements and covenants required by this Agreement to be performed and complied with by it on or prior to the Closing. Selling Group shall have been furnished with a certificate of an officer of Purchaser, dated as of the Closing, certifying to the fulfillment of the foregoing conditions. SECTION 10.02. DIRECTORS' RESOLUTIONS. Purchaser shall deliver to Selling Group copies of the resolutions of its Board of Directors authorizing the execution, delivery and performance of this Agreement and all instruments and documents to be delivered in connection herewith and the transactions contemplated hereby, duly certified by an authorized officer of Purchaser. SECTION 10.03. INCUMBENCY CERTIFICATE. Selling Group shall have received a certificate of a secretary of Purchaser, certifying as to the genuineness of the signatures of representatives of Purchaser authorized to take certain actions or execute any certificate, document, instrument or agreement to be delivered pursuant to this Agreement, which incumbency certificate shall include the true signatures of such representatives. SECTION 10.04. OPINION OF COUNSEL TO PURCHASER. Selling Group shall have been furnished with an opinion of Edwards & Angell, LLP, counsel to Purchaser, dated as of the Closing and addressed to Selling Group in a form TO BE MUTUALLY AGREED UPON. SECTION 10.05. HSR ACT NOTIFICATION. The applicable waiting period and the extensions thereof shall have expired or have been terminated pursuant to the HSR Act. SECTION 10.06. EMPLOYMENT AGREEMENTS. Each of Hoerner,Stucke, Alico and Mesanovic shall have entered into an Employment Agreement with Purchaser according to the terms as set -21- 32 forth on EXHIBITS 9.10(a), (b), (c) AND (d), respectively (which exhibits shall be attached hereto prior to the Closing). ARTICLE XI CASUALTY LOSSES In the event that there shall have been suffered between the date hereof and Closing any casualty loss relating to the Assets that becomes known to any member of Selling Group, Stockholders will promptly notify Purchaser in such event. Selling Group shall, at its option, (i) repair, rebuild or replace the portion of the Assets damaged, destroyed or lost prior to the Closing Date, or (ii) assign to Purchaser at Closing all claims to insurance proceeds or other rights of Selling Group against third parties arising from such casualty loss (the "Claims"); provided, however, that if such insurance proceeds are or will not be sufficient in Purchaser's reasonable judgment to cover the entire casualty loss, then Selling Group shall pay the difference at Closing to the extent any Claim is not assignable; provided further, however, that if the amount payable by Selling Group would exceed $50,000, then Selling Group may elect not to pay such difference at Closing, in which event Purchaser may terminate this Agreement without further liability to either party. Such Claim may be pursued by Purchaser, for its own account and benefit, in the name of such Selling Group member. ARTICLE XII INDEMNIFICATION SECTION 12.01. INDEMNIFICATION BY SELLING GROUP. (a) After the Closing, Selling Group (except for Mesanovic who shall provide such indemnification only for Losses incurred by Purchaser relating to PIP) agrees on a joint and several basis to indemnify and to hold Purchaser, its shareholders, officers, directors, employees and agents harmless from and against and in respect of any Losses by Purchaser arising from or related to: (i) Any liability not specifically and expressly assumed by the Purchaser, including without limitation any Non-Assumed Liability, whether or not known or asserted at or prior to Closing, relating to or arising from the ownership, operation, control or sale of the Business or any of the Assets or any other state of facts which existed at or prior to Closing; (ii) Any misrepresentation or breach of warranty in any representation or warranty of Selling Group in this Agreement, the Schedules or Exhibits hereto, the Closing Escrow Agreement, the Bill of Sale, the Assumption Agreement or in any closing certificate delivered by a Selling Group member to Purchaser pursuant to Article IX hereof; -22- 33 (iii) Any breach or non-fulfillment of any covenant or agreement on the part of a Selling Group member under this Agreement to be performed on or following the Closing Date; (iv) All reasonable costs and expenses (including reasonable attorneys' fees) incurred by Purchaser in connection with any action, suit, proceeding, demand, assessment or judgment incident to any of the matters Purchaser is indemnified against by Selling Group in this Agreement; (v) Unless reflected on the Balance Sheet of the Operating Companies, all Losses related to any product liability claim relating to product sold, shipped, or manufactured by Selling Group prior to the Closing; and (vi) Unless reflected on the Balance Sheet of the Operating Companies, all Losses related to any product warranty claim relating to product sold, shipped, or manufactured by Selling Group prior to the Closing. (b) In addition and subject to the terms of this Article XII, Selling Group agrees on a joint and several basis to indemnify Purchaser against and hold it harmless from any and all Losses which Purchaser may incur by reason of the failure (if any) of Selling Group to comply with the bulk transfers article of the Uniform Commercial Code of New York and North Carolina. (c) The indemnification obligations of Selling Group as provided herein shall only be with respect to indemnification claims made by Purchaser within eighteen (18) months after the Closing; provided, however, the indemnification obligations of Selling Group with respect to Losses incurred by Purchaser relating to: (i) fraud (which is intentional) or intentional misrepresentation; or (ii) a breach of Section 7.15 (Tax Matters) shall survive until thirty (30) days after the expiration of the applicable statute of limitations (including any extension thereof); the indemnification obligations of Selling Group with respect to Losses incurred by Purchaser relating to a breach of Section 7.12 shall survive for a period of ten (10) years after the Closing Date; and the indemnification obligations of Selling Group with respect to Losses incurred by Purchaser relating to a breach of Section 7.01 shall survive without limitation. (d) Notwithstanding any of the above, (i) Purchaser shall only be entitled to payment or reimbursement by Selling Group of its Losses pursuant to this Section 12.01 if the aggregate amount of all its Losses is at least $75,000 (which shall not include any Purchase Price Adjustment made pursuant to Section 5.04), in which event Purchaser shall be entitled to payment of all Losses; and (ii) Selling Group shall not be required to make payments to Purchaser pursuant to this Section 12.01 to the extent that the aggregate of all amounts paid to -23- 34 Purchaser shall exceed the sum of $1,000,000, except that there shall be no limitation on Selling Group's liability to Purchaser for Losses incurred by Purchaser relating to intentional fraud or misrepresentation, or a breach of Section 7.01 or 7.15 hereof and the limitation for amounts paid to Purchaser with respect to Losses incurred arising out of a breach of Section 7.12 shall not exceed the sum of $2,000,000. SECTION 12.02. INDEMNIFICATION BY PURCHASER. (a) After the Closing, Purchaser agrees to indemnify and to hold Selling Group, and its directors, officers, stockholders, employees, representatives and agents harmless from and against and in respect of any Losses incurred by Selling Group from: (i) All liabilities and obligations of Purchaser, and all claims and demands made in respect thereof relating to or arising from, Purchaser's ownership, operation or control of the Assets or the Business after the Closing, including on account of the Assumed Liabilities; (ii) Any misrepresentation or breach of warranty in, or omission from, any representation or warranty of Purchaser, in this Agreement, the Schedules or Exhibits hereto, including the Closing Escrow Agreement, the Assumption Agreement or in any closing certificate delivered by Purchaser to Selling Group pursuant to Article X hereof; (iii) Any breach or non-fulfillment of any covenant or agreement on the part of Purchaser under this Agreement to be performed on or following the Closing Date; and (iv) All costs and expenses (including reasonable attorneys' fees) incurred by Selling Group in connection with any action, suit, proceeding, demand, assessment or judgment incident to any of the matters Selling Group is indemnified against by Purchaser in this Agreement. (b) The indemnification obligations of Purchaser as provided herein shall only be with respect to indemnification claims made by Selling Group within nine (9) months after the Closing. SECTION 12.03. NOTICE OF CLAIMS; DEFENSE OF THIRD PARTY. A party claiming indemnification under this Article XII (the "ASSERTING PARTY") must notify (in writing, in reasonable detail and within a reasonable period of time after the Asserting Party becomes aware of such claim) the party from which indemnification is sought (the "DEFENDING PARTY") of the nature and basis of such claim for indemnification. If such claim relates to a THIRD PARTY CLAIM, the Defending Party and the Asserting Party shall decide which party will assume and control the defense of the Third Party Claim at its own expense with counsel selected by the Defending Party from and after such time as the Defending Party unconditionally agrees in writing that the Defending Party shall be obligated under the terms of its indemnity hereunder in connection with such Third Party -24- 35 Claim Such agreement shall not be deemed an admission of liability as against any such third party. If the Defending Party does agree in writing or assume the defense as set forth above, the Third Party Claim pursuant to this Section 12.03, the Asserting Party shall have the right (i) to control the defense thereof and (ii), if the Asserting Party shall have notified the Defending Party of the Asserting Party's intention to negotiate a settlement of the Third Party Claim (at the Defending Party's expense to the extent the matter is determined to be subject to this indemnification), which notice shall include the material terms of any proposed settlement in reasonable detail, to settle the Third Party Claim (at the Defending Party's expense to the extent the matter is determined to be subject to indemnification hereunder) on terms not materially inconsistent with those set forth in such notice, unless the Defending Party shall have notified the Asserting Party in writing of the Defending Party's election to assume liability for and the defense of the Third Party Claim pursuant to this Section 12.03 within ten days after receipt of such notice, and the Defending Party promptly thereafter shall have taken appropriate action to implement such defense. The Asserting Party shall not be entitled to settle any such Third Party Claim pursuant to the preceding sentence unless such settlement includes an unconditional release of the Defending Party by the Third party claimant on account thereof, PROVIDED that such requirement shall be deemed waived to the extent that the Defending Party does not undertake to provide and promptly execute and, concurrently with delivery of any such release, deliver a corresponding release of the third party claimant with respect to such Third Party Claim. The Asserting Party and the Defending Party shall use all reasonable efforts to cooperate fully with respect to the defense and settlement of any Third Party Claim covered by this Article XII. SECTION 12.04. CLOSING ESCROW AGREEMENT. The obligation of Selling Group to indemnify Purchaser for Losses arising from or related to the matters described in Section 12.01 shall be secured by the amounts held pursuant to the Closing Escrow Agreement, the form of which is set forth in EXHIBIT 5.02. ARTICLE XIII CONFIDENTIALITY, PRESS RELEASES SECTION 13.01. CONFIDENTIALITY. Each party shall treat the confidential information of the other with the same degree of confidentiality and security as it does its own confidential information. SECTION 13.02. PRESS RELEASES. No press release or public disclosure, either written or oral, of the existence or terms of this Agreement shall be made by a Selling Group member without the prior written consent of Purchaser. To the extent consistent with federal or state securities laws, Purchaser shall provide Selling Group with a draft of its proposed Press Release concerning any aspect of this Agreement and the transaction contemplated hereby for comment by Selling Group. -25- 36 SECTION 13.03. REQUIRED DISCLOSURES. This Article XIII shall not be construed to prohibit any party from making any disclosures to any governmental authority that it is required to make by law or from filing this Agreement with, or disclosing the terms of this Agreement to, any institutional lender to such party, or to prohibit a Selling Group member, Purchaser or any of their affiliates from disclosing to its investors, partners, accountants, auditors, attorneys, parent company and broker/dealers such terms of this transaction as are customarily disclosed to them in connection with the sale or acquisition of a business; PROVIDED, HOWEVER, that any such party shall be informed of the confidential nature of such information and shall agree to keep such information confidential; and PROVIDED, HOWEVER, that each party shall provide to the other reasonable advance copies of any public release except where the provision of such advance notice is not permissible. ARTICLE XIV BROKERS' FEES Each party represents and warrants to the other that it shall be solely responsible for the payment of any fee or commission due to any broker or finder it has engaged with respect to this transaction and the other party hereto shall be indemnified for any liability with respect to such payment pursuant to Article XII of this Agreement. ARTICLE XV COVENANTS OF SELLING GROUP SECTION 15.01. CONDUCT OF BUSINESS. From the date hereof to the Closing Date, except as expressly permitted or required by this Agreement or as otherwise consented to by the Purchaser in writing, each Selling Group member shall: (a) carry on the Business in, and only in, the ordinary course, in substantially the same manner as heretofore conducted, and use all reasonable efforts to preserve intact its present business organization, maintain its properties in good operating condition and repair, keep available the services of its present officers and significant employees, and preserve its relationship with customers, suppliers and others having business dealings with it, to the end that its goodwill and going business shall be in all material respects unimpaired following the Closing; (b) pay accounts payable and other obligations of the Business when they become due and payable in the ordinary course of business consistent with prior practice; (c) perform in all material respects all of its obligations under all Assumed Contracts and other agreements and instruments relating to or affecting the Business or the Assets, and comply in all material respects with all laws applicable to it, the Assets or the Business; -26- 37 (d) not enter into or assume any material agreement, contract or instrument relating to the Business, or enter into or permit any material amendment, supplement, waiver or other modification in respect thereof outside of the normal course of business; (e) except as set forth on SCHEDULE 15.01(e), not grant (or commit to grant) any increase in the compensation (including incentive or bonus compensation) of any employee employed in the operation of the Business or institute, adopt or amend (or commit to institute, adopt or amend) any compensation or benefit plan, policy, program or arrangement or collective bargaining agreement applicable to any such employee. (Set forth on Schedule 15.01(e) (to be provided no later than Closing) is a comparison of Compensation paid to each employee of Selling Group as of August 31, 1998 with such compensation as of February 28, 1999); and (f) except as set forth on Schedule 15.01(f), not take any action or omit to take any action, which action or omission would result in a breach of any of the representations and warranties set forth in Section 7.16(c); (g) expect as set forth on Schedule 15.01(g), make no dividends or distributions from PFG to Hoerner, Stucke or any entity owned or controlled by Hoerner or Stucke except for normal and customary salary payments in the ordinary course of business, or any dividends necessary to make required income tax payments of Hoerner or Stucke because of their position as stockholders of "S" Corporations: PFG and SCHAS. For any such dividends or distributions paid to Hoerner and/or Stucke for tax payments, a certification shall be provided to Purchaser by Skrobacz & Company that such dividend was paid only for the purpose of such tax payment. To the extent that any other such withdrawals, dividends or disbursements are made, the Selling Group shall replenish the Net Worth or a deduction to the Purchase Price of such amount shall be made. SECTION 15.02. NO SOLICITATION. During the period beginning upon execution of this Agreement up to and including the Closing, no Selling Group member or any Person acting on its or his behalf shall (i) solicit or encourage any inquiries or proposals for, or enter into any discussions with respect to, the acquisition of any properties and assets held for use in connection with, necessary for the conduct of, or otherwise material to, the Business or (ii) furnish or cause to be furnished any non-public information concerning the Business to any Person (other than Purchaser and its agents and representatives), other than in the ordinary course of business or pursuant to law and after prior written notice to Purchaser. No Selling Group member shall sell, transfer or otherwise dispose of, grant any option or proxy to any Person with respect to, create any Lien upon, or transfer any interest in, any Asset, other than in the ordinary course of business and consistent with this Agreement. SECTION 15.03. ACCESS AND INFORMATION. -27- 38 (a) So long as this Agreement remains in effect, each Selling Group member will give Purchaser and its Advisors all reasonable access during normal business hours to, and furnish them with all documents, records, work papers and information with respect to, all of such Person's properties, assets, books, contracts, commitments, reports and records relating to the Business. In addition, each Selling Group member will permit Purchaser and its Advisors reasonable access to such personnel of Selling Group during normal business hours as may be necessary or useful to Purchaser, provided that access shall have been approved by each Selling Group member, in its review of the properties, assets and business affairs of the Business and the above-mentioned documents, records and information. Selling Group will keep Purchaser generally informed as to the affairs of the Business. (b) Selling Group will cause each Selling Group member to transfer to Purchaser at the Closing all books and records relating to the Business although, to the extent necessary for any Selling Group member to respond to any legal inquiry or deal with any tax matter, Purchaser shall, on and after the Closing, allow such Selling Group member reasonable access to the necessary books and records for such purpose, which right shall survive the Closing for a period of seven years. SECTION 15.04. FINANCIAL STATEMENTS. Until the Closing, on or before the 21st day of each month, each Selling Group member shall deliver to Purchaser monthly trial balances of the Business (without adjustment) as at and for the monthly period ending the last day of the preceding month (the "SUBSEQUENT MONTHLY TRIAL BALANCES"), which shall include a balance sheet and statement of income. At the time that the Subsequent Monthly Trial Balances are delivered to Purchaser, each Selling Group member shall by such delivery be deemed to have made the representations and warranties to the Purchaser with respect to such Subsequent Monthly Trial Balances set forth in Section 7.16. SECTION 15.05. USE OF BUSINESS NAME. Other than in connection with their employment with Purchaser, after the Closing, no Selling Group member will, directly or indirectly, use or do business, or assist any third party in using or doing business, under the names and marks "Perfect Fit Glove", "SCHAS Circular Industries", "X-Pert Industrial Products", "Perfect Industrial Products", "Yadkin Leasing Company", (or any other name confusingly similar to such name and mark). Section 15.06. CHANGE OF SELLING GROUP NAMES. Immediately after the Closing, Selling Group shall change the name of PFG, SCHAS, X-Pert, PIP and Yadkin to MERIAWNY, INC., MATTWNY, INC., JOEYWNY, INC., ANDREAWNY, INC. and MICHAELWNY, INC., respectively. SECTION 15.07. BANK ACCOUNTS. At least two weeks prior to the Closing each Selling Group member shall deliver to Purchaser a list setting forth all banks and other financial institutions with which Selling Group maintains an account or a safe deposit box, showing the account numbers of all such accounts and the names of the persons authorized as signatories thereon or to act or deal in connection therewith. Selling Group shall cooperate with Purchaser -28- 39 and shall execute all necessary documentation to effect fully any changes desired, as of the Closing, by Purchaser in the persons authorized as signatories thereon or to act or deal in connection therewith. SECTION 15.08. PAYMENT TO ALICO. At the Closing, Selling Group shall make a payment to Alico of $800,000 (less applicable withholdings) in connection with his execution of an employment agreement with Purchaser. SECTION 15.09. POST-CLOSING SCHEDULES. Selling Group hereby agrees to deliver the Schedules called for in Sections 7.16(a)(iii) and (iv) on a timely basis and Selling Group hereby agrees to provide a representation at the time of such delivery as to the financial statements delivered pursuant to Section 7.16(a)(iii) that is comparable to the representations made by Selling Group in Section 7.16(b) with respect to the financial statements delivered pursuant to Section 7.16(a)(i) and (ii). ARTICLE XVI MISCELLANEOUS SECTION 16.01. ADDITIONAL INSTRUMENTS OF TRANSFER. (a) From time to time after the Closing, each party shall, if requested by another party, make, execute and deliver such additional assignments, bills of sale, deeds and other instruments, as may be reasonably necessary or proper to carry out the specific provisions of this Agreement, including transfer to Purchaser of all of Selling Group's right, title and interest in and to the Assets. Such efforts and assistance shall be at the cost of the requesting party. (b) Anything in this Agreement to the contrary notwithstanding, Selling Group is not obligated to sell, assign, transfer or convey to Purchaser any of its Interests without first obtaining all necessary approvals, consents or waivers. To the extent any of the approvals, consents or waivers required pursuant to Section 9.04 have not been obtained by Selling Group as of the Closing and Purchaser elects to proceed with the Closing, Selling Group shall, for the remaining term of such Interest, use its commercially reasonable efforts to (i) obtain the consent of any such third party; (ii) cooperate with Purchaser in any reasonable and lawful arrangements designed to provide the benefits (including, without limitation, the payment to Purchaser of any monies received by a Selling Group member in connection therewith) of such Interest to Purchaser so long as Purchaser performs all obligations with respect to the Interest (and the payment of all expenses in connection therewith); and (iii) enforce, at the request of Purchaser and at the expense and for the account of Purchaser, any rights of Selling Group arising from such Interest against such issuer thereof or the other party or parties thereto (including the right to elect to terminate any such Interest in accordance with the terms thereof upon the request of Purchaser); PROVIDED, HOWEVER, that neither Purchaser nor Selling Group shall be obligated to pay any consideration or other sums therefor (except for filing fees and other ordinary administrative charges and except as set forth above) to the third party, or to commence any proceedings against the third party, from whom such approval, consent or waiver is requested. -29- 40 SECTION 16.02. NOTICES. All notices and other communications required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given if delivered, sent by recognized overnight delivery service or registered or certified mail, return receipt requested, postage prepaid, to the following addresses: (i) If to Purchaser: Bacou USA Safety, Inc. 10 Thurber Boulevard Smithfield, RI 02917 Attention: Winfield W. Major, Esq. with a required copy to: Edwards & Angell, LLP 2800 BankBoston Plaza Providence, Rhode Island 02903 Attention: Richard M.C. Glenn, III Esq. (ii) If to Selling Group Member: Joseph P. Hoerner 5555 Armor Duells Road Orchard Park, NY 14127 and Frank A. Stucke 36 Pine Tree Lane West Seneca, NY 14224 with a required copy to: Phillips Lytle Hitchcock Blaine & Huber LLP 3400 Marine Midland Center Buffalo, NY 14203 Attention: James W. Smyton, Esq. Notices delivered personally shall be effective upon delivery against receipt. Notices delivered by overnight delivery service shall be effective when received. Notices delivered by registered or certified mail shall be effective on the date set forth on the receipt of registered or certified mail, or 72 hours after mailing, whichever is earlier. -30- 41 SECTION 16.03. EXPENSES. Each party shall bear its own expenses and costs incurred in connection with the preparation of this Agreement and the consummation of the transactions contemplated hereby, except that Purchaser has agreed to assume and pay on the Closing Date up to $75,000 in reasonable professional fees incurred by Selling Group in connection with such transactions as are set forth on the Closing Date Financial Statements or as set forth on Schedule 3.01. Purchaser shall pay Skrobacz & Company directly for the reasonable cost of preparing the financial statements of Selling Group pursuant to Section 7.16(iii) and (iv). SECTION 16.04. TRANSFER TAXES. Selling Group shall be liable to pay the transfer taxes imposed in connection with sale of the Owned Real Property to Purchaser hereunder. Purchaser shall bear all use, sales and transfer taxes, if any, imposed in connection with the sale and delivery of the Assets (other than the Owned Real Property) acquired by Purchaser under this Agreement. Notwithstanding anything else to the contrary set forth in this Section 16.04, Purchaser shall in no event be responsible in any manner for the payment of any Taxes on any income or gain which any Selling Group member may realize as a result of the sale of the Assets or otherwise related to the transactions contemplated by this Agreement. SECTION 16.05. COLLECTION PROCEDURES. From and after the Closing, Purchaser shall have the right and authority, at its expense, to collect for its account all items to which it is entitled as provided in this Agreement and to endorse with the name of the appropriate Selling Group member any checks or drafts received on account of any such items. SECTION 16.06. SPECIFIC PERFORMANCE. The parties recognize and acknowledge that in the event a Selling Group member shall fail to perform any of its material obligations under the terms of this Agreement, money damages alone will not be adequate to compensate Purchaser. The parties, therefore, agree and acknowledge that in the event a Selling Group member fails to perform such obligation under this Agreement prior to Closing, Purchaser shall be entitled, in addition to any action for monetary damages and in addition to any other rights and remedies on account of such failure, to specific performance of the terms of this Agreement and of the covenants and obligations hereunder. SECTION 16.07. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New York (without application of principles of conflicts of law). SECTION 16.08. ASSIGNMENT. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (by merger or other operation of law or otherwise) without the prior written consent of the other party, which consent will not be unreasonably withheld, except that Purchaser shall have the right to assign its rights, interests and obligations under this Agreement after the Closing to any affiliate thereof or to any institutional lender, provided that Purchaser shall remain liable for its obligations hereunder. SECTION 16.09. SUCCESSORS AND ASSIGNS. All agreements made and entered into in connection with this transaction shall be binding upon and inure to the benefit of the parties hereto, their successors and permitted assigns. -31- 42 SECTION 16.10. AMENDMENTS; WAIVERS. No alteration, modification or change of this Agreement shall be valid except by an agreement in writing executed by the parties hereto. No failure or delay by any party hereto in exercising any right, power or privilege hereunder (and no course of dealing between or among any of the parties) shall operate as a waiver of any such right, power or privilege. No waiver of any default on any one occasion shall constitute a waiver of any subsequent or other default. No single or partial exercise of any such right, power or privilege shall preclude the further or full exercise thereof. SECTION 16.11. ENTIRE AGREEMENT. This Agreement merges all previous negotiations and agreements between the parties hereto, either verbal or written, and constitutes the entire agreement and understanding between the parties with respect to the subject matter of this Agreement. SECTION 16.12. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which when so executed shall be an original, but all of which together shall constitute one agreement. Facsimile signatures shall be deemed original signatures. SECTION 16.13. SEVERABILITY. If any provision of this Agreement or the application thereof to any person or circumstance shall be invalid or unenforceable to any extent, the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by law, but only as long as the continued validity, legality and enforceability of such provision or application does not materially (a) alter the terms of this Agreement, (b) diminish the benefits of this Agreement or (c) increase the burdens of this Agreement, for any person. SECTION 16.14. SECTION HEADINGS. The Section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and shall not in any way affect the meaning or interpretation of this Agreement. SECTION 16.15. INTERPRETATION. As both parties have participated in the drafting of this Agreement, any ambiguity shall not be construed against either party as the drafter. SECTION 16.16. FURTHER ASSURANCES. (a) For a period of twelve (12) months after Closing, Selling Group agrees to provide to Purchaser from time to time any information that Selling Group possesses with respect to the operation of the Business and Assets prior to the Closing which the Purchaser reasonably requests in the future in connection with the Purchaser's financing efforts now or in the future. (b) With respect to the 401(k) Plan and the Profit Sharing Plans, it is Purchaser's intention to elect, within ninety (90) days after Closing, after thorough review of each such Plans, and after consultation with Selling Group, and subject to legal compliance, either to cause the Operating Companies to terminate each Plan and distribute the assets thereof to the Participants therein, or to allow the Participants to rollover their assets in such Plan into Purchaser's retirement plan. -32- 43 (c) Upon the Closing, all employees of the Operating Companies shall be offered employment with Purchaser in positions comparable to their current positions as employees of the applicable division or subsidiary of Purchaser. Except for Messrs. Hoerner, Stucke, Mesanovic and Alico, during the terms of their employment contracts, all such employees will be employees at will of Purchaser. The employees of the Operating Companies who elect to accept Purchaser's offer of employment will retain their years of seniority with the Operating Companies in their employment with Purchaser for purposes of vacation, health benefits and retirement plan eligibility and vesting. Notwithstanding the above, Purchaser makes no commitment of future employment to any employee of the Operating Companies nor is Purchaser making any commitment that it will not make future changes in job assignments, employment structure or compensation. Within 12 months after Closing, Purchaser shall have completed a review of Selling Group's benefit and welfare plans and shall convert such plans to Purchaser's plans. In such process, Purchaser shall make its best efforts to retain the general level of benefits of Selling Group employees. SECTION 16.17. THIRD PARTIES. Nothing herein, expressed or implied, is intended to or shall confer on any person other than the parties hereto any rights, remedies, obligations or liabilities under or by reason of this Agreement. SECTION 16.18. MEDIATION. In the event of any dispute between the parties hereto prior to any such party initiating Arbitration proceedings pursuant to Section 16.19, the parties shall endeavor to mediate such dispute for a period of 60 days. To assist in such mediation, the parties may elect to retain the services of a professional mediator experienced in Alternative Dispute Resolution among commercial parties, the costs of which shall be borne equally by the parties to the dispute. If, at the conclusion of such mediation period (as extended by mutual agreement of the parties), the dispute has not been resolved to the mutual satisfaction of the parties, then any party may initiate Arbitration proceedings, as appropriate. SECTION 16.19. ARBITRATION. In the event that Mediation proceedings shall not have resulted in the settlement of disputes among the parties, the parties shall initiate Arbitration proceedings. The parties shall select one (1) arbitrator in accordance with the laws of New York and the rules, regulations and procedures of the American Arbitration Association (the "AAA") except with respect to the selection of the arbitrator which shall be as provided in this Section 16.19. The Purchaser and the Selling Group agree to appoint the arbitrator within thirty (30) days of receipt of notice from one party to the other parties setting forth a description of the claim and dispute and requesting that the arbitrator be appointed. If the parties fail to select an arbitrator within such thirty-day period, any party hereto may instruct the AAA to appoint an arbitrator. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. The site of the arbitration shall be New York, New York. The arbitrators shall award reimbursement of attorneys' fees and other costs of arbitration to the prevailing party, in such manner as the arbitrators shall deem appropriate. In addition, the losing party shall reimburse the prevailing party for attorneys' fees and disbursements and court costs incurred by the prevailing party in successfully seeking any preliminary equitable relief or judicially enforcing any arbitration award. -33- 44 SECTION 16.20. TERMINATION. At any time prior to the Closing, this Agreement may be terminated (a) by the written consent of Selling Group and Purchaser, (b) by Purchaser if there has been a material misrepresentation, breach of warranty or breach of covenant by any Selling Group member in its representations, warranties and covenants set forth herein, (c) by all Selling Group members if there has been a material misrepresentation, breach of warranty or breach of covenant by Purchaser in its representations, warranties and covenants set forth herein, (d) by Purchaser if the conditions stated in Article IX have not been satisfied at or prior to the Closing Date or (e) by Selling Group if the conditions stated in Article X have not been satisfied at or prior to the Closing Date. IN WITNESS WHEREOF, each of the parties hereto has caused this Asset Purchase Agreement to be executed by its duly authorized representative as of the day and year first above written. SELLING GROUP: PERFECT FIT GLOVE CO., INC. By: /s/ Joseph P. Hoerner --------------------------------------- Joseph P. Hoerner, President By: /s/ Frank A. Stucke --------------------------------------- Frank A. Stucke, Vice President SCHAS CIRCULAR INDUSTRIES, INC. By: /s/ Joseph P. Hoerner --------------------------------------- Joseph P. Hoerner, President By: /s/ Frank A. Stucke --------------------------------------- Frank A. Stucke, Vice President -34- 45 X-PERT INDUSTRIAL PRODUCTS LIMITED By: /s/ Frank a Stucke --------------------------------------- Frank A. Stucke, President By: /s/ Joseph P. Hoerner --------------------------------------- Joseph P. Hoerner, Vice President PERFECT INDUSTRIAL PRODUCTS, INC. By: /s/ Edward Mesanovic --------------------------------------- Edward Mesanovic, President and Secretary YADKIN LEASING COMPANY, INC. By: /s/ Joseph P. Hoerner --------------------------------------- President By: /s/ Frank A. Stucke --------------------------------------- Vice President -35- 46 STOCKHOLDERS: /s/ Frank A. Stucke ------------------------------------------- Frank A. Stucke, Individually /s/ Joseph P. Hoerner ------------------------------------------- Joseph P. Hoerner, Individually /s/ Edward Mesanovic ------------------------------------------- Edward Mesanovic, Individually (with respect to his interest in PIP only) PURCHASER: BACOU USA SAFETY, INC. By: /s/ Walter Stepan --------------------------------------- Walter Stepan, Chairman, President and Chief Executive Officer By: /s/ Philip B. Barr --------------------------------------- Philip B. Barr, Vice Chairman, Treasurer and Secretary -36- 47 DEFINED TERMS "ADVISORS" means the lenders, investors, accountants, counsel, consultants, employees and agents of each party to this Agreement. "AUTHORIZATIONS" shall include all licenses, consents, permits, approvals and authorizations of public and governmental bodies. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. ss. 9601 et seq.). "CODE" means the Internal Revenue Code of 1986, as amended. "EBITDA" means the earnings of the Operating Companies before adjustments for interest, taxes, depreciation and amortization. "ENVIRONMENTAL LAWS" means each of the following statutes and all regulations promulgated thereunder as well as any and all comparable State statutes and regulations in the form in which all such statutes and regulations exist on the date that this Agreement is executed (as updated to the Closing Date): CERCLA; the Federal Water Pollution Control Act, 33 U.S.C. ss. 1251, et seq.; the Clean Air Act, 42 U.S.C. ss. 7401 et seq.; RCRA; the Safe Drinking Water Act, 42 U.S.C. ss. 3300(f), et seq.; and the Toxic Substances Control Act, 15 U.S.C. ss. 2601, et seq. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "GOVERNMENT DOCUMENT" means any governmental approval, instrument, contract, lease, permit or other agreement or arrangement. "HAZARDOUS SUBSTANCE" means any substance which, as of the date of this Agreement, is listed as hazardous or toxic in the regulations implementing CERCLA or RCRA or listed as a hazardous substance under any applicable state environmental laws, or any substance which has been determined by regulation, ruling or otherwise by any agency or court to be a hazardous or toxic substance regulated under federal or state law, and shall include petroleum and petroleum products. "INTELLECTUAL PROPERTY" means all of the following, along with all related income, royalties, damages and payments, if any, due or payable as of the Closing Date or thereafter: inventions, trademarks, service marks, trade dress, trade names, patents, logos and registrations and applications for a registration thereof together with all of the goodwill associated therewith, copyrights and copyrightable works and registrations and applications for the registration thereof, computer software, data, data bases, documentation thereof, trade secrets and other confidential -37- 48 information, other intellectual property rights and intangible embodiments thereof (in whatever form or medium); together with all books, records, drawings and other indicia. "KNOWLEDGE" with respect to the Selling Group means the actual knowledge of any officer or managerial employee regarding that subject matter which is the usual and customary responsibility of such person, as the case may be, in each case after due inquiry and investigation. "LIENS" means any and all security interests, liens, pledges, charges, rights of third parties and encumbrances of every kind. "LOSSES" means any losses, damages, costs, expenses (including costs of investigations and reasonable attorney fees), suits, demands, judgments and diminutions in value suffered or incurred by any Indemnified Party. All Losses shall be computed net of the Present Value (at Purchaser's then marginal borrowing cost) of the actual income tax effect (if any) resulting therefrom to Purchaser and of any insurance coverage with respect thereto. "MATERIAL ADVERSE EFFECT" means, with respect to any Person, any effect that is, or series of related effects that are, in the aggregate, materially adverse to the business, assets, properties, condition (financial or otherwise) or prospects of such Person. "NET WORTH" means net worth of Selling Group as determined in accordance with GAAP as consistently applied with past practices, less the value of any Excluded Asset and any Non-Assumed Liability. "OWNED REAL PROPERTY" means all real property owned by Selling Group on or prior to the date hereof which is set forth on SCHEDULE 2.01. "PERMITTED LIENS" means (i) any Lien for taxes and assessments not yet past due or otherwise being contested in good faith and for which appropriate reserves have been established and reflected on the Closing Date Balance Sheet (as such term is defined in Section 5.04), (ii) any Lien affecting real property that does not interfere with the use by Selling Group of the property subject thereto or affected thereby (including any easements, rights of way, restrictions, installations of public utilities, minor title imperfections and restrictions, reservations in land patents, zoning ordinances or other similar Liens), and (iii) as to leaseholds, interests of the lessors thereof and Liens affecting the interests of such lessors. -38- 49 "PERSON" means any individual, partnership, corporation, person or entity. "RCRA" means the Resource Conservation and Recovery Act of 1976, as amended (42 U.S.C. ss. 6901, et seq.). "REAL PROPERTY LAWS" means all applicable laws,, zoning or use ordinances, rules, regulations and legal requirements. TAX" or "TAXES" means all taxes, charges, fees, levies, imposts and other assessments including all income, sales, use, goods and services, value added, capital, capital gains, alternative net worth, transfer, profits, withholding, payroll, employer health, excise, real property and personal property taxes, and any other taxes, customs duties, stamp duties, fees, assessments or similar charges in the nature of a tax, together with any interest, fines and penalties imposed by any governmental authority (including federal, state, provincial, municipal and foreign governmental authorities), and whether disputed or not. "THIRD PARTY CLAIM" means a claim, suit, litigation or other action by a third party against the Asserting Party or any fixed or contingent liability to a third party. -39- EX-10.7.2 3 EMPLOYMENT AGREEMENT OF JOHN DEAN 1 EXHIBIT 10.7.2 Hand Delivered - -------------- Personal and Confidential - ------------------------- May 19, 1998 Mr. John Dean, President Howard Leight Industries division of Bacou USA Safety, Inc. 7828 Waterville Road San Diego, CA 92173 Dear John: When countersigned by you in the space provided below, this letter will amend your Employment Agreement dated February 27, 1998 with Bacou USA Safety, Inc. (the "Agreement"). This Amendment is provided in fulfillment of your request on Friday, April 24, 1998 at the offices of Bacou USA, Inc. in Smithfield, Rhode Island. Effective upon execution of this letter agreement by you, the Agreement is amended as follows: 1. You resign the office of President and Chief Operating Officer of Bacou USA Safety, Inc. ("Safety"), continuing with the office of President of the Howard Leight Industries division of Safety until the end of your term of employment. Your term of employment shall end on December 31, 1998, subject to the right of Safety to place you on a paid leave of absence at any time after May 19, 1998. 2. Notwithstanding the termination of your employment effective December 31, 1998, Safety agrees to pay you salary at the rate of $400,000 per annum at normal payroll intervals and two bonuses, one in the amount of $416,666.67 by the end of February 1999 and another in the amount of $500,000 by the end of February 2000. In consideration of the payments made by Bacou as set forth above, you agree (a) that you will be bound by and comply with Sections 6, 7, 8 and 9 of the Agreement as if you were an employee of Safety until February 28, 2000; and (b) you will reasonably cooperate in making a smooth transition to a new division President of our choice. 3. Payment of salary and bonus as provided in the preceding paragraph shall fulfill all monetary obligations of Bacou USA, Inc. and its subsidiaries and affiliates, including but not limited to those arising under the Agreement, and shall serve as full, complete and final 2 Mr. John Dean May 19, 1998 Page 2 settlement of all claims for severance benefits, vacation pay, fringe benefits or other payments of any kind (except you shall remain entitled to the reimbursement of reasonable and necessary business travel expenses incurred prior to the end of the Term). 4. In all other respects, the Agreement remains in full force and effect. Sincerely, /s/ Walter Stepan /s/ Philip B. Barr - ---------------------------------- ------------------------------------ Walter Stepan Philip B. Barr Vice Chairman, President and CEO Executive V.P. and CFO, Bacou USA, Inc. and Chairman and Bacou USA, Inc. and Vice CEO, Bacou USA Safety, Inc. Chairman, Secretary and Treasurer, Bacou USA Safety, Inc. ACCEPTED AND AGREED: /s/ John Dean - ---------------------------------- John Dean EX-10.8.3 4 AMENDMENT TO EMPLOYMENT AGREEMENT THOMAS KLEIN 1 EXHIBIT 10.8.3 SECOND AMENDMENT TO EMPLOYMENT AGREEMENT THIS SECOND AMENDMENT TO EMPLOYMENT AGREEMENT made as of the 1st day of January, 1999 by and between Thomas W. Klein (the "Executive"), currently residing at 1057 Abeto Court, Chula Vista, California 91910, and Bacou USA Safety, Inc., a corporation organized and existing under the laws of the State of Delaware (the "Company"), with its principal offices at 10 Thurber Boulevard, Smithfield, Rhode Island 02917. W I T N E S S E T H: WHEREAS, the Executive and the Company entered into that certain Employment Agreement as of the 3rd day of June, 1998 (the "Employment Agreement"); and WHEREAS, the Executive and the Company entered into that certain First Amendment to Employment Agreement (the "First Amendment") as of the 3rd day of August, 1998; and WHEREAS, the Executive and the Company wish to amend the terms of the Employment Agreement and the First Amendment, effective as of the date hereof. NOW, THEREFORE, in consideration of the mutual promises herein contained, the Company and the Executive hereby agree as follows: 1. Section 2 of the Employment Agreement (as amended by the First Amendment) is hereby revised to read as follows: 2. PERIOD OF EMPLOYMENT. The Company shall employ the Executive, and the Executive shall perform the duties assigned him by the Company, for a term beginning January 1, 1999 to December 31, 2001 (the "Three-Year Term"). On January 1, 2002, 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. 2 The Three-Year Term and any Renewal Term are sometimes collectively referred to herein as the "Term". If either party notifies the other party that he or it shall not extend the period of employment beyond the end of the Term, the 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. 2. Section 3 of the Employment Agreement is hereby amended by adding a new subsection (v) thereto, which shall read as follows: (v) The Executive's employment being terminated by the Company without cause during the Three-Year Term. If the Board of Directors of the Company shall determine that the Executive's employment shall be terminated without cause (as "cause" is defined in Section 3(iv) hereof) prior to the end of the Three-Year Term, the Executive's employment shall terminate as of such effective date. In such event, the Company shall continue to pay the Executive for the remainder of the Three-Year Term at a rate of 50% of his Base Salary (as defined in Section 4(a)) then in effect. 3. Section 3 of the Employment Agreement is further amended by adding a new subsection (vi) thereto, which shall read as follows: (vi) The Executive shall voluntarily terminate his employment during the Three-Year Term. If the Executive shall terminate his employment voluntarily, then he shall pay the Company for the remainder of the Three-Year Term at a rate of 25% of his Base Salary then in effect. 4. Section 4(a) of the Employment Agreement (as amended by the First Amendment) is hereby amended by deleting the term "Two Hundred Twenty Thousand Dollars ($220,000.00)" and inserting "Two Hundred Thirty Thousand Dollars ($230,000)" in lieu thereof. In all other respects, the Employment Agreement (as amended by the First Amendment) shall remain in full force and effect. 2 3 IN WITNESS WHEREOF, the Executive and the Company have duly executed this Second Amendment to Employment Agreement as of the day and year first above written. BACOU USA SAFETY, INC. By: /s/ Walter Stepan /s/ Philip B. Barr Walter Stepan Philip B. Barr Chairman, President and CEO Vice Chairman, Secretary & Treasurer EXECUTIVE: /s/ Thomas W. Klein Thomas W. Klein 3 EX-10.9 5 EMPLOYMENT AGREEMENT OF ALAN BENNETT 1 EXHIBIT 10.9 ------------- EMPLOYMENT AGREEMENT THIS AGREEMENT made as of this 1st day of February, 1999, by and between Alan H. Bennett ("Executive"), currently residing at 19380 Soda Springs Drive, Bend, Oregon 97702, and Bacou USA Safety, Inc. (the "Company"), which is a wholly owned subsidiary of Bacou USA, Inc. ("Bacou"), both being corporations organized under the laws of Delaware and having their principal offices at 10 Thurber Boulevard, Smithfield, RI 02917. W I T N E S S E T H : WHEREAS, Company wishes to secure the services of Executive as President of its Uvex Safety division (the "Uvex Division") 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 of the Uvex Division, reporting to the President and Chief Executive Officer of the Company. Executive shall promptly relocate his permanent residence to the Smithfield, Rhode Island 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 the Company. Ancillary employment including 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 or his designee ("Bacou CEO"). Executive also agrees that he will not engage in any other business activities without the prior approval of the Bacou CEO. 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 Bacou CEO. 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 2 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 February 1, 1999 to June 30, 2000 (the "Initial Term"). On July 1, 2000, and at July 1 of each year thereafter, the period of employment shall be automatically extended, without further action by either party, for successive one year periods ending June 30 of the following year (each a "Renewal Term") unless at least six months prior to the end of any Term (i.e., by December 31 of any year) either party shall have served written notice on the other of its election to allow this Agreement to terminate at the end of its current 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. 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 Executive from 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 any of the following: (a) 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 Smithfield, Rhode Island area); (b) the failure to abide by, or to execute in a reasonable and responsible manner, the policies and procedures of the Company as in effect from time to time; (c) gross negligence in the performance of his duties under this Agreement; (d) the -2- 3 commission by Executive of a felony; (e) engaging in any activity that is competitive with the business of the Company; or (f) engaging in fraudulent, unethical or dishonest activities. 4. COMPENSATION AND BENEFITS. (a) The Executive shall receive regular compensation (the "Base Salary") at the initial rate of Two Hundred Fifty Thousand Dollars ($250,000.00) per annum during 1999. 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 Base Salary prevailing at any time shall be reviewed for a possible increase on an annual basis beginning in January 2000. (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 the minimum amount of Incentive Compensation payable for 1999 shall be forty percent (40%) of the Base Salary paid to Executive in 1999. 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. (c) Incentive Compensation shall be paid by Company for each 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 the Company or February 28 following the fiscal year for which the Incentive Compensation is paid. (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 Notice and Agreement attached hereto as Exhibit C, Executive shall be granted options to purchase fifteen thousand (15,000) shares of common stock of Bacou at a per share price equal to the closing price on the New York Stock Exchange on February 1, 1999, subject to vesting 25 percent on August 1, 1999 and 25 percent each on the first through third 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) In connection with the execution of this Agreement, the Company shall pay Executive Forty Thousand Dollars ($40,000.00) and provide relocation assistance in accordance with the terms and conditions of the Relocation Assistance Agreement attached hereto as EXHIBIT A. 5. LIMITATIONS ON AUTHORITY. Except as otherwise provided herein, approval by the Bacou CEO 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; -4- 5 (b) Making unplanned capital expenditures or any commitment therefor in an amount greater than $10,000 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, terminating, promoting or demoting executive personnel with annual salary in excess of $50,000 or granting unbudgeted raises, bonuses or other compensatory payments to any employee of the Company; (e) Granting retirement benefits or other non-earned income to any person; (f) Modification of any qualified plan or other benefit plan, e.g., health insurance; (g) Acquiring the assets or shares of any business; (h) Acquiring or disposing of the assets or shares of the Company or selling any fixed asset of the Company below book value or writing off inventory of the Company with an aggregate book value exceeding $50,000 in any fiscal year; (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; (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; -5- 6 (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 Bacou CEO 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 Bacou CEO 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 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 seven (7) 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, -6- 7 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 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. -7- 8 (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: (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 -8- 9 (b) If to the Executive, to him at the current address shown in the payroll records of the Company. Either 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.) 12. CONSTRUCTION. This Agreement shall be construed under the laws of the State of Rhode Island. 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 Providence, Rhode Island and any award shall be deemed to be a Providence, Rhode Island award. There shall be a single arbitrator who shall be admitted to practice law in Rhode Island, 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 Rhode Island. 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. -9- 10 IN WITNESS WHEREOF, Company and the Executive have duly executed this Agreement as of the day and year first written above. BACOU USA SAFETY, INC. By: /s/ Walter Stepan /s/ Philip B. Barr Walter Stepan Philip B. Barr Chairman, President Vice Chairman, Secretary and CEO and Treasurer EXECUTIVE: /s/ Alan H. Bennett Alan H. Bennett -10- EX-10.22 6 PURCHASE AND SALE AGREEMENT 1 EXHIBIT 10.22 PURCHASE AND SALE AGREEMENT BY AND BETWEEN UVEX WINTER OPTICAL, INC. AS SELLER AND UVEX SAFETY MANUFACTURING, INC. AS BUYER NOVEMBER 20, 1998 2 PURCHASE AND SALE AGREEMENT THIS PURCHASE AND SALE AGREEMENT (this "Agreement") is made and entered into as of the 20th day of November, 1998 by and between Uvex Winter Optical, Inc., a Rhode Island corporation having a principal place of business and mailing address of 910 Douglas Pike, Smithfield, Rhode Island 02917 ("Seller"), and Uvex Safety Manufacturing, Inc., a Delaware corporation having a principal place of business and mailing address of 10 Thurber Boulevard, Smithfield, Rhode Island 02917 ("Buyer"). ARTICLE I PROPERTY Section 1.01. PROPERTY. Seller hereby agrees to sell and convey to Buyer, and Buyer hereby agrees to purchase from Seller, upon the terms and conditions set forth herein, the following properties and assets: (a) That certain parcel of land consisting of approximately 7.000 acres located in the Town of Smithfield, County of Providence, State of Rhode Island, more particularly described in EXHIBIT A-1 attached hereto and made a part hereof for all purposes, together with (i) any and all rights and appurtenances pertaining to such real property, including any easements, and all right, title and interest of Seller in and to adjacent streets, alleys and rights-of-way, and (ii) any and all rights or privileges appurtenant to or used in connection with the ownership or operation of such real property (all of the foregoing are collectively referred to herein as the "Developed Real Property"). (b) That certain parcel of land consisting of approximately 8.39 acres located in the Town of Smithfield, County of Providence, State of Rhode Island, more particularly described in EXHIBIT A-2 attached hereto and made a part hereof for all purposes, together with (i) any and all rights and appurtenances pertaining to such real property, including any easements, and all right, title and interest of Seller in and to adjacent streets, alleys and rights-of-way, and (ii) any and all rights or privileges appurtenant to or used in connection with the ownership or operation of such real property (all of the foregoing are collectively referred to herein as the "Undeveloped Real Property"). The Undeveloped Real Property shall be a subdivided portion of existing real estate of approximately 14.02 acres which is currently owned by Seller and which is comprised of four separate parcels of land (the "Seller's Undeveloped Land") as set forth on that certain survey map on EXHIBIT A-3 attached hereto. It is anticipated that the Undeveloped Real Property shall be formed from two parcels of the Seller's Undeveloped Land. The Developed Real Property and the Undeveloped Real Property are sometimes collectively referred to as the "Real Property". (c) All improvements, structures and fixtures now constructed and completed with respect to and situated on the Real Property, including without limitation all buildings, parking 3 areas, loading dock facilities, landscaping and other improvements, structures and fixtures (all of the foregoing are collectively referred to herein as the "Improvements"). (d) All equipment, furniture, furnishings, machinery, heating, plumbing, ventilation and air conditioning systems and equipment, carpet, tile, floor coverings, security devices, sprinkler systems, keys, maintenance equipment and supplies and all other tangible personal property owned by Seller and used or to be used in connection therewith or with the Improvements along with Seller's interest as lessee in any rented or leased personal property, all of which rented or leased property is listed on EXHIBIT D attached hereto, to the extent approved by Buyer (all of the foregoing are collectively referred to herein as the "Personal Property"). The Real Property, the Improvements and the Personal Property are collectively referred to herein as the "Property". ARTICLE II PURCHASE PRICE/FINANCING Section 2.01. PURCHASE PRICE. The purchase price (the "Purchase Price") to be paid by Buyer to Seller for the Property is Five Million Eight Hundred Thousand and 00/100 U.S. Dollars (US$5,800,000.00). The Purchase Price will be paid by Buyer to Seller at the Closing (as hereinafter defined) in immediately available wire transferred funds. Section 2.02. FINANCING. The parties acknowledge that Buyer is seeking revenue bond financing (the "Financing") for the purpose of, among other things, payment of the Purchase Price, through the Rhode Island Economic Development Corporation or an affiliate thereof ("EDC"), and that the revenue bonds issued pursuant to the Financing (the "Revenue Bonds") shall be sold through a private placement transaction to a financial institution or other accredited investor (the "Bond Purchaser"). ARTICLE III REVIEW ITEMS AND INSPECTION Section 3.01. REVIEW ITEMS. On or before November 30, 1998 (the "Review Item Delivery Date"), Seller, at Seller's sole cost and expense, shall deliver to Buyer the following items (the "Review Items"), to the extent in Seller's possession or control: (a) Copies of any surveys of the Property in Seller's possession. (b) Copies of real estate and personal property tax statements for the Property for the past two (2) calendar years. (c) Copies of any notice of change in assessed value or tax rate for the Property. -2- 4 (d) Copies, to the extent available, of all site plans, soil and substrata studies, environmental assessment reports and studies, architectural renderings, engineering plans and studies, floor plans, landscape plans, utility schemes, and as-built plans and specifications for the Property. (e) Copies, to the extent available, of any and all appraisals, engineering inspections and handicapped accessibility reports of the Property. (f) (i) Copies of all documents available to Seller affecting title to any of the Property, including, without limitation, all documents pertaining to any encumbrances, restrictions, easements and other matters of record and (ii) copies of all title insurance policies issued to Seller or to any lender to Seller. Section 3.02. INSPECTION. Buyer shall have the right, at all reasonable times, to conduct on-site inspections of the Property and physical inspections and tests of the Property during the Review Period (as hereinafter defined), including, without limitation, the right to enter and inspect all portions of the Property, and to inspect all of Seller's records relating to the Property. Seller hereby agrees to fully cooperate with Buyer in providing access to any and all information requested by Buyer, including the execution of any consents or applications for information from governmental or quasi-governmental agencies. Buyer shall indemnify Seller from any physical damage to the Property and personal injury directly resulting from Buyer's entry on the Real Property during the Review Period. ARTICLE IV REVIEW PERIOD Section 4.01. REVIEW PERIOD. Buyer has from the date of this Agreement until 5:00 p.m. Eastern time on January 31, 1999, subject to extensions set forth in this Article IV (the "Review Period") to review and approve the Review Items and to conduct such inspections, interviews, tests and audits as Buyer, in Buyer's sole discretion, deems appropriate, including, without limitation, environmental, engineering and zoning inspections and investigations and review of those matters disclosed by Buyer's Survey (as defined in Section 4.05 hereof) of the Property and those matters related to title to the Property. Section 4.02. BUYER'S NOTICE. If Buyer, in its sole and absolute discretion, based on its review of the items to be delivered by Seller to Buyer under Article III hereof, believes that the results of such inspections, interviews, tests or any other fact or situation with respect to the Property would cause Buyer to be unable to use the Property as Buyer intends, then in such event Buyer shall have the right to terminate this Agreement by giving Seller written notice thereof (the "Buyer's Notice") on or before the expiration of the Review Period as extended in this Article IV, and this Agreement shall be immediately terminated upon Buyer's delivery of the Buyer's Notice to Seller. The Buyer's Notice need not set forth the reason for such termination. -3- 5 Section 4.03. TERMINATION. If Buyer elects to terminate this Agreement in accordance with, and subject to the terms of this Article IV, the parties hereto shall thereupon be relieved of all liabilities and obligations hereunder except for their respective liabilities and obligations under the Lease (as defined in Section 4.04 herein). Section 4.04. ENVIRONMENTAL SITE ASSESSMENTS. During the Review Period, Buyer has the right, at Buyer's expense, to have Phase I and Phase II environmental site assessments performed of the Property. If Buyer, in Buyer's sole discretion, determines that a Phase II site assessment is appropriate, any such Phase II site assessment will be requested and performed as soon as reasonably possible after completion and review of the Phase I report. The Review Period solely with respect to environmental matters, may, upon written notice to Seller during the Review Period, be extended an additional ninety (90) days by Buyer in order to conduct and evaluate any such Phase I or Phase II site assessment report. If any such environmental site assessment report reveals contamination at or above reportable levels or violation of any environmental law or regulation, and Seller, after receipt of written notice from Buyer together with complete copies of such written reports and analyses which reflect said environmental condition or violation, does not agree, within twenty (20) days after written request from Buyer, to fully remediate such contamination and cure all violation(s) of applicable environmental laws or regulations prior to Closing, then Buyer shall have the right either (a) to purchase the Property subject to such contamination and without reduction of the Purchase Price or (b) to terminate this Agreement in accordance with Section 4.02 hereof. If Buyer, in Buyer's sole discretion, objects to any matters disclosed in the Phase I or Phase II environmental site assessment report, then Buyer shall have the right to terminate this Agreement in accordance with Section 4.02 hereof and the parties shall have no further obligations hereunder. Nothing contained in this Section 4.04 shall impair any of Seller's remedies or Buyer's obligations with respect to such matters under that certain Lease Agreement dated as of April 15, 1993 by and between Seller as Landlord and Uvex Safety LLC, predecessor-in-interest to Buyer, as Tenant, as amended from time to time (the "Lease") which is attached hereto as EXHIBIT F. Section 4.05. TITLE, SURVEY AND ZONING. During the Review Period, Buyer has the right, at Buyer's expense, to obtain a complete, updated title report or commitment with respect to the Property (with copies of all instruments listed as exceptions to title). If Buyer, in Buyer's sole discretion, objects to any matters disclosed in the title report or title commitment, the Buyer shall have the right to terminate this Agreement in accordance with Section 4.02 hereof and the parties shall have no further obligations hereunder. During the Review Period, Buyer has the right, at Seller's expense, to obtain an ALTA/ACSM "as built" survey of the Property (the "Survey"). If the Survey discloses any easements, restrictions, encroachments or adverse matters which are unacceptable to Buyer in Buyer's reasonable discretion, then Buyer shall have the right to terminate this Agreement in accordance with Section 4.02 hereof and the parties shall have no further obligations hereunder. During the Review Period, Buyer has the right, at Buyer's expense, to review all applicable governmental regulations of the Property, including zoning and building code -4- 6 compliance. If it becomes necessary to seek the approval of the Town of Smithfield for changes to the zoning of the Real Property, or to subdivide the Real Property, then the Review Period shall be extended until such time as such zoning or subdivision shall have been completed to Buyer's satisfaction. If during the Review Period, Buyer objects to any matter revealed by such review, then Buyer shall have the right to terminate this Agreement in accordance with Section 4.02 hereof and the parties shall have no further obligations hereunder. Section 4.06. STRUCTURAL AND MECHANICAL INSPECTIONS. During the Review Period, Buyer has the right, at Buyer's expense, to have structural and mechanical inspections performed with respect to the Improvements. If Buyer, in Buyer's sole discretion, objects to any matters disclosed in the structural or mechanical inspection reports, then Buyer shall have the right to terminate this Agreement in accordance with Section 4.02 hereof and the parties shall have no further obligations hereunder. Section 4.07. LEASE REVIEW. Buyer is the lessee of the Developed Real Property, the Improvements and the Personal Property pursuant to the Lease. The Lease shall continue in full force and effect until the Closing. Section 4.08. ENGINEERING ASSESSMENT. During the Review Period, Buyer has the right, at Buyer's expense, to have an engineering assessment and soil analysis of the Property performed to determine whether the conditions at the Property are satisfactory to Buyer from a structural, mechanical and engineering standpoint for the construction of an addition to the building situated on the Developed Real Property (the "Planned Improvements"). If Buyer, in Buyer's sole discretion, objects to any matters disclosed in the engineering assessment, then Buyer shall have the right to terminate this Agreement in accordance with Section 4.02 hereof, and the parties shall have no further obligations hereunder. ARTICLE V GOOD AND MARKETABLE TITLE CONVEYANCE. At the Closing, Seller will convey good, marketable and insurable fee simple title to the Real Property and the Improvements to Buyer or Buyer's nominee by a Quitclaim Deed in the form attached hereto as EXHIBIT B and made a part hereof (the "Deed") and good and marketable title to the Personal Property by a bill of sale and assignment of contracts in the form attached hereto as EXHIBIT C (the "Bill of Sale"), free and clear of any and all deeds of trust, mortgages, security interests or other liens or indebtedness, encumbrances, conditions, easements, rights-of-way, assessments and restrictions, except for the Permitted Encumbrances (as hereinafter defined). (a) General real estate taxes for the year in which the Closing occurs and subsequent years not yet due and payable. -5- 7 (b) All easements, restrictions, rights-of-way, party wall agreements, encroachments, covenants, reservations, agreements, leases (including the Lease), licenses, conditions and other matters of record (the "Permitted Encumbrances") set forth on EXHIBIT F attached hereto and made a part hereof for all purposes as of the date hereof, affecting all or any portion of the Property to the extent (i) not disapproved by Buyer during the Review Period; (ii) reflected on the Survey, and not disapproved by Buyer during the Review Period; and/or (iii) created by or consented and agreed to in writing by Buyer prior to or at the Closing. ARTICLE VI CLOSING Section 6.01. CLOSING. The closing of the purchase and sale of the Property (the "Closing") will be held at the offices of Edwards & Angell, LLP, One BankBoston Plaza, Providence, Rhode Island 02903, and will occur, subject to satisfaction of all conditions precedent set forth in this Agreement, on February 28, 1999, or the thirtieth (30th) day following the satisfaction of the conditions precedent set forth in Section 9.05 hereof, but in no event later than June 30, 1999, or on such other date as may be agreed to in writing by Seller and Buyer (the "Closing Date"). Section 6.02. SELLER'S OBLIGATIONS. At the Closing, Seller shall execute and deliver to Buyer, and/or cause the execution and delivery by all parties other than Buyer of, the following: (a) The Deed. (b) The Bill of Sale. (c) A FIRPTA affidavit and a Rhode Island Residency Affidavit if Seller is a Rhode Island resident, or non-resident withholding, both in form and substance acceptable to Buyer and the title insurance company selected by Buyer (the "Title Company"). (d) A Lease Termination Agreement confirming that all obligations of the parties under the Lease have been performed and discharged, along with original counterparts (to the extent available) or copies of the Lease and of all operating agreements, reciprocal easement agreements, options, warranties, guarantees, permits and other agreements related to the Property, including all modifications, supplements or amendments to each of the foregoing. (e) All keys to the Property not already in Buyer's possession. (f) To the extent necessary to permit the Title Company to remove any exception in the owner's policy for mechanic's and material supplier's liens and general rights of parties in possession, an affidavit as to debts and liens and parties in possession executed by Seller in favor of Buyer and the Title Company and in a form acceptable to Buyer and the Title Company, along with any other items reasonably required by the Title Company. -6- 8 (g) Seller's certification that all representations and warranties made by Seller under this Agreement are true, complete and correct in all material respects as of the Closing. (h) Estoppel certificates, in form and substance reasonably satisfactory to Buyer, from all parties to any restrictive covenants or easements, materially affecting all or any portion of the Property, PROVIDED, HOWEVER, Seller's failure, despite good faith efforts, to obtain such estoppel certificates shall not be deemed a default by Seller. (i) Evidence acceptable to Buyer and the Title Company of Seller's authority to consummate the transactions contemplated by this Agreement, including without limitation, a good standing certificate issued by the Rhode Island Secretary of State, a tax good standing certificate issued by the Rhode Island Division of Taxation, a copy of Seller's Articles of Incorporation certified by the Rhode Island Secretary of State and a secretary's certificate regarding votes, by-laws and incumbency. (j) To the extent required pursuant to the provisions of Section 4.04 hereof, evidence reasonably acceptable to Buyer of completion of all remediation of the Property. (k) A settlement statement with respect to the purchase and sale of the Property (the "Settlement Statement"). (l) Discharges, releases and terminations with respect to any mortgages, assignments, financing statements or other security documents with respect to the Property or a payoff letter from the holder(s) of any such security document acceptable to Buyer and the Title Company. (m) A release of tax lien by the Rhode Island Division of Taxation with respect to the Property or an affidavit that the sale of the Property is not a sale of substantially all of the assets of Seller acceptable to Buyer and the Title Company. Section 6.03. BUYER'S OBLIGATIONS. At the Closing, Buyer shall deliver the Purchase Price to Seller by wire transfer of immediately available funds, and shall execute and deliver to Seller the following: (a) Evidence reasonably acceptable to Seller of Buyer's authority to consummate the transactions contemplated by this Agreement. (b) Buyer's certification that all representations and warranties made by Buyer under this Agreement are true, complete and correct in all material respects as of the Closing. (c) The Settlement Statement. Section 6.04. POSSESSION. At the Closing, full possession of the Property, subject to the Lease, shall be delivered by Seller to Buyer in the same condition as it is now. Seller and Buyer -7- 9 shall reinspect the Property prior to Closing to determine whether the condition of the Property is in conformance with the terms of this Agreement. ARTICLE VII CLOSING ADJUSTMENTS Section 7.01. ADJUSTMENTS AND PRORATIONS. Unless otherwise agreed to in the Lease, the following adjustments and prorations shall be made at Closing: (a) Real estate taxes due and payable in the current year together with current installments of special assessments which constitute liens on the Property and interest thereon due and payable therewith, and water and sewer charges on the basis of the fiscal period for which assessed (without regard to when such charges are payable) shall be prorated as of 12:01 a.m. local time on the date of the Closing on the basis of a 365-day year, except that if any amount to be prorated covers a period of less than a year, the proration as to such amount shall be made as of the Closing on the basis of the period so covered. The net amount of any adjustments shall be added to or subtracted from the Purchase Price, as applicable. (b) All charges for electric and gas service and other utilities (other than water and sewer) supplied to the Real Property and the Improvements prior to the Closing shall be the obligation of Seller, and Seller agrees to pay such amounts as may be due in connection with such utilities promptly upon notification of such overdue payment. (c) In the event that real estate taxes are to be prorated hereunder and if the Closing shall occur before a new tax rate is fixed, the proration of real estate taxes shall be upon the basis of the old tax rate for the preceding tax period applied to the latest assessed valuation; PROVIDED, HOWEVER, that Seller and Buyer agree to make all necessary adjustments to such proration after the Closing upon receipt of the new tax rate to reflect the actual tax rate applicable to the period(s) for which such proration is made. (d) If there is a water meter for the Real Property and the Improvements, Seller shall furnish a reading or readings to a date not more than three (3) business days before the Closing Date and the unfixed meter charge shall be prorated on the basis of such last reading. (e) Seller shall have the option to credit Buyer as an adjustment of the Purchase Price with the amount of any unpaid real estate taxes, assessments, water and sewer charges, together with any adjustments hereunder in favor of Buyer, in which case Buyer shall have assumed the obligation to pay such amounts when they become due and payable. (f) Real estate tax refunds and credits received after the Closing Date which are attributable to the fiscal year during which the Closing occurs shall be prorated between Seller and Buyer based upon when the Closing Date occurs, after deducting the expenses of collection -8- 10 thereof. All refunds and credits relating to any prior years shall belong to Seller, and Buyer agrees to send any such items to Seller immediately upon receipt. (g) Any errors or omissions in computing prorations at the Closing shall be corrected immediately upon discovery after the Closing. (h) Rent under the Lease shall be pro-rated for the month in which the Closing occurs. Seller shall pay over all security deposits or credit Buyer with the total amount of security deposits. Section 7.02. TRANSACTION COSTS. Each party will pay such party's own expenses incurred in connection with this Agreement and the transactions contemplated hereby, including, without limitation, (1) all costs and expenses stated herein to be borne by a party and (2) each party's respective legal fees and expenses. Buyer, in addition to Buyer's other expenses, shall pay at the Closing (1) all recording charges payable in connection with the recording of the Deed and (2) all premiums for Buyer's title insurance policy. Seller, in addition to Seller's other expenses, shall pay at the Closing the cost of any documentary stamps or other sales or transfer taxes applicable to the sale. Section 7.03. INDEMNITY. Each party hereby agrees to indemnify the other party and hold it harmless from and against any and all claims, demands, liabilities, costs, expenses, penalties, damages and losses, including (without limitation) reasonable attorneys' fees, resulting from any misrepresentation or breach of warranty or covenant made by such party in this Agreement or in any document, certificate, or exhibit given or delivered to the other pursuant to or in connection with this Agreement. Section 7.04. BROKERAGE COMMISSIONS. Seller and Buyer represent and warrant that neither has dealt with any real estate broker, agent or salesperson, and acknowledge and agree that any other fees or real estate commissions occasioned by the execution and/or consummation of this Agreement shall be the sole responsibility of the party contracting therefor, and such party agrees to indemnify, protect, defend and hold harmless the other party from any and all claims for such other fees or real estate commissions. Section 7.05. SURVIVAL. The terms of this Article shall survive the termination of this Agreement on the Closing and delivery of the Deed for a period of three (3) years. ARTICLE VIII TERMINATION AND REMEDIES Section 8.01. BUYER'S DEFAULT. If Buyer is in default under the terms of this Agreement or if Buyer fails or refuses to close for any reason, except for Seller's default or the permitted termination of this Agreement by either Buyer or Seller (other than under this Section 8.01) as -9- 11 herein expressly provided, Seller shall be entitled, as Seller's sole and exclusive remedy, to terminate this Agreement. Seller has no right to specifically enforce Buyer's obligations under this Agreement, however, Buyer hereby agrees to promptly reimburse Seller for Seller's reasonable out-of-pocket expenses, including its reasonable attorneys' fees, incurred in connection with the negotiation of this Agreement and the pursuit of the transaction contemplated hereby. Otherwise, Seller shall not seek or collect any other damages of any kind, including lost profit, punitive, consequential, treble or other damages from or against Buyer. In no event shall any officer, director or employee of Buyer be personally liable for any of Buyer's obligations under this Agreement or the documents to be delivered at the Closing. Section 8.02. SELLER'S DEFAULT. If Seller is in default under the terms of this Agreement, or if Seller fails or refuses to close for any reason, except for Buyer's default or the permitted termination of this Agreement by either Seller or Buyer (other than under this Section 8.02) as herein expressly provided, Buyer shall be entitled to terminate this Agreement upon written notice to Seller. Upon such termination of the Agreement, Seller promptly shall reimburse Buyer for Buyer's Environmental Costs and any and all other out-of-pocket expenses incurred by Buyer, including its reasonable attorneys' fees and all payments made to third parties, in connection with the negotiation and execution of this Agreement and the pursuit of the transaction contemplated hereby. In no event shall any officer, director or employee of Seller be personally liable for any of Seller's obligations under this Agreement or the documents to be delivered at the Closing. Section 8.03. LEGAL FEES. In the event of any litigation between the parties with respect to the subject matter of this Agreement, the prevailing party shall be entitled to recover such party's reasonable legal fees from the other party. ARTICLE IX REPRESENTATIONS, WARRANTIES, COVENANTS AND CONDITIONS PRECEDENT Section 9.01. SELLER'S REPRESENTATIONS. Seller hereby represents and warrants to Buyer, as of the date hereof and as of the Closing, as follows: (a) Seller does not have notice that Improvements are in violation of any applicable laws, statutes, ordinances, codes, covenants, conditions and restrictions of any kind or nature affecting the Real Property or Improvements, including, to the extent applicable, all handicapped accessibility laws, rules and regulations including applicable fire and safety requirements. (b) Seller does not have notice that the Property is in breach of any applicable law and regulation pertaining to subdivision, planning, zoning and land use, building and fire safety, parking, and environmental requirements, including (without limitation) laws and regulations concerning odors, noise, air emissions, discharge of water or pollution, and alteration of or encroachment upon any fresh water or salt water wetland, flood plain or coastal area. -10- 12 (c) (i) To the best of Seller's knowledge, there are no underground storage tanks on the Property and (ii) Seller has not used or knowingly permitted the Property to be used and to the best of Seller's knowledge, the Property has not been used for, storage, transfer, transportation or disposal of dangerous, toxic or hazardous materials, chemicals, wastes or similar substances or for the discharge of the same into the environment other than in the normal course of Seller's business and consistent with local, state and federal regulations. (d) Seller has paid or will pay in the normal course for all labor, materials, architectural services, supplies, equipment and utilities serving the Property and all taxes and assessments on or with respect to the Property. (e) The Property is owned solely by Seller and is not subject to any lease, financing contract, or security interest, mortgage, lien or other encumbrance other than the Lease set forth on EXHIBIT F attached hereto. (f) There are no legal or administrative proceedings commenced or threatened against the Property or Seller with respect to the Property or its use and enjoyment, including (without limitation) proceedings involving environmental regulation, zoning, subdivision, condemnation, building or fire safety codes or special assessments. (g) Seller knows of no facts which would prevent Buyer from using and operating the Property after the Closing in the manner in which the Property has been operated or used by Seller. (h) Seller has received no notice and has no knowledge of any pending public improvements, liens or special assessments to be made in respect of, or assessed against, the Property by any governmental authority. (i) To the best of Seller's knowledge, there are no attachments, executions, assignments for the benefit of creditors or voluntary or involuntary proceedings in bankruptcy pending against or contemplated by Seller or otherwise applicable to the Property, and to the best of Seller's knowledge no such actions have been threatened. (j) Seller is a corporation, duly organized, validly existing and in good standing under the laws of the State of Rhode Island, and has all requisite power and authority to carry on Seller's business as now conducted. (k) Seller has all requisite power and authority to execute, deliver and perform Seller's obligations under this Agreement. No consent, approval or other action by any person or entity is required with respect to Seller's execution, delivery and performance of Seller's obligations under this Agreement. Neither the execution and delivery of this Agreement by Seller nor Seller's performance of Seller's obligations hereunder will result in a violation or breach of any term or provision or constitute a default or accelerate the performance required under any other agreement or document to which Seller is a party or is otherwise bound or to which the Property, or any part thereof, is subject and will not constitute a violation of any law, -11- 13 ruling, regulation or order to which Seller is subject. This Agreement constitutes a valid and binding obligation of Seller enforceable in accordance with its terms. (l) No person, firm or corporation or other entity has any right or option to lease or rent beyond the Closing Date or otherwise acquire the Property, or any part thereof. (m) The Real Property may be subdivided to accommodate the intention of the Buyer and Seller herein. (n) Seller has not received any notice of any reportable environmental contamination on the Property and Seller has delivered to Buyer, prior to the date of this Agreement, copies of all reports in Seller's possession relating to the environmental condition of the Property. All representations and warranties contained herein will be true on and as of the Closing except as otherwise disclosed by Seller to Buyer in writing and approved as so disclosed by Buyer at or prior to the Closing. In the event Seller receives new information which would make any representation or warranty in this Section 9.01 untrue, incomplete or misleading, Seller shall not be in default under this Agreement, provided Seller provides such information in writing to Buyer within the earlier of 24 hours prior to Closing or three (3) business days of Seller's receipt of such information. In such event, Buyer shall have ten (10) business days to respond to such information, including the right to terminate this Agreement and receive its out-of-pocket expenses and costs. Further, the representations set forth in Section 9.01 of this Agreement pertaining to the Undeveloped Real Property shall survive the Closing for three (3) years. The representations pertaining to the Developed Property shall not survive the Closing. Section 9.02. BUYER'S REPRESENTATIONS. Buyer hereby represents and warrants to Seller, as of the date hereof and as of the Closing, as follows: (a) Buyer is a corporation, duly organized, validly existing and in good standing under the laws of the State of Delaware, and has all requisite power and authority to carry on Buyer's business as now conducted. (b) Buyer has all requisite power and authority to execute, deliver and perform Buyer's obligations under this Agreement. No consent, approval or other action by any person or entity is required with respect to Buyer's execution, delivery and performance of Buyer's obligations under this Agreement. No consent, approval or other action by any person or entity will be needed thereafter to authorize Buyer's execution and performance of this Agreement. Section 9.03. DISCOVERY. If either Seller or Buyer discovers, prior to or at the Closing, that any representation or warranty of the other party is false, misleading or inaccurate in any material respect, the discovering party may, at such party's option, terminate this Agreement and the parties hereto shall be relieved of all liabilities and obligations hereunder except that the discovering party shall have the right to have its out-of-pocket expenses reimbursed by the other party pursuant to the provisions of Section 8.01 or 8.02 herein, as applicable. -12- 14 Section 9.04. OPERATING COVENANTS. Subject to the terms and conditions of the Lease, Seller agrees to operate and maintain the Property prior to the Closing in a manner consistent with Buyer's current operating procedures, applicable legal requirements and good industry practice and shall not, without the prior written consent of Buyer, do any of the following: (a) Enter into any contract that will not be fully performed by Seller on or before the Closing or that will not be susceptible of cancellation by Buyer on or after the Closing upon thirty (30) or fewer days prior written notice, without cost or liability to Buyer, or amend, modify or supplement any existing contract or agreement which will survive the Closing. (b) Enter into any lease or amend, modify, supplement or extend any lease, except for the Lease as agreed to by Seller and Buyer. (c) Fail to maintain adequate insurance covering Seller's interest in the Property or to advise Buyer promptly of the occurrence of any fire or other casualty affecting the Property. (d) Sell, assign or create any right, title or interest whatsoever in or to the Property or create or permit to exist any lien, encumbrance or charge thereon. (e) Take any action, or omit to take any action, which action or omission would have the effect of violating any of the representations and warranties of Seller contained in this Agreement. Section 9.05. CONDITIONS PRECEDENT. Buyer shall not be obligated to perform its obligations under this Agreement unless all of the following conditions precedent are satisfied (or waived in writing by Buyer) and are otherwise true and correct as of the Closing. (a) There has been no material adverse change in the matters reflected in any Review Item reviewed by Buyer during the Review Period since the date Buyer reviewed such Review Item, except to reflect those items approved or otherwise created in writing by Buyer. (b) All of Seller's representations and warranties are true and correct in all material respects. (c) Seller has performed all of Seller's covenants, agreements and obligations under this Agreement and is otherwise not in default. (d) Buyer has obtained at Buyer's expense no later than the Closing a commitment for a policy of title insurance in standard ALTA form issued by the Title Company at standard rates in the full amount of the Purchase Price insuring indefeasible, fee simple title to the Real Property and Improvements in Buyer subject only to the Permitted Encumbrances and the standard printed exceptions that are acceptable to Buyer. (e) Revenue Bonds satisfactory in all respects to Buyer shall have been authorized for issuance by the EDC and Buyer shall have received a binding commitment from a Bond -13- 15 Purchaser to purchase the Revenue Bonds at Closing in order to fund the Buyer's payment of the Purchase Price and the payment of such other expenses of Buyer as set forth in Buyer's Revenue Bond Application submitted to EDC on November 16, 1998. ARTICLE X NOTICES Section 10.01. NOTICES. Any notice, demand or other communication which may or is required to be given under this Agreement must be in writing and must be: (a) personally delivered; (b) transmitted by United States postage prepaid mail, registered or certified mail, return receipt requested; (c) transmitted by reputable overnight courier service, such as Federal Express; or (d) transmitted by legible facsimile (with answer back confirmation) to Buyer and Seller as listed below. Notices hereunder shall be directed as follows: If to Seller: Uvex Winter Optical, Inc. 910 Douglas Pike Smithfield, Rhode Island 02917 Attn.: Bruce Campbell Telephone: 401-232-7670 Facsimile: 401-232-7890 With a copy to: Edwards & Angell, LLP (which shall not One BankBoston Plaza constitute notice) Providence, RI 02903-2499 Attention: Susan Keller, Esq. Telephone: (401) 274-9200 Facsimile: (401) 276-6611 -14- 16 If to Buyer: Uvex Safety Manufacturing, Inc. 10 Thurber Boulevard Smithfield, Rhode Island 02917 Attention: Winfield W. Major, Esq. Telephone: (401) 233-0333 Facsimile: (401) 232-2230 With a copy to: Edwards & Angell, LLP (which shall not One BankBoston Plaza constitute notice) Providence, RI 02903-2499 Attention: Susan Keller, Esq. Telephone: (401) 274-9200 Facsimile: (401) 276-6611 Notwithstanding the foregoing, any notices delivered by one party to the other party under Article IV hereof shall be deemed given on the date and time of posting if transmitted by United States mail, postage prepaid, registered or certified mail, return receipt requested, to the respective addresses set forth above. Buyer's counsel may deliver any notice under Article IV on behalf of Buyer. ARTICLE XI RISK OF LOSS Section 11.01. MINOR DAMAGE. Subject to the terms and conditions of the Lease, in the event of "minor" loss or damage being defined for the purpose of this Agreement as damage to the Property such that the Property could be repaired or restored, in the opinion of an architect mutually acceptable to Seller and Buyer (with any fees, costs or expenses pertaining to such opinion to be borne equally by Buyer and Seller), to a condition substantially identical to that of the Property immediately prior to the event of damage at a cost equal to or less than Fifty Thousand and 00/100 Dollars ($50,000.00), neither Seller nor Buyer shall have the right to terminate this Agreement due to such damage but Seller shall, at Buyer's option as expressed to Seller in writing, either (a) reduce the Purchase Price by an amount equal to the cost to repair such damage, or (b) repair and restore the damaged portion of the Property to a condition substantially identical to that which existed immediately prior to the occurrence of such damage and in either such event Seller shall retain all of Seller's right, title and interest to any claims and proceeds Seller may have with respect to any casualty insurance policies relating to the Property. If Buyer elects to have Seller repair and restore the damaged portion of the Property, Seller shall act promptly and diligently to complete such repairs in a good and workmanlike manner and shall complete such repairs prior to the Closing if reasonably possible. If it is not reasonably possible to complete such repairs prior to the Closing, Seller shall complete such repairs as soon as reasonably possible, and the Closing shall be extended for a reasonable period of time to allow completion of any such repairs. -15- 17 Section 11.02. MAJOR DAMAGE. Subject to the terms and conditions of the Lease, in the event of a "major" loss or damage (being defined as any loss or damage which is not "minor" as defined herein above), Buyer shall have the option of terminating this Agreement by written notice to Seller, in which event Seller and Buyer shall thereupon be released from any and all liability hereunder and Seller shall reimburse Buyer for Buyer's Environmental Costs and any and all of Buyer's out-of-pocket expenses. If Buyer elects not to terminate this Agreement, Buyer and Seller shall proceed with the Closing, provided Seller shall assign all of Seller's right, title and interest to any claims and proceeds Seller may have with respect to any casualty insurance policies relating to the Property, and Buyer shall receive a credit against the Purchase Price in an amount equal to the aggregate amount of any deductible(s) under the insurance policies assigned to Buyer, plus any costs to repair any such major damage not covered by insurance. Section 11.03. CONDEMNATION. If before the Closing any condemnation or eminent domain proceeding is threatened or initiated against all or any portion of the Property and, in the reasonable opinion of Buyer, such condemnation or eminent domain proceeding would materially interfere with the current use of the Property, then Buyer may terminate this Agreement upon written notice to Seller and Seller and Buyer shall thereupon be released from any and all further liability hereunder and the parties shall have no further obligation to each other. If Buyer does not elect to terminate this Agreement within ten (10) business days after receipt of written notice of the commencement of any such proceedings, or if, in the reasonable opinion of Buyer, such condemnation or eminent domain proceedings would not materially interfere with Buyer's proposed use of the Property, the Closing shall take place as provided herein and Seller shall assign to Buyer at the Closing all rights and interest of Seller in and to any condemnation awards payable or to become payable on account of such condemnation or eminent domain proceedings. ARTICLE XII MISCELLANEOUS Section 12.01. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors, heirs, administrators and assigns. Without being relieved of any liability under this Agreement, Buyer reserves the right to take title to the Property in a name or nominee or assignee other than Buyer. Section 12.02. AMENDMENTS AND TERMINATION. Except as otherwise provided herein, this Agreement may be amended or modified by, and only by, a written instrument executed by Seller and Buyer. Section 12.03. CONTINUATION AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties by the respective parties contained herein or made in writing pursuant to this Agreement are intended to and shall remain true and correct as of the time of -16- 18 Closing, shall be deemed to have been repeated as of the Closing and shall be deemed to be material. Certain of such representations and warranties shall survive the execution and delivery of this Agreement, the delivery and recording of the Deed and transfer of title as set forth in Section 9.01 hereof. Section 12.04. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Rhode Island. Section 12.05. MERGER OF PRIOR AGREEMENTS. Except for the Lease, which shall be terminated upon the Closing, this Agreement supersedes all prior written or oral agreements and understandings between the parties hereto relating to the subject matter hereof. Section 12.06. TIME OF ESSENCE. Time is of the essence to both Seller and Buyer in the performance of this Agreement, and they have agreed that strict compliance by both of them is required as to any date and/or time set out herein, including, without limitation, the dates and times set forth in Article IV of this Agreement. If the final day of any period of time set out in any provision of this Agreement falls upon a Saturday, Sunday or a legal holiday under the laws of the State of Rhode Island, then and in such event, the time of such period shall be extended to the next day which is not a Saturday, Sunday or legal holiday. Section 12.07. CONFIDENTIALITY. Seller shall use reasonable efforts to keep the identity of Buyer confidential and shall not reproduce or distribute this Agreement or the information contained herein. Section 12.08. COUNTERPARTS. This Agreement may be executed in identical counterparts, each of which, when construed together, shall be deemed an original hereof. Section 12.09 RAW LAND. The Buyer acknowledges that portions of the Real Property are "raw land" and that no percolation tests have been performed on the Real Property and that the Real Property has not been certified for development nor approved by the Department of Environmental Management as suitable for on-site disposal of sanitary sewage and by signing the Agreement, the Buyer acknowledges such facts as are required in Chapter 19.5 of Title 23 of the General Laws of Rhode Island. Section 12.10 NON-RESIDENT WITHHOLDING TAX. Seller has represented that it is a corporation organized and existing under the laws of the State of Rhode Island and that it is resident in Rhode Island. However, if the Seller is a not resident of the State of Rhode Island or will not be residents at the time of the Closing, the Buyer must withhold six (6) percent of the total payment to the Sellers (9% if the Sellers are a corporation), in accordance with R.I.G.L. Section 44-30-71.3, as same may be amended from time to time, and pay such amount to the Division of Taxation as a non-resident withholding tax. In order to have such tax based on gain rather than net proceeds of sale, the Seller must submit an election from to the Division of Taxation at least twenty (20) days prior to Closing. The Seller agrees to pay the entire amount of such tax found to be due at or after the Closing, whether or not such tax was correctly calculated -17- 19 at the Closing, it being understood that the tax shall not exceed the amount of net proceeds to the Seller. This shall survive the transfer of title to the Property. IN WITNESS WHEREOF, this Agreement has been executed by Buyer and Seller as of the day and year first above written. Seller: Uvex Winter Optical, Inc. By: R. Winter Name: R. Winter Title: _______________________________ Buyer: Uvex Safety Manufacturing, Inc. By: /s/ Walter Stepan /s/ Philip B. Barr Name: Walter Stepan Philip B. Barr Title: Chairman & CEO Vice Chairman, Secretary & Treasurer -18- EX-11 7 COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11 BACOU USA, INC. STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Three Months Ended Twelve Months Ended December 31, December 31, 1997 1998 1997 1998 ---- ---- ---- ---- BASIC: Weighted average shares outstanding 17,590 17,607 17,383 17,601 ==================== ======================== Net income $ 3,592 $ 5,500 $ 14,422 $ 20,010 ==================== ======================== Per share amount $ 0.21 $ 0.31 $ 0.83 $ 1.19 ==================== ======================== DILUTED: Weighted average shares outstanding 17,590 17,607 17,383 17,601 Net effect of dilutive stock options based on the treasury stock method using the average market price 67 116 28 122 --------------------- ------------------------ Total 17,657 17,723 17,411 17,723 ===================== ======================== Net income $ 3,592 $ 5,500 $ 14,422 $ 21,010 ===================== ======================== Per share amount $ 0.21 $ 0.31 $ 0.83 $ 1.19 ===================== ========================
EX-21 8 SUBSIDIARIES OF THE COMPANY 1 EXHIBIT 21 SUBSIDIARIES OF THE COMPANY
SUBSIDIARY STATE/COUNTRY OF INCORPORATION ---------- ------------------------------- (1) Bacou USA Safety, Inc. Delaware (2) Uvex Safety Manufacturing, Inc. Delaware (3) Titmus Optical, Inc. Delaware (4) Bacou USA Finance, Inc. Minnesota (5) Bacou Foreign Sales Corporation U.S. Virgin Islands (6) Howard Leight de Mexico S.A. De C.V. Tijuana, Baja California (7) Howard Leight (Europe), Ltd. London, England
EX-23 9 CONSENT OF KPMG LLP 1 EXHIBIT 23 ACCOUNTANTS' CONSENT The Board of Directors Bacou USA, Inc.: We consent to incorporation by reference in the registration statements (No. 333-09251 and 333-72637) on Form S-8 of Bacou, USA, Inc. of our reports dated February 5, 1999, relating to the consolidated balance sheets of Bacou USA, Inc. and subsidiaries as of December 31, 1997 and 1998, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1998, and the related schedule, which reports appear in the December 31, 1998 annual report on Form 10-K of Bacou USA, Inc. KPMG LLP Providence, Rhode Island March 26, 1999 EX-27 10 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 1 1,090 0 27,110 1,150 38,246 69,835 53,998 0 293,770 38,743 92,050 0 0 17 144,445 293,770 219,581 219,581 105,856 105,856 0 0 6,291 32,688 11,678 21,010 0 0 0 21,010 1.19 1.19
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