<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 22, 1997
REGISTRATION NO. 333-17353
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
WESLEY JESSEN VISIONCARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 3851 36-4023739
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
333 EAST HOWARD AVENUE
DES PLAINES, ILLINOIS 60018-5903
(847) 294-3000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
KEVIN J. RYAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
WESLEY JESSEN VISIONCARE, INC.
333 EAST HOWARD AVENUE
DES PLAINES, ILLINOIS 60018-5903
(847) 294-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES OF ALL COMMUNICATIONS, INCLUDING COMMUNICATIONS SENT TO AGENT FOR
SERVICE, SHOULD BE SENT TO:
DENNIS M. MYERS, ESQ. DAVID B. WALEK, ESQ.
KIRKLAND & ELLIS ROPES & GRAY
200 EAST RANDOLPH DRIVE ONE INTERNATIONAL PLACE
CHICAGO, ILLINOIS 60601 BOSTON, MASSACHUSETTS 02110
(312) 861-2000 (617) 951-7000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED PRICE(1)(2) FEE(3)
- --------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, par value $0.01 per share........ $60,375,000 $872
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- --------------------------------------------------------------------------------
</TABLE>
(1) Includes up to 375,000 shares that the Underwriters may have the option to
purchase from the Company to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a).
(3) Reflects the prior payment of $17,424 by the Registrant upon its initial
filing on December 6, 1996.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE>
WESLEY JESSEN VISIONCARE, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING LOCATION IN
PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF PART I OF FORM S-1.
<TABLE>
<CAPTION>
REGISTRATION STATEMENT
ITEM NUMBER AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
----------------------- ---------------------------------
<S> <C>
1.Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus....... Outside Front Cover Page of Prospectus
2.Inside Front and Outside Back
Cover Page of Prospectus....... Inside Front Cover Page of Prospectus;
Outside Back Cover Page of Prospectus;
Additional Information
3.Summary Information, Risk Factors
and Ratio of Earnings to Fixed
Charges ....................... Prospectus Summary; Risk Factors
4.Use of Proceeds.................. Prospectus Summary; Use of Proceeds;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations
5.Determination of Offering Price.. Outside Front Cover Page of Prospectus;
Underwriting
6.Dilution......................... Dilution
7.Selling Security Holders......... Not Applicable
8.Plan of Distribution............. Outside Front Cover Page of Prospectus;
Underwriting
9.Description of Securities to Be
Registered..................... Prospectus Summary; Dividend Policy;
Capitalization; Description of Capital
Stock
10.Interests of Named Experts and
Counsel........................ Legal Matters
11.Information with Respect to the
Registrant..................... Outside Front Cover Page of Prospectus;
Prospectus Summary; Risk Factors; The
Company; Use of Proceeds; Dividend Policy;
The Reclassification; Capitalization;
Dilution; Selected Historical Consolidated
Financial Data; Management's Discussion
and Analysis of Financial Condition and
Results of Operations; Business;
Management; Principal Stockholders;
Certain Transactions; Description of
Certain Indebtedness; Description of
Capital Stock; Legal Matters; Experts;
Index to Financial Statements
12.Disclosure of Commission Position
on Indemnification for
Securities Act Liabilities..... Not Applicable
</TABLE>
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JANUARY 22, 1997
PROSPECTUS
2,400,000 SHARES
Wesley Jessen VisionCare, Inc.
[LOGO]
COMMON STOCK
-----------
All of the shares of Common Stock, par value $.01 per share ("Common Stock"),
offered hereby (the "Offering") are being offered by Wesley Jessen VisionCare,
Inc., a Delaware corporation ("Wesley Jessen" or the "Company"). Prior to the
Offering, there has been no public market for the Common Stock of the Company.
It is currently anticipated that the initial public offering price will be
between $19 and $21 per share. See "Underwriting" for information relating to
the factors to be considered in determining the initial public offering price
of the Common Stock.
The Common Stock has been approved for inclusion on the Nasdaq National
Market under the symbol "WJCO," subject to official notice of issuance.
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share
. . . . . . . . . . . . . . . . . . . . . . . . . $ $ $
- -------------------------------------------------------------------------------------------------------------
Total (3)
. . . . . . . . . . . . . . . . . . . . . . . . . . $ $ $
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</TABLE>
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(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including certain liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $1,800,000.
(3) The Company has granted the several Underwriters an option, exercisable
within 30 days after the date hereof, to purchase up to 360,000 additional
shares of Common Stock solely to cover over-allotments, if any. If such
option is exercised in full, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
-----------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, subject to
approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made in New York, New York on or
about February , 1997.
-----------
MERRILL LYNCH & CO.
ALEX. BROWN & SONS
INCORPORATED
BEAR, STEARNS & CO. INC.
BT SECURITIES CORPORATION
SALOMON BROTHERS
INC
-----------
The date of this Prospectus is February , 1997.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
<PAGE>
[Sample advertisement used by the Company to promote its FreshLook cosmetic
contact lenses]
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by more detailed
information and financial statements and notes thereto included elsewhere in
this Prospectus. Unless otherwise stated, the information contained in this
Prospectus: (i) assumes no exercise of the Underwriters' over-allotment option;
(ii) reflects a 3.133-for-one stock split of the existing Common Stock and
Common Stock equivalents; and (iii) reflects the reclassification of all
classes of capital stock into shares of Common Stock. Unless otherwise stated
in this Prospectus, references to (i) the "Company" or "Wesley Jessen" shall
mean Wesley Jessen VisionCare, Inc., its consolidated subsidiaries and their
respective predecessors; (ii) the "Predecessor" shall mean the operations of
the Wesley Jessen division of Schering-Plough Corporation prior to the
acquisition thereof by Bain Capital, Inc. ("Bain Capital") and management on
June 28, 1995 (the "Wesley Jessen Acquisition"); and (iii) "Barnes-Hind" shall
mean the contact lens business of the Barnes-Hind division of Pilkington plc
prior to the acquisition thereof by the Company on October 2, 1996 (the
"Barnes-Hind Acquisition"). Statement of operations data presented herein on a
pro forma basis give effect to, among other things, the Barnes-Hind Acquisition
and the other transactions related thereto as if the Barnes-Hind Acquisition
and such other transactions had occurred on January 1, 1995. See "Unaudited Pro
Forma Financial Data."
THE COMPANY
Wesley Jessen is the leading worldwide developer, manufacturer and marketer
of specialty soft contact lenses, based on its share of the specialty lens
market. The Company's products include cosmetic lenses, which change or enhance
the wearer's eye color appearance; toric lenses, which correct vision for
people with astigmatism; and premium lenses, which offer value-added features
such as improved comfort for dry eyes and protection from ultraviolet ("UV")
light. The Company offers both conventional contact lens products, which can
typically be used for up to 24 months, and a broad range of disposable lenses,
which are intended to be replaced at least every two weeks. Founded in 1946 by
pioneers in the contact lens industry, the Company has a long-standing
reputation for innovation and new product introductions. The Company was
acquired by Bain Capital and management in June 1995, and in October 1996 the
Company strengthened its product, technology and distribution capabilities
through the acquisition of Barnes-Hind. For the twelve months ended September
28, 1996 ("LTM"), the Company's pro forma net revenues were $247.2 million and
its pro forma operating profit was $24.3 million.
The contact lens industry is large and rapidly growing. In 1995,
manufacturers' sales of contact lenses worldwide totaled $1.8 billion,
representing a compound annual growth rate of 11% from $1.1 billion in 1990.
According to industry analysts, the U.S. market for contact lenses is expected
to grow by approximately 10% per year through the year 2000. The Company
believes that market growth outside the United States will likely exceed
domestic growth because of lower contact lens penetration rates
internationally. Future growth in the contact lens market is expected to result
from (i) continued increases in the number of wearers, as more people use
contact lenses as an alternative to eyeglasses, and (ii) increased revenues per
wearer, as specialty products and disposable lenses grow in popularity. Because
the hard contact lens portion of the industry is relatively mature, the Company
expects that most future growth will occur in the soft lens portion, which is
comprised of the clear lens segment (lenses that do not provide value-added
features) and the specialty lens segment.
The Company operates primarily in the specialty segment of the soft lens
market, where it has the leading share in each of the cosmetic and premium lens
segments and the second leading share in the toric lens segment. The Company
has the leading position in the specialty segment of the soft lens market as a
whole, which accounts for one-third of industry sales volume and is projected
to grow at approximately 15% per year through the year 2000. In recent years,
in both the clear and specialty lens segments, there has been a pronounced
shift in consumers' preferences toward disposable lenses and away from
conventional lenses, which has led to a significant increase in contact lens
expenditures per wearer. The Company estimates that currently more than 35% of
U.S. soft lens wearers use disposable lenses, up from 21% in 1992. The Company
believes that its leading portfolio of disposable specialty lenses has
positioned it to benefit from the preference shift toward disposable lenses.
The Company also offers a complete line of conventional and disposable clear
lenses, which are positioned as companion products to the Company's cosmetic
lenses.
3
<PAGE>
According to an independent research firm, more than 70% of all contact lens
prescribers in the United States offer the Company's products, which permits
the Company to rapidly launch new categories of products. Wesley Jessen
develops technology, manufacturing processes and products through a combination
of its in-house staff of more than 50 engineers and scientists and Company-
sponsored research by third-party experts. The Company markets and sells its
products (i) to consumers through the second largest advertising campaign in
the industry and (ii) to eyecare practitioners through its 180-person
salesforce and network of 60 independent distributors, which together sell the
Company's products in more than 75 countries.
Wesley Jessen believes that several characteristics of the contact lens
industry, in addition to its projected growth, make it an attractive market for
the Company to serve. First, because the need for corrective eyewear is
chronic, contact lens wearers typically replace their lenses regularly over an
extended period of time. Second, contact lens wearers frequently repurchase the
same brand of lenses. The Company believes this occurs because a doctor's
prescription is required for a change in lenses (including a change in brands)
and eyecare practitioners are reluctant to change the contact lens brand of a
satisfied wearer. The combination of customers' need for repeat purchases and
their brand loyalty provides a recurring revenue stream for established lens
manufacturers such as Wesley Jessen. Third, to compete successfully in the
contact lens industry requires, among other things, (i) a significant
investment in sales and marketing in order to persuade wearers to switch to a
new product; (ii) the development and cost-efficient application of
sophisticated manufacturing processes required to produce contact lenses; (iii)
U.S. Food and Drug Administration ("FDA") product clearances; and (iv) a patent
portfolio covering materials, design and processes. As a result, no new
significant competitors have entered the soft contact lens industry in the last
ten years.
The Company believes it has achieved its leading worldwide market position in
specialty soft contact lenses because of the following competitive strengths:
. HIGH-QUALITY BRANDED PRODUCTS. Wesley Jessen produces a broad range of
high-quality contact lenses that meet customers' demand for improved
cosmetic, comfort, ease-of-care and vision-correction features, and are
sold under brand names recognized by ophthalmologists and optometrists
worldwide.
. SUCCESSFUL DEVELOPMENT AND INTRODUCTION OF NEW PRODUCTS. The Company has
a strong track record of developing new specialty contact lens products,
with the five new product lines introduced since 1994 accounting for 25%
of the Company's pro forma net sales in the LTM period.
. BROAD PATENT PORTFOLIO. Wesley Jessen believes that its intellectual
property, including more than 70 U.S. patents in product design,
materials and manufacturing processes, makes imitation of the Company's
products difficult, supports the Company's strong gross margins and
provides the Company with a competitive advantage.
. ESTABLISHED SALES AND DISTRIBUTION NETWORK. The Company believes its
salesforce and distributor network constitute the largest and most
sophisticated sales organization in the specialty contact lens segment.
The Company's salesforce has focused on developing strong relationships
with eyecare practitioners by not only serving their product needs but
also offering them opportunities to increase profitability and build
their practices through the sale of the Company's value-added products.
. STRONG INTERNATIONAL MARKET PRESENCE. On a pro forma basis, Wesley
Jessen derives more than 40% of its net sales from sales outside the
United States, and the Company's specialty contact lens products have
leading market shares in Europe, Japan and Latin America.
. LOW-COST, PROPRIETARY MANUFACTURING CAPABILITIES. The Company produces
substantially all of its contact lens products in four state-of-the-art
manufacturing facilities, which apply proprietary technology, allow the
Company to be a flexible, low-cost manufacturer of specialty lenses and
have excess capacity sufficient to meet the Company's rapidly growing
needs for several years.
. EXPERIENCED MANAGEMENT WITH A PROVEN RECORD OF IMPROVING PROFITABILITY.
The Company's senior management, who on average have more than 10 years
of experience in the contact lens industry, have increased the Company's
operating margin 44 percentage points, comparing the Predecessor's
period from January 1, 1995 through June 28, 1995 to the Company's
period from January 1, 1996 through June 29, 1996.
4
<PAGE>
GROWTH STRATEGY
The Company's principal objective is to expand its contact lens business in
the faster-growing specialty segment of the market in order to achieve
continued growth in revenues and operating profit. The Company's business
strategy is to:
. CAPITALIZE ON FAVORABLE INDUSTRY TRENDS, including continued increases
in the number of contact lens wearers and an ongoing shift among wearers
from conventional lenses to more profitable disposable lenses and from
clear lenses to specialty lenses;
. INCREASE THE COMPANY'S MARKET SHARE, using both targeted marketing to
eyecare practitioners and direct consumer advertising;
. DEVELOP AND SUCCESSFULLY LAUNCH NEW PRODUCTS, particularly category-
creating products (such as the Company's new line of disposable lenses
offering UV protection), since industry dynamics have historically
provided considerable advantages to a firm that successfully introduces
the first product in a category;
. INCREASE THE INTERNATIONAL PENETRATION OF ITS PRODUCTS, both in
countries where the Company has market leadership positions and in new
markets;
. REALIZE SYNERGIES THROUGH THE INTEGRATION OF BARNES-HIND, including
cross-selling opportunities and expected annual cost savings of at least
$15.8 million; and
. BENEFIT FROM THE COMPANY'S SIGNIFICANT OPERATING LEVERAGE, by utilizing
excess manufacturing capacity, investing in new low-cost manufacturing
technologies and achieving economies of scale in development,
manufacturing and distribution.
RISK FACTORS
The achievement of the operating results that the Company expects as a result
of the foregoing competitive strengths and growth strategy is subject to a
number of risks, including: (i) that the contact lens market is highly
competitive; (ii) that the specialty segment of the soft contact lens market is
characterized by rapid technological advancement and new product innovation;
(iii) the ability of the Company to successfully integrate the Barnes-Hind
manufacturing, sales and marketing and administrative functions into its
operations and achieve the cost savings expected to result from such
acquisition; (iv) the possibility of a prolonged disruption in the operations
of any of the Company's facilities; (v) risks associated with international
sales; (vi) the Company's dependence on the services of its senior management
team; and (vii) the Company's dependence on certain of its intellectual
property rights. For a more complete discussion of the foregoing risk factors,
see "Risk Factors."
RECENT DEVELOPMENTS
On October 2, 1996, the Company acquired the contact lens business of the
Barnes-Hind division of Pilkington plc ("Pilkington") for approximately $62.4
million (plus related acquisition and financing fees of approximately $10.7
million). At the time of the acquisition, Barnes-Hind was the third largest
manufacturer of specialty contact lenses in the world, with a leading market
position in premium and toric lenses. For the twelve months ended October 1,
1996, Barnes-Hind reported net sales of approximately $130.7 million. At the
time of the Barnes-Hind Acquisition, the Company (i) incurred approximately
$96.6 million of indebtedness under a newly established $140.0 million credit
agreement (the "Bank Credit Agreement") to finance the acquisition and repay
all of its then existing indebtedness and (ii) issued a $5.0 million
subordinated note to Pilkington as partial consideration for the purchase price
(the "Pilkington Note"). In connection with the Barnes-Hind Acquisition, the
Company entered into a voluntary consent order with the Federal Trade
Commission (the "FTC") which provides, among other things, that the Company
must divest the U.S. portion of Barnes-Hind's opaque contact lens product line
(the "U.S. Natural Touch Product Line") by January 24, 1997. The Company is
currently negotiating the terms of such disposition with a potential purchaser
and expects to execute a definitive agreement relating to such disposition by
the end of the first quarter of 1997. The U.S. Natural Touch Product Line
generated approximately $6.8 million of net sales in the LTM period. See
"Business--Required Divestiture."
5
<PAGE>
THE RECLASSIFICATION
The Company currently has two classes of issued and outstanding stock, the
Class L Common Stock (the "Class L Common") and the Common Stock, which are
identical except that each share of Class L Common is entitled to a
preferential payment upon any distribution by the Company to holders of its
capital stock. Prior to the completion of the Offering, all of the outstanding
shares of Class L Common will be reclassified into shares of Common Stock (the
"Reclassification") and a 3.133-for-one stock split will be effected as to all
of the then outstanding shares of Common Stock (the "Stock Split"). The actual
number of shares of Common Stock that will be issued as a result of the
Reclassification is subject to change based on the actual initial public
offering price and the closing date of this Offering. Unless otherwise stated,
all information set forth herein gives effect to the Reclassification and the
Stock Split. See "The Reclassification."
The Company's existing stockholders acquired shares of Common Stock at a
price significantly below the estimated initial public offering price. See
"Risk Factors--Benefits of the Offering to Existing Stockholders." See
"Underwriting" for information relating to factors to be considered in
determining the initial public offering price of the Common Stock.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Compa- 2,500,000 shares (1)
ny................................
Common Stock outstanding after the 16,661,116 shares (2)
Offering..........................
Use of proceeds.................... The net proceeds to be received by the
Company from the Offering will be used to
repay certain outstanding indebtedness
incurred in connection with the Barnes-Hind
Acquisition and for the payment of certain
fees to Bain Capital relating to an
advisory agreement.
Proposed Nasdaq National Market "WJCO"
symbol............................
</TABLE>
- --------
(1) Includes up to 100,000 shares of Common Stock concurrently being offered
directly by the Company to certain employee participants in the Company's
Profit Sharing Plan pursuant to a separate prospectus. Does not include up
to 360,000 shares of Common Stock to be sold by the Company if the
Underwriters' over-allotment option is exercised in full.
(2) Does not include 2,617,570 shares of Common Stock reserved for issuance
upon the exercise of options outstanding as of December 31, 1996 and
granted to members of management and 1,550,000 shares of Common Stock
reserved for issuance to employees or non-employee Directors under the
Company's stock incentive plans (collectively, the "Stock Plans"). See
"Management."
The Company is concurrently offering up to 100,000 shares of Common Stock
directly to certain employee participants in the Company's Profit Sharing Plan
pursuant to a separate prospectus. Since such shares are being sold directly by
the Company and not through the Underwriters, no underwriting discount or
commission will be paid to the Underwriters with respect to such shares. The
shares are being offered at a price per share equal to the per share Proceeds
to Company as set forth on the cover page of this Prospectus. Unless the
context otherwise requires, references herein to the "Offering" refer to both
the 2,400,000 shares being offered by the Underwriters and the 100,000 shares
being offered directly by the Company.
Market data used throughout this Prospectus were obtained from industry
publications and internal Company surveys. Industry publications generally
state that the information contained therein has been obtained from sources
believed to be reliable, but that the accuracy and completeness of such
information are not assured. The Company has not independently verified these
market data. Similarly, internal Company surveys, while believed by the Company
to be reliable, have not been verified by any independent sources. Aquaflex(R),
CSI Clarity(R), CSI(R), DuraSoft(R), DuraSoft 2, DuraSoft 3, DuraSoft Optifit,
Elegance, FreshLook(R), Gentle Touch, Hydrocurve, Hydrocurve II(R), Natural
Touch, Optifit, Optifit Custom, Polycon(R), Precision UV, SoftPerm(R), Wesley-
Jessen(R) and WJ(R) are trademarks of the Company and its subsidiaries.
6
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
(dollars in thousands, except per share amounts)
Set forth below are summary unaudited pro forma financial data of the Company
for the periods and dates indicated. The summary unaudited pro forma statement
of operations data for the year ended December 31, 1995 give effect to: (i) the
Wesley Jessen Acquisition (and related financing transactions); (ii) the
Barnes-Hind Acquisition (and related financing transactions); (iii) the
divestiture of Barnes-Hind's U.S. Natural Touch Product Line; (iv) the
transactions described under "The Reclassification"; (v) the refinancing of the
Bank Credit Agreement; and (vi) the Offering and the application of the net
proceeds to the Company therefrom as described under "Use of Proceeds," as if
each had occurred on January 1, 1995. The summary unaudited pro forma statement
of operations data for the period January 1, 1996 through September 28, 1996
and the twelve months ended September 28, 1996 give effect to the transactions
described in items (ii) through (vi) above, as if each had occurred on January
1, 1995. The summary pro forma balance sheet data give effect to the
transactions described in items (ii), (iv), (v) and (vi) above, as if each had
occurred on September 28, 1996. The final allocation of the purchase price of
the Barnes-Hind Acquisition and the resulting depreciation and amortization
expense in the summary unaudited pro forma income statement data may differ
somewhat from the preliminary estimates for the reasons described in more
detail in "Unaudited Pro Forma Financial Data" and in the Notes to Consolidated
Financial Statements of the Company. The summary pro forma financial data have
not been audited, do not purport to represent what the Company's results of
operations actually would have been if the foregoing transactions had actually
occurred as of such dates or what such results will be for any future periods,
and should be read in conjunction with, and are qualified by reference to,
"Unaudited Pro Forma Financial Data," "Selected Historical Consolidated
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the audited consolidated financial statements
and accompanying notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JANUARY 1 TWELVE MONTHS
YEAR ENDED THROUGH ENDED
DECEMBER 31, SEPTEMBER 28, SEPTEMBER 28,
1995 1996 1996
------------ ------------- -------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................ $230,997 $190,437 $247,211
Operating costs and expenses:
Cost of goods sold.................. 92,431 71,147 92,948
Marketing and administrative........ 119,143 90,337 118,152
Research and development............ 13,723 9,214 12,640
Amortization of intangible assets
(negative goodwill)................ (784) (588) (784)
-------- -------- --------
Income from operations.............. 6,484 20,327 24,255
Other (income) expense:
Interest expense.................... 5,467 4,100 5,467
Other income, net................... (1,360) (3,500) (3,500)
-------- -------- --------
Income before income taxes........... 2,377 19,727 22,288
Income tax expense................... (808) (6,707) (7,578)
-------- -------- --------
Net income........................... $ 1,569 $ 13,020 $ 14,710
======== ======== ========
Pro forma net income per common share
(a)................................. $ 0.08 $ 0.69 $ 0.77
======== ======== ========
Pro forma weighted average number of
common shares
outstanding (in thousands) (a)...... 19,000 19,000 19,000
======== ======== ========
<CAPTION>
SEPTEMBER 28,
1996
-------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................................................. $ 75,409
Total assets..................................................... 180,971
Total debt....................................................... 68,555
Stockholders' equity............................................. 23,432
<CAPTION>
JANUARY 1 TWELVE MONTHS
YEAR ENDED THROUGH ENDED
DECEMBER 31, SEPTEMBER 28, SEPTEMBER 28,
1995 1996 1996
------------ ------------- -------------
<S> <C> <C> <C>
OTHER DATA:
EBITDA (b)(c)........................ $ 7,186 $ 21,085 $ 25,189
Depreciation and amortization, net of
negative goodwill................... 702 758 934
</TABLE>
7
<PAGE>
- --------
(a) Pro forma net income per share and pro forma weighted average number of
common shares outstanding include all outstanding common stock equivalents
and have been adjusted to give effect to the Reclassification and Stock
Split.
(b) "EBITDA" is defined herein as income from operations plus depreciation and
amortization expense, non-recurring charges and other non-cash expense
items. The Company understands that while EBITDA is frequently used by
security analysts in the evaluation of companies, it is not necessarily
comparable to other similarly titled captions of other companies due to
potential inconsistencies in the method of calculation. EBITDA is not
intended as an alternative to cash flow from operating activities as a
measure of liquidity, an alternative to net income as an indicator of the
Company's operating performance or any other measure of performance in
accordance with generally accepted accounting principles.
(c) Because of the subjectivity inherent in the assumptions concerning the
timing and nature of the uses of cash generated by the pro forma interest
and other cost savings adjustments, cash flows from operating, investing
and financing activities are not presented for the pro forma periods.
8
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
(dollars in thousands)
Set forth below are summary historical consolidated financial data of the
Company and the Predecessor for the periods and dates indicated. The summary
historical consolidated financial data for the periods ended December 31, 1993
and 1994 and the period from January 1, 1995 through June 28, 1995 of the
Predecessor were derived from the audited financial statements of the
Predecessor. The summary historical consolidated financial data as of December
31, 1995 and September 28, 1996 and for the periods from June 29, 1995 through
December 31, 1995 and from January 1, 1996 through September 28, 1996 of the
Company were derived from the audited financial statements of the Company.
Results for interim periods are not necessarily indicative of results for the
full year. Such interim results include all material adjustments, consisting
only of normal recurring adjustments, which management considers necessary for
fair presentation of results for such periods and should be read in conjunction
with, and are qualified by reference to, "Selected Historical Consolidated
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Supplemental Unaudited Pro Forma Financial Data"
and the audited consolidated financial statements and accompanying notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA FOR
WESLEY JESSEN
THE PREDECESSOR THE COMPANY ACQUISITION (a) THE COMPANY
----------------------------- ------------ -------------------------- -------------
YEAR ENDED JANUARY 1 JUNE 29 JANUARY 1 JANUARY 1
DECEMBER 31, THROUGH THROUGH YEAR ENDED THROUGH THROUGH
------------------ JUNE 28, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 28,
1993 1994 1995 1995 1995 1995 1996
-------- -------- --------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $103,386 $109,640 $ 51,019 $ 54,315 $105,334 $78,077 $96,048
Operating costs and ex-
penses:
Cost of goods sold..... 56,780 65,591 20,871 19,916 38,442 28,202 26,471
Cost of goods sold--
inventory step-up..... -- -- -- 33,929 -- -- 6,626
Marketing and adminis-
trative............... 59,764 79,185 43,236 29,476 69,162 53,042 51,014
Research and
development........... 10,286 9,843 4,569 2,524 4,677 3,471 3,786
Amortization of
intangible assets
(negative goodwill)... 5,472 5,472 2,736 (392) (784) (588) (588)
-------- -------- -------- -------- -------- ------- -------
Income (loss) from
operations.......... (28,916) (50,451) (20,393) (31,138) (6,163) (6,050) 8,739
Other (income) expenses:
Interest expense....... -- -- -- 2,599 4,889 3,742 2,757
Financing charge....... 6,886 7,172 3,511 -- -- -- --
Other income, net...... (256) (202) (1,360) -- (1,360) (1,360) (3,500)
-------- -------- -------- -------- -------- ------- -------
Income (loss) before in-
come taxes............. (35,546) (57,421) (22,544) (33,737) (9,692) (8,432) 9,482
Income tax (expense)
benefit................ 17,214 26,935 9,401 14,022 4,032 3,508 (1,621)
-------- -------- -------- -------- -------- ------- -------
Net income (loss) (b) .. $(18,332) $(30,486) $(13,143) $(19,715) $ (5,660) $(4,924) $ 7,861
======== ======== ======== ======== ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 28,
1995 1996
------------ -------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital ............. $30,262 $21,732
Total assets................. 67,330 63,243
Total debt................... 42,000 28,500
Stockholders' deficit........ (12,190) (4,057)
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA FOR
WESLEY JESSEN
THE PREDECESSOR THE COMPANY ACQUISITION (a) THE COMPANY
----------------------------- ------------ ---------------------------- -------------
YEAR ENDED JANUARY 1 JUNE 29 JANUARY 1 JANUARY 1
DECEMBER 31, THROUGH THROUGH YEAR ENDED THROUGH THROUGH
------------------ JUNE 28, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 28,
1993 1994 1995 1995 1995 1995 1996
-------- -------- --------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Net cash provided by
(used in) operating
activities............. $ 12,301 $ (6,664) $ (9,835) $ 4,035 $ -- (c) $ -- (c) $ 22,351
Net cash provided by
(used in) investing
activities............. (25,122) (2,271) (1,657) (47,926) -- (c) -- (c) (3,809)
Net cash provided by
(used in) financing
activities............. 13,994 7,652 11,272 46,033 -- (c) -- (c) (13,228)
EBITDA (d).............. (17,408) (37,391) (13,786) 2,399 14,936
Depreciation and
amortization, net of
negative goodwill...... 11,508 13,060 6,607 (392) (784) (588) (429)
Capital expenditures.... 25,297 3,187 1,959 893 2,852 2,148 3,657
</TABLE>
9
<PAGE>
- --------
(a) The pro forma combined operating results for the year ended December 31,
1995 and the nine months ended September 30, 1995 combine the operations of
the Predecessor from January 1, 1995 through June 28, 1995 and the Company
from June 29, 1995 through the end of the respective periods and have been
adjusted to reflect the period as if the Wesley Jessen Acquisition and
related financing transactions had occurred on January 1, 1995. Because of
the purchase accounting adjustments made to the Predecessor's financial
statements, the financial statements of the Predecessor for the periods
prior to June 29, 1995 are not comparable to those of subsequent periods.
The combined pro forma data are intended to assist in making comparisons
for periods prior to the Barnes-Hind Acquisition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Supplemental Unaudited Pro Forma Financial Data" and the Notes to
Consolidated Financial Statements of the Company included herein.
(b) No historical earnings per share data are presented as the Company does not
consider such data to be meaningful. See "Unaudited Pro Forma Financial
Data" and "The Reclassification."
(c) Because of the subjectivity inherent in the assumptions concerning the
timing and nature of the uses of cash generated by the pro forma interest
and other cost savings adjustments, cash flows from operating, investing
and financing activities are not presented for the pro forma periods.
(d) "EBITDA" is defined herein as income from operations plus depreciation and
amortization expense, non-recurring charges and other non-cash expense
items. The Company understands that while EBITDA is frequently used by
security analysts in the evaluation of companies, it is not necessarily
comparable to other similarly titled captions of other companies due to
potential inconsistencies in the method of calculation. EBITDA is not
intended as an alternative to cash flow from operating activities as a
measure of liquidity, an alternative to net income as an indicator of the
Company's operating performance or any other measure of performance in
accordance with generally accepted accounting principles. A reconciliation
of net income (loss) to EBITDA for each period included herein is set forth
below:
<TABLE>
<CAPTION>
THE PREDECESSOR THE COMPANY
----------------------------- --------------------------
YEAR ENDED JANUARY 1 JUNE 29 JANUARY 1
DECEMBER 31, THROUGH THROUGH THROUGH
------------------ JUNE 28, DECEMBER 31, SEPTEMBER 28,
1993 1994 1995 1995 1996
-------- -------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Net income (loss)............................................. $(18,332) $(30,486) $(13,143) $(19,715) $ 7,861
Income tax expense (benefit).................................. (17,214) (26,935) (9,401) (14,022) 1,621
Interest expense.............................................. -- -- -- 2,599 2,757
Financing charge (1).......................................... 6,886 7,172 3,511 -- --
Other income, net (2)......................................... (256) (202) (1,360) -- (3,500)
Depreciation and amortization................................. 11,508 13,060 6,607 (392) (429)
Inventory step-up (3)......................................... -- -- -- 33,929 6,626
-------- -------- -------- -------- -------
EBITDA........................................................ $(17,408) $(37,391) $(13,786) $ 2,399 $14,936
======== ======== ======== ======== =======
</TABLE>
--------
(1) Represents financing charges from Schering-Plough in lieu of
interest expense related to Schering-Plough's investment in the
Predecessor.
(2) Represents income derived from non-operating sources (e.g., gains on
fixed asset disposals and interest income) and certain one-time
gains related to licensing fees excluded from EBITDA as they do not
relate to the ongoing operations of the Company.
(3) Represents the amortization of the inventory revaluation recorded in
conjunction with the Wesley Jessen Acquisition excluded from EBITDA
as it represents a non-cash charge to operations.
<TABLE>
<S> <C>
</TABLE>
10
<PAGE>
RISK FACTORS
Prospective investors should consider, in addition to the other information
set forth elsewhere in this Prospectus, the following matters in evaluating
the Company and the Common Stock offered hereby.
COMPETITION AND INDUSTRY DYNAMICS
The contact lens market is highly competitive. The Company faces competition
from other companies within each segment of the contact lens market in which
it operates. In the specialty segment of the market, the Company principally
competes with divisions of large medical and pharmaceutical companies as well
as with smaller companies. To the extent the Company operates in the clear
lens segment, it faces competition primarily from Vistakon (a division of
Johnson & Johnson) and other large contact lens manufacturers. Certain of the
Company's competitors in each segment have lower costs of operations, products
with enhanced features, substantially greater resources to invest in product
development and customer support, greater vertical integration and greater
access to financial and other resources than the Company. To a lesser extent,
the Company also competes with manufacturers of eyeglasses and other forms of
vision correction. There can be no assurance that the Company will not
encounter increased competition in the future, particularly from large
manufacturers of clear lenses seeking to enter the specialty lens segment,
which could have a material adverse effect on the Company's financial
condition or results of operations. See "Business--Competition."
The contact lens industry has experienced significant growth in recent
years. There can be no assurance that such growth will continue in the future
or that a general economic slowdown or recession will not have a material
adverse effect on the Company's results of operations. In addition, the
Company believes that it currently benefits from significant advertising
expenditures by certain of its competitors, which serve to raise consumer
awareness of the benefits of disposable contact lenses. There can be no
assurance that the Company's operations would not be adversely effected in the
event such advertising campaigns were discontinued or substantially reduced.
IMPORTANCE OF NEW PRODUCT INTRODUCTIONS; RISK OF PRODUCT OBSOLESCENCE
The specialty segment of the soft contact lens market is characterized by
rapid technological advancements and new product innovations. The Company
believes that the manufacturer who is the first to introduce a new product in
a particular category is likely to maintain the leading market share in such
category. Although the Company has in the past been successful in attaining an
early market share lead in new product categories, there can be no assurance
that it will be successful in doing so in the future. In addition, the expense
involved in developing new products, as well as the cost of obtaining
regulatory approval to market such products, can be substantial. There can be
no assurance that such new products will be successful in the marketplace and,
as a result, justify the expenses involved in their development and approval.
In addition, there can be no assurance that the Company's competitors will not
develop new products or technology which will lead to the obsolescence of the
Company's products, which could have a material adverse effect on the
Company's business, financial condition or results of operations.
RISKS IN THE INTEGRATION OF BARNES-HIND
On October 2, 1996, the Company completed the Barnes-Hind Acquisition. The
Barnes-Hind Acquisition approximately doubled the size of the Company as
measured by net sales. The future success of the Barnes-Hind Acquisition and
its effect on the financial and operating results of the Company will depend
in large part on the ability of the Company to integrate the Barnes-Hind
manufacturing, sales and marketing and administrative functions into its
operations and achieve the cost savings expected to result from the measures
adopted by the Company at the time of such acquisition. The ability of the
Company to accomplish its objectives in connection with the Barnes-Hind
Acquisition is, as in any acquisition, subject to certain risks including,
among others, the possible inability to retain certain Barnes-Hind personnel,
the potentially negative effects of diverting management resources and the
possible failure to retain former customers of Barnes-Hind.
11
<PAGE>
RISKS ASSOCIATED WITH MANUFACTURING OPERATIONS
The Company produces substantially all of its contact lens products in four
state-of-the-art manufacturing facilities. Each facility is dedicated to
producing a particular type of contact lens. As a result, any prolonged
disruption in the operations of any one of the Company's facilities, whether
due to technical or labor difficulties, destruction of or damage to any
facility or other reasons, could have a material adverse effect on the
Company's financial condition or results of operations. See "Business--
Manufacturing."
The Company utilizes a number of advanced polymers and other sophisticated
materials in the production of its contact lenses. Due to the highly technical
and specialized nature of certain of its production materials, the Company
relies from time to time on a single supplier to provide it with sufficient
quantities of certain materials used in the production of one or more of its
product lines. To minimize its reliance on a particular vendor, the Company
continually seeks to identify multiple vendors qualified to supply its
production materials and currently has only two materials that are significant
to its operations that are available from a single source. Although the
Company believes that it is not dependent on any single supplier, the
inability of the Company to obtain sufficient quantities of certain production
inputs could have a material adverse effect on the Company's financial
condition or results of operations.
RISKS ASSOCIATED WITH INTERNATIONAL SALES
The Company derived more than 40% of its net sales from the sale of products
outside the United States in the twelve months ended September 28, 1996 on a
pro forma basis. The Company expects that sales to international customers
will continue to represent a significant portion of its net sales. Risks
inherent in the Company's international business activities generally include
difficulties and unexpected changes in the regulatory environment, currency
fluctuation risk, longer accounts receivable payment cycles and greater
difficulty in collecting accounts receivable, costs and risks associated with
localizing products for foreign countries, the burdens of complying with
foreign laws, tariffs and other trade barriers, trade embargoes and political
instability. There can be no assurance that these factors or other factors
relating to the Company's international business operations will not have a
material adverse effect on the Company's financial condition or results of
operations.
DEPENDENCE ON KEY EXECUTIVES
The Company is dependent to a large degree on the services of its senior
management team, including Kevin J. Ryan, President and Chief Executive
Officer. While Mr. Ryan has entered into an employment agreement with the
Company, there can be no assurance that he or other members of the senior
management team will remain with the Company. The loss of any of these
individuals could have a material adverse effect on the Company. Upon
completion of the Offering, the Company's senior management team will
collectively own 469,885 shares of Common Stock and hold options to purchase
an additional 2,617,570 shares of Common Stock, representing on a fully-
diluted basis approximately 16.0% of the outstanding Common Stock. Each
employee's options expire upon or shortly following the termination of such
person's employment with the Company for any reason. See "Management--
Employment Agreements" and "Management--Stock Options."
HISTORICAL NET LOSSES; EXPECTED NON-RECURRING CHARGES
Prior to the Wesley Jessen Acquisition, the Predecessor experienced
significant net losses in each fiscal period since 1993. Such losses were
$18.3 million, $30.5 million and $13.1 million in the years ended December 31,
1993 and 1994 and the period from January 1, 1995 through June 28, 1995,
respectively. The Company recorded a net loss of $19.7 million in the period
from June 29, 1995 through December 31, 1995 and Barnes-Hind experienced net
losses equal to approximately $13.6 million and $11.1 million in the fiscal
years ended March 31, 1995 and 1996, respectively. Although the Company
generated net income of approximately $7.9 million in the period from January
1 through September 28, 1996, there can be no assurance that the Company will
continue to generate profits. Various factors, including delays in new product
development and introductions, new product introductions by competitors, price
competition, delays in regulatory approvals or unexpected delays in achieving
the integration of Barnes-Hind, could have a material adverse effect on the
Company's financial condition or results of operations.
12
<PAGE>
As a result of the Barnes-Hind Acquisition, the Company incurred significant
non-recurring charges in the fourth quarter of fiscal 1996 and expects to
incur additional non-recurring charges in the first and second quarters of
fiscal 1997, including: (i) approximately $3.5 million of restructuring
expenses expected to be incurred by the Company following the Barnes-Hind
Acquisition; (ii) a significant, non-cash increase in cost of goods sold of
approximately $36.7 million (based on Barnes-Hind's inventory at October 1,
1996); and (iii) extraordinary debt extinguishment costs consisting of $2.8
million related to writing off historical capitalized financing fees in
connection with the refinancing of the Company's then existing credit
agreement. In connection with the Offering, the Company expects to incur the
following non-recurring charges in the first quarter of 1997: (i) an expense
of approximately $10.0 million representing the fee payable to Bain Capital in
connection with the termination of the Advisory Agreement (as defined herein)
and (ii) extraordinary debt extinguishment costs consisting of $7.8 million
related to writing off capitalized financing fees in connection with the
refinancing of the Bank Credit Agreement upon the completion of the Offering.
As a result of these charges, the Company expects to report net losses in both
the fourth quarter of 1996 and the first quarter of 1997.
RISKS ASSOCIATED WITH INDEBTEDNESS
Following the Offering, the Company will have approximately $65.0 million of
long-term indebtedness. Subject to the restrictions in the Bank Credit
Agreement, the Company may incur additional indebtedness from time to time to
finance acquisitions or capital expenditures or for other purposes. The level
of the Company's indebtedness could have important consequences, including:
(i) a substantial portion of the Company's cash flow from operations must be
dedicated to debt service and will not be available for other purposes; (ii)
the Company's ability to obtain additional debt financing in the future for
working capital, capital expenditures or acquisitions may be limited; and
(iii) the Company's level of indebtedness could limit its flexibility in
reacting to changes in the industry and economic conditions generally. Certain
of the Company's competitors currently have greater operating and financing
flexibility than the Company. The Company believes that, based upon current
levels of operations, it should be able to meet its debt service obligations
when due. The Company's ability to service such indebtedness, however, will be
dependent on its future performance, which will be affected by prevailing
economic conditions and financial, business and other factors, certain of
which are beyond the Company's control. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
The Bank Credit Agreement imposes certain operating and financial
restrictions on the Company. Contemporaneously with the Offering, the Company
intends to refinance its existing indebtedness under the Bank Credit Agreement
with a new credit agreement (the "New Bank Credit Agreement"). The Company
anticipates that the New Bank Credit Agreement will impose operating and
financial restrictions on the Company similar to those contained in the Bank
Credit Agreement. See "Description of Certain Indebtedness."
RISKS ASSOCIATED WITH FUTURE ACQUISITIONS
The Company expects to continue to seek acquisitions, joint ventures or
other strategic arrangements that would enable it to expand its existing
product line, broaden its geographic coverage or allow it to offer
complementary product lines. There can be no assurance that the Company will
continue to acquire businesses or establish such arrangements on satisfactory
terms or that any business acquired by the Company will be integrated
successfully into the Company's operations or be able to operate profitably.
Future acquisitions or other strategic arrangements could require additional
financing, which could result in an increase in the Company's indebtedness.
GOVERNMENT REGULATION
The Company's manufacturing facilities and products are subject to stringent
regulation by the FDA and by various governmental agencies for the states and
localities in which the Company's products are manufactured and/or sold, as
well as by governmental agencies in certain foreign countries in which the
Company's products are manufactured and/or sold. Pursuant to the Federal Food,
Drug, and Cosmetic Act (the "FDC Act"), and the regulations promulgated
thereunder, the FDA regulates the preclinical and clinical testing,
manufacture, labeling,
13
<PAGE>
distribution and promotion of medical devices such as contact lenses.
Noncompliance with applicable requirements can result in, among other things,
fines, injunctions, civil penalties, recall or seizure of products, total or
partial suspension of production, failure of the government to grant premarket
clearance or premarket approval for devices, withdrawal of marketing
clearances or approvals and criminal prosecution. The FDA also has the
authority to request the recall, repair, replacement or refund of the cost of
any device manufactured or distributed by the Company. In addition, as the
Company continues to expand internationally, it will be subject to regulation
in most of the foreign countries in which it sells its products; such
regulations may or may not be similar to those of the FDA. Compliance with
U.S. and foreign governmental regulations, which are subject to change, can
delay new product introduction and may have a material adverse effect on the
Company's financial condition or results of operations.
Under the FDC Act, products developed by the Company, and significant
changes or modifications to existing products, generally require FDA clearance
("510(k) clearance") pursuant to the Section 510(k) notification process
("510(k) notice") or approval of a premarket approval application ("PMA"). The
Company manufactures and markets contact lenses which have received 510(k)
clearances as well as lenses which have been the subject of approved PMA
applications.
The Company has made modifications to its products which the Company
believes do not require the submission of new 510(k) notices or PMA
supplements. There can be no assurance, however, that the FDA would agree with
any of the Company's determinations not to submit a new 510(k) notice or PMA
supplement for any of these changes or would not require the Company to submit
a new 510(k) notice or PMA supplement for any of the changes made to the
device. If the FDA requires the Company to submit a new 510(k) notice or PMA
supplement for any device modification, the Company may be prohibited from
marketing the modified device until the 510(k) notice or PMA supplement is
cleared or approved by the FDA.
The process of obtaining FDA approvals is lengthy, expensive and uncertain.
Moreover, approvals, if granted, may limit the uses for which a product may be
marketed. No assurance can be given that future changes in the FDC Act or the
FDA's regulations will not have a material adverse effect on any FDA clearance
or approval previously received with respect to the Company's products.
In addition, there can be no assurance that the selling and prescribing
practices for contact lenses will not change at some point in the future,
which changes could have a material adverse effect on the Company's business,
results of operations or financial condition. The Company is aware of a
pending lawsuit against other manufacturers of contact lenses challenging
certain of their selling and distribution practices.
The Company's products are also subject to regulation in other countries in
which it sells its products. The laws and regulations of such countries range
from comprehensive medical device approval procedures such as those described
above to simple requests for product data or certifications. The number and
scope of these laws and regulations are increasing. Specifically, the
Company's products are subject to the "CE marking" approval process in the
European Union ("EU"). Additional approvals from foreign regulatory
authorities may be required for international sale of the Company's products
in non-EU countries. Failure to comply with applicable regulatory requirements
can result in the loss of previously received approvals and other sanctions
and could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Government Regulation."
DEPENDENCE ON CERTAIN INTELLECTUAL PROPERTY RIGHTS
The Company considers certain of its intellectual property rights, including
patents, trademarks and licensing agreements, to be an integral component of
its business. The Company's policy is to file patent applications to protect
technology, inventions and improvements that are considered important to the
development of its business. There can be no assurance that patent
applications filed by the Company will result in the issuance of patents or
that any of the Company's intellectual property will continue to provide
competitive advantages for the Company's products or will not be challenged,
circumvented by others or invalidated. The Company's policy is to aggressively
prosecute and defend its patents and other proprietary technology. The
prosecution and defense of intellectual property protection, like any lawsuit,
is inherently uncertain and carries no guarantee of success. The protection of
intellectual property in certain foreign countries is particularly uncertain.
See "Business--Patents and Trademarks."
14
<PAGE>
PRODUCT LIABILITY EXPOSURE
The Company faces an inherent risk of exposure to product liability claims
in the event that the use of its products results in personal injury. Although
the Company has not experienced any material losses due to product liability
claims, there can be no assurance that it will not experience such losses in
the future. Also, in the event that any of the Company's products prove to be
defective, the Company may be required to recall or redesign such products.
The Company maintains insurance against product liability claims, but there
can be no assurance that such coverage will be adequate to cover any
liabilities that the Company may incur or that such insurance will continue to
be available on terms acceptable to the Company. A successful claim brought
against the Company in excess of available insurance coverage, or any claim or
product recall that results in significant adverse publicity against the
Company, may have a material adverse effect on the Company's financial
condition or results of operations. See "Business--Legal Proceedings."
CONTROLLING STOCKHOLDERS; POTENTIAL CONFLICTS OF INTEREST
Upon completion of the Offering (and giving effect to currently exercisable
options), investment funds controlled by Bain Capital (the "Bain Capital
Funds") will beneficially own approximately 77.3% of the outstanding Common
Stock (75.6% if the Underwriters' over-allotment option is exercised in full).
By virtue of such stock ownership, Bain Capital will be able to control the
election of the members of the Company's Board of Directors and to generally
exercise control over the affairs of the Company. Such concentration of
ownership could also have the effect of delaying, deterring or preventing a
change in control of the Company that might otherwise be beneficial to
stockholders. In addition, four representatives of Bain Capital currently
serve on the Company's Board of Directors. There can be no assurance that
conflicts of interest will not arise with respect to such Directors or that
such conflicts will be resolved in a manner favorable to the Company. See
"Principal Stockholders."
BENEFITS OF THE OFFERING TO EXISTING STOCKHOLDERS
In connection with the Wesley Jessen Acquisition, the Company's then-
existing stockholders acquired shares of Common Stock at an average price of
$0.55 per share (after giving effect to the Reclassification and the Stock
Split) as compared to the initial public offering price of $20.00 per share
(the mid-point of the range set forth on the cover page to this Prospectus).
See "Underwriting" for information relating to the factors to be considered in
determining the initial public offering price of the Common Stock. The table
below sets forth certain information concerning unrealized benefits inuring to
certain of the Company's stockholders as a result of this Offering:
<TABLE>
<CAPTION>
AGGREGATE VALUE OF
SHARES OWNED PRIOR SHARES OWNED AFTER
NAME TO THE OFFERING (a) AGGREGATE COST THE OFFERING (b)
- ---- ------------------ -------------- ------------------
<S> <C> <C> <C>
Bain Capital Funds........ 12,870,590 $5,638,159 $257,411,720
BT Investment Partners,
Inc.(c).................. 691,068 4,999,998 13,821,360
Named Executives (5
persons)(d).............. 2,118,394 3,350,947 42,367,889
</TABLE>
- --------
(a) After giving effect to the Reclassification and Stock Split. Assumes the
exercise of all outstanding options held by the Named Executives (as
defined below).
(b) Based on an initial public offering price of $20.00 (the mid-point of the
range set forth on the cover page of this Prospectus).
(c) BT Investment Partners, Inc. purchased its shares of Common Stock in
October 1996 from the existing stockholders of the Company.
(d) The Named Executives include Messrs. Ryan, Kelley, Chapoy, Roussel and
Steiner. See "Certain Transactions--Unrealized Benefits of the Offering to
Named Executives."
Immediately prior to the consummation of the Offering, the Company and Bain
Capital will terminate the Advisory Agreement (as defined herein) and Bain
Capital will receive a final payment thereunder of approximately $10.0 million
in consideration of services rendered to such date and such termination. See
"Certain Transactions--Advisory Agreement."
15
<PAGE>
CERTAIN ANTI-TAKEOVER EFFECTS
Certain provisions of the Company's Restated Certificate of Incorporation
(the "Restated Certificate") and Amended and Restated By-laws (the "By-laws")
may inhibit changes in control of the Company not approved by the Company's
Board of Directors. These provisions include: (i) a classified Board of
Directors; (ii) a prohibition on stockholder action through written consents;
(iii) a requirement that special meetings of stockholders be called only by
the Board of Directors; (iv) advance notice requirements for stockholder
proposals and nominations; (v) limitations on the ability of stockholders to
amend, alter or repeal the By-laws; and (vi) the authority of the Board to
issue without stockholder approval preferred stock with such terms as the
Board may determine. The Company will also be afforded the protections of
Section 203 of the Delaware General Corporation Law, which could have similar
effects. See "Description of Capital Stock."
ABSENCE OF PRIOR PUBLIC MARKET; SUBSTANTIAL DILUTION
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price of the Common Stock will be determined by
negotiations among the Company and the Representatives (as defined herein) and
may not be indicative of the market price for shares of the Common Stock after
the Offering. For a description of factors considered in determining the
initial public offering price, see "Underwriting." There can be no assurance
that an active trading market for the Common Stock will develop or if
developed, that such market will be sustained. The market price for shares of
the Common Stock may be significantly affected by such factors as quarter-to-
quarter variations in the Company's results of operations, news announcements
or changes in general market conditions. In addition, general market, economic
and political conditions may adversely affect the market price of the Common
Stock, regardless of the Company's actual performance. Because the initial
public offering price is substantially higher than the book value per share of
Common Stock, purchasers of the Common Stock in the Offering will be subject
to immediate and substantial dilution. See "Dilution."
RISKS ASSOCIATED WITH DIVIDEND POLICY
Since the Wesley Jessen Acquisition in 1995, the Company has not declared or
paid any cash or other dividends on its Common Stock and does not expect to
pay dividends for the foreseeable future. Instead, the Company currently
intends to retain earnings to support its growth strategy and reduce
indebtedness. As a holding company, the ability of the Company to pay
dividends in the future is dependent upon the receipt of dividends or other
payments from its principal operating subsidiary. The payment of dividends or
other distributions by such operating subsidiary to the Company for purposes
of paying dividends to holders of Common Stock is prohibited by the Bank
Credit Agreement and a similar restriction is expected to be contained in the
New Bank Credit Agreement. Any future determination to pay dividends will be
at the discretion of the Company's Board of Directors and will depend upon,
among other factors, the Company's results of operations, financial condition,
capital requirements and contractual restrictions. See " Dividend Policy" and
"Description of Certain Indebtedness."
POTENTIAL ADVERSE IMPACT FROM SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company expects to have 16,661,116
shares of Common Stock outstanding. Of these shares, the 2,500,000 shares of
Common Stock (2,860,000 shares if the Underwriters' over-allotment option is
exercised in full) sold in the Offering will be freely tradeable without
restriction under the Securities Act of 1933, as amended (the "Securities
Act"), except any such shares which may be acquired by an "affiliate" of the
Company. Subject to certain 180-day "lock-up" agreements described herein,
approximately 469,885 and 13,000,162 shares of Common Stock will be eligible
for sale in the public market, subject to compliance with the resale volume
limitations and other restrictions of Rule 144 under the Securities Act,
beginning 90 days after the date of this Prospectus and on June 28, 1997,
respectively. Beginning 180 days after the completion of the Offering, the
holders of an aggregate of approximately 13,691,230 shares of Common Stock
will have certain rights to register their shares of Common Stock under the
Securities Act at the Company's expense. Future sales of the shares of Common
Stock held by existing stockholders could have a material adverse effect on
the price of the Common Stock. See "Shares Eligible for Future Sale."
16
<PAGE>
THE COMPANY
Wesley Jessen is the leading worldwide developer, manufacturer and marketer
of specialty soft contact lenses, based on its share of the specialty lens
market. The Company operates primarily in the specialty segment of the soft
lens market, where it has the leading share in each of the cosmetic and
premium lens segments and the second leading share in the toric lens segment.
The Company's principal objective is to expand its contact lens business in
the faster-growing specialty segment of the market in order to achieve growth
in revenues and operating profit.
The Company was founded in 1946 by contact lens pioneers Drs. Newton K.
Wesley and George Jessen, after the two doctors discovered that hard contact
lenses could be used to prevent a rare sight-threatening eye disease suffered
by Dr. Wesley. Originally known as The Plastic Contact Lens Company, the
Company went on to pioneer the design, manufacturing and fitting techniques of
hard contact lenses. Throughout its history, the Company has remained a market
leader in research and development, accounting for numerous technological
breakthroughs in contact lenses. In 1978, the Company received FDA approval of
its hydrogel lens, a durable and highly oxygen-permeable soft plastic lens
made from a unique polymer. In 1986, the Company pioneered the development of
the conventional opaque color lens (which change the color of dark eyes), and
in 1989, the Company introduced its toric lenses, which correct vision for
people with astigmatism (the condition of an irregularly shaped cornea). The
Company's most significant product introductions to the soft contact lens
market in the last three years have been its Precision UV lenses, which
provide eyes with protection from ultraviolet light, and its FreshLook
disposable opaque and eyecolor-enhancing lenses.
From 1980 to 1995, Wesley Jessen operated as a wholly owned subsidiary of
Schering-Plough Corporation ("Schering-Plough"). On June 28, 1995, Bain
Capital together with new and certain then-existing members of management (the
"Management Investors") acquired the Predecessor in the Wesley Jessen
Acquisition. The following table sets forth the sources and uses of funds in
the Wesley Jessen Acquisition (dollars in millions):
<TABLE>
<S> <C>
SOURCES:
Borrowings under a bank credit
agreement ..................... $43.0
Equity contributions............ 7.5
-----
Total....................... $50.5
=====
</TABLE>
<TABLE>
<S> <C>
USES:
Acquisition consideration. $47.0
Fees and expenses......... 3.5
-----
Total................. $50.5
=====
</TABLE>
After the Wesley Jessen Acquisition, the Company's new management team
pursued an aggressive strategy of cost savings and revenue enhancement to
improve the Company's results of operations. During this period, management:
(i) redefined the Company's disposable lens marketing strategy by repricing
and repackaging the Company's products to be more competitive with industry
standards; (ii) launched a national consumer advertising campaign featuring
Christy Turlington; (iii) expanded its product offerings in its FreshLook line
of disposable colored contact lenses; (iv) heightened its sales and marketing
focus on serving the needs of eyecare practitioners; and (v) achieved
substantial cost savings through personnel reductions, decreased overall
marketing and advertising expenses, consolidation of facilities and increased
operating efficiencies. As a result of management's efforts, the Company's
income from operations increased from a loss of $20.4 million in the period
from January 1, 1995 through June 28, 1995 to income of $8.7 million in the
period from January 1, 1996 through September 28, 1996.
On October 2, 1996, the Company acquired substantially all the assets and
assumed certain liabilities of Barnes-Hind from Pilkington. Founded in 1939,
Barnes-Hind is widely recognized in the contact lens industry as a leader in
product and material innovation and design. Barnes-Hind was acquired by
Pilkington in 1987 and combined with its existing contact lens operations. At
the time of the Barnes-Hind Acquisition, Barnes-Hind was
17
<PAGE>
the third largest manufacturer of specialty contact lenses in the world, with
a leading market position in premium and toric lenses. The following table
sets forth the sources and uses of funds in the Barnes-Hind Acquisition
(dollars in millions):
<TABLE>
<S> <C>
SOURCES:
Borrowings under Credit
Agreement................... $ 96.6
Issuance of Pilkington Note.. 5.0
------
Total.................... $101.6
======
</TABLE>
<TABLE>
<S> <C>
USES:
Repayment of existing bank credit
agreement........................ $ 28.5
Acquisition consideration......... 62.4
Fees and expenses................. 10.7
------
Total......................... $101.6
======
</TABLE>
Upon completion of the Offering, the Company's senior management team will
collectively own 469,885 shares of Common Stock and hold options to purchase
an additional 2,617,570 shares of Common Stock, representing on a fully-
diluted basis approximately 16.0% of the outstanding Common Stock (15.7% if
the Underwriters' over-allotment option is exercised in full). The Bain
Capital Funds will collectively own 12,870,590 shares of Common Stock,
representing on a fully-diluted basis approximately 66.7% of the outstanding
Common Stock (65.5% if the Underwriters' over-allotment option is exercised in
full).
The Company's principal executive offices are located at 333 East Howard
Avenue, Des Plaines, Illinois 60018-5903 and its telephone number is (847)
294-3000.
18
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering (after deducting
applicable underwriting discounts and estimated expenses payable by the
Company) are estimated to be approximately $45.2 million ($52.0 million if the
Underwriters' over-allotment option is exercised in full, assuming in each
case an initial public offering price of $20.00 per share). The Company
expects to use (i) approximately $30.0 million of the net proceeds to reduce
the Company's indebtedness under the Bank Credit Agreement; (ii) approximately
$5.2 million to repay the Pilkington Note in full (including accrued
interest); and (iii) approximately $10.0 million as a final payment to Bain
Capital under the Advisory Agreement in consideration of services rendered
under, and the termination of, such agreement.
The indebtedness to be repaid under the Bank Credit Agreement consists of
multi-tranche term loans with a current aggregate principal balance of $95.0
million (the "Term Loans"), with principal payments scheduled in varying
amounts from 1996 through 2004. Such Term Loans bear interest at varying rates
based, at the Company's option, on either the Eurodollar rate (as defined in
the Bank Credit Agreement) plus 275 to 325 basis points or the bank base rate
(as defined in the Bank Credit Agreement) plus 175 to 225 basis points. The
overall effective interest rate for the Term Loans at October 2, 1996 was
8.48%. See "Description of Certain Indebtedness--Bank Credit Agreement."
The Pilkington Note bears interest at 8.0% per annum, payable in kind, and
matures on February 1, 2005 or on any date that Bain Capital and its
affiliates (i) cease to beneficially own at least 25% of the Company's voting
stock or (ii) receive any proceeds from the sale of any of their shares of
Common Stock in a public offering. The Pilkington Note was issued by the
Company on October 2, 1996 in connection with the Barnes-Hind Acquisition. The
Company is not required to repay the Pilkington Note with the proceeds of the
Offering. Accordingly, the Company may elect to repay additional indebtedness
under the Bank Credit Agreement in lieu of repaying the Pilkington Note.
In connection with the Offering, the Company expects to refinance the
indebtedness under the Bank Credit Agreement remaining after application of
the net proceeds of the Offering as described above. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and "Description of Certain Indebtedness--New
Bank Credit Agreement."
The Company expects to enter into a new advisory agreement with Bain Capital
prior to the completion of the Offering. See "Certain Transactions--Advisory
Agreement."
19
<PAGE>
DIVIDEND POLICY
Since the Wesley Jessen Acquisition in 1995, the Company has not declared or
paid any cash or other dividends on its Common Stock and does not expect to
pay dividends for the foreseeable future. Instead, the Company currently
intends to retain earnings to support its growth strategy and reduce
indebtedness. As a holding company, the ability of the Company to pay
dividends in the future is dependent upon the receipt of dividends or other
payments from its principal operating subsidiary. The payment of dividends or
other distributions by such operating subsidiary to the Company for purposes
of paying dividends to holders of Common Stock is prohibited by the Bank
Credit Agreement. Any future determination to pay dividends will be at the
discretion of the Company's Board of Directors and will depend upon, among
other factors, the Company's results of operations, financial condition,
capital requirements and contractual restrictions. See "Description of Certain
Indebtedness."
THE RECLASSIFICATION
The Company currently has two classes of issued and outstanding stock, the
Class L Common and the Common Stock, which are identical except that each
share of Class L Common is entitled to a preferential payment (the "Preference
Amount") upon any distribution by the Company to holders of its capital stock
(whether by dividend, liquidating distribution or otherwise) equal to the
original cost of such share ($17.41) plus an amount which accrues on a daily
basis at a rate of 12.5% per annum on such cost and on the amount so accrued
in prior quarters. As of December 31, 1996, the Preference Amount was $20.94
per share of Class L Common issued at the time of the Wesley Jessen
Acquisition. Prior to the completion of the Offering, all of the outstanding
shares of Class L Common will be reclassified pursuant to the terms of the
Company's Restated Certificate into shares of Common Stock and a 3.133-for-one
stock split will be effected as to all of the then outstanding shares of
Common Stock. In connection with the Reclassification (prior to the Stock
Split), each outstanding share of Class L Common will be reclassified into one
share of Common Stock plus an additional number of shares having a value,
based on the initial public offering price, equal to the Preference Amount as
of the consummation of the Offering. Assuming an initial public offering price
of $20.00 per share (the mid-point of the range set forth on the cover page of
this Prospectus) and a closing date of February 1, 1997 for this Offering, an
aggregate of 429,504 shares of Common Stock will be issued in exchange for the
outstanding shares of Class L Common in connection with the Reclassification.
The actual number of shares of Common Stock that will be issued as a result of
the Reclassification is subject to change based on the actual initial public
offering price and the closing date of this Offering. Fractional shares
otherwise issuable as a result of the Reclassification and Stock Split will be
rounded to the nearest whole number. See "Description of Capital Stock."
20
<PAGE>
CAPITALIZATION
The following table sets forth at September 28, 1996: (i) the actual
capitalization of the Company; (ii) the pro forma capitalization of the
Company after giving effect to the Barnes-Hind Acquisition (and the related
refinancing of the Company's then-existing credit agreement); and (iii) the
pro forma, as adjusted capitalization of the Company after giving effect to:
(a) the Reclassification; (b) the refinancing of the Bank Credit Agreement;
and (c) the Offering, assuming an initial public offering price of $20.00 per
share, and the application of the net proceeds to the Company therefrom as
described under "Use of Proceeds." This table should be read in conjunction
with "Selected Historical Consolidated Financial Data" and "Unaudited Pro
Forma Financial Data" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 28, 1996
-----------------------------------
PRO FORMA PRO FORMA
ACTUAL COMBINED AS ADJUSTED
-------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt:
Current portion of long-term debt ...... $ 2,000 $ 1,555 $ 3,555
======== ======== ========
Long-term debt, net of current maturities:
Term loans.............................. $ 26,500 $ 95,000 $ 65,000(a)
Promissory note (b)..................... -- 5,000 --
-------- -------- --------
Total long-term debt ................. 26,500 100,000 65,000
-------- -------- --------
Stockholders' equity:
Class L Common Stock, $0.01 par value,
cumulative yield of 12.5%, 600,000
shares authorized; 321,067 shares
issued on an actual basis; and no
shares issued on a pro forma, as
adjusted basis......................... 3 3 -- (c)
Serial Preferred Stock, $0.01 par value,
5,000,000 shares authorized; no shares
issued on an actual or on a pro forma,
as adjusted basis ..................... -- -- --
Common Stock, $0.01 par value,
50,000,000 shares authorized; 4,090,582
shares issued on an actual basis;
16,661,116 shares issued on a pro
forma, as adjusted basis (d) .......... 40 40 167
Additional paid-in capital ............. 7,754 7,754 52,797
Accumulated deficit .................... (11,854) (15,989)(e) (29,532)(f)
-------- -------- --------
Total stockholders' equity (deficit).. (4,057) (8,192) 23,432
-------- -------- --------
Total capitalization................ $ 22,443 $ 91,808 $ 88,432
======== ======== ========
</TABLE>
- -------
(a) Reflects the use of approximately $30.0 million of the net proceeds to the
Company to repay borrowings on the Term Loans under the Bank Credit
Agreement, offset by an additional $2.0 million of borrowings to fund the
financing fees associated with New Bank Credit Agreement.
(b) Reflects a $5.0 million promissory note issued to Pilkington in connection
with the Barnes-Hind Acquisition. The Pilkington Note bears interest at
8%, payable in kind, and matures on February 1, 2005 or on any date that
Bain Capital and its affiliates (i) cease to beneficially own at least 25%
of the Company's voting stock or (ii) receive any proceeds from the sale
of any of their shares of Common Stock in a public offering.
(c) Assuming an initial public offering price of $20.00 per share (the mid-
point of the range set forth on the cover page of this Prospectus) and a
closing date of February 1, 1997 for this Offering, an aggregate of
429,504 shares of Common Stock will be issued in exchange for the
outstanding shares of Class L Common in connection with the
Reclassification. The actual number of shares of Common Stock that will be
issued as a result of the Reclassification is subject to change based on
the actual initial public offering price and the closing date of this
Offering. See "The Reclassification."
(d) Does not include 2,617,570 shares of Common Stock reserved for issuance
upon the exercise of options outstanding as of December 31, 1996 and
granted to members of management or 1,550,000 shares of Common Stock
reserved for issuance under the Stock Plans. See "Management--Stock
Options."
(e) The change in accumulated deficit of $4.1 million represents: (i) the
extraordinary loss, net of related tax benefits, from the refinancing of
the Bank Credit Agreement and (ii) the non-recurring expenses, including
the related tax benefits, from the Company's restructuring charges
incurred in the fourth quarter of 1996. See "Unaudited Pro Forma Financial
Data."
(f) The change in accumulated deficit of $13.5 million represents: (i) the
extraordinary loss, net of related tax benefits, from the refinancing of
the Bank Credit Agreement and (ii) the non-recurring expenses, including
the related tax benefits, from the termination of the Advisory Agreement
and the interest charge related to the repayment of the Pilkington Note.
See "Unaudited Pro Forma Financial Data."
21
<PAGE>
DILUTION
The following table presents certain information concerning the pro forma
net tangible book value per share of the Common Stock as of September 28,
1996, assuming the consummation of the Reclassification and Stock Split, and
as adjusted to reflect the Offering, at an assumed initial public offering
price of $20.00 per share, after deducting the estimated offering expenses and
underwriting discounts and commissions:
<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $20.00
Pro forma net tangible book value per share before the
Offering (a)............................................... $0.18
Increase per share attributable to new investors............ 2.69
-----
Pro forma net tangible book value per share after the Offer-
ing........................................................ 2.87
------
Dilution per share to new investors......................... $17.13
======
</TABLE>
- --------
(a) Net tangible book value per share of Common Stock is determined by
dividing the Company's pro forma tangible net book value at September 28,
1996 (giving pro forma effect to the Barnes-Hind Acquisition and the
refinancing of the Company's then-existing bank credit agreement) of $2.6
million, by the aggregate number of shares of Common Stock outstanding.
The following table summarizes, as of September 28, 1996 on a pro forma
basis (giving effect to the Reclassification and Stock Split), the difference
between the existing stockholders and the new investors with respect to the
number of shares of Common Stock purchased (or to be purchased) from the
Company, the total consideration paid (or to be paid) and the average price
per share paid (or to be paid) by the existing stockholders and new investors,
at an assumed initial public offering price of $20.00 per share, before
deducting the estimated offering expenses and underwriting discounts and
commissions:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders
(b).................... 14,161,116 85.0% $ 7,797,000 13.5% $ 0.55
New investors........... 2,500,000 15.0 50,000,000 86.5 20.00
---------- ----- ----------- ------
Total................. 16,661,116 100.0% $57,797,000 100.0%
========== ===== =========== ======
</TABLE>
- --------
(b) Does not include: (i) 2,193,052 shares of Common Stock reserved for
issuance upon the exercise of outstanding options as of September 28, 1996
(with a weighted average exercise price of $1.14 per share); (ii) 424,518
shares of Common Stock reserved for issuance upon the exercise of
outstanding options issued in October 1996 (at an exercise price of
$7.24); or (iii) 1,550,000 shares of Common Stock reserved for issuance
under the Stock Plans. See "Management--Stock Options."
22
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The Unaudited Pro Forma Consolidated Statements of Operations for the year
ended December 31, 1995, the period January 1 through September 28, 1996, and
the twelve months ended September 28, 1996 give pro forma effect to: (i) the
Wesley Jessen Acquisition; (ii) the Barnes-Hind Acquisition (and related
financing transactions); (iii) the divestiture of Barnes-Hind's U.S. Natural
Touch Product Line; (iv) the Reclassification and Stock Split; (v) the
refinancing of the Bank Credit Agreement; and (vi) the Offering and the
application of the net proceeds to the Company therefrom as described under
"Use of Proceeds," as if each had occurred on January 1, 1995.
The Unaudited Pro Forma Consolidated Balance Sheet at September 28, 1996
gives pro forma effect to: (i) the Barnes-Hind Acquisition and Stock Split;
(ii) the Reclassification; (iii) the refinancing of the Bank Credit Agreement;
and (iv) the Offering and the application of the net proceeds to the Company
therefrom as described under "Use of Proceeds," as if such transactions had
occurred as of September 28, 1996. The historical balance sheet of the Company
already reflects the Wesley Jessen Acquisition, which took place as of June
28, 1995. In connection with the Barnes-Hind Acquisition, the Company entered
into a voluntary consent order with the FTC which provides, among other
things, that the Company must divest Barnes-Hind's U.S. Natural Touch Product
Line. The Company is currently negotiating the terms of such disposition with
a potential purchaser and expects to execute a definitive agreement relating
to such disposition by the end of the first quarter of 1997. The purchase
accounting relating to the Barnes-Hind Acquisition includes an estimate of the
revaluation of the assets associated with the U.S. Natural Touch Product Line
so that no gain or loss will result from such divestiture, as is required
under generally accepted accounting principles.
The Unaudited Pro Forma Consolidated Statements of Operations referred to
above do not reflect the following charges related to the Offering and the
Barnes-Hind Acquisition which the Company incurred in the fourth quarter of
fiscal 1996 and expects to incur in the first and second quarters of fiscal
1997: (i) a non-recurring expense of approximately $10.0 million representing
a fee payable to Bain Capital in connection with the termination of the
Advisory Agreement; (ii) approximately $3.5 million of restructuring expenses
expected to be incurred by the Company following the Barnes-Hind Acquisition;
(iii) a significant, non-recurring, non-cash increase in cost of goods sold of
approximately $36.7 million, based on Barnes-Hind's inventory at October 1,
1996 (due to the Company's application of purchase accounting for the Barnes-
Hind Acquisition as a result of which the Company will write up the book value
of the acquired Barnes-Hind inventory to fair market value less estimated
selling costs); (iv) extraordinary debt extinguishment costs consisting of
$2.8 million related to writing off historical capitalized financing fees in
connection with the refinancing of its then-existing credit agreement; and (v)
extraordinary debt extinguishment costs estimated at $7.8 million related to
writing off capitalized financing fees in connection with the refinancing of
the Bank Credit Agreement upon the completion of the Offering. The Unaudited
Pro Forma Consolidated Balance Sheet, however, does reflect the charges
enumerated in (i) through (v) above. Such charges aggregate approximately
$60.8 million, before the related tax benefit of $19.0 million.
The unaudited pro forma financial data are provided for informational
purposes only and are not necessarily indicative of the results of operations
or financial position of the Company had the transactions assumed therein
occurred, nor are they necessarily indicative of the results of operations
which may be expected to occur in the future. Furthermore, the unaudited pro
forma financial data are based upon assumptions that the Company believes are
reasonable and should be read in conjunction with the financial statements and
the accompanying notes thereto included elsewhere in this Prospectus.
23
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
WESLEY JESSEN
------------------------
PREDECESSOR COMPANY
JANUARY 1 JUNE 29 BARNES-HIND PRO FORMA
THROUGH THROUGH YEAR ENDED YEAR ENDED
JUNE 28, DECEMBER 31, MARCH 31, ACQUISITION PRO FORMA OFFERING DECEMBER 31,
1995 1995 1996 COMBINED ADJUSTMENTS COMBINED ADJUSTMENTS 1995
----------- ------------ ----------- -------- ----------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.............. $ 51,019 $ 54,315 $132,581 $237,915 $ (6,918)(a) $230,997 $ -- $230,997
Operating costs and
expenses: i
Cost of goods sold.... 20,871 19,916 59,442 100,229 (3,043)(a) 92,431 -- 92,431
(4,116)(b)
(639)(e)
Cost of goods sold--
inventory step-up.... -- 33,929 -- 33,929 (33,929)(c) -- -- --
i
Marketing and
administrative ...... 43,236 29,476 65,828 138,540 (2,058)(a) 119,643 (500)(k) 119,143
(1,707)(b)
(2,976)(d)
(12,156)(e)
i
Research and
development.......... 4,569 2,524 11,783(1) 18,876 (579)(b) 13,723 -- 13,723
(1,964)(d)
(2,610)(e)
Amortization of
intangible assets
(negative goodwill).. 2,736 (392) -- 2,344 (3,128)(f) (784) -- (784)
-------- -------- -------- -------- -------- -------- ------- --------
Income (loss) from op-
erations.............. (20,393) (31,138) (4,472) (56,003) 61,987 5,984 500 6,484
Other (income) expense:
Interest income....... -- -- (773) (773) 773 (g) -- -- --
Interest expense...... -- 2,599 4,315 6,914 3,807 (h) 10,721 (5,254)(l) 5,467
Financing charge...... 3,511 -- -- 3,511 (3,511)(i) -- -- --
Other income, net..... (1,360) -- -- (1,360) -- (1,360) -- (1,360)
-------- -------- -------- -------- -------- -------- ------- --------
Income (loss) before
income taxes.......... (22,544) (33,737) (8,014) (64,295) 60,918 (3,377) 5,754 2,377
Income tax (expense)
benefit............... 9,401 14,022 (3,116) 20,307 (19,159)(j) 1,148 (1,956)(j) (808)
-------- -------- -------- -------- -------- -------- ------- --------
Net income (loss)...... $(13,143) $(19,715) $(11,130) $(43,988) $ 41,759 $ (2,229) $ 3,798 $ 1,569
======== ======== ======== ======== ======== ======== ======= ========
Pro forma net income per common and common equivalent share............................................. $ 0.08(m)
========
Pro forma weighted average number of common and common equivalent shares outstanding (in thousands)..... 19,000(m)
========
</TABLE>
- -------
(1) Includes $3,899 of research and development costs previously classified as
cost of goods sold in the Barnes-Hind historical financial statements,
which have been reclassified to research and development expenses in
conformance with the Company's accounting policies.
See accompanying notes.
24
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
PERIOD FROM JANUARY 1, 1996 THROUGH SEPTEMBER 28, 1996
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
COMPANY BARNES-HIND PRO FORMA
JANUARY 1 JANUARY 1 JANUARY 1
THROUGH THROUGH THROUGH
SEPTEMBER 28, OCTOBER 1, ACQUISITION PRO FORMA OFFERING SEPTEMBER 28,
1996 1996 (1) COMBINED ADJUSTMENTS COMBINED ADJUSTMENTS 1996
------------- ----------- -------- ----------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales..................... $96,048 $ 99,601 $195,649 $ (5,212)(a) $190,437 $ -- $190,437
Operating costs and expenses:
i
Cost of goods sold........... 26,471 48,928 75,399 (2,278)(a) 71,147 -- 71,147
(1,415)(b)
(559)(e)
Cost of goods sold--inventory
step-up..................... 6,626 -- 6,626 (6,626)(c) -- -- --
i
Marketing and administrative. 51,014 58,866 109,880 (2,084)(a) 91,087 (750)(k) 90,337
(505)(b)
(16,204)(e)
i
Research and development..... 3,786 7,403(2) 11,189 (101)(b) 9,214 -- 9,214
(1,874)(e)
Amortization of negative
goodwill.................... (588) -- (588) -- (588) -- (588)
------- -------- -------- -------- -------- ------- --------
Income (loss) from operations. 8,739 (15,596) (6,857) 26,434 19,577 750 20,327
Other (income) expense:
Interest income.............. -- (340) (340) 340 (g) -- -- --
Interest expense............. 2,757 378 3,135 4,905 (h) 8,040 (3,940)(l) 4,100
Other income, net............ (3,500) -- (3,500) -- (3,500) -- (3,500)
------- -------- -------- -------- -------- ------- --------
Income (loss) before income
taxes........................ 9,482 (15,634) (6,152) 21,189 15,037 4,690 19,727
Income tax (expense) benefit.. (1,621) (2,989) (4,610) (502)(j) (5,112) (1,595)(j) (6,707)
------- -------- -------- -------- -------- ------- --------
Net income (loss)............. $ 7,861 $(18,623) $(10,762) $ 20,687 $ 9,925 $ 3,095 $ 13,020
======= ======== ======== ======== ======== ======= ========
.
Pro forma net income per common and common equivalent share......................................... $ 0.69 (m)
========
Pro forma weighted average number of common and common equivalent shares outstanding (in thousands). 19,000 (m)
========
</TABLE>
- --------
(1) Represents the period from January 1, 1996 through October 1, 1996.
Included in this period is the three-month period beginning January 1,
1996 and ending March 31, 1996 (Barnes-Hind's fourth fiscal quarter). This
three-month period is also included in Barnes-Hind's Year Ended March 31,
1996 data presented as part of the Unaudited Pro Forma Consolidated
Statement of Operations for the year ended December 31, 1995.
(2) Includes $1,937 of research and development costs previously classified as
cost of goods sold in the Barnes-Hind historical financial statements,
which have been reclassified to research and development expenses in
conformance with the Company's accounting policies.
See accompanying notes.
25
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
LATEST TWELVE MONTHS ENDED SEPTEMBER 28, 1996(1)
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
COMPANY BARNES-HIND PRO FORMA
TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS
ENDED ENDED ENDED
SEPTEMBER 28, OCTOBER 1, ACQUISITION PRO FORMA OFFERING SEPTEMBER 28,
1996(1) 1996 (1) COMBINED ADJUSTMENTS COMBINED ADJUSTMENTS 1996(1)
------------- ------------- -------- ----------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $123,305 $130,688 $253,993 $ (6,782)(a) $247,211 $ -- $247,211
Operating costs and ex-
penses:
i
Cost of goods sold..... 36,711 61,796 98,507 (2,967)(a) 96,168 -- 92,948
(1,858)(b)
(734)(e)
Cost of goods sold--in-
ventory step-up....... 20,927 -- 20,927 (20,927)(c) -- -- --
i
Marketing and
administrative........ 67,134 75,165 142,299 (2,675)(a) 119,152 (1,000)(k) 118,152
(663)(b)
(19,809)(e)
i
Research and develop-
ment.................. 4,992 10,425(2) 15,417 (133)(b) 9,420 -- 12,640
(2,644)(e)
Amortization of nega-
tive goodwill......... (784) -- (784) -- (784) -- (784)
-------- -------- -------- -------- -------- ------- --------
Income (loss) from oper-
ations................. (5,675) (16,698) (22,373) 45,628 23,255 1,000 24,255
Other (income) expense:
Interest income........ -- (540) (540) 540 (g) -- -- --
Interest expense....... 3,904 1,619 5,523 5,198 (h) 10,721 (5,254)(l) 5,467
Other income, net...... (3,500) -- (3,500) -- (3,500) -- (3,500)
-------- -------- -------- -------- -------- ------- --------
Income (loss) before in-
come
taxes.................. (6,079) (17,777) (23,856) 39,890 16,034 6,254 22,288
Income tax (expense)
benefit................ 2,529 (5,328) (2,799) (2,653)(j) (5,452) (2,126)(j) (7,578)
-------- -------- -------- -------- -------- ------- --------
Net income (loss)....... $ (3,550) $(23,105) $(26,655) $ 37,237 $ 10,582 $ 4,128 $ 14,710
======== ======== ======== ======== ======== ======= ========
Pro forma net income per common and common equivalent share..................................... $ 0.77 (m)
========
Pro forma weighted average number of common and common equivalent shares outstanding (in thou-
sands)......................................................................................... 19,000 (m)
========
</TABLE>
- --------
(1) The Company believes that the pro forma presentation of the latest twelve-
month periods ended September 28, 1996 and October 1, 1996, of the
combined Wesley Jessen and Barnes-Hind operations, respectively, provides
the most meaningful and representative combined results of operations for
the two businesses. This period represents the only pro forma statement of
operations period presented which excludes operating results of the
Predecessor when it was an operating division of Schering-Plough.
(2) Includes $3,220 of research and development costs previously classified as
cost of goods sold in the Barnes-Hind historical financial statements,
which have been reclassified to research and development expenses in
conformance with the Company's accounting policies.
See accompanying notes.
26
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(dollars in thousands)
The Unaudited Pro Forma Statements of Operations give effect to the
following unaudited pro forma adjustments:
(a) Reflects the requirement that the Company divest the U.S. Natural Touch
Product Line pursuant to the terms of its voluntary consent order with
the FTC. The Company does not believe that the disposition of this
product line will have a material impact on the Company's results of
operations. The unaudited historical operating results of the U.S.
Natural Touch Product Line were as follows:
<TABLE>
<CAPTION>
JANUARY 1 TWELVE MONTHS
YEAR ENDED THROUGH ENDED
DECEMBER 31, SEPTEMBER 28, SEPTEMBER 28,
1995 1996 1996
------------ ------------- -------------
<S> <C> <C> <C>
Net sales........................ $6,918 $5,212 $6,782
Operating costs and expenses:
Cost of goods sold............. 3,043 2,278 2,967
Marketing and administrative .. 2,058 2,084 2,675
------ ------ ------
Pre-tax contribution............. $1,817 $ 850 $1,140
====== ====== ======
(b) Represents the reduction of depreciation expense as a result of the
Company's application of purchase accounting whereby the excess of the
fair market value of the net assets acquired over the purchase price was
allocated as a reduction to the fair market value of the property, plant
and equipment acquired in both the Wesley Jessen Acquisition and the
Barnes-Hind Acquisition, as follows:
<CAPTION>
JANUARY 1 TWELVE MONTHS
YEAR ENDED THROUGH ENDED
DECEMBER 31, SEPTEMBER 28, SEPTEMBER 28,
1995 1996 1996
------------ ------------- -------------
<S> <C> <C> <C>
Reduction in depreciation expense
recorded in:
Cost of goods sold............. $4,116 $1,415 $1,858
Marketing and administrative... 1,707 505 663
Research and development....... 579 101 133
------ ------ ------
Total pro forma reduction in
depreciation expense......... $6,402 $2,021 $2,654
====== ====== ======
</TABLE>
(c) Reflects the adjustment to eliminate the non-recurring impact of the
inventory write-up as a result of the Company's application of purchase
accounting in connection with the Wesley Jessen Acquisition. In
connection with the Company's purchase accounting for the Barnes-Hind
Acquisition, a significant, non-recurring, non-cash increase in cost of
goods sold is expected as the carrying value of Barnes-Hind's inventory
is written up to its fair market value, less estimated selling expenses.
The impact of the Barnes-Hind inventory write-up is excluded from the
Unaudited Pro Forma Consolidated Statements of Operations as presented.
27
<PAGE>
(d) Represents the recurring cost savings to the Company relating to the
Wesley Jessen Acquisition which included the reduction of certain
operating expenses related primarily to the consolidation of the
corporate offices, a reduction in the actual number of corporate level
employees and related benefits and facilities expenses, consolidation of
marketing support facilities, and the rationalization of the
international sales and marketing function. The effects of the estimated
cost savings related to the above described items are presented below:
<TABLE>
<S> <C>
Marketing and administrative expenses:
U.S. wages and related personnel costs............................ $1,460
Non-U.S. wages and related personnel costs........................ 591
Facilities and related expenses................................... 925
------
Total pro forma reduction in marketing and administrative ex-
penses.......................................................... 2,976
------
Research and development expenses:
Wages and related personnel costs................................. 1,714
Facilities and related expenses................................... 250
------
Total pro forma reduction in research and development expenses... 1,964
------
Total pro forma reduction in Wesley Jessen operating expenses...... $4,940
======
</TABLE>
(e) Represents the estimated recurring cost savings to the Company relating
to the Barnes-Hind corporate consolidation plan, which includes the
actual reduction of certain operating expenses related primarily to the
closure of the Sunnyvale, California corporate offices upon consummation
of the Barnes-Hind Acquisition, a reduction in the actual number of
corporate level employees and related personnel and facilities expenses.
The Company has commenced the implementation of the consolidation plan.
The effect of the estimated cost savings related to the above described
items are presented below:
<TABLE>
<CAPTION>
JANUARY 1 TWELVE MONTHS
YEAR ENDED THROUGH ENDED
DECEMBER 31, SEPTEMBER 28, SEPTEMBER 28,
1995 1996 1996
------------ ------------- -------------
<S> <C> <C> <C>
Cost savings by category:
Wages and related personnel
costs......................... $ 11,757 $ 8,469 $ 12,001
Contractual "change-in-control"
employment obligations........ -- 7,346 7,346
Facilities and related occu-
pancy costs................... 3,648 2,822 3,840
-------- ------- --------
Total reduction in Barnes-
Hind operating expenses..... $ 15,405 $18,637 $ 23,187
======== ======= ========
Cost savings by statement of
operations caption:
Cost of goods sold ............ $ 639 $ 559 $ 734
Marketing and administrative... 12,156 16,204 19,809
Research and development ...... 2,610 1,874 2,644
-------- ------- --------
Total reduction in Barnes-
Hind operating expenses..... $ 15,405 $18,637 $ 23,187
======== ======= ========
</TABLE>
(f) Represents the net elimination of historical amortization expense recorded
by the Predecessor, as well as the pro forma impact of the amortization of
negative goodwill recorded by the Company in connection with the Wesley
Jessen Acquisition. There is no similar impact related to the Barnes-Hind
Acquisition, as no goodwill was recorded as a result of the Company's
purchase accounting for this acquisition.
(g) Reflects the elimination of intercompany interest income allocated to
Barnes-Hind by Pilkington.
28
<PAGE>
(h) Represents additional pro forma interest expense, as follows:
<TABLE>
<CAPTION>
JANUARY 1 TWELVE MONTHS
YEAR ENDED THROUGH ENDED
DECEMBER 31, SEPTEMBER 28, SEPTEMBER 28,
1995 1996 1996
------------ ------------- -------------
<S> <C> <C> <C>
Elimination of Wesley Jessen
and Barnes-Hind historical ($6,623) ($2,699) ($4,942)
interest expense............. ------- ------- -------
Elimination of Wesley Jessen
historical amortization of (291) (436) (581)
capitalized financing fees... ------- ------- -------
Interest on borrowings under
the Bank Credit Agreement:
Revolving credit facility at
LIBOR plus 2.75% (8.19% on
$10.0 million assumed aver-
age balance)............... 819 614 819
Term Loan A at LIBOR plus
2.75% (8.19% on $45.0 mil-
lion)...................... 3,686 2,764 3,686
Term Loan B at LIBOR plus
3.25% (8.69% on $50.0 mil-
lion)...................... 4,345 3,259 4,345
Commitment fee on pro forma
unutilized revolving credit
facility (.50% on $35.0
million assumed average
unutilized balance)........ 175 131 175
------- ------- -------
Total interest and fees on
borrowings under the Bank
Credit Agreement............. 9,025 6,768 9,025
------- ------- -------
Interest on the Pilkington
Note at the stated rate (8.0%
on $5.0 million)............. 400 300 400
Amortization of capitalized
deferred financing fees re-
lated to the refinancing of
the Bank Credit Agreement
($7.8 million over an average
6-year period)............... 1,296 972 1,296
------- ------- -------
Net increase in pro forma in-
terest expense............... $3,807 $4,905 $5,198
======= ======= =======
</TABLE>
(i) Represents the elimination of corporate financing fees charged by
Schering-Plough to the Predecessor.
(j) Represents the elimination of the pro forma combined historical income tax
(expense) benefit and the inclusion of the income tax (expense) benefit
resulting from the pro forma adjustments to pro forma income (loss) before
taxes to arrive at an estimated ultimate effective income tax rate of 34%.
Significant tax benefits, in the form of a tax credit, are available for
companies with operations in Puerto Rico, where one of Wesley Jessen's
principal manufacturing facilities is located. The amount of such
qualified credit to the Company, which would offset future federal income
taxes payable in any period, is dependent on the Company's labor
expenditures, depreciation and other factors in Puerto Rico. Recent
legislation will phase out this tax credit through December 31, 2005.
(k) Represents the elimination of the historical annual management fee paid by
the Company to Bain Capital for management and advisory services due to
the anticipated termination of the Advisory Agreement in connection with
the Offering.
29
<PAGE>
(l) Represents the reduction of pro forma interest expense resulting from the
refinancing of the Bank Credit Agreement and the use of a portion of the
net proceeds from the Offering to repay pro forma outstanding debt, as
follows:
<TABLE>
<CAPTION>
JANUARY 1 TWELVE MONTHS
YEAR ENDED THROUGH ENDED
DECEMBER 31, SEPTEMBER 28, SEPTEMBER 28,
1995 1996 1996
------------ ------------- --------------
<S> <C> <C> <C>
Elimination of pro forma inter-
est under the Bank Credit
Agreement................... $(9,025) $(6,768) $(9,025)
Elimination of pro forma inter-
est under the Pilkington
Note........................ (400) (300) (400)
Elimination of pro forma amor-
tization of capitalized fi-
nancing fees................ (1,296) (972) (1,296)
Interest on borrowings under
the New Bank Credit Agree-
ment:
Revolving credit facility at
LIBOR plus 1.0% (6.44% on
$12.0 million assumed
average balance)........... 773 579 773
Term Loan A at LIBOR plus
1.0% (6.44% on $65.0
million)................... 4,186 3,140 4,186
Interest on pro forma
unutilized revolving credit
facility commitment........ 175 131 175
Amortization of capital fees
related to the New Bank
Credit Agreement
($2.0 million over an average
6-year period)............... 333 250 333
------- ------- -------
Net decrease in pro forma in-
terest expense.............. $(5,254) $(3,940) $(5,254)
======= ======= =======
</TABLE>
(m) Reflects the events described in (i) through (vi) in the first paragraph
under the heading "Unaudited Pro Forma Financial Data" above, as if such
transactions had occurred on January 1, 1995 (includes all common stock
equivalents).
30
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 28, 1996
(dollars in thousands)
<TABLE>
<CAPTION>
BARNES-
COMPANY HIND PRO FORMA
SEPTEMBER 28, OCTOBER 1, ACQUISITION PRO FORMA OFFERING SEPTEMBER 28,
1996 1996(1) COMBINED ADJUSTMENTS COMBINED ADJUSTMENTS 1996
------------- ---------- -------- ----------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equiva-
lents.................. $ 7,836 $ 507 $ 8,343 $(7,346)(a) $ 980 $ -- $ 980
(17)(i)
Accounts receivable--
trade, net............. 17,245 25,143 42,388 -- 42,388 -- 42,388
Other receivables....... 1,264 -- 1,264 -- 1,264 -- 1,264
Inventories, net........ 14,020 27,847 41,867 36,743 (b)(c) 78,610 -- 78,610
Deferred income taxes... 6,524 556 7,080 3,713 (b)(f) 12,923 1,700 (n) 17,325
1,190 (h) 57 (n)
940 (j) 2,645 (p)
Assets acquired, but
held for resale........ -- -- -- 6,800 (b) 6,800 -- 6,800
Prepaid expenses........ 4,870 3,194 8,064 1,360 (b) 9,424 -- 9,424
------- ------- -------- ------- -------- ------- --------
Total current assets.. 51,759 57,247 109,006 43,383 152,389 4,402 156,791
Property, plant and
equipment, net.......... 4,587 35,419 40,006 (22,389)(b)(d) 17,617 -- 17,617
Other assets............. -- 443 443 (12)(b) 431 -- 431
Deferred income taxes.... 4,132 -- 4,132 -- 4,132 -- 4,132
Capitalized financing
fees, net............... 2,765 -- 2,765 (2,765)(j) 7,778 (7,778)(p) 2,000
7,778 (e) 2,000 (q)
------- ------- -------- ------- -------- ------- --------
Total assets.......... $63,243 $93,109 $156,352 $25,995 $182,347 $(1,376) $180,971
======= ======= ======== ======= ======== ======= ========
LIABILITIES, STOCKHOLD-
ERS' EQUITY
AND PARENT COMPANY IN-
VESTMENT:
Current liabilities:
Trade accounts payable.. $ 3,617 $ 9,720 $ 13,337 $ -- $ 13,337 $ -- $ 13,337
Accrued compensation
and benefits........... 8,780 12,551 21,331 -- 21,331 -- 21,331
Accrued advertising..... 4,753 -- 4,753 -- 4,753 -- 4,753
Other accrued liabili-
ties................... 8,373 10,975 19,348 (7,346)(a) 35,902 -- 35,902
20,400 (b)(g)
3,500 (h)
Income taxes payable.... 2,504 -- 2,504 -- 2,504 -- 2,504
Current portion of
long-term debt......... 2,000 -- 2,000 (2,000)(i) 1,555 (1,555)(o) 3,555
1,555 (i) 3,555 (o)
------- ------- -------- ------- -------- ------- --------
Total current liabili-
ties................. 30,027 33,246 63,273 16,109 79,382 2,000 81,382
Negative goodwill, net.. 10,773 -- 10,773 -- 10,773 -- 10,773
Long-term debt, less
current maturities..... 26,500 -- 26,500 (26,500)(i) 95,000 (30,000)(n)(o) 65,000
95,000 (i) (65,000)(o)
65,000 (o)
Pilkington Note......... -- -- -- 5,000 (i) 5,000 167 (n) --
(5,167)(n)(o)
Deferred income tax li-
abilities.............. -- 1,280 1,280 (1,280)(b) -- -- --
Other liabilities....... -- 384 384 -- 384 -- 384
------- ------- -------- ------- -------- ------- --------
Total liabilities..... 67,300 34,910 102,210 88,329 190,539 (33,000) 157,539
------- ------- -------- ------- -------- ------- --------
Stockholder's equity:
Class L common stock.... 3 -- 3 -- 3 (3)(l) --
Common stock............ 40 -- 40 -- 40 3 (l) 167
124 (m)
Additional paid-in cap-
ital................... 7,754 -- 7,754 -- 7,754 45,043 (m) 52,797
Accumulated deficit..... (11,854) -- (11,854) (2,310)(h) (15,989) (8,300)(n) (29,532)
(1,825)(j) (110)(n)
(5,133)(p)
------- ------- -------- ------- -------- ------- --------
Total stockholders'
equity (deficit)..... (4,057) -- (4,057) (4,135) (8,192) 31,624 23,432
------- ------- -------- ------- -------- ------- --------
Parent company invest-
ment................... -- 58,199 58,199 (58,199)(k) -- -- --
------- ------- -------- ------- -------- ------- --------
Total liabilities and
stockholders' equity
and parent company
investment.......... $63,243 $93,109 $156,352 $25,995 $182,347 $(1,376) $180,971
======= ======= ======== ======= ======== ======= ========
</TABLE>
- -------
(1) Represents the combined balance sheet of Barnes-Hind at October 1, 1996
adjusted for certain assets not acquired and liabilities not assumed in
connection with the Barnes-Hind Acquisition.
See accompanying notes.
31
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(dollars in thousands)
The Unaudited Pro Forma Balance Sheet gives effect to the following
unaudited pro forma adjustments:
(a) Represents the estimated drawdown in cash to fund certain liabilities
assumed by the Company related to the Barnes-Hind Acquisition (which were
included in the Barnes-Hind balance sheet at October 1, 1996) which were
required to be paid immediately after the closing.
(b) Reflects the Company's allocation of purchase price in accordance with
the purchase method of accounting as follows:
<TABLE>
<S> <C>
Purchase Price:
Cash consideration ........................................... $57,418
Pilkington Note .............................................. 5,000
Acquisition related fees and expenses ........................ 2,876
-------
Total ...................................................... $65,294
=======
Allocated as Follows:
Existing book value of Barnes-Hind............................ $58,199
Increase in inventory to estimated fair market value (see note
(c))......................................................... 36,743
Increase in assets acquired, but held for resale.............. 6,800
Increase in other current assets.............................. 1,360
Increase in net deferred tax assets (see note (f)) ........... 3,713
Decrease in deferred tax liabilities.......................... 1,280
Write-off of historical intangibles........................... (12)
Write-down of property, plant and equipment--attributable to
purchase
accounting (see note (d)).................................... (22,389)
Acquisition and reorganization related liabilities (see note
(g))......................................................... (20,400)
-------
Total....................................................... $65,294
=======
</TABLE>
In connection with the Barnes-Hind Acquisition, the Company entered into a
voluntary consent order with the FTC, which provides, among other things,
that the Company must divest the U.S. Natural Touch Product Line. The
Company is currently negotiating the terms of such disposition with a
potential purchaser and has included its current estimate of expected
consideration for the assets associated with the U.S. Natural Touch Product
Line. Such assets have been valued so that no gain or loss would result
from such divestiture, as is required under generally accepted accounting
principles. Any change in this estimate would impact the amount of write-
down of property, plant and equipment attributable to purchase accounting;
however, management does not expect any such adjustment to have a material
impact on the allocation of purchase price.
The Barnes-Hind Acquisition is subject to an acquisition audit which could
result in a purchase price adjustment. This adjustment, if any, will,
increase or decrease the purchase price and will be recorded upon
completion of the audit. The Company's management does not expect the
adjustment to have a material impact on the allocation of purchase price.
(c) Represents the estimated write-up to fair market value of $36,743 for
work-in-process and finished goods inventory in connection with the
purchase price allocation (see note (b) above). The increase in the
corresponding cost of goods sold is expected to occur in the fourth
quarter of fiscal 1996 and the first and second quarters of fiscal 1997.
(d) Reflects the write-down in property, plant and equipment of $22,389 as a
result of the Company's application of purchase accounting whereby the
excess of the fair market value of the net assets acquired over the
purchase price was allocated as a reduction to the fair market value of
the Barnes-Hind property, plant and equipment as is required by generally
accepted accounting principles.
(e) Represents fees and expenses relating primarily to the execution of the
Bank Credit Agreement in connection with the Barnes-Hind Acquisition.
32
<PAGE>
(f) Reflects the application of SFAS No. 109, "Accounting for Income Taxes,"
in accordance with the purchase method of accounting.
(g) Represents the costs to close certain Barnes-Hind facilities including
lease termination, severance and related benefits, totaling $20,400,
incurred as a direct result of the Barnes-Hind Acquisition. The
components of this reserve consist of the following:
<TABLE>
<S> <C>
Employee severance and related benefits....................... $16,772(1)
Lease termination costs....................................... 2,243(2)
Facility clean-up and restoration costs....................... 890(2)
Other facility exit costs..................................... 495(2)
-------
$20,400
=======
</TABLE>
--------
(1) Represents the costs attributable to the termination of specifically
identified employees at those Barnes-Hind facilities which are to be
closed as a result of the Barnes-Hind Acquisition. In conjunction with
the implementation of management's plans, certain amounts have been
paid through December 31, 1996, and substantially all of the remaining
amounts are expected to be paid by June 30, 1998.
(2) Represents the total amount of lease payments and other facility
related costs to be paid in conjunction with the Barnes-Hind facilities
to be closed as a result of the Barnes-Hind Acquisition. In conjunction
with the implementation of management's plans, certain amounts have
been paid through December 31, 1996, and substantially all of the
remaining amounts are expected to be paid through the expiration of the
final lease term in the second quarter of 1999.
(h) Represents the total restructuring costs of $3,500 to close certain
Wesley Jessen facilities, including lease termination, severance and
other liabilities, before $1,190 of related federal income tax benefit
(at a 34% effective tax rate), as a direct result of the Barnes-Hind
Acquisition. The net impact on the accumulated deficit is $2,310. The
components of this restructuring reserve consist of the following:
<TABLE>
<S> <C>
Lease termination costs for Chicago (Bradley Place) distribu-
tion facilities.............................................. $1,716(1)
Employee termination costs for WJ-Europe...................... 971(2)
Lease termination costs for WJ-Europe......................... 501(2)
Other restructuring costs for WJ-Europe....................... 312(2)
------
$3,500
======
</TABLE>
--------
(1) Represents the present value of lease payments, property taxes and
utilities to be paid in conjunction with the Company's Chicago
distribution facilities through the year 2006. The Company has executed
a plan to consolidate the Chicago facilities with those at Des Plaines,
Illinois on September 1, 1997 as part of its worldwide facilities
consolidation efforts.
(2) Represents the costs attributable to the termination of specifically
identified employees and termination of existing leases related to the
consolidation of the Company's facilities in the United Kingdom,
France, Germany, Spain, Italy, Belguim, the Netherlands and Luxembourg
with those facilities acquired as a result of the Barnes-Hind
Acquisition. In conjunction with management's plans, these amounts will
be paid primarily in the first and second quarters of 1997.
(i) Reflects the repayment of indebtedness under the Company's then-existing
credit agreement, the incurrence of new indebtedness under the Bank
Credit Agreement and the issuance of the Pilkington Note, as follows:
<TABLE>
<S> <C>
Repayment of indebtedness under the then-existing credit
agreement.................................................... $(28,500)
Borrowings under the Bank Credit Agreement:
Revolving Credit Facility.................................... 1,555
Term Loan A.................................................. 45,000
Term Loan B.................................................. 50,000
Issuance of Pilkington Note................................... 5,000
--------
Net increase in indebtedness.................................. $ 73,055
========
</TABLE>
33
<PAGE>
(j) Represents the write-off of $2,765 in capitalized financing costs, before
$940 of related federal income tax benefit (at a 34% effective tax rate),
resulting in an extraordinary loss of $1,825 in connection with the
financing of the Barnes-Hind Acquisition (see note (i) above).
(k) Reflects the elimination of Barnes-Hind's historical parent company
investment resulting from the application of purchase accounting in
connection with the Barnes-Hind Acquisition.
(l) Adjusted to give effect to the Reclassification and Stock Split.
(m) Reflects the estimated net proceeds of the Offering to the Company of
$45,167, net of the estimated underwriting discount and offering expenses
totalling $4,833.
(n) Reflects the use of the net proceeds, as follows:
<TABLE>
<S> <C>
Repayment of a portion of the Term Loan B outstanding under
the Bank Credit Agreement .................................. $30,000
Repayment of the Pilkington Note, including accrued inter-
est ........................................................ 5,167(1)
Fee payable to Bain Capital to terminate the Advisory Agree-
ment........................................................ 10,000(2)
-------
Net proceeds to the Company.................................. $45,167
=======
</TABLE>
--------
(1) In connection with the repayment of the Pilkington Note, the Company
will recognize an interest charge of $167 before a related tax benefit
of $57.
(2) In connection with the termination of the Advisory Agreement noted
above, the Company will incur a $10,000 non-recurring charge, before
the related marginal tax benefit. The net charge of $8,300 has been
reflected as a reduction of accumulated deficit and the tax benefit of
$1,700 has been reflected as an increase in deferred income taxes.
(o) Reflects the repayment of $95,000 indebtedness under the Bank Credit
Agreement, the repayment of the Pilkington Note (including accrued
interest of $167), and the incurrence of new indebtedness under the New
Bank Credit Agreement, in connection with the Offering, as follows:
<TABLE>
<S> <C>
Repayment of indebtedness with proceeds of the Offering (see
note (n)):
Term Loan B of Bank Credit Agreement........................ $(30,000)
Pilkington Note............................................. (5,167)
Proceeds from New Bank Credit Agreement:
Revolving Credit Facility................................... 3,555
Term Loan................................................... 65,000
Repayment of remaining indebtedness under Bank Credit Agree-
ment with proceeds of New Bank Credit Agreement:
Revolving Credit Facility................................... (1,555)
Term Loan A of Bank Credit Agreement........................ (45,000)
Remaining indebtedness under Term Loan B.................... (20,000)
--------
Net decrease in indebtedness.............................. $(33,167)
========
</TABLE>
(p) Represents the write-off of $7,778 in capitalized financing costs, before
$2,645 of related federal income tax benefit (at a 34% effective tax
rate), resulting in an extraordinary loss of $5,133 in connection with
the paydown of outstanding debt under the Bank Credit Agreement in
connection with the Offering.
(q) Represents estimated fees and expenses relating to the New Bank Credit
Agreement in connection with the Offering.
34
<PAGE>
SUPPLEMENTAL UNAUDITED PRO FORMA FINANCIAL DATA
The unaudited Pro Forma Consolidated Statements of Operations for the year
ended December 31, 1995 and the nine months ended September 30, 1995 give pro
forma effect to the Wesley Jessen Acquisition as if it had occurred on January
1, 1995. The Company completed the Wesley Jessen Acquisition on June 28, 1995.
The Company has included the Supplemental Unaudited Pro Forma Financial Data
in order to facilitate comparisons of the historical operations of the
Company. The Supplemental Unaudited Pro Forma Financial Data are provided for
informational purposes only and are not necessarily indicative of the results
of operations of the Company had the Wesley Jessen Acquisition occurred on
January 1, 1995, nor are they necessarily indicative of results of operations
which may be expected to occur in the future.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(dollars in thousands)
<TABLE>
<CAPTION>
COMPANY COMPANY
PREDECESSOR JUNE 29 TO WESLEY JESSEN PRO FORMA
JANUARY 1 TO DECEMBER 31, ACQUISITION DECEMBER 31,
JUNE 28, 1995 1995 COMBINED ADJUSTMENTS 1995
------------- ------------ -------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $ 51,019 $ 54,315 $105,334 $ -- $105,334
Operating costs and ex-
penses:
Cost of goods sold..... 20,871 19,916 40,787 (2,345)(a) 38,442
Cost of goods sold--in-
ventory step-up... -- 33,929 33,929 (33,929)(b) --
Marketing and adminis-
trative........... 43,236 29,476 72,712 (1,074)(a) 69,162
(2,976)(c)
500 (d)
Research and develop-
ment.............. 4,569 2,524 7,093 (452)(a) 4,677
(1,964)(c)
Amortization of intan-
gible assets
(negative good-
will)............. 2,736 (392) 2,344 (2,736)(e) (784)
(392)(f)
-------- -------- -------- ------- --------
Income (loss) from oper-
ations................. (20,393) (31,138) (51,531) 45,368 (6,163)
Other (income) expense:
Interest income........ -- -- -- -- --
Interest expense....... -- 2,599 2,599 2,290 (g) 4,889
Financing charge....... 3,511 -- 3,511 (3,511)(h) --
Other income, net...... (1,360) -- (1,360) -- (1,360)
-------- -------- -------- ------- --------
Income (loss) before in-
come taxes......... (22,544) (33,737) (56,281) 46,589 (9,692)
Income tax (expense) 9,401 14,022 23,423 (19,391)(i) 4,032
benefit............ -------- -------- -------- ------- --------
Net income (loss)....... $(13,143) $(19,715) $(32,858) $27,198 $ (5,660)
======== ======== ======== ======= ========
</TABLE>
35
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1995
(dollars in thousands)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY JUNE COMPANY
JANUARY 1 TO 29 TO WESLEY JESSEN PRO FORMA
JUNE 28, SEPTEMBER 30, ACQUISITION SEPTEMBER 30,
1995 1995 COMBINED ADJUSTMENTS 1995
------------ ------------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales............... $ 51,019 $ 27,058 $ 78,077 $ -- $78,077
Operating costs and ex-
penses:
Cost of goods sold.... 20,871 9,676 30,547 (2,345)(a) 28,202
Cost of goods sold--
inventory step-up.... -- 19,628 19,628 (19,628)(b) --
Marketing and adminis-
trative.............. 43,236 13,356 56,592 (1,074)(a) 53,042
(2,976)(c)
500 (d)
Research and develop-
ment................. 4,569 1,318 5,887 (452)(a) 3,471
(1,964)(c)
Amortization of
intangible assets
(negative goodwill).. 2,736 (196) 2,540 (2,736)(e) (588)
(392)(f)
-------- -------- -------- ------- -------
Income (loss) from oper-
ations................. (20,393) (16,724) (37,117) 31,067 (6,050)
Other (income) expense:
Interest income....... -- -- -- -- --
Interest expense...... -- 1,452 1,452 2,290 (g) 3,742
Financing charge...... 3,511 -- 3,511 (3,511)(h) --
Other income, net..... (1,360) -- (1,360) -- (1,360)
-------- -------- -------- ------- -------
Income (loss) before in-
come taxes............. (22,544) (18,176) (40,720) 32,288 (8,432)
Income tax (expense)
benefit................ 9,401 7,560 16,961 (13,453)(i) 3,508
-------- -------- -------- ------- -------
Net income (loss)....... $(13,143) $(10,616) $(23,759) $18,835 $(4,924)
======== ======== ======== ======= =======
</TABLE>
36
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
The Unaudited Pro Forma Consolidated Statements of Operations for the year
ended December 31, 1995 and the nine months ended September 30, 1995 give
effect to the following unaudited pro forma adjustments:
(a) Represents the reduction of depreciation expense as a result of the
Company's application of purchase accounting whereby the excess of the
fair value of the net assets acquired over the purchase price was
allocated as a reduction to the fair value of the property, plant and
equipment acquired in the Wesley Jessen Acquisition, as follows:
<TABLE>
<S> <C>
Cost of goods sold.............................................. $2,345
Marketing and administrative.................................... 1,074
Research and development........................................ 452
------
Total pro forma reduction in depreciation expense................. $3,871
======
</TABLE>
(b) Reflects the adjustment to eliminate the non-recurring impact of the
inventory write-up as a result of the Company's application of purchase
accounting in connection with the Wesley Jessen Acquisition.
(c) Represents the estimated recurring cost savings to the Company relating
to the Wesley Jessen Acquisition which include the reduction of certain
operating expenses related primarily to the consolidation of the
corporate offices, a reduction in the number of corporate level
employees and related benefits and facilities expenses, consolidation
of marketing support facilities, and the rationalization of the
international sales and marketing function. The effect of the estimated
cost savings related to the above described items are presented below:
<TABLE>
<S> <C>
Marketing and administrative expenses:
U.S. wages and related personnel costs........................... $1,460
Non-U.S. wages and related personnel costs....................... 591
Facilities and related expenses.................................. 925
------
Total pro forma reduction in marketing and administrative ex-
penses........................................................ 2,976
------
Research and development expenses:
Wages and related personnel costs................................ 1,714
Facilities and related expenses.................................. 250
------
Total pro forma reduction in research and development expenses. 1,964
------
Total pro forma reduction in operating expenses.................... $4,940
======
</TABLE>
(d) Reflects the pro forma inclusion of the annual management fee paid by
the Company to Bain Capital for management and advisory services
provided under the Advisory Agreement.
(e) Reflects the elimination of the Predecessor's historical amortization
of intangible assets, which were written off as a result of the
Company's application of purchase accounting.
(f) Represents the adjustment of amortization to reflect the Company's
application of purchase accounting whereby the excess of the fair value
of the net assets acquired over the purchase price was allocated as a
reduction to the fair value of the Company's noncurrent intangible
assets acquired in connection with the Wesley Jessen Acquisition,
resulting in negative goodwill.
37
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
(g) Represents additional pro forma interest expense, as follows:
<TABLE>
<S> <C>
Interest on borrowings under the original bank credit agreement:
Revolving Credit Facility at a fixed rate (10.5% of $13 million
assumed average balance)......................................... 683
Term Loan at LIBOR plus 3.00% (8.98% on $30 million).............. 1,347
Interest on pro forma unutilized Revolving Credit Facility commitment
(.50% on $12 million assumed average unutilized).................... 30
Amortization of capitalized financing fees related to the original 230
bank credit agreement ($2.8 million over an average 6-year period).. ------
Net increase in pro forma interest expense........................... $2,290
======
</TABLE>
(h) Represents the elimination of corporate financing fees charged by
Schering-Plough to the Predecessor.
(i) Represents the elimination of the pro forma combined historical income
(expense) benefit and the inclusion of the income tax (expense) benefit
resulting from the pro forma adjustments to pro forma income (loss)
before taxes to arrive at an estimated effective income tax rate of
41.6%.
38
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(dollars in thousands)
THE COMPANY/PREDECESSOR
Set forth below are selected historical consolidated financial data of the
Predecessor and the Company for the dates and for the periods indicated. The
selected historical consolidated financial data of the Predecessor as of
December 31, 1993 and 1994 and for the years ended December 31, 1993 and 1994
and the period from January 1, 1995 through June 28, 1995 were derived from
the historical financial statements of the Predecessor that were audited by
Price Waterhouse LLP, whose report appears elsewhere in this Prospectus. The
selected historical consolidated financial data of the Company as of December
31, 1995 and September 28, 1996 and for the periods June 29, 1995 through
December 31, 1995 and January 1, 1996 through September 28, 1996 were derived
from the historical financial statements of the Company that were audited by
Price Waterhouse LLP, whose report appears elsewhere in this Prospectus. The
selected historical consolidated financial data of the Predecessor for the
years ended December 31, 1991 and 1992 have not been audited. Results for
interim periods are not necessarily indicative of results for the full year.
Such interim results include all adjustments, consisting only of normal
recurring adjustments, which management considers necessary for fair
presentation of results for such periods and should be read in conjunction
with, and are qualified by reference to, "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the audited consolidated
financial statements and accompanying notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
THE PREDECESSOR
-------------------------------------------------
YEAR ENDED DECEMBER 31, JANUARY 1
-------------------------------------- THROUGH
JUNE 28,
1991 1992 1993 1994 1995
-------- -------- -------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DA-
TA:
Net sales........ $114,783 $111,030 $103,386 $109,640 $ 51,019
Operating costs
and expenses:
Cost of goods
sold........... 35,303 37,524 56,780 65,591 20,871
Costs of goods
sold--
inventory
step-up ...... -- -- -- -- --
Marketing and
administrative. 49,596 58,350 59,764 79,185 43,236
Research and de-
velopment ..... 9,430 11,029 10,286 9,843 4,569
Amortization of
intangible
assets
(negative
goodwill)...... 6,132 6,094 5,472 5,472 2,736
-------- -------- -------- -------- --------
Income (loss)
from
operations..... 14,322 (1,967) (28,916) (50,451) (20,393)
Other (income)
expenses:
Interest ex-
pense.......... -- -- -- -- --
Financing
charge ........ 7,391 8,021 6,886 7,172 3,511
Other income,
net ........... 1,728 (4,078) (256) (202) (1,360)
-------- -------- -------- -------- --------
Income (loss) be-
fore income tax-
es.............. 5,203 (5,910) (35,546) (57,421) (22,544)
Income tax (ex-
pense) benefit.. (2,081) 2,364 17,214 26,935 9,401
-------- -------- -------- -------- --------
Net income (loss)
(b)............. $ 3,122 $ (3,546) $(18,332) $(30,486) $(13,143)
======== ======== ======== ======== ========
BALANCE SHEET DATA (AT END
OF PERIOD):
Working capital . $ 42,538 $ 30,940
Total assets..... 214,747 191,429
Total debt....... -- --
Stockholders' eq-
uity (deficit).. 196,243 173,409
OTHER DATA:
Net cash provided
by (used in)
operating
activities (c).. $ 12,301 $ (6,664) $ (9,835)
Net cash provided
by (used in)
investing
activities (c).. (25,122) (2,271) (1,657)
Net cash provided
by (used in)
financing
activities (c).. 13,994 7,652 11,272
EBITDA (d)....... (17,408) (37,391) (13,786)
Depreciation and
amortization,
net of
negative
goodwill........ 11,508 13,060 6,607
Capital
expenditures ... 25,297 3,187 1,959
<CAPTION>
THE PRO FORMA FOR THE
COMPANY WESLEY JESSEN ACQUISITION (a) COMPANY
------------ ----------------------------------- ----------
JUNE 29 JANUARY 1 JANUARY 1
THROUGH YEAR ENDED THROUGH THROUGH
DECEMBER 31, DECEMBER 31, SEPTEMBER SEPTEMBER
1995 1995 30, 1995 28, 1996
------------ --------------- -------------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DA-
TA:
Net sales........ $ 54,315 $ 105,334 $ 78,077 $96,048
Operating costs
and expenses:
Cost of goods
sold........... 19,916 38,442 28,202 26,471
Costs of goods
sold--
inventory
step-up ...... 33,929 -- -- 6,626
Marketing and
administrative. 29,476 69,162 53,042 51,014
Research and de-
velopment ..... 2,524 4,677 3,471 3,786
Amortization of
intangible
assets
(negative
goodwill)...... (392) (784) (588) (588)
-------- --------------- -------------- ---------
Income (loss)
from
operations..... (31,138) (6,163) (6,050) 8,739
Other (income)
expenses:
Interest ex-
pense.......... 2,599 4,889 3,742 2,757
Financing
charge ........ -- -- -- --
Other income,
net ........... -- (1,360) (1,360) (3,500)
-------- --------------- -------------- ---------
Income (loss) be-
fore income tax-
es.............. (33,737) (9,692) (8,432) 9,482
Income tax (ex-
pense) benefit.. 14,022 4,032 3,508 (1,621)
-------- --------------- -------------- ---------
Net income (loss)
(b)............. $(19,715) $ (5,660) $ (4,924) $ 7,861
======== =============== ============== =========
<CAPTION>
BALANCE SHEET DATA (AT END
OF PERIOD):
<S> <C>
Working capital . $ 30,262 $21,732
Total assets..... 67,330 63,243
Total debt....... 42,000 28,500
Stockholders' eq-
uity (deficit).. (12,190) (4,057)
OTHER DATA:
Net cash provided
by (used in)
operating
activities (c).. $ 4,035 $ -- (c) $ -- (c) $22,351
Net cash provided
by (used in)
investing
activities (c).. (47,926) -- (c) -- (c) (3,809)
Net cash provided
by (used in)
financing
activities (c).. 46,033 -- (c) -- (c) (13,228)
EBITDA (d)....... 2,399 14,936
Depreciation and
amortization,
net of
negative
goodwill........ (392) (784) (588) (429)
Capital
expenditures ... 893 2,852 2,148 3,657
</TABLE>
39
<PAGE>
- -------
(a) The pro forma operating results for the year ended December 31, 1995 and
the nine months ended September 30, 1995 combine the operations of the
Predecessor from January 1, 1995 through June 28, 1995 and the Company
from June 29, 1995 through the end of the respective period and have been
adjusted to reflect the period as if the Wesley Jessen Acquisition and
related financing transaction had occurred on January 1, 1995. Because of
the purchase accounting adjustments made to the Predecessor's financial
statements, the financial statements of the Predecessor for the periods
prior to June 29, 1995 are not comparable to those of subsequent periods.
The combined pro forma data are intended to assist in making comparisons
for periods prior to the Barnes-Hind Acquisition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Supplemental Unaudited Pro Forma Financial Data" and the Notes to
Consolidated Financial Statements of the Company included herein.
(b) No historical earnings per share data are presented as the Company does
not consider such data to be meaningful. See "Unaudited Pro Forma
Financial Data" and "The Reclassification."
(c) Because of the subjectivity inherent in the assumptions concerning the
timing and nature of the uses of cash generated by the pro forma interest
and other cost savings adjustments, cash flows from operating, investing
and financing activities are not presented for the pro forma periods.
(d) "EBITDA" is defined herein as income from operations plus depreciation and
amortization expense, nonrecurring charges and other non-cash expense
items. The Company understands that while EBITDA is frequently used by
security analysts in the evaluation of companies, it is not necessarily
comparable to other similarly titled captions of other companies due to
potential inconsistencies in the method of calculation. EBITDA is not
intended as an alternative to cash flow from operating activities as a
measure of liquidity, an alternative to net income as an indicator of the
Company's operating performance or any other measure of performance in
accordance with generally accepted accounting principles. A reconciliation
of net income (loss) to EBITDA for each period included herein is set
forth below:
<TABLE>
<CAPTION>
THE PREDECESSOR THE COMPANY
----------------------------- ----------------------
YEAR ENDED JANUARY 1 JUNE 29 JANUARY 1
DECEMBER 31, THROUGH THROUGH THROUGH
------------------ JUNE 28, DECEMBER 31, SEPTEMBER
1993 1994 1995 1995 28, 1996
-------- -------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Net income (loss)................................................... $(18,332) $(30,486) $(13,143) $(19,715) $ 7,861
Income tax expense (benefit)........................................ (17,214) (26,935) (9,401) (14,022) 1,621
Interest expense.................................................... -- -- -- 2,599 2,757
Financing charge (1)................................................ 6,886 7,172 3,511 -- --
Other income, net (2)............................................... (256) (202) (1,360) -- (3,500)
Depreciation and amortization....................................... 11,508 13,060 6,607 (392) (429)
Inventory step-up (3)............................................... -- -- -- 33,929 6,626
-------------------------------------------------- -------- -------- -------- -------- -------
EBITDA.............................................................. $(17,408) $(37,391) $(13,786) $ 2,399 $14,936
======== ======== ======== ======== =======
</TABLE>
-------
(1) Represents financing charges from Schering-Plough in lieu of interest
expense related to Schering-Plough's investment in the Predecessor.
(2) Represents income derived from non-operating sources (e.g., gains on
fixed asset disposals and interest income) and certain one-time gains
related to licensing fees excluded from EBITDA as they do not relate to
the ongoing operations of the Company.
(3) Represents the amortization of the inventory revaluation recorded in
conjunction with the Wesley-Jessen Acquisition excluded from EBITDA as it
represents a non-cash charge to operations.
40
<PAGE>
BARNES-HIND
Set forth below are summary historical combined financial data of Barnes-
Hind for the dates and for the periods indicated. The summary historical
combined financial data as of March 31, 1995 and 1996 and for the periods then
ended were derived from the historical financial statements of Barnes-Hind
that were audited by Coopers & Lybrand L.L.P., whose report appears elsewhere
in this Prospectus. The unaudited summary historical combined financial data
for the six months ended September 30, 1995 and the period from April 1, 1996
through October 1, 1996 and as of October 1, 1996 have been derived from the
historical unaudited combined statements of Barnes-Hind which, in the opinion
of management, contain all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the combined results of operations
and financial position of Barnes-Hind for such periods and at such date.
Financial data presented herein includes the financial data associated with
the U.S. Natural Touch Product Line, which the Company intends to divest in
compliance with a consent order entered into with the FTC. See "Business--
Required Divestiture." The U.S. Natural Touch Product Line generated
approximately $6.9 million of net sales for the year ended March 31, 1996. The
Company does not believe that the disposition of the U.S. Natural Touch
Product Line will have a material impact on the Company's results of
operations. The summary historical financial data set forth below should be
read in conjunction with, and are qualified by reference to, the audited
financial statements and accompanying notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, PERIOD FROM
---------------------- SIX MONTHS APRIL 1
ENDED THROUGH
1995 1996 SEPTEMBER 30, 1995 OCTOBER 1, 1996
---------- ---------- ------------------ ---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $ 124,994 $ 132,581 $67,154 $ 64,805
Costs and expenses:
Cost of sales.......... 62,435 63,341 33,197 34,695
Research and develop-
ment.................. 10,317 7,884 4,160 3,448
Selling and marketing.. 37,609 43,292 21,012 20,634
General and administra-
tive.................. 21,516 22,536 11,901 21,318
---------- ---------- ------- --------
Operating income
(loss)................ (6,883) (4,472) (3,116) (15,290)
Interest income......... 615 773 323 95
Interest expense........ (4,623) (4,315) (3,287) (590)
---------- ---------- ------- --------
Income (loss) before
provision for income
taxes.................. (10,891) (8,014) (6,080) (15,785)
Income tax expense...... 2,708 3,116 2,365 6,140
---------- ---------- ------- --------
Net income (loss)....... $ (13,599) $ (11,130) $(8,445) $(21,925)
========== ========== ======= ========
OTHER DATA:
Depreciation and amorti-
zation................. $ 6,749 $ 4,017 $ 3,375 $ 3,349
Capital expenditures.... 12,899 13,572 4,205 5,417
<CAPTION>
MARCH 31,
---------------------- OCTOBER 1,
1995 1996 1996
---------- ---------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (defi-
ciency)................ $ (36,364) $ 43,509 $ 29,324
Total assets............ 102,313 112,184 98,432
Total debt.............. 90,868 10,414 --
Parent company invest-
ment (deficit)......... (18,738) 70,680 63,522
</TABLE>
41
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management's discussion and analysis provides information with
respect to the results of operations of the Predecessor for the years ended
December 31, 1993 and 1994 and the period from January 1, 1995 through June
28, 1995 and the Company for the period from June 29, 1995 through December
31, 1995 and for the period from January 1, 1996 through September 28, 1996
(the "nine months ended September 28, 1996"). The Company completed the Wesley
Jessen Acquisition on June 28, 1995. The Wesley Jessen Acquisition was
accounted for under the purchase method of accounting. Because of the
revaluation of the assets and liabilities of the Predecessor and the related
impacts on costs of sales and expenses, the financial statements of the
Predecessor are not directly comparable to those of the Company. For
comparative purposes, the combined results of operations of the Predecessor
and the Company for the year ended December 31, 1995 and for the period from
January 1, 1995 through September 30, 1995 have been set forth on a pro forma
basis as if the Wesley Jessen Acquisition had occurred on January 1, 1995. See
"Supplemental Unaudited Pro Forma Financial Data."
OVERVIEW
Wesley Jessen is the leading worldwide developer, manufacturer and marketer
of specialty soft contact lenses, based on its share of the specialty lens
market. The Company's products include cosmetic lenses, which change or
enhance the wearer's eye color appearance; toric lenses, which correct vision
for people with astigmatism; and premium lenses, which offer value-added
features such as improved comfort for dry eyes and protection from UV light.
Founded in 1946 by pioneers in the contact lens industry, the Company has a
long-standing reputation for innovation and new product introductions. Wesley
Jessen develops technology, manufacturing processes and products through a
combination of its in-house staff of more than 50 engineers and scientists and
Company-sponsored research by third-party experts. The Company markets and
sells its products (i) to consumers through the second largest advertising
campaign in the industry and (ii) to eyecare practitioners through its 180-
person salesforce and network of 60 independent distributors, which together
sell the Company's products in more than 75 countries.
On June 28, 1995, Bain Capital and the Management Investors acquired the
Predecessor in the Wesley Jessen Acquisition. The cash purchase price in the
Wesley Jessen Acquisition of $47.0 million (plus fees and expenses of $3.5
million) was funded with $7.5 million of equity and $43.0 million of
borrowings under a bank credit agreement. The aggregate purchase price in the
Wesley Jessen Acquisition, including assumed liabilities, was $76.6 million.
The Wesley Jessen Acquisition was accounted for under the purchase method of
accounting, including an increase in the book value of the inventory which was
charged to cost of goods sold. After the Wesley Jessen Acquisition, the
Company's new management team pursued an aggressive strategy of cost savings
and revenue enhancement to improve the Company's results of operations. During
this period, management: (i) redefined the Company's disposable lens marketing
strategy by repricing and repackaging the Company's products to be more
competitive with industry standards; (ii) launched a national consumer
advertising campaign featuring Christy Turlington; (iii) expanded its product
offerings in its FreshLook line of disposable colored contact lenses; (iv)
heightened its sales and marketing focus on serving the needs of eyecare
practitioners; and (v) achieved substantial cost savings through personnel
reductions, decreased overall marketing and advertising expenses,
consolidation of facilities and increased operating efficiencies. As a result
of management's efforts, the Company's profitability and results of operations
have improved significantly. The Company's income from operations increased
from a loss of $20.4 million in the period from January 1, 1995 through June
28, 1995 to income of $8.7 million for the nine months ended September 28,
1996.
BARNES-HIND ACQUISITION
On October 2, 1996, the Company acquired substantially all the assets and
assumed certain liabilities of Barnes-Hind from Pilkington. The purchase price
in the Barnes-Hind Acquisition of approximately $62.4 million (plus related
acquisition and financing fees of $10.7 million) was funded with approximately
$68.1 million of
42
<PAGE>
borrowings under the $140.0 million Bank Credit Agreement and the $5.0 million
Pilkington Note. In connection with the Barnes-Hind Acquisition, the Company
borrowed an additional $28.5 million to repay its then outstanding term loans
and to fund ongoing working capital needs.
In connection with the Barnes-Hind Acquisition, the Company has identified
significant operating synergies and is in the process of implementing certain
cost reduction measures that are expected to improve the Company's operating
results. While Wesley Jessen and Barnes-Hind had approximately equivalent net
sales in the twelve months ended September 28, 1996, Wesley Jessen employed
approximately 1,000 persons as of that date whereas Barnes-Hind employed
approximately 1,600 persons. Consequently, the Company believes that
substantial cost savings are available through personnel reductions. In
addition, the Company is in the process of moving the operations currently
performed at Barnes-Hind's Sunnyvale, California facility to the Company's
facility in Des Plaines, Illinois.
The following table sets forth certain expenses incurred by Barnes-Hind in
the fiscal year ended March 31, 1996. The Company believes these expenses will
not recur in future periods as a result of the cost reduction measures
implemented or being implemented by the Company. The adjustments are reflected
in the Company's unaudited pro forma financial data. See "Unaudited Pro Forma
Financial Data." While the Company believes that the following expenses will
not recur, there can be no assurance that the Company will be able to achieve
such cost savings in future periods.
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31, 1996
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Cost savings by category:
Wages and related personnel costs ............... $11,757
Facilities and related expenses.................. 3,648
-------
Total ......................................... $15,405
=======
</TABLE>
The Barnes-Hind Acquisition will affect the Company's results of operations
in certain significant respects. The aggregate acquisition cost (including
assumption of debt) will be allocated to the net assets acquired based on the
fair market value of such net assets. The preliminary allocation of the
purchase price relating to the Barnes-Hind Acquisition resulted in a decrease
in the historical book value of certain assets such as property, plant and
equipment, which will result in a decrease in annual depreciation expense of
$2.7 million on a pro forma basis for the twelve months ended September 28,
1996. Further, the value of finished goods inventory will be increased by
approximately $36.7 million, which is expected to be charged to cost of goods
sold in the period from October 2, 1996 through June 30, 1997. In addition,
due to the effects of the increased borrowings of the Company to finance the
Barnes-Hind Acquisition, the Company's interest expense will be increased
significantly in periods following the acquisition.
As a result of the Barnes-Hind Acquisition, the Company incurred significant
non-recurring charges in the fourth quarter of fiscal 1996 and expects to
incur additional non-recurring charges in the first and second quarters of
fiscal 1997, including: (i) approximately $3.5 million of restructuring
expenses expected to be incurred by the Company following the Barnes-Hind
Acquisition; (ii) a non-cash increase in cost of goods sold of approximately
$36.7 million (based on Barnes-Hind's inventory at October 1, 1996); and (iii)
extraordinary debt extinguishment costs consisting of $2.8 million related to
writing off historical capitalized financing fees in connection with the
refinancing of the Company's then existing credit agreement. In connection
with the Offering, the Company expects to incur the following non-recurring
charges in the first quarter of 1997: (i) an expense of approximately $10.0
million representing the fee payable to Bain Capital in connection with the
termination of the Advisory Agreement and (ii) extraordinary debt
extinguishment costs consisting of $7.8 million related to writing off
capitalized financing fees in connection with the refinancing of the Bank
Credit Agreement upon the completion of the Offering. As a result of these
charges, the Company expects to report net losses in both the fourth quarter
of 1996 and the first quarter of 1997.
43
<PAGE>
RESULTS OF OPERATIONS
The Company was established to acquire the Predecessor, which acquisition
was effective for accounting purposes on June 29, 1995. Because of the
revaluation of the assets and liabilities of the Predecessor and the related
impact on cost of sales and expenses, the financial statements of the
Predecessor for periods prior to June 29, 1995 are not comparable to those of
subsequent periods. In order to facilitate management's discussion of
financial results, the following table of adjusted operating income data
combines 1995 data for the Predecessor and the Company on a pro forma basis
and gives effect to the Wesley Jessen Acquisition as if it had occurred on
January 1, 1995. The cost of goods sold for the nine months ended September
28, 1996 does not reflect the impact of the $6.6 million increase in cost of
goods sold as a result of writing up the book value of inventory and the
related tax benefit of $2.3 million in conjunction with the Wesley Jessen
Acquisition.
ADJUSTED STATEMENT OF OPERATIONS DATA
(as a percentage of net sales)
<TABLE>
<CAPTION>
PRO FORMA FOR
WESLEY JESSEN
THE PREDECESSOR ACQUISITION (a) THE COMPANY
----------------- ----------------------- -------------
YEAR ENDED
DECEMBER 31, NINE MONTHS ENDED
--------------------------- ---------------------------
SEPTEMBER 30, SEPTEMBER 28,
1993 1994 1995 1995 1996
-------- -------- -------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0%
Operating costs and
expenses:
Cost of goods sold..... 54.9 59.8 36.5 36.1 27.6
Marketing and
administrative......... 57.8 72.2 65.7 67.9 53.1
Research and
development............ 9.9 9.0 4.4 4.4 3.9
Amortization of
intangible assets 5.3 5.0 (0.7) (0.7) (0.6)
(negative goodwill).... ----- ------ ----- ------ -----
Income (loss) from
operations............. (27.9) (46.0) (5.9) (7.7) 16.0
Other (income) expense:
Interest expense....... -- -- 4.6 4.8 2.9
Financing charge ...... 6.7 6.5 -- -- --
Other income, net ..... (0.2) (0.1) (1.3) (1.7) (3.6)
----- ------ ----- ------ -----
Income (loss) before
income taxes............ (34.4) (52.4) (9.2) (10.8) 16.7
Income tax (expense) 16.7 24.6 3.8 4.5 (4.0)
benefit ................ ----- ------ ----- ----- -----
Net income (loss)....... (17.7)% (27.8)% (5.4)% (6.3)% 12.7%
====== ====== ====== ====== =====
OTHER DATA:
EBITDA (b).............. (16.8)% (34.1)% (6.6)% (8.5)% 15.6%
Depreciation and
amortization............ 11.1 11.9 (0.7) (0.7) (0.4)
Capital expenditures.... 24.5 2.9 2.7 2.8 3.8
</TABLE>
- --------
(a) The pro forma results include adjustments for (i) interest expense
associated with the financing of the Wesley Jessen Acquisition; (ii)
actual cost savings relating to the reduction of certain operating
expenses including the consolidation of corporate offices, a reduction in
the number of corporate-level employees and related expenses,
consolidation of marketing support facilities and the rationalization of
the international sales and marketing functions; (iii) elimination of the
inventory step-up; and (iv) a reduction in depreciation and amortization
expense as a result of the Company's application of purchase accounting.
Because of the purchase accounting adjustments made to the Predecessor's
financial statements, the financial statements of the Predecessor for the
periods prior to June 29, 1995 are not comparable to those of subsequent
periods. The combined pro forma data are intended to assist in making
comparisons, excluding the Barnes-Hind Acquisition. See "Supplemental Pro
Forma Financial Data."
(b) "EBITDA" is defined herein as income from operations plus depreciation and
amortization expense, non-recurring charges and other non-cash expense
items. The Company understands that while EBITDA is frequently used by
security analysts in the evaluation of companies, it is not necessarily
comparable to other similarly titled captions of other companies due to
potential inconsistencies in the method of calculation. EBITDA is not
intended as an alternative to cash flow from operating activities as a
measure of liquidity, an alternative to net income as an indicator of the
Company's operating performance or any other measure of performance in
accordance with generally accepted accounting principles.
44
<PAGE>
COMPANY NINE MONTHS ENDED SEPTEMBER 28, 1996 COMPARED TO UNAUDITED PRO FORMA
COMBINED NINE MONTHS ENDED SEPTEMBER 30, 1995
The discussion that follows compares the Company's results of operations for
the nine months ended September 28, 1996 to the pro forma combined results of
operations for the nine months ended September 30, 1995, which give effect to
the Wesley Jessen Acquisition as if it had occurred as of January 1, 1995.
Net sales for the nine months ended September 28, 1996 increased $18.0
million, or 23.0%, to $96.0 million from $78.1 million for the nine months
ended September 30, 1995. This increase resulted primarily from growth in
sales of the Company's disposable contact lenses, from $9.4 million to $25.3
million, a 169.2% increase. Sales growth in this product category was
principally due to unit volume growth, driven by new marketing programs and
the continued penetration of the Company's cosmetic lenses. Net sales of
conventional lenses increased 3.0% from $68.7 million to $70.8 million,
largely due to price increases. The Company believes sales increases were due
to a significant increase in the total number of wearers and increased revenue
per wearer as a result of the increased popularity of the Company's disposable
lenses. Sales in North America grew 20.2% from $51.6 million to $62.0 million,
while sales in the rest of the world grew 28.4% from $26.5 million to $34.0
million.
Gross profit, excluding the inventory step-up, for the nine months ended
September 28, 1996 increased $19.7 million, or 39.5%, to $69.6 million from
$49.9 million in the comparable 1995 period. Gross profit margin increased to
72.4% for the nine months ended September 28, 1996 from 63.9% in the
comparable period. This improvement reflects the cost savings that resulted
from improved plant utilization, personnel reductions and other operating
efficiencies. Gross profit in the nine months ended September 30, 1995 was
negatively impacted by a write-off of $2.2 million related to conventional
lens inventory that was produced prior to the Wesley Jessen Acquisition and
that did not meet new management's higher standards for customer satisfaction.
Excluding this effect, gross margins for the nine months ended September 30,
1995 would have been 66.7%.
Marketing and administrative expenses for the nine months ended September
28, 1996 decreased by $2.0 million, or 3.8%, to $51.0 million from $53.0
million for the nine months ended September 30, 1995. As a percentage of net
sales, marketing and administrative expenses decreased to 53.1% in the 1996
period from 67.9% in the 1995 period. This savings is largely due to a decline
in promotional spending and reductions in staffing as a result of the Wesley
Jessen Acquisition. While overall marketing expenditures decreased, the
Company has successfully increased the impact of its promotional expenditures
through the implementation of its two-pronged marketing strategy. This
strategy, put in place in the third and fourth quarters of 1995, involves an
extensive consumer advertising campaign and targeted marketing to eyecare
practitioners.
Research and development expenses for the nine months ended September 28,
1996 increased by $0.3 million, or 9.1%, to $3.8 million from $3.5 million for
the nine months ended September 30, 1995. As a percentage of net sales,
research and development expenses for the nine months ended September 28, 1996
decreased to 3.9% from 4.4% in the prior year period.
Income from operations for the nine months ended September 28, 1996
increased by $14.8 million to income of $8.7 million from a loss of $6.1
million for the nine months ended September 30, 1995. Income from operations
in the 1996 period was reduced by $6.6 million of amortization related to the
inventory step-up in the Wesley Jessen Acquisition. Excluding the impact of
the inventory step-up, income from operations would have increased $21.4
million to income of $15.4 million from a $6.1 million loss in the comparable
period. Most of this increase resulted from the substantial improvement in the
Company's gross margin resulting from improved plant utilization and overall
cost reductions.
Interest expense for the nine months ended September 28, 1996 decreased by
$1.0 million, to $2.8 million, from $3.7 million for the nine months ended
September 30, 1995. This decrease is primarily attributable to a decrease in
overall leverage due to the reduction of debt from operating cash flow.
Other income for the nine months ended September 28, 1996 includes $3.5
million of non-recurring income relating to the May 1996 grant of a license to
a third party relating to one of the Company's patents. Other income for the
nine months ended September 30, 1995 includes $1.2 million of non-recurring
licensing income.
45
<PAGE>
Income (loss) before income taxes increased $17.9 million to income of $9.5
million from a $8.4 million loss in the comparable 1995 period. Excluding the
$6.6 million inventory step-up included in the nine months ended September 28,
1996, income before taxes would have increased $24.5 million to income of
$16.1 million from a $8.4 million loss in the comparable period.
Income taxes for the nine months ended September 28, 1996 increased by $5.1
million to $1.6 million from a benefit of $3.5 million for the nine months
ended September 30, 1995. As a percentage of income (loss) before income
taxes, income tax expense was 17.1% in the 1996 period due to the favorable
impact of income tax credits derived from the Company's operations in Puerto
Rico (under Section 936 of the U.S. Internal Revenue Code). As a percentage of
income (loss) before income taxes on a pro forma basis, the income tax benefit
was 41.6% in the 1995 period.
Net income (loss) for the nine months ended September 28, 1996 increased by
$12.8 million to income of $7.9 million from a loss of $4.9 million for the
nine months ended September 30, 1995. This increase resulted from improvement
in the Company's gross margin and tax rate, which was partially offset by the
amortization related to the inventory step-up in the 1996 period.
UNAUDITED PRO FORMA COMBINED YEAR ENDED DECEMBER 31, 1995 COMPARED TO
PREDECESSOR YEAR ENDED DECEMBER 31, 1994
Prior to June 28, 1995 the Predecessor was a wholly owned subsidiary of
Schering-Plough. The discussion that follows compares the Company's pro forma
combined results of operations for the year ended December 31, 1995, which
give effect to the Wesley Jessen Acquisition as if it had occurred as of
January 1, 1995, to the results of operations for the Predecessor for the year
ended December 31, 1994.
Net sales for the year ended December 31, 1995 decreased by $4.3 million, or
3.9%, to $105.3 million from $109.6 million for the year ended December 31,
1994. This decline reflects: (i) the one-time positive impact in 1994 of
initial trade orders of FreshLook disposable contact lenses associated with
the product launch; (ii) price changes implemented in early 1995 (prior to the
Wesley Jessen Acquisition); and (iii) the impact of new management's efforts
to reduce high trade inventory levels following the Wesley Jessen Acquisition.
The Company believes that steps taken by management subsequent to the Wesley
Jessen Acquisition better positioned the Company for future growth and that
the number of wearers of its products increased during 1995.
Gross profit in 1995 increased by $22.8 million, or 51.9%, to $66.9 million
from $44.0 million in 1994. Gross profit margin increased to 63.5% in 1995
from 40.2% in the prior year. Gross profit in 1995 was negatively impacted by
a write-off of $2.2 million related to conventional lens inventory that was
produced prior to the Wesley Jessen Acquisition and that did not meet new
management's higher standards for customer satisfaction. Additionally, costs
of goods sold for the year ended December 31, 1995 includes $5.2 million less
depreciation than the comparable period due to the Company's application of
purchase accounting for the Wesley Jessen Acquisition. Management believes
that the gross margins recorded in 1994 are not comparable to the ongoing
level of operations of the business because of inventory write-offs and
manufacturing start-up costs incurred which were associated with the Company's
launch of disposable lenses which began in the United States in the fall of
1994. In particular, the Company experienced substantial product returns and
inventory write-offs of first generation FreshLook lenses upon the
introduction of a second generation FreshLook lens in 1995. Gross profit in
1994 was negatively impacted by a write-off of $10.1 million of first-
generation inventory and $15.3 million of start-up costs associated with the
FreshLook launch. Excluding the impacts outlined above, gross profit would
have been $69.1 million for 1995 and $74.7 million in 1994 and gross margins
would have been 65.6% and 68.1%, respectively. This decline is due to a shift
to lower margin disposable products as a percentage of total sales, coupled
with increased price discounts to distributors in the first half of 1995.
Marketing and administrative expenses in 1995 decreased by $10.0 million, or
12.7%, to $69.2 million from $79.2 million in 1994. As a percentage of net
sales, marketing and administrative expenses decreased to 65.7% in 1995 from
72.2% in 1994. Approximately $1.5 million of this reduction is due to a
decrease in depreciation
46
<PAGE>
expense associated with the 1995 write-down of fixed assets as a result of the
Company's application of purchase accounting. The remaining cost savings are
due largely to reductions in staffing as a result of the Wesley Jessen
Acquisition.
Research and development expenses in 1995 decreased by $5.2 million, or
52.5%, to $4.7 million from $9.8 million in 1994. As a percentage of net
sales, research and development expenses decreased to 4.4% in 1995 from 9.0%
in 1994. Expenses decreased due to the completion of development associated
with the launch of FreshLook disposable lenses and personnel reductions
effected in conjunction with the Wesley Jessen Acquisition.
Loss from operations for the year ended December 31, 1995 improved by $44.3
million, to a loss of $6.2 million from a loss of $50.5 million for the year
ended December 31, 1994. Most of this improvement resulted from the non-
recurrence of the write-offs and start-up manufacturing costs incurred in 1994
as a result of the FreshLook launch.
Management has not included discussions of interest expense, tax expense and
net income because they believe that these items are not reflective of the
Company's ongoing operations given the Predecessor's status during a portion
of this time period as a wholly owned subsidiary of Schering-Plough.
PREDECESSOR YEAR ENDED DECEMBER 31, 1994 COMPARED TO PREDECESSOR YEAR ENDED
DECEMBER 31, 1993
Net sales for the year ended December 31, 1994 increased $6.3 million, or
6.0%, to $109.6 million from $103.4 million in the year ended December 31,
1993. This growth resulted from the initial U.S. launch of FreshLook
disposable lenses and continued penetration of FreshLook disposable lenses
internationally.
Gross profit in 1994 decreased $2.6 million to $44.0 million from $46.6
million in 1993. Gross profit margin decreased from 45.1% in 1993 to 40.2% in
1994. Gross margins in 1993 and 1994 include substantial inventory write-offs
and manufacturing start-up costs associated with the launch of the Company's
disposable lenses in Europe in 1993 and in the United States in 1994. Gross
profit for 1994 was negatively impacted by a write-off of $10.1 million of
first generation lens inventory and $15.3 million of manufacturing start-up
costs associated with the FreshLook launch. Gross profit for 1993 was
negatively impacted by a write-off of $0.7 million of first generation lens
inventory and $17.6 million of start-up costs associated with the FreshLook
launch. Excluding these start-up losses, gross profit would have been $69.5
million in 1994 and $64.8 million in 1993. Gross margins would have been 63.4%
and 62.7%, respectively.
Marketing and administrative expenses in 1994 increased by $19.4 million, or
32.5%, to $79.2 million from $59.8 million the prior year. As a percentage of
net sales, marketing and administrative expenses increased to 72.2% in 1994
from 57.8% in 1993. Increased marketing spending for FreshLook disposable
lenses accounted for $11.8 million of this increase, with the remainder
reflecting overall increases in staffing levels.
Research and development expenses in 1994 decreased to $9.8 million from
$10.3 million in 1993. As a percentage of net sales, research and development
expenses were 9.0% in 1994, versus 9.9% in 1993.
Loss from operations decreased $21.5 million to a loss of $50.5 million in
1994 from a loss of $28.9 million in 1993. The losses in both periods
primarily reflect the write-offs and start-up manufacturing costs associated
with the launch of FreshLook disposable lenses in 1993 and 1994.
Management has not included discussions of interest expense, tax expense and
net income because they believe that these items are not reflective of the
Company's ongoing operations given the Predecessor's status during this time
period as a wholly owned subsidiary of Schering-Plough.
BARNES-HIND
Wesley Jessen acquired all of the assets and assumed certain liabilities of
Barnes-Hind from Pilkington on October 2, 1996. The discussion that follows
compares Barnes-Hind's results of operations while under the control of
Pilkington and may not be representative of its results following its
acquisition by Wesley Jessen.
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<PAGE>
Net sales for the year ended March 31, 1996 ("fiscal 1995") increased $7.6
million, or 6.1%, to $132.6 million from $125.0 million for the year ended
March 31, 1995 ("fiscal 1994"). This increase in revenue was due to continued
growth in Barnes-Hind's disposable lenses, particularly the recently
introduced Precision UV disposable lens, which was partially offset by a
decline in the conventional lens business. Geographically, sales were
strongest in international markets due to a full year impact of Precision UV
as well as growth in private label sales in Europe and Japan.
Gross profit for fiscal 1995 increased $6.7 million, or 10.7%, to $69.2
million from $62.6 million for the prior year. Gross margins increased from
50.0% in fiscal 1994 to 52.2% in fiscal 1995 due to overhead reduction in
manufacturing and a decrease in the production cost of disposable lenses
through the increased use of automated manufacturing processes.
Research and development expenses in fiscal year 1995 decreased by $2.4
million, or 23.6%, to $7.9 million from $10.3 million in fiscal year 1994. As
a percentage of net sales, research and development expenses for fiscal 1995
decreased to 5.9% from 8.3% in fiscal 1994. This decrease was due to the
completion of primary development activities associated with the launch of
Precision UV products.
Selling and marketing expenses for fiscal 1995 increased by $5.7 million, or
15.1%, to $43.3 million from $37.6 million in fiscal 1994. As a percentage of
net sales, selling and marketing expenses increased to 32.7% from 30.1%,
largely due to increased promotional expenses from the launch of Precision UV
in the United States and its expansion into Europe. Additionally, marketing
and selling expenses for fiscal 1995 included a non-recurring $1.0 million
restructuring charge relating to consolidation of the European distribution
infrastructure.
General and administrative expenses for fiscal 1995 increased by $1.0
million, or 4.7%, to $22.5 million from $21.5 million for fiscal 1994. As a
percentage of sales, general and administrative expenses for fiscal 1995
decreased to 17.0% from 17.2% in fiscal 1994.
Income taxes. Despite operating losses, Barnes-Hind incurred income tax
expense of $2.7 million and $3.1 million in fiscal 1994 and fiscal 1995,
respectively. These tax provisions reflect Barnes-Hind as if it were a
separate taxable entity and represent international tax obligations resulting
from its transfer pricing system. The provisions of this transfer pricing
system were determined by the needs of the other members of the Pilkington
consolidated group. These tax obligations are not reflective of the ongoing
tax obligations of Barnes-Hind once acquired by Wesley Jessen.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the Wesley Jessen Acquisition, the financing requirements of the
Company were funded by Schering-Plough through intercompany transfers. Such
transfers were significant because of the substantial operating losses
incurred by the Predecessor and the magnitude of its liquidity requirement.
Since the Wesley Jessen Acquisition, the Company has financed its operations
primarily through funds provided from operations and through borrowings under
a revolving credit facility. Net cash provided by operating activities for the
period from June 29, 1995 through December 31, 1995 totaled approximately $4.0
million. For the nine months ended September 28, 1996, the Company generated
approximately $22.4 million in cash from operating activities, primarily as a
result of increases in profitability, decreases in accounts receivable and
inventories and a decrease in accounts payable. In particular, accounts
receivable have decreased by $2.9 million and inventory has decreased by $9.7
million (excluding the inventory step-up) from the time of the Wesley Jessen
Acquisition through September 28, 1996 as a result of implementation of more
stringent sales terms and improved inventory management. Since the Wesley
Jessen Acquisition and through September 28, 1996, the Company has reduced the
debt incurred in connection therewith by $14.5 million.
During the period from June 29, 1995 to December 31, 1995 and for the nine
months ended September 28, 1996, the Company made capital expenditures of
approximately $0.9 million and $3.7 million, respectively. The majority of
these capital expenditures were for equipment maintenance and improvement.
Barnes-Hind incurred
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<PAGE>
capital expenditures of $12.9 million and $13.6 million in fiscal 1994 and
fiscal 1995, respectively. Approximately $5.0 million of this spending funded
improvements in information technology. The remainder was primarily spent on
improving manufacturing efficiencies, including the partial automation of the
United Kingdom disposable lens manufacturing lines. The Company has currently
budgeted approximately $18.0 million of capital expenditures for the remainder
of 1996 and 1997 to (i) facilitate the consolidation of the businesses; (ii)
complete the installation of the Company's software information system; and
(iii) complete the automation of the Company's Southampton manufacturing
facility. The Company expects to fund these capital expenditures primarily
from cash generated from operating activities and borrowings under its
revolving credit facility.
In connection with the Wesley Jessen Acquisition, the Company initiated a
series of restructuring activities as part of its cost rationalization
program. As part of such acquisition, Schering-Plough agreed to incur the
significant one-time expenses associated with the elimination of approximately
430 positions. In addition, the Company has expended $3.7 million in cash in
the fifteen months since the acquisition to close facilities. Following the
Barnes-Hind Acquisition, the Company expects to spend $20.4 million related
primarily to severance, retention bonuses and lease expense on vacated
facilities during the integration period, which has been recorded in
connection with the Company's purchase accounting for the Barnes-Hind
Acquisition. Management expects that this restructuring will be substantially
completed by September 1998.
As a result of both the Wesley Jessen Acquisition and the Barnes-Hind
Acquisition, the Company's borrowings under its Bank Credit Agreement
increased significantly as did its liquidity requirements. As of September 28,
1996 on a pro forma basis, the Company had approximately $43.4 million in
borrowing availability under the revolving credit facility portion of the Bank
Credit Agreement. The Bank Credit Agreement imposes certain restrictions on
the Company, including restrictions on its ability to incur indebtedness,
declare dividends or other distributions, make investments and capital
expenditures, grant liens, sell its assets and engage in certain other
activities. In addition, the indebtedness of the Company under the Bank Credit
Agreement is secured by substantially all of the assets of the Company,
including the Company's real and personal property, inventory, accounts
receivable, intellectual property and other tangible assets. See "Description
of Certain Indebtedness--Bank Credit Agreement."
Management believes that based on current levels of operations and
anticipated internal growth, cash flow from operations, together with other
available sources of funds including borrowings under the Bank Credit
Agreement and available cash on hand at September 28, 1996 of $1.0 million
(giving pro forma effect to the Barnes-Hind Acquisition), will be adequate
over the next twelve months to make required payments of principal and
interest on the Company's indebtedness, to fund anticipated capital
expenditures and working capital requirements, including the aforementioned
restructuring costs, and to enable the Company and its subsidiaries to comply
with the terms of their debt agreements. However, actual capital requirements
may change, particularly as a result of any acquisitions which the Company may
make. The ability of the Company to meet its debt service obligations and
reduce its total debt will be dependent, however, upon the future performance
of the Company and its subsidiaries which, in turn, will be subject to general
economic conditions and to financial, business and other factors, including
factors beyond the Company's control. A portion of the consolidated debt of
the Company bears interest at floating rates; therefore, the Company's
financial condition is and will continue to be affected by changes in
prevailing interest rates. The Company expects to enter into an interest rate
protection agreement to limit the impact from a rise in interest rates.
The Company expects to use the $45.2 million of estimated net proceeds from
the Offering to repay certain outstanding indebtedness incurred in connection
with the Barnes-Hind Acquisition and to pay a fee to Bain Capital in
consideration of services rendered under, and the termination of, the Advisory
Agreement. See "Use of Proceeds."
In connection with the Barnes-Hind Acquisition, the Company entered into a
voluntary consent order with the FTC, which provides, among other things, that
the Company must divest the Barnes-Hind's U.S. Natural Touch Product Line. The
Company does not believe the timing or magnitude of the proceeds to be
received in conjunction with the divestiture will be material to its liquidity
or cash flows during such period. See "Business--Required Divestiture."
49
<PAGE>
Based upon discussions with its principal lender under the Bank Credit
Agreement, the Company expects to refinance its existing indebtedness under
the Bank Credit Agreement upon consummation of the Offering. The Company
expects that the New Bank Credit Agreement will provide for borrowings of up
to $100.0 million and have a scheduled maturity in 2002. The Company
anticipates that the New Bank Credit Agreement will be secured by
substantially all of the assets of the Company and generally will contain
restrictive covenants, financial tests and events of default similar to those
in the Bank Credit Agreement. The Company expects that the New Bank Credit
Agreement will contain better pricing terms than the Bank Credit Agreement. To
date, no definitive agreements have been executed and, as a result, no
assurance can be given that the New Bank Credit Agreement will be executed on
such terms or entered into at all.
More than 40% of the Company's net sales for the twelve months ended
September 28, 1996 on a pro forma basis were to international customers and
the Company expects that sales to international customers will continue to
represent a material portion of its net sales. Historically, fluctuations in
foreign currency exchange sales have not had a material affect on the
Company's results of operations and the Company does not expect such
fluctuations to be material in the foreseeable future. See "Risk Factors--
Risks Associated with International Sales."
SEASONALITY
Historically, the Company has experienced limited seasonality, with slightly
greater revenues in the quarters ended June and September and slightly lower
revenues in the quarters ended March and December. Barnes-Hind has experienced
the greatest revenues in the quarter ended March given that this quarter
coincided with its fiscal year end and its annual price increases. This
seasonality may not be representative of Barnes-Hind's seasonality following
its acquisition and ongoing modification to its pricing, promotion and
distribution strategies. The following table sets forth the unaudited
operating results of the Company for the last four fiscal quarters (prior to
the Barnes-Hind Acquisition), net of the impact of the inventory step-up.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------
DECEMBER 31, MARCH 31, JUNE 29, SEPTEMBER 28,
1995 1996 1996 1996
------------ --------- -------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales.................. $27,257 $30,147 $32,250 $33,651
Gross profit............... 17,017 21,686 22,277 25,614
EBITDA (a)................. (309) 3,900 5,171 5,865
Income (loss) from
operations................ (113) 4,096 5,305 5,964
</TABLE>
- --------
(a) "EBITDA" is defined herein as income from operations plus depreciation and
amortization expense, non-recurring charges and other non-cash expense
items. The Company uses EBITDA in the management of its business and in
the evaluation of acquisition candidates. The Company understands that
while EBITDA is frequently used by security analysts in the evaluation of
companies, it is not necessarily comparable to other similarly titled
captions of other companies due to potential inconsistencies in the method
of calculation. EBITDA is not intended as an alternative to cash flow from
operating activities as a measure of liquidity, an alternative to net
income as an indicator of the Company's operating performance or any other
measure of performance in accordance with generally accepted accounting
principles.
INFLATION
Management believes that inflation has not had a material impact on results
of operations for the Company or the Predecessor during the three years ended
December 31, 1995 and the nine months ended September 28, 1996.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
During the first quarter of 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires
companies to review long-lived assets and certain identifiable intangibles for
50
<PAGE>
impairment whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. The adoption of SFAS
No. 121 did not have a significant impact on the financial condition or
results of operations of the Company.
SFAS No. 123, "Accounting for Stock-Based Compensation" encourages, but does
not require, a fair market value based method of accounting for employee stock
options or similar equity instruments. The Company has elected to continue to
measure compensation cost under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" as was previously required, and to
comply with pro forma disclosure of net income and earnings per share as if
the fair market value based method of accounting had been applied.
51
<PAGE>
BUSINESS
Wesley Jessen is the leading worldwide developer, manufacturer and marketer
of specialty soft contact lenses, based on its share of the specialty lens
market. The Company's products include cosmetic lenses, which change or
enhance the wearer's eye color appearance; toric lenses, which correct vision
for people with astigmatism; and premium lenses, which offer value-added
features such as improved comfort for dry eyes and protection from UV light.
The Company offers both conventional contact lens products, which can
typically be used for up to 24 months, and a broad range of disposable lenses,
which are intended to be replaced at least every two weeks. Founded in 1946 by
pioneers in the contact lens industry, the Company has a long-standing
reputation for innovation and new product introductions. The Company was
acquired by Bain Capital and management in June 1995, and in October 1996 the
Company strengthened its product, technology and distribution capabilities
through the acquisition of Barnes-Hind. For the LTM period, the Company's pro
forma net revenues were $247.2 million and its pro forma operating profit was
$24.3 million.
The Company operates primarily in the specialty segment of the soft lens
market, where it has the leading share in each of the cosmetic and premium
lens segments and the second leading share in the toric lens segment. The
Company has the leading position in the specialty segment of the soft lens
market as a whole, which accounts for one-third of industry sales volume and
is projected to grow at approximately 15% per year through the year 2000. In
recent years, in both the clear and specialty lens segments, there has been a
pronounced shift in consumers' preferences toward disposable lenses and away
from conventional lenses, which has led to a significant increase in contact
lens expenditures per wearer. The Company estimates that currently more than
35% of U.S. soft lens wearers use disposable lenses, up from 21% in 1992. The
Company believes that its leading portfolio of disposable specialty lenses has
positioned it to benefit from the preference shift toward disposable lenses.
The Company also offers a complete line of conventional and disposable clear
lenses, which are positioned as companion products to the Company's cosmetic
lenses.
According to an independent research firm, more than 70% of all contact lens
in the United States offer the Company's products, which permits the Company
to rapidly launch new categories of products. Wesley Jessen develops
technology, manufacturing processes and products through a combination of its
in-house staff of more than 50 engineers and scientists and Company-sponsored
research by third-party experts. The Company markets and sells its products
(i) to consumers through the second largest advertising campaign in the
industry and (ii) to eyecare practitioners through its 180-person salesforce
and network of 60 independent distributors, which together sell the Company's
products in more than 75 countries.
The Company was founded by Drs. Newton K. Wesley and George Jessen, who went
on to pioneer the design, manufacture and fitting techniques of hard contact
lenses. From 1980 to 1995, the Company operated as a wholly owned subsidiary
of Schering-Plough. On June 28, 1995, Bain Capital and the Management
Investors acquired the Predecessor in the Wesley Jessen Acquisition. On
October 2, 1996, the Company acquired Barnes-Hind, the third largest
manufacturer of speciality contact lenses in the world, with a leading market
position in premium and toric lenses.
INDUSTRY OVERVIEW
Industry analysts estimate that over 50% of the world's population needs
some type of corrective eyewear. In the United States alone, there are nearly
153 million people who require some form of corrective eyewear. Most
individuals who wear contact lenses begin to do so in their early teens and
the majority of wearers are between the ages of 18 and 39. The Company
believes that the number of contact lens wearers will expand as technology
improves the convenience, comfort and fit of contact lenses, so that lenses
provide cost-effective and comfortable vision correction to a larger segment
of the population.
The contact lens industry is large and rapidly growing. In 1995,
manufacturers' sales of contact lenses worldwide totaled $1.8 billion,
representing a compound annual growth rate of 11% from $1.1 billion in 1990.
According to industry analysts, the U.S. market for contact lenses is expected
to grow approximately 10% per
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<PAGE>
year through the year 2000. The Company believes that market growth outside
the United States will likely exceed domestic growth because of lower contact
lens penetration rates internationally. Since 1991, the number of contact lens
wearers in the United States has increased by 4.2% per year while revenue per
wearer has increased by 6.5% per year as conventional users have shifted to
more costly specialty and disposable lenses. While the market for hard contact
lenses had been relatively flat since 1991 with approximately 6 million U.S.
wearers, the number of people wearing soft contact lenses has grown at a
compound annual growth rate of 5.3% since that time.
The contact lens industry can be divided into the soft lens portion, which
represents approximately 80% of U.S. wearers, and the hard lens portion
(primarily rigid gas permeable ("RGP")), which represents approximately 20% of
U.S. wearers. Within the soft contact lens market, there are three principal
replacement regimes: conventional, disposable and planned replacement.
Conventional lenses are typically replaced after 12 to 24 months and require
periodic cleaning throughout the life of the lens. Disposable soft contact
lenses were introduced in the late 1980s based on the concept that changing
lenses on a more frequent basis helped to improve comfort, convenience and
health of the eye for many wearers. Disposable lenses are changed as often as
daily and up to every two weeks depending on the product. Planned replacement
lenses are designed to be changed as often as every month and up to every
three months and currently represent a small portion of the overall soft lens
market.
The two primary segments within the soft lens market are clear and
specialty. Clear lenses (lenses that do not provide value-added features that
specialty lenses offer) represent approximately 67% of the U.S. soft lens
market and include both conventional and disposable products. Growth in the
clear lens segment has been driven by growth in the population of 14- to 25-
year-olds (the prime age group for new lens wearers), the substitution of soft
for hard contact lenses and the continuous evolution in the contact lens
market toward more frequent replacement of contacts.
Specialty lenses represent the remaining 33% of the U.S. soft lens market
and generally command a premium price because they are designed for patients
who have a medical need for a specialized lens or who desire a lens with
additional features. Specialty lenses include cosmetic lenses (which change or
enhance the natural color of eyes while correcting vision), toric lenses (for
astigmatics) and premium lenses that offer protein deposit resistance,
improved visual acuity, enhanced comfort for dry eyes or UV protection.
Disposable lenses have recently been introduced into the specialty segment and
are expected to gain market share. The specialty lens segment of the soft
contact lens market has higher projected growth rates than the clear lens
segment. For the period from 1993 to 1996, the number of specialty lens
wearers has increased at a rate of 8% per year as compared to a 4% increase in
the number of clear lens wearers. The Company believes that continued rapid
growth in sales of specialty lenses will result from (i) the continued trend
toward disposables; (ii) increased awareness among consumers and eyecare
practitioners of the value-added features available with specialty lenses; and
(iii) new product innovations, such as disposable toric contact lenses, new
cosmetic designs, UV protection lenses and effective bifocal contact lenses.
An important characteristic of the contact lens industry is that an
individual's need for corrective eyewear is chronic. The need for vision
correction is often diagnosed at an early age and increases over time. Contact
lenses represent an alternative to eyeglasses, while offering improved
peripheral vision and additional features, such as eyecolor enhancement and UV
protection. Contact lens wearers will typically purchase lenses regularly for
several years.
Contact lenses require a prescription specifying a particular brand of
lenses. Such prescriptions are written by either ophthalmologists or
optometrists (referred to in the contact lens industry as "fitters"). An
ophthalmologist is a physician with a Doctor of Medicine ("MD") degree who
specializes in eyecare and an optometrist is a state-licensed eyecare
specialist who holds a Doctor of Optometry ("OD") degree. Fitters have the
ability to influence patients' choice of which contact lens brand they will
wear. Therefore, if a contact lens manufacturer successfully markets its
products to a fitter, that fitter will carry that manufacturer's brand of
contact lenses in inventory and offer it to patients. Once the brand is in the
fitter's inventory, the manufacturer
53
<PAGE>
will likely receive a stream of revenues from new patients for whom the brand
is prescribed as well as from patients who are refitted, change lens types or
need different prescriptions. Also, such manufacturer will be more likely to
successfully place new products in such fitter's inventory. Prescriptions for
contact lenses are filled by either ophthalmologists, optometrists, optical
chains, health maintenance organizations (HMOs), pharmacies or mail order
houses.
The contact lens industry is characterized by high brand loyalty. The
Company believes that wearers resist switching brands once a particular brand
is prescribed and fitted successfully. By staying with an existing brand, a
customer can replace his or her current lens without an eye examination. Even
for an adjusted prescription, customers typically acclimate to a particular
lens design and may experience discomfort if refitted with a new brand.
Typically, only when a customer is experiencing difficulty with a lens or the
customer wants to switch from conventional to disposable lenses or from clear
to specialty lenses will a fitter refit with a different brand of lens. The
Company believes, based on historical patterns in the contact lens industry
that once a product category has matured, brand loyalty causes competitive
market share to remain relatively constant. However, overall market share may
shift because of different growth rates of each category or the creation of
new categories.
No new significant competitors have entered the soft contact lens industry
in the last ten years. To compete successfully in the industry entails
substantial risks and requires significant investment of time and resources.
In particular, the Company believes a new entrant must successfully (i)
develop new innovative product offerings; (ii) master the sophisticated
processes required to manufacture contact lenses; (iii) invest the significant
capital required to develop manufacturing capacity; (iv) overcome existing
patent protections covering the design, materials and manufacturing processes
of contact lenses; and (v) obtain FDA product clearances, each of which may
take several years.
COMPETITIVE STRENGTHS
The Company believes it has achieved its leading worldwide market position
in specialty contact lenses because of the following competitive strengths:
HIGH-QUALITY BRANDED PRODUCTS. Wesley Jessen produces a broad range of
high-quality contact lenses that meet customers' demand for improved
cosmetic, comfort, ease-of-care and vision-correction features and are sold
under brand names recognized by ophthalmologists and optometrists
worldwide. The Company's cosmetic lens products are marketed under the
DuraSoft, Elegance and FreshLook brand names, its toric lenses under the
Optifit, Hydrocurve and CSI brand names, and its premium lenses under the
Gentle Touch, Precision UV, Aquaflex and CSI Clarity brand names. Both
eyecare practitioners and wearers tend to show significant brand loyalty
once a particular brand of lenses is properly fitted and prescribed. As a
result, the Company's large installed base of contact lens fitters and
current wearers affords the Company a recurring revenue stream.
SUCCESSFUL DEVELOPMENT AND INTRODUCTION OF NEW PRODUCTS. The Company has
a strong track record of developing new specialty contact lens products,
with the five new product lines introduced since 1994 accounting for 25% of
the Company's pro forma net revenues in the LTM period. The Company
introduced the first disposable opaque lens and the first disposable lens
that offers UV protection in 1994. The Company believes that being the
first to introduce a new specialized lens is a competitive advantage over
subsequent entrants to that product category because of the significant
brand loyalty in the contact lens industry.
BROAD PATENT PORTFOLIO. Wesley Jessen believes that its intellectual
property, including more than 70 U.S. patents in product design, materials
and manufacturing processes, makes imitation of the Company's products
difficult, supports the Company's strong gross margins and provides the
Company with a competitive advantage. The Company's most important patents
cover the design of its toric lenses; the material, process and design of
clear-pupil cosmetic lenses; and the technology necessary to produce
certain advanced polymer lenses. The Company believes that its patent
portfolio and manufacturing expertise allow it to produce and sell
specialty lens products that are not otherwise available on the market.
54
<PAGE>
ESTABLISHED SALES AND DISTRIBUTION NETWORK. The Company believes its
salesforce and distributor network constitute the largest and most
sophisticated sales organization in the specialty contact lens market. The
Company's salesforce has focused on developing strong relationships with
eyecare practitioners throughout North America, Europe, Asia and Latin
America. Through its sales efforts, the Company seeks to educate and inform
eyecare practitioners as to (i) the breadth of its specialized product
line; (ii) the extent to which they can build their practice through the
use of the Company's products; and (iii) their ability to generate more
revenue per patient by prescribing the Company's value-added lenses instead
of conventional or disposable clear lenses.
STRONG INTERNATIONAL MARKET PRESENCE. On a pro forma basis, Wesley Jessen
derives more than 40% of its net sales from sales outside the United
States, and the Company's specialty contact lens products have leading
market shares in Europe, Japan and Latin America. The Company has over 85
international sales representatives and 60 distributors covering more than
75 countries. The Company believes that such international markets offer
attractive opportunities for increased sales as a result of lower contact
lens penetration rates as compared to the United States.
LOW-COST, PROPRIETARY MANUFACTURING CAPABILITIES. The Company produces
substantially all of its contact lens products in four state-of-the-art
manufacturing facilities, which apply proprietary technology, allow the
Company to be a flexible, low-cost manufacturer of specialty lenses and
have excess capacity sufficient to meet the Company's rapidly growing needs
for several years. The Company believes that it enjoys a competitive
advantage over other contact lens manufacturers as a result of its ability
to produce cost-effective specialized contact lenses using short production
runs. Consequently, the Company can offer approximately 180,000 stock-
keeping units (SKUs). Furthermore, the Company's manufacturing operations
in Puerto Rico provide it with significant tax benefits.
EXPERIENCED MANAGEMENT WITH A PROVEN RECORD OF IMPROVING PROFITABILITY.
The Company's senior management, who on average have more than 10 years of
experience in the contact lens industry, have increased the Company's
operating margin 44 percentage points, comparing the Predecessor's period
from January 1, 1995 through June 28, 1995 to the Company's period from
January 1, 1996 through June 29, 1996. This operating improvement was
accomplished through the successful implementation of cost reduction
programs, rationalization of manufacturing processes, refocusing of
research and development programs, and execution of targeted marketing
strategies. Furthermore, certain of the Company's key managers, including
the Company's President and Chief Financial Officer, have significant
experience with the operations of Barnes-Hind, having managed it profitably
prior to its sale to Pilkington in 1987.
GROWTH STRATEGY
The Company's principal objective is to expand its contact lens business in
the faster-growing specialty segments of the market in order to achieve
continued growth in revenues and operating profit. The Company's continuing
business strategy is to:
CAPITALIZE ON FAVORABLE INDUSTRY TRENDS. According to industry analysts,
the number of soft contact lens wearers in the United States has increased
from 19 million in 1990 to over 23 million in 1995. The Company estimates
that the number of soft contact lens wearers will increase by approximately
5% annually through the year 2000 as soft contact lenses continue to gain
popularity and the number of 14- to 25-year-olds (the prime age group for
new lens wearers) increases. In addition, there has been an ongoing shift
among wearers from conventional lenses to more profitable disposable lenses
as well as from clear lenses to specialty lenses, which favors the
Company's product line, including its recently introduced FreshLook
disposable cosmetic lenses and Precision UV disposable premium lenses.
INCREASE THE COMPANY'S MARKET SHARE. The Company employs a two-pronged
marketing strategy to increase Wesley Jessen's market share, using both
direct consumer advertising and targeted marketing to eyecare
practitioners. The Company has spent approximately $10.0 million on a
national consumer advertising campaign featuring Christy Turlington to
raise brand awareness and demand among consumers. In addition, the Company
uses its highly trained salesforce to market its specialty lens products to
eyecare
55
<PAGE>
practitioners. The salesforce seeks to train new ODs and MDs to fit the
Company's lenses and to educate eyecare practitioners as to the value-added
features and revenue potential of the Company's products.
DEVELOP AND SUCCESSFULLY LAUNCH NEW PRODUCTS. The Company's research and
development program is geared toward developing new products with
commercial appeal, particularly category-creating products (such as the
Company's new line of disposable lenses offering UV protection), as
industry dynamics have historically provided considerable advantages to a
firm that successfully introduces the first product in a category. In the
last twelve months, the Company has introduced four new products or line
extensions, including disposable color-enhancing lenses for light eyes,
custom toric lenses, custom cosmetic lenses and cosmetic lenses for
patients with farsightedness. The Company currently has several new
products and product line extensions in various stages of development. See
"--Research and Development."
INCREASE THE INTERNATIONAL PENETRATION OF ITS PRODUCTS. The Company
believes that several international markets, particularly Europe, Japan and
Brazil, offer significant opportunities for growth. In Europe, the Company
intends to expand its direct sales organization, and in Japan, the Company
will continue to develop strategic partnerships with leading local
manufacturers and distributors.
REALIZE SYNERGIES THROUGH THE INTEGRATION OF BARNES-HIND. The Company's
acquisition of Barnes-Hind has created a number of significant
opportunities to improve the Company's results of operations. While Wesley
Jessen and Barnes-Hind had roughly equivalent net sales in the twelve
months ended September 28, 1996, Wesley Jessen employed approximately 1,000
persons as of that date whereas Barnes-Hind employed approximately 1,600
persons. Consequently, the Company believes that substantial cost savings
are available through personnel reductions. In addition, the Company is in
the process of moving operations currently performed at Barnes-Hind's
Sunnyvale, California facility to the Company's facility in Des Plaines,
Illinois. Management plans to implement other identified cost reductions
and to seek further cost savings opportunities, including personnel
reductions and facilities consolidation. Finally, the Company believes
there are significant cross-selling opportunities available to sell Barnes-
Hind products to current Wesley Jessen customers and vice versa.
BENEFIT FROM THE COMPANY'S SIGNIFICANT OPERATING LEVERAGE. The Company
plans to further improve its results of operations by utilizing excess
manufacturing capacity, investing in new low-cost manufacturing
technologies and achieving economies of scale in development, manufacturing
and distribution. The Company enjoys significant operating leverage (i.e.,
a disproportionately greater impact on earnings resulting from a change in
revenues) due to significant fixed-cost components of the Company's
manufacturing operations, research and development program and marketing
efforts. Because the Company's disposable lens manufacturing facilities are
currently operating at approximately 60% of their capacity, increased
production volumes through the addition of new lens wearers to the
Company's customer base generally should not require the incurrence of
significant additional costs.
The Company regularly considers the expansion of its contact lens business
through acquisitions, joint ventures and other strategic alliances. Through
such arrangements, the Company will seek to broaden its product lines within
the contact lens industry and its geographic coverage and to acquire
complementary product lines.
56
<PAGE>
PRODUCTS
The following table sets forth the approximate composition, by product line,
of the Company's net sales for the twelve months ended September 28, 1996 on a
pro forma basis.
NET SALES BY PRODUCT LINE
(dollars in thousands)
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED SEPTEMBER 28,
1996
----------------------
PRODUCT LINE AMOUNT PERCENT
------------ ----------- ----------
<S> <C> <C>
Specialty Lenses:
Cosmetic.......................................... $ 89,506 36%
Toric............................................. 40,542 17
Premium........................................... 60,316 24
----------- -------
Total Specialty Lenses.......................... 190,364 77
Clear Lenses........................................ 48,992 20
Hard/Other Lenses................................... 7,855 3
----------- -------
Total Lenses.................................... $ 247,211 100%
=========== =======
</TABLE>
SPECIALTY LENSES. The Company's products primarily consist of specialty soft
contact lenses, including cosmetic, toric and premium lenses. With the
broadest product offering in the industry, the Company captured over 36% of
the U.S. specialty lens market in 1995. For the twelve months ended September
28, 1996, the Company's specialty lenses generated approximately $190.4
million in net sales worldwide on a pro forma basis. The Company's specialty
soft contact lens products include the following:
Cosmetic Lenses. Cosmetic lenses enhance or change the color of a wearer's
eyes. The Company's opaque color lenses, which change the color of dark eyes
(e.g., brown to green), utilize a patented dot matrix technology that the
Company believes allows for superior cosmetic appeal. As a result, the
Company's opaque cosmetic lens products have become the standard in the
market. In early 1996, the Company introduced its new enhancer color lenses,
which enhance the natural color of light eyes and which the Company believes
will become the market standard due to its patented color printing process
that allows the pupil-covering zone of the lens to remain clear. The Company
manufactures a complete line of cosmetic lenses, including: (i) the
conventional DuraSoft 2 daily wear lens, which is removed and cleaned daily
and typically is replaced after 12 to 24 months; (ii) the conventional
DuraSoft 3 extended wear lens, which can be worn overnight for up to seven
days and is also typically replaced after 12 to 24 months; and (iii) the
disposable FreshLook contact lens, which is typically replaced every two
weeks. With the broadest product offering in the cosmetic lens segment, the
Company captured over 38% of the U.S. cosmetic lens market in 1995. For the
twelve months ended September 28, 1996, the Company's cosmetic lenses
generated over $89.5 million in net sales worldwide on a pro forma basis.
Toric Lenses. Toric lenses are designed to correct vision for people with
astigmatism, which is characterized by an irregularly shaped cornea. Prior to
the introduction of the Company's toric lenses and other competing products in
the late 1980s, this condition was not effectively correctable through the use
of soft contact lenses. Approximately 30% of the U.S. population requiring
vision correction are diagnosed with astigmatism, of which only 5% currently
wear soft contact lenses. The Company's Optifit, Hydrocurve and CSI toric
lenses captured over 20% of the U.S. toric lens market in 1995. For the twelve
months ended September 28, 1996, the Company's toric lenses generated over
$40.5 million in net sales worldwide on a pro forma basis.
Premium Lenses. Premium lenses offer the wearer value-added features such as
protein deposit resistance, improved visual acuity, enhanced comfort for dry
eyes and UV protection. The Company manufactures the premium CSI Clarity lens,
which has long been regarded by eyecare practitioners and optical retailers as
having superior visual acuity and deposit resistance. The Company also
recently introduced Precision UV, the first disposable lens available with UV
protection, which is quickly gaining share from many clear disposable lenses.
57
<PAGE>
The Company's market research suggests that some 90% of contact lens wearers
are interested in lenses offering UV protection. The Company's Gentle Touch
product, which is typically replaced every three months, was the first lens
designed specifically for and approved by the FDA for use without intensive
cleaning or special handling required of conventional lenses and offers the
unique combination of enhanced comfort for dry eyes, deposit resistance and
low cost relative to disposable alternatives. The Company captured 92% of the
U.S. premium lens segment in 1995. For the twelve months ended September 28,
1996, the Company's premium lenses generated over $60.3 million in net sales
worldwide on a pro forma basis.
The following table sets forth certain of the brand names under which the
Company's specialty contact lenses are sold:
<TABLE>
<CAPTION>
TYPE OF LENS SPECIALTY CONTACT LENS
- ------------------- -----------------------------------------------------------
COSMETIC TORIC PREMIUM
------------------- ------------------- -------------------
<S> <C> <C> <C>
Conventional: DuraSoft CSI Aquaflex
Elegance (a) Optifit CSI Clarity
Natural Touch (a) Hydrocurve Hydrocurve
Disposable/ Planned FreshLook Colors Gentle Touch
Replacement: FreshLook Enhancers FreshLook (b) Precision UV
</TABLE>
- --------
(a) Used only in international markets.
(b) Currently under development.
The Company has successfully entered into the private label market with the
offering of a private label UV protection lens. The Company sells its
specialty contact lenses under private label primarily in Japan, the United
Kingdom and France. The Company believes that private label offer significant
growth opportunities due to the Company's unique product offerings and low-
cost manufacturing capabilities.
CLEAR LENSES. Wesley Jessen manufactures a complete line of conventional and
disposable clear lenses that are positioned as companion lenses to the
DuraSoft and FreshLook cosmetic product lines. The Company believes that
eyecare practitioners can increase their revenues and profitability, as well
as the value provided to lens wearers, by fitting patients with either a
DuraSoft or FreshLook clear or cosmetic lens and then selling the patient a
companion cosmetic or clear lens with no additional fitting expense. In fact,
approximately 70% of color lens wearers also own clear lenses. Clear lenses
accounted for approximately $49.0 million of the Company's worldwide net sales
for the twelve months ended September 28, 1996 on a pro forma basis.
HARD/OTHER LENSES. The Company also sells Polycon RGP lenses to a large base
of eyecare practitioners who fit RGP lenses. In addition, the Company
manufactures prosthetic lenses, which are custom cosmetic products that return
damaged or disfigured eyes to normal appearance. The Company donates all
profits generated from its prosthetic product line to professional
associations to generate goodwill with eyecare practitioners.
RESEARCH AND DEVELOPMENT
The Company's research and development efforts are focused on product
development and process technology to support its specialty lens business. The
Company maintains a core research and development staff, which oversees the
Company's research projects. Such projects are generally conducted by
independent laboratories and universities at the Company's direction and
expense. The Company's research and development expenses totaled $12.6
million, or 5.1% of net revenues, for the twelve months ended September 28,
1996 on a pro forma basis.
In the last twelve months, the Company has introduced four new products or
line extensions, including disposable cosmetic lenses for light eyes, custom
toric and color lenses and expanded cosmetic powers and colors. The Company
also developed a superior patented UV protection specialty lens for which it
received FDA
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approval in January 1996. The UV protection lens allows the Company to further
penetrate the emerging health-conscious market and permits cross-promotion
with the Company's current specialty lens wearers.
The Company has a history of innovation and new product introductions. The
Company is currently investing in the development of, among other specialty
products, a disposable toric lens, a next generation cosmetic lens, and a new
disposable UV-protection lens. The Company is also investing in the
development of bifocal contact lenses (for persons, typically over age 45, who
experience both farsightedness and nearsightedness) and has received several
patents related to its bifocal lens technology. In the contact lens industry,
no products currently being marketed in the bifocal category have achieved
widespread commercial acceptance, and as a result, the Company believes that a
significant market opportunity is available to the Company if it can harness
its technology to successfully launch bifocal contact lenses. Finally, the
Company has targeted additional research and development projects to cut
manufacturing costs in the cosmetic, premium and toric product lines.
MANUFACTURING
Substantially all of the Company's products are manufactured in the
Company's four principal production facilities, which are located in Cidra,
Puerto Rico; Des Plaines, Illinois; San Diego, California; and Southampton,
United Kingdom. See "--Facilities." The Company utilizes state-of-the-art
manufacturing equipment and process technology to control the quality of its
products and to minimize costs. The Company engages in manufacturing processes
that are designed to handle short production runs. As a result, the Company
believes that it enjoys a competitive advantage over other contact lens
manufacturers because it can be more versatile and cost-competitive in market
segments that require special features and products manufactured to meet more
stringent specifications. The Company's disposable lens manufacturing
facilities are currently operating at approximately 60% of their maximum
capacity.
The Company produces its hard and soft contact lens products primarily
through manufacturing processes known as lathing and cast molding. Lathing is
a machining process through which a piece of rigid lens material is shaped
into a concave form with refractive characteristics by using a high-precision
lathe. Following this machining, soft lenses are hydrated in a saline solution
and sterilized, while RGP lenses are produced using polymers that don't absorb
moisture and do not require sterilization. Lathing technology is particularly
well suited for use in short production runs and is used by the Company to
produce soft lenses at its Cidra, Puerto Rico; San Diego, California; and
Southampton, United Kingdom facilities and to produce RGP lenses at its
Atlanta, Georgia and Farnham, United Kingdom facilities.
The Company also uses cast molded technology to produce its disposable
contact lenses. In this process, a disposable plastic mold is made through the
use of an automated injection molding press containing highly-engineered
optical tooling. A liquid monomer is then dispensed into the mold which
polymerizes to form the lens. In dry cast molding, the lenses are formed in a
rigid state and are hydrated to their final characteristics after being
removed from the mold. In wet cast molding, the lenses are formed fully
hydrated. The Company uses dry cast molded technology at its Southampton,
United Kingdom and Des Plaines, Illinois facilities.
SALES AND MARKETING
The Company has implemented a two-pronged sales and marketing strategy that
reflects the Company's belief that both consumers and eyecare practitioners
are important to the success of the Company's products. To generate consumer
awareness and increase demand for its products, the Company has spent
approximately $10.0 million on a national advertising campaign featuring
Christy Turlington. The Company also has developed cross-promotion programs
designed to increase sales of its cosmetic lenses by offering a set of the
Company's most popular cosmetic lenses with each purchase of a set of six
pairs of clear disposable lenses.
Due to the fitter's influence over a patient's choice of contact lens brand,
the Company believes that developing and maintaining strong relationships with
eyecare practitioners is the most critical aspect of its sales and marketing
strategy. The Company has a salesforce of 180 persons who market the Company's
products to eyecare practitioners. The Company's salesforce seeks to train new
ODs and MDs to fit the Company's lenses
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and to inform such persons of the revenue potential and value-added features
of the Company's products. In marketing to eyecare practitioners, the Company
stresses the quality and features offered by its products, the breadth of its
product line, and the ability of such practitioners to generate more revenue
per patient by offering the Company's value-added products. The Company also
advertises its products to eyecare practitioners through promotional
materials, trade publications and conventions.
The Company currently sells through a direct salesforce in North America,
Europe and Australia. Countries in Europe, Asia and Latin America not directly
served by the Company are serviced by a broad network of distributors. The
Barnes-Hind Acquisition strengthened the Company's global distribution
infrastructure by contributing direct salesforces in Germany, Spain, Belgium,
Netherlands, Luxembourg and Australia, in addition to strengthening existing
salesforces in the United States, France, Italy, Canada and the United
Kingdom.
The following table sets forth the Company's net sales by geographic region
for the twelve months ended September 28, 1996 on a pro forma basis:
NET SALES BY GEOGRAPHIC REGION
(dollars in thousands)
<TABLE>
<CAPTION>
WESLEY JESSEN BARNES-HIND TOTAL
---------------- ---------------- ----------------
REGION AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ -------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
United States ............... $ 78,691 63.8% $ 54,235 43.8% $132,926 53.8%
Europe....................... 17,410 14.1 42,078 34.0 59,488 24.0
Asia Pacific................. 9,137 7.4 19,230 15.5 28,367 11.5
Other........................ 18,067 14.7 8,363 6.7 26,430 10.7
-------- ------- -------- ------- -------- -------
Total ..................... $123,305 100.0% $123,906 100.0% $247,211 100.0%
======== ======= ======== ======= ======== =======
</TABLE>
CUSTOMERS
The Company currently sells its products through a variety of channels
including fitters (MDs, ODs and optical retailers) and distributors who sell
to fitters and lens-replacement suppliers. The Company sells to a highly
fragmented account base with no one customer accounting for more than 5% of
its revenues for the twelve months ended September 28, 1996 on a pro forma
basis. Furthermore, the Company's top 10 customers accounted for less than 25%
of its revenues for the twelve months ended September 28, 1996 on a pro forma
basis.
In the United States, the Company sells to three customer segments: private
practitioners, chain accounts and distributors. There are approximately 17,700
private practitioners (MDs and ODs not affiliated with a retail chain) who fit
the Company's products. In addition, the Company has distribution in over
5,000 retail chain locations, such as Cole National Corporation, LensCrafters,
National Vision Association and Wal-Mart Stores, Inc., that advertise, promote
and fill prescriptions for the Company's products. Distributors supply but do
not fit the Company's lenses. The chart below illustrates the mix of
distribution channels used by Wesley Jessen and Barnes-Hind on a combined
basis in the United States in 1995:
NET SALES BY DISTRIBUTION CHANNEL
(as a percentage of net sales)
<TABLE>
<CAPTION>
PERCENT OF 1995
DISTRIBUTION CHANNEL U.S. SALES
-------------------- ---------------
<S> <C>
Private Practitioners .................................... 45%
Chain Accounts............................................ 23
Distributors.............................................. 32
-----
Total................................................. 100%
=====
</TABLE>
In Europe, key corporate accounts like Boots and D&A in the United Kingdom
and Optic 2000 in France have selected the Company's lenses as their private
label as well as offering its branded products. In Japan, the
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world's second largest contact lens market, the Company has formed strategic
relationships with five of the leading hard and soft contact lens
manufacturers. The Company has doubled its Japanese sales in the last year
using this strategy.
The Barnes-Hind Acquisition provided Wesley Jessen with access to a new set
of accounts and the opportunity to cross-sell existing product lines between
Wesley Jessen's and Barnes-Hind's extensive customer bases.
DISTRIBUTION
The Company performs most warehousing, inventory management, order taking
and order fulfillment functions in-house. The Company's fulfillment system
provides the flexibility to receive, fill and ship orders as small as a single
lens and as large as a full truckload. Approximately 8,500 orders are received
daily, primarily by telephone and facsimile in seven customer service centers
in North America, Europe, Japan and Australia.
In the U.S. market, approximately 65% of the Company's lenses are shipped
primarily by common carriers directly to eyecare practitioners from
distribution centers in San Diego, California and Chicago, Illinois. The
remaining 35% are shipped to distributors, who resell lenses to practitioners
and mail-order houses. In several key markets outside the U.S., the Company
sells and distributes lenses directly to eyecare practitioners. In other
international markets, the Company serves customers through its network of 60
independent distributors.
COMPETITION
The contact lens market is highly competitive. The Company faces competition
from other companies within each segment of the contact lens market in which
it operates. In the specialty segment of the market, the Company principally
competes with divisions of large medical and pharmaceutical companies,
including Ciba Vision (a division of Ciba-Geigy Corporation) and Bausch &
Lomb, Inc. as well as with smaller companies. To the extent the Company
operates in the clear lens segment, it faces competition primarily from
Vistakon (a division of Johnson & Johnson) and other large contact lens
manufacturers such as Ciba Vision and Bausch & Lomb, Inc. Certain of the
Company's competitors in each segment have lower costs of operations, products
with enhanced features, substantially greater resources to invest in product
development and customer support, greater vertical integration and greater
access to financial and other resources than the Company. While the Company is
the leading manufacturer and distributor of specialty contact lenses, the
Company ranks fourth in the contact lens market overall in terms of net
revenues. To a lesser extent, the Company also competes with manufacturers of
eyeglasses and providers of other methods of vision correction, including
refractive surgical procedures.
Within the contact lens market, the Company believes that the principal
competitive factors in the specialty segment include product innovation, brand
awareness, product quality and price. Due to the manner in which contact
lenses are distributed (i.e., through prescription), the Company also competes
on the basis of its relationships and reputation with eyecare practitioners.
SUPPLIERS
The Company has a broad base of suppliers. The Company has qualified
multiple vendors to supply substantially all of the materials used by the
Company in its manufacturing processes and actively seeks to qualify new
vendors to insure adequate access to such materials. The primary raw materials
used by the Company in the production of contact lenses are specialty
chemicals. For the last twelve months ended September 28, 1996 on a pro forma
basis, no supplier accounted for more than 5.0% of the Company's costs of
goods sold.
The Company utilizes a number of advanced polymers and other sophisticated
materials in the production of its contact lenses. Due to the highly technical
and specialized nature of certain of its production materials, the Company
relies from time to time on a single supplier to provide it with sufficient
quantities of certain materials used in the production of one or more of its
product lines. To minimize its reliance on a particular vendor, the Company
continually seeks to identify multiple vendors qualified to supply its
production materials and currently has only two materials that are significant
to its operations that are available from a single source. Although the
Company believes that it is not dependent on any single supplier, the
inability of the Company to obtain sufficient quantities of certain production
inputs could have a material adverse effect on the Company's financial
condition or results of operations.
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FACILITIES
The Company's principal manufacturing facilities are located in Cidra,
Puerto Rico; Des Plaines, Illinois; San Diego, California; and Southampton,
United Kingdom. Following the Wesley Jessen Acquisition, the Company's
headquarters were relocated from Chicago to its facility in Des Plaines,
Illinois (a suburb of Chicago). By December 1997, the Company will have
significantly consolidated its distribution operations as part of management's
cost savings strategy. In Europe, Barnes-Hind has consolidated warehouses and
customer service centers into one distribution center in the United Kingdom
and two customer service centers in the United Kingdom and France. In
addition, the former corporate headquarters of Barnes-Hind, which was located
in Sunnyvale, California, is scheduled to be closed in March 1997, with an
estimated annual operating savings of $3.8 million.
The Company believes that substantially all of its property and production
equipment is in good condition and that it has sufficient capability to meet
its current and projected manufacturing and distribution needs for the
foreseeable future. All of the Company's owned properties are subject to a
mortgage as collateral under the Bank Credit Agreement. The following table
describes the principal properties of the Company as of September 28, 1996
(giving effect to the Barnes-Hind Acquisition):
<TABLE>
<CAPTION>
SQUARE
LOCATION FUNCTION FOOTAGE OWNED/LEASED
-------- -------- ------- ------------
<S> <C> <C> <C>
Des Plaines, Illinois Corporate Headquarters/Disposable Manufacturing/R&D 290,000 Owned
Chicago, Illinois Distribution Center 48,000 Leased
San Diego, California Conventional Manufacturing 19,000 Owned
San Diego, California Conventional Manufacturing/Distribution 117,700 Leased
Sunnyvale, California Former Headquarters of Barnes-Hind (1) 74,000 Leased
Atlanta, Georgia RGP Manufacturing 7,200 Leased
Cidra, Puerto Rico Conventional Lens Manufacturing 65,000 Owned
Southampton, United Kingdom Disposable Manufacturing/R&D 66,200 Leased
Southampton, United Kingdom Conventional Manufacturing 12,250 Leased
Farnham, United Kingdom RGP Manufacturing 5,000 Leased
Chandlers Ford, United Kingdom Conventional Manufacturing 24,500 Leased
Mississauga, Ontario Sales Office/Distribution 7,000 Leased
Bagnolet, France Sales Office/Distribution 6,997 Leased
Rickmansworth, United Kingdom Sales Office/Distribution * Leased
Rome, Italy Sales Office/Distribution 7,750 Leased
Brooklyn, Australia Sales Office/Distribution 5,900 Leased
Tokyo, Japan Sales Office/Distribution 5,000 Leased
Madrid, Spain Sales Office * Leased
Reeuwijk, Holland Sales Office * Leased
Kortryk, Belgium Sales Office * Leased
Milan, Italy Sales Office * Leased
Paris, France Sales Office * Leased
Munich, Germany Sales Office * Leased
</TABLE>
- --------
*Less than 5,000 square feet.
(1)This facility is scheduled to be closed by the second quarter of 1997.
CIDRA, PUERTO RICO. This 65,000 square foot facility was completed in 1991
and produces the Company's Durasoft and Optifit conventional clear and
specialty lenses.
DES PLAINES, ILLINOIS. This 290,000 square foot facility currently produces
all of the Company's FreshLook disposable lenses, and also houses its
corporate headquarters, research and development activities and other
administrative services. The Des Plaines facility was substantially completed
by 1994.
SAN DIEGO, CALIFORNIA. This 136,700 square foot facility produces the
Company's CSI, Hydrocurve and Gentle Touch premium and toric lenses.
Additionally, the facility is used for U.S. distribution, customer service and
management information systems.
SOUTHAMPTON, UNITED KINGDOM. This 66,200 square foot facility was
substantially completed in 1996 and supports production of the Company's
Precision UV lenses.
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PATENTS AND TRADEMARKS
The Company's business and competitive position benefit from the validity
and enforcement of its intellectual property protection. The Company owns a
variety of patents, trademarks, trade secrets, know-how and other intellectual
property which it believes to be important to its current and future success.
The market for the Company's products rewards product innovation, which tends
to amplify the importance of intellectual property protection.
The Company holds numerous U.S. and foreign patents and patent applications
which relate to aspects of the technology used in the Company's products. The
Company's policy is to file patent applications to protect technology,
inventions and improvements that are considered important to the development
of its business. There can be no assurance that patent applications filed by
the Company will result in the issuance of patents or that any of the
Company's intellectual property will continue to provide competitive
advantages for the Company's products or will not be challenged, circumvented
by others or invalidated.
The Company holds more than 70 U.S. patents, many of which have been
extended into key foreign countries. The most important part of the Company's
patent portfolio relates to the design and production techniques of the
Company's cosmetic lenses. These patents begin to expire in the year 2004. The
Company's patents include patterns for changing the color of and enhancing the
iris, as well as methods for performing the printing operation and promoting
the adhesion of the printed ink to the lens. This group of patents covers both
the technology used by the Company in the production of its cosmetic lenses,
as well as many viable alternatives which could be used to replicate such
production techniques. Another important group of patents covers the Company's
newest lens molding technology, which accommodates a high degree of automation
with correspondingly lower manufacturing cost. The features covered are
casting cup design, numerous process techniques and blister package design.
The Company has filed but not yet received a patent for its automatic lens
inspection system. The Company also holds patents covering a UV-absorbing lens
and a proprietary compound for making such lenses, the design and manufacture
of toric lenses, lens materials and bifocal lens technology.
The Company's policy is to aggressively prosecute and defend its patents and
other proprietary technology. The Company is currently seeking to enforce its
intellectual property rights to cosmetic lenses in a lawsuit pending in Italy.
The prosecution and defense of intellectual property protections, like any
lawsuit, is inherently uncertain and carries no guarantee of success. The
protection of intellectual property in certain foreign countries is
particularly uncertain. There can be no assurance that the prosecution and
defense of its intellectual property will be successful or that the Company
will be able to secure adequate intellectual property protections in the
future.
The Company's trademarks include the following well recognized brand names:
Aquaflex(R), CSI(R), DuraSoft(R), Elegance, FreshLook(R), Gentle Touch,
Hydrocurve, Optifit(R), Polycon(R), Precision UV and SoftPerm(R). The
Company's policy is to register trademarks in countries where registration is
available and deemed necessary or appropriate. Trademark applications are
pending for various marks in the United States and other countries. There are
gaps in registrations, and some marks may not be available for use in various
countries.
In addition to patents and trademarks, the Company owns certain trade
secrets, copyrights, know-how and other intellectual property. The Company
seeks to protect these assets, in part, by entering into confidentiality
agreements with its business partners, consultants and vendors and appropriate
non-competition agreements with its officers and employees. There can be no
assurance that these agreements will not be breached, that the Company will
have adequate remedies for any such breach or that the Company's trade secrets
and other intellectual property will not otherwise become known or be
independently developed by others and thereby become unprotected.
GOVERNMENT REGULATION
The Company's products are generally regulated in the United States and in
foreign countries as "medical devices." As a manufacturer of medical devices,
the Company is subject to regulation in the United States by
63
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the FDA and corresponding state and foreign regulatory agencies where the
Company sells its products. These regulations generally govern the
introduction of new medical devices, the maintenance of certain records, the
tracking of devices and other matters. The regulatory environment in which the
Company operates can be expensive, time-consuming and uncertain.
FDA Regulation. Pursuant to the FDC Act, and the regulations promulgated
thereunder, the FDA regulates the preclinical and clinical testing,
manufacture, labeling, distribution, and promotion of medical devices.
Noncompliance with applicable requirements can result in, among other things,
fines, injunctions, civil penalties, recall or seizure of products, total or
partial suspension of production, failure of the government to grant premarket
clearance or premarket approval for devices, withdrawal of marketing
clearances or approvals and criminal prosecution. The FDA also has the
authority to request the recall, repair, replacement or refund of the cost of
any device manufactured or distributed by the Company.
Under the FDC Act, clearance or approval by the FDA is required prior to the
commercialization of a medical device. The FDA classifies medical devices as
Class I, Class II or Class III, depending on the nature of the medical device
and the existence in the market of any similar devices. The nature of the
clearance or approval procedures is dependent on the classification of the
medical device in question. Class I medical devices are subject to general
controls, including labeling, premarket notification and adherence to the
FDA's good manufacturing practice regulations ("GMP Regulations"). Class II
medical devices are subject to general and special controls, including
performance standards, post-market surveillance, patient registries and FDA
guidelines. Class III medical devices are those which must receive premarket
approval by FDA to ensure their safety and effectiveness, are generally life-
sustaining, life-supporting devices or implantable devices or new devices
which have been found not to be substantially equivalent to currently marketed
medical devices. The Company's products are generally regulated as Class II
medical devices, with some products (extended wear lenses) regulated as Class
III medical devices.
Before a new device can be introduced into the U.S. market, it must receive
from the FDA clearance or approval, either premarket notification clearance
under Section 510(k) of the FDC Act or approval pursuant to the more costly
and time-consuming PMA procedure. The Company's daily wear contact lenses are
generally subject to the 510(k) clearance procedure while its extended wear
contact lenses are subject to the PMA requirements. A PMA application must be
supported by valid scientific evidence to demonstrate the safety and
effectiveness of the device, typically including the results of clinical
trials, bench tests, laboratory and animal studies. The PMA must also contain
a complete description of the device and its components, and a detailed
description of the methods, faculties and controls used to manufacture the
device. In addition, the submission must include the proposed labeling,
advertising literature and any training materials. The PMA process can be
expensive, uncertain and lengthy, and a number of devices for which FDA
approval has been sought by other companies have never been approved for
marketing. Modifications to a device that is the subject of an approved PMA,
its labeling, or manufacturing process may require approval by the FDA of PMA
supplements or new PMAs. Supplements to a PMA often require the submission of
the same type of information required for an initial PMA, except that the
supplement is generally limited to that information needed to support the
proposed change from the product covered by the original PMA.
A 510(k) clearance will be granted if the submitted information establishes
that the proposed device is "substantially equivalent" to a legally marketed
Class I or Class II medical device or a Class III medical device for which the
FDA has not called for PMAs. For any devices that are cleared through the
510(k) process, modifications or enhancements that could significantly affect
safety or effectiveness, or constitute a major change in the intended use of
the device, will require new 510(k) submissions. While less expensive and
time-consuming than obtaining PMA clearance, securing 510(k) clearance may
involve the submission of a substantial volume of data, including clinical
data, and may require a substantive review of six months or more. The Company
markets contact lenses which have received 510(k) clearances as well as lenses
which have been the subject of approved PMA applications.
Any products manufactured or distributed pursuant to 510(k) clearance or an
approved PMA are subject to pervasive and continuing regulation by the FDA,
including recordkeeping requirements and reporting of adverse experience with
the use of the device.
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The Company currently has over 20 PMAs and 510(k) clearances for its
products marketed in the United States. New products may require clinical
studies to support a PMA or 510(k) clearance. There is no certainty that
clinical studies involving new products will be completed in a timely manner
or that the data and information obtained will be sufficient to support the
filing of a PMA or 510(k) clearance. There can be no assurance that the
Company will be able to obtain necessary approvals to market new devices or
any other products under development on a timely basis, if at all, and delays
in receipt or failure to receive such approvals, the loss of previously
received approvals, or failure to comply with existing or future regulatory
requirements could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company has made modifications to its devices which the Company believes
do not require the submission of new 510(k) notices or PMA supplements. There
can be no assurance, however, that the FDA would agree with any of the
Company's determinations not to submit a new 510(k) notice or PMA supplement
for any of these changes or would not require the Company to submit a new
510(k) notice or PMA supplement for any of the changes made to the device. If
the FDA requires the Company to submit a new 510(k) notice or PMA supplement
for any device modification, the Company may be prohibited from marketing the
modified device until the 510(k) notice or PMA supplement is cleared by the
FDA. There can be no assurance that future clearances or approvals, whether
under the 510(k) clearance procedure or the PMA procedure, will be obtained in
a timely fashion or at all. The failure to obtain such clearances or approvals
in a timely fashion or at all could have a material adverse effect on the
Company's business, financial condition or results of operations.
If human clinical trials of a device are required, whether for a 510(k) or a
PMA, and the device presents a "significant risk," the sponsor of the trial
(usually the manufacturer or the distributor of the device) is required to
file an investigational device exemption ("IDE") application prior to
commencing human clinical trials. IDE regulations generally require FDA
approval and approval by an independent institutional review board before a
clinical study may begin. Conforming with IDE regulations can add significant
cost and/or delay to the process of obtaining FDA approval for a medical
device. Submission of an application IDE does not give assurance that the FDA
will approve the IDE application and, if it is approved, there can be no
assurance that the FDA will determine that the data derived from these studies
support the safety and efficacy of the device or warrant the continuation of
clinical studies. Sponsors of clinical trials are permitted to sell
investigational devices distributed in the course of the study provided such
compensation does not exceed recovery of the costs of manufacture, research,
development and handling. An IDE supplement must be submitted to and approved
by the FDA before a sponsor or investigator may make a change to the
investigational plan that may affect its scientific soundness or the rights,
safety or welfare of human subjects.
As a manufacturer of medical devices, the Company is required to register
with the FDA and comply with the FDA's good manufacturing practice
regulations. GMP Regulations require that the Company manufacture its products
and maintain its manufacturing, testing and control activities records in a
prescribed manner. Further, the Company is required to comply with FDA
requirements for labeling and promoting its products. The Company is subject
to periodic inspections by the FDA and can be subjected to a number of
regulatory actions if it is found not to be in compliance with applicable laws
and regulations. If the FDA believes that a company may not be operating in
compliance with applicable laws and regulations, it can record its
observations on a form FDA 483; place the company under observation and
reinspect the facilities; institute proceedings to issue a warning letter
apprising of violative conduct; detain or seize products; mandate a recall;
enjoin future violations; and assess civil and criminal penalties against the
company, its officers or its employees. In addition, clearances or approvals
could be withdrawn in appropriate circumstances. Failure to comply with
regulatory requirements or any adverse regulatory action could have a material
adverse affect on the Company. On occasion, the Company has received
notifications from the FDA of alleged deficiencies in the Company's compliance
with FDA requirements. The Company's Sunnyvale, California; San Diego,
California; Southampton, United Kingdom; Cidra, Puerto Rico; and Des Plaines,
Illinois facilities have been inspected within the past two years. Two form
FDA 483s were issued. The Company responded to one such form with corrective
action which the FDA accepted. In March 1996, the Company objected to the
other form as unfounded. The Company has received no further communications
from the FDA on such matter. The Company does not expect such inspections to
give rise to any material FDA compliance issues or to otherwise have a
material adverse effect on the Company.
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Manufacturers of medical devices for marketing in the United States must
also comply with medical device reporting ("MDR") requirements that a firm
report to FDA any incident in which its product may have caused or contributed
to a death or serious injury, or in which its product malfunctioned and, if
the malfunction were to recur, it would be likely to cause or contribute to a
death or serious injury. Labeling and promotional activities are subject to
scrutiny by the FDA and, in certain circumstances, by the FTC. Current FDA
enforcement policy prohibits the marketing of approved medical devices for
unapproved uses.
The Company is subject to routine inspection by the FDA and certain state
agencies for compliance with GMP requirements, MDR requirements, and other
applicable regulations. The FDA has recently finalized changes to the GMP
regulations, including the addition of design control requirements, which will
likely increase the cost of compliance with GMP requirements. There can be no
assurance that the Company will not incur significant costs to comply with
laws and regulations in the future or that laws and regulations will not have
a material adverse effect upon the Company's business, financial condition or
results of operation. The Company believes that all of its products offered
for sale have received all required FDA approvals or clearance, and that it is
in substantial compliance with FDA regulations, including GMP and MDR
requirements.
The Company also is subject to numerous federal, state and local laws
relating to such matters as safe working conditions, manufacturing practices,
environmental protection, fire hazard control and disposal of hazardous or
potentially hazardous substances. There can be no assurance that the Company
will not be required to incur significant costs to comply with such laws and
regulations in the future or that such laws or regulations will not have a
material adverse effect upon the Company's ability to do business.
International Regulation. The Company's products are also subject to
regulation in other countries in which it sells its products. The laws and
regulations of such countries range from comprehensive medical device approval
procedures such as those described above to simple requests for product data
or certifications. The number and scope of these laws and regulations are
increasing. In particular, medical devices in the EU are subject to the EU's
new medical devices directive (the "Directive").
Under the system established by the Directive, all medical devices other
than active implants and in vitro diagnostic products must qualify for CE
marking by June 14, 1998. "CE marking" means the manufacturer certifies that
its product bearing the CE mark satisfies all requirements essential for the
product to be considered safe and fit for its intended purpose. During the
transitional period (from January 1, 1995 to June 14, 1998) medical devices
can be placed on the market and put into service if they comply with the
requirements of the Directive or national requirements that were in force on
December 31, 1994.
In order to qualify for CE marking, the manufacturer must comply with the
"Essential Requirements" of the Directive, relating to the safety and
performance of the product. In order to demonstrate compliance, a manufacturer
is required to undergo a conformity assessment, which includes assessment of
the manufacturer's quality assurance system by self-selected certification
organizations referred to as a "Notified Body." After all necessary conformity
assessment tests have been completed to the satisfaction of the Notified Body
and the manufacturer is convinced that it is in full compliance with the
Directive, CE marking may be affixed on the products concerned. The Company
has undergone such conformity assessment, with two Dutch and one British non-
governmental entities chosen by the Company as its Notified Bodies. The
Company has received CE marking authorization for all products it currently
markets in the EU.
Although member countries must accept for marketing medical devices bearing
a CE marking without imposing further requirements related to product safety
and performance, each country may require the use of its own language or
labels and instructions for use. "National Competent Authorities" who are
required to enforce compliance with the requirements of the Directive, can
restrict, prohibit and recall CE-marked products if they are unsafe. Such a
decision must be confirmed by the European Commission in order to be valid.
Member countries can impose additional requirements as long as they do not
violate the Directive or constitute technical barriers to trade.
Additional approvals from foreign regulatory authorities may be required for
international sale of the Company's products in non-EU countries. Failure to
comply with applicable regulatory requirements can result
66
<PAGE>
in the loss of previously received approvals and other sanctions and could
have a material adverse effect on the Company's business, financial condition
and results of operations.
EMPLOYEES
As of September 28, 1996 (giving effect to the Barnes-Hind Acquisition), the
Company had approximately 2,600 full-time and part-time employees, including
1,671 in the United States (including Puerto Rico), 906 in Europe, and 24 in
the rest of the world. The Barnes-Hind Acquisition resulted in the addition of
approximately 1,583 full-time and part-time employees, including 703 in the
United States, 858 in Europe and 22 in the rest of the world. The Company has
no collective bargaining agreements with any union and believes that its
overall relations with employees are satisfactory.
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
The Company is subject to federal, state, local and foreign environmental
laws and regulations and is subject to liabilities and compliance costs
associated with the past and current handling, processing, storing and
disposing of hazardous substances and wastes. The Company's operations are
also subject to federal, state and local occupational health and safety laws
and regulations. The Company devotes resources to maintaining environmental
regulatory compliance and managing environmental risk and believes that it
conducts its operations in substantial compliance with applicable
environmental and occupational health and safety laws and regulations. The
Company does not expect to incur material capital expenditures for
environmental controls in the current or succeeding fiscal year.
In connection with the Wesley Jessen Acquisition and the Barnes-Hind
Acquisition, the respective sellers, subject to certain limitations, agreed to
retain responsibility for, and indemnify the Company from and against, certain
environmental matters. These matters include addressing a limited area of
historical contamination at the Company's Des Plaines facility and settling
any liability of Barnes-Hind at a Superfund site located in Whittier,
California. Notwithstanding these contractual agreements, the Company could be
pursued in the first instance by governmental authorities or third parties
with respect to certain indemnified matters, subject to the Company's right to
seek indemnification from the appropriate seller. Management does not
currently believe that any such matter will have a material adverse effect on
the business or financial condition of the Company.
REQUIRED DIVESTITURE
In connection with the Barnes-Hind Acquisition, the Company was required to
file a notice with the FTC and the Department of Justice under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended. In connection with such
filing, the FTC requested additional information regarding the effect of the
Barnes-Hind Acquisition on competition in the opaque contact lens market
(opaque lenses change the color of dark eyes). Subsequently, the Company and
the FTC entered into a voluntary consent order which provides, among other
things, that the Company must divest Barnes-Hind's U.S. Natural Touch Product
Line by January 24, 1997 to an FTC-approved acquiror for the purpose of
creating an independent competitor in the opaque contact lens market. The
Company also agreed to supply the acquiror with opaque contact lenses for at
least 18 months following such divestiture, to license on a royalty-free basis
certain patents related to the manufacture, import, offer for sale, sale and
use of opaque contact lenses in the United States and to allow an FTC-
appointed trustee to monitor the divestiture. If the Company fails to divest
the U.S. Natural Touch Product Line according to the terms of the consent
order or if the FTC terminates the divestiture for certain reasons specified
in the consent order, the FTC may direct an independent trustee to divest the
U.S. Natural Touch Product Line. For a period of 10 years after the order
becomes final, the Company is prohibited from acquiring more than a 5%
interest in, or certain assets of, any entity engaged in the opaque contact
lens business in the United States and must notify the FTC in advance of any
proposed change in its corporate structure. The Company is required to file
compliance reports showing that it has fully complied with the consent order
and may be liable for civil penalties for each violation of the consent order.
The Company is currently negotiating the terms of such disposition with a
potential purchaser and expects to execute a definitive agreement relating to
such disposition by the end of the first quarter
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<PAGE>
of 1997. In connection with the disposition, the Company anticipates that it
will supply the purchaser with Natural Touch lenses for sale in the United
States at a profitable price. The Company does not expect that the divestiture
will be completed by January 24, 1997. As a result, the Company will be in
violation of the consent order after such date, but does not believe that the
FTC will impose any penalties or take any adverse action under the consent
order in light of the Company's good faith effort to comply with such order.
No assurance can be given, however, that the failure of the Company to
complete the disposition by January 24, 1997 will not result in the FTC taking
action against the Company pursuant to the consent order. The U.S. Natural
Touch Product Line generated net sales of approximately $6.9 million in the
twelve months ended March 31, 1996. The Company does not believe that the
disposition of the U.S. Natural Touch Product Line will have a material impact
on the Company's results of operations.
LEGAL PROCEEDINGS
The Company is currently a party to various claims and legal actions which
arise in the ordinary course of business. The Company believes such claims and
legal actions, individually or in the aggregate, will not have a material
adverse effect on the business, financial condition or results of operations
of the Company. The Company carries insurance coverage in the types and
amounts that management considers reasonably adequate to cover the risks it
faces in the industry in which it competes. There can be no assurance,
however, that such insurance coverage will be adequate to cover all losses
which the Company may incur in future periods.
In connection with the Barnes-Hind Acquisition, Pilkington agreed, subject
to certain limitations, to retain responsibility for, and indemnify the
Company from and against, certain litigation and other claims. Notwithstanding
these contractual agreements, the Company could be pursued in the first
instance by third parties with respect to certain indemnified matters, subject
to the Company's right to seek indemnification from such seller. Management
does not currently believe that any such matter will have a material adverse
effect on the business or financial condition of the Company.
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<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information with respect to the
Directors, executive officers and certain key employees of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Stephen G. Pagliuca..... 41 Chairman of the Board
Kevin J. Ryan........... 55 President, Chief Executive Officer and Director
Edward J. Kelley........ 48 Vice President, Finance, Chief Financial Officer
and Director
Raleigh S. Althisar,
Jr. ................... 47 Vice President, Worldwide Manufacturing
Lawrence L. Chapoy...... 53 Vice President, Research & Development
William M. Flynn........ 38 Vice President, Pan Asia
Joseph F. Foos.......... 44 Vice President, Scientific Affairs
George H. McCrary....... 53 Vice President, Americas
Daniel M. Roussel....... 47 Vice President, Europe
Thomas F. Steiner....... 50 Vice President, Marketing
Adam W. Kirsch.......... 35 Executive Vice President and Director
John W. Maki............ 36 Vice President and Director
John J. O'Malley........ 49 Director
</TABLE>
The Company anticipates that two or three additional Directors not otherwise
affiliated with the Company or any of its stockholders will be elected by the
Board of Directors following the completion of the Offering.
STEPHEN G. PAGLIUCA has been Chairman of the Board of the Company since its
incorporation. Mr. Pagliuca has been a Managing Director of Bain Capital since
May 1993 and a general partner of Bain Venture Capital since 1989, where he
founded Information Partners. Prior to joining Bain Venture Capital, Mr.
Pagliuca was a partner at Bain & Company, where he provided strategic and
operational advice for clients in the healthcare and information industries.
He also worked as a senior accountant and international tax specialist for
Peat Marwick Mitchell & Company in the Netherlands. Mr. Pagliuca serves as
Chairman of the Board of Dade International Inc. and Physio-Control
International Corporation. He also serves as a director of several other
companies including Coram Healthcare Corporation, Gartner Group, Inc., Medical
Specialties Group, Inc., Physician Quality Care and VIVRA.
KEVIN J. RYAN has served as President, Chief Executive Officer and a
Director of the Company since June 1995. From 1991 to 1995, Mr. Ryan was
President of BioSource Genetics Corporation. From 1987 to 1990, Mr. Ryan
served as President of the Barnes-Hind contact lens business; from 1983 to
1987, as President of Revlon VisionCare (a division of Revlon, Inc.); and from
1978 to 1983, as President of Barnes-Hind (then a part of Revlon VisionCare).
EDWARD J. KELLEY has served as Vice President, Finance, Chief Financial
Officer and a Director of the Company since June 1995. Prior to joining the
Company, Mr. Kelley served as the President, Asia Pacific and Latin America of
Barnes-Hind and its Chief Financial Officer. Prior to joining Barnes-Hind, Mr.
Kelley held positions of increasing responsibility with Simon & Schuster,
Revlon Health Care and Peat Marwick Mitchell & Company.
RALEIGH S. ALTHISAR, JR. has served as Vice President, Worldwide
Manufacturing of the Company since October 1996. Prior to joining the Company,
Mr. Althisar served as Executive Vice President, Worldwide Manufacturing of
Barnes-Hind. Prior thereto, he held positions of increasing responsibility
with the Sola division of Barnes-Hind, Suntex Ophthalmics, Retail Optical
Management and Milton Roy Ophthalmics.
LAWRENCE L. CHAPOY has served as Vice President, Research & Development of
the Company since 1993. Prior to joining the Company, Dr. Chapoy spent eight
years with Mont Edison Chemical Company as a Project Researcher and fifteen
years as a University Professor at the Polytechnic University of Denmark.
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<PAGE>
WILLIAM M. FLYNN has served as the Vice President, Pan Asia of the Company
since 1994. Prior to being named to his current position, Mr. Flynn served as
International Finance Manager for two years and in the other positions in the
Finance Department of Schering-Plough Corporation for two years. In addition,
Mr. Flynn held a variety of finance positions with Prudential Insurance
Company of America and RCA Records.
JOSEPH F. FOOS has served as Vice President, Scientific Affairs of the
Company since 1994. Mr. Foos joined Wesley Jessen in 1987 and has served as
Manager, Quality for two years, Project Manager for Research and Development
Pilot Manufacturing and various other positions of increasing responsibility.
GEORGE H. MCCRARY has served as Vice President, Americas of the Company
since 1996. Prior to joining the Company, Mr. McCrary worked for Aladan Corp.,
as Director of Sales and Marketing, and prior thereto, for Pracon
Communications, a Reed Elsevier Medical Company, as Vice President, General
Manager. Prior thereto, Mr. McCrary held the position of Senior Vice President
of Sales, Marketing and Distribution for Foster Grant Corporation and prior to
that, Vice President Sales and Marketing, Consumer Products Division for
Revlon VisionCare. Before joining Revlon VisionCare, he held sales and
marketing positions of increasing responsibility with the Warner Lambert
Company.
DANIEL M. ROUSSEL has served as Vice President, Europe of the Company since
1995. Previously, Mr. Roussel served for three years as General Manager Wesley
Jessen, France and in marketing positions with Schering-Plough for eight years
prior thereto.
THOMAS F. STEINER has served as Vice President, Marketing of the Company
since 1996. Mr. Steiner has served in various marketing-related positions
since joining the Company in 1982. Prior to joining the Company, Mr. Steiner
worked at Sara Lee Corporation for seven years as Group Product Manager and
Project Research Manager. Mr. Steiner also worked at J. Walter Thompson
Company as Associate Research Director.
ADAM W. KIRSCH has been Executive Vice President of the Company since June
1995 and a Director of the Company since its incorporation. Mr. Kirsch has
been a Managing Director of Bain Capital since May 1993 and a general partner
of Bain Venture Capital since 1990. Mr. Kirsch joined Bain Venture Capital in
1985 as an associate, and prior to joining Bain Venture Capital, Mr. Kirsch
was a consultant at Bain & Company, where he worked in mergers and
acquisitions. He serves on the board of several companies including Duane
Reade, Inc., Stage Stores, Inc., Brookstone, Inc. and Dade International Inc.
JOHN W. MAKI has been a Director of the Company since November 1996 and a
Vice President of the Company since June 1995. Mr. Maki has been a Principal
at Bain Capital since 1995 and was an associate at Bain Capital from 1993 to
1995 and at Bain Venture Capital from 1988 to 1993. Prior to joining Bain
Venture Capital, Mr. Maki was a consultant at Bain & Company, where he
specialized in healthcare and consumer product companies. He also serves on
the board of Medical Specialties Group, Inc.
JOHN J. O'MALLEY has been a Director of the Company since November 1996. Mr.
O'Malley has been an Executive Vice President of Bain Capital since 1993. From
1991 to 1993, Mr. O'Malley was President and Chief Executive Officer of
Robertson Ceco, an international construction products and engineering
company. From 1986 to 1991, he was Executive Vice President of HMK Group Inc.,
a diversified manufacturing and services company. Mr. O'Malley is also a
director of Physio-Control International Corporation, GS Industries, Inc. and
Medical Specialties Group, Inc.
Directors of the Company are currently elected annually by its stockholders
to serve during the ensuing year or until their respective successors are duly
elected and qualified. Executive officers of the Company are duly elected by
the Board of Directors to serve until their respective successors are elected
and qualified. There are no family relationships between any of the Directors
or executive officers of the Company.
Prior to the completion of the Offering, the Board will be divided into
three classes, as nearly equal in number as possible, with each Director
serving a three-year term and one class being elected at each year's annual
meeting of stockholders. The Company's By-laws provide that Directors shall be
elected by a plurality vote, with no cumulative voting. Mr. Maki and one or
two of the additional directors anticipated to be appointed by the
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<PAGE>
Board will be in the class of directors whose term expires at the 1998 annual
meeting of the Company's stockholders. Messrs. Kirsch, Kelley and one of the
additional directors anticipated to be appointed by the Board following the
Offering will be in the class of directors whose term expires at the 1999
annual meeting of the Company's stockholders. Messrs. Pagliuca, Ryan and
O'Malley following the Offering will be in the class of directors whose term
expires at the 2000 annual meeting of the Company's stockholders. At each
annual meeting of the Company's stockholders, successors to the class of
directors whose term expires at such meeting will be elected to serve for
three-year terms and until their respective successors are elected and
qualified. The Company intends to hold its first annual meeting of
stockholders following the completion of the Offering in 1998.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation paid
or accrued for the years ended December 31, 1996 and 1995 for the Chief
Executive Officer and each of the four other most highly compensated executive
officers of the Company as of the end of the last fiscal year (the "Named
Executives"). The amounts shown include the combined compensation for services
in all capacities that were provided to the Predecessor from January 1, 1995
through June 28, 1995, and to the Company from June 29, 1995 through December
31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------------- ------------
SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS (a) COMPENSATION (b) OPTIONS (c) COMPENSATION
- ------------------ ---- -------- --------- ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Kevin J. Ryan (d)....... 1996 $250,008 $550,000 $ -- 126,398 $1,800(e)
President and Chief Ex- 1995 127,885 125,000 -- 1,018,203 720(e)
ecutive Officer
Edward J. Kelley (f).... 1996 175,000 404,250 -- 35,800 688(g)
Chief Financial Officer 1995 83,574 87,500 -- 234,970 145(c)
and Vice President,
Finance
Lawrence L. Chapoy...... 1996 146,100 202,494 -- 5,592 841(g)
Vice President, Research 1995 143,800 10,000 -- 67,136 5,870(h)
&
Development
Daniel M. Roussel....... 1996 133,843 168,642 -- 15,621 --
Vice President, Europe 1995 127,339 24,000 -- 134,271 --
Thomas F. Steiner....... 1996 120,000 166,320 -- 16,103 668(g)
Vice President, Market-
ing 1995 120,000 18,000 -- 100,699 9,404(i)
</TABLE>
- --------
(a) Reflects bonuses received by such Named Executives as a result of the
Company meeting certain performance targets in such fiscal year. The
Company expects to pay bonuses to Messrs. Ryan, Kelly, Chapoy, Roussel and
Steiner in 1997 as a result of the Company meeting certain performance
targets in fiscal 1996. To date, the amount of such bonuses have not been
determined by the Board. The bonus amounts set forth in the table for 1996
are estimates based on the anticipated operating results of the Company
for fiscal 1996 and, therefore, are subject to change. Bonus estimates for
1996 also include payments expected to be made under the Company's profit
sharing plan in the following amounts: Mr. Ryan--$25,000; Mr. Kelley--
$36,750; Mr. Chapoy--$18,408; and Mr. Steiner--$15,120. Mr. Roussel is not
eligible to participant is such plan.
(b) None of the perquisites and other benefits paid to each Named Executive in
1996 or 1995 exceeded 10% of the total annual salary and bonus received by
such Named Executive during that year.
(c) Gives effect to the Stock Split.
(d) Mr. Ryan commenced employment with the Company in June 1995.
(e) Reflects premium payments made by the Company on behalf of such Named
Executives for life insurance.
(f)Mr. Kelley commenced employment with the Company in June 1995.
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<PAGE>
(g) Reflects premium payments made by the Company on behalf of such Named
Executives for life and long-term disability insurance as follows: Mr.
Kelley--$435; Mr. Chapoy--$554; and Mr. Steiner--$403; and premium
payments for long-term disability insurance as follows: Mr. Kelley--$253;
Mr. Chapoy--$287; and Mr. Steiner--$265.
(h) Includes $5,329 paid by Schering-Plough under its Profit Sharing Plan
prior to the Wesley Jessen Acquisition and $541 as a result of premium
payments made by the Company on behalf of Mr. Chapoy for life insurance.
(i) Includes $9,003 paid by Schering-Plough under its Profit Sharing Plan
prior to the Wesley Jessen Acquisition and $401 as a result of premium
payments made by the Company on behalf of Mr. Steiner for life insurance.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding stock options granted
by the Company to the Named Executives during the Company's last fiscal year
(giving effect to the Reclassification and the Stock Split).
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL
NUMBER OF % OF TOTAL RATES OF STOCK
SECURITIES OPTIONS MARKET PRICE PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR ON DATE OF FOR OPTION TERM (d)
OPTIONS EMPLOYEES IN BASE PRICE GRANT EXPIRATION -------------------
NAME GRANTED (#)(a) FISCAL YEAR ($/SHARE) ($/SHARE) (b) DATE (c) 5%($) 10%($)
---- -------------- ------------ ----------- ------------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Kevin J. Ryan .......... 126,398 21.8% $7.24 $7.24 10/21/06 $575,320 $1,457,665
Edward J. Kelley ....... 35,800 6.2 7.24 7.24 10/21/06 162,949 412,858
Lawrence L. Chapoy...... 5,592 1.0 7.24 7.24 10/21/06 25,454 64,492
Daniel M. Roussel ...... 15,621 2.7 7.24 7.24 10/21/06 71,100 180,144
Thomas F. Steiner ...... 16,103 2.8 7.24 7.24 10/21/06 73,296 185,708
</TABLE>
- --------
(a) Options were immediately exercisable on the date of grant.
(b) Market price was determined in good faith by the Company's Board of
Directors on the date of grant.
(c) Options will expire the earlier of 30 days after the date of termination
or October 21, 2006.
(d) Amounts reflect certain assumed rates of appreciation set forth in the
executive compensation disclosure rules of the Securities and Exchange
Commission (the "Commission"). Actual gains, if any, on stock option
exercises depend on future performance of the Company's stock and overall
market conditions. At an annual rate of appreciation of 5% per year for
the option term, the price of the Common Stock would be approximately
$11.79 per share. At an annual rate of appreciation of 10% per year for
the option term, the price of the Common Stock would be approximately
$18.77 per share.
FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning options outstanding at
the end of the last fiscal year held by the Named Executives (giving effect to
the Reclassification and the Stock Split). There were no options exercised in
the last fiscal year for securities of the Company.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END (#) AT FY-END ($)
ACQUIRED ON VALUE ------------------------- -----------------------------
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE/EXERCISABLE UNEXERCISABLE/EXERCISABLE (1)
- ---- ------------ ------------ ------------------------- -----------------------------
<S> <C> <C> <C> <C>
Kevin J. Ryan........... -- -- 293,712/850,888 $4,691,841/$11,594,074
Edward J. Kelley........ -- -- 58,742/212,027 938,368/2,857,134
Lawrence L. Chapoy...... -- -- 17,902/54,826 285,985/757,832
Daniel M. Roussel....... -- -- 35,803/114,086 571,969/1,554,543
Thomas F. Steiner....... -- -- 26,852/89,950 428,957/1,204,311
</TABLE>
- --------
(1) Assumes a fair market value of the Common Stock at December 31, 1996 equal
to $16.00 per share.
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<PAGE>
DIRECTOR COMPENSATION
Directors of the Company currently do not receive a salary or an annual
retainer for their services. The Company expects, however, that new non-
employee Directors not otherwise affiliated with the Company or its
stockholders will be paid an annual cash retainer of $10,000 and will be
reimbursed for all reasonable expenses incurred in attending Board meetings.
Such Directors will also be entitled to participate in the Company's 1997 Non-
Employee Directors Stock Option Plan.
COMMITTEES OF THE BOARD OF DIRECTORS
Prior to the Offering, the Board of Directors of the Company (the "Board of
Directors" or the "Board") had no formal committees. Immediately prior to the
completion of the Offering, the Board of Directors will establish two
committees: (i) an Audit Committee and (ii) a Compensation Committee.
The Audit Committee will make recommendations to the Board of Directors
regarding the independent auditors to be nominated for election by the
stockholders and will review the independence of such auditors, approve the
scope of the annual audit activities of the independent auditors, approve the
audit fee payable to the independent auditors and review such audit results.
The Audit Committee is expected to be comprised of a majority of Directors not
otherwise affiliated with the Company or its stockholders. Price Waterhouse
LLP presently serves as the independent auditors of the Company.
The duties of the Compensation Committee will be to provide a general review
of the Company's compensation and benefit plans to ensure that they meet
corporate objectives. In addition, the Compensation Committee will review the
President's recommendations on (i) compensation of all officers of the Company
and (ii) adopting and changing major Company compensation policies and
practices, and report its recommendations to the whole Board of Directors for
approval and authorization. The Compensation Committee will administer the
Company's Stock Plans and is expected to be comprised of at least two non-
employee Directors (as defined in Rule 16b-3 under the Exchange Act). The
Board may also establish other committees to assist in the discharge of its
responsibilities.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the Offering, the Company did not have a compensation committee.
Instead, compensation decisions regarding the Company's executive officers
were made by the Board of Directors. Messrs. Ryan and Kelley, both executive
officers of the Company, serve on the Board of Directors of the Company. The
compensation for both Messrs. Ryan and Kelley for the year ended December 31,
1996 was established pursuant to the terms of their respective employment
agreements with the Company.
EMPLOYMENT AGREEMENTS
On June 28, 1995, the Company and Kevin J. Ryan entered into an employment
agreement (the "Employment Agreement"), pursuant to which Mr. Ryan agreed to
serve as President and Chief Executive Officer of the Company for a period
that will end with Mr. Ryan's resignation, death or disability, or upon
termination by the Company, with or without cause. Under the Employment
Agreement, Mr. Ryan will receive (i) an annual base salary equal to at least
$250,000; (ii) an annual bonus based on the Company's achievement of certain
targeted operating results; and (iii) certain fringe benefits. If Mr. Ryan's
employment is terminated by the Company without cause (as defined therein), he
will be entitled to receive his base salary and fringe benefits for 12 months
following such termination in addition to his bonus for the year in which his
employment was terminated, pro rated based on the number of days elapsed in
the year, if he would have otherwise been entitled to receive such bonus had
he not been terminated. Mr. Ryan has agreed not to compete with the Company
for a period of one year following his termination of employment with the
Company and not to disclose any confidential information at any time without
the prior written consent of the Company.
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<PAGE>
On June 28, 1995, Edward J. Kelley entered into an employment agreement with
the Company containing substantially similar terms as those described above.
Under such agreement, Mr. Kelley has agreed to serve as the Chief Financial
Officer of the Company for (i) an annual base salary equal to at least
$175,000; (ii) an annual bonus based on the Company's achievement of certain
targeted operating results; and (iii) certain fringe benefits.
MANAGEMENT BONUS PLAN
In May 1996, the Board of Directors adopted the Wesley Jessen Corporation
Professional Incentive Plan for calendar year 1996 (the "Bonus Plan"). Under
the Bonus Plan, participants will be eligible to earn an annual bonus upon the
achievement of certain personalized operating achievement targets, anticipated
to be based on the Company's EBITDA and cash flow. The annual bonus will be
equal to a specified percentage of a participant's annual salary (the "Target
Percentage"), subject to increase based on achievement beyond targeted levels.
Bonuses under the Bonus Plan are not subject to any cap. The Company
anticipates approximately 65 employees will be eligible to participate in the
Bonus Plan for the 1996 fiscal year, including each of the Named Executives.
The Company anticipates that it will adopt similar bonus programs for 1997 and
thereafter.
STOCK OPTIONS
1995 Stock Plan. In connection with the Wesley Jessen Acquisition, the Board
of Directors adopted the Wesley-Jessen Holding, Inc. 1995 Stock Purchase and
Option Plan (the "1995 Stock Plan"), which authorized the grant of stock
options, including options that are intended to qualify as "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code
("ISOs"), and sales of Class L Common or Common Stock to current or future
employees, directors, consultants or advisors of the Company or its
subsidiaries. Under the 1995 Stock Plan (without giving effect to the
Reclassification and Stock Split), the Board was authorized to sell any class
or classes of Common Stock at any time prior to the termination of the 1995
Stock Plan in such quantity, at such price, on such terms and subject to such
conditions as established by the Board up to an aggregate of 15,000 shares of
Class L Common and 835,000 shares of Common Stock (including shares of Common
Stock with respect to which options may be granted), subject to adjustment
upon the occurrence of certain events to prevent any dilution or expansion of
the rights of participants that might otherwise result from the occurrence of
such events. Giving effect to the Reclassification and Stock Split, an
aggregate of 485,812 shares of Common Stock were sold to members of the
Company's management and options to purchase an aggregate of 2,193,052 shares
of Common Stock were granted under the 1995 Stock Plan. Stock and options sold
or granted under the 1995 Stock Plan are subject to various restrictions that
limit the transferability of such shares and subject such shares to repurchase
at a predetermined price upon the termination of a participant's employment
with the Company. The 1995 Stock Plan was terminated in 1996.
The options granted under the 1995 Stock Plan consist of: (i) options to
purchase an aggregate of 469,940 shares of Common Stock that vest in equal
installments over a four-year period beginning on June 28, 1996 and options to
purchase an aggregate of 313,293 shares of Common Stock that vest in equal
installments over a five-year period beginning on April 5, 1996 (collectively,
the "Time Vesting Options"), all of which have an exercise price of
approximately $0.03 per share; (ii) options to purchase an aggregate of
704,909 shares of Common Stock that were immediately exercisable on the date
of grant at an exercise price of approximately $1.18 per share; and (iii)
options to purchase an aggregate of 704,909 shares of Common Stock that were
immediately exercisable on the date of grant at an exercise price of
approximately $2.34 per share. The Time Vesting Options become immediately
exercisable in the event the Company is sold or if at any time after the
Company completes an initial public offering, Bain Capital and its related
investors cease to own at least 20% of the outstanding Common Stock.
1996 Stock Plan. On October 22, 1996, the Board of Directors and the
stockholders of the Company adopted the Wesley-Jessen Holding, Inc. 1996 Stock
Option Plan (the "1996 Stock Plan"). The 1996 Stock Plan authorizes the grant
of stock options, including ISOs, to current and future employees, Directors,
consultants and advisors of the Company or its subsidiaries. The 1996 Stock
Plan authorizes the granting of stock options up to an aggregate of 424,518
shares of Common Stock, subject to adjustment upon the occurrence of certain
events. The Company has granted options for all of the shares authorized by
the 1996 Stock Plan. Options to purchase
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<PAGE>
an aggregate of 267,872 shares of Common Stock were immediately exercisable on
the date of grant at an exercise price of approximately $7.24 per share and
options to purchase an aggregate of 156,647 shares of Common Stock vest in
equal installments over a five-year period beginning on October 22, 1997, at
an exercise price of approximately $7.24 per share. No additional options are
currently available to be granted under the 1996 Stock Plan.
1997 Stock Incentive Plan. Prior to consummation of the Offering, the Board
and stockholders of the Company will approve the Wesley Jessen VisionCare,
Inc. 1997 Key Employees Stock Incentive Plan (the "1997 Stock Plan"). The 1997
Stock Plan will be administered by a Compensation Committee (the "Committee")
composed of at least two Non-Employee Directors (as that term is defined in
Rule 16b-3 under the Exchange Act), who will be appointed by the Board.
Certain employees, advisors and consultants of the Company will be eligible to
participate in the 1997 Stock Plan (a "Participant"). The Committee will be
authorized under the 1997 Stock Plan to select the Participants and determine
the terms and conditions of the awards under the 1997 Stock Plan. The 1997
Stock Plan will provide for the issuance of the following types of incentive
awards: stock options, stock appreciation rights, restricted stock,
performance grants and other types of awards that the Compensation Committee
deems consistent with the purposes of the 1997 Stock Plan. An aggregate of
800,000 shares of Common Stock of the Company have been reserved for issuance
under the 1997 Stock Plan, subject to certain adjustments reflecting changes
in the Company's capitalization. The 1997 Stock Plan will provide that
Participants will be limited to receiving awards relating to no more than
50,000 shares of Common Stock per year.
Options granted under the 1997 Stock Plan may be either incentive stock
options ("ISOs") or such other forms of non-qualified stock options ("NQOs")
as the Committee may determine. ISOs are intended to qualify as "incentive
stock options" within the meaning of Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"). The exercise price of (i) an ISO granted to
an individual who owns shares possessing more than 10% of the total combined
voting power of all classes of stock of the Company (a "10% Owner") will be at
least 110% of the fair market value of a share of common stock on the date of
grant and (ii) an ISO granted to an individual other than a 10% Owner and an
NQO will be at least 100% of the fair market value of a share of Common Stock
on the date of grant.
Options granted under the 1997 Stock Plan may be subject to time vesting and
certain other restrictions at the sole discretion of the Committee. Subject to
certain exceptions, the right to exercise an option generally will terminate
at the earlier of (i) the first date on which the initial grantee of such
option is not employed by the Company for any reason other than termination
without cause, death or permanent disability or (ii) the expiration date of
the option. If the holder of an option dies or suffers a permanent disability
while still employed by the Company, the right to exercise all unexpired
installments of such option shall be accelerated and shall vest as of the
latest of the date of such death, the date of such permanent disability and
the date of the discovery of such permanent disability, and such option shall
be exercisable, subject to certain exceptions, for 180 days after such date.
If the holder of an option is terminated without cause, to the extent the
option has vested, such option will be exercisable for 30 days after such
date.
All outstanding awards under the 1997 Stock Plan will terminate immediately
prior to consummation of a liquidation or dissolution of the Company, unless
otherwise provided by the Board. In the event of the sale of all or
substantially all of the assets of the Company or the merger of the Company
with another corporation, all restrictions on any outstanding awards will
terminate and Participants will be entitled to the full benefit of their
awards immediately prior to the closing date of such sale or merger, unless
otherwise provided by the Board.
The Board generally will have the power and authority to amend the 1997
Stock Plan at any time without approval of the Company's stockholders, subject
to applicable federal securities and tax laws limitations (including
regulations of the Nasdaq National Market).
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EMPLOYEE STOCK PURCHASE PLAN
The Wesley Jessen VisionCare, Inc. Employee Stock Discount Purchase Plan
(the "Employee Stock Purchase Plan") will be approved by the Board and
stockholders prior to the consummation of the Offering. The Employee Stock
Purchase Plan will be established to give employees desiring to do so a
convenient means of purchasing shares of Common Stock through payroll
deductions. The Employee Stock Purchase Plan will provide an incentive to
participate by permitting purchases at a discounted price. The Company
believes that ownership of stock by employees will foster greater employee
interest in the success, growth and development of the Company.
Subject to certain restrictions, each employee of the Company who is a U.S.
resident or a U.S. citizen temporarily on location at a facility outside of
the United States will be eligible to participate in the Employee Stock
Purchase Plan if he or she has been employed by the Company for more than six
months. Participation will be discretionary with each eligible employee. The
Company will reserve 500,000 shares of Common Stock for issuance in connection
with the Employee Stock Purchase Plan. Each eligible employee will be entitled
to purchase a maximum of 500 shares per year. Elections to participate and
purchases of stock will be made on a quarterly basis. Each participating
employee contributes to the Employee Stock Purchase Plan by choosing a payroll
deduction in any specified amount, with a minimum deduction of $25.00 per
payroll period. A participating employee may increase or decrease the amount
of such employee's payroll deduction, including a change to a zero deduction
as of the beginning of any calendar quarter. Elected contributions will be
credited to participants' accounts at the end of each calendar quarter. In
addition, employees may make lump sum contributions at the end of the year to
enable them to purchase the maximum number of shares available for purchase
during the plan year.
Each participating employee's contributions will be used to purchase shares
for the employee's share account within 15 days after the last day of each
calendar quarter. The cost per share will be 85% of the lower of the closing
price of the Company's Common Stock on the Nasdaq National Market on the first
or the last day of the calendar quarter. The number of shares purchased on
each employee's behalf and deposited in his/her share account will be based on
the amount accumulated in such participant's cash account and the purchase
price for shares with respect to any calendar quarter. Shares purchased under
the Employee Stock Purchase Plan carry full rights to receive dividends
declared from time to time. Under the Employee Stock Purchase Plan, any
dividends attributable to shares in the employee's share account will be
automatically used to purchase additional shares for such employee's share
account. Share distributions and share splits will be credited to the
participating employee's share account as of the record date and effective
date, respectively. A participating employee will have full ownership of all
shares in such employee's share account and may withdraw them for sale or
otherwise by written request to the Committee following the close of each
calendar quarter. Subject to applicable federal securities and tax laws, the
Board of Directors will have the right to amend or to terminate the Employee
Stock Purchase Plan. Amendments to the Employee Stock Purchase Plan will not
affect a participating employee's right to the benefit of the contributions
made by such employee prior to the date of any such amendment. In the event
the Employee Stock Purchase Plan is terminated, the Committee will be required
to distribute all shares held in each participating employee's share account
plus an amount of cash equal to the balance in each participating employee's
cash account.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
The 1997 Non-Employee Director Stock Option Plan (the "Director Option
Plan") will be adopted and approved by the Board and stockholders prior to the
consummation of the Offering. The Director Option Plan will be established to
encourage stock ownership by certain Directors of the Company and to provide
those individuals with an additional incentive to manage the Company in the
shareholders' best interests and to provide a form of compensation that will
attract and retain highly qualified individuals as members of the Board. The
Director Option Plan will provide for the granting of options to non-employee
Directors, as defined, covering an aggregate of 250,000 shares of Common Stock
of the Company, subject to certain adjustments reflecting changes in the
Company's capitalization.
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The Committee or the full Board will be authorized under the Director Option
Plan to make discretionary grants of options and determine the terms and
conditions of such options. In addition, the Director Option Plan will provide
for an initial one-time grant of options to purchase 10,000 shares of Common
Stock to each non-employee Director serving as a member of the Board upon the
effectiveness of the Director Option Plan or to any new non-employee Director
upon being elected to the Board. The Director Option Plan will also provide
that each non-employee Director shall automatically be granted options to
purchase 2,000 shares of Common Stock upon each anniversary of such Director's
election to the Board (which will be granted at the Company's next annual
meeting of stockholders following such anniversary). The Director Option Plan
requires that the exercise price for each option granted under the plan must
equal 100% of the fair market value of the Company's Common Stock on the date
the option is granted. The initial one-time grants will be immediately
exercisable and the annual grants will vest in three equal installments
commencing on the first anniversary of the grant date. Nothing contained in
the Director Option Plan or any agreement to be executed pursuant to the
Director Option Plan will obligate the Company, its Board or its stockholders
to retain an optionee as a Director of the Company.
WESLEY JESSEN RETIREMENT PLAN
Substantially all full-time United States and Puerto Rico employees of the
Company participate in the Wesley Jessen Cash Balance Pension Plan (the
"Retirement Plan"), a defined benefit plan intended to qualify under Section
401(a) of the Code. The Retirement Plan became effective on January 1, 1996.
The Retirement Plan is a cash balance plan whereby each participant's benefits
are determined based on annual pay credits and interest credits made to each
participant's account. In general, a participant becomes vested under the
Retirement Plan upon completion of five years of service.
Annual pay credits range from 3.0% to 6.0% of compensation, depending on a
participant's length of service with the Company. Compensation refers to
pension eligible earnings of a participant under the Retirement Plan (up to
$150,000 for 1995, as limited by the Code), including base pay, overtime, and
pre-tax deferrals, but excluding bonuses, stipends, special items such as
allowances for living expenses and employer contributions to benefit plans.
Interest credits are based on a participant's account balance on the last
day of each calendar month and the plan's interest credit rate. This interest
credit rate is determined for each calendar quarter and equals the value as of
the immediately preceding calendar quarter of the average yield on 30-day
Treasury bills for the week in which each day falls, subject to a 4.0% minimum
and 12.0% maximum rate.
No pay or interest credits are granted under the Retirement Plan for periods
of employment prior to June 29, 1995. However, service is calculated from date
of hire for the purpose of determining the level of pay credit for the plan
year. The normal retirement age under the plan is age 65. Benefits are
computed on a straight line basis. The Company contributes actuarially
determined amounts to fund benefits under the Retirement Plan within
regulatory minimum requirements and maximum tax deductible limits.
The aggregate estimated annual benefits payable from the Retirement Plan to
Messrs. Ryan, Kelley, Chapoy, and Steiner upon normal retirement age is
$6,070, $15,590, $11,964, and $29,109, respectively. Mr. Roussel is not
eligible to participate in the Retirement Plan. As of December 31, 1996,
Messrs. Ryan, Kelley, Chapoy, and Steiner had approximately 1, 1, 3, and 13
years of credited service, respectively, under the Retirement Plan.
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PRINCIPAL STOCKHOLDERS
The table below sets forth certain information regarding the equity
ownership of the Company (a) as of December 31, 1996 and (b) immediately
following the Offering and giving effect to the Reclassification and Stock
Split (at an assumed public offering price of $20.00 per share and closing
date of the Offering of February 1, 1997), by: (i) each person or entity who
beneficially owns five percent or more of the Common Stock; (ii) each Director
and the Named Executives; and (iii) all Directors and executive officers of
the Company as a group. Unless otherwise stated, each of the persons named in
the table has sole voting and investment power with respect to the securities
beneficially owned by it or him as set forth opposite its or his name.
Beneficial ownership of the Common Stock listed in the table has been
determined in accordance with the applicable rules and regulations promulgated
under the Exchange Act. The actual number of shares of Common Stock to be
issued to each existing stockholder in the Reclassification and the Stock
Split is subject to change based upon changes in the initial public offering
price and the closing date of this Offering. See "The Reclassification."
<TABLE>
<CAPTION>
COMMON STOCK
COMMON STOCK OWNED OWNED AFTER
PRIOR TO THE THE
OFFERING OFFERING(1)
------------------ ------------
NUMBER OF
NAME AND ADDRESS SHARES PERCENT PERCENT
- ---------------- ---------- ------- ------------
<S> <C> <C> <C>
PRINCIPAL STOCKHOLDERS:
Bain Capital Funds (2)......................... 12,870,590 90.9% 77.3%
c/o Bain Capital, Inc.
Two Copley Place
Boston, Massachusetts 02116
BT Investment Partners, Inc. (3) .............. 691,068 4.9 4.2
One Bankers Trust Plaza
130 Liberty Street
New York, New York 10006
DIRECTORS AND EXECUTIVE OFFICERS:
Stephen G. Pagliuca (4)(5) .................... 12,870,590 90.9 77.3
Kevin J. Ryan (6)(7) .......................... 1,085,831 7.2 6.2
Edward J. Kelley (8) .......................... 290,343 2.0 1.7
Lawrence L. Chapoy (9) ........................ 66,015 * *
Daniel M. Roussel (10)......................... 136,458 1.0 *
Thomas F. Steiner (11) ........................ 106,733 * *
Adam W. Kirsch (4)(5).......................... 12,870,590 90.9 77.3
John W. Maki (4)(5) ........................... 1,771,996 12.5 10.6
John J. O'Malley (4)(5) ....................... 1,771,996 12.5 10.6
All Directors and executive officers as a group
(13 persons) (12) ............................ 14,723,388 94.2 81.2
</TABLE>
- --------
*Represents less than one percent.
(1) Assumes no exercise of the Underwriters' over-allotment option and does
not give effect to any purchases, if any, by such persons named in the
table in the Offering.
(2) Includes 5,175,606 shares of Common Stock held by Bain Capital Fund IV,
L.P. ("Fund IV"); 5,922,988 shares of Common Stock held by Bain Capital
Fund IV-B, L.P. ("Fund IV-B"); 823,024 shares of Common Stock held by
BCIP Associates ("BCIP"); and 948,972 shares of Common Stock held by BCIP
Trust Associates, L.P. ("BCIP Trust" and collectively with Fund IV, Fund
IV-B and BCIP, the "Bain Capital Funds").
(3) BT Investment Partners, Inc. ("BTIP") owns 5.4% of the Common Stock prior
to the Offering (without giving effect to the Reclassification). The
shares of Common Stock owned by BTIP currently represent approximately
4.9% of the outstanding shares of Common Stock and Class L Common
(without giving effect to the Reclassification). BTIP also is a limited
partner in Fund IV-B.
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(4) The address of such person is c/o Bain Capital, Inc., Two Copley Place,
Boston, Massachusetts 02116.
(5) Messrs. Pagliuca, Kirsch, Maki and O'Malley are each Directors of the
Company. Messrs. Pagliuca and Kirsch are each Managing Directors of Bain
Capital Investors, Inc. ("BCII") and limited partners of Bain Capital
Partners IV, L.P., the sole general partner of Fund IV and Fund IV-B.
BCII is the sole general partner of Bain Capital Partners IV, L.P.
Accordingly, Messrs. Pagliuca and Kirsch may be deemed to beneficially
own shares owned by Fund IV and Fund IV-B. Messrs. Pagliuca, Kirsch, Maki
and O'Malley are each general partners of BCIP and BCIP Trust and,
accordingly, may be deemed to beneficially own shares owned by such
funds. Each such person disclaims beneficial ownership of any such shares
in which he does not have a pecuniary interest.
(6) The address of such person is c/o the Company, 333 East Howard Avenue,
Des Plaines, Illinois 60018-5903.
(7) Includes 850,888 shares of Common Stock that can be acquired through
currently exercisable options. Certain of Mr. Ryan's shares are held by
an individual retirement account for his sole benefit.
(8) Includes 212,027 shares of Common Stock that can be acquired through
currently exercisable options. Certain of Mr. Kelley's shares are held by
an individual retirement account for his sole benefit.
(9) Includes 54,826 shares of Common Stock that can be acquired through
currently exercisable options.
(10) Includes 114,086 shares of Common Stock that can be acquired through
currently exercisable options.
(11) Includes 89,950 shares of Common Stock that can be acquired through
currently exercisable options.
(12) Includes an aggregate of 1,462,346 shares of Common Stock that can be
acquired through currently exercisable options held by the executive
officers of the Company. Excluding the shares owned by the Bain Capital
Funds that are attributed to Messrs. Pagliuca, Kirsch, Maki and O'Malley,
the Directors and executive officers of the Company as a group would own
1,852,798 shares of Common Stock, representing approximately 11.9% of the
outstanding Common Stock prior to the Offering.
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CERTAIN TRANSACTIONS
ADVISORY AGREEMENT
On June 28, 1995, the Company entered into an Advisory Agreement with Bain
Capital pursuant to which Bain Capital agreed to provide management
consulting, advisory services and support, negotiation and analysis of
financial alternatives, acquisitions and dispositions and other services
agreed upon by the Company and Bain Capital. Messrs. Pagliuca, Kirsch, Maki
and O'Malley are all Directors of the Company. Messrs. Pagliuca and Kirsch are
each Managing Directors of Bain Capital, Mr. Maki is a Principal of Bain
Capital and Mr. O'Malley is an Executive Vice President of Bain Capital.
Pursuant to the Advisory Agreement, the Company agreed to pay Bain Capital:
(i) a financial advisory fee of $600,000, plus out-of-pocket expenses of
$52,000, at the closing of the Wesley Jessen Acquisition; (ii) an annual fee
of $1.0 million, plus reasonable out-of-pocket expenses, for ongoing
management, consulting and financial services; and (iii) a transaction fee
equal to 1.0% of the amount of any future financing (whether debt or equity)
incurred by the Company or any subsidiary of the Company in connection with
any future acquisition. From June 29, 1995 to October 2, 1996, the Company
paid Bain Capital $1.25 million in financial advisory fees under such
agreement. At the time of the Barnes-Hind Acquisition, the Company and Bain
Capital entered into an Amended and Restated Advisory Agreement (the "Advisory
Agreement"), pursuant to which Bain Capital will provide similar services to
the Company and its subsidiaries. In exchange for such services, Bain will
receive: (i) a quarterly management fee of not more than $500,000, plus
reasonable out-of-pocket expenses; and (ii) a transaction fee in connection
with the consummation of each acquisition, divestiture or financing by the
Company or its subsidiaries in an amount equal to 1.0% of the aggregate value
of such transaction. In addition, the Company paid Bain Capital a fee of
approximately $3.0 million, plus its out-of-pocket expenses, in connection
with the structuring of the Bank Credit Agreement used to finance the Barnes-
Hind Acquisition. The Advisory Agreement has an initial term ending on January
31, 2004, subject to automatic one-year extensions unless the Company or Bain
Capital provides written notice of its desire not to extend such term.
Immediately prior to the consummation of the Offering, the Company and Bain
Capital will terminate the Advisory Agreement and Bain Capital will receive a
final payment thereunder of approximately $10.0 million in consideration of
services rendered to such date and such termination. The Company believes that
the fees paid for the professional services rendered are at least as favorable
to the Company as those which could be negotiated with a third party.
Prior to the completion of the Offering, the Company expects to enter into a
new advisory agreement with Bain Capital pursuant to which Bain Capital will
agree to provide advisory services in connection with any potential
acquisitions, dispositions or other financing transactions (whether debt or
equity) of the Company or any of its subsidiaries in exchange for a
transaction fee equal to 1.0% of the aggregate value of each acquisition,
divesture or financing completed by the Company or any of its subsidiaries
during the term of the agreement. Pursuant to the new agreement, Bain Capital
will provide advisory services and personnel support to the Company relating
to the identification, structuring, negotiating and financial analysis of
potential acquisitions, dispositions or other financing transactions. The new
advisory agreement will have an initial term ending January 31, 2002 or at
such time as Bain Capital or its affiliates cease to own at least 5.0% of the
outstanding Common Stock. The Company believes that the terms of such
agreement are at least as favorable to the Company as those which could be
negotiated with a third party.
STOCKHOLDERS AGREEMENT
On October 22, 1996, the Company, the Bain Capital Funds (and their related
investors) and BTIP entered into a stockholders agreement (the "Stockholders
Agreement"). The Stockholders Agreement (i) provides that BTIP may not sell,
transfer or otherwise dispose of any shares of its Common Stock without the
prior written approval of holders representing a majority of the shares
currently held by the Bain Capital Funds and its related investors
(collectively, the "Bain Group"); (ii) grants BTIP certain participation
rights in connection with certain transfers made by the Bain Group; and (iii)
requires BTIP to consent to a sale of the Company to an independent third
party if such sale is approved by holders representing a majority of the
shares held by the Bain Group. In addition, the Company agreed not to issue
any shares of its capital stock at a price per share below fair market
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value (as determined in good faith by the Board) other than: (i) to employees,
directors or consultants of the Company or its subsidiaries (excluding Bain
Capital, its employees and its affiliates); (ii) as consideration (in whole or
in part) for an acquisition; (iii) to each of the Company's then existing
stockholders, on a pro rata basis; or (iv) upon the exercise or conversion of
any then outstanding securities or issued thereafter in accordance with the
foregoing provisions. All of the foregoing provisions of the Stockholders
Agreement will terminate upon the consummation of the Offering.
SALES OF COMMON STOCK TO NAMED EXECUTIVES
Effective as of June 28, 1995 and pursuant to the 1995 Stock Plan, the
Company sold shares of its capital stock to certain executive officers of the
Company. Kevin J. Ryan, President and Chief Executive Officer, purchased 7,500
shares of Class L Common and 67,500 shares of Common Stock for an aggregate
amount equal to $135,944.05 (in each case without giving effect to the
Recapitalization or Stock Split). All sales to other executive officers of the
Company involved amounts less than $60,000.
UNREALIZED BENEFITS OF THE OFFERING TO NAMED EXECUTIVES
Set forth below for the Named Executives are (i) the number of shares of
Common Stock purchased from the Company and the aggregate purchase price paid
for such shares; (ii) the number of shares subject to options that have been
granted to such persons and the aggregate exercise price thereof; (iii) the
sum of the aggregate purchase price for the purchased shares and the aggregate
exercise price of the options; and (iv) the aggregate value of the shares and
the shares subject to the options (based on the mid-point of the range set
forth on the cover page of this Prospectus):
<TABLE>
<CAPTION>
SHARES OWNED PRIOR OPTIONS TO PURCHASE
TO THE OFFERING SHARES
---------------------- ------------------------ AGGREGATE VALUE OF
AGGREGATE AGGREGATE AGGREGATE SHARES AND OPTIONS
NAME NUMBER PURCHASE PRICE NUMBER PURCHASE PRICE COST AFTER THE OFFERING
- ---- ------- -------------- --------- -------------- ---------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Kevin J. Ryan........... 234,943 $102,920 1,144,601 $2,027,695 $2,130,615 $27,590,866
Edward J. Kelley........ 78,316 34,313 270,770 536,815 571,128 6,981,709
Lawrence L. Chapoy...... 11,188 4,907 72,728 119,829 124,736 1,678,322
Daniel M. Roussel....... 22,372 9,796 149,885 271,759 281,555 3,445,285
Thomas F. Steiner....... 16,783 7,351 116,802 235,563 242,914 2,671,706
</TABLE>
INDEMNIFICATION AGREEMENTS
Prior to the completion of the Offering, the Company expects to enter into
agreements to provide indemnification for its Directors and executive officers
in addition to the indemnification provided for in the Company's Restated
Certificate and By-laws of the Company.
DESCRIPTION OF CERTAIN INDEBTEDNESS
BANK CREDIT AGREEMENT
On October 2, 1996, the Company's principal operating subsidiary, Wesley
Jessen Corporation ("WJC"), entered into a Bank Credit Agreement with Bankers
Trust Company, as agent (the "Agent"), providing for Term Loans of $95.0
million in the form of a multi-tranche facility and a revolving credit
facility of $45.0 million. The Company used borrowings under the Bank Credit
Agreement to provide funding necessary to consummate the Barnes-Hind
Acquisition, with the revolving credit facility being used for working capital
needs. The Company intends to use approximately $30.0 million of the net
proceeds of the Offering to repay indebtedness under the Bank Credit
Agreement.
The maturity and interest rates of the Term Loans under the Bank Credit
Agreement vary by tranche. See Note 9 to Notes to Consolidated Financial
Statements. The overall effective interest rate for borrowings under the Term
Loans at October 2, 1996 was 8.48%. The revolving credit facility is a 5.5
year facility bearing interest at a floating rate based, at the Company's
option, on either the Eurodollar Rate (as defined therein) plus 275 basis
points or the Bank Base Rate (as defined therein) plus 175 basis points. The
revolving credit facility
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<PAGE>
includes a letter of credit sublimit of $17 million. The Company is required
to pay the lenders under the Bank Credit Agreement in the aggregate a
commitment fee equal to 0.5% per annum, payable on a quarterly basis, on the
daily average unused portion of this facility.
Indebtedness under the Bank Credit Agreement is guaranteed by the Company
and all current and future domestic subsidiaries of the Company, except for
WJC, and is secured by (i) a perfected security interest in substantially all
the assets and property of the Company and its domestic subsidiaries, and (ii)
a first priority perfected pledge of all capital stock of each direct and
indirect domestic subsidiary of the holding company.
The Bank Credit Agreement requires the Company to meet certain financial
tests, including minimum levels of consolidated EBITDA (as defined therein),
minimum interest coverage and maximum leverage ratio. The Bank Credit
Agreement also contains covenants which, among other things, limit the
incurrence of additional indebtedness, dividends, capital expenditures,
transactions with affiliates, asset sales, acquisitions, mergers, prepayments
of other indebtedness, liens and encumbrances and other matters customarily
restricted in such agreements.
The Bank Credit Agreement contains customary events of default, including
payment defaults, breach of representations and warranties, covenant defaults,
cross-defaults to certain other indebtedness, certain events of bankruptcy and
insolvency, ERISA defaults, judgment defaults, failure of any guaranty or
security agreement supporting the Bank Credit Agreement to be in full force
and effect and change of control of the Company.
NEW BANK CREDIT AGREEMENT
Contemporaneously with the Offering, the Company intends to (i) refinance
and retire all remaining indebtedness under the Bank Credit Agreement with a
portion of the proceeds of the Offering and (ii) enter into the New Bank
Credit Agreement. The New Bank Credit Agreement will consist of a term loan
facility of $65.0 million and a revolving credit facility of $35.0 million
(with a letter of credit sublimit to be agreed upon). Loans will be made under
the New Bank Credit Agreement directly to WJC, and will be guaranteed by the
Company and each of its domestic subsidiaries (other than WJC). The loans
under the New Bank Credit Agreement will be secured to the same extent as the
loans under the Bank Credit Agreement.
Loans made under the New Bank Credit Agreement will bear interest at a rate
per annum equal to, at the Company's option, (i) the Base Rate plus the
Applicable Margin or (ii) the Eurodollar Rate plus the Applicable Margin (as
each term is defined in the New Bank Credit Agreement). The Applicable Margin
for the Base Rate loans will vary from 0% to 0.75% and the Applicable Margin
for Eurodollar loans will vary from 0.75% to 1.75%. The Applicable Margin for
a particular borrowing will be based on the Company's Leverage Ratio (as
defined in the New Bank Credit Agreement) and the type of loan.
The term loans under the New Bank Credit Agreement are expected to be
subject to quarterly amortization payments over the life of the New Bank
Credit Agreement with final maturity in 2002. In addition, the New Bank Credit
Agreement will provide for mandatory repayments of the term loans, subject to
certain exceptions, with a portion of the (i) net proceeds from a sale of
assets by the Company; (ii) net proceeds from an issuance of debt by the
Company; (iii) net proceeds from an issuance of equity of the Company; and
(iv) certain excess cash flow. Once the term loans have been repaid under the
New Bank Credit Agreement, the term loans will not be permitted to be
reborrowed.
The revolving loans under the New Bank Credit Agreement will mature in 2002.
The revolving loans will be able to be repaid and reborrowed. Availability
under the New Bank Credit Agreement will be subject to an unused commitment
fee which will be a percentage of the unutilized revolving loan commitment.
This percentage will vary from 0.3% to 0.5% based on the Company's Leverage
Ratio. The New Bank Credit Agreement will contain restrictive covenants,
financial tests and events of default similar to those in the Bank Credit
Agreement.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL MATTERS
At the time of the Offering, the total amount of authorized capital stock of
the Company will consist of 50,000,000 shares of Common Stock, par value $0.01
per share, and 5,000,000 shares of preferred stock, par value $0.01 per share
(the "Serial Preferred Stock"). Upon completion of the Offering, 16,661,116
shares of Common Stock will be issued and outstanding and no shares of Serial
Preferred Stock will be issued and outstanding. As of December 31, 1996 and
without giving effect to the Reclassification and Stock Split, there were
4,090,582 shares of Common Stock and 321,067 shares of Class L Common
outstanding and were held by 24 and 23 holders of record, respectively. All of
the outstanding shares of Class L Common will be converted into shares of
Common Stock prior to the completion of the Offering. See "The
Reclassification." The discussion herein describes the Company's capital
stock, the Restated Certificate and By-laws as anticipated to be in effect
upon consummation of the Offering. The following summary of certain provisions
of the Company's capital stock describes all material provisions of, but does
not purport to be complete and is subject to, and qualified in its entirety
by, the Restated Certificate and the By-laws, which are included as exhibits
to the Registration Statement of which this Prospectus forms a part and by the
provisions of applicable law.
The Restated Certificate and By-laws will contain certain provisions that
are intended to enhance the likelihood of continuity and stability in the
composition of the Board of Directors and which may have the effect of
delaying, deferring or preventing a future takeover or change in control of
the Company unless such takeover or change in control is approved by the Board
of Directors.
COMMON STOCK
The issued and outstanding shares of Common Stock are, and the shares of
Common Stock being offered by the Company will be upon payment therefor,
validly issued, fully paid and nonassessable. Subject to the prior rights of
the holders of any Serial Preferred Stock, the holders of outstanding shares
of Common Stock are entitled to receive dividends out of assets legally
available therefor at such time and in such amounts as the Board of Directors
may from time to time determine. See "Dividend Policy." The shares of Common
Stock are not convertible and the holders thereof have no preemptive or
subscription rights to purchase any securities of the Company. Upon
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to receive pro rata the assets of the Company which are
legally available for distribution, after payment of all debts and other
liabilities and subject to the prior rights of any holders of Serial Preferred
Stock then outstanding. Each outstanding share of Common Stock is entitled to
one vote on all matters submitted to a vote of stockholders. There is no
cumulative voting.
The Common Stock has been approved for inclusion on the Nasdaq National
Market under the symbol "WJCO," subject to official notice of issuance.
SERIAL PREFERRED STOCK
The Company's Board of Directors may, without further action by the
Company's stockholders, from time to time, direct the issuance of shares of
Serial Preferred Stock in series and may, at the time of issuance, determine
the rights, preferences and limitations of each series. Satisfaction of any
dividend preferences of outstanding shares of Serial Preferred Stock would
reduce the amount of funds available for the payment of dividends on shares of
Common Stock. Holders of shares of Serial Preferred Stock may be entitled to
receive a preference payment in the event of any liquidation, dissolution or
winding-up of the Company before any payment is made to the holders of shares
of Common Stock. Under certain circumstances, the issuance of shares of Serial
Preferred Stock may render more difficult or tend to discourage a merger,
tender offer or proxy contest, the assumption of control by a holder of a
large block of the Company's securities or the removal of incumbent
management. Upon the affirmative vote of a majority of the total number of
Directors then in office, the Board
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of Directors of the Company, without stockholder approval, may issue shares of
Serial Preferred Stock with voting and conversion rights which could adversely
affect the holders of shares of Common Stock. Upon consummation of the
Offering, there will be no shares of Serial Preferred Stock outstanding, and
the Company has no present intention to issue any shares of Serial Preferred
Stock.
CERTAIN PROVISIONS OF THE RESTATED CERTIFICATE OF INCORPORATION AND BY-LAWS
The Restated Certificate provides for the Board to be divided into three
classes, as nearly equal in number as possible, serving staggered terms.
Approximately one-third of the Board will be elected each year. See
"Management." Under the Delaware General Corporation Law, directors serving on
a classified board can only be removed for cause. The provision for a
classified board could prevent a party who acquires control of a majority of
the outstanding voting stock from obtaining control of the Board until the
second annual stockholders meeting following the date the acquiror obtains the
controlling stock interest. The classified board provision could have the
effect of discouraging a potential acquiror from making a tender offer or
otherwise attempting to obtain control of the Company and could increase the
likelihood that incumbent directors will retain their positions.
The Restated Certificate provides that stockholder action can be taken only
at an annual or special meeting of stockholders and cannot be taken by written
consent in lieu of a meeting. The Restated Certificate and the By-laws provide
that, except as otherwise required by law, special meetings of the
stockholders can only be called pursuant to a resolution adopted by a majority
of the Board of Directors or by the Chief Executive Officer of the Company.
Stockholders will not be permitted to call a special meeting or to require the
Board to call a special meeting.
The By-laws establish an advance notice procedure for stockholder proposals
to be brought before an annual meeting of stockholders of the Company,
including proposed nominations of persons for election to the Board.
Stockholders at an annual meeting may only consider proposals or nominations
specified in the notice of meeting or brought before the meeting by or at the
direction of the Board or by a stockholder who was a stockholder of record on
the record date for the meeting, who is entitled to vote at the meeting and
who has given to the Company's Secretary timely written notice, in proper
form, of the stockholder's intention to bring that business before the
meeting. Although the By-laws do not give the Board the power to approve or
disapprove stockholder nominations of candidates or proposals regarding other
business to be conducted at a special or annual meeting, the By-laws may have
the effect of precluding the conduct of certain business at a meeting if the
proper procedures are not followed or may discourage or defer a potential
acquiror from conducting a solicitation of proxies to elect its own slate of
directors or otherwise attempting to obtain control of the Company.
The Restated Certificate and By-laws provide that the affirmative vote of
holders of at least 66 2/3% of the total votes eligible to be cast in the
election of directors is required to amend, alter, change or repeal certain of
their provisions. This requirement of a super-majority vote to approve
amendments to the Restated Certificate and By-laws could enable a minority of
the Company's stockholders to exercise veto power over any such amendments.
CERTAIN PROVISIONS OF DELAWARE LAW
Following the consummation of the Offering, the Company will be subject to
the "Business Combination" provisions of the Delaware General Corporation Law.
In general, such provisions prohibit a publicly held Delaware corporation from
engaging in various "business combination" transactions with any "interested
stockholder" for a period of three years after the date of the transaction
which the person became an "interested stockholder," unless (i) the
transaction is approved by the Board of Directors prior to the date the
"interested
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<PAGE>
stockholder" obtained such status; (ii) upon consummation of the transaction
which resulted in the stockholder becoming an "interested stockholder," the
"interested stockholder," owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced, excluding for
purposes of determining the number of shares outstanding those shares owned by
(a) persons who are directors and also officers and (b) employee stock plans
in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer; or (iii) on or subsequent to such date the "business
combination" is approved by the Board of Directors and authorized at an annual
or special meeting of stockholders by the affirmative vote of at least 66 2/3%
of the outstanding voting stock which is not owned by the "interested
stockholder." A "business combination" is defined to include mergers, asset
sales and other transactions resulting in financial benefit to a stockholder.
In general, an "interested stockholder" is a Person who, together with
affiliates and associates, owns (or within three years, did own) 15% or more
of a corporation's voting stock. The statute could prohibit or delay mergers
or other takeover or change in control attempts with respect to the Company
and, accordingly, may discourage attempts to acquire the Company.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Restated Certificate limits the liability of Directors to the fullest
extent permitted by the Delaware General Corporation Law. In addition, the
Restated Certificate will provide that the Company shall indemnify Directors
and officers of the Company to the fullest extent permitted by such law. The
Company anticipates entering into indemnification agreements with its current
Directors and executive officers prior to the completion of the Offering and
any new Directors or executive officers following such time. In addition, the
Company anticipates that prior to the Offering it will obtain directors' and
officers' insurance.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no market for the Common Stock of the
Company. The Company can make no predictions as to the effect, if any, that
sales of shares or the availability of shares for sale will have on the market
price prevailing from time to time. Nevertheless, sales of significant amounts
of the Common Stock in the public market, or the perception that such sales
may occur, could adversely affect prevailing market prices. See "Risk
Factors--Shares Eligible for Future Sale."
Upon completion of the Offering, the Company expects to have 16,661,116
shares of Common Stock outstanding. In addition, 2,617,570 shares of Common
Stock will be issuable upon the exercise of outstanding stock options. Of the
shares outstanding after the Offering, the 2,500,000 shares of Common Stock
(2,860,000 shares if the Underwriters' over-allotment is exercised in full)
sold in the Offering will be freely tradeable without restriction under the
Securities Act, except for any such shares which may be acquired by an
"affiliate" of the Company (an "Affiliate"), as that term is defined in Rule
144 promulgated under the Securities Act ("Rule 144"), which shares will be
subject to the volume limitations and other restrictions of Rule 144 described
below. An aggregate of 14,161,116 shares of Common Stock held by existing
stockholders of the Company upon completion of the Offering will be
"restricted securities" (as that phrase is defined in Rule 144) and may not be
resold in the absence of registration under the Securities Act or pursuant to
an exemption from such registration, including among others, the exemptions
provided by Rule 144 and Rule 701 under the Securities Act.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, if a period of at least two years has elapsed
since the later of the date the "restricted securities" were acquired from the
Company or the date they were acquired from an Affiliate, then the holder of
such restricted securities (including an Affiliate) is entitled to sell in the
public market a number of shares within any three-month period that does not
exceed the greater of 1% of the then outstanding shares of the Common Stock
(approximately 166,611 shares immediately after the Offering) or the average
weekly reported volume of trading of the Common Stock on the Nasdaq National
Market during the four calendar weeks preceding such sale. The holder may only
sell such shares through "brokers' transactions" or in transactions directly
with a "market maker" (as such terms are defined in Rule 144). Sales under
Rule 144 are also subject to certain requirements regarding providing notice
of such sales and the availability of current public information concerning
the Company. Affiliates may sell shares not constituting restricted securities
in accordance with the foregoing volume limitations and other requirements but
without regard to the two-year holding period. Under Rule 144(k), if a period
of at least three years has elapsed between the later of the date restricted
securities were acquired from the Company or the date they were acquired from
an Affiliate, as applicable, a holder of such restricted securities who is not
an Affiliate at the time of the sale and has not been an Affiliate for at
least three months prior to the sale would be entitled to sell the shares in
the public market without regard to the volume limitations and other
restrictions described above. The Commission is currently considering reducing
the two- and three-year holding periods under Rule 144 described above to one
and two years, respectively. Beginning June 28, 1997, approximately 13,000,162
shares of Common Stock will be eligible for sale in the public market pursuant
to Rule 144, subject to the volume limitations and other restrictions
described above.
Rule 701 provides that "restricted securities" issued by the Company in
transactions meeting the conditions set forth in Rule 701 are eligible to be
resold in the public market 90 days after the Company becomes subject to the
reporting requirements of the Exchange Act. In making such sales, Affiliates
must comply with the current public information, volume limitation, manner of
sale and notice provisions of Rule 144 and nonaffiliates must comply with the
manner of sale provision of Rule 144. In general, Rule 701 requires that
offers and sales of an issuer's securities be: (i) made pursuant to a written
compensatory benefit plan or a written contract relating to the compensation
of such issuer's employees, officers, directors or consultants (a copy of
which must be delivered to such person) and (ii) limited in value to a certain
aggregate amount during any 12-month period. Beginning 90 days from the date
of this Prospectus, the Company believes that 469,885 shares of Common Stock
and 2,617,570 shares issuable upon the exercise of outstanding options held by
employees of the Company will be eligible to be sold in the public market
pursuant to Rule 701.
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Notwithstanding the foregoing, the Company and its executive officers,
Directors and certain existing stockholders (who collectively own 14,038,490
shares of Common Stock), have agreed not to offer, sell, contract to sell or
otherwise dispose of any Common Stock for a period of 180 days after the date
of this Prospectus without the prior written consent of Merrill Lynch, except,
in the case of the Company, for the shares of Common Stock to be issued in
connection with the Offering or pursuant to employee benefit plans existing on
the date of this Prospectus and in the case of the executive officers,
Directors and existing stockholders, for the shares of Common Stock sold in
connection with the Offering (if any), sales or dispositions to the Company,
certain permitted transfers to related parties that agree to be bound by the
foregoing restrictions and certain permitted sales of shares acquired in the
open market following the completion of the Offering.
REGISTRATION AGREEMENT
The Company, the Bain Capital Funds (and their related investors) and BTIP
have entered into a registration agreement (the "Registration Agreement").
Under the Registration Agreement, the holders of a majority of the
registerable securities owned by the Bain Capital Funds and related investors
have the right at any time, subject to certain conditions, to require the
Company to register any or all of their shares of Common Stock under the
Securities Act on Form S-1 (a "Long-Form Registration") or on Form S-2 or Form
S-3 (a "Short-Form Registration") each on an unlimited number of occasions at
the Company's expense. The Company is not required, however, to effect any
such Long-Form Registration or Short-Form Registration within six months after
the effective date of a prior demand registration and may postpone the filing
of such registration for up to six months if the holders of a majority of the
registerable securities agree that such a registration would reasonably be
expected to have an adverse effect on any proposal or plan by the Company or
any of its subsidiaries to engage in an acquisition, merger or similar
transaction. In addition, all holders of registerable securities are entitled
to request the inclusion of any shares of Common Stock subject to the
Registration Agreement in any registration statement at the Company's expense
whenever the Company proposes to register any of its securities under the
Securities Act, subject to certain conditions. In connection with all such
registrations, the Company has agreed to indemnify all holders of registerable
securities against certain liabilities, including liabilities under the
Securities Act. Beginning 180 days after the date of the Prospectus, the
holders of an aggregate of 13,691,230 shares of Common Stock will have demand
registration rights pursuant to the Registration Agreement.
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UNDERWRITING
Subject to the terms and conditions contained in the Purchase Agreement (the
"Purchase Agreement"), the Company has agreed to sell to the Underwriters
named below, for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"), Alex. Brown & Sons Incorporated, Bear, Stearns & Co. Inc.,
BT Securities Corporation ("BT Securities") and Salomon Brothers Inc are
acting as representatives (the "Representatives"), and each of the
Underwriters has severally agreed to purchase the number of shares set forth
opposite its name below. In the Purchase Agreement, the several Underwriters
have agreed, subject to the terms and conditions set forth therein, to
purchase all the shares of Common Stock offered hereby if any are purchased.
In the event of default by an Underwriter, the Purchase Agreement provides
that, in certain circumstances, purchase commitments of the nondefaulting
Underwriters may be increased or the Purchase Agreement may be terminated.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated .............................................
Alex. Brown & Sons Incorporated ...............................
Bear, Stearns & Co. Inc. ......................................
BT Securities Corporation .....................................
Salomon Brothers Inc ..........................................
---------
Total .................................................... 2,400,000
=========
</TABLE>
The Underwriters propose initially to offer the shares of Common Stock
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and to certain dealers at such price less a
concession not in excess of $ per share. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of $ per share
on sales to certain other dealers. After the Offering, the public offering
price, concession and discount may be changed.
The Company has granted to the Underwriters an option, exercisable at any
time and from time to time during the 30-day period from the date of this
Prospectus, to purchase up to an aggregate of 360,000 additional shares of
Common Stock at the public offering price set forth on the cover page of this
Prospectus, less the underwriting discount. The Underwriters may exercise such
option to purchase additional shares solely for the purpose of covering over-
allotments, if any, incurred in connection with the Offering. To the extent
such option is exercised, each Underwriter will become obligated, subject to
certain conditions, to purchase approximately the same percentage of such
additional shares as the number set forth next to such Underwriter's name in
the preceding table bears to the total number of shares in such table.
Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock has been
determined by negotiation between the Company and the Representatives. Among
the factors considered in determining the public offering price were the
history of, and the prospects for, the Company's business and the industry in
which it competes, an assessment of the Company's management, its past and
present operations, its past and present earnings and the trend of such
earnings, the prospects for earnings of the Company, the present state of the
Company's development, the general condition of the securities
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markets at the time of the Offering and the price-earnings ratios and market
price of securities of comparable companies at the time of the Offering. There
can be no assurance that an active trading market will develop for the Common
Stock or that the Common Stock will trade in the public market subsequent to
the Offering at or above the initial public offering price.
The Company and WJC (the Company's principal operating subsidiary) have
agreed to indemnify the several Underwriters against certain liabilities,
including certain liabilities under the Securities Act.
The Underwriters have informed the Company that they do not expect to
confirm sales of the Common Stock offered hereby to any accounts over which
they exercise discretionary authority.
At the request of the Company, the Underwriters have reserved up to 150,000
shares of Common Stock for sale at the initial public offering price to
certain eligible employees and persons having business relationships with the
Company and its subsidiaries. The number of shares of Common Stock available
to the general public will be reduced to the extent these persons purchase the
reserved shares. Any reserved shares of Common Stock that are not so purchased
by such employees at the closing of the Offering will be offered by the
Underwriters to the general public on the same terms as the other shares in
the Offering. In addition, the Company is concurrently offering up to 100,000
shares of Common Stock directly to certain employee participants in the
Company's Profit Sharing Plan pursuant to a separate prospectus. Since such
shares are being sold directly by the Company and not through the
Underwriters, no underwriting discount or commission will be paid to the
Underwriters with respect to such shares. The shares are being offered at a
price per share equal to the per share Proceeds to Company as set forth on the
cover page of this Prospectus.
The Company and its executive officers, Directors and certain existing
stockholders, who collectively own 14,038,490 shares of Common Stock, have
agreed not to offer, sell, contract to sell or otherwise dispose of any Common
Stock for a period of 180 days after the date of this Prospectus without the
prior written consent of Merrill Lynch, except, in the case of the Company,
for the shares of Common Stock to be issued in connection with the Offering or
pursuant to employee benefit plans existing on the date of this Prospectus and
in the case of the executive officers, Directors and existing stockholders,
for the shares of Common Stock sold in connection with the Offering (if any),
sales or dispositions to the Company, certain permitted transfers to related
parties that agree to be bound by the foregoing restrictions and certain
permitted sales of shares acquired in the open market following the completion
of the Offering.
Under the Rules of Fair Practice of the National Association of Securities
Dealers, Inc. (the "NASD"), no member of the NASD or an affiliate of a member
shall participate in the distribution of a public offering of equity
securities issued by a company if the member and/or its affiliates will
receive 10% or more of the net proceeds of the offering unless such equity
securities are to be distributed to the public at a price which is no higher
than that recommended by a "qualified independent underwriter." The Company
intends to use a portion of the proceeds of the Offering to repay indebtedness
under the Bank Credit Agreement, which will result in Bankers Trust Company,
an affiliate of BT Securities, receiving more than 10% of the net proceeds of
the Offering.
In view of such use of proceeds, the Offering is being conducted in
accordance with the rules of the NASD and Merrill Lynch is acting as a
"qualified independent underwriter" within the meaning of such rules. In
connection therewith, Merrill Lynch has participated in the preparation of the
Registration Statement of which this Prospectus forms a part. It has exercised
its usual standards of "due diligence" with respect thereto and has
recommended the maximum price at which the Common Stock may be offered hereby.
Merrill Lynch will receive no separate fee for its services as qualified
independent underwriter, although the Company has agreed to reimburse its
expenses incurred as a result of such engagement.
BTIP, an affiliate of BT Securities, is the beneficial owner of an aggregate
of 691,068 shares of the Common Stock of the Company and is a limited partner
in Fund IV-B of the Bain Capital Funds. See "Principal Stockholders." Bankers
Trust Company, an affiliate of BT Securities, is the administrative agent and
a lender under the Bank Credit Agreement and is expected to be the
administrative agent and a lender under the New Bank Credit Agreement. See
"Description of Certain Indebtedness."
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EXPERTS
The financial statements of the Company at December 31, 1995 and September
28, 1996 and for the periods from June 29, 1995 through December 31, 1995 and
January 1, 1996 through September 28, 1996 and the financial statements of the
Predecessor at December 31, 1994 and for the period from January 1, 1995
through June 28, 1995 and the years ended December 31, 1993 and 1994 included
in this Prospectus have been so included in reliance upon the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm
as experts in auditing and accounting.
The consolidated balance sheet of Pilkington Barnes Hind Group as of March
31, 1996 and 1995 and the consolidated statements of income, parent company
investment, and cash flows for each of the years then ended, included in this
Prospectus, have been so included in reliance on the report, which includes
explanatory paragraphs relating to substantial doubt regarding the entity's
ability to continue as a going concern and the sale of certain assets and
liabilities of the entity, of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Kirkland & Ellis, Chicago, Illinois (a partnership which includes
professional corporations). Certain partners of Kirkland & Ellis are partners
in Randolph Street Partners, which owns 86,379 shares of Common Stock. Certain
legal matters will be passed upon for the Underwriters by Ropes & Gray,
Boston, Massachusetts. Kirkland & Ellis and Ropes & Gray have from time to
time represented, and may continue to represent, certain of the Underwriters
in connection with various legal matters and Bain Capital and certain of its
affiliates (including the Company) in connection with certain legal matters.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement (of which
this Prospectus is a part and which term shall encompass any amendments
thereto) on Form S-1 pursuant to the Securities Act with respect to the Common
Stock being offered in the Offering. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules thereto, certain portions of which are omitted as permitted by the
rules and regulations of the Commission. Statements made in this Prospectus as
to the contents of any contract, agreement or other document referred to are
not necessarily complete; with respect to any such contract, agreement or
other document filed as an exhibit to the Registration Statement, reference is
made to the exhibit for a more complete description of the matter involved,
and each such statement shall be deemed qualified in its entirety by such
reference. For further information about the Company and the securities
offered hereby, reference is made to the Registration Statement and to the
financial statements, schedules and exhibits filed as a part thereof.
Upon completion of the Offering, the Company will be subject to the
information requirements of the Exchange Act, and, in accordance therewith,
will file reports and other information with the Commission. The Registration
Statement, the exhibits and schedules forming a part thereof and the reports
and other information filed by the Company with the Commission in accordance
with the Exchange Act may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the following regional
offices of the Commission: Seven World Trade Center, 13th Floor, New York, New
York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material or any part thereof may also be
obtained by mail from the Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates or accessed
electronically by means of the Commission's home page on the Internet at
http://www.sec.gov.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and to make available quarterly
reports containing unaudited summary financial information for the first three
fiscal quarters of each fiscal year.
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INDEX TO FINANCIAL STATEMENTS
WESLEY JESSEN VISIONCARE, INC.
(FORMERLY KNOWN AS WESLEY-JESSEN HOLDING, INC.)
AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants--Company............................... F-2
Report of Independent Accountants--Predecessor........................... F-3
Consolidated Balance Sheets of the Predecessor at December 31, 1994 and
of the Company at December 31, 1995 and September 28, 1996.............. F-4
Consolidated Statements of Operations of the Predecessor for the years
ended December 31, 1993 and 1994 and for the period January 1, 1995
through June 28, 1995 and of the Company for the period June 29, 1995
through December 31, 1995 and for the period from January 1, 1996
through September 28, 1996.............................................. F-5
Consolidated Statements of Cash Flows of the Predecessor for the years
ended December 31, 1993 and 1994 and for the period January 1, 1995
through June 28, 1995 and of the Company for the period June 29, 1995
through December 31, 1995 and for the period from January 1, 1996
through September 28, 1996.............................................. F-6
Consolidated Statements of Changes in Stockholders' Equity (Deficit) of
the Company for the period June 29, 1995 through December 31, 1995 and
for the period from January 1, 1996 through September 28, 1996.......... F-7
Notes to Consolidated Financial Statements............................... F-8
BARNES-HIND
Independent Auditors' Report............................................. F-25
Combined Balance Sheets at March 31, 1995 and 1996....................... F-26
Combined Statements of Operations for the years ended March 31, 1995 and
1996.................................................................... F-27
Combined Statements of Parent Company Investment for the years ended
March 31, 1995 and 1996................................................. F-28
Combined Statements of Cash Flows for the years ended March 31, 1995 and
1996.................................................................... F-29
</TABLE>
<TABLE>
<S> <C>
Notes to Combined Financial Statements .................................... F-30
</TABLE>
BARNES-HIND
(UNAUDITED INTERIM FINANCIAL DATA)
<TABLE>
<S> <C>
Condensed Combined Balance Sheet at October 1, 1996 (unaudited)........... F-41
Condensed Combined Statements of Operations for the six months ended
September 30, 1995 (unaudited) and for the period from April 1, 1996
through October 1, 1996 (unaudited)...................................... F-42
Condensed Combined Statements of Cash Flows for the six months ended
September 30, 1995 (unaudited) and for the period from April 1, 1996
through October 1, 1996 (unaudited)...................................... F-43
Notes to Condensed Combined Financial Statements (unaudited).............. F-44
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS--COMPANY
To the Board of Directors and Stockholders of Wesley Jessen VisionCare, Inc.
(formerly known as Wesley-Jessen Holding, Inc.)
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows and of changes in
stockholders' equity (deficit) present fairly, in all material respects, the
financial position of Wesley Jessen VisionCare, Inc. (formerly known as
Wesley-Jessen Holding, Inc.) and its subsidiaries (the "Company") at December
31, 1995 and September 28, 1996, and the results of their operations and their
cash flows for the period from June 29, 1995 (inception) through December 31,
1995 and for the period from January 1, 1996 through September 28, 1996 in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
As discussed in Note 15, on October 2, 1996 the Company acquired the contact
lens business operating under the name Pilkington Barnes Hind Group from
Pilkington plc.
PRICE WATERHOUSE LLP
Chicago, Illinois
December 4, 1996,
except as to Note
15, which is as
of January 20,
1997
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS--PREDECESSOR
To the Board of Directors and Stockholders of Wesley Jessen VisionCare, Inc.
(formerly known as Wesley-Jessen Holding, Inc.)
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and of cash flows present fairly, in all
material respects, the financial position of the Wesley-Jessen contact lens
business of Schering-Plough Corporation (predecessor of Wesley Jessen
VisionCare, Inc. (formerly known as Wesley-Jessen Holding, Inc.)--see Note 1)
(the "Predecessor") at December 31, 1994, and the results of its operations
and its cash flows for each of the two years in the period ended December 31,
1994 and for the period from January 1, 1995 through June 28, 1995 in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the management of Wesley Jessen
VisionCare, Inc. (formerly known as Wesley-Jessen Holding, Inc.) and its
subsidiaries; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audits 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
Chicago, Illinois September 17, 1996
F-3
<PAGE>
WESLEY JESSEN VISIONCARE, INC.
(FORMERLY KNOWN AS WESLEY-JESSEN HOLDING, INC.)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------ --------------------------
DECEMBER 31, DECEMBER 31, SEPTEMBER 28,
1994 1995 1996
------------ ------------ -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $ 2,535 $ 2,522 $ 7,836
Accounts receivable--trade, net....... 23,707 19,708 17,245
Other receivables..................... 1,700 1,684 1,264
Inventories........................... 15,036 25,654 14,020
Deferred income taxes................. -- 6,040 6,524
Prepaid expenses...................... 5,982 3,313 4,870
-------- -------- --------
Total current assets................. 48,960 58,921 51,759
-------- -------- --------
Property, plant and equipment, net..... 106,124 893 4,587
Goodwill, net.......................... 19,193 -- --
Patents, licenses, and other intangi-
bles.................................. 15,339 -- --
Other assets........................... 1,813 -- --
Deferred income taxes.................. -- 4,315 4,132
Capitalized financing fees, net........ -- 3,201 2,765
-------- -------- --------
Total assets......................... $191,429 $ 67,330 $ 63,243
======== ======== ========
LIABILITIES, STOCKHOLDERS' EQUITY AND
SCHERING-PLOUGH INVESTMENT
Current liabilities:
Trade accounts payable................ $ 11,039 $ 7,405 $ 3,617
Accrued compensation and benefits..... 4,001 4,295 8,780
Accrued advertising................... -- 3,823 4,753
Other accrued liabilities............. 2,980 9,413 8,373
Income taxes payable.................. -- 1,223 2,504
Current portion of long-term debt..... -- 2,500 2,000
-------- -------- --------
Total current liabilities............ 18,020 28,659 30,027
-------- -------- --------
Negative goodwill, net................. -- 11,361 10,773
Long-term debt, less current maturi-
ties.................................. -- 39,500 26,500
-------- -------- --------
Total liabilities.................... 18,020 79,520 67,300
-------- -------- --------
Commitments and contingencies (Note
14)...................................
Stockholders' equity (deficit):
Class L Common stock, $.01 par value,
cumulative yield of 12.5%, 600,000
shares authorized, 429,177 and
321,067 issued and outstanding at De-
cember 31, 1995 and September 28,
1996, respectively................... -- 4 3
Common stock, $.01 par value,
5,400,000 shares authorized,
3,862,604 and 4,090,582 issued and
outstanding at December 31, 1995 and
September 28, 1996, respectively..... -- 38 40
Additional paid in capital............ -- 7,483 7,754
Accumulated deficit................... -- (19,715) (11,854)
-------- -------- --------
Total stockholders' equity (deficit).. -- (12,190) (4,057)
-------- -------- --------
Schering-Plough investment (Note 8)... 173,409 -- --
-------- -------- --------
Total liabilities, stockholders'
equity (deficit) and Schering-Plough
investment.......................... $191,429 $ 67,330 $ 63,243
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
WESLEY JESSEN VISIONCARE, INC.
(FORMERLY KNOWN AS WESLEY-JESSEN HOLDING, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------------------------- --------------------------
YEARS ENDED JANUARY 1 JUNE 29 JANUARY 1
DECEMBER 31, THROUGH THROUGH THROUGH
-------------------- JUNE 28, DECEMBER 31, SEPTEMBER 28,
1993 1994 1995 1995 1996
--------- --------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Net sales............... $ 103,386 $ 109,640 $ 51,019 $ 54,315 $96,048
--------- --------- -------- -------- -------
Operating costs and ex-
penses:
Cost of goods sold.... 56,780 65,591 20,871 19,916 26,471
Cost of goods sold--
inventory step-up
(Note 5)............ -- -- -- 33,929 6,626
Marketing and adminis-
trative.............. 59,764 79,185 43,236 29,476 51,014
Research and develop-
ment................. 10,286 9,843 4,569 2,524 3,786
Amortization of intan-
gible assets......... 5,472 5,472 2,736 (392) (588)
--------- --------- -------- -------- -------
Income (loss) from oper-
ations................. (28,916) (50,451) (20,393) (31,138) 8,739
Other (income) expense:
Interest expense...... -- -- -- 2,599 2,757
Financing charge (Note
8)................... 6,886 7,172 3,511 -- --
Other income, net..... (256) (202) (1,360) -- (3,500)
--------- --------- -------- -------- -------
Income (loss) before in-
come taxes............. (35,546) (57,421) (22,544) (33,737) 9,482
Income tax (expense)
benefit................ 17,214 26,935 9,401 14,022 (1,621)
--------- --------- -------- -------- -------
Net income (loss)....... $ (18,332) $ (30,486) $(13,143) $(19,715) $ 7,861
========= ========= ======== ======== =======
Pro forma income (loss)
per common and common
equivalent share
(unaudited)............ $ $
======== =======
Weighted average shares
used in computation of
pro forma income (loss)
per common and common
equivalent share
(unaudited)............
======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
WESLEY JESSEN VISIONCARE, INC.
(FORMERLY KNOWN AS WESLEY-JESSEN HOLDING, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
----------------------------- --------------------------
YEARS ENDED
DECEMBER 31,
------------------
JANUARY 1 JUNE 29 JANUARY 1
THROUGH THROUGH THROUGH
JUNE 28, DECEMBER 31, SEPTEMBER 28,
1993 1994 1995 1995 1996
-------- -------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Cash Flow Provided by
(Used in)
Operating Activities:
Net income (loss)...... $(18,332) $(30,486) $(13,143) $(19,715) $ 7,861
Adjustments to recon-
cile net income (loss)
to net cash provided
by (used in) operating
activities:
Depreciation expense... 6,036 7,588 3,871 -- 159
Purchased inventory
step-up............... -- -- -- 33,929 6,626
Amortization of intan-
gible assets.......... 5,472 5,472 2,736 -- --
Amortization of capi-
talized financing
fees.................. -- -- -- 291 436
Amortization of nega-
tive goodwill......... -- -- -- (392) (588)
(Gain) loss on disposal
of property, plant and
equipment............. (25) 142 6 -- (44)
Changes in balance
sheet items:
Accounts receivable.... 9,309 9,151 2,430 409 2,463
Other receivables...... 3,505 1,836 455 (343) 420
Inventories............ 3,898 561 (8,857) 4,668 5,008
Deferred income taxes.. -- -- -- (15,245) (301)
Prepaid expenses....... 579 (1,803) 1,457 (962) (1,557)
Other assets........... 2,086 1,358 (688) -- --
Accounts payable....... (1,572) 1,424 (1,388) (1,614) (3,788)
Accrued liabilities.... 1,345 (1,907) 3,286 1,786 4,375
Income taxes payable... -- -- -- 1,223 1,281
-------- -------- -------- -------- --------
Cash provided by (used
in) operating activi-
ties.................. 12,301 (6,664) (9,835) 4,035 22,351
-------- -------- -------- -------- --------
Investing Activities:
Net assets acquired
(exclusive of cash),
including payments
related to financing
agreements............ -- -- -- (47,033) --
Capital expenditures... (25,297) (3,187) (1,959) (893) (3,657)
Proceeds from sale of
property, plant and
equipment............. 175 916 302 -- (152)
-------- -------- -------- -------- --------
Cash provided by (used
in) investment activi-
ties.................. (25,122) (2,271) (1,657) (47,926) (3,809)
-------- -------- -------- -------- --------
Financing Activities:
Issuance of common
stock................. -- -- -- 7,525 272
Proceeds from long-term
debt.................. -- -- -- 43,000 --
Payment of financing
fees.................. -- -- -- (3,492) --
Payments of long-term
debt.................. -- -- -- (1,000) (13,500)
Advances from (payments
to) Schering-Plough,
net................... 13,994 7,652 11,272 -- --
-------- -------- -------- -------- --------
Cash provided by (used
in) financing activi-
ties.................. 13,994 7,652 11,272 46,033 (13,228)
-------- -------- -------- -------- --------
Net increase (decrease)
in cash and cash
equivalents........... 1,173 (1,283) (220) 2,142 5,314
Cash and Cash Equiva-
lents:
Beginning of period.... 2,645 3,818 2,535 380 2,522
-------- -------- -------- -------- --------
End of period.......... $ 3,818 $ 2,535 $ 2,315 $ 2,522 $ 7,836
======== ======== ======== ======== ========
Supplemental Disclosure
of Cash
Flow Information:
Cash paid during the
period for interest
(Note 8).............. $ -- $ -- $ -- $ 1,400 $ 2,811
======== ======== ======== ======== ========
Cash paid during the
period for taxes (Note
2).................... $ -- $ -- $ -- $ -- $ 641
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
WESLEY JESSEN VISIONCARE, INC.
(FORMERLY KNOWN AS WESLEY-JESSEN HOLDING, INC.)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)--COMPANY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLASS L
COMMON STOCK COMMON STOCK ADDITIONAL TOTAL
---------------- ---------------- PAID IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY (DEFICIT)
-------- ------ --------- ------ ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 29,
1995................... -- $-- -- $-- $ -- $ -- $ --
Issuance of common
stock.................. 429,177 4 3,862,604 39 7,739 -- 7,782
Stock subscription re-
ceivable............... -- -- -- (1) (256) -- (257)
Net loss................ -- -- -- -- -- (19,715) (19,715)
-------- ---- --------- ---- ------ -------- --------
Balance at December 31,
1995................... 429,177 4 3,862,604 38 7,483 (19,715) (12,190)
Issuance of common
stock.................. 823 -- 7,396 -- 15 -- 15
Stock subscription
received............... -- -- -- 1 256 -- 257
Net income.............. -- -- -- -- -- 7,861 7,861
Exchange of common stock
(Note 10).............. (108,933) (1) 220,582 1 -- -- --
-------- ---- --------- ---- ------ -------- --------
Balance at September 28,
1996................... 321,067 $ 3 4,090,582 $ 40 $7,754 $(11,854) $ (4,057)
======== ==== ========= ==== ====== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
WESLEY JESSEN VISIONCARE, INC.
(FORMERLY KNOWN AS WESLEY-JESSEN HOLDING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
Basis of presentation
The consolidated financial statements for the period from June 29, 1995 to
December 31, 1995 and January 1, 1996 to September 28, 1996 include the
accounts of Wesley Jessen VisionCare, Inc. (formerly known as Wesley-Jessen
Holding, Inc.), its wholly owned subsidiary, Wesley-Jessen Corporation and
Wesley-Jessen Corporation's wholly owned subsidiaries which are located in
Canada, the United Kingdom, Italy, Spain, France, Japan and Puerto Rico
(collectively, the "Company").
The consolidated financial statements for the years December 31, 1993 and
1994 and the period from January 1, 1995 to June 28, 1995 of the Wesley-Jessen
contact lens business (hereinafter referred to as the "Predecessor") of
Schering-Plough Corporation ("Schering-Plough") present the "carve-out"
financial position, results of operations, and cash flows for the periods
presented for the operations of the contact lens business of Schering-Plough
purchased by the Company. The financial information of the Predecessor
presented herein does not necessarily reflect what the financial position,
results of operations and cash flows of the Wesley Jessen contact lens
business would have been had it operated as a stand-alone entity during the
periods covered and may not be indicative of future financial position,
results of operations or cash flows.
Description of business
The Company's primary business activity is the research, development,
manufacture, marketing and sale of conventional and disposable soft contact
lenses in the United States and certain other countries. The Company is
headquartered in Des Plaines, Illinois and operates in one business segment.
Wesley Jessen Acquisition
Effective June 29, 1995, Wesley-Jessen Corporation completed the acquisition
(the "Wesley Jessen Acquisition") of the Predecessor from Schering-Plough. As
a result of the Wesley Jessen Acquisition, Wesley-Jessen Corporation acquired
certain assets from Schering-Plough, consisting of manufacturing facilities in
Des Plaines, Illinois and Cidra, Puerto Rico, a distribution facility in
Chicago, Illinois, and a number of non-U.S. sales and service offices, assumed
certain liabilities of the Predecessor, and paid certain acquisition costs
directly attributable to the Wesley Jessen Acquisition (Note 3).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist the
reader in understanding and evaluating the accompanying financial statements.
These policies are in conformity with generally accepted accounting
principles, have been consistently applied unless otherwise noted, and apply
to both the Company and the Predecessor unless otherwise noted.
Use of estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
period. Actual results could differ from those estimates.
Principles of consolidation
All significant intercompany accounts and transactions have been eliminated
in consolidation.
F-8
<PAGE>
WESLEY JESSEN VISIONCARE, INC.
(FORMERLY KNOWN AS WESLEY-JESSEN HOLDING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Unaudited pro forma income (loss) per share
Given the changes in the Company's capital structure to be effected in
conjunction with the anticipated initial public offering, and the Barnes-Hind
Acquisition described in Note 15, historical income (loss) per common share
amounts are not presented in the consolidated financial statements as they are
not considered to be meaningful.
The calculation of pro forma income (loss) per share was determined by
dividing net income (loss) by the pro forma weighted average common and common
equivalent shares outstanding after giving retroactive effect to the Wesley
Jessen Acquisition (Note 1), the conversion of Class L Common Stock into
shares of Common Stock and the -to-one stock split of Common Stock upon the
effectiveness of the Registration Statement. In addition, in accordance with
Securities and Exchange Commission Staff Accounting Bulletin ("SAB") No. 83,
shares issued and share options granted within one year of the anticipated
public offering have been included in the calculation of common share
equivalents, using the treasury stock method to determine the dilutive effect
of the issuances, as if they were outstanding for all periods presented in
accordance with SAB No. 83.
Some of the proceeds from the Company's anticipated public offering will be
used to retire indebtedness existing under its credit agreement (Note 9).
Accordingly, supplemental pro forma income (loss) per share is $ and $
for the period from June 29, 1995 through December 31, 1995 and the period
from January 1, 1996 through September 28, 1996, respectively. The number of
shares of Common Stock whose proceeds are to be used to retire debt is .
This calculation assumes the debt retirement had taken place at the later of
the beginning of the respective period or the issuance of the debt. The amount
of interest expense eliminated, net of tax benefits, is $ and $ for
the period from June 29, 1995 through December 31, 1995, and the period from
January 1, 1996 through September 28, 1996, respectively.
Revenue recognition
Revenues are recognized when product is shipped. Net sales include estimates
for returns and allowances. The Company grants credit terms to its customers
consistent with normal industry practices and does not require collateral. No
individual customer accounts for more than 10 percent of sales.
Other income
Other income for the period from January 1, 1996 through September 28, 1996
includes income of $3.5 million relating to licensing of a patent by the
Company in May 1996.
Cash and cash equivalents
All highly liquid investments with an original maturity of three months or
less are considered to be cash equivalents. These amounts are stated at cost
which approximates fair value.
Inventories
Inventories are stated at lower of cost, determined by the first-in, first-
out (FIFO) method, or market (also see Notes 3 and 5). Market for raw
materials is based on replacement costs and for other inventory
classifications on net realizable value. Consideration is given to
deterioration, obsolescence and other factors in evaluating net realizable
value.
Prepaid expenses
Prepaid expenses include sample inventory to be used for promotional
purposes. The value of samples is charged to promotional expense during the
period in which the samples are shipped.
F-9
<PAGE>
WESLEY JESSEN VISIONCARE, INC.
(FORMERLY KNOWN AS WESLEY-JESSEN HOLDING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Property, plant and equipment
Property, plant and equipment is recorded at cost. Depreciation is
determined using the straight-line method over the estimated useful lives of
the assets, which are as follows (in years):
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
----------- -------
<S> <C> <C>
Buildings and land improvements............................. 20 to 50 25
Machinery and equipment..................................... 10 to 15 7
Furniture and fixtures...................................... 8 to 12 7
Automobiles................................................. 4 3
</TABLE>
Expenditures for renewals and betterments are capitalized, and maintenance
and repairs are charged to operations.
Negative goodwill/goodwill
Negative goodwill of the Company arose at the time of the Wesley Jessen
Acquisition since the fair value of net assets acquired significantly exceeded
total acquisition cost, resulting in a writedown of the Company's property,
plant and equipment balances and other noncurrent assets to zero with the
residual amount of $11.8 million being allocated to negative goodwill. This
amount is being amortized on a straight-line basis as a credit to income over
a period of fifteen years which is considered by management to be a reasonable
period to correspond with the economic benefit obtained from consumption of
the acquired assets. Negative goodwill was $11.4 million and $10.8 million,
net of $0.4 million and $1.0 million of accumulated amortization, at December
31, 1995 and September 28, 1996, respectively.
Goodwill of the Predecessor represents primarily the excess of cost over the
fair value of acquired net assets allocated to the Predecessor arising from
Schering-Plough's 1981 acquisition of the Predecessor, and was being amortized
on a straight-line basis over 40 years. At December 31, 1994, goodwill was
$19.2 million, net of accumulated amortization of $7.7 million.
The Predecessor's goodwill and other intangible assets (further discussed
below) related primarily to the Company's conventional soft contact lens
business. While the Company had experienced losses and operating cash flow
deficits in 1993, 1994 and the period from January 1, 1995 through June 28,
1995, these were the result of significant start-up costs and operational
issues associated with its molded, disposable lens business. However, based on
the relatively stable operations, positive operating cash flows and the
expectations of continued positive performance in 1995 and beyond of the
conventional lens business, the pre-Wesley Jessen Acquisition carrying values
of the Predecessor's goodwill and other intangible assets were not considered
to be impaired.
Intangible assets other than goodwill
Intangible assets of the Predecessor include purchased licenses, patents,
and other intangible assets which were amortized on a straight-line basis over
their expected useful lives. Licenses and patents, net of accumulated
amortization of $8.0 million and $20.2 million, respectively, aggregated $7.9
million and $2.8 million at December 31, 1994, respectively. Other intangible
assets aggregated $4.6 million at December 31, 1994, net of accumulated
amortization of $1.4 million. In connection with the purchase accounting
applied to the Wesley Jessen Acquisition (Note 3), these intangible assets
acquired were written down to zero.
Capitalized financing fees
Capitalized financing fees of the Company are amortized over the term of the
underlying debt utilizing the interest method and the amortization is included
in interest expense.
F-10
<PAGE>
WESLEY JESSEN VISIONCARE, INC.
(FORMERLY KNOWN AS WESLEY-JESSEN HOLDING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Research and development costs
Expenditures related to the development of new products and processes,
including significant improvements and refinements of existing products, are
expensed as incurred.
Foreign currency translation
The functional currency of each of the Company's and the Predecessor's
foreign subsidiaries is the local currency in its respective country. Asset
and liability accounts of each entity are translated at the exchange rate in
effect at each period-end, and income and expense accounts are translated at
average exchange rates prevailing during the period. Gains and losses
resulting from the translation of these foreign currency financial statements
are included in stockholders' equity (deficit). Foreign currency translation
gains and losses of the Predecessor and the Company were not significant in
the periods presented and have not been presented separately.
Income taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes, which is
an asset and liability method of accounting for income taxes. Under this
method, deferred tax assets and liabilities are recognized for the expected
future tax consequences, utilizing currently enacted tax rates, of temporary
differences between the carrying amounts and the tax bases of assets and
liabilities. Deferred tax assets are recognized, net of any necessary
valuation allowance, for the estimated future tax effects of deductible
temporary differences and tax operating loss and credit carryforwards.
Deferred tax expense or benefit represents the change in the deferred tax
asset or liability balances.
The Predecessor's operations were included in Schering-Plough's consolidated
U.S. federal tax returns. The provision for income taxes shown in the
Consolidated Statements of Operations has been determined as if the
Predecessor had filed separate tax returns for the periods presented; all U.S.
income taxes, including deferred taxes, were settled with Schering-Plough on a
current basis through the Schering-Plough investment account, and Schering-
Plough utilized the tax losses generated by the Predecessor. The income tax
attributes of the Predecessor did not survive the Wesley Jessen Acquisition.
Concentration of credit risk
The Company provides credit, in the normal course of business, to
distributors, optical store chains and physicians' offices. The Company
performs ongoing credit evaluations of its customers and maintains reserves
for potential credit losses which, when realized, have been within the range
of management's allowance for doubtful accounts.
Fair value of financial instruments
Cash, accounts receivable, accounts payable, and accrued liabilities are
reflected in the financial statements at amounts which approximate fair value,
primarily because of the short-term maturity of those instruments. The Company
believes that due to the adjustable interest rates applicable to its long-term
debt, the fair value approximates the carrying value of the obligations.
Interim results
The interim results of operations are not necessarily indicative of results
to be expected for a full year.
3. WESLEY JESSEN ACQUISITION
The Wesley Jessen Acquisition has been accounted for using the purchase
method of accounting. Accordingly, the purchase price has been allocated to
the assets purchased and the liabilities assumed based upon the estimated fair
values at the date of the Wesley Jessen Acquisition.
F-11
<PAGE>
WESLEY JESSEN VISIONCARE, INC.
(FORMERLY KNOWN AS WESLEY-JESSEN HOLDING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of assets acquired, liabilities assumed, and purchase price paid
is as follows (dollars in millions):
<TABLE>
<S> <C>
Consideration:
Cash.................................................................... $47.0
Liabilities assumed..................................................... 29.6
-----
Cost of assets acquired................................................... $76.6
=====
</TABLE>
The final cost allocated to each of the Company's assets and liabilities at
the date of the Wesley Jessen Acquisition, as determined in accordance with
the purchase method of accounting, is presented in the table below (dollars in
millions). The estimated fair values allocated to acquired property, plant and
equipment, noncurrent intangible assets, and other noncurrent assets were
$103.9 million, $31.8 million, and $2.5 million, respectively. Since the
estimated fair values of the net assets acquired exceeded total acquisition
cost, the excess of net assets acquired over the purchase price was allocated
as a reduction to the Company's fixed assets, noncurrent intangible assets,
and other noncurrent assets, with the residual discount of $11.8 million being
allocated to negative goodwill.
<TABLE>
<S> <C> <C>
Accounts receivable................................................ $ 20.1
Inventories........................................................ 64.3
Prepaid expenses and other current assets.......................... 4.0
Property, plant, and equipment..................................... --
Noncurrent intangible assets....................................... --
Other noncurrent assets............................................ --
Accounts payable and accrued liabilities........................... (24.7)
Deferred income tax liabilities.................................... (4.9)
Negative goodwill.................................................. (11.8)
------
Net assets acquired.............................................. $ 47.0
======
</TABLE>
The Wesley Jessen Acquisition was financed by $43.0 million of bank debt and
$7.5 million of proceeds from the issuance of the Company's common stock; the
Company incurred and capitalized financing fees of $3.5 million.
4. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following (in millions):
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------ --------------------------
DECEMBER 31, DECEMBER 31, SEPTEMBER 28,
1994 1995 1996
------------ ------------ -------------
<S> <C> <C> <C>
Trade receivables....................... $ 44.7 $31.6 $28.9
Less allowances:
Doubtful accounts..................... (5.2) (4.7) (3.4)
Sales returns and adjustments......... (15.8) (7.2) (8.3)
------ ----- -----
Net receivables......................... $ 23.7 $19.7 $17.2
====== ===== =====
</TABLE>
F-12
<PAGE>
WESLEY JESSEN VISIONCARE, INC.
(FORMERLY KNOWN AS WESLEY-JESSEN HOLDING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. INVENTORIES
Inventories consist of the following (in millions):
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------ --------------------------
DECEMBER 31, DECEMBER 31, SEPTEMBER 28,
1994 1995 1996
------------ ------------ -------------
<S> <C> <C> <C>
Raw materials........................... $ 0.7 $ 3.2 $ 3.4
Work-in-process......................... 0.7 2.1 3.4
Finished goods.......................... 13.6 20.4 7.2
----- ----- -----
$15.0 $25.7 $14.0
===== ===== =====
</TABLE>
In connection with the Wesley Jessen Acquisition, under the purchase method
of accounting, the Company's total inventories were written up by $40.6
million to fair value at the date of the Acquisition. Of this amount, $34.0
million and $6.6 million was charged to cost of goods sold during the periods
June 29, 1995 through December 31, 1995, and January 1, 1996 through September
28, 1996, respectively.
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in millions):
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------ --------------------------
DECEMBER 31, DECEMBER 31, SEPTEMBER 28,
1994 1995 1996
------------ ------------ -------------
<S> <C> <C> <C>
Land................................... $ 4.8 $ -- $--
Buildings and land improvements........ 49.9 -- 0.7
Machinery, equipment, furniture and
fixtures.............................. 77.8 -- 1.7
Construction-in-progress............... 4.4 0.9 2.4
------ ----- ----
136.9 0.9 4.8
Less accumulated depreciation.......... (30.8) -- (0.2)
------ ----- ----
Net property, plant, and equipment..... $106.1 $ 0.9 $4.6
====== ===== ====
</TABLE>
Expenditures for maintenance and repairs were $2.6 million, $4.6 million,
$1.9 million, $1.7 million and $1.7 million for the years ended December 31,
1993 and 1994, the period from January 1, 1995 through June 28, 1995, the
period from June 29, 1995 through December 31, 1995 and the period from
January 1, 1996 through September 28, 1996.
7. ADVERTISING COSTS
The Predecessor and the Company participate in several cooperative
advertising programs with customers. The costs incurred under these programs
are accrued and expensed at the inception of the contract. All of the
Predecessor's and the Company's other production costs of advertising are
expensed the first time the advertising takes place. Advertising expense for
the years ended December 31, 1993 and 1994, for the period from January 1,
1995 through June 28, 1995, for the period from June 29, 1995 through December
31, 1995 and for the period from January 1, 1996 through September 28, 1996
was $5.8 million, $13.7 million, $8.8 million, $5.8 million and $8.7 million,
respectively.
8. RELATED PARTY TRANSACTIONS
Predecessor parent company
Schering-Plough provided the Predecessor certain legal, audit, data
processing, engineering, insurance, facility, regulatory, and administrative
services. Charges to the Predecessor for these services are reflected in the
F-13
<PAGE>
WESLEY JESSEN VISIONCARE, INC.
(FORMERLY KNOWN AS WESLEY-JESSEN HOLDING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Consolidated Statements of Operations through June 28, 1995 and were based on
allocations of Schering-Plough's actual direct and indirect costs using
varying allocation bases as appropriate (hours worked, headcount, etc.)
designed to estimate the actual cost incurred by Schering-Plough to render
these services to the Predecessor. Management believes that the basis used for
allocating such services is reasonable, and the allocation process was
consistent with the methodology used by Schering-Plough to allocate the cost
of similar services provided to its other business units. No provision has
been made for possible incremental expenses that would have been incurred or
hypothetical savings achieved had the Predecessor operated as an independent
entity. These charges are included in marketing and administrative expenses
and are summarized as follows (in millions):
<TABLE>
<CAPTION>
PREDECESSOR
-------------------------------
YEAR ENDED FOR THE PERIOD
DECEMBER 31, JANUARY 1, 1995
------------- THROUGH JUNE 28,
1993 1994 1995
------ ------ -----------------
<S> <C> <C> <C>
Allocations:
General and administrative.................... $ 1.9 $ 1.9 $1.1
Legal......................................... 2.1 2.1 0.8
Compensation and benefits..................... 0.7 0.5 0.1
Direct charges:
Insurance..................................... 2.5 3.2 1.8
------ ------ ----
$ 7.2 $ 7.7 $3.8
====== ====== ====
</TABLE>
The Predecessor's consolidated statements of operations also include a
financing charge from Schering-Plough based upon 11% of receivables
outstanding and inventories on-hand throughout the period. This charge
amounted to $6.9 million, $7.2 million, and $3.5 million for the years ended
December 31, 1993 and 1994, and the period from January 1, 1995 through June
28, 1995, respectively.
A summary of changes in Schering-Plough's investment is as follows (in
thousands):
<TABLE>
<S> <C>
Excess of assets over liabilities at December 31, 1992................ $200,581
1993 net loss......................................................... (18,332)
Net change in amounts due to/from Schering-Plough..................... 13,994
--------
Excess of assets over liabilities at December 31, 1993................ 196,243
1994 net loss......................................................... (30,486)
Net change in amounts due to/from Schering-Plough..................... 7,652
--------
Excess of assets over liabilities at December 31, 1994................ 173,409
Net loss from January 1, 1995 through June 28, 1995................... (13,143)
Net change in amounts due to/from Schering-Plough..................... 11,272
--------
Excess of assets over liabilities at June 28, 1995.................... $171,538
========
</TABLE>
Management and advisory fees--Company
In connection with the Wesley Jessen Acquisition, the Company entered into
an agreement with Bain Capital, Inc., an affiliate of the Company's major
stockholder, for the provision of management and advisory services. Included
in marketing and administrative expense during the period from June 29, 1995
through December 31, 1995 and January 1, 1996 through September 28, 1996, are
$500,000 and $750,000, respectively, of management fees paid for the services
provided pursuant to this agreement. In addition, if the Company enters into
any acquisition transactions, it must pay specified fees to Bain Capital, Inc.
based upon the purchase price. The Company paid Bain Capital, Inc. a fee of
$652,000 for services provided in structuring the Wesley Jessen Acquisition.
F-14
<PAGE>
WESLEY JESSEN VISIONCARE, INC.
(FORMERLY KNOWN AS WESLEY-JESSEN HOLDING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. LONG-TERM DEBT
On June 28, 1995, the Company entered into a $55 million credit agreement,
consisting of a $30 million term loan payable in 23 quarterly installments,
commencing December 31, 1995, and a $25 million revolving credit note, both of
which are due June 30, 2001. Interest on the term loan is computed on a
floating rate based on LIBOR while the revolver is based on a fixed rate. At
December 31, 1995 and September 28, 1996, the Company's weighted average
borrowing rate was 9.3% and 8.7%, respectively.
At September 28, 1996, the entire amount of the revolving credit note was
unused. The Company is liable for commitment fees ranging from 0.375% to 0.50%
per annum on the daily unutilized portion of the revolving credit note.
The credit agreement contains a number of covenants, including among others,
covenants restricting the Company and its subsidiaries with respect to the
incurrence of indebtedness, declaration or payment of dividends or other
distributions in excess of prescribed levels, creation of liens, and the
making of certain investments or loans. The Company and its subsidiaries are
also required to comply with certain financial tests and maintain certain
financial ratios including maintaining prescribed minimum levels of net worth
and leverage ratios. The revolving credit note is secured by approximately 70%
of domestic accounts receivable and 60% of domestic raw material and finished
goods inventories, as defined in the credit agreement.
Refinancing
On October 2, 1996, in connection with the Barnes-Hind Acquisition described
in Note 15, the Company replaced its long-term borrowing arrangement with the
following new credit facilities:
$45 million revolving credit facility due February 28, 2002
$45 million Term Loan A due February 28, 2002
$50 million Term Loan B due February 29, 2004
In connection with the refinancing, the Company recognized an extraordinary
loss in October 1996 of $2.8 million, primarily relating to the write-off of
capitalized financing fees. Additionally, the Company incurred and capitalized
financing fees of approximately $7.8 million which are being amortized over
the term of the new credit facilities.
Amounts borrowed under the credit facilities bear interest, at the Company's
option, at either the Base Rate (higher of (i) 0.5% in excess of the Federal
Reserve reported adjusted certificate of deposit rate and (ii) the lender's
prime lending rate) plus a margin of 1.75% to 2.25%, or the Eurodollar Rate as
determined by the lenders plus a margin of 2.75% to 3.25%. At October 2, 1996,
the applicable borrowing rates were as follows: Term Loan A 8.22%; Term Loan B
8.72%; and revolving credit facility 10%. Additionally, the Company is
required to pay a commitment fee of 0.5% of the unutilized commitments under
the revolving credit facility; the unutilized portion at October 2, 1996 was
$43.4 million. The credit facilities are guaranteed by the Company and secured
by the capital stock and substantially all assets and property of all its
direct and indirect domestic subsidiaries.
The term loans are repayable as follows (in thousands):
<TABLE>
<S> <C>
1996.............................................................. $ 125
1997.............................................................. 1,500
1998.............................................................. 6,000
1999.............................................................. 10,500
2000.............................................................. 10,500
2001.............................................................. 13,500
2002.............................................................. 17,625
2003.............................................................. 25,625
2004.............................................................. 9,625
-------
$95,000
=======
</TABLE>
F-15
<PAGE>
WESLEY JESSEN VISIONCARE, INC.
(FORMERLY KNOWN AS WESLEY-JESSEN HOLDING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The credit facilities contain certain change of control provisions and
impose certain restrictive covenants upon the Company related to the
incurrence of indebtedness, transactions with affiliates, business
combinations, investments, purchases and asset sales, payments of dividends,
and attainment of financial covenants including interest coverage, earnings
and leverage ratios.
10. STOCKHOLDERS' EQUITY (DEFICIT)
Common stock
The Company's authorized capital stock consists of 600,000 shares of Class L
Common Stock, par value $.01 per share ("Class L Common"), and 5,400,000
shares of Common Stock, par value $.01 per share ("Common Stock"). Concurrent
with the Wesley Jessen Acquisition, the Company issued 415,000 shares of Class
L Common (issued at $17.41 per share) and 3,735,000 shares of Common Stock
(issued at $0.081 per share).
Holders of Class L Common and Common Stock are entitled to one vote per
share on all matters to be voted on by the Company's stockholders, and the
holders of both classes of stock vote together as a single class. The
outstanding shares of one class of stock cannot be the subject of a stock
split or a stock dividend unless the outstanding shares of the other class are
similarly affected.
Holders of Class L Common are entitled to a preferential payment ("Yield")
in the amount of 12.5% per year on the original cost paid for the shares
($17.41 per share) plus any accumulated and unpaid Yield thereon. The Yield
accumulates until such time as distributions are made by the Company as
described in the following paragraph. No distributions were made by the
Company during the periods ended December 31, 1995 and September 28, 1996, and
the accumulated and unpaid Yield at December 31, 1995 and September 28, 1996,
amounted to $475,000 and $1,245,000, respectively.
Holders of Class L Common and Common Stock are entitled to distributions
(whether by dividend, liquidating distribution or otherwise) made by the
Company to stockholders (whether in cash, property or securities of the
Company) in the following priority:
1. Any unpaid Yield on the Class L Common;
2. Original cost of Class L Common, less any amounts previously returned;
and
3. Any remaining portion of the distribution, ratably among the holders of
the Common Stock.
Concurrent with the Wesley Jessen Acquisition, the Company issued 14,034
shares of Class L Common at $17.41 per share and 126,318 shares of Common
Stock at $0.081 per share to certain management employees. Consideration for
these shares approximates fair market value at the date of the Acquisition. In
December 1995, the Company issued 143 shares of Class L Common at $17.41 per
share and 1,286 shares of Common Stock at $0.081 per share to a new management
employee. Stock subscriptions receivable in the amount of $257,000 are
reflected as a reduction of stockholders' equity at December 31, 1995; these
stock subscriptions were received during the period from January 1, 1996
through September 28, 1996.
During the period from January 1, 1996 through September 28, 1996, the
Company issued 823 Class L Common Shares at $17.41 per share and 7,396 Common
Shares at $0.081 per share to certain new management employees. Additionally,
the Company granted 49,281 options to these new management employees at option
prices ranging from $0.081 to $7.33 per share. Certain of the December 1995
and the 1996 option grants and stock purchases were at prices below the
corresponding estimated fair market values, and the Company recognized the
related compensation expense.
In October 1996, 108,933 shares of Class L Common were exchanged for 220,582
shares of Common Stock by the Company; retroactive effect has been given to
this transaction as of September 28, 1996.
Stock options
As permitted, the Company applies Accounting Principles Board Opinion 25 and
related Interpretations in accounting for its stock-based compensation plan.
Had compensation cost for the Company's stock-based
F-16
<PAGE>
WESLEY JESSEN VISIONCARE, INC.
(FORMERLY KNOWN AS WESLEY-JESSEN HOLDING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
compensation plan been determined based on the fair value at the grant dates
for awards under the plan consistent with the alternative method of Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, the effect on the Company's net income (loss) for the periods
ended December 31, 1995 and September 28, 1996 would not have been
significant.
The Board of Directors has authorized grants of non-qualified stock options
to certain members of the Company's management for up to an aggregate of
700,000 shares of Common Stock pursuant to the 1995 Stock Purchase and Option
Plan. The stock option grants are of two types: time options and target
options. All options expire in 10 years and include certain repurchase and
participation rights which cease upon (1) a sale of the Company or (2) sale of
its common shares by the Company pursuant to a Registration Statement under
the Securities Act of 1933 in connection with which Bain Capital, Inc. and
affiliated investors cease to own at least 20% of the Company.
Of the time option grants, 150,000 vest in four equal annual installments
beginning on June 28, 1996 and 100,000 vest in five equal installments
beginning on April 5, 1996. In certain circumstances, including (1) a sale of
the Company or (2) sale of its common shares by the Company pursuant to a
Registration Statement under the Securities Act of 1933 in connection with
which Bain Capital, Inc. and affiliated investors cease to own at least 20% of
the Company, all time option grants vest immediately. Options are granted at
the fair market value of the Common Stock on the date of grant. All time
option grants (250,000 shares) remained outstanding at September 28, 1996, and
57,500 have vested.
Target option grants are exercisable immediately and were granted at prices
that were in excess of fair market value of the common stock on the date of
grant (225,000 shares at $3.70 and 225,000 at $7.33). At September 28, 1996,
all target option grants (450,000 shares) remained outstanding.
The table below summarizes the Company's stock option activity :
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTION EXERCISE
NUMBER OF PRICE PER PRICE PER
COMMON SHARES COMMON SHARE COMMON SHARE
------------- ------------ ------------
<S> <C> <C> <C>
Balance, June 29, 1995................. -- $ -- $ --
Granted.............................. 650,719 .081-7.33 3.56
Canceled............................. -- -- --
Exercised............................ -- -- --
------- ---------- -----
Balance, December 31, 1995............. 650,719 .081-7.33 3.56
Granted.............................. 49,281 .081-7.33 3.70
Canceled............................. -- -- --
Exercised............................ -- -- --
------- ---------- -----
Balance, September 28, 1996............ 700,000 $.081-7.33 $3.57
======= ========== =====
Options exercisable, September 28,
1996.................................. 507,500 $.081-7.33 $4.90
</TABLE>
During 1996, the weighted average grant date fair value per common share was
$8.13 for options granted below estimated fair market value.
At September 28, 1996, the weighted average remaining contractual life of
outstanding options was 8.8 years.
In October 1996, pursuant to the 1996 Stock Option Plan, the Board of
Directors authorized and granted options to purchase an aggregate of 135,502
shares of Common Stock at an exercise price of $22.67 per share, which
approximates fair market value at the date of grant. Options to purchase an
aggregate of 85,502 shares were immediately exercisable, and options to
purchase 50,000 shares vest in equal installments over a five-year period
beginning on October 22, 1997.
F-17
<PAGE>
WESLEY JESSEN VISIONCARE, INC.
(FORMERLY KNOWN AS WESLEY-JESSEN HOLDING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. INCOME TAXES
Income (loss) before income tax (expense) benefit is as follows (in
thousands):
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------------------
YEAR ENDED
------------------------- JANUARY 1,
DECEMBER 31, DECEMBER 31, THROUGH
1993 1994 JUNE 28, 1995
------------ ------------ -------------
<S> <C> <C> <C>
Domestic (including Puerto Rico)........ $(33,153) $(54,031) $(17,936)
International........................... (2,393) (3,390) (4,608)
-------- -------- --------
Loss before income tax benefit.......... $(35,546) $(57,421) $(22,544)
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
COMPANY
--------------------------
JUNE 29 JANUARY 1
THROUGH THROUGH
DECEMBER 31, SEPTEMBER 28,
1995 1996
------------ -------------
<S> <C> <C>
Domestic (including Puerto Rico)..................... $(33,469) $10,258
International........................................ (268) (776)
-------- -------
Income (loss) before income tax (expense) benefit.... $(33,737) $ 9,482
======== =======
</TABLE>
Income tax (expense) benefit is as follows (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------------------
YEAR ENDED
------------------------- JANUARY 1
DECEMBER 31, DECEMBER 31, THROUGH
1993 1994 JUNE 28, 1995
------------ ------------ -------------
<S> <C> <C> <C>
Current income tax benefit:
Domestic federal..................... $12,023 $19,185 $6,338
Domestic state and local (including
Puerto Rico)........................ 5,191 7,750 3,063
International........................ -- -- --
------- ------- ------
$17,214 $26,935 $9,401
======= ======= ======
</TABLE>
<TABLE>
<CAPTION>
COMPANY
----------------------------
JUNE 29 JANUARY 1
THROUGH THROUGH
DECEMBER 31, SEPTEMBER 28,
1995 1996
------------- --------------
<S> <C> <C>
Current income tax (expense) benefit:
Domestic federal................................ $ (872) $(1,064)
Domestic state and local (including Puerto Ri-
co)............................................ (287) (227)
International................................... (64) (631)
------- -------
$(1,223) $(1,922)
------- -------
Deferred income tax (expense) benefit:
Domestic federal................................ 13,045 1,050
Domestic state and local (including Puerto Ri-
co)............................................ 2,228 (749)
International................................... (28) --
------- -------
15,245 301
------- -------
$14,022 $(1,621)
======= =======
</TABLE>
F-18
<PAGE>
WESLEY JESSEN VISIONCARE, INC.
(FORMERLY KNOWN AS WESLEY-JESSEN HOLDING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
No allocation of the Predecessor's income tax benefits between current and
deferred amounts has been made as all U.S. income taxes, including deferred
taxes, were settled with Schering-Plough on a current basis through the
Schering-Plough investment account. Schering-Plough utilized in full the tax
losses generated by the Predecessor. The income tax attributes of the
Predecessor did not survive the Acquisition.
Differences between the U.S. federal income tax statutory rates applicable
to the Predecessor and the Company, respectively, and the income tax (expense)
benefit recorded are attributable to the following:
<TABLE>
<CAPTION>
PREDECESSOR
-----------------------------------
YEAR ENDED JANUARY 1
------------------------- THROUGH
DECEMBER 31, DECEMBER 31, JUNE 28,
1993 1994 1995
------------ ------------ ---------
<S> <C> <C> <C>
Income tax statutory rate.................. 35.0% 35.0% 35.0%
State taxes (including Puerto Rico), net of
federal tax benefit....................... 14.6 13.5 13.6
Effect of international operations......... (2.4) (2.1) (7.2)
Other factors.............................. 1.2 0.5 0.3
---- ---- ----
Income tax benefit......................... 48.4% 46.9% 41.7%
==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
COMPANY
--------------------------
JUNE 29 JANUARY 1
THROUGH THROUGH
DECEMBER 31, SEPTEMBER 28,
1995 1996
------------ -------------
<S> <C> <C>
Income tax statutory rate........................... 34.0% (34.0)%
State taxes (including Puerto Rico), net of federal
tax benefit........................................ 8.4 17.8
Effect of international operations.................. (0.5) (2.8)
Amortization of negative goodwill................... 0.2 1.6
Other factors....................................... (0.5) 0.3
---- -----
Income tax (expense) benefit........................ 41.6% (17.1)%
==== =====
</TABLE>
Deferred tax assets and liabilities are comprised of the following (in
thousands):
<TABLE>
<CAPTION>
COMPANY
--------------------------
DECEMBER 31, SEPTEMBER 28,
1995 1996
------------ -------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable valuation allowances.......... $ 5,058 $ 3,913
Inventory reserves................................ 5,950 2,186
Fixed assets...................................... 4,578 3,310
Accrued expenses.................................. 2,617 3,529
Other deductible temporary differences............ 46 71
------- -------
Total deferred tax assets........................... 18,249 13,009
------- -------
Deferred tax liabilities:
Inventory step-up and beginning basis difference
in opening inventory............................. 6,680 --
Puerto Rico tollgate tax.......................... 22 1,418
Federal benefit of deferred state taxes........... 780 935
Other taxable temporary differences............... 412 --
------- -------
Total deferred tax liabilities...................... 7,894 2,353
------- -------
Net deferred tax assets............................. $10,355 $10,656
======= =======
Noncurrent portion of deferred tax assets........... $ 4,315 $ 4,132
======= =======
Current portion of deferred tax assets.............. $ 6,040 $ 6,524
======= =======
</TABLE>
F-19
<PAGE>
WESLEY JESSEN VISIONCARE, INC.
(FORMERLY KNOWN AS WESLEY-JESSEN HOLDING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1995 and September 28, 1996, the Company has not provided a
valuation allowance against its deferred tax assets because, based upon its
current operating plans, the Company believes that it is more likely than not
that the assets will be realized through future profitable operations.
Estimated taxes have been provided for the Company's international
operations assuming repatriation of all available earnings. The Predecessor's
and the Company's manufacturing operations in Puerto Rico qualify for income
tax credit available under Section 936 of the Internal Revenue Code. Recent
legislation will phase out the income tax credit allowed under Section 936
over a ten year period. The phase out period will allow a tax credit under
present law through December 31, 2001. The credit will be subject to further
limitation through December 31, 2005, and thereafter the credit is eliminated.
12. RETIREMENT BENEFITS
Pensions
Eligible employees of the Predecessor in the United States and certain other
countries were participants, along with employees of other Schering-Plough
subsidiaries, in defined benefit pension plans sponsored by Schering-Plough.
Benefits under these plans are generally based upon the participants' average
final earnings and years of credited service, and take into account
governmental retirement benefits. Schering-Plough's funding policy is to
contribute actuarially determined amounts, after taking into consideration the
funded status of each plan and regulatory limitations. Pension cost allocated
by Schering-Plough to the Predecessor for 1993 and 1994 amounted to $0.7
million and $0.8 million, respectively, and was offset in full by the
allocated return on pension plan assets for a net cost of zero; the
Predecessor was allocated a net credit of $0.2 million for the period from
January 1, 1995 through June 28, 1995.
Effective June 29, 1995, the employees of the Company terminated
participation in the Schering-Plough pension plans. Pursuant to the Wesley
Jessen Acquisition agreement, the United States participants' pension
liabilities and the related assets are to be transferred from the Schering-
Plough plan to a new plan that is presently being established by the Company,
the Wesley Jessen Cash Balance Pension Plan (the "Plan"). The amounts of
pension liabilities and accompanying assets to be transferred from the
Schering-Plough plan to the Plan have not been finalized but are both
estimated to be approximately $4.5 million. Pending transfer to the Plan, the
pension assets will earn a 7% rate of return guaranteed by Schering-Plough.
The Plan is a defined benefit plan, effective as of January 1, 1996,
covering substantially all United States employees (including Puerto Rico).
Under the Plan, the Company will contribute a percentage of compensation for
each participant (annual pay credits) based upon years of service, excluding
the period June 29, 1995 to December 31, 1995 and with the Predecessor.
Additionally, the Plan provides for a specified return (interest credits) on
participants' account balances. Under the Plan, annual pay credits and
interest credits will be accumulated in participants' accounts as the basis
for their Plan benefits. The Company will contribute actuarially determined
amounts to fund Plan benefits within regulatory minimum requirements and
maximum tax deductible limits. Vesting occurs after five years of service and
includes service during the period June 29, 1995 to December 31, 1995. The
Company has applied to the Internal Revenue Service for approval of the Plan.
F-20
<PAGE>
WESLEY JESSEN VISIONCARE, INC.
(FORMERLY KNOWN AS WESLEY-JESSEN HOLDING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Net pension expense for the pension plan includes the following components
(in thousands):
<TABLE>
<CAPTION>
COMPANY
--------------------------
JUNE 29 JANUARY 1,
THROUGH THROUGH
DECEMBER 31, SEPTEMBER 28,
1995 1996
------------ -------------
<S> <C> <C>
Service costs--benefits earned during the period..... $-- $ 324
Interest cost on projected benefit obligation........ 151 271
Expected return on plan assets....................... (151) (236)
Net amortization and deferral........................ -- 45
---- -----
Net pension expense................................ $-- $ 404
==== =====
</TABLE>
The following table sets forth the funded status and amounts recognized in
the consolidated balance sheet (in thousands):
<TABLE>
<CAPTION>
COMPANY
------------------------------------
DECEMBER 31, 1995 SEPTEMBER 28, 1996
----------------- ------------------
<S> <C> <C>
Actuarial present value of benefit obliga-
tions:
Vested benefit obligations.............. $4,017 $ 4,160
Nonvested benefit obligations........... 228 232
------ -------
Accumulated benefit obligation............ $4,245 4,392
====== =======
Plan assets at fair value................. $4,500 4,736
Projected benefit obligation.............. 4,245 4,750
------ -------
Plan assets in excess of (less than) pro-
jected benefit obligations............... 255 (14)
Unrecognized prior service cost........... -- 696
Unrecognized net (gain)................... (255) (1,086)
------ -------
Pension liability recognized.............. $ -- $ (404)
====== =======
</TABLE>
Assumptions used in the actuarial computations are as follows:
<TABLE>
<CAPTION>
COMPANY
------------------------------------
DECEMBER 31, 1995 SEPTEMBER 28, 1996
----------------- ------------------
<S> <C> <C>
Discount rate.............................. 7.25% 8.0%
Expected rate of compensation increase..... 5.0% 5.0%
Expected rate of return on plan assets..... 7.0% 7.0%
</TABLE>
Postretirement benefits other than pensions
Eligible United States retirees of the Predecessor and their dependents were
provided postretirement health care and other benefits under benefit plans
sponsored by Schering-Plough. Eligibility for such benefits depended upon age
and years of service, and retirees shared in the cost of health care benefits.
Postretirement health care cost allocated to the Predecessor by Schering-
Plough for fiscal years 1993, 1994, and for the period from January 1, 1995
through June 28, 1995 was $0.6 million, $0.3 million and $0.3 million,
respectively. In conjunction with the Acquisition, the Company did not assume
any existing retiree postretirement benefit obligations. The Company does not
offer postretirement health care benefits to its employees.
F-21
<PAGE>
WESLEY JESSEN VISIONCARE, INC.
(FORMERLY KNOWN AS WESLEY-JESSEN HOLDING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. GEOGRAPHICAL INFORMATION
Financial information by geographic area is as follows (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR
-----------------------------------
JANUARY 1
YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31, JUNE 28,
1993 1994 1995
------------ ------------ ---------
<S> <C> <C> <C>
Total assets:
United States (including territories).... $ 204,401 $183,714 $ 183,855
Canada................................... 6,083 5,490 4,076
Europe................................... 11,285 11,903 10,119
Eliminations............................. (7,022) (9,678) (6,595)
--------- -------- ---------
Total assets........................... $ 214,747 $191,429 $ 191,455
========= ======== =========
Net sales:
United States (including territories).... $ 98,744 $105,569 $ 45,366
Canada................................... 9,938 5,939 2,330
Europe................................... 13,929 13,334 6,549
Eliminations............................. (19,225) (15,202) (3,226)
--------- -------- ---------
Net sales.............................. $ 103,386 $109,640 $ 51,019
========= ======== =========
</TABLE>
<TABLE>
<CAPTION>
COMPANY
--------------------------
JUNE 29 JANUARY 1
THROUGH THROUGH
DECEMBER 31, SEPTEMBER 28,
1995 1996
------------ -------------
<S> <C> <C>
Total assets:
United States (including territories).............. $ 55,361 $55,731
Canada............................................. 4,052 3,393
Europe............................................. 8,609 9,644
Eliminations....................................... (692) (5,525)
-------- -------
Total assets..................................... $ 67,330 $63,243
======== =======
Net sales:
United States (including territories).............. $ 49,198 $87,524
Canada............................................. 2,720 4,023
Europe............................................. 6,066 11,105
Eliminations....................................... (3,669) (6,604)
-------- -------
Net sales........................................ $ 54,315 $96,048
======== =======
</TABLE>
14. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases a warehouse distribution facility under a non-cancelable
operating lease that expires April 30, 2005. The terms of this lease were
determined at the Wesley Jessen Acquisition date to be adverse to the Company
as the lease terms committed to by Schering-Plough exceeded the current market
rates for a similar lease, which was considered in determining the estimated
fair values of net assets at the Wesley Jessen
F-22
<PAGE>
WESLEY JESSEN VISIONCARE, INC.
(FORMERLY KNOWN AS WESLEY-JESSEN HOLDING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Acquisition date. The Company also leases certain computer and other equipment
under operating leases. Total rent expense was as follows (in thousands):
<TABLE>
<S> <C>
Predecessor
Year ended December 31, 1993.......................................... $2,903
======
Year ended December 31, 1994.......................................... $2,983
======
The period from January 1, 1995 through June 28, 1995 ................ $1,513
======
Company
The period from June 29, 1995 through December 31, 1995 .............. $ 494
======
The period from January 1, 1996 through September 28, 1996 ........... $1,112
======
</TABLE>
Future minimum lease payments under non-cancelable operating leases at
December 31, 1995 were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
-----------
<S> <C>
September 30, 1997................................................................. $ 530
September 30, 1998................................................................. 542
September 30, 1999................................................................. 468
September 30, 2000................................................................. 455
September 30, 2001................................................................. 466
Thereafter......................................................................... 2,287
------
Total obligations.................................................................. $4,748
======
</TABLE>
Litigation
The Company has certain product liability, personal injury and employment
related litigation and claims pending in the normal course of its business.
Management believes that any uninsured losses resulting from the resolution of
such litigation and claims would not have a material adverse impact on the
Company's financial position or results of operations as presented in the
accompanying financial statements.
15. SUBSEQUENT EVENT--ACQUISITION OF PILKINGTON BARNES HIND GROUP
On October 2 , 1996, the Company acquired the contact lens business
operating under the name Pilkington Barnes Hind Group from Pilkington plc (the
"Barnes-Hind Acquisition") for approximately $62.4 million, comprising cash
consideration of $57.4 million and a subordinated promissory note in the
principal amount of $5.0 million bearing interest at 8% per year, payable in
kind (the "Pilkington Note"). Fees of $2.9 million were also incurred in
connection with the closing of the acquisition. The purchase price is subject
to adjustments based upon certain net current asset and capital expenditure
measures as of the closing date of the transaction. The Pilkington Note along
with accrued interest thereon, is payable on February 1, 2005. The Pilkington
Note is subordinate to all current and long-term debt of the Company and is
subject to acceleration in specific circumstances, including a public offering
of the Company's common stock from which certain investors receive any of the
proceeds. In connection with the structuring of the refinancing described in
Note 9 and the Barnes-Hind Acquisition, the Company paid fees of $3.0 million
to Bain Capital, Inc.
The Barnes-Hind Acquisition will be accounted for by the purchase method.
Accordingly, the results of operations of the Barnes-Hind business will be
included with those of the Company for periods commencing on October 2, 1996.
Based upon preliminary purchase accounting, no significant goodwill or
negative goodwill arose from the transaction.
F-23
<PAGE>
WESLEY JESSEN VISION CARE, INC.
(FORMERLY KNOWN AS WESLEY-JESSEN HOLDING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The unaudited pro-forma combined condensed balance sheet of the Company and
Barnes-Hind as of September 28, 1996 is set out below, after giving pro forma
effect as of September 28, 1996 to (1) the Barnes-Hind Acquisition; (2) the
refinancing described in Note 9; (3) approximately $3.5 million of
restructuring expenses expected to be incurred by the Company in late 1996 for
restructuring the Wesley Jessen operations following the Barnes-Hind
Acquisition; and (4) extraordinary losses of $2.8 million related to writing
off capitalized financing fees in connection with the October 2, 1996
financing (in millions):
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
Current assets.................................................... $152.4
Property, plant and equipment, net................................ 17.6
Other assets...................................................... 12.3
------
$182.3
======
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
----------------------------------------------
<S> <C>
Current liabilities............................................... $ 79.4
Negative goodwill................................................. 10.8
Long term debt (excluding current maturities)..................... 100.0
Other liabilities................................................. 0.3
Stockholders' equity (deficit).................................... (8.2)
------
$182.3
======
</TABLE>
In connection with the Barnes-Hind Acquisition, the Company entered into a
voluntary consent order with the Federal Trade Commission which provides,
among other things, that the Company must divest Barnes-Hind's U.S. Natural
Touch Product Line. The Company is currently evaluating divestiture
opportunities. The purchase accounting includes the expected consideration for
the assets associated with the U.S. Natural Touch Product Line. Such assets
have been valued so that no gain or loss would result from such divestiture,
as is required under generally accepted accounting principles.
The unaudited pro forma combined results of operations for the Company and
Barnes-Hind are set out below, giving pro forma effect to: (i) the Wesley-
Jessen Acquisition; (ii) the Barnes-Hind Acquisition; (iii) the refinancing
described in Note 9; (iv) the estimated recurring cost savings to the Company
from facilities and personnel rationalizations; (v) elimination of non-
recurring increases to cost of goods sold as a result of applying purchase
accounting to inventories and excluding non-recurring charges for
restructuring the Wesley-Jessen operations following the Barnes-Hind
Acquisition; (vi) the divestiture of Barnes-Hind's U.S. Natural Touch Product
Line; and (vii) adjusting the income tax (expense) benefit to an effective
rate of 34%, each as if the transactions had occurred as of January 1, 1995
(in millions):
<TABLE>
<CAPTION>
JANUARY 1
YEAR ENDED THROUGH
DECEMBER 31, 1995 SEPTEMBER 28, 1996
----------------- ------------------
<S> <C> <C>
Net sales............................ $231.0 $190.4
====== ======
Net income (loss).................... $ (2.2) $ 9.9
====== ======
</TABLE>
The pro forma results are not necessarily indicative of what actually would
have occurred if the Barnes-Hind Acquisition had been in effect for the
periods presented and are not intended to be a projection of future results,
which are dependent on the ability of the Company to accomplish its objectives
in connection with the Barnes-Hind Acquisition. See "Risk Factors--Risks in
the Integration of Barnes-Hind."
F-24
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders, Pilkington Barnes Hind Group:
We have audited the accompanying combined balance sheets of Pilkington
Barnes Hind Group as of March 31, 1995 and 1996, and the related combined
statements of operations, parent company investment and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and
perform the audits 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of Pilkington Barnes
Hind Group as of March 31, 1995 and 1996, and the results of its combined
operations and its combined cash flows for each of the years then ended, in
conformity with generally accepted accounting principles in the United States.
The accompanying combined financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to
the financial statements, the Company has suffered recurring losses from
operations that raises substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also
described in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
As discussed in Note 16 to the financial statements, an agreement was
entered into in July 1996, where certain assets and liabilities of the Company
will be sold.
Coopers & Lybrand L.L.P.
San Jose, California
July 26, 1996, except as to Note 16,
which is as of September 24, 1996
F-25
<PAGE>
PILKINGTON BARNES HIND GROUP
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
--------------------
1995 1996
--------- ---------
(IN THOUSANDS OF
U.S. DOLLARS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 12,810 $ 14,958
Trade accounts receivable, less allowance for doubtful
accounts of $1,902 in 1995 and $1,671 in 1996........... 21,882 26,207
Receivables from affiliated companies.................... 147 67
Inventories.............................................. 38,139 30,128
Prepaids and other current assets........................ 3,423 4,821
Deferred income taxes.................................... 35 306
--------- ---------
Total current assets.................................... 76,436 76,487
Property, plant and equipment, net........................ 25,039 33,346
Other assets.............................................. 838 2,351
--------- ---------
Total assets............................................ $ 102,313 $ 112,184
========= =========
LIABILITIES AND PARENT COMPANY INVESTMENT
Current liabilities:
Notes payable to banks................................... $ 2,974 $ 963
Accounts payable:
Trade.................................................... 9,963 6,736
Affiliates............................................... 758 331
Notes payable to parent and affiliated companies......... 83,317 4,108
Accrued liabilities...................................... 8,846 8,128
Accrued payroll and related liabilities.................. 5,961 6,422
Deferred income taxes.................................... 459 1,748
Dividends payable........................................ 522 4,542
--------- ---------
Total current liabilities............................... 112,800 32,978
Long-term debt, due to affiliated companies............... 4,577 5,343
Other liabilities......................................... 3,674 3,183
--------- ---------
Total liabilities....................................... 121,051 41,504
--------- ---------
Commitments and contingencies (Notes 11 and 12).
Parent company investment (deficit)....................... (18,738) 70,680
--------- ---------
Total liabilities and parent company investment......... $ 102,313 $ 112,184
========= =========
</TABLE>
F-26
<PAGE>
PILKINGTON BARNES HIND GROUP
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------
1995 1996
---------- ----------
(IN THOUSANDS OF
U.S. DOLLARS)
<S> <C> <C>
Net sales............................................... $ 124,994 $ 132,581
---------- ----------
Costs and expenses:
Cost of sales......................................... 62,435 63,341
Research and development.............................. 10,317 7,884
Selling and marketing................................. 37,609 43,292
General and administrative............................ 21,516 22,536
---------- ----------
131,877 137,053
---------- ----------
Operating loss.......................................... 6,883 4,472
Interest income......................................... (615) (773)
Interest expense........................................ 4,623 4,315
---------- ----------
Loss before provision for income taxes.................. 10,891 8,014
Provision for income taxes.............................. 2,708 3,116
---------- ----------
Net loss................................................ $ 13,599 $ 11,130
========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-27
<PAGE>
PILKINGTON BARNES HIND GROUP
COMBINED STATEMENTS OF PARENT COMPANY INVESTMENT
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<S> <C>
BALANCES, APRIL 1, 1994............................................. $ (15,710)
Net loss............................................................ (13,599)
Net change in cumulative translation adjustments.................... 617
Dividends declared.................................................. (820)
Net change in parent company investment............................. 10,774
---------
Balances, March 31, 1995............................................ (18,738)
Net loss............................................................ (11,130)
Net change in cumulative translation adjustments.................... (4,020)
Dividends declared.................................................. (4,542)
Net change in parent company investment............................. 109,110
---------
Balances, March 31, 1996............................................ $ 70,680
=========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-28
<PAGE>
PILKINGTON BARNES HIND GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------
1995 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................ $ (13,599) $ (11,130)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation........................................ 6,749 4,017
Provision for excess and obsolete inventory......... 3,048 1,891
Provision for doubtful accounts..................... 359 972
Increase in net deferred taxes...................... 383 1,109
(Gain) loss on disposal/sale of property, plant and
equipment.......................................... 29 (230)
Changes in assets and liabilities:
Accounts receivable--trade.......................... (910) (6,034)
Accounts receivable--affiliate...................... 4,424 9,434
Inventories......................................... (1,842) 5,287
Prepaids and other current assets................... 855 (1,513)
Other assets........................................ (123) (1,598)
Accounts payable--trade............................. (1,068) (2,964)
Accounts payable--affiliated companies.............. 572 (411)
Accrued and other current liabilities............... (234) 110
Other long-term liabilities......................... 937 (220)
---------- ----------
Net cash used in operating activities............... (420) (1,280)
---------- ----------
Cash flows from investing activities:
Capital expenditures................................ (12,899) (13,572)
Proceeds from sale of fixed assets.................. 28 974
---------- ----------
Net cash used in investing activities............... (12,871) (12,598)
---------- ----------
Cash flows from financing activities:
Net receipts (payments) under notes payable to
banks.............................................. 138 (1,923)
Decrease (increase) in notes payable to parent and
affiliated companies............................... 10,765 (69,031)
Borrowings on long-term debt due to affiliated com-
panies............................................. 2,047 1,096
Cash infusions from parent and affiliated companies. 90,579
Dividends paid to parent............................ (427) (498)
Net change in parent company investment............. 6,334 (3,780)
---------- ----------
Net cash provided by financing activities............. 18,857 16,443
---------- ----------
Effect of exchange rate changes on cash and cash
equivalents.......................................... 988 (417)
---------- ----------
Net increase in cash and cash equivalents............. 6,554 2,148
Cash and cash equivalents at beginning of year........ 6,256 12,810
---------- ----------
Cash and cash equivalents at end of year.............. $ 12,810 $ 14,958
========== ==========
Supplemental disclosures of cash flow information:
Interest paid......................................... $ 4,623 $ 4,315
========== ==========
Taxes paid............................................ $ 218 $ 643
========== ==========
Supplemental disclosures of noncash financing activi-
ties:
Dividends declared but not paid....................... $ 457 $ 4,558
========== ==========
Affiliated debt converted to parent company invest-
ment................................................. $ 7,695
========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-29
<PAGE>
PILKINGTON BARNES HIND GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS OF U.S. DOLLARS)
1. BASIS OF PRESENTATION:
Pilkington Barnes Hind Group (the Company) is a leading supplier of contact
lenses throughout the world. The Company is headquartered in Sunnyvale,
California with principal manufacturing sites in Southampton, England and San
Diego, California. The Company's contact lenses are sold directly in the U.S.,
Canada, most of Europe, Japan and Australia. Sales through distributors extend
the geographic coverage to Asia, Latin America, the Middle East, Africa and
European territories not served by direct sales.
The accompanying combined financial statements present the combined assets,
liabilities, revenues and expenses of all contact lens manufacturing and
distribution operations of Pilkington Barnes Hind Group, a vision care
division of Pilkington plc (Pilkington). The ultimate holding company,
Pilkington, is listed on the United Kingdom stock exchange. All significant
transactions between operations within the Company have been eliminated.
These combined financial statements are presented as if the Company existed
as a separate entity for the years presented. These combined financial
statements are presented exclusive of two other divisions of the Company which
were sold during the year ended March 31, 1996. These divisions (contact lens
solutions and contact lens raw materials manufacturing) have been excluded in
order to reflect the financial position and results of operations of the
contact lens manufacturing and distribution operations only.
Revenues, expenses, assets and liabilities that are specifically identified
as relating to the two other divisions have been excluded. Where revenues,
expenses, assets and liabilities could not be specifically identified,
estimates of amounts to be excluded have been made based on the activity of
the respective lines of business, which management believes to be reasonable.
These combined financial statements include transactions with Pilkington for
treasury functions, tax services, internal audit services, risk management
services, research and development, and travel (see Note 14). In addition, in
fiscal 1995 and 1996, certain costs shared with other Pilkington U.S. entities
have been allocated to the Company. Shared costs have been allocated based
upon usage, number of employees and other methods which management believes to
be reasonable.
The financial information included herein may not necessarily reflect the
financial position, results of operations or cash flows of the Company in the
future or what the financial position, results of operations or cash flow of
the Company would have been if it was a separate, stand-alone company during
the periods presented. However, management believes that, with respect to
general and administrative expenses, the amounts reflected in the combined
statements of operations are not less than the amounts the Company would have
incurred had the Company been an unaffiliated company in those periods.
The Company relies substantially on the financial support of Pilkington,
which has historically provided funding to the Company, if required, to
sustain business operations. Such support has, to date, been provided in the
form of cash investments and forgiveness of payables and intercompany debt;
however, continued support cannot be guaranteed (see Note 16).
As shown in the accompanying financial statements, the Company incurred a
net loss of $13,599 and $11,130 for the years ended March 31, 1995 and 1996,
respectively. Factors such as the recurring losses suffered by the Company,
the requirement for the ongoing support of Pilkington and the pending sale of
the Company (see Note 16), among others, raise substantial doubt about its
ability to continue as a going concern. Recoverability of a part of the
recorded asset amounts shown in the accompanying balance sheet is dependent
upon continued profitable operations and the ability to obtain required
working capital to fund operations. The
F-30
<PAGE>
PILKINGTON BARNES HIND GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts and the amount and
classification of liabilities that might be necessary should the Company be
unable to continue in existence.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents:
Cash and cash equivalents, which are held at a variety of financial
institutions located in the United States, Europe and Asia, consist primarily
of short-term investments with a maturity of three months or less when
purchased, carried at cost which approximates market. Deposits in banks may
exceed the amount of insurance provided on such deposits. The Company has not
experienced any material losses relating to any investment instruments.
Fair Value of Financial Instruments:
The amounts reported for cash equivalents, accounts receivable, accounts
payable and accrued liabilities are considered to approximate fair values
based on comparable market information available at March 31, 1996. Based upon
interest rates available to the Company for debt with comparable maturities,
the carrying values of the Company's notes payable approximate fair values.
Fair Value of Financial Instruments, continued:
Financial instruments which potentially subject the Company to
concentrations of credit risk comprise, principally, cash, cash equivalents
and accounts receivables. The Company invests its cash in government
securities and time deposits. The Company performs ongoing evaluations of its
customers' financial condition and does not require collateral. The Company
maintains allowances for potential credit losses and such losses have been
within management's expectations.
Inventories:
Inventories are stated at the lower of standard cost (which approximates
actual cost on the first-in, first-out basis) or market. Inventories have been
reduced to what management believes are levels appropriate for the current
level of sales. Management has developed a program to reduce inventory to
desired levels over the near term and believes no material loss will be
incurred on its disposition. No estimate can be made of a range of amounts of
loss that are reasonably possible should the program not be successful.
Management Estimates:
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Property, Plant and Equipment:
Property, plant and equipment are stated at cost and are depreciated on a
straight-line basis over the estimated useful lives of the related assets
(buildings--10 to 40 years; plant and office equipment--3 to 10 years).
Leasehold improvements and leased equipment are amortized over the lesser of
their useful lives or the remaining term of the related leases.
F-31
<PAGE>
PILKINGTON BARNES HIND GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
Upon sale or retirement, the costs and related accumulated depreciation are
eliminated from the respective accounts and the resulting gain or loss is
included in current income. Repairs and maintenance are charged to expense as
incurred.
Foreign Currency Translation:
The assets and liabilities, and revenue and expense accounts of the
Company's foreign subsidiaries have been translated using the exchange rate at
the balance sheet date, and the weighted average exchange rate for the period,
respectively.
The net effect of the translation of the accounts of the Company's
subsidiaries has been included in parent company investment as cumulative
foreign currency translation adjustments. Gains or losses that arise from
exchange rate changes on transactions denominated in a currency other than the
local currency are included in income as incurred.
Revenue Recognition:
Sales and related cost of sales are recognized upon shipment of product. No
individual customer accounts for more than 10% of sales. Sales are reported
net of a provision for estimated product returns and warranty reserves.
Income Taxes:
Income taxes have been provided in the Company's statements of income as if
the Company were a separate taxable entity and no recognition has been given
to tax attributes available to other members of the Pilkington consolidated
group or the Company's other divisions. Temporary and permanent differences
related to the Company's contact lens business have been allocated in
accordance with the methodology used for determining revenues, expenses,
assets and liabilities, as described in Note 1.
Where amounts paid to other Pilkington entities pursuant to a tax sharing
agreement were different from the computed current tax expense, the difference
has been treated as an addition to or deduction from parent company
investment. The current tax expense calculated for subsidiaries that did not
enter into a tax sharing agreement has been treated as an addition to parent
company investment.
Advertising:
The Company expenses advertising costs as they are incurred. Advertising
expense for the years ended March 31, 1995 and 1996 was $1,741 and $4,775,
respectively.
Recent Pronouncements:
In March 1995, the Financial Accounting Standards Board issued Statement No.
121 (SFAS No. 121), "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of," which establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles and goodwill related to those assets which are held and used or
disposed of. SFAS No. 121 will be effective for fiscal years beginning after
December 15, 1995. The Company does not anticipate that the adoption of SFAS
No. 121 will have a material adverse effect on the Company's results of
operations.
F-32
<PAGE>
PILKINGTON BARNES HIND GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
3. INVENTORIES:
<TABLE>
<CAPTION>
MARCH 31,
---------------
1995 1996
------- -------
<S> <C> <C>
Raw materials................................................... $ 1,589 $ 1,733
Work in process................................................. 5,645 4,789
Finished goods.................................................. 30,905 23,606
------- -------
$38,139 $30,128
======= =======
</TABLE>
Inventories are stated net of reserves of $6,787 and $4,915 at March 31,
1995 and 1996, respectively.
4. PROPERTY, PLANT AND EQUIPMENT:
<TABLE>
<CAPTION>
MARCH 31,
------------------
1995 1996
-------- --------
<S> <C> <C>
Buildings................................................... $ 8,224 $ 1,645
Leasehold improvements...................................... 9,949 10,880
Machinery................................................... 40,780 47,486
Office equipment and software............................... 11,182 11,579
-------- --------
70,135 71,590
Less accumulated depreciation and amortization.............. (56,164) (51,773)
-------- --------
13,971 19,817
Land........................................................ 4,585 4,510
Construction in progress.................................... 6,483 9,019
-------- --------
$ 25,039 $ 33,346
======== ========
</TABLE>
At March 31, 1995 and 1996, machinery and office equipment included assets
acquired under capital leases with a capitalized cost of $2,777 and $2,617,
respectively. Related accumulated amortization totaled $566 and $979,
respectively. Interest totaling $344 and $527 was capitalized during fiscal
1995 and 1996, respectively. Fully depreciated assets were $34,164 and $33,306
at March 31, 1995 and 1996, respectively.
5. CAPITAL LEASE OBLIGATIONS:
At March 31, 1996, future minimum lease payments under capital lease
obligations are summarized as follows:
<TABLE>
<CAPTION>
PERIOD ENDING MARCH 31,
-----------------------
<S> <C>
1997................................................................... $ 797
1998................................................................... 651
1999................................................................... 401
------
Total minimum lease payments........................................... 1,849
Less amount representing interest...................................... (133)
------
Present value of future minimum lease payments......................... 1,716
Less current portion................................................... (726)
------
Long-term capital lease obligation..................................... $ 990
======
</TABLE>
F-33
<PAGE>
PILKINGTON BARNES HIND GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
6. SHORT-TERM BORROWING AGREEMENTS:
Lines of credit for short-term borrowings have been established with banks
in the United States, Canada, Italy, and the United Kingdom. The agreements
generally have no termination date but are reviewed annually for renewal. At
March 31, 1995, the Company had an outstanding balance of $2,974 and an unused
line of credit amounting to $2,799. At March 31, 1996, the Company had an
outstanding balance of $963 and unused lines of credit amounting to $3,841.
Short-term borrowing arrangements have also been made with affiliated
Pilkington Group Companies. At March 31, 1995, the Company had an outstanding
balance of $83,317 and unused credit lines of $4,851. At March 31, 1996, the
Company had an outstanding balance of $4,108 and unused credit lines of
$56,029 (see Note 14).
Included in the outstanding balance at March 31, 1995 was $8,040 of
noninterest bearing debt from an affiliated company. In October 1995, this
amount was converted to Parent Company Investment (see Note 14).
The weighted average interest rate was 6.8% and 7.10% at March 31, 1995 and
1996, respectively. Interest rates are generally based upon U.K. prime rates
or the London Inter Bank Offering Rate plus up to a 1% premium.
7. LONG-TERM DEBT, AFFILIATED COMPANIES:
<TABLE>
<CAPTION>
MARCH 31,
1996
---------
<S> <C>
Loan with Pilkington Finance Limited, interest at 6.75% payable quar-
terly, due at June 30, 1997......................................... $5,343
======
</TABLE>
8. DEFINED CONTRIBUTION PENSION PLAN:
The Company sponsors a defined contribution plan covering U.S. employees.
The plan provides for limited Company matching of participants' contributions.
Contributions to the defined contribution plans charged to operations were
$739 and $679 for the years ended March 31, 1995 and 1996, respectively.
9. DEFINED BENEFIT PENSION PLANS:
The Company participates in a noncontributory Pilkington single-employer
defined benefit pension plan (Domestic Pension Plan) in the United States
covering substantially all full-time domestic employees, as well as a
contributory single-employer defined benefit pension plan covering certain
employees in the United Kingdom (International Pension Plan).
Benefit payments for domestic employees are based principally on earnings
during the last five- or ten-year period prior to retirement and/or on length
of service. Employees are eligible to participate in domestic plans within one
year of employment and are vested after five years of service. For the
International Pension Plan, benefits are based on length of service and on
compensation during the last ten years of service prior to retirement.
The Company's policy is to fund such amounts as are necessary, on an
actuarial basis, to provide for the plans' current service costs and the
plans' prior service costs over their amortization periods.
F-34
<PAGE>
PILKINGTON BARNES HIND GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
The following table provides the net periodic pension cost of the Pilkington
Domestic Pension Plan and the Company's International Pension Plan.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------
1995 1996
---------- ----------
<S> <C> <C>
DOMESTIC PENSION PLAN:
Service cost-benefits earned during the period.......... $ 1,738 $ 1,460
Interest cost on projected benefit obligation........... 2,702 2,762
Actual return on plan assets............................ (942) (3,111)
Net amortization and deferral........................... (1,445) 175
Curtailment gain on sale of lenscare division......... (1,212)
---------- ----------
Total net periodic pension cost..................... $ 2,053 $ 74
========== ==========
INTERNATIONAL PENSION PLAN:
Service cost-benefits earned during the period.......... $ 410 $ 434
Interest cost on projected benefit obligation........... 451 497
Actual return on plan assets............................ (428) (486)
Net amortization and deferral........................... 31 32
---------- ----------
Total net periodic pension cost..................... $ 464 $ 477
========== ==========
</TABLE>
Costs incurred and charged to the Company's operations for its portion of
the Domestic Pension Plan were $1,472 and $1,069 for the years ended March 31,
1995 and 1996, respectively.
The significant actuarial assumptions for the following tables as of the
measurement date are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------
1995 1996
---------- ----------
<S> <C> <C>
DOMESTIC PENSION PLAN:
Discount rate......................................... 8.5% 7.5%
Expected long-term rate of return on plan assets...... 8.0% 8.0%
Rate of increase in future compensation levels........ 5.5% 5.5%
INTERNATIONAL PENSION PLAN:
Discount rate......................................... 8.5% 8.5%
Expected long-term rate of return on plan assets...... 8.5% 8.5%
Rate of increase in future compensation levels........ 6.5% 6.5%
</TABLE>
At March 31, 1996, the Domestic and International Pension Plan assets
include cash items, fixed income securities, common stock and insurance
policies.
F-35
<PAGE>
PILKINGTON BARNES HIND GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
The funded status as of the measurement date was as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------
1995 1996
---------- ----------
<S> <C> <C>
DOMESTIC PENSION PLAN:
Actuarial present value of benefit obligations:
Vested benefit obligation............................ $ 25,187 $ 31,862
========== ==========
Accumulated benefit obligation....................... $ 26,642 $ 33,085
========== ==========
Projected benefit obligation......................... 33,000 40,116
Plan assets at fair value............................ 35,898 46,645
---------- ----------
Projected benefit obligation in excess of plan as-
sets................................................ (2,898) (6,529)
Unrecognized net gain................................ 5,000 5,978
Unrecognized prior service cost...................... (1,817) (1,394)
---------- ----------
Accrued (prepaid) pension cost....................... $ 285 $ (1,945)
========== ==========
INTERNATIONAL PENSION PLAN:
Actuarial present value of benefit obligations:
Vested benefit obligation............................ $ 5,604 $ 5,908
========== ==========
Accumulated benefit obligation....................... $ 5,661 $ 5,986
========== ==========
Projected benefit obligation......................... 6,202 6,586
Plan assets at fair value............................ 5,941 6,455
---------- ----------
Accrued pension cost................................. $ 261 $ 131
========== ==========
</TABLE>
The accrued (prepaid) pension cost allocated to the Company for its portion
of the Domestic Pension Plan was $700 and $(232) at March 31, 1995 and 1996,
respectively.
The measurement date for the Domestic Pension Plan for the years ended March
31, 1995 and 1996 is December 31, 1994 and 1995, respectively. The measurement
date for the International Pension Plan is March 31, 1995 and 1996,
respectively.
10. INCOME TAXES:
Components by region of loss before provision for income taxes consist of
the following:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------
1995 1996
---------- ----------
<S> <C> <C>
North America........................................... $ (17,306) $ (15,618)
Europe.................................................. 4,835 6,124
Australia............................................... (23) (99)
Asia.................................................... 1,603 1,579
---------- ----------
$ (10,891) $ (8,014)
========== ==========
</TABLE>
F-36
<PAGE>
PILKINGTON BARNES HIND GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
-----------------
1995 1996
------ ----------
<S> <C> <C> <C>
Current:
Foreign..................................................... $2,325 $2,007
Deferred:
Foreign..................................................... 383 1,109
------ ------
$2,708 $3,116
====== ======
</TABLE>
A reconciliation between income tax provisions computed at the U.S. federal
statutory rate and the effective rate reflected in the combined statements of
income:
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
-------------
1995 1996
----- -----
<S> <C> <C>
Benefit at statutory rate....................................... (35.0)% (35.0)%
Permanent items................................................. 6.2 2.7
Foreign taxes................................................... 24.9 38.9
Losses not benefited............................................ 28.8 32.3
----- -----
24.9 % 38.9 %
===== =====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------
1995 1996
---------- ----------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts...................... $ 195 $ 378
Reserves and accruals................................ 4,448 3,136
Depreciation......................................... 921 483
Net operating losses................................. 33,991 39,645
---------- ----------
Total gross deferred tax assets.................... 39,555 43,642
Less valuation allowance............................. (39,520) (43,336)
---------- ----------
Net deferred tax assets.............................. 35 306
---------- ----------
Deferred tax liabilities:
Deferred revenue..................................... (112) (107)
Other................................................ (347) (1,641)
---------- ----------
Deferred tax liabilities............................. (459) (1,748)
---------- ----------
Total.............................................. $ (424) $ (1,442)
========== ==========
</TABLE>
The net changes in the total valuation allowance for the years ended March
31, 1995 and 1996 relate primarily to movements in certain domestic net
operating losses.
The Company has recorded a deferred tax asset of $306 at March 31, 1996.
Realization is dependent on generating sufficient taxable income in the
following year in certain tax paying subsidiaries. Although realization
F-37
<PAGE>
PILKINGTON BARNES HIND GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
is not assured, management believes it is more likely than not that all of the
deferred tax asset will be realized. The amount of the deferred tax asset
considered realizable, however, could be reduced in the near term, if
estimates of future taxable income during the carryforward period are reduced.
On a separate company basis, the Company had cumulative tax loss
carryforwards in the U.S. of approximately $35,000 in 1995 and $54,000 in
1996. As a result of the utilization of some of those losses by other members
of the U.S. consolidated group, however, the tax losses which may be used by
the Company to offset future taxable income were approximately $14,800 in 1995
and $13,800 in 1996. Of the $13,800 remaining in 1996, $4,200 will expire in
2007, $6,300 will expire in 2008 and $3,300 will expire in 2009.
The Company has not recognized a deferred tax liability for the
undistributed earnings of its foreign subsidiaries that arose in 1996 and
prior years because the Company does not expect those unremitted earnings to
reverse and become taxable to the Company in the foreseeable future. A
deferred tax liability will be recognized when the Company expects that it
will recover those undistributed earnings in a taxable manner, such as through
receipt of dividends or sale of the investments. The cumulative undistributed
earnings of these subsidiaries are not practicable to determine.
11. COMMITMENTS:
The Company leases certain warehouse and office facilities, office equipment
and automobiles under noncancelable operating leases which expire in years
1997 through 2018. The Company is responsible for taxes, insurance and
maintenance expenses related to the leased facilities. Under the terms of
certain lease agreements, the leases may be extended, at the Company's option,
and certain of the leases provide for adjustments of the minimum monthly rent.
Future minimum annual lease payments under the leases are as follows:
<TABLE>
<CAPTION>
PERIOD ENDING MARCH 31,
-----------------------
<S> <C>
1997.............................................................. $6,357
1998.............................................................. 4,180
1999.............................................................. 1,831
2000.............................................................. 1,222
2001.............................................................. 1,022
Thereafter........................................................ 6,678
</TABLE>
Rent expense for the years ended March 31, 1995 and 1996 was $5,010 and
$4,826, respectively.
12. CONTINGENCIES:
The Company is involved in a lawsuit relating to a worldwide patent
licensing agreement whereby it is alleged that the Company did not make good
faith efforts to manufacture, market and distribute the related contact lens.
The license agreement contains an arbitration provision and since
investigation of the plaintiffs' claims is still in progress, the Company's
potential liability in this matter, if any, cannot yet be determined.
The Company is involved in a dispute with a former employee in Germany
relating to alleged unfair dismissal.
In addition to the matters discussed above, in the ordinary course of
business, various legal actions and claims pending have been filed against the
Company. While it is reasonably possible that such contingencies, including
those matters discussed above, may result in a cost greater than that provided
for in the financial statements, it is the opinion of management that the
ultimate liability, if any, with respect to these matters, will not materially
affect the combined cash flows; results of operations or financial position of
the Company.
F-38
<PAGE>
PILKINGTON BARNES HIND GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
The Company has been notified by the United States Environmental Protection
Agency (USEPA) that it has been deemed a Potentially Responsible Party (PRP)
under the Comprehensive Environmental, Response, Compensation and Liability
Act of 1980 (or Superfund) at the Omega Chemical Corporation Site in Whittier,
California. The Company is one of approximately 145 PRPs identified at the
site who appear to share joint and several liability. The USEPA has issued an
administrative order to each of these parties directing that certain
investigative and remedial work be undertaken. The investigative work is still
under way and the extent of the contamination has not yet been determined.
Consequently, the Company's ultimate liability for this matter can not yet be
quantified and no provision has been made in the accompanying combined
financial statements.
13. CURRENT VULNERABILITIES DUE TO CERTAIN CONCENTRATIONS:
The Company currently buys a raw material, an important component of one of
its products, from one supplier. Although there are a limited number of
manufacturers of the raw material, management believes that other suppliers
could provide the raw material on comparable terms. A change in suppliers,
however, could cause a delay in manufacturing and a possible loss of sales,
which would adversely affect operating results. Included in the Company's
consolidated balance sheet at March 31, 1996, are the net assets of one of the
Company's two manufacturing operations which produce the Company's best
selling product, all of which are located in a single facility in the United
Kingdom and which total approximately $11.3 million.
14. SIGNIFICANT RELATED PARTY TRANSACTIONS:
Notes Payable to Parent Company:
The Company has various payables with affiliates (see Note 6).
Interest expense on notes payable to parent and affiliated companies for the
years ended March 31, 1995 and 1996 was $4,258 and $4,180, respectively.
Payables to Affiliated Companies and Other Activities:
During the year ended March 31, 1996, the Company received cash totaling
$88,760, representing the proceeds from the sale of an affiliated business. An
affiliated company also agreed to convert debt totaling $7,695 to parent
company investment. During the years ended March 31, 1995 and 1996, the
Company was forgiven current payables from affiliates totaling $8,474 and
$12,039, respectively. All transactions have been treated as additions to
parent company investment.
Pilkington charges the Company for services and shared costs relating to
treasury functions, tax return preparations, internal audit service, risk
management services, research and development and travel. For the years ended
March 31, 1995 and 1996, the Company expensed $561 and $1,036, respectively,
relating to Pilkington services and shared costs. In addition, Pilkington
facilitates the Company's purchases of certain outside services, such as
legal, worker's compensation and other insurance premiums.
Other Related Party Transactions:
During the year ended March 31, 1995, the Company purchased a house from a
director of the Company for $217. The house was subsequently sold for $172
during the year ended March 31, 1996.
F-39
<PAGE>
PILKINGTON BARNES HIND GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
15. WORLDWIDE OPERATIONS:
The Company operates in the ophthalmic industry in the distribution of
contact lenses.
A summary of information about the Company's geographic areas is as follows:
<TABLE>
<CAPTION>
NORTH
AMERICA EUROPE AUSTRALIA ASIA ELIMINATIONS TOTAL
------- ------- --------- ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED MARCH 31,
1995
Revenue:
External................ $78,407 $38,254 $1,633 $ 6,700 $124,994
Internal................ 43,343 25,933 $(69,276)
Operating loss (profit). 13,131 (5,205) 4 (1,606) 559 6,883
Identifiable assets..... 69,151 28,578 116 4,534 (66) 102,313
YEAR ENDED MARCH 31,
1996
Revenue:
External................ 78,907 44,050 1,793 7,831 132,581
Internal................ 32,050 35,691 14 (67,755)
Operating loss (profit). 12,154 (6,136) 85 (1,586) (45) 4,472
Identifiable assets..... 65,786 38,546 379 7,494 (21) 112,184
</TABLE>
16. SUBSEQUENT EVENTS:
Pilkington signed an agreement (as amended September 24, 1996) for the sale
of certain assets and liabilities of the Company at an aggregate purchase
price of approximately $62,000, consisting of a cash payment at closing and a
note in the amount of $5,000. The purchase price is subject to adjustment
based upon closing working capital of the divested assets. The assets and
liabilities to be divested consist primarily of inventory, accounts
receivable, fixed assets, accounts payable and certain accrued liabilities and
total approximately $57,000.
F-40
<PAGE>
PILKINGTON BARNES HIND GROUP
(A DIVISION OF PILKINGTON PLC)
CONDENSED COMBINED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
OCTOBER 1, 1996
----------------
(IN THOUSANDS OF
US DOLLARS)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................... $ 5,830
Trade accounts receivable, less allowance for doubtful ac-
counts of $1,902........................................... 25,143
Inventories................................................. 27,847
Prepaids and other current assets........................... 3,194
Deferred income taxes....................................... 556
-------
Total current assets...................................... 62,570
Property, plant and equipment, net ........................... 35,419
Other assets.................................................. 443
-------
Total assets.............................................. $98,432
=======
LIABILITIES AND PARENT COMPANY INVESTMENT
Current liabilities:
Accounts payable............................................ $ 9,720
Accrued liabilities......................................... 10,975
Accrued payroll and related liabilities..................... 12,551
-------
Total current liabilities ................................ 33,246
Deferred income taxes......................................... 1,280
Other liabilities............................................. 384
-------
Total liabilities......................................... 34,910
Parent company investment..................................... 63,522
-------
Total liabilities and parent company investment........... $98,432
=======
</TABLE>
The accompanying notes are an integral part of this condensed combined interim
financial data
F-41
<PAGE>
PILKINGTON BARNES HIND GROUP
(A DIVISION OF PILKINGTON PLC)
CONDENSED COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTHS ENDED APRIL 1, 1996 THROUGH
SEPTEMBER 30, 1995 OCTOBER 1, 1996
------------------ ---------------------
(IN THOUSANDS OF U.S. DOLLARS)
<S> <C> <C>
Net sales............................. $67,154 $ 64,805
------- --------
Costs and expenses:
Cost of sales....................... 33,197 34,695
Research and development............ 4,160 3,448
Selling and marketing............... 21,012 20,634
General and administrative.......... 11,901 21,318
------- --------
70,270 80,095
------- --------
Operating loss........................ (3,116) (15,290)
Interest income....................... 323 95
Interest expense...................... (3,287) (590)
------- --------
Loss before provision for income tax-
es................................... (6,080) (15,785)
Provision for income taxes............ 2,365 6,140
------- --------
Net loss.............................. $(8,445) $(21,925)
======= ========
</TABLE>
The accompanying notes are an integral part of this condensed combined interim
financial data
F-42
<PAGE>
PILKINGTON BARNES HIND GROUP
(A DIVISION OF PILKINGTON PLC)
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTHS ENDED APRIL 1, 1996 THROUGH
SEPTEMBER 30, 1995 OCTOBER 1, 1996
------------------ ---------------------
(IN THOUSANDS OF U.S. DOLLARS)
<S> <C> <C>
Cash flows from operating activities:
Net loss............................. $(8,445) $(21,925)
Adjustments to reconcile net loss to
net cash used in operating activi-
ties:
Depreciation........................ 3,375 3,349
Provision for excess and obsolete
inventory.......................... 908 230
Provision for doubtful accounts..... 352 1,330
Increase in net deferred taxes...... (35) (718)
Change in assets and liabilities:
Accounts receivable--trade.......... (1,988) (605)
Accounts receivable--affiliate...... 147 67
Inventories......................... 2,383 1,475
Prepaids and other current assets... (3,577) (186)
Other assets........................ 403 1,908
Accounts payable--trade............. (3,202) 2,984
Accounts payable affiliated compa-
nies............................... 323 (331)
Accrued and other current liabili-
ties............................... 3,562 9,304
Other long-term liabilities......... 3,256 (2,799)
------- --------
Net cash used in operating activi- (2,538) (5,917)
ties................................ ------- --------
Cash flows from investing activities:
Capital expenditures................. (4,205) (5,417)
------- --------
Net cash used in investing activi- (4,205) (5,417)
ties................................ ------- --------
Cash flows from financing activities:
Financing activities with Pilkington
plc................................. 8,678 2,206
------- --------
Net cash provided by financing activ- 8,678 2,206
ities............................... ------- --------
Net change in cash and cash equiva-
lents................................ 1,935 (9,128)
Cash and cash equivalents at beginning 12,810 14,958
of year.............................. ------- --------
Cash and cash equivalents at end of $14,745 $ 5,830
period............................... ======= ========
Supplemental disclosures of cash flow
information:
Interest paid........................ $ 3,288 $ 641
======= ========
Taxes paid........................... $ 29 $ 1,231
======= ========
</TABLE>
The accompanying notes are an integral part of this condensed combined interim
financial data
F-43
<PAGE>
PILKINGTON BARNES HIND GROUP
(A DIVISION OF PILKINGTON PLC)
NOTES TO CONDENSED COMBINED INTERIM FINANCIAL DATA
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed combined interim financial data of
Pilkington Barnes Hind Group ("the Group"), a vision care division of
Pilkington plc, have been prepared in accordance with generally accepted
accounting principles for interim financial information and pursuant to the
rules and regulations of the Securities and Exchange Commission. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. For further
information, refer to the Group's audited financial statements as of March 31,
1995 and 1996 and for the years then ended.
The interim financial data is unaudited; however in the opinion of
management, the interim financial data includes all adjustments, consisting
only of normal recurring adjustments necessary for a fair statement of the
results for the interim periods. The results of operations for the interim
periods ended September 30, 1995 and October 1, 1996, are not necessarily
indicative of the results to be expected for the full year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reported period. Actual results could differ from these estimates.
2. INVENTORIES
Inventories consist of the following at October 1, 1996 (in thousands of
U.S. dollars):
<TABLE>
<S> <C>
Raw materials........................................................ $ 2,804
Work in process...................................................... 4,788
Finished goods....................................................... 20,255
-------
$27,847
=======
</TABLE>
Inventories are stated net of valuation reserves of $5,145 at October 1,
1996.
3. SUBSEQUENT EVENT
Effective October 2, 1996, the Group was sold by Pilkington plc to Wesley
Jessen VisionCare, Inc. (formerly known as Wesley-Jessen Holding, Inc.) for an
aggregate purchase price of approximately $62.4 million. The purchase price is
subject to adjustment based on certain measures as of the closing date as
outlined in the purchase agreement. These financial statements do not reflect
any adjustments associated with the October 2, 1996 transaction.
F-44
<PAGE>
[Sample of Advertisement Targeted to Eyecare Practitioners]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHO-
RIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 11
The Company............................................................... 17
Use of Proceeds........................................................... 19
Dividend Policy........................................................... 20
The Reclassification...................................................... 20
Capitalization............................................................ 21
Dilution.................................................................. 22
Unaudited Pro Forma Financial Data........................................ 23
Supplemental Unaudited Pro Forma Financial Data........................... 35
Selected Historical Consolidated
Financial Data........................................................... 39
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 42
Business.................................................................. 52
Management................................................................ 69
Principal Stockholders.................................................... 78
Certain Transactions...................................................... 80
Description of Certain Indebtedness....................................... 81
Description of Capital Stock.............................................. 83
Shares Eligible for Future Sale........................................... 86
Underwriting.............................................................. 88
Experts................................................................... 90
Legal Matters............................................................. 90
Additional Information.................................................... 90
Index to Financial Statements............................................. F-1
</TABLE>
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICI-
PATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DE-
LIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOT-
MENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,400,000 SHARES
[LOGO]
Wesley Jessen VisionCare, Inc.
COMMON STOCK
-----------------
PROSPECTUS
-----------------
MERRILL LYNCH & CO.
ALEX. BROWN & SONS
INCORPORATED
BEAR, STEARNS & CO. INC.
BT SECURITIES CORPORATION
SALOMON BROTHERS INC
FEBRUARY , 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a statement of estimated expenses, to be paid solely by the
Company, of the issuance and distribution of the securities being registered:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee........... $ 17,424
NASD filing fee............................................... 6,250
Nasdaq National Market original listing fee................... 50,000
Blue Sky fees and expenses (including attorneys' fees and ex-
penses)...................................................... 10,000
Printing expenses............................................. 400,000
Accounting fees and expenses.................................. 700,000
Transfer agent's fees and expenses............................ 15,000
Legal fees and expenses....................................... 600,000
Miscellaneous expenses........................................ 1,326
----------
Total..................................................... $1,800,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is incorporated under the laws of the State of Delaware. Section
145 of the General Corporation Law of the State of Delaware ("Section 145")
provides that a Delaware corporation may indemnify any persons who are, or are
threatened to be made, parties to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of such corporation), by reason of
the fact that such person was an officer, director, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding, provided such person acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the corporation's best interests and, with respect to any criminal action
or proceeding, had no reasonable cause to believe that his conduct was
illegal. A Delaware corporation may indemnify any persons who are, or are
threatened to be made, a party to any threatened, pending or completed action
or suit by or in the right of the corporation by reason of the fact that such
person was a director, officer, employee or agent of such corporation, or is
or was serving at the request of such corporation as a director, officer,
employee or agent of another corporation or enterprise. The indemnity may
include expenses (including attorneys' fees) actually and reasonably incurred
by such person in connection with the defense or settlement of such action or
suit, provided such person acted in good faith and in a manner he reasonably
believed to be in or not opposed to the corporation's best interests except
that no indemnification is permitted without judicial approval if the officer
or director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses
which such officer or director has actually and reasonably incurred.
The Company's Certificate of Incorporation and By-laws provide for the
indemnification of Directors and officers of the Company to the fullest extent
permitted by Section 145.
In that regard, the By-laws provide that the Company shall indemnify any
person whom it has the power to indemnify by Section 145 from or against any
and all of the expenses, liabilities or other matters referred to or covered
in Section 145, and such indemnification is not exclusive of other rights to
which such person shall be entitled under any By-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to
II-1
<PAGE>
action in such person's official capacity for or in behalf of the Company
and/or any subsidiary of the Company and as to action in another capacity
while holding such office and shall continue as to such person who has ceased
to be a director, officer, employee, or agent of the Company and/or subsidiary
of the Company and shall inure to the benefit of the heirs, executors, and
administrators of such person.
The Company expects to enter into indemnification agreements with each of
its executive officers and Directors prior to the completion of the Offering.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since its incorporation on May 11, 1995, the Company has issued the
following securities without registration under the Securities Act of 1933
(the "Securities Act"):
(1) In connection with the Wesley Jessen Acquisition, the Company issued
on June 28, 1995 an aggregate of 415,000 shares of Class L Common Stock for
an aggregate purchase price of approximately $7,224,000.40 and 3,735,000
shares of Common Stock for an aggregate purchase price of approximately
$301,003.65 to Bain Capital Fund IV, L.P., Bain Capital Fund IV-B, L.P.,
BCIP Associates, BCIP Trust Associates, L.P., Randolph Street Partners and
Robert A. Sandler.
(2) Effective as of June 28, 1995, the Company issued to certain members
of management an aggregate of 11,534 shares of Class L Common Stock and
103,818 shares of Common Stock. The purchase price of the Class L Common
Stock and Common Stock was $17.40723 and $0.08059 per share, respectively.
(3) Effective as of July 11, 1995, the Company issued to a member of
management 2,500 shares of Class L Common Stock and 22,500 shares of Common
Stock. The purchase price of the Class L Common Stock and Common Stock was
$17.40723 and $0.08059 per share, respectively.
(4) Effective as of December 11, 1995, January 1, 1996, March 1, 1996 and
June 28, 1996, the Company issued to certain newly-hired members of
management 143, 214, 216 and 286 shares of Class L Common Stock,
respectively, and 1,286, 1,928, 1,932 and 2,572 shares of Common Stock,
respectively. In each case, the purchase price of the Class L Common Stock
and the Common Stock was $17.40723 and $0.08059 per share, respectively.
(5) On July 17, 1996, the Company issued to a member of management 107
shares of Class L Common Stock and 964 shares of Common Stock. The purchase
price of the Class L Common Stock and Common Stock was $17.40723 and
$0.08059 per share, respectively.
(6) On October 2, 1996, the Company issued a subordinated seller's note
in the aggregate principal amount of $5 million to Pilkington plc as part
of the consideration for the Barnes-Hind Acquisition.
The sales and issuances of securities listed above in paragraphs (1) and (6)
were deemed to be exempt from registration under the Securities Act by virtue
of Section 4(2) thereof, as transactions not involving a public offering. The
sales and issuances of securities listed above in paragraphs (2), (3), (4) and
(5) were deemed to be exempt from registration under the Securities Act by
virtue of Section 3(b) thereof and Rule 701 promulgated thereunder. All of the
information set forth in this Item 15 does not give effect to the
Reclassification and Stock Split (each as defined in the Prospectus which
forms a part of this Registration Statement).
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
**1.1 Form of Purchase Agreement.
*2.1 Purchase and Sale Agreement, dated as of May 5, 1995, between
Schering Corporation and WJ Acquisition Corp.+
*2.2 Agreement for Purchase and Sale, dated as of July 5, 1996,
between the Company and Pilkington plc.+
3.1(i) Form of Restated Certificate of Incorporation of the Company.
3.1(ii) Form of Restated By-laws of the Company.
**4.1 Form of certificate representing shares of Common Stock, $0.01
par value per share.
*4.2 Stockholders Agreement, dated October 22, 1996, among the
Company and the stockholders named therein.
*4.3 Amended and Restated Registration Agreement, dated as of October
22, 1996, between the Company and the stockholders named
therein.
*4.4 Credit Agreement, dated as of October 2, 1996, between the
Company, Wesley Jessen Corporation, the various lending
institutions named therein and Bankers Trust Company, as
Agent.+
*4.5 Security Agreement, dated as of October 2, 1996, among the
Company, Wesley Jessen Corporation, certain other subsidiaries
named therein and Bankers Trust Company, as Collateral Agent.+
*4.6 Pledge Agreement, dated as of October 2, 1996, by the Company,
Wesley Jessen Corporation, certain other subsidiaries named
therein and Bankers Trust Company, as Collateral Agent and
Pledgee.+
*4.7 Subsidiary Guaranty, dated as of October 2, 1996, made by each
subsidiary of Wesley Jessen Corporation named therein and
Bankers Trust Company, as Agent.
*4.8 Subordinated seller's note, dated as of October 2, 1996, by
Wesley Jessen Corporation in favor of Pilkington plc.
**5.1 Opinion and consent of Kirkland & Ellis.
10.1 Form of Wesley Jessen VisionCare, Inc. 1997 Stock Incentive
Plan.
10.2 Form of Wesley Jessen VisionCare, Inc. Non-Employee Director
Stock Option Plan.
*10.3 Amended and Restated Advisory Agreement, dated as of October 2,
1996, between Wesley Jessen Corporation and Bain Capital, Inc.
*10.4 Stock Purchase Agreement, dated as of June 28, 1995, among
Wesley-Jessen Holding, Inc. and the various purchasers named
therein.
10.5 Agreement, dated as of December 21, 1992, between Wesley Jessen
Corporation and Tech Medical Inc., regarding casting cups, as
amended.
*10.6 Employment Agreement, dated June 28, 1995, between the Company
and Kevin J. Ryan.
*10.7 Employment Agreement, dated June 28, 1995, between the Company
and Edward J. Kelley.
10.8 Wesley-Jessen Holding, Inc. 1995 Stock Purchase and Option Plan.
10.9 Wesley-Jessen Holding, Inc. 1996 Stock Option Plan.
*10.10 Management Agreement, effective as of June 28, 1995 and dated as
of April 5, 1996, by and between the Company and Kevin J. Ryan
(with an attached schedule setting forth the terms of other
Named Executives).
<CAPTION>
<C> <S>
10.11 Form of Indemnification Agreement.
10.12 Lease agreements relating to the Company's Southampton, United
Kingdom manufacturing facility.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.13 Lease agreements relating to the Company's San Diego, California
manufacturing facility.
10.14 Wesley Jessen Corporation Professional Incentive Program (1996).
10.15 Form of Employee Stock Discount Purchase Plan.
**11.1 Earnings Per Share.
*21.1 Subsidiaries of the Company.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Coopers & Lybrand L.L.P.
**23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1).
*24.1 Powers of Attorney (included in signature page).
*27.1 Financial Data Schedule.
</TABLE>
- --------
*Previously filed.
**To be filed by amendment.
+The Company agrees to furnish supplementally to the Commission a copy of any
omitted schedule or exhibit to such agreement upon request by Commission.
(b) FINANCIAL STATEMENT SCHEDULES.
Financial statement schedules included in this Registration Statement:
Schedule II--Valuation and qualifying accounts for the periods from January
1, 1993 through September 28, 1996.
All other schedules for which provision is made in the applicable accounting
regulations of the Commission are not required under the related instructions,
are inapplicable or not material, or the information called for thereby is
otherwise included in the financial statements and therefore has been omitted.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriter
at closing specified in the underwriting agreement certificates in such
denominations and registered in such names as requested by the underwriter to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
CHICAGO, STATE OF ILLINOIS, ON JANUARY 21, 1997.
Wesley-Jessen VisionCare, Inc.
/s/ Kevin J. Ryan
By: _________________________________
Kevin J. Ryan
President and Chief Executive
Officer
* * * *
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE
FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
* Chairman of the Board January 21, 1997
____________________________________
Stephen G. Pagliuca
* President and Director January 21, 1997
____________________________________ (principal executive
Kevin J. Ryan officer)
* Chief Financial Officer, January 21, 1997
____________________________________ Treasurer and Director
Edward J. Kelley (principal financial and
accounting officer)
* Director January 21, 1997
____________________________________
Adam W. Kirsch
* Director January 21, 1997
____________________________________
John W. Maki
* Director January 21, 1997
____________________________________
John J. O'Malley
/s/ Kevin J. Ryan
*By: _______________________________ Attorney-in-fact January 21, 1997
Kevin J. Ryan
</TABLE>
II-5
<PAGE>
WESLEY JESSEN VISIONCARE, INC.
(FORMERLY KNOWN AS WESLEY-JESSEN HOLDING, INC.)
FINANCIAL STATEMENT SCHEDULE
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
CHARGED TO
BEGINNING COSTS AND ENDING
BALANCE EXPENSES DEDUCTIONS BALANCE
--------- ---------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Year ended December 31, 1993........... $ 1,717 $ 2,312 $ (1,678) $ 2,351
Year ended December 31, 1994........... $ 2,351 $ 4,871 $ (2,022) $ 5,200
Period from January 1, 1995 through
June 28, 1995......................... $ 5,200 $ 1,450 $ (2,456) $ 4,194
Period from June 29, 1995 through De-
cember 31, 1995....................... $ 5,342* $ 861 $ (1,548) $ 4,655
Period from January 1, 1996 through
September 28, 1996.................... $ 4,655 $ 1,020 $ (2,248) $ 3,427
ALLOWANCE FOR SALES RETURNS AND ADJUST-
MENTS
Year ended December 31, 1993........... $10,445 $21,066 $(21,206) $10,305
Year ended December 31, 1994........... $10,305 $27,273 $(21,768) $15,810
Period from January 1, 1995 through
June 28, 1995......................... $15,810 $10,962 $(15,993) $10,779
Period from June 29, 1995 through De-
cember 31, 1995....................... $10,779 $ 4,088 $ (7,642) $ 7,225
Period from January 1, 1996 through
September 28, 1996.................... $ 7,225 $ 7,960 $ (6,885) $ 8,300
</TABLE>
*Includes purchase accounting adjustment of $1,148 to adjust Predecessor policy
to that of the Company.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE
------ ----------- ----
<C> <S> <C>
**1.1 Form of Purchase Agreement.
*2.1 Purchase and Sale Agreement, dated as of May 5, 1995,
between Schering Corporation and WJ Acquisition Corp.+
*2.2 Agreement for Purchase and Sale, dated as of July 5,
1996, between the Company and Pilkington plc.+
3.1(i) Form of Restated Certificate of Incorporation of the
Company.
3.1(ii) Form of Restated By-laws of the Company.
**4.1 Form of certificate representing shares of Common Stock,
$0.01 par value per share.
*4.2 Stockholders Agreement, dated October 22, 1996, among the
Company and the stockholders named therein.
*4.3 Amended and Restated Registration Agreement, dated as of
October 22, 1996, between the Company and the
stockholders named therein.
*4.4 Credit Agreement, dated as of October 2, 1996, between
the Company, Wesley Jessen Corporation, the various
lending institutions named therein and Bankers Trust
Company, as Agent.+
*4.5 Security Agreement, dated as of October 2, 1996, among
the Company, Wesley Jessen Corporation, certain other
subsidiaries named therein and Bankers Trust Company, as
Collateral Agent.+
*4.6 Pledge Agreement, dated as of October 2, 1996, by the
Company, Wesley Jessen Corporation, certain other
subsidiaries named therein and Bankers Trust Company, as
Collateral Agent and Pledgee.+
*4.7 Subsidiary Guaranty, dated as of October 2, 1996, made by
each subsidiary of Wesley Jessen Corporation named
therein and Bankers Trust Company, as Agent.
*4.8 Subordinated seller's note, dated as of October 2, 1996,
by Wesley Jessen Corporation in favor of Pilkington plc.
**5.1 Opinion and consent of Kirkland & Ellis.
10.1 Form of Wesley Jessen VisionCare, Inc. 1997 Stock
Incentive Plan.
10.2 Form of Wesley Jessen VisionCare, Inc. Non-Employee
Director Stock Option Plan.
*10.3 Amended and Restated Advisory Agreement, dated as of
October 2, 1996, between Wesley Jessen Corporation and
Bain Capital, Inc.
*10.4 Stock Purchase Agreement, dated as of June 28, 1995,
among Wesley-Jessen Holding, Inc. and the various
purchasers named therein.
10.5 Agreement, dated as of December 21, 1992, between Wesley
Jessen Corporation and Tech Medical Inc., regarding
casting cups, as amended.
*10.6 Employment Agreement, dated June 28, 1995, between the
Company and Kevin J. Ryan.
*10.7 Employment Agreement, dated June 28, 1995, between the
Company and Edward J. Kelley.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE
------ ----------- ----
<C> <S> <C>
10.8 Wesley-Jessen Holding, Inc. 1995 Stock Purchase and Option
Plan.
10.9 Wesley-Jessen Holding, Inc. 1996 Stock Option Plan.
*10.10 Management Agreement, effective as of June 28, 1995 and
dated as of April 5, 1996, by and between the Company and
Kevin J. Ryan (with an attached schedule setting forth
the terms of other Named Executives).
10.11 Form of Indemnification Agreement.
10.12 Lease Agreements relating to the Company's Southampton,
United Kingdom manufacturing facility.
10.13 Lease Agreements relating to the Company's San Diego,
California manufacturing facility.
10.14 Wesley Jessen Corporation Professional Incentive Program
(1996).
10.15 Form of Employee Stock Discount Purchase Plan.
**11.1 Earnings Per Share.
*21.1 Subsidiaries of the Company.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Coopers & Lybrand L.L.P.
**23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1).
*24.1 Powers of Attorney (included in signature page).
*27.1 Financial Data Schedule.
</TABLE>
- --------
*Previously Filed.
**To be filed by amendment.
+The Company agrees to furnish supplementally to the Commission a copy of any
omitted schedule or exhibit to such agreement upon request by Commission.
<PAGE>
EXHIBIT 3.1(i)
RESTATED CERTIFICATE OF INCORPORATION
OF
WESLEY JESSEN VISIONCARE, INC.
ARTICLE I - Name
----------------
The name of the corporation is Wesley Jessen VisionCare, Inc.
(hereinafter referred to as the "Corporation").
-----------
ARTICLE II - Registered Office
------------------------------
The address of the registered office of the Corporation in the State
of Delaware is 32 Loockerman Square, Suite L-100, in the City of Dover, County
of Kent 19901. The name of the registered agent of the Corporation at that
address is The Prentice-Hall Corporation System, Inc.
ARTICLE III - Purpose
---------------------
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware (the "Delaware General Corporation Law").
--------------------------------
ARTICLE IV - Capital Stock
--------------------------
Part A. General. The maximum number of shares of capital stock that
------- -------
the Corporation is authorized to have outstanding at any one time is 55,000,000
shares, consisting of: (i) 5,000,000 shares of Preferred Stock, par value $0.01
per share (the "Preferred Stock"); and (ii) 50,000,000 shares of Common Stock,
---------------
par value $0.01 per share (the "Common Stock").
------------
Part B. Preferred Stock. Authority is hereby expressly vested in the
------- ---------------
Board of Directors of the Corporation, subject to the provisions of this ARTICLE
-------
IV and to the limitations prescribed by law, to authorize the issuance from time
- --
to time of one or more series of Preferred Stock. The authority of the Board of
Directors with respect to each series shall include, but not be limited to, the
determination or fixing of the following by resolution or resolutions adopted by
the affirmative vote of a majority of the total number of the Directors then in
office:
(1) The designation of such series;
<PAGE>
(2) The dividend rate of such series, the conditions and dates upon
which such dividends shall be payable, the relation which such dividends shall
bear to the dividends payable on any other class or classes or series of the
Corporation's capital stock and whether such dividends shall be cumulative or
non-cumulative;
(3) Whether the shares of such series shall be subject to redemption
for cash, property or rights, including securities of any other corporation, by
the Corporation or upon the happening of a specified event and, if made subject
to any such redemption, the times or events, prices, rates, adjustments and
other terms and conditions of such redemptions;
(4) The terms and amount of any sinking fund provided for the purchase
or redemption of the shares of such series;
(5) Whether or not the shares of such series shall be convertible
into, or exchangeable for, at the option of either the holder or the Corporation
or upon the happening of a specified event, shares of any other class or classes
or of any other series of the same class of the Corporation's capital stock and,
if provision be made for conversion or exchange, the times or events, prices,
rates, adjustments and other terms and conditions of such conversions or
exchanges;
(6) The restrictions, if any, on the issue or reissue of any
additional Preferred Stock;
(7) The rights of the holders of the shares of such series upon the
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation; and
(8) The provisions as to voting, optional and/or other special rights
and preferences, if any, including, without limitation, the right to elect one
or more Directors.
Part C. Common Stock. Except as otherwise provided by the Delaware
------- ------------
General Corporation Law or this Restated Certificate of Incorporation (the
"Restated Certificate"), and subject to the rights of holders of any series of
--------------------
Preferred Stock, the holders of record of Common Stock shall share ratably in
all dividends payable in cash, stock or otherwise and other distributions,
whether in respect of liquidation or dissolution (voluntary or involuntary) or
otherwise and, are subject to all the powers, rights, privileges, preferences
and priorities of any series of Preferred Stock as provided herein or in any
resolution or resolutions adopted by the Board of Directors pursuant to
authority expressly vested in it by the provisions of Section B of this ARTICLE
-------
IV.
- --
(1) The Common Stock shall not be convertible into, or exchangeable
for, shares of any other class or classes or of any other series of the same of
the Corporation's capital stock.
(2) No holder of Common Stock shall have any preemptive, subscription,
redemption, conversion or sinking fund rights with respect to the Common Stock,
or to any obligations convertible (directly or indirectly) into stock of the
Corporation whether now or hereafter authorized.
- 2 -
<PAGE>
(3) Except as otherwise provided by the Delaware General Corporation
Law, or the Restated Certificate and subject to the rights of holders of any
series of Preferred Stock, all of the voting power of the stockholders of the
Corporation shall be vested in the holders of the Common Stock, and each holder
of Common Stock shall have one vote for each share held by such holder on all
matters voted upon by the stockholders of the Corporation.
Part D. Reclassification and Stock Split.
------- --------------------------------
(1) Reclassification. Immediately upon the filing of this Restated
----------------
Certificate with the Secretary of State of the State of Delaware (the "Effective
---------
Time"), each share of Class L Common Stock, par value $.01 per share, of the
- ----
Corporation (the "Class L Common"), outstanding immediately prior to the
--------------
Effective Time shall be, without further action by the Corporation or any of the
holders thereof, reclassified into one share of Common Stock plus an additional
number of shares of Common Stock equal to the sum of the Unreturned Original
Cost and Unpaid Yield (as such terms are defined in the Corporation's
Certificate of Incorporation as in effect immediately prior to the Effective
Time) on each share of Class L Common as of the Effective Date divided by the
Public Offering Price (the "Class L Conversion Factor"). Each certificate
-------------------------
representing shares of Class L Common shall automatically represent from and
after the Effective Time that number of shares of Common Stock equal to the
number of shares shown on the face of the certificate multiplied by the Class L
Conversion Factor. For purpose of this Part D of this ARTICLE IV, "Public
---------- ------
Offering Price" shall mean the initial public offering price per share of Common
- --------------
Stock set forth on the cover page of the Corporation's Prospectus included in
the Registration Statement on Form S-1 (Registration No. 333-17353) (the
"Registration Statement"), relating to the initial public offering of the
Corporation's Common Stock and in the form first used to confirm sales of the
Common Stock, without deduction for any underwriting discounts or commissions or
any expenses incurred by the Corporation in connection with the initial public
offering and as adjusted so as to not give effect to the stock split described
in the following paragraph.
(2) Stock Split. At the Effective Time and immediately following the
-----------
reclassification of the Class L Common set forth above (the "Reclassification"),
----------------
each share of Common Stock outstanding at the Effective Time (after giving
effect to the Reclassification) shall be, without further action by the
Corporation or any of the holders thereof, changed and converted into a number
of shares of Common Stock equal to that number determined by multiplying each
outstanding share of Common Stock by __________ (the "Stock Split Factor").
------------------
Each certificate then outstanding representing shares of Common Stock (including
those certificates that represent shares of Common Stock as a result of the
Reclassification) shall automatically represent from and after the Effective
Time that number of shares of Common Stock equal to the number of shares shown
on the face of the certificate multiplied by the Stock Split Factor
(__________).
(3) Fractional Shares. Notwithstanding the foregoing, in the event
-----------------
that the conversion of the Common Stock described above would result in any
holder of shares of Common Stock holding a share of Common Stock that is not an
integral multiple of one, the effect of the conversion shall be such that the
shares of Common Stock issued as a result of the conversion shall be the
integral multiple of one closest to the product of the Stock Split Factor and
the number of shares of Common Stock held by such holder, with fractions of 0.50
and greater being rounded up to the next higher integral multiple of one and
fractions less than 0.50 being rounded down to the
- 3 -
<PAGE>
next lower integral multiple of one. No consideration will be paid in lieu of
fractions that are rounded down.
ARTICLE V - Existence
---------------------
The Corporation is to have perpetual existence.
ARTICLE VI - By-laws
--------------------
In furtherance and not in limitation of the powers conferred by the
Delaware General Corporation Law, the Board of Directors of the Corporation is
expressly authorized to make, alter, amend, change, add to or repeal the By-laws
of the Corporation by the affirmative vote of a majority of the total number of
Directors then in office. Any alteration or repeal of the By-laws of the
Corporation by the stockholders of the Corporation shall require the affirmative
vote of at least a majority of the voting power of the then outstanding shares
of capital stock of the Corporation entitled to vote on such alteration or
repeal, subject to ARTICLE IX hereof and ARTICLE VII of the Corporation's By-
---------- -----------
laws.
ARTICLE VII - Stockholders and Directors
----------------------------------------
Part A. Stockholder Action. Election of Directors need not be by
------- ------------------
written ballot unless the By-laws of the Corporation so provide. Subject to any
rights of holders of any series of Preferred Stock, from and after the date on
which the Common Stock of the Corporation is registered pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), (i) any action
------------
required or permitted to be taken by the stockholders of the Corporation must be
effected at an annual or special meeting of stockholders of the Corporation and
may not be effected in lieu thereof by any consent in writing by such
stockholders, (ii) special meetings of stockholders of the Corporation may be
called only by either the Board of Directors pursuant to a resolution adopted by
the affirmative vote of the majority of the total number of Directors then in
office or by the chief executive officer of the Corporation and (iii) advance
notice of stockholder nominations of persons for election to the Board of
Directors of the Corporation and of business to be brought before any annual
meeting of the stockholders by the stockholders of the Corporation shall be
given in the manner provided in the By-laws of the Corporation.
Part B. Number of Directors and Term of Office. Subject to any rights
------- --------------------------------------
of holders of any series of Preferred Stock to elect additional Directors under
specified circumstances, the number of Directors which shall constitute the
Board of Directors of the Corporation shall be fixed from time to time in the
manner set forth in the By-laws of the Corporation. The Directors of the
Corporation shall be divided into three classes: Class I, Class II and Class
III. Membership in such class shall be as nearly equal in number as possible.
The term of office of the initial Class I Directors shall expire at the annual
election of Directors by the stockholders of the Corporation in 1998, the term
of office of the initial Class II Directors shall expire at the annual election
of Directors by the stockholders of the Corporation in 1999 and the term of
office of the initial Class
- 4 -
<PAGE>
III Directors shall expire at the annual election of Directors by the
stockholders of the Corporation in 2000, or thereafter when their respective
successors in each case are elected by the stockholders and qualified, subject
however, to prior death, resignation, retirement, disqualification or removal
from office for cause. At each succeeding annual election of Directors by the
stockholders of the Corporation beginning in 1998, the Directors chosen to
succeed those whose terms then expire shall be identified as being of the same
class as the Directors they succeed and shall be elected for a term expiring at
the third succeeding annual election of Directors by the stockholders of the
Corporation, or thereafter when their respective successors in each case are
elected by the stockholders and qualified. If the number of Directors is
changed, any increase or decrease shall be apportioned among the classes so as
to maintain the number of Directors in each class as nearly equal as possible,
and any additional Director of any class elected to fill a vacancy resulting
from an increase in such class shall hold office for a term that shall coincide
with the remaining term of that class, but in no case shall a decrease in the
number of Directors shorten the term of any incumbent Director.
Part C. Removal and Resignation. No Director may be removed from
------- -----------------------
office without cause and without the affirmative vote of the holders of a
majority of the voting power of the then outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of Directors voting
together as a single class; provided, however, that if the holders of any class
-------- -------
or series of capital stock are entitled by the provisions of this Restated
Certificate (it being understood that any references to this Restated
Certificate shall include any duly authorized certificate of designation) to
elect one or more Directors, such Director or Directors so elected may be
removed without cause only by the vote of the holders of a majority of the
outstanding shares of that class or series entitled to vote. Any Director may
resign at any time upon written notice to the Corporation.
Part D. Vacancies and Newly Created Directorships. Subject to any
------- -----------------------------------------
rights of holders of any series of Preferred Stock to fill such newly created
Directorships or vacancies, any newly created Directorships resulting from any
increase in the authorized number of Directors and any vacancies in the Board of
Directors resulting from death, resignation, disqualification or removal from
office for cause shall, unless otherwise provided by law or by resolution
approved by the affirmative vote of a majority of the total number of Directors
then in office, be filled only by resolution approved by the affirmative vote of
a majority of the total number of Directors then in office. Any Director so
chosen shall hold office until the next election of the class for which such
Director shall have been chosen, and until his successor shall have been duly
elected and qualified, unless he shall resign, die, become disqualified or be
removed for cause.
Part E. Effectiveness. The provisions of this ARTICLE VII shall
------- -------------
terminate and be of no further force and effect in the event that the initial
public offering of the Corporation's Common Stock as contemplated by the
Corporation's Prospectus included in the Registration Statement is not
consummated within 30 days of the Effective Date.
ARTICLE VIII - General Provisions
---------------------------------
Part A. Dividends. The Board of Directors shall have authority from
------- ---------
time to time to set apart out of any assets of the Corporation otherwise
available for dividends a reserve or
- 5 -
<PAGE>
reserves as working capital or for any other purpose or purposes, and to abolish
or add to any such reserve or reserves from time to time as said board may deem
to be in the interest of the Corporation; and said Board shall likewise have
power to determine in its discretion, except as herein otherwise provided, what
part of the assets of the Corporation available for dividends in excess of such
reserve or reserves shall be declared in dividends and paid to the stockholders
of the Corporation.
Part B. Issuance of Stock. The shares of all classes of stock of the
------- -----------------
Corporation may be issued by the Corporation from time to time for such
consideration as from time to time may be fixed by the Board of Directors of the
Corporation, provided that shares of stock having a par value shall not be
issued for a consideration less than such par value, as determined by the Board.
At any time, or from time to time, the Corporation may grant rights or options
to purchase from the Corporation any shares of its stock of any class or classes
to run for such period of time, for such consideration, upon such terms and
conditions, and in such form as the Board of Directors may determine. The Board
of Directors shall have authority, as provided by law, to determine that only a
part of the consideration which shall be received by the Corporation for the
shares of its stock which it shall issue from time to time, shall be capital;
provided, however, that, if all the shares issued shall be shares having a par
- -------- -------
value, the amount of the part of such consideration so determined to be capital
shall be equal to the aggregate par value of such shares. The excess, if any, at
any time, of the total net assets of the Corporation over the amount so
determined to be capital, as aforesaid, shall be surplus. All classes of stock
of the Corporation shall be and remain at all times nonassessable.
The Board of Directors is hereby expressly authorized, in its
discretion, in connection with the issuance of any obligations or stock of the
Corporation (but without intending hereby to limit its general power so to do in
other cases), to grant rights or options to purchase stock of the Corporation of
any class upon such terms and during such period as the Board of Directors shall
determine, and to cause such rights to be evidenced by such warrants or other
instruments as it may deem advisable.
Part C. Inspection of Books and Records. The Board of Directors
------- -------------------------------
shall have power from time to time to determine to what extent and at what times
and places and under what conditions and regulations the accounts and books of
the Corporation, or any of them, shall be open to the inspection of the
stockholders; and no stockholder shall have any right to inspect any account or
book or document of the Corporation, except as conferred by the laws of the
State of Delaware, unless and until authorized so to do by resolution of the
Board of Directors or of the stockholders of the Corporation.
Part D. Location of Meetings, Books and Records. Except as otherwise
------- ---------------------------------------
provided in the By-laws, the stockholders of the Corporation and the Board of
Directors may hold their meetings and have an office or offices outside of the
State of Delaware and, subject to the provisions of the laws of said State, may
keep the books of the Corporation outside of said State at such places as may,
from time to time, be designated by the Board of Directors.
- 6 -
<PAGE>
ARTICLE IX - Amendments
-----------------------
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Restated Certificate in the manner now or
hereinafter prescribed herein and by the laws of the State of Delaware, and all
rights conferred upon stockholders herein are granted subject to this
reservation. Notwithstanding anything contained in this Restated Certificate to
the contrary, Parts A, B and C of ARTICLE IV, ARTICLE VII, ARTICLE X, and this
---------- ----------- ---------
ARTICLE IX of this Restated Certificate shall not be altered, amended or
- ----------
repealed and no provision inconsistent therewith shall be adopted without the
affirmative vote of the holders of at least 66 2/3% of the voting power of the
then outstanding shares of capital stock of the Corporation entitled to vote on
such alteration, amendment or repeal, voting together as a single class (other
than any alteration or amendment to Part A of ARTICLE IV that increases the
----------
authorized number of shares of Preferred Stock or Common Stock).
ARTICLE X - Liability
---------------------
Part A. Limitation of Liability.
------- -----------------------
(1) To the fullest extent permitted by the Delaware General
Corporation Law as it now exists or may hereafter be amended (but, in the case
of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than permitted prior
thereto), and except as otherwise provided in the Corporation's By-laws, no
Director of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages arising from a breach of fiduciary duty owed
to the Corporation or its stockholders.
(2) Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a Director of the Corporation existing at the time of such repeal
or modification.
Part B. Right to Indemnification. Each person who was or is made a
------- ------------------------
party or is threatened to be made a party to or is otherwise involved (including
involvement as a witness) in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "proceeding"), by reason of the
----------
fact that he or she is or was a Director or officer of the Corporation or, while
a Director or officer of the Corporation, is or was serving at the request of
the Corporation as a Director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including service
with respect to an employee benefit plan (an "indemnitee"), whether the basis of
----------
such proceeding is alleged action in an official capacity as a Director or
officer or in any other capacity while serving as a Director or officer, shall
be indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than permitted prior thereto), against all expense, liability and loss
(including attorneys' fees, judgments, fines, excise exercise taxes or penalties
and amounts paid in settlement) reasonably incurred or suffered by such
indemnitee in connection therewith and such indemnification shall continue as to
an indemnitee who has ceased to be a Director, officer,
- 7 -
<PAGE>
employee or agent and shall inure to the benefit of the indemnitee's heirs,
executors and administrators; provided, however, that, except as provided in
Part C of this ARTICLE X with respect to proceedings to enforce rights to
---------
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation. The right to indemnification conferred in this Part B of this
ARTICLE X shall be a contract right and shall include the obligation of the
- ---------
Corporation to pay the expenses incurred in defending any such proceeding in
advance of its final disposition (an "advance of expenses"); provided, however,
------------------- -------- -------
that, if and to the extent that the Delaware General Corporation Law requires,
an advance of expenses incurred by an indemnitee in his or her capacity as a
Director or officer (and not in any other capacity in which service was or is
rendered by such indemnitee, including, without limitation, service to an
employee benefit plan) shall be made only upon delivery to the Corporation of an
undertaking (an "undertaking"), by or on behalf of such indemnitee, to repay all
-----------
amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is no further right to appeal (a "final adjudication")
------------------
that such indemnitee is not entitled to be indemnified for such expenses under
this Part B or otherwise. The Corporation may, by action of its Board of
Directors, provide indemnification to employees and agents of the Corporation
with the same or lesser scope and effect as the foregoing indemnification of
Directors and officers.
Part C. Procedure for Indemnification. Any indemnification of a
------- -----------------------------
Director or officer of the Corporation or advance of expenses under Part B of
this ARTICLE X shall be made promptly, and in any event within forty-five days
---------
(or, in the case of an advance of expenses, twenty days), upon the written
request of the Director or officer. If a determination by the Corporation that
the Director or officer is entitled to indemnification pursuant to this ARTICLE
-------
X is required, and the Corporation fails to respond within sixty days to a
- -
written request for indemnity, the Corporation shall be deemed to have approved
the request. If the Corporation denies a written request for indemnification or
advance of expenses, in whole or in part, or if payment in full pursuant to such
request is not made within forty-five days (or, in the case of an advance of
expenses, twenty days), the right to indemnification or advances as granted by
this ARTICLE X shall be enforceable by the Director or officer in any court of
---------
competent jurisdiction. Such person's costs and expenses incurred in connection
with successfully establishing his or her right to indemnification, in whole or
in part, in any such action shall also be indemnified by the Corporation. It
shall be a defense to any such action (other than an action brought to enforce a
claim for the advance of expenses where the undertaking required pursuant to
Part B of this ARTICLE X, if any, has been tendered to the Corporation) that the
---------
claimant has not met the standards of conduct which make it permissible under
the Delaware General Corporation Law for the Corporation to indemnify the
claimant for the amount claimed, but the burden of such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel or its stockholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct. The procedure for indemnification of other employees and agents for
whom indemnification is provided pursuant to Part B of this ARTICLE X shall be
---------
the same procedure set forth in this Part C for Directors or
- 8 -
<PAGE>
officers, unless otherwise set forth in the action of the Board of Directors
providing indemnification for such employee or agent.
Part D. Insurance. The Corporation may purchase and maintain
------- ---------
insurance on its own behalf and on behalf of any person who is or was a
Director, officer, employee or agent of the Corporation or was serving at the
request of the Corporation as a Director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss asserted against him or her and incurred by him or
her in any such capacity, whether or not the Corporation would have the power to
indemnify such person against such expenses, liability or loss under the
Delaware General Corporation Law.
Part E. Service for Subsidiaries. Any person serving as a Director,
------- ------------------------
officer, employee or agent of another corporation, partnership, limited
liability company, joint venture or other enterprise, at least 50% of whose
equity interests are owned by the Corporation (a "subsidiary" for this ARTICLE
---------- -------
X) shall be conclusively presumed to be serving in such capacity at the request
- -
of the Corporation.
Part F. Reliance. Persons who after the date of the adoption of
------- --------
this provision become or remain Directors or officers of the Corporation or who,
while a Director or officer of the Corporation, become or remain a Director,
officer, employee or agent of a subsidiary, shall be conclusively presumed to
have relied on the rights to indemnity, advance of expenses and other rights
contained in this ARTICLE X in entering into or continuing such service. The
---------
rights to indemnification and to the advance of expenses conferred in this
ARTICLE X shall apply to claims made against an indemnitee arising out of acts
- ---------
or omissions which occurred or occur both prior and subsequent to the adoption
hereof.
Part G. Non-Exclusivity of Rights. The rights to indemnification and
------- -------------------------
to the advance of expenses conferred in this ARTICLE X shall not be exclusive of
---------
any other right which any person may have or hereafter acquire under this
Restated Certificate or under any statute, by-law, agreement, vote of
stockholders or disinterested Directors or otherwise.
Part H. Merger or Consolidation. For purposes of this ARTICLE X,
------- ----------------------- ---------
references to the "Corporation" shall include, in addition to the resulting
Corporation, any constituent Corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
Directors, officers and employees or agents, so that any person who is or was a
Director, officer, employee or agent of such constituent Corporation, or is or
was serving at the request of such constituent Corporation as a Director,
officer, employee or agent of another Corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under this ARTICLE X
---------
with respect to the resulting or surviving Corporation as he or she would have
with respect to such constituent Corporation if its separate existence had
continued.
- 9 -
<PAGE>
ARTICLE XI - Business Combinations
----------------------------------
The Corporation expressly elects to be governed by Section 203 of the
Delaware General Corporation Law. Notwithstanding the terms of Section 203 of
the Delaware General Corporation Law, Bain Capital, Inc. and its affiliates (the
"Bain Entities") shall not be deemed at any time and without regard to the
percentage of voting stock of the Corporation owned by the Bain Entities to be
an "interested stockholder" as such term is defined in Section 203(c)(5) of the
Delaware General Corporation Law.
* * * * *
- 10 -
<PAGE>
EXHIBIT 3.1(ii)
DRAFT 12/13/96
---------------
AMENDED AND RESTATED BY-LAWS
OF
WESLEY JESSEN VISIONCARE, INC.
A Delaware Corporation
ARTICLE I
---------
OFFICES
-------
Section 1. Registered Office. The registered office of Wesley Jessen
---------- -----------------
VisionCare, Inc. (the "Corporation") in the State of Delaware shall be located
at 32 Loockerman Square, Suite L-100, in the City of Dover, County of Kent
19001. The name of the Corporation's registered agent at such address shall be
The Prentice-Hall Corporation System, Inc. The registered office and/or
registered agent of the Corporation may be changed from time to time by action
of the Board of Directors.
Section 2. Other Offices. The Corporation may also have offices at such
---------- -------------
other places, both within and without the State of Delaware, as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
----------
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. Annual Meeting. An annual meeting of the stockholders shall
---------- --------------
be held each year within 150 days after the close of the immediately preceding
fiscal year of the Corporation or at such other time specified by the Board of
Directors for the purpose of electing Directors and conducting such other proper
business as may come before the annual meeting. At the annual meeting,
stockholders shall elect Directors and transact such other business as properly
may be brought before the annual meeting pursuant to ARTICLE II, Section 11
----------
hereof.
Section 2. Special Meetings. Special meetings of the stockholders may
---------- ----------------
only be called in the manner provided in the Restated Certificate of
Incorporation.
Section 3. Place of Meetings. The Board of Directors may designate any
---------- -----------------
place, either within or without the State of Delaware, as the place of meeting
for any annual meeting or for any special meeting. If no designation is made,
or if a special meeting be otherwise called, the place of meeting shall be the
principal executive office of the Corporation. If for any reason any annual
meeting shall not be held during any year, the business thereof may be
transacted at any special meeting of the stockholders.
<PAGE>
Section 4. Notice. Whenever stockholders are required or permitted to
---------- ------
take action at a meeting, written or printed notice stating the place, date,
time and, in the case of special meetings, the purpose or purposes, of such
meeting, shall be given to each stockholder entitled to vote at such meeting not
less than 10 nor more than 60 days before the date of the meeting. All such
notices shall be delivered, either personally or by mail, by or at the direction
of the Board of Directors, the chairman of the board, the president or the
secretary, and if mailed, such notice shall be deemed to be delivered when
deposited in the United States mail, postage prepaid, addressed to the
stockholder at his, her or its address as the same appears on the records of the
Corporation. Attendance of a person at a meeting shall constitute a waiver of
notice of such meeting, except when the person attends for the express purpose
of objecting at the beginning of the meeting to the transaction of any business
because the meeting is not lawfully called or convened.
Section 5. Stockholders List. The officer having charge of the stock
---------- -----------------
ledger of the Corporation shall make, at least 10 days before every meeting of
the stockholders, a complete list of the stockholders entitled to vote at such
meeting arranged in alphabetical order, showing the address of each stockholder
and the number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least 10 days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting or, if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 6. Quorum. The holders of a majority of the outstanding shares of
---------- ------
capital stock entitled to vote, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders, except as otherwise
provided by the General Corporation Law of the State of Delaware or by the
Restated Certificate of Incorporation. If a quorum is not present, the holders
of a majority of the shares present in person or represented by proxy at the
meeting, and entitled to vote at the meeting, may adjourn the meeting to another
time and/or place. When a specified item of business requires a vote by a class
or series (if the Corporation shall then have outstanding shares of more than
one class or series) voting as a class, the holders of a majority of the shares
of such class or series shall constitute a quorum (as to such class or series)
for the transaction of such item of business.
Section 7. Adjourned Meetings. When a meeting is adjourned to another
---------- ------------------
time and place, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the Corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than 30 days, or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 8. Vote Required. When a quorum is present, the affirmative vote
---------- -------------
of the majority of shares present in person or represented by proxy at the
meeting and entitled to vote on the subject matter shall be the act of the
stockholders, unless (i) by express provisions of an applicable law or
-2-
<PAGE>
of the Restated Certificate of Incorporation a different vote is required, in
which case such express provision shall govern and control the decision of such
question, or (ii) the subject matter is the election of Directors, in which case
Section 2 of ARTICLE III hereof shall govern and control the approval of such
-----------
subject matter.
Section 9. Voting Rights. Except as otherwise provided by the General
---------- -------------
Corporation Law of the State of Delaware, the Restated Certificate of
Incorporation of the Corporation or any amendments thereto or these By-laws,
every stockholder shall at every meeting of the stockholders be entitled to one
vote in person or by proxy for each share of common stock held by such
stockholder.
Section 10. Proxies. Each stockholder entitled to vote at a meeting of
----------- -------
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him or her
by proxy, but no such proxy shall be voted or acted upon after three years from
its date, unless the proxy provides for a longer period. A duly executed proxy
shall be irrevocable if it states that it is irrevocable and if, and only as
long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the Corporation generally. Any proxy is suspended when the person
executing the proxy is present at a meeting of stockholders and elects to vote,
except that when such proxy is coupled with an interest and the fact of the
interest appears on the face of the proxy, the agent named in the proxy shall
have all voting and other rights referred to in the proxy, notwithstanding the
presence of the person executing the proxy. At each meeting of the
stockholders, and before any voting commences, all proxies filed at or before
the meeting shall be submitted to and examined by the secretary or a person
designated by the secretary, and no shares may be represented or voted under a
proxy that has been found to be invalid or irregular.
Section 11. Business Brought Before an Annual Meeting. At an annual
----------- -----------------------------------------
meeting of the stockholders, only such business shall be conducted as shall have
been properly brought before the meeting. To be properly brought before an
annual meeting, business must be (i) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (ii)
brought before the meeting by or at the direction of the Board of Directors or
(iii) otherwise properly brought before the meeting by a stockholder. For
business to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the secretary of
the Corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation, not
less than 60 days nor more than 90 days prior to the meeting; provided, however,
-------- -------
that in the event that less than 70 days' notice or prior public announcement of
the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the 10th day following the date on which such notice of the date of
the annual meeting was mailed or such public announcement was made. A
stockholder's notice to the secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (i) a brief description
of the business desired to be brought before the annual meeting, (ii) the name
and address, as they appear on the Corporation's books, of the stockholder
proposing such business, (iii) the class and number of shares of the Corporation
which are beneficially owned by the stockholder and (iv) any material
-3-
<PAGE>
interest of the stockholder in such business. Notwithstanding anything in these
By-laws to the contrary, no business shall be conducted at an annual meeting
except in accordance with the procedures set forth in this section. The
presiding officer of an annual meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting and in accordance with the provisions of this section; if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted. For purposes of this
section, "public announcement" shall mean disclosure in a press release reported
by Dow Jones News Service, Associated Press or a comparable national news
service. Nothing in this section shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
ARTICLE III
-----------
Directors
---------
Section 1. General Powers. The business and affairs of the Corporation
---------- --------------
shall be managed by or under the direction of the Board of Directors. In
addition to such powers as are herein and in the Restated Certificate of
Incorporation expressly conferred upon it, the Board of Directors shall have
and may exercise all the powers of the Corporation, subject to the provisions of
the laws of Delaware, the Restated Certificate of Incorporation and these By-
laws.
Section 2. Number, Election and Term of Office. Subject to any rights of
---------- -----------------------------------
the holders of any series of Preferred Stock to elect additional Directors under
specified circumstances, the number of Directors which shall constitute the
Board of Directors shall be fixed from time to time by resolution adopted by the
affirmative vote of a majority of the total number of Directors then in office.
The Directors shall be elected by a plurality of the votes of the shares present
in person or represented by proxy at the meeting and entitled to vote in the
election of Directors; provided that, whenever the holders of any class or
series of capital stock of the Corporation are entitled to elect one or more
Directors pursuant to the provisions of the Restated Certificate of
Incorporation of the Corporation (including, but not limited to, for purposes of
these By-laws, pursuant to any duly authorized certificate of designation), such
Directors shall be elected by a plurality of the votes of such class or series
present in person or represented by proxy at the meeting and entitled to vote in
the election of such Directors. The Directors shall be elected and shall hold
office only in the manner provided in the Restated Certificate of Incorporation.
Section 3. Removal and Resignation. No Director may be removed from
---------- -----------------------
office without cause and without the affirmative vote of the holders of a
majority of the voting power of the then outstanding shares of capital stock
entitled to vote generally in the election of Directors voting together as a
single class; provided, however, that if the holders of any class or series of
capital stock are entitled by the provisions of the Restated Certificate of
Incorporation (it being understood that any references to the Restated
Certificate of Incorporation shall include any duly authorized certificate of
designation) to elect one or more Directors, such Director or Directors so
elected may be removed without cause only by the vote of the holders of a
majority of the outstanding shares of
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that class or series entitled to vote. Any Director may resign at any time upon
written notice to the Corporation.
Section 4. Vacancies. Vacancies and newly created directorships resulting
---------- ---------
from any increase in the total number of Directors may be filled only in the
manner provided in the Restated Certificate of Incorporation.
Section 5. Nominations.
---------- -----------
(a) Only persons who are nominated in accordance with the procedures
set forth in these By-laws shall be eligible to serve as Directors. Nominations
of persons for election to the Board of Directors of the Corporation may be made
at a meeting of stockholders (i) by or at the direction of the Board of
Directors or (ii) by any stockholder of the Corporation who was a stockholder of
record at the time of giving of notice provided for in this By-law, who is
entitled to vote generally in the election of Directors at the meeting and who
shall have complied with the notice procedures set forth below in Section 5(b).
(b) In order for a stockholder to nominate a person for election to
the Board of Directors of the Corporation at a meeting of stockholders, such
stockholder shall have delivered timely notice of such stockholder's intent to
make such nomination in writing to the secretary of the Corporation. To be
timely, a stockholder's notice shall be delivered to or mailed and received at
the principal executive offices of the Corporation (i) in the case of an annual
meeting, not less than 60 nor more than 90 days prior to the first anniversary
of the preceding year's annual meeting; provided, however, that in the event
-------- -------
that the date of the annual meeting is changed by more than 30 days from such
anniversary date, notice by the stockholder to be timely must be so received not
later than the close of business on the 10th day following the earlier of the
day on which notice of the date of the meeting was mailed or public disclosure
of the meeting was made, and (ii) in the case of a special meeting at which
Directors are to be elected, not later than the close of business on the 10th
day following the earlier of the day on which notice of the date of the meeting
was mailed or public announcement of the meeting was made. Such stockholder's
notice shall set forth (i) as to each person whom the stockholder proposes to
nominate for election as a Director at such meeting all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of Directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Exchange Act (including such person's written consent
to being named in the proxy statement as a nominee and to serving as a Director
if elected); (ii) as to the stockholder giving the notice (A) the name and
address, as they appear on the Corporation's books, of such stockholder and (B)
the class and number of shares of the Corporation which are beneficially owned
by such stockholder and also which are owned of record by such stockholder; and
(iii) as to the beneficial owner, if any, on whose behalf the nomination is
made, (A) the name and address of such person and (B) the class and number of
shares of the Corporation which are beneficially owned by such person. At the
request of the Board of Directors, any person nominated by the Board of
Directors for election as a Director shall furnish to the secretary of the
Corporation that information required to be set forth in a stockholder's notice
of nomination which pertains to the nominee.
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<PAGE>
(c) No person shall be eligible to serve as a Director of the
Corporation unless nominated in accordance with the procedures set forth in this
section. The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by this section, and if he should so determine, he shall
so declare to the meeting and the defective nomination shall be disregarded. A
stockholder seeking to nominate a person to serve as a Director must also comply
with all applicable requirements of the Exchange Act, and the rules and
regulations thereunder with respect to the matters set forth in this section.
Section 6. Annual Meetings. The annual meeting of the Board of Directors
---------- ---------------
shall be held without other notice than this By-law immediately after, and at
the same place as, the annual meeting of stockholders.
Section 7. Other Meetings and Notice. Regular meetings, other than the
---------- -------------------------
annual meeting, of the Board of Directors may be held without notice at such
time and at such place as shall from time to time be determined by resolution of
the board. Special meetings of the Board of Directors may be called by the
chairman of the board, the president (if the president is a Director) or, upon
the written request of at least a majority of the Directors then in office, the
secretary of the Corporation on at least 24 hours notice to each Director,
either personally, by telephone, by mail or by telecopy.
Section 8. Chairman of the Board, Quorum, Required Vote and Adjournment.
---------- ------------------------------------------------------------
The Board of Directors shall elect, by the affirmative vote of a majority of the
total number of Directors then in office, a chairman of the board, who shall
preside at all meetings of the stockholders and Board of Directors at which he
or she is present and shall have such powers and perform such duties as the
Board of Directors may from time to time prescribe. If the chairman of the
board is not present at a meeting of the stockholders or the Board of Directors,
the president (if the president is a Director and is not also the chairman of
the board) shall preside at such meeting, and, if the president is not present
at such meeting, a majority of the Directors present at such meeting shall elect
one of their members to so preside. A majority of the total number of Directors
then in office shall constitute a quorum for the transaction of business.
Unless by express provision of an applicable law, the Restated Certificate of
Incorporation or these By-laws a different vote is required, the vote of a
majority of Directors present at a meeting at which a quorum is present shall be
the act of the Board of Directors. If a quorum shall not be present at any
meeting of the Board of Directors, the Directors present thereat may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
Section 9. Committees. The Board of Directors may, by resolution passed
---------- ----------
by a majority of the total number of Directors then in office, designate one or
more committees, each committee to consist of one or more of the Directors of
the Corporation, which to the extent provided in such resolution or these By-
laws shall have, and may exercise, the powers of the Board of Directors in the
management and affairs of the Corporation, except as otherwise limited by law.
The Board of Directors may designate one or more Directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. Such committee or committees shall have such name or
names as may be determined from time to time by resolution
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adopted by the Board of Directors. Each committee shall keep regular minutes of
its meetings and report the same to the Board of Directors when required.
Section 10. Committee Rules. Each committee of the Board of Directors may
----------- ---------------
fix its own rules of procedure and shall hold its meetings as provided by such
rules, except as may otherwise be provided by a resolution of the Board of
Directors designating such committee. Unless otherwise provided in such a
resolution, the presence of at least a majority of the members of the committee
shall be necessary to constitute a quorum. Unless otherwise provided in such a
resolution, in the event that a member and that member's alternate, if
alternates are designated by the Board of Directors, of such committee is or are
absent or disqualified, the member or members thereof present at any meeting and
not disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in place of any such absent or disqualified member.
Section 11. Communications Equipment. Members of the Board of Directors
----------- ------------------------
or any committee thereof may participate in and act at any meeting of such board
or committee through the use of a conference telephone or other communications
equipment by means of which all persons participating in the meeting can hear
and speak with each other, and participation in the meeting pursuant to this
section shall constitute presence in person at the meeting.
Section 12. Waiver of Notice and Presumption of Assent. Any member of the
----------- ------------------------------------------
Board of Directors or any committee thereof who is present at a meeting shall be
conclusively presumed to have waived notice of such meeting except when such
member attends for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. Such member shall be conclusively presumed to have assented
to any action taken unless his or her dissent shall be entered in the minutes of
the meeting or unless his or her written dissent to such action shall be filed
with the person acting as the secretary of the meeting before the adjournment
thereof or shall be forwarded by registered mail to the secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to any member who voted in favor of such action.
Section 13. Action by Written Consent. Unless otherwise restricted by the
----------- -------------------------
Restated Certificate of Incorporation, any action required or permitted to be
taken at any meeting of the Board of Directors, or of any committee thereof, may
be taken without a meeting if all members of the board or committee, as the case
may be, consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the board or committee.
ARTICLE IV
----------
OFFICERS
--------
Section 1. Number. The officers of the Corporation shall be elected by
---------- ------
the Board of Directors and shall consist of a chairman of the board, a chief
executive officer, a president, one or more vice-presidents, a secretary, a
chief financial officer and such other officers and assistant
-7-
<PAGE>
officers as may be deemed necessary or desirable by the Board of Directors. Any
number of offices may be held by the same person, except that neither the chief
executive officer nor the president shall also hold the office of secretary. In
its discretion, the Board of Directors may choose not to fill any office for any
period as it may deem advisable, except that the offices of president and
secretary shall be filled as expeditiously as possible.
Section 2. Election and Term of Office. The officers of the Corporation
---------- ---------------------------
shall be elected annually by the Board of Directors at its first meeting held
after each annual meeting of stockholders or as soon thereafter as convenient.
Vacancies may be filled or new offices created and filled at any meeting of the
Board of Directors. Each officer shall hold office until a successor is duly
elected and qualified or until his or her earlier death, resignation or removal
as hereinafter provided.
Section 3. Removal. Any officer or agent elected by the Board of
---------- -------
Directors may be removed by the Board of Directors at its discretion, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed.
Section 4. Vacancies. Any vacancy occurring in any office because of
---------- ---------
death, resignation, removal, disqualification or otherwise may be filled by the
Board of Directors.
Section 5. Compensation. Compensation of all executive officers shall be
---------- ------------
approved by the Board of Directors, and no officer shall be prevented from
receiving such compensation by virtue of his or her also being a Director of the
Corporation.
Section 6. Chairman of the Board. The chairman of the board shall preside
---------- ---------------------
at all meetings of the stockholders and of the Board of Directors and shall have
such other powers and perform such other duties as may be prescribed to him or
her by the Board of Directors or provided in these By-laws.
Section 7. Chief Executive Officer. The chief executive officer shall
---------- -----------------------
have the powers and perform the duties incident to that position. Subject to
the powers of the Board of Directors and the chairman of the board, the chief
executive officer shall be in the general and active charge of the entire
business and affairs of the Corporation, and shall be its chief policy making
officer. The chief executive officer shall have such other powers and perform
such other duties as may be prescribed by the Board of Directors or provided in
these By-laws. The chief executive officer is authorized to execute bonds,
mortgages and other contracts requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the Corporation. Whenever the president is unable to serve, by reason of
sickness, absence or otherwise, the chief executive officer shall perform all
the duties and responsibilities and exercise all the powers of the president.
Section 8. The President. The president of the Corporation shall, subject
---------- -------------
to the powers of the Board of Directors, the chairman of the board and the chief
executive officer, have general charge of the business, affairs and property of
the Corporation, and control over its officers, agents and employees. The
president shall see that all orders and resolutions of the Board of Directors
are
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<PAGE>
carried into effect. The president is authorized to execute bonds, mortgages
and other contracts requiring a seal, under the seal of the Corporation, except
where required or permitted by law to be otherwise signed and executed and
except where the signing and execution thereof shall be expressly delegated by
the Board of Directors to some other officer or agent of the Corporation. The
president shall have such other powers and perform such other duties as may be
prescribed by the chairman of the board, the chief executive officer, the Board
of Directors or as may be provided in these By-laws.
Section 9. Vice-Presidents. The vice-president, or if there shall be more
---------- ---------------
than one, the vice-presidents in the order determined by the Board of Directors
or the chairman of the board, shall, in the absence or disability of the
president, act with all of the powers and be subject to all the restrictions of
the president. The vice-presidents shall also perform such other duties and
have such other powers as the Board of Directors, the chairman of the board, the
chief executive officer, the president or these By-laws may, from time to time,
prescribe. The vice-presidents may also be designated as executive vice-
presidents or senior vice-presidents, as the Board of Directors may from time to
time prescribe.
Section 10. The Secretary and Assistant Secretaries. The secretary shall
----------- ---------------------------------------
attend all meetings of the Board of Directors, all meetings of the committees
thereof and all meetings of the stockholders and record all the proceedings of
the meetings in a book or books to be kept for that purpose or shall ensure that
his or her designee attends each such meeting to act in such capacity. Under the
chairman of the board's supervision, the secretary shall give, or cause to be
given, all notices required to be given by these By-laws or by law; shall have
such powers and perform such duties as the Board of Directors, the chairman of
the board, the chief executive officer, the president or these By-laws may, from
time to time, prescribe; and shall have custody of the corporate seal of the
Corporation. The secretary, or an assistant secretary, shall have authority to
affix the corporate seal to any instrument requiring it and when so affixed, it
may be attested by his or her signature or by the signature of such assistant
secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the Corporation and to attest the affixing by his
or her signature. The assistant secretary, or if there be more than one, any of
the assistant secretaries, shall in the absence or disability of the secretary,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the Board of Directors, the
chairman of the board, the chief executive officer, the president, or secretary
may, from time to time, prescribe.
Section 11. The Chief Financial Officer. The chief financial officer
----------- ---------------------------
shall have the custody of the corporate funds and securities; shall keep full
and accurate all books and accounts of the Corporation as shall be necessary or
desirable in accordance with applicable law or generally accepted accounting
principles; shall deposit all monies and other valuable effects in the name and
to the credit of the Corporation as may be ordered by the chairman of the board
or the Board of Directors; shall cause the funds of the Corporation to be
disbursed when such disbursements have been duly authorized, taking proper
vouchers for such disbursements; and shall render to the Board of Directors, at
its regular meeting or when the Board of Directors so requires, an account of
the Corporation; shall have such powers and perform such duties as the Board of
Directors, the chairman of the board, the chief executive officer, the president
or these By-laws may, from time
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<PAGE>
to time, prescribe. If required by the Board of Directors, the chief financial
officer shall give the Corporation a bond (which shall be rendered every six
years) in such sums and with such surety or sureties as shall be satisfactory to
the Board of Directors for the faithful performance of the duties of the office
of chief financial officer and for the restoration to the Corporation, in case
of death, resignation, retirement or removal from office of all books, papers,
vouchers, money and other property of whatever kind in the possession or under
the control of the chief financial officer belonging to the Corporation.
Section 12. Other Officers, Assistant Officers and Agents. Officers,
----------- ---------------------------------------------
assistant officers and agents, if any, other than those whose duties are
provided for in these By-laws, shall have such authority and perform such duties
as may from time to time be prescribed by resolution of the Board of Directors.
Section 13. Absence or Disability of Officers. In the case of the absence
----------- ---------------------------------
or disability of any officer of the Corporation and of any person hereby
authorized to act in such officer's place during such officer's absence or
disability, the Board of Directors may by resolution delegate the powers and
duties of such officer to any other officer or to any Director, or to any other
person selected by it.
ARTICLE V
---------
CERTIFICATES OF STOCK
---------------------
Section 1. Form. Every holder of stock in the Corporation shall be
---------- ----
entitled to have a certificate, signed by, or in the name of the Corporation by
the chairman of the board, the chief executive officer or the president and the
secretary or an assistant secretary of the Corporation, certifying the number of
shares owned by such holder in the Corporation. If such a certificate is
countersigned (i) by a transfer agent or an assistant transfer agent other than
the Corporation or its employee or (ii) by a registrar, other than the
Corporation or its employee, the signature of any such chairman of the board,
chief executive officer, president, secretary or assistant secretary may be
facsimiles. In case any officer or officers who have signed, or whose facsimile
signature or signatures have been used on, any such certificate or certificates
shall cease to be such officer or officers of the Corporation whether because of
death, resignation or otherwise before such certificate or certificates have
been delivered by the Corporation, such certificate or certificates may neverthe
less be issued and delivered as though the person or persons who signed such
certificate or certificates or whose facsimile signature or signatures have been
used thereon had not ceased to be such officer or officers of the Corporation.
All certificates for shares shall be consecutively numbered or otherwise
identified. The name of the person to whom the shares represented thereby are
issued, with the number of shares and date of issue, shall be entered on the
books of the Corporation. Shares of stock of the Corporation shall only be
transferred on the books of the Corporation by the holder of record thereof or
by such holder's attorney duly authorized in writing, upon surrender to the
Corporation of the certificate or certificates for such shares endorsed by the
appropriate person or persons, with such evidence of the authenticity of such
endorsement, transfer, authorization and other matters as the Corporation may
reasonably require, and accompanied by all
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<PAGE>
necessary stock transfer stamps. In that event, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate or certificates and record the transaction on its books.
The Board of Directors may appoint a bank or trust company organized under the
laws of the United States or any state thereof to act as its transfer agent or
registrar, or both in connection with the transfer of any class or series of
securities of the Corporation.
Section 2. Lost Certificates. The Board of Directors may direct a new
---------- -----------------
certificate or certificates to be issued in place of any certificate or
certificates previously issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Corporation
may, in its discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed certificate or certificates,
or his or her legal representative, to give the Corporation a bond sufficient to
indemnify the Corporation against any claim that may be made against the
Corporation on account of the loss, theft or destruction of any such certificate
or the issuance of such new certificate.
Section 3. Fixing a Record Date for Stockholder Meetings. In order that
---------- ---------------------------------------------
the Corporation may determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which record date shall not be more than 60 nor less than 10 days
before the date of such meeting. If no record date is fixed by the Board of
Directors, the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be the close of business on the next
day preceding the day on which notice is first given. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
Section 4. Fixing a Record Date for Other Purposes. In order that the
---------- ---------------------------------------
Corporation may determine the stockholders entitled to receive payment of any
dividend or other distribution or allotment or any rights or the stockholders
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purposes of any other lawful action, the Board of Directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted, and which record date shall be
not more than 60 days prior to such action. If no record date is fixed, the
record date for determining stockholders for any such purpose shall be at the
close of business on the day on which the Board of Directors adopts the
resolution relating thereto.
Section 5. Registered Stockholders. Prior to the surrender to the
---------- -----------------------
Corporation of the certificate or certificates for a share or shares of stock
with a request to record the transfer of such share or shares, the Corporation
may treat the registered owner as the person entitled to receive dividends, to
vote, to receive notifications and otherwise to exercise all the rights and
powers of an owner. The Corporation shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof.
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<PAGE>
Section 6. Subscriptions for Stock. Unless otherwise provided for in the
---------- -----------------------
subscription agreement, subscriptions for shares shall be paid in full at such
time, or in such installments and at such times, as shall be determined by the
Board of Directors. Any call made by the Board of Directors for payment on
subscriptions shall be uniform as to all shares of the same class or as to all
shares of the same series. In case of default in the payment of any installment
or call when such payment is due, the Corporation may proceed to collect the
amount due in the same manner as any debt due the Corporation.
ARTICLE VI
----------
GENERAL PROVISIONS
------------------
Section 1. Dividends. Dividends upon the capital stock of the
---------- ---------
Corporation, subject to the provisions of the certificate of , if any, may be
declared by the Board of Directors at any regular or special meeting, in
accordance with applicable law. Dividends may be paid in cash, in property or
in shares of the capital stock, subject to the provisions of the Restated
Certificate of Incorporation. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the Directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
any other purpose and the Directors may modify or abolish any such reserve in
the manner in which it was created.
Section 2. Checks, Drafts or Orders. All checks, drafts or other orders
---------- ------------------------
for the payment of money by or to the Corporation and all notes and other
evidences of indebtedness issued in the name of the Corporation shall be signed
by such officer or officers, agent or agents of the Corporation, and in such
manner, as shall be determined by resolution of the Board of Directors or a duly
authorized committee thereof.
Section 3. Contracts. In addition to the powers otherwise granted to
---------- ---------
officers pursuant to ARTICLE IV hereof, the Board of Directors may authorize any
----------
officer or officers, or any agent or agents, of the Corporation to enter into
any contract or to execute and deliver any instrument in the name of and on
behalf of the Corporation, and such authority may be general or confined to
specific instances.
Section 4. Loans. The Corporation may lend money to, or guarantee any
---------- -----
obligation of, or otherwise assist any officer or other employee of the
Corporation or of its subsidiaries, including any officer or employee who is a
Director of the Corporation or its subsidiaries, whenever, in the judgment of
the Directors, such loan, guaranty or assistance may reasonably be expected to
benefit the Corporation. The loan, guaranty or other assistance may be with or
without interest, and may be unsecured, or secured in such manner as the Board
of Directors shall approve, including, without limitation, a pledge of shares of
stock of the Corporation. Nothing in this section shall be deemed to deny,
limit or restrict the powers of guaranty or warranty of the Corporation at
common law or under any statute.
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<PAGE>
Section 5. Fiscal Year. The fiscal year of the Corporation shall be fixed
---------- -----------
by resolution of the Board of Directors.
Section 6. Corporate Seal. The Board of Directors may provide a corporate
---------- --------------
seal which shall be in the form of a circle and shall have inscribed thereon the
name of the Corporation and the words "Corporate Seal, Delaware." The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
Section 7. Voting Securities Owned By Corporation. Voting securities in
---------- --------------------------------------
any other Corporation held by the Corporation shall be voted by the chief
executive officer, the president or a vice-president, unless the Board of
Directors specifically confers authority to vote with respect thereto, which
authority may be general or confined to specific instances, upon some other
person or officer. Any person authorized to vote securities shall have the
power to appoint proxies, with general power of substitution.
Section 8. Inspection of Books and Records. The Board of Directors shall
---------- -------------------------------
have power from time to time to determine to what extent and at what times and
places and under what conditions and regulations the accounts and books of the
Corporation, or any of them, shall be open to the inspection of the
stockholders; and no stockholder shall have any right to inspect any account or
book or document of the Corporation, except as conferred by the laws of the
State of Delaware, unless and until authorized so to do by resolution of the
Board of Directors or of the stockholders of the Corporation.
Section 9. Section Headings. Section headings in these By-laws are for
---------- ----------------
convenience of reference only and shall not be given any substantive effect in
limiting or otherwise construing any provision herein.
Section 10. Inconsistent Provisions. In the event that any provision of
----------- -----------------------
these By-laws is or becomes inconsistent with any provision of the Restated
Certificate of Incorporation, the General Corporation Law of the State of
Delaware or any other applicable law, the provision of these By-laws shall not
be given any effect to the extent of such inconsistency but shall otherwise be
given full force and effect.
ARTICLE VII
-----------
AMENDMENTS
----------
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors of the Corporation is expressly authorized to make,
alter, amend, change, add to or repeal these By-laws by the affirmative vote of
a majority of the total number of Directors then in office. Any alteration or
repeal of these By-laws by the stockholders of the Corporation shall require the
affirma tive vote of a majority of the outstanding shares of the Corporation
entitled to vote on such alteration or repeal; provided, however, that Section
-------- -------
11 of ARTICLE II and Sections 2, 3, 4 and 5 of ARTICLE III and this ARTICLE VII
---------- ----------- -----------
of these By-laws shall not be altered, amended or repealed and
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<PAGE>
no provision inconsistent therewith shall be adopted without the affirmative
vote of the holders of at least 66 2/3% of the outstanding shares of the
Corporation entitled to vote on such alteration or repeal.
-14-
<PAGE>
EXHIBIT 10.1
DRAFT December 19, 1996
-----------------------
WESLEY JESSEN VISIONCARE, INC.
1997 STOCK INCENTIVE PLAN
-------------------------
ARTICLE 1
IDENTIFICATION OF THE PLAN
1.1 Title. The plan described herein shall be known as the Wesley
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Jessen VisionCare, Inc. 1997 Stock Incentive Plan (the "Plan").
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1.2 Purpose. The purpose of this Plan is (i) to compensate certain
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officers and employees of Wesley Jessen VisionCare, Inc. (the "Company") and its
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Subsidiaries for services rendered by such persons after the date of adoption of
this Plan to the Company or any Subsidiary; (ii) to provide certain officers and
employees of the Company and its Subsidiaries with significant additional
incentive to promote the financial success of the Company; and (iii) to provide
an incentive which may be used to induce able persons to enter into or remain in
the employment of the Company or any Subsidiary.
1.3 Effective Date. The Plan shall become effective upon its approval
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by the Board of Directors and the stockholders of the Company (the "Effective
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Date").
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1.4 Defined Terms. Certain capitalized terms used herein have the
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meanings as set forth in Section 10.1 of the Plan.
ARTICLE 2
ADMINISTRATION OF THE PLAN
2.1 Initial Administration. This Plan shall initially be
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administered by the Board of Directors. The Board of Directors shall delegate
the administration of the Plan to a Compensation Committee (the "Committee") in
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the event that such a committee is established by the Board of Directors and is
comprised of persons appointed by the Board of Directors of the Company in
accordance with the provisions of Section 2.3. The Board shall exercise full
power and authority regarding the administration of the Plan until such
administration is delegated to the Committee. Unless the context otherwise
requires, references herein to the Committee shall be deemed to refer to the
Board of Directors until the administration of the Plan has been delegated to
the Committee.
2.2 Committee's Powers. The Committee shall have full power and
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authority to prescribe, amend and rescind rules and
<PAGE>
procedures governing administration of this Plan. The Committee shall have full
power and authority (i) to interpret the terms of this Plan, the terms of the
Awards and the rules and procedures established by the Committee and (ii) to
determine the meaning of or requirements imposed by or rights of any person
under this Plan, any Award or any rule or procedure established by the
Committee. Each action of the Committee which is within the scope of the
authority delegated to the Committee by this Plan or by the Board shall be
binding on all persons.
2.3 Committee Membership. The Committee shall be composed of two or
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more members of the Board, each of whom is an "outside director" as defined in
Section 162(m) of the Code and a "Non-Employee Director," as defined in
Securities and Exchange Commission Rule 16b-3, as amended ("Rule 16b-3"), or any
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successor rules or government pronouncements. The Board shall have the power to
determine the number of members which the Committee shall have and to change the
number of membership positions on the Committee from time to time. The Board
shall appoint all members of the Committee. The Board may from time to time
appoint members to the Committee in substitution for, or in addition to, members
previously appointed and may fill vacancies, however caused, on the Committee.
Any member of the Committee may be removed from the Committee by the Board at
any time with or without cause.
2.4 Committee Procedures. The Committee shall hold its meetings at
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such times and places as it may determine. The Committee may make such rules
and regulations for the conduct of its business as it shall deem advisable.
Unless the Board or the Committee expressly decides to the contrary, a majority
of the members of the Committee shall constitute a quorum and any action taken
by a majority of the Committee members in attendance at a meeting at which a
quorum of Committee members are present shall be deemed an act of the Committee.
2.5 Indemnification. No member of the Committee shall be liable, in
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the absence of bad faith, for any act or omission with respect to his or her
service on the Committee under this Plan. Service on the Committee shall
constitute service as a director of the Company so that the members of the
Committee shall be entitled to indemnification and reimbursement as directors of
the Company for any action or any failure to act in connection with service on
the Committee to the full extent provided for at any time in the Company's
Certificate of Incorporation and By-Laws, or in any insurance policy or other
agreement intended for the benefit of the Company's directors.
ARTICLE 3
PERSONS ELIGIBLE TO RECEIVE AWARDS
A person shall be eligible to be granted an Award only if on the
proposed Granting Date for such Award such person is a full-time, salaried
employee of the Company or any Subsidiary, excluding
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<PAGE>
non-management directors of the Company, or has rendered or is expected to
render advisory or consulting services to the Company or any Subsidiary within a
twelve-month period of the Granting Date. A person eligible to be granted an
Award is herein called a "Grantee."
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ARTICLE 4
GRANT OF AWARDS
4.1 Power to Grant Awards.
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(a) The Committee is authorized under the Plan to enter into any type
of arrangement with any Grantee that is consistent with the provisions of the
Plan and that by its terms involves the issuance or potential issuance of (i)
shares of Common Stock, par value $.01 per share, of the Company ("Common
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Stock") or (ii) a Derivative Security (as such term is defined in Rule 16a-1
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
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Act"), as such Rule may be amended from time to time) with an exercise or
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conversion right at a price related to Common Stock or with a value derived from
the value of the shares of Common Stock. The entering into of any such
arrangement is referred to herein as the grant of an "Award."
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(b) Awards are not restricted to any specified form or structure and
may include, without limitation, sales or bonuses of stock, restricted stock,
restricted stock unit, stock options, reload stock options, stock purchase
warrants, other rights to acquire stock, securities convertible into or
redeemable for stock, stock appreciation rights, limited stock appreciation
rights, phantom stock, dividend equivalents, performance units or performance
shares, and an Award may consist of one or more such security or benefit.
4.2 Granting Date. An Award shall be deemed to have been granted
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under this Plan on the date (the "Granting Date") which the Committee designates
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as the Granting Date at the time it approves such Award, provided that the
Committee may not designate a Granting Date with respect to any Award which is
earlier than the date on which the granting of such Award is approved by the
Committee.
4.3 Award Terms Which The Committee May Determine. The Committee
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shall have the power to determine the Grantee to whom Awards are granted, the
number of Shares subject to each Award, the number of Awards granted to each
Grantee and the time at which each Award is granted. Except as otherwise
expressly provided in this Plan, the Committee shall also have the power to
determine, at the time of the grant of each Award, all terms and conditions
governing the rights and obligations of the holder with respect to such Award.
With respect to any Award granted under this Plan that is an option to purchase
Common Stock of the Company (an "Option"), the Committee shall have the power to
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determine: (a) the purchase
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<PAGE>
price per Share or the method by which the purchase price per Share will be
determined; (b) the length of the period during which the Option may be
exercised and any limitations on the number of Shares purchasable with the
Option at any given time during such period; (c) the times at which the Option
may be exercised; (d) any conditions precedent to be satisfied before the Option
may be exercised, such as vesting period; (e) any restrictions on resale of any
Shares purchased upon exercise of the Option; (f) the extent to which the Option
may be transferable; and (g) whether the Option will constitute an Incentive
Stock Option.
4.4 Award Agreement. No person shall have any rights under any Award
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unless and until the Company and the person to whom such Award is granted have
executed and delivered an agreement expressly granting the Award to such person
and containing provisions setting forth the terms of the Award (an "Award
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Agreement"). Unless otherwise provided by the Committee, the form of Stock
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Option Agreement attached to this Plan as Exhibit A shall be used by the
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Committee in granting nonqualified Options under the Plan.
4.5 Limitation on Shares Issuable to any Grantee. The aggregate
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number of Shares that may relate to Awards granted to a Grantee during any
calendar year (including those already exercised by the Grantee) shall not
exceed 100,000 shares, as adjusted pursuant to Article 8 of this Plan.
ARTICLE 5
AWARD TERMS
5.1 Plan Provisions Control Terms. The terms of this Plan shall
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govern all Awards. In the event any provision of any Award Agreement conflicts
with any term in this Plan as constituted on the Granting Date of such Award,
the term in this Plan as constituted on the Granting Date of the Award shall
control. Except as provided in Article 8, the terms of any Award may not be
changed after the Granting Date of such Award without the express approval of
the Company and the Award Holder.
5.2 Term Limitation. No Incentive Stock Option may be granted under
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this Plan which is exercisable more than ten years after its Granting Date.
This Section 5.2 shall not be deemed to limit the term which the Committee may
specify for any Awards (including Options) granted under the Plan which are not
intended to be Incentive Stock Options.
5.3 Transfer of Awards. An Award granted pursuant to this Plan may
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be transferable as provided in the Award Agreement. It shall be a condition
precedent to any transfer of any Award that the transferee executes and delivers
an agreement acknowledging such Award has been acquired for investment and not
for distribution and is and shall remain subject to this Plan and the
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<PAGE>
Award Agreement. The "Holder" of any Award shall mean (i) the initial grantee of
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such Award or (ii) any permitted transferee.
5.4 $100,000 Per Year Limit on Incentive Stock Options. No Grantee
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may be granted Incentive Stock Options if the value of the Shares subject to
those options which first become exercisable in any given calendar year (and the
value of the Shares subject to any other Incentive Stock Options issued to the
Grantee under the Plan or any other plan of the Company or its Subsidiaries
which first become exercisable in such year) exceeds $100,000. For this
purpose, the value of Shares shall be determined on the Granting Date. Any
Incentive Stock Options issued in excess of the $100,000 limit shall be treated
as Options that are not Incentive Stock Options. Incentive Stock Options shall
be taken into account in the order in which they were granted.
5.5 No Right to Employment Conferred. Nothing in this Plan or (in
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the absence of an express provision to the contrary) in any Award Agreement (i)
confers any right or obligation on any person to continue in the employ of the
Company or any Subsidiary or (ii) affects or shall affect in any way any
person's right or the right of the Company or any Subsidiary to terminate such
person's employment with the Company or any Subsidiary at any time, for any
reason, with or without cause.
ARTICLE 6
REGULATORY COMPLIANCE
6.1 Taxes. The Company or any Subsidiary shall be entitled, if the
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Committee deems it necessary or desirable, to withhold from an Award Holder's
salary or other compensation (or to secure payment from the Award Holder in lieu
of withholding) all or any portion of any withholding or other tax due from the
Company or any Subsidiary with respect to any Shares deliverable under such
Holder's Award or the Committee may (but need not) permit payment of such
withholding by the Company's retention of Shares which would otherwise be
transferred to the Award Holder upon exercise of the Option. In the event any
Common Stock is retained by the Company to satisfy all or any part of the
withholding, the part of the withholding deemed to have been satisfied by such
Common Stock shall be equal to the product derived by multiplying the Per Share
Market Value as of the date of exercise by the number of Shares retained by the
Company. The number of Shares retained by the Company in satisfaction of
withholding shall not be a number which when multiplied by the Per Share Market
Value as of the date of exercise would result in a product greater than the
withholding amount. No fractional Shares shall be retained by the Company in
satisfaction of withholding. Notwithstanding Article 7, unless the Board shall
otherwise determine, for each Share retained by the Company in satisfaction of
all or any part of the withholding amount, the aggregate number of Shares
subject to this Plan shall be increased by one Share. The Company may defer
delivery under a
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<PAGE>
Holder's Award until indemnified to its satisfaction with respect to such
withholding or other taxes.
6.2 Securities Law Compliance. Each Award shall be subject to the
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condition that such Award may not be exercised if and to the extent the
Committee determines that the sale of securities upon exercise of the Award may
violate the Securities Act or any other law or requirement of any governmental
authority. The Company shall not be deemed by any reason of the granting of any
Award to have any obligation to register the Shares subject to such Option under
the Securities Act or to maintain in effect any registration of such Shares
which may be made at any time under the Securities Act. An Award shall not be
exercisable if the Committee or the Board determines there is non-public
information material to the decision of the Holder to exercise such Award which
the Company cannot for any reason communicate to such Holder.
ARTICLE 7
SHARES SUBJECT TO THE PLAN
Except as provided in Section 6.1 and Article 8, an aggregate of
________ Shares of Common Stock shall be subject to this Plan. Except as
provided in Section 6.1 and Article 8, the Awards shall be limited so that the
sum of the following shall not as of any given time exceed 600,000 Shares: (i)
all Shares subject to Awards outstanding under this Plan at the given time and
(ii) all Shares which shall have been issued by the Company by reason of the
exercise at or prior to the given time of any of the Options. The Common Stock
issued under the Plan may be either authorized and unissued shares, shares
reacquired and held in the treasury of the Company, or both, all as from time to
time determined by the Board. In the event any Award shall expire or be
terminated before it is fully exercised, then all Shares formerly subject to
such Award as to which such Award was not exercised shall be available for any
Award subsequently granted in accordance with the provisions of this Plan. No
fractional Shares will be eligible to be issued under the Plan.
In the event of a change in the Shares as presently constituted, which is
limited to a change of all of its authorized shares with par value into the same
number of shares with a different par value or without par value, the shares
resulting from any such change shall be deemed to be the Shares within the
meaning of the Plan.
ARTICLE 8
ADJUSTMENTS TO REFLECT ORGANIC CHANGES
The Board shall appropriately and proportionately adjust the number
and kind of Shares subject to outstanding Awards, the price for which Shares may
be purchased upon the exercise of
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<PAGE>
outstanding Awards, and the number and kind of Shares available for Awards
subsequently granted under this Plan to reflect any stock dividend, stock split,
combination or exchange of shares, merger, consolidation or other change in the
capitalization of the Company which the Board determines to be similar, in its
substantive effect upon this Plan or the Awards, to any of the changes expressly
indicated in this sentence. The Board may (but shall not be required to) make
any appropriate adjustment to the number and kind of Shares subject to
outstanding Awards, the price for which Shares may be purchased upon the
exercise of outstanding Awards, and the number and kind of Shares available for
Awards subsequently granted under this Plan to reflect any spin-off, spin-out or
other distribution of assets to stockholders or any acquisition of the Company's
stock or assets or other change which the Board determines to be similar, in its
substantive effect upon this Plan or the Awards, to any of the changes expressly
indicated in this sentence. The Committee shall have the power to determine the
amount of the adjustment to be made in each case described in the preceding two
sentences, but no adjustment approved by the Committee shall be effective until
and unless it is approved by the Board. In the event of any reorganization,
reclassification, consolidation, merger or sale of all or substantially all of
the Company's assets which is effected in such a way that holders of Common
Stock are entitled to receive (either directly or upon subsequent liquidation)
stock, securities or assets with respect to or in exchange for Common Stock, the
Board may (but shall not be required to) substitute the per share amount of such
stock, securities or assets for Shares upon any subsequent exercise of any
Award.
ARTICLE 9
AMENDMENT AND TERMINATION OF THE PLAN
9.1 Amendment. Except as provided in the following two sentences,
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the Board shall have complete power and authority to amend this Plan at any time
and no approval by the Company's stockholders or by any other person, committee
or other entity of any kind shall be required to make any amendment approved by
the Board effective. So long as the Common Stock is eligible for trading on the
Nasdaq National Market, the Board shall obtain stockholder approval for those
amendments of the Plan required to be so approved pursuant to the By-laws of the
National Association of Securities Dealers. The Board shall not, without the
affirmative approval of the Company's stockholders, amend the Plan in any manner
which would cause any outstanding Incentive Stock Options to no longer qualify
as Incentive Stock Options. No termination or amendment of this Plan may,
without the consent of the Holder of any Award prior to termination or the
adoption of such amendment, materially and adversely affect the rights of such
Holder under such Award.
9.2 Termination. The Board shall have the right and the power to
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terminate this Plan at any time, provided that no
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<PAGE>
Incentive Stock Options may be granted after the tenth anniversary of the
adoption of this Plan. No Award shall be granted under this Plan after the
termination of this Plan, but the termination of this Plan shall not have any
other effect. Any Award outstanding at the time of the termination of this Plan
may be exercised after termination of this Plan at any time prior to the
Expiration Date of such Award to the same extent such Award would have been
exercisable had this Plan not terminated.
ARTICLE 10
DEFINITIONS AND OTHER PROVISIONS OF THE PLAN
10.1 Definitions. Each term defined in this Section 10.1 has the
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meaning indicated in this Section 10.1 whenever such term is used in this Plan:
"Award" has the meaning such term is given in Section 4.1 of this
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Plan.
"Award Agreement" has the meaning such term is given in Section 4.4
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of this Plan.
"Board of Directors" and "Board" both mean the Board of Directors of
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the Company as constituted at the time the term is applied.
"Code" means the Internal Revenue Code of 1986, as amended.
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"Committee" has the meaning such term is given in Section 2.1 of
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this Plan.
"Common Stock" means the issued or issuable Common Stock, par value
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$.01 per share, of the Company.
"Company" as applied as of any given time shall mean Wesley Jessen
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VisionCare, Inc., a Delaware corporation, except that if prior to the given time
any corporation or other entity has acquired all or a substantial part of the
assets of the Company (as herein defined) and has agreed to assume the
obligations of the Company under this Plan, or is the survivor in a merger or
consolidation to which the Company was a party, such corporation or other entity
shall be deemed to be the Company at the given time.
"Expiration Date" as applied to any Award means the date specified in
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the Award Agreement between the Company and the Holder as the expiration date of
such Award. If no expiration date is specified in the Award Agreement relating
to any Award, then the Expiration Date of such Award shall be the day prior to
the tenth anniversary of the Granting Date of such Award. Notwithstanding the
preceding sentences, if the person to whom any Incentive Stock Option is granted
owns, on the Granting Date of such Option, stock possessing more than ten
percent of the total combined voting power
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<PAGE>
of all classes of stock of the Company (or of any parent or Subsidiary of the
Company in existence on the Granting Date of such Option), and if no expiration
date is specified in the Award Agreement relating to such Option, then the
Expiration Date of such Option shall be the day prior to the fifth anniversary
of the Granting Date of such Option.
"Grantee" has the meaning such term is given in Article 3 of this
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Plan.
"Granting Date" has the meaning such term is given in Section 4.2 of
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this Plan.
"Holder" has the meaning such term is given in Section 5.3 of this
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Plan.
"Incentive Stock Option" means an incentive stock option, as defined
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in Code Section 422, which is granted pursuant to this Plan.
"Option" has the meaning such term is given in Section 4.3 of this
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Plan.
"Plan" has the meaning such term is given in Section 1.1 of this Plan.
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"Securities Act" at any given time shall consist of: (i) the
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Securities Act of 1933 as constituted at the given time; (ii) any other law or
laws promulgated prior to the given time by the United States Government which
are in effect at the given time and which regulate or govern any matters at any
time regulated or governed by the Securities Act of 1933; (iii) all regulations,
rules, registration forms and other governmental pronouncements issued under the
laws specified in clauses (i) and (ii) of this sentence which are in effect at
the given time; and (iv) all inter pretations by any governmental agency or
authority of the things specified in clause (i), (ii) or (iii) of this sentence
which are in effect at the given time. Whenever any provision of this Plan
requires that any action be taken in compliance with any provision of the
Securities Act, such provision shall be deemed to require compliance with the
Securities Act as constituted at the time such action takes place.
"Share" means a share of Common Stock.
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"Subsidiary" means any corporation in which the Company owns, directly
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or indirectly, 50% or more of the total combined voting power of all classes of
securities of such corporation.
10.2 Headings. Section headings used in this Plan are for
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convenience only, do not constitute a part of this Plan and shall not be deemed
to limit, characterize or affect in any way any provisions of this Plan. All
provisions in this Plan shall be construed as if no headings had been used in
this Plan.
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<PAGE>
10.3 Severability.
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(a) General. Whenever possible, each provision in this Plan and in
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every Award at any time granted under this Plan shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Plan or any Award at any time granted under this Plan is held to be
prohibited by or invalid under applicable law, then (i) such provision shall be
deemed amended to accomplish the objectives of the provision as originally
written to the fullest extent permitted by law and (ii) all other provisions of
this Plan and every Award at any time granted under this Plan shall remain in
full force and effect.
(b) Incentive Stock Options. Whenever possible, each provision in
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this Plan and in every Award at any time granted under this Plan which is
evidenced by an Award Agreement which expressly states such Option is intended
to constitute an Incentive Stock Option under Code Section 422 (an "intended
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ISO") shall be interpreted in such manner as to entitle such intended ISO to the
tax treatment afforded by the Code to Options which do constitute Incentive
Stock Options under Code Section 422, but if any provision of this Plan or any
intended ISO at any time granted under this Plan is held to be contrary to the
requirements necessary to entitle such intended ISO to the tax treatment
afforded by the Code to Options which do constitute Incentive Stock Options
under Code Section 422, then (i) such provision shall be deemed to have
contained from the outset such language as shall be necessary to entitle such
intended ISO to the tax treatment afforded by the Code to Options which do
constitute Incentive Stock Options under Code Section 422, and (ii) all other
provisions of this Plan and such intended ISO shall remain in full force and
effect. If any Award Agreement covering an intended ISO granted under this Plan
does not explicitly include any terms required to entitle such intended ISO to
the tax treatment afforded by the Code to Options which do constitute Incentive
Stock Options under Code Section 422, then all such terms shall be deemed
implicit in the intention to afford such treatment to such Option and such
Option shall be deemed to have been granted subject to all such terms.
10.4 No Strict Construction. No rule of strict construction shall be
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applied against the Company, the Committee or any other person in the
interpretation of any of the terms of this Plan, any Award or any rule or
procedure established by the Committee.
10.5 Choice of Law. This Plan and all documents contemplated hereby,
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and all remedies in connection therewith and all questions or transactions
relating thereto, shall be construed in accordance with and governed by the
internal laws of the State of Delaware.
10.6 Tax Consequences. Tax consequences from the purchase and sale
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of Shares may differ among grantees under the Plan. Each grantee of an Award
should discuss specific tax
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<PAGE>
questions regarding participation in the Plan with his or her own tax advisor.
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<PAGE>
EXHIBIT 10.2
DRAFT 12/18/96
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WESLEY JESSEN VISIONCARE, INC.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
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1. Name and Purpose. This plan shall be called the Wesley Jessen VisionCare,
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Inc. Non-Employee Director Stock Option Plan (the "Plan"). The Plan is intended
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to encourage stock ownership by Non-Employee Directors (as defined below) of
Wesley Jessen VisionCare, Inc., a Delaware corporation (the "Company"), to
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provide such directors with an additional incentive to manage the Company
effectively and to contribute to its success, and to provide a form of
compensation which will attract and retain highly qualified individuals as
members of the Board of Directors of the Company.
2. Effective Date and Term of the Plan. The Plan shall become effective on
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the date of the consummation of the initial public offering of the Company's
Common Stock, par value $.01 per share (the "Effective Date"). Options may not
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be granted under the Plan after the tenth (lOth) anniversary of the Effective
Date (the "Term"); provided, however, that all options outstanding as of that
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date shall remain or become exercisable pursuant to their terms and the terms of
the Plan.
3. Administration. The Plan shall initially be administered by the Board of
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Directors of the Company (the "Board"). The Board shall delegate the
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administration of the Plan to a committee of Board (the "Committee") in the
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event such a committee is established by the Board for such purpose and that
committee is composed solely of two or more "Non-Employee Directors" (as such
term is defined under Rule 16b-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")). Each member of the Committee shall be eligible to
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participate in the Plan. References herein to the Committee shall be deemed to
refer to the Board in the event that the administration of the Plan has not been
delegated to the Committee.
The Committee may, from time to time, establish such regulations, provisions
and procedures, within the terms of the Plan, as in the opinion of its members
may be advisable in the administration of the Plan. A majority of the Committee
shall constitute a quorum, and the acts of a majority of a quorum at any
meeting, or acts reduced to or approved in writing by a majority of the members
of the Committee, shall be the valid acts of the Committee.
<PAGE>
The interpretation and construction by the Committee of any provisions of
the Plan or of any option granted pursuant to the Plan shall be final and
binding upon the Company and any optionee. No member of the Board of Directors
of the Company or the Committee shall be liable for any action or determination
made in good faith with respect to the Plan or any option granted pursuant
thereto.
4. Stock Available for Options. Subject to the adjustments as provided in
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Subsection 7(f), the aggregate number of shares of Common Stock, par value $.01
per share, of the Company (the "Common Stock") reserved for purposes of the Plan
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shall be _______________________________ shares of authorized and unissued
shares or issued shares reacquired by the Company (the "Shares"). Determinations
as to the number of Shares that remain available for issuance under the Plan
shall be made in accordance with such rules and procedures as the Committee
shall determine from time to time. If any outstanding option under the Plan
expires or is terminated for any reason before the end of the Term of the Plan,
the shares allocable to the unexercised portion of such option shall become
available for the grant of other options under the Plan. No shares delivered to
the Company in full or partial payment upon exercise of an option pursuant to
Subsection 7(c) or in full or partial payment of any withholding tax liability
permitted under Section 10 shall become available for the grant of other options
under the Plan.
5. Participation. Subject to the limitations contained in this Section 5,
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any director of the Company who is not a contractual nor common law employee of
the Company or any of its subsidiaries (a "Non-Employee Director") will be
---------------------
eligible to be granted options to purchase shares of the issued or issuable
Common Stock in accordance and consistent with the terms and conditions of the
Plan. An optionee may hold more than one option, but only on the terms and
subject to the restrictions hereafter set forth. Except as provided herein,
terms and conditions of options granted to a director at any given time need not
be the same for any other grant of options.
6. Option Grants.
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(a) Discretionary Grants. In addition to the automatic option grants
--------------------
provided for in Subsections (b) and (c) hereof, the Committee shall be
authorized to determine from time to time the directors (among the Non-
Employee Directors) to be granted options, the number of shares of Common
Stock subject to such options, and the terms and conditions of the options
to be granted. All options granted under this Subsection (a) must be
approved by either the Board or the Committee prior to such grant.
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<PAGE>
(b) Initial Grants. Each Non-Employee Director who was in office prior to
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the Effective Date and remains in office after the Effective Date, shall
automatically be granted options to purchase _______ shares of Common Stock.
Any individual elected to the Board as a Non-Employee Director after the
Effective Date shall automatically be granted options to purchase ______
shares of Common Stock (as adjusted pursuant to Section 8 hereof) upon
initial election to such position.
(c) Annual Grants. Each Non-Employee Director shall automatically be
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entitled to be granted options to purchase ______ shares of Common Stock (as
adjusted pursuant to Section 8 hereof) on each anniversary of such Non-
Employee's election to the Board of Directors. Such options will be granted
to each Non-Employee Director on the date of the Company's Annual Meeting of
Stockholders (or such other date as determined by the Board in the event
that an Annual Meeting of Stockholders is not held by the Company).
(d) Non-Statutory Stock Options. All options granted under the Plan shall
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be non-statutory options not intended to qualify under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). Each option granted
----
under the Plan shall provide that such option will not be treated as an
"incentive stock option," as that term is defined in Section 422(b) of the
Code.
7. Terms and Conditions of Options of the Plan. Options granted under this
-------------------------------------------
Plan shall be evidenced by agreements in such form as the Committee shall from
time to time approve, which agreements shall comply with and be subject to the
following conditions:
(a) Term of Options. The term of each option shall be for a period of not
---------------
greater than ten (10) years from the date of grant of the option.
(b) Option Price. The exercise price of each option shall be equal to one
------------
hundred percent (100%) of the Fair Market Value of the shares of Common
Stock on the date of the grant of the option. If the shares are traded in
the over the-counter market, the Fair Market Value per share shall be the
closing price on the national market list as quoted in the National
Association of Securities Dealers Automated Quotation System ("Nasdaq") on
the day the option is granted or if no sale of shares is reflected in Nasdaq
on that day, on the next preceding day on which there was a sale of shares
reflected in Nasdaq. If the shares are not traded in the over-the-counter
- 3 -
<PAGE>
market but are listed upon an established stock exchange or exchanges, such
Fair Market Value shall be deemed to be the closing price of the shares on
such stock exchange or exchanges on the day the option is granted or if no
sale of the shares shall have been made on any stock exchange on that day,
on the next preceding day on which there was a sale of the shares.
(c) Medium of Payment. The option price shall be payable to the Company
-----------------
either (i) in United States dollars in cash or by check, bank draft, or
money order payable to the order of the Company or (ii) if permitted by the
Board, through the delivery of shares of the Common Stock with a Fair Market
Value on the date of the exercise equal to the option price, provided such
shares are utilized as payment to acquire at least 100 shares of Common
Stock, or (iii) by a combination of (i) and (ii) above. Fair Market Value
will be determined in the manner specified in Subsection 7(b) except as to
the date of determination.
(d) Exercise of Options. Except as provided herein, the Committee shall
-------------------
have the authority to determine, at the time of grant of each option
pursuant to Subsection 6(a), the times at which an option may be exercised
and any conditions precedent to the exercise of an option. Except as
provided herein, options granted pursuant to Subsection 6(b) shall be
immediately exercisable on the date of grant and options granted pursuant to
Subsection 6(c) shall become exercisable in three equal installments
beginning on the first anniversary of the date of grant and continuing on
each anniversary thereafter until all such options are exercisable. An
option shall be exercisable upon written notice to the Chief Financial
Officer of the Company, as to any or all shares covered by the option, until
its termination or expiration in accordance with its terms or the provisions
of the Plan. Notwithstanding the foregoing, an option shall not at any time
be exercisable with respect to less than 100 shares unless the remaining
shares covered by an option are less than 100 shares. The purchase price of
the shares purchased pursuant to an option shall be paid in full upon
delivery to the optionee of certificates for such shares. Exercise by an
optionee's heir, personal representative or permitted transferee shall be
accompanied by evidence of his or her authority to act, in a form reasonably
satisfactory to the Company.
- 4 -
<PAGE>
(e) Termination of Service as Director.
----------------------------------
(i) Termination of Service for any Reason Other than Death. In
------------------------------------------------------
the event an optionee shall cease to serve the Company as a director for
any reason other than such optionee's death or Permanent Disability, each
option held by such optionee shall, to the extent rights to purchase
shares under the option have been accrued at the time such optionee ceases
to serve as a director, remain exercisable, in whole or in part, by the
optionee, subject to prior expiration according to its terms and other
limitations imposed by the Plan, for a period of one (1) year following
the optionee's cessation of service as a director of the Company. If the
optionee dies after such cessation of service, the optionee's options
shall be exercisable in accordance with Subsection 6(e)(ii) hereof.
(ii) Termination of Service for Death or Permanent Disability.
--------------------------------------------------------
If an optionee ceases to be a director by reason of death or Permanent
Disability, each option held by such optionee shall immediately become
exercisable and shall remain exercisable, in whole or in part, by (in the
case of Permanent Disability) the optionee or (in the case of death) the
personal representative of the optionee's estate or by any person or
persons who have acquired the option directly from the optionee during the
shorter of the following periods: (i) the term of the option, or (ii) a
period of two (2) years from the death or Permanent Disability of such
optionee. If an optionee dies or a Permanent Disability occurs during the
extended exercise period following cessation of service specified in
Subsection 6(e)(i) above, such option may be exercised any time within the
longer of such extended period or one (1) year after death or Permanent
Disability, subject to the prior expiration of the term of the option. For
purposes of this Subsection 6(e)(ii), "Permanent Disability" shall mean a
--------------------
determination by the Social Security Administration or any similar
successor agency that an optionee is "permanently disabled," and the date
on which a Permanent Disability is deemed to have occurred shall be the
date on which such determination by such agency shall have been made.
(f) Adjustment in Shares Covered by Option. The number of shares covered
--------------------------------------
by each outstanding option, and the purchase price per share thereof, shall
be proportionately adjusted for any increase or decrease in the number of
issued and outstanding shares resulting from a split in or combination of
- 5 -
<PAGE>
shares or the payment of a stock dividend on the shares or any other
increase or decrease in the number of such shares effected without receipt
of consideration by the Company.
If the Company shall be the surviving corporation in any merger or
consolidation or if the Company is merged into a wholly-owned subsidiary
solely for purposes of changing the Company's state of incorporation, each
outstanding option shall pertain to and apply to the securities to which a
holder of the number of shares subject to the option would have been
entitled to receive in such transaction.
In the event of a Change in Control, only if provided in the option
agreement, any option awarded under this Plan to the extent not previously
exercisable shall immediately become fully exercisable. The Committee in its
sole discretion may direct the Company to cash out all outstanding options
on the basis of the Change in Control Price as of the date a Change in
Control occurs or such other date as the Committee may determine prior to
the Change in Control. For purposes of this Plan, a "Change in Control"
-----------------
means the occurrence of any of the following: (i) when any "person" as
defined in Section 3(a)(9) of the Exchange Act and as used in Sections 13(d)
and 14(d) thereof, including a "group" as defined in Section 13(d) of the
Exchange Act but excluding the Company and any subsidiary, any of the
Company's existing stockholders prior to the Effective Date and any employee
benefit plan sponsored or maintained by the Company or any subsidiary
(including any trustee of such plan acting as trustee), directly or
indirectly, becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act, as amended from time to time), after the Effective Date,
of securities of the Company representing 20 percent or more of the combined
voting power of the Company's then outstanding securities; (ii) when, during
any period of 24 consecutive months during the existence of the Plan, the
individuals who, at the beginning of such period, constitute the Board of
Directors of the Company (the "Incumbent Directors") cease for any reason
-------------------
other than death to constitute at least a majority thereof; provided,
--------
however, that a director who was not a director at the beginning of such 24-
-------
month period shall be deemed to have satisfied such 24-month requirement
(and be an Incumbent Director) if such director was elected by, or on the
recommendation of or with the approval of, at least two-thirds of the
directors who then qualified as Incumbent Directors either actually (because
they were directors at the beginning of such 24 month period) or by prior
operation of this provision; or (iii) the approval by the stockholders of
the Company of a transaction involving the acquisition of the
- 6 -
<PAGE>
Company by an entity other than the Company or a subsidiary through purchase
of assets, by merger, or otherwise. For purposes of this Plan, "Change in
Control Price" means the highest price per share of Common Stock paid in any
transaction reported on the Nasdaq National Market or paid or offered in any
bona fide transaction related to a Change in Control at any time during the
60-day period immediately preceding the occurrence of the Change in Control,
in each case as determined by the Committee.
In the event of a change in the shares as presently constituted, which
is limited to a change of all of its authorized shares with par value into
the same number of shares with a different par value or without par value,
the shares resulting from any such change shall be deemed to be the shares
within the meaning of the Plan.
To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Any such adjustment may provide for the elimination of any fractional share
which might otherwise become subject to an option.
Except as expressly provided in this Subsection 7(f), the optionee shall
have no rights by reason of any split or combination of shares of stock of
any class or the payment of any stock dividend or any other increase or
decrease in the number of shares of stock of any class or by reason of any
dissolution, liquidation, merger, or consolidation or spinoff of assets or
stock of another corporation, and any issue by the Company of shares of
stock of any class, or securities convertible into shares of stock of any
class, shall not affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of stock subject to the
option.
The grant of an option pursuant to the Plan shall not affect in any way
the right or power of the Company to make adjustments, reclassifications,
reorganizations, or changes of its capital or business structure, or to
merge or to consolidate or to dissolve, liquidate or sell, or transfer all
or any part of its business or assets.
(g) Rights of a Stockholder. An optionee shall have no rights as a
-----------------------
stockholder with respect to any shares covered by his or her option until
the date on which the optionee becomes the holder of record of such shares.
No adjustment shall be made for dividends, distributions, or other rights
for which
- 7 -
<PAGE>
the record date is prior to the date on which he or she shall have become
the holder of record thereof, except as provided in Subsection 7(f).
(h) Postponement of Delivery of Shares and Representations. The Company,
------------------------------------------------------
in its discretion, may postpone the issuance and/or delivery of shares upon
any exercise of an option until completion of the registration or other
qualification of such shares under any state and/or federal law, rule or
regulation as the Company may consider appropriate, and may require any
person exercising an option to make such representations, including a
representation that it is the optionee's intention to acquire shares for
investment and not with a view to distribution thereof, and furnish such
information as it may consider appropriate in connection with the issuance
or delivery of the shares in compliance with applicable laws, rules, and
regulations. In such event no shares shall be issued to such holder unless
and until the Company is satisfied with the accuracy of any such
representations.
(i) Transferability. If provided in the option agreement, the options
---------------
granted pursuant to the Plan may be transferable by a Non-Employee Director.
The Committee shall have the sole discretion to determine to what extent, if
any, the options granted pursuant to the Plan are transferable by a Non-
Employee Director.
(j) Other Provisions. The option agreements authorized under the Plan
----------------
shall contain such other provisions, including, without limitation,
restrictions upon the exercise of the option, as the Committee shall deem
advisable.
8. Adjustments in Shares Available for Options. The adjustments in number
-------------------------------------------
and kind of shares and the substitution of shares, affecting outstanding options
in accordance with Subsection 7(f) hereof, shall also apply to the number and
kind of shares issuable upon the exercise of options to be granted pursuant to
Section 6 and the number and kind of shares reserved for issuance pursuant to
the Plan, but not yet covered by options.
9. Amendment of the Plan. The Board, insofar as permitted by law, shall have
---------------------
the right from time to time, with respect to any shares at the time not subject
to options, to suspend or discontinue the Plan or revise or amend it in any
respect whatsoever. So long as the Common Stock is eligible for trading on the
Nasdaq National Market, the Board shall obtain stockholder approval for those
revisions or amendments of the Plan required to be so approved pursuant to the
By-laws of the National Association
- 8 -
<PAGE>
of Securities Dealers. If the Plan is amended so that the exemption provided by
Rule 16b-3 as a result of the Plan being approved by the stockholders of the
Company is no longer available for options granted under Subsections 6(b) or
6(c) hereof, all options subsequently granted thereunder must be approved by
either the Board or the Committee prior to such grant.
10. Withholding of Taxes. The Company shall have the right to deduct from
--------------------
any payment to be made pursuant to this Plan, or to otherwise require, prior to
the issuance or delivery of any shares of Common Stock, payment by the optionee
of any federal, state, or local taxes required by law to be withheld. Unless
otherwise prohibited by the Committee, an optionee may satisfy any such
withholding tax obligation by any of the following means or by a combination of
such means:
(a) tendering a cash payment;
(b) authorizing the Company to withhold from the shares otherwise
issuable to the optionee a number of shares having a Fair Market Value as of
the "Tax Date," less than or equal to the amount of withholding tax
obligation; or
(c) delivering to the Company unencumbered shares owned by the optionee
having a Fair Market Value, as of the Tax Date, less than or equal to the
amount of the withholding tax obligation.
The "Tax Date" shall be the date that the amount of tax to be withheld is
--------
determined. Fair Market Value shall be determined in the manner specified in
Subsection 7(b), except as to the date of determination. An optionee's election
to pay the withholding tax obligation by either of (b) or (c) above shall be
irrevocable, may be disapproved by the Committee, and must be made either six
(6) months prior to the Tax Date or during the period beginning on the third
business day following the date of release of the Company's quarterly or annual
summary statement of sales and earnings and ending on the twelfth business day
following such date.
11. Right of Board of Directors or Stockholders to Terminate Director's
-------------------------------------------------------------------
Service. Nothing in this Plan or in the grant of any option hereunder shall in
- -------
any way limit or affect the right of the Board of Directors or the stockholders
of the Company to remove any director or otherwise terminate his or her service
as a director, pursuant to the law, the Restated Certificate of Incorporation,
or Amended and Restated By-laws of the Company.
- 9 -
<PAGE>
12. Application of Funds. The proceeds received by the Company from the sale
--------------------
of stock pursuant to options will be used for general corporate purposes.
13. No Obligation to Exercise Option. The granting of an option shall impose
--------------------------------
no obligation on the optionee to exercise such option.
14. Construction. This Plan shall be construed under the laws of the State
------------
of Delaware.
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<PAGE>
EXHIBIT 10.5
AGREEMENT
---------
THIS AGREEMENT effective as of the 21st day of December, 1992, by and
between TECH MEDICAL INC., a company with its principal offices at A 640 South
Rockford Drive, Tempe, Arizona 85281-3022 (hereafter called "T-M"), and WESLEY-
JESSEN CORPORATION, a Delaware corporation with its principal offices at 400 W.
Superior St., Chicago, Illinois 60610 (hereafter called "W-J").
PURPOSE
-------
W-J is engaged in the development and manufacture of contact lenses
and desires to engage the facilities and services of T-M for the manufacture,
testing and packaging of certain injection molded plastic Casting Cups (the
"Casting Cups") to be used by W-J in its manufacturing process to produce
contact lens products ("Contact Lens Products"), and T-M agrees to provide all
materials, services, equipment, facilities, labor, supervision and quality
assurance to manufacture such Casting Cups in accordance with the terms and
conditions set forth as follows:
1 TERM AND RENEWAL
1.1 The initial term of this Agreement shall be for seven (7) years from the
effective date herein (the "Initial Term"). Thereafter the Agreement may be
renewed as mutually agreed by the parties, such renewal discussions shall be
concluded by the last month of the fifth (5th) year of the Initial Term of this
Agreement.
2 PRODUCTS
2.1 During the Initial Term and all subsequent terms, T-M shall manufacture
the Casting Cups exclusively for W-J and not to/for any other party, and W-J
shall purchase Casting Cups exclusively from T-M, subject to the conditions set
forth in the Articles 2.4, 2.6 and 2.7.
2.2 Upon execution of this Agreement, T-M agrees at its sole cost and
expense, to purchase the injection molding machines and standard auxiliary
equipment required to test, manufacture and package the Casting Cups as such
requirements are set forth in Exhibit A entitled "Capital/Facility Obligations."
At the end of the sixth (6th) month of each calendar year and for the duration
of the Initial Term of this Agreement W-J will provide T-M with a three (3) year
Purchase Plan of Casting Cups, in the format set forth in "Exhibit C," with tho
first (lst) year firm
<PAGE>
commitments and the second (2nd) and third (3rd) year tentative to be utilized
by T-M to plan and develop the Capital and Facility Obligations necessary to
support W-J long term Casting Cups needs. The T-M and W-J Capital and Facility
Obligations as set forth in Exhibit A (including but not limited to injection
molding machines, auxiliary equipment, building leases, tenant improvements and
labor needs) will be mutually agreed to by W-J and T-M by the end of the eighth
(8th) month of each calendar year of this Initial Term. T-M will not invest in
any capital or facility obligation without the prior written approval of W-J
during the first five (5) years of the Initial Term.
2.3 On the first (1st) day of each calendar month, W-j shall provide T-M
with a twelve (12; month rolling Purchase Plan of its Casting Cups requirements.
This plan may be updated; provided, however, that Purchase Plan changes shall
not be made less than fifteen (15) days prior to scheduled Production unless
mutually agreed upon by W-J and T-M. In addition, by the end of the sixth (6th)
month of each calendar year for the duration of this Initial Term, W-J will
provide T-M with a mutually agreed upon Purchase Plan as set forth in Exhibit C
for all Casting Cups requirements of the following calendar year, to be used as
the basis for establishing T-M's Casting Cups price structure. The price
structure shall be agreed to by T-M and W-J by the end of the eighth (8th) month
of each calendar year of this Initial Term. T-M must notify W-J of all
improvements developed with respect to the manufacture of casting cups to ensure
that pricing levels for the Casting Cups remain commercially competitive.
Consistent with Article 2.2, W-J shall thereafter determine if such process
improvements are to be employed by T-M in the manufacture of the Casting Cups.
2.4 W-J agrees that it will purchase. on a quarterly basis, a minimum of
eighty percent (80%) of the mutually agreed Purchase Plan. This percentage will
be subject to annual revision and agreement by T-M and W-J. In the event W-J
fails to purchase sufficient amounts of Casting Cups to satisfy this
requirement, T-M shall use reasonable efforts to reallocate its resulting idle
capacity to other parties until such time as W-J can again meet the minimum
quantity of the Purchase Plan. In the event that T-M fails after reasonable
efforts to reallocate the idle capacity, W-J agrees to compensate T-M for the
actual, documented difference between the actual quantity purchased and the
minimum quantity. The unit price for such compensation will be determined as
the per unit price less material cost.
2.5 No charges will be imposed by T-M upon W-J if W-J requests T-M to stop a
scheduled production run provided such request is made for good cause through no
fault of W-J (good
- 2 -
<PAGE>
cause includes T-M's failure to comply, or its inability to assure compliance
with any FDA regulation, including CGMPS).
2.6 W-J is not precluded during the Initial Term or any subsequent term of
this Agreement from developing alternate sources of supply of the Casting Cups.
In the event that T-M is unable to supply the Casting Cups in amounts which W-J
deems necessary and for which W-J has provided a Purchase Plan pursuant to
Article 2.4, Tech CBI, Cidra, Puerto Rico, will have the first opportunity to
supply the shortfall requirements.
[2.7] In the event T-M notifies W-J that it is unable to furnish,
because of scarcity, the materials or supplies necessary to furnish the Casting
Cups, including, but not limited to the required resin, then W-J may furnish the
same to T-M. A credit shall be issued to W-J in the amount of its actual cost,
including, but not limited to, packaging, shipping and other incidental expenses
to W-,l incurred in the furnishing of any materials or supplies pursuant to this
Article 2.7.
3 PRICE/PAYMENT
3.1 W-J will pay the unit price for each Casting Cup meeting product
specifications as set forth in the T-M Price Schedule, attached hereto and made
a part hereof ("Exhibit D"). Terms of payment are 1% Discount Net 10 days, but,
in the event that W-J fails to make payment within such ten (10) lay period the
terms shall be Net 30 days from date of invoice and payment will be made
promptly, through the use of wire transfer or Electronic Data Interchange of
funds. A packing list shall accompany the Casting Cups with each shipment and
the invoice shall be mailed to W-J Accounts Payable, Attn: Accounts Payable
Supervisor.
3.2 The prices listed in Exhibit D incorporate all costs with respect to
manufacturing, packaging, as well is such quality control measures as are
satisfactory to W-J and mutually agreed with T-M (collectively "Costs"). These
costs include but are not limited to all process improvements made by T-M or W-J
to the Casting Cups manufacturing, packaging and/or quality control testing
processes.
3.3 The Costs set forth in Exhibit D shall not change for a period of
twelve (12) months following the effective date hereto. The price structure
shall be agreed to by T-M and W-J by the end of the eighth (8th) month of each
calendar year of this Initial Term ("Target Dates"). In the event that a price
agreement cannot be reached within the established time limits, the current
price will remain in effect until an agreement is
- 3 -
<PAGE>
reached by both parties. The new price will be retroactive to the applicable
Target Date and will include interest on the differential at prime rate plus
3.5%.
3.4 T-M shall provide to W-J on an annual basis fully audited financial
statements for T-M as well as the parent, its affiliates and/or subsidiaries
during the Initial Term and any subsequent renewals of this Agreement. Subject
to Article 13.4, W-J shall retain the foregoing information in confidence.
4 DELIVERY
--------
4.1 Delivery shall be F.O.B. shipping point. W-J shall arrange insured
common carrier transportation of the Casting Cups to W-J's specified plant or
other designated destination, with a carrier acceptable to W-J. Title to and
risk of loss of the Casting Cups shall pass to W-J at the time of delivery to
the carrier. T-M shall promptly invoice W-J for all Casting Cups tendered and
packing lists shall be accompanied by the commercial bills of lading.
4.2 T-M shall schedule the timely shipment of the Casting Cups pursuant to W-
J's requirements as established by W-J's written purchase order releases.
4.3 T-M will ensure that quantities shipped are in accordance with those
requests on W-J's specific purchase orders. T-M will endeavor to ship all orders
complete. Purchase orders will be considered complete upon receipt of quantity
ordered plus or minus five (5%) percent.
5 QUALITY CONTROL
---------------
5.1 T-M is to manufacture the Casting Cups in accordance with the
specifications set forth in Exhibit B. Any changes to specifications will
require the mutual written agreement of W-J and T-M.
5.2 T-M shall maintain a quality control and manufacturing program consistent
with Current Good Manufacturing Practices (CGMPs), as found at 21 CFR Part 820,
and all subsequent additions and revisions thereto. T-M shall make good faith
efforts with respect to compliance with any international quality/regulatory
standard with which W-J must comply.
5.3 Subject to the prior written approval of W-J, T-M may make those changes
in manufacturing procedures permitted by the regulations found in 21 CFR Part
820 or otherwise published as a policy change by FDA. T-M shall properly
document in writing all
- 4 -
<PAGE>
such changes, and forward a copy of such documentation to W-J pursuant to
Article 14.1. along with the implementation date and first Casting Cups lot
number manufactured with any changed procedures.
5.4 All Casting Cups supplied hereunder shall be manufactured in accordance
with the procedures described in any applicable Pre Market Approval ("PMA"),
supplemental PMAs for the medical device products and all CGMPs or other
applicable federal or state regulations in effect at the time of manufacture.
5.5 T-M, shall provide W-J's Quality Assurance Department with production
samples of the Casting Cups as requested by W-J.
5.6 T-M agrees to notify W-J Quality Assurance within forty-eight (48) hours
of learning of the failure of any batch of Casting Cups to meet standards found
in said Casting Cups' PMA.
5.7 All the Casting Cups manufactured hereunder are subject to W-J's
inspection and approval prior to acceptance. T-M shall provide a Certificate of
Compliance for each lot of Casting Cups furnished in accordance with this
Agreement. Certificates of Compliance must list appropriate Resin
identification, suppliers manufacturing lot number. T-M's manufacturing lot
number and test results according to current Casting Cups specifications. In
the event that. T-M fails to comply with the agreed upon W-J Casting Cups
specifications. W-J will return the Casting Cups for full credit at T-M's
expense including the freight cost.
5.8 W-J shall have the right to visit at any time T-M's facility for the
purpose of observing production, quality control, and compliance with CGMPS.
5.9 T-M shall provide timely failure and complaint investigations to W-J,
with respect to quality issues.
5.10 W-J and Schering-Plough Corporation have the right at any time to
audit T-M facilities for compliance with CGMPS.
6 TERMINATION
-----------
6.1 Either party shall have the right to terminate this Agreement:
6.1.1 if the other party fails to remedy and make good any default in
the performance of any condition or obligation under this Agreement within
sixty (60) days written notice thereof ("Cure Period") or, in the event that
- 5 -
<PAGE>
such Cure Period is unreasonable, then if such default is not remedied or
made good within a reasonable period of time;
6.1.2 immediately if the other party files a petition in bankruptcy, or
enters into an arrangement with its creditors, or applies for or consents to
the appointment of a receiver or trustee, or makes an assignment for the
benefit of creditors. or suffers or permits the entry of an order
adjudicating it to be bankrupt or insolvent.
6.1.3 upon non-payment by W-J subject to the conditions set forth in
Article 6.1.1 or its improper failure to accept goods within product
specifications.
6.2 W-J may, upon ninety (90) days prior written notice to T-M, permanently
discontinue the purchase or use of all or any of the Casting Cups for the
following reasons:
6.2.1 Casting Cups consistently fail to meet previously agreed quality
standards as set forth in Exhibit 8 for forty-five (45) days or more during
which period T-M is unable to correct such deficiencies.
6.2.2 T-M fails to meet at least eighty-five percent (85%) of the
"Purchase Plan" requirements for a period of sixty (60) days or more unless
such failure is caused by W-J.
6.2.3 T-M either ceases to function as a going concern and/or fails to
comply with or retain its FDA site certification and as a result is forced
to cease operations, for any period of time.
6.3 In the event T-M fails to perform in accordance with the conditions of
Articles 6.1 or 6.2, T-M will release W-J of any obligations as set forth in
Articles 2.2. 2.4 and 6.5.
6.4 The failure of either party to terminate this Agreement by reason of
the breach of any of its provisions by the other party shall not be construed as
a waiver of the rights or remedies available for any subsequent breach of the
terms and provisions of this Agreement.
6.5 In the event that (i) T-M terminates this Agreement pursuant to Article
6.1.3, (ii) W-J determines that the Contact Lens Product has proved to be
nonviable in the market place or (iii) W-J ceases marketing of such Contact Lens
Product, W-J shall receive and pay for all finished Casting Cups actually
- 6 -
<PAGE>
ordered from T-M up to and including the day written notice of termination or
product discontinuation is effective. With respect to unfinished Casting Cups,
W-J shall purchase from T-M at actual cost, all raw materials and supplies
purchased by T-M to be used in the production of Casting Cups and shall pay the
actual cost of processing up to the time of any such notification specified
herein.
6.5.1 During the first five (5) years of the Initial Term of this
Agreement, W-J agrees to purchase, at T-M's book value, all injection molding
machines and auxiliary equipment. W-J also agrees to purchase, at T-M's book
value, depreciated straight line over seven (7 years as set forth in Exhibit
A.3, the leasehold improvements made to the T-M facility as set forth in Exhibit
A.3, to the extent that such facility is dedicated exclusively to the
manufacture of the Casting Cups.
6.5.2 W-J also agrees, with respect to Article 6.5, to reimburse T-M for
severance costs defined as the documented payout of a maximum of three (3)
months salary for any permanent layoff of a T-M employee whose responsibilities
were dedicated exclusively to the manufacture. testing and packaging of the
Casting Cups. The severance costs shall not exceed One Million dollars
($1,000,000). In the event that T-M is not able to sublease the facility
dedicated exclusively to the manufacture of the Casting Cups as set forth in
Exhibit A.3. after reasonable efforts for a period of four (4) months, W-J
agrees to assume remaining building lease obligations.
6.5.3 In the event of a Contact Lens Product discontinuance, and/or W-J's
exercise of any of its options set forth in this Article 6.5, T-M shall have the
first option to re-purchase the injection molding machines, auxiliary equipment
and leasehold improvements from W-J purchased them from T-M.
7 FORCE MAJEURE
-------------
7.1 Neither party shall be responsible for any failure to comply with the
terms of this Agreement where such failure is due to force majeure, which shall
include, without limitation, fire, flood, explosion, strike, labor disputes.
labor shortages, picketing, lockout, transportation embargo or failures or
delays in transportation, strikes or labor disputes affecting supplies, or acts
of God, civil riot or insurrection, acts of the Federal Government or any agency
thereof, or judicial action. Specifically excluded from this definition are
those acts of the
- 7 -
<PAGE>
Federal Government or any agency thereof, or judicial action which could have
been avoided by compliance with such laws or regulations, publicly available and
reasonably expected to be known by T-M or W-J. In the event that either party
hereto invokes its rights hereunder, to the extent that such party has invoked
its rights for a period of time exceeding ninety (90) days, the other party may
terminate this Agreement without penalty to the party claiming hereunder.
8 RECORDS AND INSPECTION AND SAMPLE RETENTION
-------------------------------------------
8.1 T-M shall maintain accurate and complete records of all contracts,
papers, correspondence. copybooks, accounts, invoices and other information in
T-M's possession relating to its obligations and performance under this
Agreement ("Records"). All such Records shall be available for W-J's or its
representatives' inspection and/or reproduction upon reasonable request during
normal business hours.
8.2 The records shall be maintained by T-14 in accordance with recognized
commercial accounting practices during the term of this Agreement and thereafter
for a period of not less than two (2) years after which time T-M shall transfer
them to W-J. All records relating to the manufacture, stability and quality
control of all Casting Cups shall be retained for a period of not less than four
(4) years from the date of expiration of each batch of Casting Cups to which
said records pertain.
8.3 T-M shall retain one repository sample per shift, per lot, unless
otherwise instructed by W-J for a period of not less than nine (9) months from
the date of manufacture of each of the Casting Cups. All such samples shall be
available for inspection and testing by W-J upon reasonable notice.
9 LAWS
----
9.1 T-M and all Casting Cups manufactured for W-J shall be subject to and/or
in compliance with all applicable Federal, State and local laws, including, but
not limited to the Fair Labor Standards Act of 1938, as amended and. unless T-M
is exempted, the President's Executive Order No. 11246, Section 202, relating to
equal employment opportunities and all subsequent additions or amendments
thereto.
10 INDEMNIFICATION
---------------
10.1 T-14 agrees to indemnify and hold harmless W-J and its affiliates,
officers, directors and employees from and against all liabilities, costs,
damages, losses, judgments for
- 8 -
<PAGE>
damages or expenses (including attorney's fees) caused by, arising out of, or
resulting from any willful misconduct or negligent act or omission of T-M's or
its failure to comply with all laws and regulations applicable to such
performance or product seizures or recalls due to said negligent performance or
failure to comply.
10.2 W-J agrees to indemnify and hold harmless T-M and its affiliates,
officers, directors and employees from and against all liabilities, costs,
damages, losses, judgments for damages or expenses caused by, arising out of, or
resulting from W-J's specifications or formulation for the Casting Cups; W-J' s
failure to comply with all laws or regulations applicable to its performance
under this Agreement, or Casting Cups seizures or recalls due to said
specifications, formulations, or failure to comply and all patent infringement
claims arising out of the manufacture use or sale of the Casting Cups.
10.3 W-J agrees to indemnify and hold T-M harmless against all claims
that any W-J trademark appearing on the labels or packaging materials specified
by W-J infringes trademark rights of others, and W-J will defend, at its
expense, any and all suits which might be brought against T-M based on such a
claim of infringement.
10.4 T-M agrees to give W-J prompt notice in writing of the institution
of any suit, and to permit W-J to have control and conduct of the defense of
such suit, and give W-J all needed information in T-M's possession and all
authority and assistance necessary to enable W-J to carry on a meaningful
defense of such suit and any appeal from a judgment or decree rendered therein.
10.5 Each party agrees to give the other prompt written notice of any
claims made. including any claims asserted or made by any governmental authority
having jurisdiction for which the other might be liable under the foregoing
indemnification together with the opportunity to defend, negotiate and settle
such claims.
11 INSURANCE
---------
11.1 During the term of this Agreement, T-M agrees to procure and
thereafter maintain, at its sole cost and expense, product liability insurance,
which insurance shall include (i) W-J as an additional insured and contractual
liability covering T-M's obligations to indemnify W-J pursuant to Article 10.1.
Such insurance shall be for an amount not less than Five Million Dollars
($5,000,000) each occurrence and in the aggregate. T-M shall, within fifteen
(15) days of execution of this Agreement,
- 9 -
<PAGE>
furnish to w-J a Certificate of Insurance as evidence of the foregoing insurance
which Certificate shall specify W-J as an additional insured as well as provide
for thirty (30) days' prior written notice to W-J in the event of cancellation
or any material change in such insurance.
12 TRADE NAMES AND TRADEMARKS
--------------------------
12.1 Each of the parties hereby acknowledge that it does not have, and
shall not acquire. any interest in any of the other party's trademarks, trade
dress or trade names appearing on the labels or packaging materials for either
the Casting Cups or the Contact Lens unless otherwise expressly agreed by the
parties hereto.
13 CONFIDENTIALITY
---------------
13.1 The parties hereby acknowledge that any and all information,
knowledge, technology and trade secrets relating to the production, processing
and testing of Casting Cups may be used by T-M only in the production of Casting
Cups under this Agreement.
13.2 T-M shall maintain in confidence all information, knowledge,
technology and trade secrets exclusive of molding technology relating to the
Casting Cups as found in the PMA for each Product, as purchased by W-J or
developed solely by W-J after the date of this Agreement and disclosed to T-M
and T-M shall not use such W-J information, knowledge, technology and trade
secrets for itself or for any third party nor disclose the same to any third
party without the express written consent of W-J. T-H can use learned
technology to enter into markets that do not directly or indirectly compete with
W-J Casting Cups.
13.3 W-J shall maintain in confidence all information, knowledge,
technology and trade secrets relating to the Casting Cups and not contained in
the PMAs for the Casting Cups. or developed by T-M after the date of this
Agreement and disclosed to W-J or discovered by W-J's representatives while oft
T-M's property, and W-J shall not use such T-M information, knowledge,
technology or trade secrets for itself or for any third party nor disclose the
same to any third party without the express written consent of T-M.
13.4 The obligations set forth in 13.1, 13.2 and 13.3 above shall not
apply to any information, data. technology, financial or trade secret disclosed
by one party to the other, either in anticipation of or pursuant to this
Agreement or any other agreement between the parties, if it is already known to
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<PAGE>
the receiving party as of the date such disclosure is made; available to the
receiving party from printed publications as of the date such disclosure is made
or becomes available from printed publications through no fault of the receiving
party; or disclosed to said receiving party by an independent third party
through no fault of the receiving party.
14 NOTICES
-------
14.1 Any and all notices permitted or required to be given hereunder
shall be sent by registered or certified mail, postage and fees paid, with
return receipt requested. addressed as follows:
TECH MEDICAL INC.
640 South Rockford Drive
Tempe, Arizona 85281-3022
Attn: President
WESLEY-JESSEN CORPORATION
400 West Superior St.
Chicago, IL 60610
Attn: V.P. Operations
Notice shall be deemed given as of the date of mailing.
15 ASSIGNMENT
----------
15.1 Neither party shall assign this Agreement in whole or in part
without prior written consent of the other. Once lawfully assigned, all of the
provisions of this Agreement and all rights and obligations of the parties
hereunder shall be binding upon and endure to the benefit of and be enforceable
by the successors and assigns of T-M and W-J.
16 ENTIRE AGREEMENT
----------------
16.1 This Agreement, including any Exhibits attached hereto, constitutes
the entire Agreement between the parties. Any and all amendments, or releases
from any provisions hereof must be in writing, signed by both parties and
specifically state that it is an amendment or release.
17 INDEPENDENT CONTRACTOR
----------------------
17.1 In all activities under this Agreement, T-M shall act as and be
deemed an independent contractor with no authorization to in any way represent,
act on W-J's behalf, obligate and/or bind W-J without its prior written consent.
This Agreement shall
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<PAGE>
not be deemed held or construed as creating a copartnership joint venture or any
other form of association between W-J and T-M for any purpose whatsoever.
18 GOVERNING LAW
-------------
18.1 The rights and obligations of the parties to this Agreement shall be
construed in accordance with the laws of the State of Illinois. It is
understood and agreed that the parties hereto submit to the jurisdiction of
Illinois State and Federal Courts.
19 SEVERABILITY
------------
19.1 If any term or provision of this Agreement shall be held invalid or
unenforceable, the remaining terms hereof shall not be affected, but shall be
valid and enforced to the fullest extent permitted by law.
20 DISPUTE RESOLUTION
20.1 In the event any dispute arises with respect to the implementation
of this Agreement, including but not limited to the manufacturing processes
detailed either herein or in the Exhibits, T-M and W-J agree to use best efforts
to resolve such dispute(s) in a reasonable period of tin, reasonable being
measured by the nature of such dispute(s). To the extent that such dispute(s)
is/are not resolved within such reasonable period of time, tho parties agree to
escalate such dispute(s) to either their respective next level of management, or
to the level of management required, for such dispute(s) resolution.
21 HEADINGS
--------
21.1 The headings used in this Agreement are intended for guidance
only and shall not be considered part of the written understanding between the
parties hereto.
- 12 -
<PAGE>
IN WITNESS WHEREOF, WESLEY-JESSEN and TECH MEDICAL have caused this Agreement
to be executed by their duly authorized officers as of the day and year first
above written.
TECH MEDICAL, INC.
By: E. Frank Mead
-----------------------------------
E. Frank Mead
Title:President
--------------------------------
WESLEY-JESSEN CORPORATION
By: Randall R. Bawin
-----------------------------------
Randall R. Bawin
Title:Vice President, Operations
--------------------------------
- 13 -
<PAGE>
Exhibit 10.5
AMENDMENT OF AGREEMENT
This Amendment, effective as of September 22, 1995 ("Amendment"), amends
the Agreement between Wesley-Jessen Corporation, a Delaware Corporation
("Wesley-Jessen" or "W-J") as assignee, and Tech Medical Inc., an Arizona
Corporation ("Tech Medical" or "T-M") dated December 21, 1992 ("Agreement") and
settles all disputes between the parties.
RECITALS
- --------
A. Tech Medical and W-J's predecessor entered into an Agreement dated as
of December 21, 1992 ("Agreement"), subsequently assigned to W-J, under which
Tech Medical agreed to manufacturer and W-J agreed to purchase certain
quantities of molded plastic casting cups (the "Casting Cups") used by W-J in
its contact lens manufacturing business.
B. The parties desire to resolve all existing claims and disputes
involving shortfalls of purchases and other matters occurring prior to the date
hereof and to amend the Agreement in light of their experiences and changed
circumstances.
C. Wesley-Jessen wishes to purchase and Tech Medical wishes to supply
Casting Cups to Wesley-Jessen under the terms and condition of the Agreement as
modified herein.
NOW THEREFORE, in consideration of the mutual consents herein contained,
the parties agree as follows:
I. AMENDMENT TO AGREEMENT
----------------------
The parties agree that, effective on the date of this Amendment, the
Agreement is hereby modified as follows:
A. Paragraph 1.0 "Term and Renewal" is deleted in its entirety and
replaced by the following:
1.0 Term effective: 9-22-95 - 12-31-97 (27 mos)
----
1.1 The initial term of this Agreement shall commence on the effective
date hereof and shall terminate on December 31, 1997 (the "Initial
Term").
B. Paragraph 2.0 "Products" of the Agreement is deleted in its entirety
and replaced by the following:
2.0 PRODUCTS
--------
2.1 During the Initial Term and all subsequent terms, T- M shall
manufacture the Casting Cups exclusively for W-J and not to/for any other
party, and W-J shall purchase such quantities of Casting Cups from T-M as
W-J may order from time to time subject to the
<PAGE>
conditions set forth in the Article 2.4. Wesley-Jessen has ordered or will
order a minimum of 5,000,000 Casting Cups in minimum release quantities of
100,000 units at a price of $0.24 per unit for delivery during the period
from July 1, 1995 through December 31, 1995. As a condition for
continuation of this Agreement, W-J agrees to order from T-M a minimum of
350,000 Casting Cups per month commencing on January 1, 1996.
2.2 W-J shall order Casting Cups from time to time by specifying the
quantities and delivery schedule. orders may be placed by telephone, fax,
letter, telex or similar means at least one (1) month in advance of the
scheduled delivery dates, T-M shall supply the Casting Cups in accordance
with each order submitted by W-J. All orders shall be placed in accordance
with and subject to the terms and conditions of the Agreement as amended
and any other terms and conditions which the parties may agree to from time
to time.
2.3 On the first (1st) day of each calendar month commencing December
1, 1995, W-J shall provide T-M with a six (6) month rolling non-binding
forecast of its Casting Cups purchase requirements. This forecast may be
updated; provided, however, that forecast changes shall not be made less
than fifteen (15) days prior to scheduled production unless mutually agreed
upon by W-J and T-M.
2.4 Commencing with calendar year 1996, W-J agrees, as a condition
for retaining exclusivity from Tech Medical after March 31, 1996, to order
from T-M for delivery during each calendar year during the Initial Term not
less than a minimum of 10,000,000 Casting Cups. In the event W-J fails to
order sufficient amounts of Casting Cups to satisfy this requirement, T-M
as its sole and exclusive remedy may terminate exclusivity hereunder. For
purposes of this paragraph only, W-J will provide to T-M on or prior to
March 1st of each calendar year a non-binding forecast of its Casting Cups
purchase requirements for such calendar year and T-M is authorized to
determine W-J's satisfaction of this purchase condition prior to the end of
the applicable calendar year based on such forecast as well as on the sum
of W-J's actual orders and forecasts of orders pursuant to paragraph 2.3
for such calendar year.
2.5 No charges will be imposed by T-M upon W-J if W-J requests T-M to
stop a scheduled production run provided such request is made for good
cause through no fault of W-J (good cause includes T-M is failure to
comply, or its inability to assure compliance with any FDA regulation,
including CGMPs).
2.6 W-J is not precluded during the Initial Term or any subsequent
term of this Agreement from developing alternate sources of supply of the
Casting Cups or from manufacturing Casting Cups for its own use.
C. Paragraph 3.0 "Price/Payment" is amended by deletion of Paragraph 3.3
and replacement by the following:
3.3 The prices for Casting Cups ordered shall be based on the
cumulative quantity of orders placed by W-J for delivery during a calendar
year. However, W-J will order and
-2-
<PAGE>
T-M will bill W-J at tentative prices based on annual purchase volumes
forecasted by W-J quarterly with adjustments of tentative prices to be made
quarterly. The final adjustment of prices based on cumulative orders will
be made at the end of the calendar year and the resulting credits or
payments will be made within thirty (30) days thereafter. The prices listed
in Exhibit D shall remain in effect for the Initial Term, unless T-M
achieves a reduction in Costs due to increased manufacturing efficiencies
or utilization of Presses, in which event such prices will be adjusted
lower to pass the Costs reductions through to W-J. T-M represents and
warrants that such prices are and will be no greater than the prices
charged by T-M to others (if any) for production of casting cups at
comparable volumes.
D. Paragraph 5.0 "Quality Control" is amended by addition of the words "
in accordance with Exhibit B.1." to the end of the first sentence of paragraph
5.7 and by deletion of the words "and Schering-Plough Corporation have" from
paragraph 5.10 and insertion of the word "has" in such paragraph.
E. Paragraph 6 "Termination" is amended by deletion of the number "2.2"
from paragraph 6.3 and by deletion of paragraphs 6.5.1, 6.5.2, and 6.5.3.
F. Paragraph 14 "Notices" is amended by insertion of the new address for
Wesley-Jessen:
Wesley-Jessen Corporation
200 Clearwater Drive
Des Plaines, Illinois 60018
Attn: V.P. Operations
G. The Agreement is amended by addition of paragraph 22 "Fixed Assets" as
follows:
22. FIXED ASSETS
------------
22.1 GENERAL. Tech Medical acknowledges that the assets listed on
-------
Exhibit E (the "Fixed Assets") are owned by Wesley-Jessen. Tech Medical
will maintain these Fixed Assets in good working condition as long as it is
producing Casting Cups for Wesley-Jessen. The Fixed Assets remain the
property of Wesley-Jessen even if affixed to Tech Medical's real property,
and may not be removed from Tech Medical's premises without the written
consent of Wesley-Jessen, except in accordance with the terms of this
Supply Agreement. Upon completion or termination of this Supply Agreement,
and as long as no amounts are owed to Tech Medical, Wesley-Jessen may elect
to remove the Fixed Assets from Tech Medical's premises, and will provide
Tech Medical with 30 days written notice of this election. In the event of
termination of this Agreement, or receipt by Tech Medical of the notice,
Tech Medical will hold the Fixed Assets for pick-up by Wesley-Jessen at
Tech Medical's premises for 60 days. If Wesley-Jessen does not remove the
Fixed Assets within this period, Tech Medical may ship the Fixed Assets
freight collect to the Wesley-Jessen Des Plaines facility.
-3-
<PAGE>
22.2 FIXED ASSETS MAINTENANCE COSTS. Tech Medical will, at its sole
------------------------------
expense, provide the labor and consumable and non-durable replacement parts, and
Wesley-Jessen will pay for all durable replacement parts, to keep and maintain
the Fixed Assets in good working order and repair during their useful life,
normal wear and tear excepted. Tech Medical will pay all taxes and other
governmental charges or assessments associated with use or possession of the
Fixed Assets, except for any state or federal personal property taxes that will
be paid by Wesley-Jessen within 14 days of receipt of invoice from Tech Medical.
H. The Agreement is amended by addition of paragraph 23, "Presses" as
follows:
23.0 PRESSES
-------
23.1 Tech Medical agrees to maintain in good working order and
condition during the Initial Term all twelve 75 ton presses (the "Presses")
for the purpose of producing Casting Cups for Wesley-Jessen at a production
volume capacity of up to 30,000,000 units per year. If T-M notifies W-J
that the Presses are not required by Tech Medical for use in the production
of casting Cups in the amounts forecasted by W-J and as long as Wesley-
Jessen is current in its obligations to Tech Medical and not in default of
this Agreement, Wesley-Jessen shall have the option to purchase one or more
of the excess Presses (including control hardware and software) from Tech
Medical at a price equal to the fair market value of such Press(es)
estimated by Cincinnati Milacron.
I. The Agreement is amended by deletion of Exhibits A, B, C and D of the
--------
Agreement and by addition of Exhibit B, consisting of Exhibit B.1 (Casting Cups
for Molded Lenses Acceptance Specification) Exhibit B.2 (Resin Specifications)
and Exhibit B.3 (Casting Cup Packaging Specifications), and Exhibit D (Amended
Pricing Schedule) annexed hereto.
II. PAYMENT. Wesley-Jessen will pay Tech Medical the amount of $996,000,
-------
in cash, payable as follows: $332,000 on execution of this Agreement and the
balance in 4 equal monthly installments of $166,000 each payable on the last day
of September, October, November and December, 1995.
III. ROBOTS. Wesley-Jessen shall transfer to Tech Medical all rights,
------
title and interest to the eight (8) side entry robots (for the 150 ton machines)
owned by it and acquired from W-J in their existing condition "as is" and will
execute a Bill of Sale documenting this transfer in a form acceptable to both
parties. Tech Medical agrees for a period of three (3) years after such
transfer not to transfer such robots to a competitor of Wesley- Jessen or to use
such robots to produce products for a competitor of Wesley-Jessen.
IV. SETTLEMENT AND RELEASE. Each party hereby releases, waives and
----------------------
discharges any -and all claims that were or could have been brought against the
other party, its affiliates, related companies predecessors, assignors,
officers, directors, employees, agents and/or representatives with respect to
the Agreement or any alleged breach or default thereof occurring prior to the
date of this Amendment, including, without limiting the foregoing, claims
related to severance of T-M employees, compensation pursuant to Paragraph 2.4 of
the Agreement, and lost profits.
-4-
<PAGE>
V. MISCELLANEOUS.
-------------
A. DEFINITIONS. Any capitalized term used in this Amendment but not
-----------
defined herein shall have the meaning not forth in the Agreement.
B. REFERENCE TO AND EFFECT OF AGREEMENT. Except as amended herein,
------------------------------------
the Agreement shall remain and continue to be in full force and effect in
accordance with its terms.
C. RELEASE/WAIVER BY LENDER. The parties acknowledge that certain
------------------------
terms herein relating to the transfer by W-J of robots and cash payment by
W-J may require the approval of W-J's secured lender or the waiver or
release of certain provisions of the loan agreements, including security
interests in the robots. Accordingly, if W-J attorneys determine that such
approval is required, this Amendment shall not be effective unless and
until the lender grants such approvals, waivers and releases; and W-J
agrees to use best efforts to secure such approvals, waivers, etc.
D. EXECUTION IN COUNTERPARTS. This Amendment may be executed in
-------------------------
counterparts all of which when taken together shall constitute one and the
same agreement.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
by their duly authorized officers as of the date first above written.
TECH MEDICAL, INC., WESLEY-JESSEN CORPORATION,
an Arizona corporation a Delaware corporation
By: E.F. Mead By: Edward J. Kelley
---------------------- -----------------------
Name: E.F. Mead Name: Edward J. Kelley
--------------------- ----------------------
Title: President Title: V.P. & CFO
--------------------- ----------------------
-5-
<PAGE>
Exhibit B
---------
WESLEY-JESSEN HOLDING, INC.
---------------------------
1995 STOCK PURCHASE AND OPTION PLAN
-----------------------------------
1. PURPOSE OF PLAN. This 1995 Stock Purchase and Option Plan (the
---------------
"Plan") of Wesley-Jessen Holding, Inc. (the "Company") is designed to provide
incentives to such present and future employees, directors, consultants or
advisers of the Company or its subsidiaries ("Participants"), as may be selected
in the sole discretion of the Company's board of directors, through the grant of
Options by the Company to Participants or through the sale of Common Stock to
Participants. Only those Participants who are employees of the Company and its
Subsidiaries shall be eligible to receive incentive stock options.
2. DEFINITIONS. Certain terms used in this Plan have the meanings
-----------
set forth below:
"Board" means the Company's board of directors.
"Code" means the Internal Revenue Code of 1986, as it may be amended
from time to time.
"Class L Common" means the Company's Class L Common Stock, par value
$.01 per share.
"Common" means the Company's Common Stock, par value $.01 per share.
"Common Stock" means the Class L Common and the Common.
"Fair Market Value" of a share of Common Stock means the market value
as determined in good faith by the Board.
"Option" means any option enabling the holder thereof to purchase any
class of Common Stock from the Company granted by the Board pursuant to the
provisions of this Plan. Options to be granted under this Plan may be incentive
stock options within the meaning of Section 422 of the Code ("Incentive Stock
Options") or in such other form, consistent with this Plan, as the Board may
determine.
"Subsidiary" means any corporation of which shares of stock having a
majority of the general voting power in electing the board of directors are, at
the time as of which any determination is being made, owned by the Company
either directly or through its Subsidiaries.
3. GRANT OF OPTIONS. The Board shall have the right and power to
----------------
grant to any Participant Options at any time prior to the termination of this
Plan in such quantity, at such price, on
<PAGE>
such terms and subject to such conditions that are consistent with this Plan and
established by the Board. Options granted under this Plan shall be subject to
such terms and conditions and evidenced by agreements as shall be determined
from time to time by the Board.
4. SALE OF COMMON STOCK. The Board shall have the power and
--------------------
authority to sell to any Participant any class or classes of Common Stock at any
time prior to the termination of this Plan in such quantity, at such price, on
such terms and subject to such conditions that are consistent with this Plan and
established by the Board. Common Stock sold under this Plan shall be subject to
such terms and evidenced by agreements as shall be determined from time to time
by the Board.
5. ADMINISTRATION OF THE PLAN. The Board shall have the power and
--------------------------
authority to prescribe, amend and rescind rules and procedures governing the
administration of this Plan, including, but not limited to the full power and
authority (i) to interpret the terms of this Plan, the terms of any Options
granted under this Plan, and the rules and procedures established by the Board
governing any such Options and (ii) to determine the rights of any person under
this Plan, or the meaning of requirements imposed by the terms of this Plan or
any rule or procedure established by the Board. Each action of the Board which
shall be binding on all persons.
6. LIMITATION ON THE AGGREGATE NUMBER OF SHARES. The number of
--------------------------------------------
shares of Common Stock issued under this Plan (including the number of shares of
Common Stock with respect to which Options may be granted under this Plan (and
which may be issued upon the exercise or payment thereof)) shall not exceed, in
the aggregate, 15,000 shares of Class L Common and 835,000 shares of Common (as
such numbers are equitably adjusted pursuant to paragraph 10 hereof). If any
Options expire unexercised or unpaid or are canceled, terminated or forfeited in
any manner without the issuance of Common Stock or payment thereunder, the
shares with respect to which such Options were granted shall again be available
under this Plan. Similarly, if any shares of Common Stock issued hereunder upon
exercise of Options are repurchased hereunder, such shares shall again be
available under this Plan for reissuance as Options. Shares of Common Stock to
be issued upon exercise of the Options or shares of Common Stock to be sold
directly hereunder may be either authorized and unissued shares, treasury
shares, or a combination thereof, as the Board shall determine.
7. INCENTIVE STOCK OPTIONS. All Incentive Stock Options (i) shall
-----------------------
have an exercise price per share of Common Stock of not less than 100% of the
fair market value of such share on the date of grant, (ii) shall not be
exercisable more than ten years after the date of grant, (iii) shall not be
transferable other than by will or under the laws of descent and distribution
and, during the lifetime of the Participant to whom such Incentive Stock Options
were granted, may be exercised only by such Participant (or
-2-
<PAGE>
his guardian or legal representative), and (iv) shall be exercisable only during
the Participant's employment by the Company or a Subsidiary, provided, however,
-------- -------
that the Board may, in its discretion, provide at the time that an Incentive
Stock Option is granted that such Incentive Stock Option may be exercised for a
period ending no later than either (x) the termination of this Plan in the event
of the Participant's death while an employee of the Company or a Subsidiary, or
(y) the date which is three months after termination of the Participant's
employment for any other reason. The Board's discretion to extend the period
during which an Incentive Stock Option is exercisable shall only apply if and to
the extent that (i) the Participant was entitled to exercise such option on the
date of termination, and (ii) such option would not have expired had the
Participant continued to be employed by the Company or a Subsidiary. To the
extent that the aggregate fair market value of stock with respect to which
Incentive Stock Options are exercisable for the first time by any individual
during any calendar year exceeds $100,000, such options shall be treated as
options which are not Incentive Stock Options.
8. LISTING, REGISTRATION AND COMPLIANCE WITH LAWS AND REGULATIONS.
--------------------------------------------------------------
Each Option shall be subject to the requirement that if at any time the Board
shall determine, in its discretion, that the listing, registration or
qualification of the shares subject to the Option upon any securities exchange
or under any state or federal securities or other law or regulation, or the
consent or approval of any governmental regulatory body, is necessary or
desirable as a condition to or in connection with the granting of such Option or
the issue or purchase of shares thereunder, no such Option may be exercised or
paid in Common Stock in whole or in part unless such listing, registration,
qualification, consent or approval (a "Required Listing") shall have been
effected or obtained, and the holder of the Option will supply the Company with
such certificates, representations and information as the Company shall request
which are reasonably necessary or desirable in order for the Company to obtain
such Required Listing, and shall otherwise cooperate with the Company in
obtaining such Required Listing. In the case of officers and other persons
subject to Section 16(b) of the Securities Exchange Act of 1934, as amended, the
Board may at any time impose any limitations upon the exercise of an Option
which, in the Board's discretion, are necessary or desirable in order to comply
with Section 16(b) and the rules and regulations thereunder. If the Company, as
part of an offering of securities or otherwise, finds it desirable because of
federal or state regulatory requirements to reduce the period during which any
Options may be exercised, the Board may, in its discretion and without the
consent of the holders of any such Options, so reduce such period on not less
than 15 days' written notice to the holders thereof.
9. CASH PAYMENTS UPON EXERCISE. Options which are not Incentive
---------------------------
Stock Options may, in the Board's discretion, provide that the holder thereof,
as soon as practicable after the exercise
-3-
<PAGE>
of the Options will receive, in lieu of any issuance of Common Stock, a cash
payment in such amount as the Board may determine, but not more than the excess
of the Fair Market Value of a share of Common Stock (on the date the holder
recognizes taxable income) over the Option's exercise price multiplied by the
number of shares as to which the Option is exercised.
10. ADJUSTMENT FOR CHANGE IN COMMON STOCK. In the event of a
-------------------------------------
reorganization, recapitalization, stock split, stock dividend, combination of
shares, merger, consolidation or other change in the Common Stock, the Board
shall make appropriate changes in the number and type of shares authorized by
this Plan, the number and type of shares covered by outstanding Options and the
prices specified therein.
11. TAXES. The Company shall be entitled, if necessary or desirable,
-----
to withhold (or secure payment from the Plan participant in lieu of withholding)
the amount of any withholding or other tax due from the Company with respect to
any amount payable and/or shares issuable under this Plan, and the Company may
defer such payment or issuance unless indemnified to its satisfaction.
12. TERMINATION AND AMENDMENT. The Board at any time may suspend or
-------------------------
terminate this Plan and make such additions or amendments as it deems advisable
under this Plan, except that they may not, without further approval by the
Company's stockholders, (a) increase the maximum number of shares as to which
Options may be granted under this Plan, except pursuant to paragraph 10 above or
(b) extend the term of this Plan; provided that, subject to paragraph 8 hereof,
the Board may not change any of the terms of a written agreement with respect to
an Option between the Company and the holder of such Option without the approval
of the holder of such Option. No Options shall be granted or shares of Common
Stock issued hereunder after June 28, 2005; provided that, if the term of this
Plan is otherwise extended, no Incentive Stock Options shall be granted
hereunder after June 28, 2005.
* * * * *
-4-
<PAGE>
Exhibit 10.9
------------
WESLEY-JESSEN HOLDING, INC.
---------------------------
1996 STOCK OPTION PLAN
----------------------
1. PURPOSE OF PLAN. This 1996 Stock Option Plan (the "Plan") of
---------------
Wesley-Jessen Holding, Inc. (the "Company") is designed to provide incentives to
such present and future employees, directors, consultants or advisers of the
Company or its subsidiaries ("Participants"), as may be selected in the sole
discretion of the Company's board of directors, through the grant of Options by
the Company to Participants. Only those Participants who are employees of the
Company and its Subsidiaries shall be eligible to receive incentive stock
options.
2. DEFINITIONS. Certain terms used in this Plan have the meanings
-----------
set forth below:
"Board" means the Company's board of directors.
"Code" means the Internal Revenue Code of 1986, as it may be amended
from time to time.
"Class L Common" means the Company's Class L Common Stock, par value
$.01 per share.
"Common" means the Company's Common Stock, par value $.01 per share.
"Common Stock" means the Class L Common and the Common.
"Fair Market Value" of a share of Common Stock means the market value
as determined in good faith by the Board.
"Option" means any option enabling the holder thereof to purchase any
class of Common Stock from the Company granted by the Board pursuant to the
provisions of this Plan. Options to be granted under this Plan may be incentive
stock options within the meaning of Section 422 of the Code ("Incentive Stock
Options") or in such other form, consistent with this Plan, as the Board may
determine.
"Subsidiary" means any corporation of which shares of stock having a
majority of the general voting power in electing the board of directors are, at
the time as of which any determination is being made, owned by the Company
either directly or through its Subsidiaries.
<PAGE>
3. GRANT OF OPTIONS. The Board shall have the right and power to
----------------
grant to any Participant Options at any time prior to the termination of this
Plan in such quantity, at such price, on such terms and subject to such
conditions that are consistent with this Plan and established by the Board.
Options granted under this Plan shall be subject to such terms and conditions
and evidenced by agreements as shall be determined from time to time by the
Board.
4. ADMINISTRATION OF THE PLAN. The Board shall have the power and
--------------------------
authority to prescribe, amend and rescind rules and procedures governing the
administration of this Plan, including, but not limited to the full power and
authority (i) to interpret the terms of this Plan, the terms of any Options
granted under this Plan, and the rules and procedures established by the Board
governing any such Options and (ii) to determine the rights of any person under
this Plan, or the meaning of requirements imposed by the terms of this Plan or
any rule or procedure established by the Board. Each action of the Board which
shall be binding on all persons.
5. LIMITATION ON THE AGGREGATE NUMBER OF SHARES. The number of
--------------------------------------------
shares of Common Stock issued under this Plan (including the number of shares of
Common Stock with respect to which Options may be granted under this Plan (and
which may be issued upon the exercise or payment thereof)) shall not exceed, in
the aggregate, 135,502 shares of Common (as such numbers are equitably adjusted
pursuant to paragraph 9 hereof). If any Options expire unexercised or unpaid or
are canceled, terminated or forfeited in any manner without the issuance of
Common Stock or payment thereunder, the shares with respect to which such
Options were granted shall again be available under this Plan. Similarly, if
any shares of Common Stock issued hereunder upon exercise of Options are
repurchased hereunder, such shares shall again be available under this Plan for
reissuance as Options. Shares of Common Stock to be issued upon exercise of the
Options or shares of Common Stock to be sold directly hereunder may be either
authorized and unissued shares, treasury shares, or a combination thereof, as
the Board shall determine.
6. INCENTIVE STOCK OPTIONS. All Incentive Stock Options (i) shall
-----------------------
have an exercise price per share of Common Stock of not less than 100% of the
fair market value of such share on the date of grant, (ii) shall not be
exercisable more than ten years after the date of grant, (iii) shall not be
transferable other than by will or under the laws of descent and distribution
and, during the lifetime of the Participant to whom such Incentive Stock Options
were granted, may be exercised only by such Participant (or his guardian or
legal representative), and (iv) shall be
-2-
<PAGE>
exercisable only during the Participant's employment by the Company or a
Subsidiary, provided, however, that the Board may, in its discretion, provide at
-------- -------
the time that an Incentive Stock Option is granted that such Incentive Stock
Option may be exercised for a period ending no later than either (x) the
termination of this Plan in the event of the Participant's death while an
employee of the Company or a Subsidiary, or (y) the date which is three months
after termination of the Participant's employment for any other reason. The
Board's discretion to extend the period during which an Incentive Stock Option
is exercisable shall only apply if and to the extent that (i) the Participant
was entitled to exercise such option on the date of termination, and (ii) such
option would not have expired had the Participant continued to be employed by
the Company or a Subsidiary. To the extent that the aggregate fair market value
of stock with respect to which Incentive Stock Options are exercisable for the
first time by any individual during any calendar year exceeds $100,000, such
options shall be treated as options which are not Incentive Stock Options.
7. LISTING, REGISTRATION AND COMPLIANCE WITH LAWS AND REGULATIONS.
--------------------------------------------------------------
Each Option shall be subject to the requirement that if at any time the Board
shall determine, in its discretion, that the listing, registration or
qualification of the shares subject to the Option upon any securities exchange
or under any state or federal securities or other law or regulation, or the
consent or approval of any governmental regulatory body, is necessary or
desirable as a condition to or in connection with the granting of such Option or
the issue or purchase of shares thereunder, no such Option may be exercised or
paid in Common Stock in whole or in part unless such listing, registration,
qualification, consent or approval (a "Required Listing") shall have been
effected or obtained, and the holder of the Option will supply the Company with
such certificates, representations and information as the Company shall request
which are reasonably necessary or desirable in order for the Company to obtain
such Required Listing, and shall otherwise cooperate with the Company in
obtaining such Required Listing. In the case of officers and other persons
subject to Section 16(b) of the Securities Exchange Act of 1934, as amended, the
Board may at any time impose any limitations upon the exercise of an Option
which, in the Board's discretion, are necessary or desirable in order to comply
with Section 16(b) and the rules and regulations thereunder. If the Company, as
part of an offering of securities or otherwise, finds it desirable because of
federal or state regulatory requirements to reduce the period during which any
Options may be exercised, the Board may, in its discretion and without the
consent of the holders of any such Options, so reduce such period on not less
than 15 days' written notice to the holders thereof.
-3-
<PAGE>
8. CASH PAYMENTS UPON EXERCISE. Options which are not Incentive
---------------------------
Stock Options may, in the Board's discretion, provide that the holder thereof,
as soon as practicable after the exercise of the Options will receive, in lieu
of any issuance of Common Stock, a cash payment in such amount as the Board may
determine, but not more than the excess of the Fair Market Value of a share of
Common Stock (on the date the holder recognizes taxable income) over the
Option's exercise price multiplied by the number of shares as to which the
Option is exercised.
9. ADJUSTMENT FOR CHANGE IN COMMON STOCK. In the event of a
-------------------------------------
reorganization, recapitalization, stock split, stock dividend, combination of
shares, merger, consolidation or other change in the Common Stock, the Board
shall make appropriate changes in the number and type of shares authorized by
this Plan, the number and type of shares covered by outstanding Options and the
prices specified therein.
10. TAXES. The Company shall be entitled, if necessary or desirable,
-----
to withhold (or secure payment from the Plan participant in lieu of withholding)
the amount of any withholding or other tax due from the Company with respect to
any amount payable and/or shares issuable under this Plan, and the Company may
defer such payment or issuance unless indemnified to its satisfaction.
11. TERMINATION AND AMENDMENT. The Board at any time may suspend or
-------------------------
terminate this Plan and make such additions or amendments as it deems advisable
under this Plan, except that they may not, without further approval by the
Company's stockholders, (a) increase the maximum number of shares as to which
Options may be granted under this Plan, except pursuant to paragraph 9 above or
(b) extend the term of this Plan; provided that, subject to paragraph 7 hereof,
the Board may not change any of the terms of a written agreement with respect to
an Option between the Company and the holder of such Option without the approval
of the holder of such Option. No Options shall be granted or shares of Common
Stock issued hereunder after October 22, 2006; provided that, if the term of
this Plan is otherwise extended, no Incentive Stock Options shall be granted
hereunder after October 22, 2006.
* * * * *
-4-
<PAGE>
EXHIBIT 10.11
DRAFT 12/19/95
INDEMNIFICATION AGREEMENT
This Agreement, dated as of February ___, 1997, is made by and between
Wesley Jessen VisionCare, Inc., a Delaware corporation (the "Company"), and
[_____________] who is currently serving as an officer and/or director of the
Company (the "Indemnitee").
WHEREAS, the Indemnitee is currently serving in the capacity or
capacities described above;
WHEREAS, the Company is currently in the process of making an initial
public offering of its common stock (the "Offering"), the completion of which
will likely increase the risk of litigation and other claims being asserted
against the directors and officers of the Company;
WHEREAS, the Company wishes the Indemnitee to continue to serve in
such capacity or capacities and the Indemnitee is willing, under certain
circumstances, to continue in such capacity or capacities;
WHEREAS, damages sought and sometimes paid in many claims made against
corporate directors and officers and the expenses required to defend such
claims, whether or not the allegations are meritorious, may not bear a
reasonable relationship to the amount of compensation received by and may be
beyond the financial resources of the Indemnitee;
WHEREAS, the Indemnitee is currently entitled to indemnification under
Delaware General Corporation Law and the Certificate of Incorporation of the
Company, which the Indemnitee does not regard to be adequate protection against
the risks associated with his service to or at the request of the Company;
WHEREAS, the Indemnitee and the Company have concluded that the
exposure to risk of personal liability and payment of damages out of the
Indemnitee's personal assets may result in overly conservative direction and
supervision of the Company's affairs, which is detrimental to the best interests
of the Company and its stockholders; and
WHEREAS, the Company has concluded that additional protection is
necessary for its directors and elected officers.
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
<PAGE>
1. Definitions.
(a) Agent. For the purposes of this Agreement, "agent" of the Company
means any person who is or was a director, officer, employee, agent or fiduciary
of the Company or a subsidiary of the Company, or is or was serving at the
request of, for the convenience of, or to represent the interests of the Company
or a subsidiary of the Company as a director, officer, employee, agent or
fiduciary of another corporation, partnership, joint venture, trust or other
enterprise or entity, including service with respect to an employee benefit
plan.
(b) Disinterested Director. For purposes of this Agreement,
"Disinterested Director" of the Company means a director of the Company who is
not and was not a party to the proceeding for which indemnification is being
sought by the claimant.
(c) Expenses. For purposes of this Agreement, "expenses" includes all
direct and indirect costs of any type or nature whatsoever (including, without
limitation, all attorneys' fees and related disbursements, other out-of-pocket
costs and reasonable compensation for time spent by the Indemnitee for which he
is not otherwise compensated by the Company or any third party) actually and
reasonably incurred by the Indemnitee in connection with either the
investigation, defense or appeal of a proceeding or establishing or enforcing a
right to indemnification under this Agreement, Section 145 of the General
Corporation Law of Delaware or otherwise; provided, however, that expenses shall
-------- -------
not include any judgments, fines, excise taxes or penalties under the Employee
Retirement Income Security Act of 1974 ("ERISA"), or amounts paid in settlement
of a proceeding.
(d) Independent Legal Counsel. For purposes of this Agreement,
"Independent Legal Counsel" means a law firm, a member of a law firm, or an
independent practitioner, that is experienced in matters of corporation law and
shall include any person who, under the applicable standards of professional
conduct then prevailing, would not have a conflict of interest in representing
either the Company or the Indemnitee in an action to determine the Indemnitee's
rights under this Agreement.
(e) Proceeding. For the purposes of this Agreement, "proceeding"
means any threatened, pending, or completed action, suit or other proceeding,
whether civil, criminal, administrative, investigative or any other type
whatsoever.
(f) Subsidiary. For purposes of this Agreement, "subsidiary" means
any corporation, partnership, joint venture or other enterprise, a majority of
whose equity interests are owned by the Company, directly or through one or more
other subsidiaries.
2. Agreement to Serve. The Indemnitee agrees to serve as an agent of
the Company, at its will (or under separate agreement, if such agreement
exists), in the capacity Indemnitee currently serves as an agent of the Company,
so long as he is duly appointed or elected and qualified in accordance with the
applicable provisions of the By-Laws of the Company or any subsidiary of the
Company or until such time as he tenders his resignation in writing; provided,
--------
however, that nothing contained in this Agreement is intended to create any
- -------
right to continued employment of the Indemnitee.
-2-
<PAGE>
3. Mandatory Indemnification. Subject to the limitations set forth
in Section 7, if the Indemnitee is a person who was or is a party or is
threatened to be made a party to or is involved, including involvement as a
witness, in any proceeding, including any action by or in the right of the
Company, by reason of the fact that he is or was or has agreed to become an
agent, or by reason of any action alleged to have been taken or omitted by him
in any such capacity, the Company shall indemnify the Indemnitee against all
expense, liability and loss (including but not limited to judgments, fines,
ERISA excise taxes or penalties and amounts paid or to be paid in settlement),
actually and reasonably incurred by him in connection with the investigation,
defense, settlement or appeal of such proceeding; provided, however, that except
as provided in Section 7(c) of this Agreement with respect to proceedings
seeking to enforce rights to indemnification, the Company shall indemnify the
Indemnitee in connection with a proceeding (or part thereof) initiated by the
Indemnitee only if such proceeding (or part thereof) was authorized by the Board
of Directors of the Company.
4. Mandatory Advancement of Expenses. The Company shall advance all
expenses incurred by the Indemnitee in connection with the investigation,
defense, settlement or appeal of any proceeding referred to in Section 3 to
which the Indemnitee is a party or is threatened to be made a party or with
respect to which the Indemnitee is otherwise involved (including involvement as
a witness) as an agent of the Company. The Indemnitee hereby undertakes to
repay such amounts advanced if, but only if and to the extent that, it shall
ultimately be determined pursuant to the provisions hereof that the Indemnitee
is not entitled to be indemnified by the Company as authorized hereby. The
advances to be made hereunder shall be paid by the Company to the Indemnitee
within twenty (20) days following delivery of a written request therefor by the
Indemnitee to the Company; provided, however, that, if and to the extent that
the Delaware General Corporation Law requires, an advancement of expenses
incurred by the Indemnitee in his capacity as a director or officer shall be
made only upon delivery of an undertaking by or on behalf of the Indemnitee to
repay all amounts so advanced if it shall ultimately be determined by final
judicial decision from which there is no further right to appeal that the
Indemnitee is not entitled to be indemnified for such expenses under this
Agreement or otherwise.
5. Maintenance of D&O Insurance.
(a) So long as the Indemnitee shall continue to serve in any capacity
described in Section 2 and thereafter so long as there is any reasonable
possibility that the Indemnitee shall be subject to any proceeding by reason of
the fact that the indemnitee served in any of such capacities, the Company will
use reasonable efforts to purchase and maintain in effect for the benefit of the
Indemnitee one or more valid, binding and enforceable policies of directors' and
officers' liability insurance ("D&O Insurance") providing, in all respects,
coverage and amounts as reasonably determined by the Board of Directors.
(b) Notwithstanding Section 5(a), the Company shall not be required to
maintain D&O Insurance if such is not reasonably available or if, in the
reasonable business judgment of the Board of Directors of the Company as it may
exist from time to time, either (i) the premium cost for such insurance is
substantially disproportionate to the amount of insurance or (ii) the coverage
is so limited by exclusions that there is insufficient benefit provided by such
insurance.
-3-
<PAGE>
6. Notice and Other Indemnification Procedures.
(a) Promptly after receipt by the Indemnitee of notice of the
commencement of or the threat of commencement of any proceeding, the Indemnitee
shall, if the Indemnitee believes that the indemnification with respect thereto
properly may be sought from the Company under this Agreement, notify the Company
of the commencement or threat of commencement thereof. The failure to notify or
promptly notify the Company shall not relieve the Company from any liability
which it may have to the Indemnitee otherwise than under this Agreement, and
shall relieve the Company from liability hereunder only to the extent the
Company has been prejudiced.
(b) If, at the time of the receipt of a notice of the commencement of
a proceeding pursuant to Section 6(a), the Company has D&O Insurance in effect,
the Company shall give prompt notice of the commencement of such proceeding to
the insurers in accordance with the procedures set forth in the D&O Insurance
policy. The Company shall thereafter take all necessary or desirable action to
cause such insurers to pay, to or on behalf of the Indemnitee, all amounts
payable as a result of such proceeding in accordance with the terms of such
policy.
(c) In the event the Company shall be obligated to pay the expenses of
the Indemnitee in connection with any proceeding, the Company shall be entitled
to assume the defense of such proceeding, with counsel approved by the
Indemnitee, upon the delivery to the Indemnitee of written notice of its
election to do so. After delivery of such notice, approval of such counsel by
the Indemnitee and the retention of such counsel by the Company, the Company
will not be liable to the Indemnitee under this Agreement for any fees of
counsel or other expenses subsequently incurred by the Indemnitee with respect
to the same proceeding; provided that (i) the Indemnitee shall have the right to
employ his own counsel in any such proceeding at the Indemnitee's expense and
(ii) if (A) the employment of counsel by the Indemnitee has been previously
authorized by the Company, or (B) the Indemnitee shall have reasonably concluded
that there is a conflict of interest between the Company and the Indemnitee in
the conduct of any such defense, or (C) the Company shall not, in fact, have
employed counsel to assume the defense of such proceeding, the fees and expenses
of the Indemnitee's counsel shall be paid by the Company; and provided further
that the Company shall not be required to pay the expenses of more than one such
separate counsel for persons it is indemnifying in any one proceeding.
7. Determination of Right to Indemnification.
(a) To the extent the Indemnitee has been successful on the merits or
otherwise in defense of any proceeding referred to in Section 3 or in the
defense of any claim, issue or matter described therein, the Company shall
indemnify the Indemnitee pursuant to Section 3 against expenses actually and
reasonably incurred by him in connection with the investigation, defense, or
appeal of such proceeding. If the Indemnitee has not been successful on the
merits or otherwise in any such defense, the Company also shall indemnify the
Indemnitee pursuant to Section 3 unless, and only to the extent that, the
Indemnitee has not met the applicable standard of conduct under the Company's
Certificate of Incorporation required to entitle the Indemnitee to such
indemnification.
-4-
<PAGE>
(b) Subject to the provisions of Section 8 relating to a Change in
Control (as defined therein), the determination as to whether the Indemnitee is
entitled to indemnification shall be made as follows: (1) if requested by the
Indemnitee, by Independent Legal Counsel selected by the Indemnitee with the
consent of the Company (which consent shall not be unreasonably withheld) or (2)
if no request is made by the Indemnitee for a determination by Independent Legal
Counsel, (i) by a quorum of the Board of Directors consisting of Disinterested
Directors or (ii) if such quorum is not obtainable or, even if obtainable, if a
quorum of Disinterested Directors so directs, by Independent Legal Counsel in a
written opinion. If Independent Legal Counsel shall make such determination,
the Company agrees to pay the reasonable fees of such counsel and to indemnify
such counsel fully against any and all expenses (including attorneys' fees),
claims, liabilities and damages arising out of or relating to this Agreement or
counsel's engagement pursuant hereto.
(c) Notwithstanding a determination that the Indemnitee is not
entitled to indemnification with respect to a specific proceeding, the
Indemnitee shall have the right to apply to the court of Chancery of Delaware,
the court in which that proceeding is or was pending or any other court of
competent jurisdiction, for the purpose of enforcing the Indemnitee's right to
indemnification or the advance payment of expenses pursuant to this Agreement.
The burden of proof shall be on the Company in any such suit to demonstrate by
the weight of the evidence that the Indemnitee is not entitled to
indemnification or advance payment of expenses. The Indemnitee's expenses
incurred in successfully establishing his right to indemnification or
advancement of expenses, in whole or in part, in any such action (or settlement
thereof) shall be paid by the Company.
(d) Notwithstanding anything in Sections 3 or 4 to the contrary, the
Company shall not be liable under this Agreement to make any indemnity payment
or advancement of expenses in connection with any proceeding (i) to the extent
that payment is actually made, or for which payment is available, to or on
behalf of the Indemnitee under an insurance policy, except in respect of any
amount in excess of the limits of liability of such policy or any applicable
deductible under such policy; (ii) to the extent that payment has been or will
be made to the Indemnitee by the Company otherwise than pursuant to this
Agreement; or (iii) to the extent that there was a final adjunction by a court
of competent jurisdiction that the Indemnitee has not met the applicable
standard of conduct required to entitle the Indemnitee to indemnification under
the Delaware General Corporation Law as it now exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Company to provide broader indemnification rights than
said law permitted the Company to provide prior to such amendment).
8. Change In Control.
(a) The Company agrees that if there is a Change in Control, as
defined below, of the Company (other than a Change in Control which has been
approved by a majority of the members of the Board of Directors who were
directors immediately prior to such Change in Control), then with respect to all
matters thereafter arising concerning the rights of the Indemnitee to indemnity
payments and advance payments of expenses under this Agreement the Company shall
seek legal advice only from Independent Legal Counsel selected by the Indemnitee
with the consent of the Company (which shall not be unreasonably withheld).
Such counsel, among other things,
-5-
<PAGE>
shall render a written opinion to the Company and the Indemnitee as to whether
and to what extent the Indemnitee would be permitted to be indemnified under
this Agreement and applicable law. The Company agrees to pay the reasonable
fees of the Independent Legal Counsel and to indemnify such counsel fully
against any and all expenses (including attorneys' fees), claims, liabilities
and damages arising out of or relating to this Agreement or counsel's engagement
pursuant hereto.
(b) Alternatively, the Indemnitee may choose to submit all matters
arising concerning his rights to indemnity payments and advance payments of
expenses under this Agreement to a panel of three arbitrators, one of whom is
selected by the Company, another of whom is selected by the Indemnitee and the
third of whom is selected by the first two arbitrators so selected. Any such
submission shall be governed by the Commercial Arbitration Rules of the American
Arbitration Association and shall be deemed to be a submission within the
meaning of the Federal Arbitration Act or any statutory modification or re-
enactments thereof. Arbitration proceedings shall take place in Chicago,
Illinois, unless otherwise agreed to by the parties.
(c) "Change in Control" for purposes of this Agreement shall be deemed
to have occurred if (a) any "person" (as such term is used in Section 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder), other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or a corporation owned
directly or indirectly by the stockholders of the Company in substantially the
same proportions as their ownership of stock of the Company, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing 20% or more of the total
voting power represented by the Company's then outstanding voting securities,
except that a person who as of the date of this Agreement owns 20% or more of
the total voting power represented by the Company's outstanding voting
securities shall not be deemed to have caused a Change in Control, or (b) during
any period of two consecutive years, individuals who at the beginning of such
period constitute the Board of Directors and any new director whose election by
the Board of Directors or nomination for election by the Company's stockholders
was approved by a vote of at least two-third (2/3) of the directors then still
in office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof, or (c) the stockholders of the Company
approve a merger, plan of complete liquidation of the Company, an agreement for
the sale or disposition by the Company of all or any substantial part of the
Company's assets, or other business combination of the Company with any other
corporation, other than a business combination which would result in the voting
securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least 80% of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such business combination.
9. Limitation of Actions and Release of Claims. No proceeding shall
be brought and no cause of action shall be asserted by the Company or any
subsidiary or by any stockholder on behalf of the Company or any subsidiary
against the Indemnitee, his spouse, heirs, estate, executors or administrators
after the expiration of one year from the act or omission of the Indemnitee upon
which such proceeding is based; provided, however, that in the event that the
-------- -------
Indemnitee has
-6-
<PAGE>
fraudulently concealed the facts underlying such cause of action, no proceeding
shall be brought and no cause of action shall be asserted after the expiration
of one year from the earlier of (i) the date the Company or any subsidiary of
the Company discovers such facts or (ii) the date the Company or any subsidiary
of the Company could have discovered such facts by the exercise of reasonable
diligence. Any claim or cause of action of the Company or any subsidiary of the
Company, including claims predicated upon the negligent act or omission of the
Indemnitee, shall be extinguished and deemed released unless asserted by filing
of a legal action within such period. This Section 9 shall not apply to any
cause of action which has accrued on the date hereof and of which the Indemnitee
is aware on the date hereof but as to which the Company has no actual knowledge
apart from the Indemnitee's knowledge.
10. Non-exclusivity. The provisions for indemnification and advancement of
expenses set forth in this Agreement shall not be deemed exclusive of any other
rights which the Indemnitee may have under any provision of law, the Company's
Certificate of Incorporation or By-Laws, the vote of the Company's stockholders
or Disinterested Directors, other agreements, or otherwise, both as to
administrators in his official capacity and to action in another capacity while
occupying his position as an agent of the Company, and the Indemnitee's rights
hereunder shall continue after the Indemnitee has ceased acting as an agent of
the Company and shall inure to the benefit of the heirs, executors and
administrators of the Indemnitee.
11. Settlement. The Company shall not be liable to indemnify the
Indemnitee under this Agreement for any amounts paid in settlement of any
proceeding without its written consent, which consent shall not be unreasonably
withheld. The Company shall not settle any proceeding which would impose any
penalty or limitation on the Indemnitee without the Indemnitee's written
consent, which consent shall not be unreasonably withheld. In the event that
consent is not given and the parties hereto are unable to agree on a proposed
settlement, Independent Legal Counsel shall be retained by the Company, at its
expense, with the consent of the Indemnitee, which consent shall not be
unreasonably withheld, for the purpose of determining whether or not the
proposed settlement is reasonable under all the circumstances; and if
Independent Legal Counsel determines the proposed settlement is reasonable under
all the circumstances, the settlement may be consummated without the consent of
the other party.
12. Subrogation Rights. In the event of any payment under this Agreement,
the Company shall be subrogated to the extent of such payment to all of the
rights of recovery of the Indemnitee against any person or organization and the
Indemnitee shall execute all papers required and shall do everything that may be
reasonably necessary to secure such rights.
13. Interpretation of Agreement. It is understood that the parties hereto
intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Indemnitee to the full extent now or hereafter not
prohibited by law. Indemnitee's rights hereunder shall apply to claims made
against Indemnitee arising out of acts or omissions which occurred prior to the
date hereof as well as those which occur after the date hereof.
14. Severability. If any provision or provisions of this Agreement shall
be held to be invalid, illegal or unenforceable for any reason whatsoever, (i)
the validity, legality and
-7-
<PAGE>
enforceability of the remaining provisions of this Agreement (including, without
limitation, all portions of any paragraph of this Agreement containing any such
provision held to be invalid, illegal or unenforceable, that are not themselves
invalid, illegal or unenforceable) shall not in any way be affected or impaired
thereby and (ii) to the fullest extent possible, the provisions of this
Agreement (including, without limitation, all portions of any paragraph of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable and to give effect to
Section 13.
15. Modification and Waiver. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this agreement shall be
deemed or shall constitute a waiver of any other provision hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
16. Successors and Assigns. The terms of this Agreement shall bind, and
shall inure to the benefit of, the successors and assigns of the parties hereto.
17. Notices. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) on
the date of delivery if delivered by hand or (ii) on the second business day
after being deposited in the U.S. mail (registered or express), postage prepaid.
Addresses for notice to either party are as shown on the signature page of this
Agreement, or as subsequently modified by written notice. Each party agrees to
receipt for any notice received promptly upon request.
18. Governing Law. This Agreement shall be governed exclusively by and
construed according to the laws of the State of Delaware, as applied to
contracts between Delaware residents entered into and to be performed entirely
within Delaware.
19. Consent to Jurisdiction. The Company and the Indemnitee each hereby
irrevocably consents to the jurisdiction of the courts of the State of Delaware
and the Company irrevocably consents to the jurisdiction of any court in which
an Indemnitee brings action pursuant to Section 7(c), for all purposes in
connection with any proceeding which arises out of or relates to this Agreement.
The Company agrees not to initiate any such action or proceeding in any state
other than Delaware.
* * * * *
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this Indemnification
Agreement effective as of the date first above written.
Wesley Jessen VisionCare, Inc.
333 East Howard Avenue
Des Plaines, IL 60018-5903
By: _______________________________________
Its: ______________________________________
INDEMNITEE:
____________________________________________
Title:______________________________________
Address: ___________________________________
____________________________________________
-9-
<PAGE>
EXHIBIT 10.12
DATED 21ST OCTOBER 1988
-----------------------
MARWELL PROPERTY INVESTMENTS LIMITED
- and -
COOPERVISION HOLDINGS
-----------------------------
L E A S E
relating to
Unit 8 The Solent Industrial
Estate Hedge End
Southampton
-----------------------------
DAVIES ARNOLD & COOPER
12 Bridewell Place
London
EC4V 6AD
Tel: 01-353 6555
Ref: 25/025/FA21/9/9/88
<PAGE>
THIS LEASE is made the 21st day of October One thousand nine hundred and eighty-
- ----------
eight B E T W E E N (1) MARWELL PROPERTY INVESTMENTS LIMITED whose registered
------------- ------------------------------------
office is at 437A Midsummer Boulevard Saxon Gate West Central Milton Keynes
(hereinafter called "the Landlord") and (2) COOPERVISION HOLDINGS whose
---------------------
registered office is at Permalens House 1 Botley Road Hedge End Southampton
(hereinafter called "the Tenant")
WITNESSETH as follows:-
- ----------
Interpretation
- --------------
1. In this Lease and in the Schedules hereto:-
(1) Words importing one gender shall include all other genders and
words importing the singular shall include the plural and vice versa
(2) The headings to the clauses hereof and Schedules hereto shall be
deemed not to form any part hereof and shall not affect the interpretation
hereof in any way
(3) Where the Tenant consists of two or more persons all covenants and
agreements by and with the Tenant shall be
<PAGE>
construed as covenants and agreements by and with such persons jointly and
severally
(4) Where the context so requires or admits the following words and
expressions shall have the following meanings:-
(a) "the Landlord" shall include the estate owner or owners for the
time being of the reversion immediately expectant on the term hereby granted and
shall also include all superior landlords
(b) "the Tenant" shall include the Tenant's successors in title
(c) "the demised premises" shall mean the premises described in the
First Schedule hereto together with all additions and improvements at any time
and from time to time made thereto and all fixtures and fittings installed by
the Landlord of every kind which shall from time to time be in or upon the said
premises (whether originally affixed or fastened to or upon the same or
otherwise) except tenants and trade fixtures
2
<PAGE>
(d) "the Estate" shall mean the industrial complex situated at Hedge
End Southampton known as The Solent Industrial Estate shown on the plan annexed
hereto and thereon edged in blue or such other larger or smaller area as the
Landlord may in its discretion from time to time stipulate
(e) "the common parts" shall mean all those parts of the Estate shown
coloured yellow and brown on the plan annexed hereto and also those parts (if
any) of the Estate which are not included or intended to be included in any
lease granted or to be granted by the Landlord the Landlord reserving to itself
the right from time to time when necessary in the interests of good estate
management of amending or varying the general layout of the Estate and/or the
common parts but not the demised premises Provided Always that such amendments
or variations shall cause as little inconvenience as possible to the Tenant in
the use and enjoyment of the demised premises
(f) "the said term" shall mean the term hereby granted and any statutory
continuation or extension thereof
3
<PAGE>
(g) "determination of the said term" shall mean the determination of
the said term whether by effluxion of time re-entry notice surrender or any
other means or cause whatsoever
(h) "the specified period" shall mean the period of eighty years from
the date of this Lease which shall be the perpetuity period applicable to these
Presents
(i) "the Planning Acts" shall mean the Town and Country Planning Acts
1971 and 1972 the Town and Country Planning (Amendments) Act 1977 the Town and
Country Amenities Act 1974 and the Local Government Planning and Land Act 1980
(j) "these presents" shall mean this Lease and the Schedules thereto
any licence granted pursuant thereto any deed of variation of the provisions
hereof and any instrument made supplemental hereto
(k) "insured risks" shall mean the risks from time to time covered by
the policy or policies of insurance
4
<PAGE>
effected by the Landlord pursuant to its covenant hereinafter contained
(l) "prescribed rate" shall mean interest at an annual rate of 2%
above the base lending rate of Midland Bank Plc applicable from time to time
during any period during which any payment of interest accrues due under these
presents
(5) These presents shall unless the context otherwise requires be construed on
the basis that:
(a) any reference to any Act or any section of any Act shall be deemed
to include any amendment modification or re-enactment thereof and any statutory
instrument bye-law rule directive order or regulation made thereunder for the
time being in force
(b) any covenant by the Tenant not to do any act or thing shall be
deemed to include a covenant not to suffer or permit the doing of that act or
thing
5
<PAGE>
(c) covenants and obligations made or assumed by any party shall be
binding and enforceable against his personal representatives
2. IN consideration of the rents covenants and conditions hereinafter reserved
and contained and on the part of the Tenant to be paid performed and observed
the Landlord HEREBY DEMISES unto the Tenant ALL THAT the premises described in
------ ------- --------
the First Schedule hereto TOGETHER WITH (in common with the Landlord and all
-------------
other persons entitled thereto and subject to the exceptions reservations and
provisions hereinafter contained) the rights and privileges set out in the
Second Schedule hereto EXCEPT AND RESERVING unto the Landlord and its lessees
--------------------
tenants agents servants licensees and other persons claiming through or under
the Landlord and all other persons who now have or may hereafter be entitled to
or are granted by the Landlord a similar right or rights the easements rights
and privileges specified in the Third Schedule hereto TO HOLD the same unto the
-------
Tenant subject to any rights of statutory or other undertakings in respect of
services to the Estate and the demised premises now existing or to be created
within the specified period for a term of Twenty Years from the 25th day of
March 1988 hereof PAYING therefor throughout the said term and so in proportion
------
for any less time than a year FIRST the
-----
6
<PAGE>
yearly rent of NINETEEN THOUSAND POUNDS ((Pounds)19,000.00) by four equal
------------------------
quarterly payments in advance on the usual quarter days in every year without
deduction whatsoever the first of such quarterly payments hereof for the period
of the 25th day of March 1988 until the 24th day of June 1988 shall be paid on
the signing hereof AND SECONDLY by way of further rent an amount equal to that
------------
incurred by the Landlord from time to time in complying with the covenant in
clause 4(l) hereof for the insurance of the demised premises such rent to be
paid on demand AND THIRDLY by way of further rent a contribution payable in
-----------
accordance with the provisions of the Fourth Schedule hereto in respect of the
service charge mentioned in the said Fourth Schedule (together with any Value
Added Tax due and payable thereon) the first payment of rents under this Lease
being made on the execution hereof PROVIDED ALWAYS that in the event of the said
---------------
rents or any part thereof being in arrear for more than 14 days whether in the
case of the rent first hereinbefore reserved lawfully demanded or not the Tenant
shall pay interest calculated on a daily basis with quarterly rests at the
Prescribed Rate on the amount in arrear from the day on which it became payable
until the day payment is made and to be payable to the Landlord on demand
without prejudice to any other rights the Landlord may enjoy and the aggregate
amount for the time being so payable shall at the
7
<PAGE>
option of the Landlord be recoverable by action or as rent in arrear
Tenants covenants
- -----------------
3. THE Tenant HEREBY COVENANTS with the Landlord as follows:-
----------------
To pay rent
-----------
(1) To pay the rents hereby reserved and any interest on arrears of
rent as hereinbefore provided on the days and in manner aforesaid without any
deduction whatsoever
Taxes
-----
(2) To bear pay and discharge all existing and future rates taxes
levies assessments duties outgoings charges and impositions whatsoever (whether
imposed by statute or otherwise and whether of a national or local character)
now or at any time or times during the said term assessed imposed or charged
upon or payable in respect of the demised premises or any part or parts thereof
and whether payable by the Landlord or Tenant or by the owner or occupier
thereof save for any tax assessable on the Landlord in respect of the rents
payable hereunder or in respect of any dealing with the reversion either
mediately or immediately expectant on the term hereof
8
<PAGE>
V.A.T.
------
(3) To pay to the Landlord or (as the case may be) to its solicitors
surveyors or other agents to whom any payment is due under the covenants
agreements and provisions herein contained or implied which is a payment whereon
Value Added Tax or other similar fiscal charge is chargeable if the Landlord is
not eligible to treat as an input credit the amount of Value Added Tax or other
similar fiscal charge chargeable in respect of the payment at the rate
applicable to that payment
Gas electricity and water charges
---------------------------------
(4) To pay for all gas and electricity and water consumed on or by the
demised premises and all telephone charges and to observe and perform at the
Tenants expense all present and future regulations and requirements of the gas
and electricity and water supply authorities and the Post Office concerning the
demised premises and to keep the Landlord indemnified in respect thereof and to
reimburse to the Landlord a properly apportioned part (to be determined by the
Landlord in case the same is not separately metered or gauged) of all sums paid
by the Landlord from time to time to the electricity gas or water supply
authorities or to the Post Office in respect
9
<PAGE>
of any consumption or supply of electricity gas or water or telephone or in
respect of any connection to or alteration or repair of the wiring or piping or
other machinery or equipment in or about the Estate used for electricity or
water supply or gas or telephone which benefits the demised premises or any part
thereof
Repair
- ------
(5) At all times during the said term to keep and maintain the whole
of the demised premises in good and substantial order repair and condition and
in whole or in part rebuild or renew the same as necessary (except damage by the
insured risks provided such policy or policies shall not have become vitiated or
payment of the policy monies refused in whole or in part in consequence of some
act neglect or default of the Tenant or of any sub-tenant or any other party
under the control of the Tenant) PROVIDED THAT nothing contained in this sub-
-------------
clause shall require the Tenant to put or keep the demised premises in any
better state of repair or condition than the same are in at the date hereof
10
<PAGE>
Decoration
----------
(6) Without prejudice to the generality of the next preceding sub-
clause in every fifth year of the said term and also in the year preceding the
determination of the said term to paint in a proper and workmanlike manner all
the inside wood iron and other parts heretofore or usually painted of the
demised premises with a sufficient number of coats of good quality paint and
also with every such internal painting to clean wash stop whiten distemper and
otherwise decorate and treat in a proper and workmanlike manner all such
internal parts of the demised premises that have been so treated and also in
every third year of the said term and in the year preceding the determination of
the said term (unless the last exterior painting was done within twelve months
of the date of such determination) to paint in a proper and workmanlike manner
all the external parts heretofore or usually painted and all additions thereto
with a sufficient number of coats of good quality paint and so that in the year
preceding the determination of the said term the tints or colours on each
occasion to be approved in writing by the Landlord (such approval not to be
unreasonably withheld) and french polish or otherwise treat in a good and
workmanlike manner using good quality
11
<PAGE>
materials all exterior parts of the demised premises as are usually or
heretofore french polished or otherwise treated AND to wash down all tiles
cladding glazed bricks or polished stone or similar washable surfaces and
repoint all brickwork as and what required and to keep the windows of the
demised premises properly cleaned inside and outside and to keep any part of the
demised premises not covered by buildings in a neat and tidy condition and free
from weeds
Yield Up
--------
(7) At the determination of the said term quietly to yield up to the
Landlord the demised premises duly painted repaired cleaned maintained amended
and kept in accordance with the covenants in that behalf herein contained
Provided however that the Tenant may prior to the date of such expiration or
determination remove all tenants or trade fixtures making good nevertheless at
the expense of the Tenant and to the reasonable satisfaction of the Landlord any
damage to the demised premises caused by such removal and shall remove all the
Tenants furniture fittings papers and refuse and so that the Landlord may treat
as abandoned by the Tenant and may arrange for the removal and destruction of
any such
12
<PAGE>
fixtures and other items not removed by the Tenant at the expiration or
determination and the cost of such removal and destruction shall be paid by the
Tenant to the Landlord on demand
Fire Fighting Equipment
-----------------------
(8) To keep the demised premises sufficiently supplied and equipped
with fire fighting and extinguishing apparatus and appliances which shall be
open to the inspection and maintained to the reasonable satisfaction of the
Landlord and to the satisfaction of the local fire authority and
of insurers and also not to obstruct the access to or means of working of such
apparatus and appliances
Entry for Repairs
-----------------
(9) To permit the Landlord and any person authorised by it upon at
least 48 hours prior written notice (except in emergency) to enter upon the
demised premises at all reasonable hours during the daytime to view the state
and condition and user of the same and the landlord's fixtures and fittings
therein and of all defects decays and wants of reparation there found for which
the Tenant shall be responsible hereunder to give notice in writing to the
Tenant and within two months next after every such
13
<PAGE>
notice as aforesaid (or immediately in case of need) to commence to repair well
and substantially and make good all such defects decays and wants of reparation
to the demised premises and the fixtures and fittings therein for which the
Tenant is liable hereunder PROVIDED ALWAYS that if the Tenant shall make default
in the execution of the repairs and works referred to in such notice it shall be
lawful for the Landlord and any persons authorised by the Landlord (but without
prejudice to the right of re-entry hereinafter contained) to enter upon the
demised premises and execute such repairs and works and the cost thereof
(including any surveyors or other fees incurred and whether or not such repairs
and works are executed by the Landlord) shall be repaid by the Tenant to the
Landlord on demand together with interest on the expenses incurred by the
Landlord under the above proviso in accordance with the terms of the proviso to
clause 2 of this Lease relating to late payments of rents
Taking inventories
------------------
(10) To permit the Landlord and any person authorised by the Landlord
to enter upon the demised premises at all reasonable hours during the daytime by
prior written appointment to take schedules or inventories of
14
<PAGE>
landlord's fixtures and fittings and things to be yielded up at the
determination of the said term
Acts of Parliament
------------------
(11) To observe and comply with the provisions and requirements of
every enactment (which expression in this Lease includes as well every Act of
Parliament already or hereafter to be passed as every order regulation and bye-
law already or hereafter to be made under or in pursuance of any such Act and
without prejudice to the generality of the foregoing specifically includes the
Factories Acts the Offices Shops and Railway Premises Act 1963 the Health and
Safety at Work etc Act 1974 and every order and regulation made or to be made
thereunder) so far as they relate to or affect the demised premises and maintain
all arrangements which by or under any enactment or bye-law are or may be
required at any time during the said term to be executed provided or maintained
whether by the Landlord or the Tenant and to indemnify the Landlord at all time
against all costs charges and expenses of or incidental to the execution of any
works or the provision of maintenance of any arrangements so required as
aforesaid and not at any time during the said term to do or omit or suffer to be
done or omitted in or
15
<PAGE>
about the demised premises any act or thing by reason of which the Landlord say
under any enactment incur or have imposed upon it or become liable to pay any
penalty damages compensation costs charges or expenses
Planning Acts
-------------
(12)(i) To comply in all respects during the currency of this Lease
with the provisions and requirements of the Planning Acts and all licences
consents permissions and conditions (if any) granted or imposed thereunder or
under any enactment repealed thereby so far as the same respectively relate to
or affect the demised premises or any parts thereof or any operations works acts
or things already or hereafter to be carried out executed done or omitted
thereon or the use thereof for any purpose and to pay any development charge or
other charge imposed in respect of any such matter arising from any act
commission or omission whatsoever of the Tenant or any party under the control
of or on behalf of the Tenant and indemnify the Landlord against all proceedings
expenses claims and demands in respect of any contravention by the Tenant of any
provision of the Planning Acts
16
<PAGE>
(ii) Not to do on or in relation to the demised premises anything by
reason of which the Landlord may under any enactment whatever become liable to
pay any penalty damages costs compensation charge levy tax or other monies and
in any event
Subject only to any statutory requirement to the contrary to pay and satisfy any
charge levy tax or other monies which may now or hereafter be imposed whether on
the Landlord or the Tenant under any such enactment in respect of any
development or alteration or any change or continuation of use or other like
matter relating to the demised premises by the Tenant or any Sub-tenant or
occupier of the demised premises which shall occur during the said term
Copies of Notices
-----------------
(13) Within seven days of the receipt by the Tenant of the same to
supply a copy to the Landlord of any notice or order or proposal for a notice or
order or licence consent permission or direction given or made under any
enactment and any regulations orders and instruments made thereunder and
relating to the demised premises And to permit the Landlord and all persons
authorised by it at
17
<PAGE>
all reasonable times during the daytime upon at least 48 hours prior written
notice to enter upon the demised premises to inspect the same for any purpose in
connection with any such notice order proposal licence consent permission or
direction
Join with Landlord in making Appeals etc,
-----------------------------------------
(14) At the request and cost of the Landlord to make or join with the
Landlord in making any objection representation or appeal in respect of any such
notice order proposal or direction as aforesaid or any refusal of or condition
imposed under any such licence consent or permission as aforesaid save where to
do so would be prejudicial to the Tenant's enjoyment of the demised premises
No application for Planning Permission
--------------------------------------
(15) Not to make or suffer to be made without the consent of the
Landlord (such consent not to be unreasonably withheld or delayed) any
application for consent or permission to carry out or commence any development
(within the meaning of the Planning Acts) on or by reference to the demised
premises
18
<PAGE>
Complete Developments within Term
---------------------------------
(16) Unless the Landlord shall otherwise direct to carry out before
the determination of the said term any works (the carrying out of which is
otherwise permitted hereunder) required to be carried out in or on the demised
premises by a date subsequent to such determination as a condition of any
planning permission which may have been granted to and implemented by the Tenant
during the said term
Compensation
------------
(17) If the Tenant shall receive any compensation because of any
restriction placed upon the user of the demised premises or any part thereof
under or by virtue of the Planning Acts then if and when its interest hereunder
shall be determined under the power of re-entry herein contained or otherwise
forthwith to make such provision as is just and equitable for the Landlord to
receive its due benefit from such compensation unless the compensation authority
shall otherwise order
(18) To afford the Landlord during the six months preceding the
determination of the said term all reasonable facilities for the purpose of
letting the demised premises or at any time on prior reasonable written
19
<PAGE>
notice during the said term of selling valuing or charging the same including
access to the demised premises by the Landlord or by prospective tenants or
purchasers or others having written authority from the Landlord PROVIDED THAT no
-------------
inconvenience or disruption is caused to the Tenant
Assignment and underletting
---------------------------
(19)(a) Save as hereinafter expressly provided not to agree to nor
assign transfer underlet or part with or share the possession or occupation of
nor grant any occupational licence in respect of the whole of the demised
premises or any part or parts thereof nor to charge any part or parts thereof
(b) Not to assign the demised premises (here meaning the whole
thereof) without the previous consent in writing of the Landlord which consent
shall not be unreasonably withheld or delayed in the case of a respectable and
responsible Assignee of satisfactory financial standing subject to such Assignee
if the Landlord so requires first entering into a direct covenant with the
Landlord to observe and perform the covenants on the part of the Tenant
20
<PAGE>
herein contained during the residue of the said term and to pay the rents hereby
reserved and not further to assign or underlet or part with or share the
possession or occupation of the demised premises or any part thereof except on
the said terms as are herein contained and also subject if the Landlord shall so
require in the case of any Assignee who shall be a corporate body without a
quotation on a recognised stock exchange and in the absence of any other
acceptable security to not less than two Guarantors (of a financial status
acceptable to the Landlord) first to enter into a direct covenant with the
Landlord for guaranteeing the observance and performance of the covenants on the
part of the Tenant herein contained and secondly to covenant with the Landlord
that in the event of the Tenant during the said term becoming bankrupt or
entering into liquidation and the trustee in such bankruptcy or the liquidator
as the case may be disclaiming these presents the Guarantor shall accept from
the Landlord a new lease of the demised premises for a term equal in duration to
the residue remaining unexpired of the said term at the date of disclaimer such
lease to
21
<PAGE>
contain the same terms in all respects (including the proviso for re-
entry) as are contained in these presents
(c) Not without the Landlords prior written consent (not to be
unreasonably withheld or delayed) to underlet the whole of the demised premises
except on the same terms than those therein contained at a rent not less than
that payable hereunder at the date of such Underleass (all commutations premiums
and fines being hereby expressly prohibited) which shall be subject to review at
such intervals as shall be normal in the market for similar property at the time
of the grant thereof (but in any event at least as often as required by these
presents and simultaneous therewith) PROVIDED ALWAYS that the Tenant shall not
---------------
be entitled (and is hereby expressly prohibited therefrom) to sub-let other than
for occupation
(d) Any underlease granted under this sub-clause shall contain
22
<PAGE>
(i) An unqualified covenant on the part of the Underlessee not to
assign transfer or underlet or part with possession or occupation of part or
parts only of the demised premises
(ii) A covenant on the part of the Underlessee that the Underlessee
will not assign or underlet the whole of the demised premises without obtaining
the previous written consent of Marwell Property Investments Limited or other
the Landlord under these presents (such consent not to be unreasonably withheld)
and of the Tenant under these presents and to provide in such Underlease that
any sub-underleases granted out of such Underlease whether immediate or mediate
shall contain similar provisions to those contained in this subclause (19)
(e) Notwithstanding the foregoing provisions of this sub-clause the
Tenant may share possession or occupation of part of the demised premises (as
distinct from the whole) with or in favour of any subsidiary or associated
company for so long as
23
<PAGE>
such relationship subsists and provided that no relationship of landlord and
tenant is thereby created
(f) Within one month of every permitted assignment transfer underlease
(whether mediate or derivative) parting with possession or occupation of these
presents or of the demised premises to give notice thereof in writing with
particulars thereof to the Landlord's Solicitors and produce to them a certified
copy of such instrument (free of expense to the Landlord) for retention by the
Landlord and to pay to them a reasonable registration fee of fifteen pounds
((Pounds)l5.00) in respect of each instrument
(g) Upon every application for consent required by this sub-clause
(19) to disclose to the Landlord such information as to the terms proposed by
the Tenant as the Landlord may reasonably require and whenever required by the
Landlord to provide in writing full details of the actual occupation of the
demised premises
24
<PAGE>
(20) To indemnify and keep indemnified the Landlord from liability in
respect of any injury to or the death of any person damage to any property (real
and personal) the infringement disturbance or destruction of any right easement
or privilege or otherwise by reason of or arising directly or indirectly out of
the repair state of repair condition or any alteration to or to the use herein
permitted of the demised premises by the Tenant and from all proceedings costs
claim and demands of whatsoever nature in respect of any such liability or
alleged liability
(21) To pay to the Landlord all reasonable costs charges and expenses
(including legal costs and fees payable to a Surveyor) which may be reasonably
incurred by the Landlord in or in contemplation of or incidental to any
proceedings under Sections 146 and 147 of the Law of Property Act 1925 and
preparation and service of any notice in respect thereof notwithstanding
forfeiture for any breach by the Tenant shall be avoided otherwise than by
relief granted by the Court or for the purpose of or in reasonable contemplation
of or incidental to the preparation and service or justifiable schedules of
dilapidations or notice under the foregoing provisions of
25
<PAGE>
this Sub-clause during the said term or within three months after the
determination thereof
User
----
(22)(a) To use and occupy the demised premises for the purpose only of
uses within the meaning of Class Bl of The Town & Country Planning (Use Classes)
Order 1987 or for such other use for which the Landlord may give previous
consent in writing (such consent not to be unreasonably withheld) and for which
the consent of the Planning Authority for the time being shall have been
obtained
(b) Not to use or allow the demised premises or any part thereof to be
used for residential or sleeping purposes
(c) Not to use any other part of the Estate than the demised premises
for the parking of motor or other vehicles
(d) Not to load or unload or pack or stack upon any of the common
parts except those parts (if any) designated for that purpose
26
<PAGE>
Alterations
-----------
(23) Not at any time during the said term to damage interfere with or
make any addition to or alteration in the demised premises or any party wall or
any service conduit apparatus or installation therein but nothing herein
contained shall prevent the Tenant with the prior written consent of the
Landlord (which shall not be unreasonably withheld or delayed) from making
internal non-structural alterations and it may without such consent erect or
remove from time to time demountable partitioning PROVIDED ALWAYS that at the
---------------
determination of the said term the Tenant shall at the request of the Landlord
dismantle and remove all non-structural internal alterations and demountable
partitioning then in the demised premises and reinstate the demised premises and
make good forthwith any damage caused
Advertisements
--------------
(24) Not to exhibit affix to or display or permit or suffer to be
exhibited affixed to or displayed on or from the exterior of the demised
premises or on the external walls rails or fences thereof any sign signboard
fascia placard lettering notice price label blind flag pennant sky-sign or any
advertisement of any kind whatsoever except such
27
<PAGE>
as shall have been previously approved in writing by the Landlord such approval
not to be unreasonably withheld or delayed in the case of the usual trade signs
of the Tenant and in the event of any such approval being given to observe the
terms thereof and at the determination of the said term to remove every such
thing so approved and forthwith make good the demised premises Provided Always
that the Tenant shall have the right in common with others to place its name
upon any general estate board erected for the purpose subject to the same being
previously approved by the Landlord
Floor loading
-------------
(25) Not to knowingly place or suspend any object of excessive weight
on or from the floors ceilings roofs or walls or structure of the demised
premises nor without the Landlord's previous written consent not to be
unreasonably withheld or delayed to set up or permit to be set upon on any part
of the demised premises any steam gas or electric or other boiler engine machine
or mechanical contrivance other than the Tenant's usual business machinery
28
<PAGE>
Not to prejudice insurance
--------------------------
(26) (a) Not to do in or on the demised premises or the Estate
anything whereby the insurance of the Estate the demised premises or the
Landlords fixtures and fittings against the insured risks may be vitiated or
prejudiced nor without the consent of the Landlord do or allow to be done
anything whereby any additional premium may become payable for the insurance of
the demised premises or of any other parts of the Estate and in the event of any
Landlords insurance policy for the Estate or any part thereof being vitiated in
consequence of any act action or omission of the Tenant or any Sub tenant of the
Tenant fully and effectually to indemnify the Landlord against all costs claims
proceedings or losses resulting from any damage or injury to the Estate or any
part thereof in respect of which compensation is not forthcoming from the
Landlords insurance company and against all costs of any increased or additional
premiums incurred by the Landlord
(b) To notify the Landlord forthwith upon becoming aware of the same
of any damage to or destruction
29
<PAGE>
of the demised premises or any part thereof occasioned by the occurrence of any
of the insured risks
(c) In the event of the Estate or the demised premises or any part
thereof being damaged or destroyed by any of the insured risks at any time
during the said term and the insurance money under any insurance effected
thereon by the Landlord being wholly or partially irrecoverable by reason of any
act or default of the Tenant or of any Sub-tenant of the Tenant then and in
every such case the Tenant will forthwith (in addition to the said rents) pay to
the Landlord the whole (or as the case may require) a fair proportion of the
cost of rebuilding and reinstating the same any dispute as to the proportion to
be so contributed by the Tenant or otherwise in respect of or arising out of
this provision to be referred to arbitration in accordance with the provisions
of the Arbitration Act 1950
(d) Not without the prior written consent of the Landlord to effect
any insurance (other than that
30
<PAGE>
of plate glass) of any buildings on the demised premises but if at any time the
Tenant is entitled to the benefit of any insurance an the demised premises then
to apply all monies received by virtue of such other insurance towards making
good with all speed the loss or damage in respect of which the same shall have
been received.
Nuisance
--------
(27) Not to carry on or permit to be carried on upon the demised
premises or any part thereof the business to be carried on thereon in a noisy
noisome offensive or dangerous manner or do in or upon the demised premises or
any part thereof or the Estate any act matter or thing which my be or grow to be
or become a nuisance or an annoyance or a disturbance to the Landlord or its
tenants or lessees or the owners lessees or occupiers for the time being of any
premises forming part of the Estate
Auctions
--------
(28) Not at any time during the said term to hold or permit any sale
by auction to be held upon the demised premises or any part thereof without the
written consent of the Landlord for that purpose first obtained
31
<PAGE>
Obstruction etc
---------------
(29) (a) Not to do or permit any act or thing whereby the common
parts or any part thereof or any other part of the Estate may be damaged
interfered with or obstructed or the fair use thereof by others may be
hindered impeded or interfered with in any manner whatsoever and in particular
not to leave or permit to be left therein any goods or article of any kind and
to perform and observe and procure the performance and observance by all the
Tenants servants and agents and by all those coming into the Estate for any
purpose connected with the Tenants business of all bye-laws rules and
regulations of the local authority or other competent authority made from time
to time in relation to any part of the Estate
(b) Not to bring or allow to be brought into or upon nor permit to
remain in or upon the curtilage or the demised premises or the common parts or
any part thereof or any other part of the Estate or of any neighbouring or
adjoining premises any goods packaging or packing cases waste swarf trade
empties or any materials or other things of any
32
<PAGE>
kind whatsoever (so that the same shall only be brought into the building or
buildings at the demised premises) and particularly not to trade other than from
within the building or buildings at the demised premises
Fire regulations
----------------
(30)(a) Not to use or permit or suffer to be used on any account
except in case of fire or other emergency any doors or special exits provided
for escape in case of fire
(b) At all times to comply with and observe the requirements of the
relevant authorities having power to deal with means of escape from buildings in
the event of fire so far as such requirements affect the demised premises or the
fixtures fittings or furniture therein and in common with all other tenants of
the Estate entitled to use the same to comply with and observe all the
regulations of such authorities which may apply to the remainder of the Estate
33
<PAGE>
(c) Not to place or store in the demised premises or any part thereof
any article or thing which is or may become dangerous offensive combustible
inflammable or explosive without obtaining all required consents in relation
thereto
Encroachments etc.
------------------
(31) Not to stop up darken or obstruct any windows lights ventilators
or other openings belonging to the demised premises nor to permit any new
windows lights ventilators passage drainage or any other encroachment or
easement whatsoever to be made or acquired on or over the demised premises and
that in case any encroachment or easement shall be made or acquired or attempted
to be made or acquired the Tenant will immediately upon becoming aware of the
same give notice thereof to the Landlord and at the request and cost of the
Landlord will adopt such means as may be reasonably required or deemed proper
for preventing any such encroachment or the acquisition of any such easement
34
<PAGE>
Landlords Regulations
---------------------
(32) To perform and observe such reasonable rules and regulations as
the Landlord may from time to time make for the general management and conduct
of the Estate therein (particularly but without prejudice to the generality of
the aforesaid relating to the direction and flow of traffic) and the
appurtenances thereof and such regulations and all amendments modifications or
additions thereto when communicated in writing to the Tenant shall be deemed to
be incorporated in this Lease
Let or sale boards
------------------
(33) To permit the Landlord to enter upon the demised premises and
affix and retain without interference upon some part or parts thereof (but not
so as to obstruct the access of light and air to the demised premises) notice
for reletting or selling the same and to permit all persons with authority from
the Landlord at all reasonable hours during the daytime upon at least 48 hours
prior notice to enter and view the demised premises
Permit entry for repairing adjoining premises
---------------------------------------------
(34) To permit the Landlord and all others authorised by the Landlord
and the adjoining or neighbouring owners tenants
35
<PAGE>
and occupiers with or without workmen and others and plant materials and
equipment at all reasonable times during the day time and having made prior
written appointment (save in the case of emergency) to enter and remain upon the
demised premises so far as may be necessary in order to build walls (including
party walls) or to stop up any openings in walls dividing the demised premises
from other parts of the Estate or any adjoining or contiguous premises or to
repair or rebuild any part of the Estate or any adjoining or contiguous premises
belonging to the Landlord or to cleanse lay re-lay maintain renew empty or
repair any of the sewers drains conduits gutters watercourses pipes cables wires
machinery equipment apparatus mains and roads and common parts belonging to the
same and for all purposes connected with the Landlords obligations and rights
under these presents in circumstances where such works cannot otherwise
conveniently be carried out the person exercising such rights causing as little
noise dust damage and inconvenience as reasonably practicable and forthwith
making good all damage to the demised premises or any chattels thereon
occasioned by the exercise of such rights and causing as little interference as
is reasonably possible to the Tenant's use of the demised
36
<PAGE>
premises during the time that such work is being carried out AND ALSO that in
--------
case any dispute or controversy shall at any time or times arise between the
Tenant and the tenants or occupiers of any adjoining or contiguous premises
belonging to the Landlord including any other part of the Estate the same shall
from time to time be settled and determined by the Landlord in such manner as it
in writing shall direct in that behalf to which determination the Tenant shall
from time to time submit and which determination shall be conclusive and binding
upon the Tenant save in the case of manifest error
Prevention of damage by effluent etc. discharge
-----------------------------------------------
(35)(a) Not to permit but to take such measures as may be necessary to
ensure that any effluent discharged from the demised premises into the drains or
sewers which belong to or are used for the demised premises whether or not in
common with other premises will not be corrosive or in any way harmful to the
said drains or sewers or cause any obstruction or deposit therein and to keep
all pipes watercourses gullies and drains belonging to and used exclusively by
the demised premises properly flushed cleansed and free from obstruction
37
<PAGE>
and if any such obstruction shall occur forthwith upon becoming aware of the
obstruction to remove the same and make good any damage caused thereby whether
to the structure or the demised premises or otherwise and to indemnify the
Landlord against any claims arising from damage caused by such obstruction to
adjoining or neighbouring premises or any part of the Estate
(b) Not to discharge or allow to be discharged from the demised
premises any fluid or anything of a poisonous or noxious nature of a kind that
will contaminate or pollute the air or water and to
indemnify the Landlord against any claim arising from damage caused by such
contamination or pollution
(c) To take at all times throughout the said term all such steps as
are necessary and proper to prevent the emanation from the demised premises of
noise fumes heat or excessive vibration especially but not only where such
emanation is to the detriment of the Landlord or any others owners or occupiers
38
<PAGE>
of the Estate or of the adjoining or nearby premises
Cost of Licences
----------------
(36) To pay the proper and reasonable legal charges and surveyors fees
of the Landlord resulting from all applications by the Tenant for any consent of
the Landlord required by these presents and also the proper and reasonable legal
charges and surveyors fees actually incurred by the Landlord in cases where
consent is refused or the application is withdrawn
Indemnity
---------
(37) When required and on demand to contribute and pay to the Landlord
or as it may direct a fair and proper proportion of the cost of repairing
maintaining replacing renewing and cleansing all party walls fences sewers
drains pipes watercourses roads passages pavements and other easements used in
common with the occupiers of any neighbouring or adjoining premises on the
Estate
39
<PAGE>
Landlords Covenants
-------------------
4. The Landlord hereby covenants with the Tenant as follows:
-----------------------------
Insurance
---------
(1) To keep the demised premises insured in some insurance office of
repute against loss or damage by fire explosion flood storm tempest aircraft
(and articles dropped therefrom) impact riot civil commotion malicious damage
burst pipes and overflowing of cisterns lightning and earthquake (subject to
such risks being accepted by Insurers) and such other risks as the Landlord
shall in its absolute discretion think fit (such policy to contain a non-
invalidation clause subject to the same being accepted by Insurers) to such full
reinstatement value (having regard for escalation of costs) as the Landlord's
Surveyors may from time to time recommend including cover in respect of
Architects Surveyors and other professional fees on reinstatement and three
years loss of rent and upon written request to produce details of the policy to
the Tenant together with confirmation of payment of the last premium and in the
event of the demised premises being destroyed or damaged by any of the insured
risks during the said term forthwith (as soon as the necessary
40
<PAGE>
labour materials and permits are obtained) to lay out all monies received under
or by virtue of any insurance effected thereon (other than monies received in
respect of loss of rents) in rebuilding or reinstating the same in a good and
substantial manner PROVIDED THAT the Tenant may at any time request the Landlord
-------------
to increase the amount of insurance cover to such amount as it thinks
appropriate provided that the Landlord shall be under no obligation to do so
where the cover is maintained in respect of the demised premises and other
premises and to agree would mean increasing the premium payable by the tenants
of the other premises and those tenants object
(2) Subject to payment by the Tenant of the rents herein reserved and
provided that the Tenant has complied with all the covenants and obligations on
the part of the Tenant to be performed and observed to use its best endeavours
to provide such services as are specified in the Fifth Schedule hereto PROVIDED
--------
NEVERTHElESS that the Tenant shall have no claim against the Landlord arising
- ------------
out of or in respect of the failure of the Landlord to provide any of the said
services by reason directly or indirectly or circumstances outside the
reasonable control of the Landlord and in particular (but without
41
<PAGE>
prejudice to the generality of the foregoing) by reason directly or indirectly
of any act of God or of third parties or any strike lockout or labour dispute or
any shortage of labour fuel water gas electricity or other supplies or of any
material or other defect or breakdown arising in or occurring to any part of the
service installations or other equipment in the Estate used for or in connection
with the furnishing of any service provided the Landlord shall have done all it
reasonably could to prevent such an event occurring nor shall the Landlord be
responsible for or incur any liability in respect of:
(a) any damage to any person or property by reason of any defect in
the structure (including but not exclusively foundations) of any part of the
Estate or by reason of the defective working stoppage or breaking of any
machinery power or appliance in connection therewith in circumstances beyond the
Landlords control or
(b) any loss or inconvenience which may be occasioned by any delay or
want of supply of water (including heated water) electric current gas or other
fuel
42
<PAGE>
caused by any service installation or other equipment connected with the
supply thereof being defective or out of repair or by the closing down or
temporary withdrawal from use of any service installations or boiler or other
service equipment for periodic inspection repairs or other necessary purposes in
circumstances beyond the Landlord's control
(c) the act or default of any other tenant or any servant or agent of
any other tenant or occupant of the Estate nor for any loss occasioned by theft
or negligence of such persons or otherwise
Quiet Enjoyment
---------------
(3) That the Tenant paying the rents hereby reserved and observing and
performing the Tenants covenants hereinbefore contained shall and may peaceably
hold and enjoy the demised premises during the said term without any
interruption or disturbance from or by the Landlord or any person lawfully
claiming through under or in trust for it
43
<PAGE>
5. PROVIDED ALWAYS AND IT IS HEREBY AGREED AND DECLARED that
----------------------------------------------------
Re-entry
--------
(1) If the said rents hereby reserved or any part thereof shall at any
time be in arrear and unpaid for twenty-one days after the same shall have
become due (whether any formal or legal demand therefor shall have been made or
not) or if there shall be any breach of any of the covenants conditions or
agreements herein contained and on the part of the Tenant to be performed and
observed or if the Tenant or other person or persons in whom for the time being
the said term shall be vested (being an individual or individuals) or any of
them shall become bankrupt or have a receiving order made against him her or
them or make any arrangement or composition with or for the benefit of his her
or their creditors or suffer any execution to be levied at the demised premises
or if the Tenant or any assignee of the Tenant being a company shall enter into
liquidation whether compulsory or voluntary (not being merely a voluntary
liquidation for the purpose of amalgamation or reconstruction) or suffer any
execution to be levied at the demised premises or have a Receiver or Manager
appointed then and in such case it shall be lawful for the Landlord or any
person or
44
<PAGE>
persons duly authorised by the Landlord in that behalf into or upon the demised
premises or any part thereof in the name of the whole to re-enter and the
demised premises peaceably to hold and enjoy thenceforth as if these presents
had not been made without prejudice to any right of action or remedy of either
party against the other in respect of any antecedent breach of any covenant or
condition herein contained
Notices
-------
(2) Any notice required to be given or served under these presents and
not otherwise provided for shall be served or deemed to be served if served in
accordance with Section 196 of the Law of Property Act 1925 (as amended)
Landlords development
---------------------
(3) Subject to the terms of clause 4(3) hereof nothing herein
contained or implied shall impose or be deemed to impose any restriction on the
use of any land or building not comprised in these presents or to prevent or
restrict in any way the development of any land not comprised in these presents
and further that nothing herein contained shall by implication of law or
otherwise operate or be deemed to confer upon the Tenant any easement right or
45
<PAGE>
privilege whatsoever (other than those herein expressly granted) over or against
any adjoining or neighbouring property which now does or hereafter within the
specified period shall belong to the Landlord which would or might restrict or
prejudicially affect the future rebuilding alteration or development of such
adjoining or neighbouring property and that the Landlord shall have the right at
any time to make such alterations to or to pull down and rebuild or redevelop
any such adjoining or neighbouring property as it may deem fit without obtaining
any consent from the Tenant PROVIDED ALWAYS that no unreasonable interference or
disturbance shall materially affect the Tenant from carrying on its trade and
business and as soon as is reasonably practicable making good any damage thereby
caused to the demised premises
Suspension of rent
------------------
(4) In case the demised premises or any part thereof shall at any time
be destroyed or so damaged by any of the insured risks as to be unfit for
occupation or use then and in any such case (unless the insurance of the demised
premises shall have been vitiated by the act neglect default or omission of the
Tenant) the rents hereby
46
<PAGE>
reserved or a fair and just proportion thereof according to the nature and
extent of the damage sustained shall be suspended and cease to be payable from
the data of such destruction or damage aforesaid until the demised premises
shall again be fit for use and occupation and such proportion in case of
disagreement shall be referred to a single arbitrator in accordance with and
subject to the provisions of the Arbitration Act 1950 or any statutory
modification or re-enactment thereof
Acceptance of Rent
------------------
(5) Notwithstanding the acceptance of of demand for rent by the
Landlord or its agent with knowledge of a breach of any of the covenants on the
part of the Tenant herein contained the Landlords right to forfeit these
presents on the ground of such breach shall remain in force And the Tenant shall
not in any proceedings for forfeiture be entitled to rely upon any such
acceptance or demand as aforesaid as a defence
Statutory Compensation
----------------------
47
<PAGE>
(6) Except where any statutory provision prohibits the Tenants right
to compensation being reduced or excluded by agreement the Tenant shall not be
entitled to claim from the Landlord on quitting the demised premises or any part
thereof any compensation under the Landlord and Tenant Act 1954 or any statute
modifying or re-enacting the same
Exclusion of any warranty of fitness
------------------------------------
(7) Neither the granting of this Lease nor any provision herein
contained shall operate or be construed as warranting that the demised premises
are suitable for the purpose or purposes of the Tenant and the use to which the
Tenant proposes now or hereafter to put the demised premises or any use to which
(whether subject to conditions or not) the Tenant may be at liberty or may be
required under the provisions of these presents to put the demised premises is
or may be or become legally permitted whether under the provisions of the
Planning Acts or otherwise
IN WITNESS whereof these presents have been entered into the day and
----------
year first above written
48
<PAGE>
THE FIRST SCHEDULE
------------------
"THE DEMISED PREMISES"
- ----------------------
ALL THOSE parts of the Estate shown for the purpose of identification only on
- ---------
the plan annexed hereto and thereon edged red Together with the buildings
erected thereon or on some part thereof and known as Unit 8 Solent Industrial
Estate Hedge End Southampton including but not exclusively doors windows window
frames and glass the whole of any structural and non-structural walls and
columns forming part of the demised premises one half in thickness of any
structural and/or non-structural wall which forms a party wall or boundary of
the demised premises with adjoining premises the screeding the foundations and
the floor and the ceilings (if any) and the roof or roofs of the demised
premises AND ALSO including all air water electricity gas and other service
--------
pipes wires ducts and conduits which are within and serve only the demised
premises
THE SECOND SCHEDULE
-------------------
Rights and Privileges
- ---------------------
49
<PAGE>
(a) the right at all time with or without vehicles for the purpose only of
access to and egress from the demised premises in over and along those
parts of the common parts shown coloured brown and yellow on the plan
annexed hereto as may from time to time be varied at the discretion of the
Landlord pursuant to clause 1(4)(e) of this Lease
(b) the right to use and the benefit of all easements and quasi easements and
services subsisting at the date hereof or created within the specified
period or maintained for the benefit of the demised premises in over under
or against any adjoining or adjacent premises of the Landlord to the extent
that the same are necessary for the reasonable enjoyment of the demised
premises but excluding any rights of light and air which are and to the
extent to which the same are specifically excepted and reserved herein
(c) the right to use such part of the general car park or car parking area
provided by the Landlord (if any), as may be determined by the Landlords
surveyor (subject to contributions of service charge as hereinbefore
contained) provided that such space so set aside will not be used otherwise
than by the Tenant its servants invitees or agents for the sole purpose of
parking motor vehicles in such manner as may be approved by
50
<PAGE>
the Landlord's surveyor and that no nuisance shall be occasioned in the use
thereof
THE THIRD SCHEDULE
------------------
Exceptions and reservations
- ---------------------------
(a) all rights of light air and easements (but without prejudice to those
expressly hereinbefore granted to the Tenant) now or hereafter within the
specified period belonging to or enjoyed by adjacent or neighbouring land
or building from over or against the demised premises
(b) the right to build or rebuild or alter any adjacent or neighbouring land or
building of the Landlord (whether or not comprised within the Estate) in
any manner whatsoever including where necessary to erect scaffolding or
gantries and to let the same for any purpose or otherwise deal therewith
notwithstanding that the light or air to the demised premises is in any
such case thereby diminished or any other liberty easement right or
advantage belonging to the Tenant is thereby diminished or prejudicially
affected
51
<PAGE>
(c) the right of support and shelter and all other easements and rights now or
hereafter belonging to or enjoyed by all adjacent or neighbouring land or
buildings an interest wherein in possession or reversion is at any time
during the said term vested in the Landlord
(d) the free passage and running of air gas electricity water and soil
telephone and other services through or along the pipes wires channels
drains and watercourses already or hereafter within the specified period to
be built or placed in through over or under the demised premises to and
from all other parts of the Estate and the right to lay and connect up to
the same
(e) the right in cases of emergency only to use the emergency or escape routes
now or hereafter enjoyed or required over or through the demised premises
THE FOURTH SCHEDULE
-------------------
Provision as to Service Charge
- ------------------------------
1. The service charge contribution payable by the Tenant shall be calculated by
reference to the proportion which the gross area (by external admeasurement) of
the buildings from time to time
52
<PAGE>
on the demised premises bear to the aggregate gross area (similarly measured) of
the other buildings from time to time on the Estate and shall be a fair and
reasonable proportion (to be certified by the Landlords Surveyor whose decision
shall be final and binding save in the case of manifest error) of the costs and
expenses in respect of the Landlords annual expenditure which shall be the
aggregate of:
(a) the actual cost to the Landlord of the provision by it of the services
mentioned in the Fifth Schedule hereto during the relevant year (due
allowance being made where any expenditure is met out of the reserve
hereinafter mentioned) and
(b) a sum being the annual depreciation over a fair and proper period (to be
determined by the Landlord) of all the capital plant and equipment used in
or for the provision of such services
PROVIDED THAT the Landlord may in its discretion include in the Landlords annual
- -------------
expenditure in any year a sum by way of reasonable reserve against anticipated
future expenditure on the said services
53
<PAGE>
2. The Tenant shall pay to the Landlord on account of the annual service charge
on each quarter day in advance such a sum as shall in the reasonable discretion
of the Landlord be one equal fourth part of the anticipated annual service
charge for the current year such sum to be calculated having regard to the
actual service charge payable for the previous financial year
3. At the end of each year the Landlord shall as soon as practicable cause an
account to be prepared by the Landlord's auditors of the Landlords annual
expenditure for that year and send a copy thereof to the Tenant together with a
statement showing the annual service charge payable by the Tenant and the amount
paid on account by the Tenant in such year Any difference due from the Tenant
shall be paid to the Landlord within twenty-one days of the receipt of such
statement and any balance due to the Tenant shall be allowed against the next
payment on account of service charge due from it
4. For the purposes of this Schedule "year" shall mean the period from First
January to the next ensuing Thirty First December or such other commencement and
expiration date as the Landlord may declare in writing and insofar as the annual
service charge has to be calculated for any
54
<PAGE>
period other than a year or a payment on account for any period other than a
quarter the same shall be calculated by apportionment on a daily basis
5. The Landlords certificate as to the amount of the Landlords annual
expenditure in any year shall be final and conclusive as between the Landlord
and the Tenant save in the case of manifest error and the Landlord shall make
available to the Tenant all vouchers and receipts detailing the expenditure
incurred by the Landlord
6. The Landlord will hold in trust for the benefit of all the tenants
for the time being of the Landlord's Estate all monies held by way of reserve
and the Landlord hereby covenants with the Tenant that upon the sale or other
transfer of the reversion immediately expectant upon the term hereby created
that it will cause the Purchaser or transferee to become trustee of such reserve
on behalf of the tenants as aforesaid
THE FIFTH SCHEDULE
------------------
The services to be provided by the Landlord
- -------------------------------------------
55
<PAGE>
(1) The maintenance amendment repair renewal replacement rebuilding cleansing
decorating and otherwise the keeping in good and substantial repair and
condition and the lighting of:
(a) the common parts and
(b) the boundary walls fences and gates of and in the curtilage of the
Estate and any notice or other boards erected for the benefit of the occupiers
of the Estate
PROVIDED THAT the Landlord shall not be liable to the Tenant for any defects or
- -------------
want of repair unless the Landlord or its agents have had notice in writing
thereof and otherwise subject to the other provisions of those presents
(2) The operation amendment repair removal replacement rebuilding cleansing and
maintenance in good working order and repair of the equipment apparatus and
appliances (if any) in the common parts including (where applicable but
without prejudice to the generality of the foregoing) the watercourses the
soakways channels pipes drains sewers cables wires pumps meters ducts and
other conducting media the water systems and tanks the reservoirs the
sanitary appliances the electrical installation and lamps and light
fittings on the Estate and the hose reels
56
<PAGE>
and other fire fighting appliances which the Landlord is required to
provide by statute and all other things provided for the benefit of the
Estate and for which no lessee or occupier of the Estate is exclusively
liable
(3) (a) grassing and tending and keeping tidy and planting with such flora
trees and shrubs as the Landlord shall deem at its absolute discretion to be
appropriate or such areas as the Landlord may deem at its absolute discretion
desirable
(b) maintaining renewing replacing repairing and keeping in good order
and condition all installations appurtenances appointments fixtures fittings
bins receptacles tools appliances materials and other things which the Landlord
may deem desirable or necessary for the maintenance upkeep or cleanliness of the
Estate and the supply of services to the Estate
(c) employing such solicitors and other professionals and agents
managers contractors staff and workmen as the Landlord may at its absolute
discretion deem desirable or necessary to enable or assist it to provide the
said services or any of them and for the general conduct
57
<PAGE>
management and security of the Estate and all parts thereof and to pay all
incidental fees and other expenditure in relation to such employment (including
but without limiting the generality of such provision the payment of the
statutory and such other insurance health pension welfare and other payments
contributions and premiums as the Landlord may at its absolute discretion deem
desirable or necessary and the provision of uniforms working clothes and other
equipment for the proper performance of their duties)
(d) paying all rates taxes charges assessments impositions and other
outgoings (including but not exclusively charges (if any) for the supply of
water gas electricity or any other form of supply of energy utilities or
services) payable by the Landlord in respect of the common parts except insofar
as the Tenant or any other occupier of the Estate may be liable for the same
under the terms of this or their lease or occupation
(e) keeping the common parts insured upon similar terms (including the
Landlords covenant to reinstate) as those set forth in clause 4(l) of this Lease
58
<PAGE>
(f) taking all steps deemed desirable or expedient by the Landlord for
complying with making representations against or otherwise contesting the
incidence of the provisions of any legislation or orders or statutory
requirements thereunder concerning town planning public health highways streets
drainage or other matters relating to the Estate for which the Tenant is not
directly liable hereunder
(g) enforcing or attempting to enforce against (a) any other tenant of
the Estate the observance of any covenant in that tenant's lease the non-
observance of which is or may be detrimental to the Tenant and (b) any owner or
occupier of adjoining or neighbouring premises the payment of any contribution
towards anything used in common with the Estate
(h) paying a contribution towards the expense of repairing renewing
and maintaining and cleansing all ways roads pavements sewers drains pipes
watercourses party walls party structures party fences walls or other
conveniences which may belong to or be used by the occupiers of the Estate in
common and in common with other premises near or adjoining thereto
59
<PAGE>
(i) executing any works as are or at any time during the said term
shall under or by virtue of any enactment for the time being in force or by any
local or other competent Authority be directed or required to be done or
executed in respect of the Estate and for which none of the occupiers of the
Estate are liable
(j) providing any service for the benefit of the Estate as a whole
including but not exclusively at the Landlords discretion a general estate board
indicating the names of the occupiers of the Estate
PROVIDED ALWAYS that the Landlord may from time to time withhold add to extend
- ---------------
vary or make any alterations in the rendering of the said services or any of
them as the Landlord deems desirable so to do in the interests of good estate
management
(4) in the event only of the Landlord not appointing managing agents the
reasonable cost in respect of the general supervision and management of the
Estate by the Landlord (but not including any payment in respect of the
collection of rent)
60
<PAGE>
(5) the costs and expenses of supplying the account and vouchers and receipts
mentioned in the Fourth Schedule hereto
(6) the supply of copies of regulations made by the Landlord under the
foregoing provision hereof and copies of all amendments or additions made
from time to time thereto
THE SIXTH SCHEDULE
------------------
PART I
------
IN this Schedule the following expressions shall have the meanings respectively
- --
assigned to them unless the context otherwise requires:
(1) "the Initial Rent" the sum of (Pounds)19000.00 per annum (and so
------------------
proportionately for any part of a year) payable in respect of the period
expiring on the Review Date first occurring during the said term
(2) "the Reserved Rent" the yearly rent from time to time payable being the
-------------------
Initial Rent for the period expiring on the Review Date first occurring
during the said term and thereafter as reviewed in accordance with the
provisions of this Schedule
61
<PAGE>
(3) "Review Date" the date of expiration of the fifth year of the said term and
-------------
the date of expiration of each successive period of five years thereafter
during the said term (but subject to the provisions of Paragraph (9) of
Part II of this Schedule)
(4) "Review period" the period between a Review Date and the next succeeding
---------------
Review Date and the expression "Relevant Review Period" shall be construed
accordingly
(5) "Open Market Rent" the yearly rent at which the demised premises might
------------------
reasonably be expected to be let at the Relevant Review Date or other date
upon which such assessment falls to be made by a willing Landlord to a
willing tenant in the open market with vacant possession and without fine
or premium for a term equal to the residue of the term hereby
granted or for a term equal to ten years whichever is the greater assuming
(i) that the buildings comprised in the demised premises remain in existence
and that the covenants and conditions on the part of the Tenant and the
Landlord contained in these presents have been duly observed and performed
and
62
<PAGE>
(ii) by a Lease containing the same terms and provisions in all
respects as these presents (including the provisions for review of rent but
excluding the amount of the Reserved Rent) there being disregarded
(a) any effect on rent of the fact that the Tenant or any undertenant
or their respective predecessors in title have been in occupation of the demised
premises and
(b) any goodwill attached to the demised premises by reason of the
carrying on thereat of the business of the Tenant or any undertenant or their
respective predecessors in title and
(c) any increase in rental value of the demised premises attributable
to the existence at the Review Date of any improvement to the demised premises
or any part thereof carried out with consent where required otherwise than in
pursuance of an obligation to the Landlord or its predecessors in title by the
Tenant any undertenant or their respective predecessors in title during the said
term and
63
<PAGE>
(d) any effect on rent of the Rent Restrictions or any law for the
time being in force which imposes restraint upon increase in the rent payable in
respect of the demised premises or recovery of such increases
(6) "Rent Restrictions" restrictions imposed by any Statute for the
-------------------
time being in force and any regulations or orders made thereunder which operate
to impose any limitation whether in time or amount on the review of the Reserved
Rent and/or the collection of any increase in the Reserved Rent or any part
thereof
PART II
-------
(1) The Reserved Rent shall be reviewed as at and (if appropriate) increased as
from each Review Date during the said term as hereinafter provided and the
amount of the Reserved Rent payable for each Review Period shall be the
Reserved Rent at the yearly rate which was payable in accordance with the
provisions of these presents immediately preceding the Relevant Review Date
increased by the amount (if any) by which the Open Market Rent as at such
Review Date exceeds the Reserved Rent at the aforesaid yearly rate
64
<PAGE>
(2) The Landlord and the Tenant shall endeavour to agree the Open Market Rent
at each Relevant Review Date and any such agreement shall be in writing
signed by or on behalf of the Landlord and the Tenant
(3) If the Open Market Rent shall not have been agreed between the Landlord and
the Tenant one month before the Relevant Review Date for whatever reason
and the Landlord shall not have previously given to the Tenant notice in
writing that there will be no increase in the Reserved Rent for the
Relevant Review Period either the Landlord or the Tenant may at any time
(whether before or after the Review Date) subject to giving prior notice in
writing to the other of not less than seven days duration require the Open
Market Rent to be determined by a single arbitrator who shall be an
Independent Chartered Surveyor to be jointly appointed by agreement between
the Landlord and the Tenant Provided that such arbitrator must have
substantial experience of the area and of properties of a similar nature to
the demised premises and of the matters in dispute
(4) In default of agreement between the Landlord and the Tenant on the joint
appointment of an arbitrator such arbitrator whose appointment shall be
subject to the proviso to Paragraph (3)
65
<PAGE>
of this Part of this Schedule shall be appointed by the President (or other
the Chief Officer or acting Chief Officer) for the time being of the Royal
Institution of Chartered Surveyors on the written application of the
Landlord or the Tenant who shall be at liberty to make such application at
any time after giving the notice last referred to in accordance with
Paragraph (3) of this part of this Schedule
(5) The arbitration shall be conducted in accordance with the Arbitration Act
1950 and the determination shall be final and binding upon the parties and
shall be notified in writing to the Landlord and the Tenant
(6) If such arbitrator does not give notice of his determination within a
period of two months of his appointment or within such extended period as
the Landlord and the Tenant shall jointly agree or in manner aforesaid or
if for any reason it becomes apparent that he will be unable to complete
his duties under these presents the Landlord and the Tenant may agree upon
or either of them may apply for the appointment of a new arbitrator in his
place (which procedure may be repeated as many times as may be necessary)
and the provisions of this Part of this Schedule will operate in relation
to that
66
<PAGE>
agreement or application as in relation to any earlier agreement or
application
(7) The arbitrator's fees or charges shall be borne by the Landlord and the
Tenant in such proportions as the arbitrator shall determine
(8) If the amount of the Open Market Rent has not been ascertained by the
Review Date in accordance with the provisions hereof the Tenant shall pay
to the Landlord for any interval between the Review Date and the date when
the Open Market Rent has been ascertained as aforesaid the Reserved Rent at
the yearly rate payable immediately preceding such the Review Date and upon
the amount of the Reserved Rent payable from the Review Date being
ascertained any additional amount payable for the period commencing on the
Review Date and ending on the quarter day immediately following such
ascertainment shall be forthwith paid by the Tenant to the Landlord
together with interest thereon at the base rate from time to time of
Barclays Bank P.l.c. for the period from the Review Date to the date of
actual payment such interest to be recoverable as if it were part of the
Reserved Rent
67
<PAGE>
(9) On each and every occasion during the said term that the Rent Restrictions
shall prevent or prohibit either wholly or partially:
(1) the operation of the above provisions for review of the
Reserved Rent and/or
(2) the collection of the Reserved Rent or any instalment or part
thereof by the Landlord or the retention thereof at any time after collection
then and in any such case:
(3) any Review Date shall be postponed to take effect on the first
date or dates thereafter upon which such review may occur and if there shall be
a partial relaxation of the Rent Restrictions there shall be a further review of
the Reserved Rent on the first date thereafter as aforesaid notwithstanding that
the Reserved Rent may have been increased in part on or since the Review Date
and/or
(4) the collection of any increase in the Reserved Rent shall be
postponed to take effect on the first date thereafter that such increase may be
collected and/or retained in whole or part and on as many occasions as shall be
required to ensure the collection of the whole increase
68
<PAGE>
AND until the Rent Restrictions shall be relaxed either partially or wholly the
- ---
Reserved Rent shall be the maximum sum from time to time permitted by the Rent
Restrictions
(10) On each occasion that the Reserved Rent is reviewed pursuant to
the provisions of this Part of this Schedule the Landlord and the Tenant shall
cause a memorandum of the amount thereof payable for the Relevant Review Period
to be prepared and a counterpart thereof and for such memorandum to be signed
respectively by or on behalf of the Landlord and Tenant
(11) The Reserved Rent payable for any Review Period shall not be less
than the amount of the Reserved Rent payable for the period immediately
preceding the commencement of such Review Period
THE COMMON SEAL of MARWELL )
- --------------- ------- )
PROPERTY INVESTMENTS LIMITED )
- ---------------------------- )
was hereunto affixed on the )
presence of: )
Director
--------
Secretary C. Matthews
---------
69
<PAGE>
Dated 21st October, 1988
MARWELL PROPERTY INVESTMENTS LIMITED
and
COOPERVISION HOLDINGS
- --------------------------------------------------------------------------------
L E A S E
relating to
Unit 9 The Solent Industrial
Estate Hodge End
Southampton
- --------------------------------------------------------------------------------
DAVIES ARNOLD & COOPER
12 Bridewell Place
London
EC4V 6AD
Tel: 01-353 6555
Ref: 25/026/FA21/12/9/8
<PAGE>
THIS LEASE is made the 21st day of October One thousand nine hundred
and eighty-eight B E T W E E N (1) MARWELL PROPERTY INVESTMENTS LIMITED who
registered office is at 437A Midsummer Boulevard Saxon Gate West Central Milton
Keynes (hereinafter called "the Landlord") and (2) COOPERVISION HOLDINGS whose
registered office is at Permalens House _____ Road Hedge End Southampton
(hereinafter called "the Tenant").
WITNESSETH as follows:
----------
1. Interpretation. In this Lease and in the Schedules hereto:
--------------
(1) Words imparting one gender shall include all other genders and
words imparting the singular shall include the plural and vice versa
(2) The headings to the clauses hereof and Schedules hereto shall be
deemed not to form any part hereof and shall not affect the interpretation
hereof in any way
(3) Where the Tenant consists of two or more persons all covenants and
agreements by and with the Tenant shall be construed as covenants and agreements
by and with such persons jointly and severally
(4) Where the context so requires or admits the following words and
expressions shall have the following meanings: (a) "the Landlord" shall include
the estate owner or owners for the time being of the reversion immediately
-2-
<PAGE>
expectant on the term hereby granted and shall also include all superior
landlords
(b) "the Tenant" shall include the Tenant's successors in title
(c) "the demised premises" shall mean the premises described in the
First Schedule hereto together with all additions and improvements at any time
and from time to time made thereto and all fixtures and fittings installed by
the Landlord of every kind which shall from time to time be in or upon the said
promises (whether originally affixed or fastened to or upon the same or
otherwise) except tenants and trade fixtures
(d) "the Estate" shall mean the industrial complex situated at Hedge
End Southampton known as The Solent Industrial Estate shown on the plan annexed
hereto and thereon edged in blue or such other larger or smaller area as the
Landlord say in its discretion from time to time Stipulate
(e) "the common parts" shall mean all those parts of the Estate shown
coloured yellow and brown on the plan annexed hereto and also those parts (if
any) of the Estate which are not included or intended to be included in any
lease granted or to be granted by the Landlord the Landlord reserving to itself
the right from time to time when necessary in the interests of good estate
management of amending or varying the general layout of the Estate and/or the
common
-3-
<PAGE>
parts but not the demised premises Provided Always that such amendments or
variations shall cause as little applicable from time to time during any period
during which any payment of interest accrues due under these presents
(5) These presents shall unless the context otherwise requires be
construed on the basis that:
(a) any reference to any Act or any section of any Act shall be deemed
to include any amendment modification or re-enactment thereof and any statutory
instrument bye-law rule directive order or regulation made thereunder for the
time being in force
(b) any covenant by the Tenant not to do any act or thing shall be
deemed to include a covenant not to suffer or permit the doing of that act or
thing
(c) covenants and obligations made or assumed by any party shall be
binding and enforceable against his personal representatives
2. IN consideration of the rents covenants and conditions hereinafter
reserved and contained and on the part of the Tenant to be paid performed and
observed the Landlord HEREBY DEMISES unto the Tenant ALL THAT the premises
-------------- --------
described in the First Schedule hereto TOGETHER WITH (in common with the
-------------
Landlord and all other persons entitled thereto and subject to the exceptions
reservations and provisions hereinafter contained) the rights and privileges set
out in the Second Schedule hereto EXCEPT AND RESERVING unto the
--------------------
-4-
<PAGE>
Landlord and its lessees tenants agents servants licensees and other persons
claiming through or under the Landlord and all other persons who now have or may
hereafter be entitled to or are granted by the Landlord a similar right or
rights the easements rights and privileges specified in the Third Schedule
hereto TO HOLD the same unto the Tenant subject to any rights of statutory or
-------
other undertakings in respect of services to the Estate and the demised premises
now existing or to be created within the specified period for a term of Twenty
Years from the 25th day of March 1988 hereof PAYING therefor throughout the said
------
term and so in proportion for any less time than a year FIRST the yearly rent of
-----
EIGHTEEN THOUSAND AND EIGHT HUNDRED POUNDS ((Pounds)18,800.00) by four equal
- ------------------------------------------
quarterly payments in advance on the usual quarter days in every year without
deduction whatsoever the first of such quarterly payments hereof for the period
of the 25th day of March 1988 until the 24th day of June 1988 shall be paid on
the signing hereof AND SECONDLY by way of further rent an amount equal to that
------------
incurred by the Landlord from time to time in complying with the covenant in
clause 4(l) hereof for the insurance of the demised premises such rent to be
paid an demand AND THIRDLY by way of further rent a contribution payable in
-----------
accordance with the provisions of the Fourth Schedule hereto in respect of the
service charge mentioned in the said Fourth Schedule (together with any Value
Added Tax due and payable thereon) the first payment of rents under this Lease
being made an the execution hereof PROVIDED ALWAYS that in the
---------------
-5-
<PAGE>
event of the said rents or any part thereof being in arrear for move than 14
days whether in the case of the rent first hereinbefore reserved lawfully
demanded or not the Tenant shall pay interest calculated on a daily basis with
quarterly rests at the Prescribed Rate on the amount in arrear from the day on
which it became payable until the day payment is made and to be payable to the
Landlord on demand without prejudice to any other rights the Landlord may enjoy
and the aggregate amount for the time being so payable shall at the option of
the Landlord be recoverable by action or as rent in arrear
3. Tenants covenants. THE Tenant HEREBY COVENANTS with the Landlord as
----------------- ----------------
follows:
(1) To pay rent. To pay the rents hereby reserved and any interest on
-----------
arrears of rent as hereinbefore provided on the days and in manner aforesaid
without any deduction whatsoever
(2) Taxes. To bear pay and discharge all existing and future rates
-----
taxes levies assessments duties outgoings charges and impositions whatsoever
(whether imposed by statute or otherwise and whether of a national or local
character) now or at any time or times during the said term assessed imposed or
charged upon or payable in respect of the demised premises or any part or parts
thereof and whether payable by the Landlord or Tenant or by the owner or
occupier thereof save for any tax assessable an the Landlord in respect of the
rents payable hereunder or in respect of
-6-
<PAGE>
any dealing with the reversion either mediately or immediately expectant on the
term hereof
(3) V.A.T. To pay to the Landlord or (as the case may be) to its
------
solicitors surveyors or other agents to whom any payment is due under the
covenants agreements and provisions herein contained or implied which is a
payment whereon Value Added Tax or other similar fiscal charge is chargeable if
the Landlord is not eligible to treat as an input credit the amount of Value
Added Tax or other similar fiscal charge chargeable in respect of the payment at
the rate applicable to that payment
(4) Gas electricity and water charges. To pay for all gas and
---------------------------------
electricity and water consumed on or by the demised premises and all telephone
charges and to observe and perform at the Tenants expense all present and future
regulations and requirements of the gas and electricity and water supply
authorities and the Post Office concerning the demised premises and to keep the
Landlord indemnified in respect thereof and to reimburse to the Landlord a
properly apportioned part (to be determined by the Landlord in case the same is
not separately metered or gauged) of all sum paid by the Landlord from time to
time to the electricity gas or water supply authorities or to the Post Office in
respect of any consumption or supply of electricity gas or water or telephone or
in respect of any connection to or alteration or repair of the wiring or piping
or other machinery or equipment in or about the Estate used for electricity or
water
-7-
<PAGE>
supply or gas or telephone which benefits the demised premises or any part
thereof
(5) Repair. At all times during the said term t keep and maintain the
------
whole of the demised premises in good and substantial order repair and condition
and in whole or in part rebuild or renew the same as necessary (except damage by
the insured risks provided such policy or policies shall not have become
vitiated or payment of the policy monies refused in whole or in part in
consequence of some act neglect or default of the Tenant or of any sub-tenant or
any other party under the control of the Tenant) PROVIDED THAT nothing contained
-------------
in this sub-clause shall require the Tenant to put or keep the demised premises
in any better state of repair or condition than the same are in at the date
hereof
(6) Decoration. Without prejudice to the generality of the next
----------
preceding sub-clause in every fifth year of the said term and also in the year
preceding the determination of the said term to paint in a proper and
workmanlike manner all the inside wood iron and other parts heretofore or
usually painted of the demised premises with a sufficient number of coats of
good quality paint and also with every such internal painting to clean wash stop
whiten distemper and otherwise decorate and treat in a proper and workmanlike
manner all such internal parts of the demised premises that have been so treated
and also in every third year of the said term and in the year preceding the
determination of the said term
-8-
<PAGE>
(unless the last exterior painting was done within twelve months of the date of
such determination) to paint in a proper and workmanlike manner all the external
parts heretofore or usually painted and all additions thereto with a sufficient
number of coats of good quality paint and so that in the year preceding the
determination of the said term the tints or colours on each occasion to be
approved in writing by the Landlord (such approval not to be unreasonably
withheld) and french polish or otherwise treat in a load and workmanlike manner
using good quality materials all exterior parts of the demised premises as are
usually or heretofore french polished or otherwise treated AND to wash down all
tiles cladding glazed bricks or polished stone or similar washable surfaces and
repoint all brickwork as and when required and to keep the windows of the
demised premises properly cleaned inside and outside and to keep any part of the
demigod premises not covered by buildings in a nest and tidy condition and free
from weeds
(7) Yield Up. At the determination of the said term quietly to yield
--------
up to the Landlord the demised premises duly painted repaired cleaned maintained
amended and kept in accordance with the covenants in that behalf herein
contained provided however that the Tenant may prior to the date of such
expiration or determination remove all tenants or trade fixtures making good
nevertheless at the expense of the Tenant and to the reasonable satisfaction of
the Landlord any damage to the demised premises
-9-
<PAGE>
caused by such removal and shall remove all the Tenants furniture fittings
papers and refuse and so that the Landlord may treat as abandoned by the Tenant
and may arrange for the removal and destruction of any such fixtures and other
items not removed by the Tenant at the expiration or determination and the cost
of such removal and destruction shall be paid by the Tenant to the Landlord on
demand
(8) Fire Fighting Equipment. To keep the demised premises
-----------------------
sufficiently supplied and equipped with fire fighting and extinguishing
apparatus and appliances which shall be open to the inspection and maintained to
the reasonable satisfaction of the Landlord and to the satisfaction of the local
fire authority and of insurers and also not to obstruct the access to or means
of working of such apparatus and appliances
(9) Entry for Repairs. To permit the Landlord and any person
-----------------
authorized by it upon at least 48 hours prior written notice (except in
emergency) to enter upon the demised premises at all reasonable hours during the
daytime to view the state and condition and user of the same and the landlord's
fixtures and fittings therein and of all defects decays and wants of reparation
there found for which the Tenant shall be responsible hereunder to give notice
in writing to the Tenant and within two months next after every such notice as
aforesaid (or immediately in case of need) to commence to repair well and
substantially and make good all such defects decays and wants of reparation to
the demised premises and
-10-
<PAGE>
the fixtures, and fittings therein for which the Tenant is liable hereunder
PROVIDED ALWAYS that if the Tenant shall make default in the execution of the
- ---------------
repairs and works referred to in such notice it shall be lawful for the Landlord
and any persons authorized by the Landlord (but without prejudice to the right
of re-entry hereinafter contained) to enter upon the demised premises and
execute such repairs and works and the cost thereof (including any surveyors or
other fees incurred and whether or not such repairs and works are executed by
the Landlord) shall be repaid by the Tenant to the Landlord on demand together
with interest on the expenses incurred by the Landlord under the above proviso
in accordance with the terms of the proviso to clause 2 of this Lease relating
to late payments of rents
(10) Taking inventories. To permit the Landlord and any person
------------------
authorized by the Landlord to enter upon the demised premises at all reasonable
hours during the daytime by prior written appointment to take schedules or
inventories of landlord's fixtures and fittings and things to be yielded up at
the determination of the said term
(11) Acts of Parliament. To observe and comply with the provisions
------------------
and requirements of every enactment (which expression in this Lease includes as
well every Act of Parliament already or hereafter to be passed as every order
regulation and bye-law already or hereafter to be made under or in pursuance of
any such Act and without prejudice to the generality of the foregoing
-11-
<PAGE>
specifically includes the Factories Acts the Offices Shops and Railway Premises
Act 1963 the Health and Safety at Work etc Act 1974 and every order and
regulation made or to be made thereunder) so far as they relate to or affect the
demised premises and maintain all arrangements which by or under any enactment
or bye-law are or may be required at any time during the said term to be
executed provided or maintained whether by tho Landlord or the Tenant and to
indemnify the Landlord at all times against all costs charges and expenses of or
incidental to the execution of any works or the provision of maintenance of any
arrangements so required as aforesaid and not at any time during the said term
to do or omit or suffer to be done or omitted in or about the demised premises
any act or thing by reason of which the Landlord may under any enactment incur
or have imposed upon it or become liable to pay any penalty damages compensation
costs charges or expenses
(12) Planning Acts.
-------------
(i) To comply in all respects during the currency of this Lease with
the provisions and requirements of the Planning Acts and all licences consents
permissions and conditions (if any) granted or imposed thereunder or under any
enactment repealed thereby so far as the same respectively relate to or affect
the demised premises or any parts thereof or any operations works acts or things
already or hereafter to be carried out executed done or omitted thereon or the
use thereof for any purpose and to pay any development charge or
-12-
<PAGE>
other charge imposed in respect of any such matter arising from any act
commission or omission whatsoever of the Tenant or any party under the control
of or on behalf of the Tenant and indemnify the Landlord against all proceedings
expenses claims and demands in respect of any contravention by the Tenant of any
provision of the Planning Acts
(ii) Not to do on or in relation to the demised promises anything by
reason of which the Landlord may under any enactment whatever become liable to
pay any penalty damages costs compensation charge levy tax or other monies and
in any event
Subject only to any statutory requirement to the contrary to pay and satisfy any
charge levy tax or other monies which may now or hereafter be imposed whether an
the Landlord or the Tenant under any such enactment in respect of any
development or alteration or any change or continuation of use or other like
matter relating to the demised premises by the Tenant or any Sub-tenant or
occupier of the demised premises which shall occur during the said term
(13) Copies of Notices. Within seven days of the receipt by the Tenant
-----------------
of the same to supply a copy to the Landlord of any notice or order or proposal
for a notice or order or licence consent permission or direction given or made
under any enactment and any regulations orders and instruments made thereunder
and
-13-
<PAGE>
relating to the demised premises and to permit the Landlord and all persons
authorized by it at all reasonable times during the daytime upon at least 48
hours prior written notice to enter upon the demised premises to inspect the
same for any purpose in connection with any such notice order proposal licence
consent permission or direction
(14) Join with Landlord in making Appeals etc. At the request and
-----------------------------------------
cost of the Landlord to make or join with the Landlord in making any objection
representation or appeal in respect of any such notice order proposal or
direction as aforesaid or any refusal of or condition imposed under any such
licence consent or permission as aforesaid save where to do so would be
prejudicial to the Tenant's enjoyment of the demised premises
(15) No application for Planning Permission. Not to make or suffer to
--------------------------------------
be made without the consent of the Landlord (such consent not to be unreasonably
withheld or delayed) any application for consent or permission to carry out or
commence any development (within the meaning of the Planning Acts) on or by
reference to the demised premises
(16) Complete Developments within Term. Unless the Landlord shall
---------------------------------
otherwise direct to carry out before the determination of the said term any
works (the carrying out of which is otherwise permitted hereunder) required to
be carried out in or on the demised premises by a date subsequent to such
determination
-14-
<PAGE>
as a condition of any planning permission which may have been granted to and
implemented by the Tenant during the said term
(17) Compensation. If the Tenant shall receive any compensation
------------
because of any restriction placed upon the user of the demised premises or any
part thereof under or by virtue of the Planning Acts then if and when its
interest hereunder shall be determined under the power of re-entry herein
contained or otherwise forthwith to make such provision as is just and equitable
for the Landlord to receive its due benefit from such compensation unless the
compensation authority shall otherwise order
(18) To afford the Landlord during the six months preceding the
determination of the said term all reasonable facilities for the purpose of
letting the demised premises or at any time on prior reasonable written notice
during the said term of selling valuing or charging the same including access to
the demised premises by the Landlord or by prospective tenants or purchasers or
others having written authority from the Landlord PROVIDED THAT no inconvenience
-------------
or disruption is caused to the Tenant
(19) Assignment and underletting
---------------------------
(a) Save as hereinafter expressly provided not to agree to nor assign
transfer underlet or part with or share the possession or occupation of nor
grant any occupational licence in respect of the whole of the demised premises
or any part or parts thereof nor to charge any part or parts thereof
-15-
<PAGE>
(b) Not to assign the demised premises (here meaning the whole
thereof) without the previous consent in writing of the Landlord which consent
shall not be unreasonably withhold or delayed in the case of a respectable and
responsible Assignee of satisfactory financial standing subject to such Assignee
if the Landlord so requires first entering into a direct covenant with the
Landlord to observe and perform the covenants on the part of the Tenant herein
contained during the residue of the said term and to pay the rents hereby
reserved and not further to assign or underlet or part with or share the
possession or occupation of the demised premises or any part thereof except on
the said terms are herein contained and also subject if the Landlord shall so
require in the case of any Assignee who shall be a corporate body without a
quotation on a recognized stock exchange and in the absence of any other
acceptable security to not less than two Guarantors (of a financial status
acceptable to the Landlord) first to enter into a direct covenant with the
Landlord for guaranteeing the observance and performance of the covenants on the
part of the Tenant herein contained and secondly to covenant with the Landlord
that in the event of the Tenant during the said term becoming bankrupt or
entering into liquidation and the trustee in such bankruptcy or the liquidator
as the case may be disclaiming these presents the Guarantor shall accept from
the Landlord a new lease of the demised premises for a term equal in duration to
the residue remaining unexpired of the said term at the data of disclaimer such
lease to
-16-
<PAGE>
contain the same term in all respects (including the proviso for re-entry) as
are contained in these presents
(c) Not without the Landlords prior written consent (not to be
unreasonably withhold or delayed) to underlet the whole of the demised premises
except on the same terms than those therein contained at a rent not less than
that payable hereunder at the date of such Underlease (all computations premiums
and fines being hereby expressly prohibited) which shall be subject to review at
such intervals as shall be normal in the market for similar property at the time
of the grant thereof (but in any event at least as often as required by these
presents and simultaneous therewith) PROVIDED ALWAYS that the Tenant shall not
---------------
be entitled (and is hereby expressly prohibited therefrom) to sub-let other than
for occupation
(d) Any underlease granted under this sub-clause shall contain
(i) An unqualified covenant on the part of the Underlessee not to
assign transfer or underlet or part with possession or occupation of part or
parts only of the demised premises
(ii) A covenant on the part of the Underlessee that the Underlessee
will not assign or underlet the whole of the demised premises without obtaining
the previous written consent of Marwell Property Investments Limited or other
the Landlord under these presents (such consent not to be
-17-
<PAGE>
unreasonably withhold) and of the Tenant under these presents and to provide in
such Underlease that any sub-underleases granted out of such Underlease whether
immediate or mediate shall contain similar provisions to those contained in this
sub-clause (19)
(e) Notwithstanding the foregoing provisions of this sub-clause the
Tenant may share possession or occupation of part of the demised premises (as
distinct from the whole) with or in favour of any subsidiary or associated
company for so long as such relationship subsists and provided that no
relationship of landlord and tenant is thereby created
(f) Within one month of every permitted assignment transfer underlease
(whether mediate immediate or derivative) parting with possession or occupation
of these presents or of the demised premises to give notice thereof in writing
with particulars thereof to the Landlord's Solicitors and produce to then a
certified copy of such instrument (free of expense to the Landlord) for
retention by the Landlord and to pay to them a reasonable registration fee of
fifteen pounds ((Pounds)15.00) in respect of each instrument
(g) Upon every application for consent required by this sub-clause
(19) to disclose to the Landlord such information as to the terms proposed by
the Tenant as the Landlord may reasonably require and whenever required by the
Landlord to provide in writing full details of the actual occupation of the
demised premises
-18-
<PAGE>
(20) To indemnify and keep indemnified the Landlord from liability in
respect of any injury to or the death of any person damage to any property (real
and personal) the infringement disturbance or destruction of any right easement
or privilege or otherwise by reason of or arising directly or indirectly out of
the repair state of repair condition or any alteration to or to the use herein
permitted of the demised premises by the Tenant and from all proceedings costs
claims and demands of whatsoever nature in respect of any such liability or
alleged liability
(21) To pay to the Landlord all reasonable costs charges and expenses
(including legal costs and fees payable to a Surveyor) which may be reasonably
incurred by the Landlord in or in contemplation of or incidental to any
proceedings under Sections 146 and 147 of the Law of Property Act 1925 and
preparation and service of any notice in respect thereof notwithstanding
forfeiture for any breach by the Tenant shall be avoided otherwise than by
relief granted by the Court or for the purpose of or in reasonable contemplation
of or incidental to the preparation and service or justifiable schedules of
dilapidations or notice under the foregoing provisions of this Sub-clause during
the said term or within three months after the determination thereof
(22) User.
----
(a) To use and occupy the demised premises for the purpose only of
uses within the moaning of Class B1 of The Town &
-19-
<PAGE>
Country Planning (Use Classes) Order 1987 or for such other use for which the
Landlord may give previous consent in writing (such consent not to be
unreasonably withhold) and for which the consent of the Planning Authority for
the time being shall have been obtained
(b) Not to use or allow the demised premises or any part thereof to be
used for residential or sleeping purposes
(c) Not to use any other part of the Estate than the demised premises
for the parking of motor or other vehicles
(d) Not to load or unload or pack or stack upon any of the common
parts except those parts (if any) designated for that purpose
(23) Alterations. Not at any time during the said term to damage
-----------
interfere with or make any addition to or alteration in the demised premises or
any party wall or any service conduit apparatus or installation therein but
nothing herein contained shall prevent the Tenant with the prior written consent
of the Landlord (which shall not be unreasonably withhold or delayed) from
making internal non-structural alterations and it may without such consent erect
or remove from time to time demountable partitioning PROVIDED ALWAYS that at the
---------------
determination of the said term the Tenant shall at the request of the Landlord
dismantle and remove all non-structural internal alterations and demountable
-20-
<PAGE>
partitioning then in the demised premises and reinstate the demised premises and
make good forthwith any damage caused
(24) Advertisements. Not to exhibit affix to or display or permit or
--------------
suffer to be exhibited affixed to or displayed on or from the exterior of the
dmisod premises or an tho external walls rails or fences thereof any sign
signboard fascia placard lettering notice price label blind flag pennant sky-
sign or any advertisement of any kind whatsoever except such as shall have been
previously approved in writing by the Landlord such approval not to be
unreasonably withhold or delayed in the case of the usual trade signs of the
Tenant and in the event of any such approval being given to observe the terms
thereof and at the determination of the said term to remove every such thing so
approved and forthwith make good the demised premises Provided Always that the
Tenant shall have the right in common with others to place its name upon any
general estate board erected for the purpose subject to the same being
previously approved by the Landlord
(25) Floor loading. Not to knowingly place or suspend any object of
-------------
excessive weight on or from the floors ceilings roofs or walls or structure of
the damaged promises nor without the Landlord's previous written consent not to
be unreasonably withheld or delayed to set up or permit to be set upon on any
part of the demised promises any steam gas or electric or other boiler engine
machine or mechanical contrivance other than the Tenant's usual business
machinery
-21-
<PAGE>
(26) Not to prejudice insurance.
--------------------------
(a) Not to do in or on the demised premises or the Estate anything
whereby the insurance of the Estate the demised premises or the Landlords
fixtures and fittings against the insured risks my be vitiated or prejudiced nor
without the consent of the Landlord do or allow to be done anything whereby any
additional premium may become payable for the insurance of the demised premises
or of any other parts of the Estate and in the event of any Landlords insurance
policy for the Estate or any part thereof being vitiated in consequence of any
act action or omission of the Tenant or any Sub-tenant of the Tenant fully and
effectually to indemnify the Landlord against all costs claims proceedings or
losses resulting from any damage or injury to the Estate or any part thereof in
respect of which compensation is not forthcoming from the Landlords insurance
company and against all costs of any increased or additional premium incurred by
the Landlord
(b) To notify the Landlord forthwith upon becoming aware of the same
of any damage to or destruction of the demised premises or any part thereof
occasioned by the occurrence of any of the insured risks
(c) In the event of the Estate or the demised premises or any part
thereof being damaged or destroyed by any of the insured risks at any time
during the said term and the insurance money under any insurance affected
thereon by the Landlord being wholly or partially irrecoverable by reason of any
act or default
-22-
<PAGE>
of the Tenant or of any Sub-tenant of the Tenant then and in every such case the
Tenant will forthwith (in addition to the said rents) pay to the Landlord the
whole (or as the case may require) a fair proportion of the cost of rebuilding
and reinstating the same any dispute as to the proportion to be so contributed
by the Tenant or otherwise in respect of or arising out of this provision to be
referred to arbitration in accordance with the provisions of the Arbitration Act
1950
(d) Not without the prior written consent of the Landlord to effect
any insurance (other than that of plate glass) of any buildings on the demised
premises but if at any time the Tenant is entitled to the benefit of any
insurance on the demised premises then to apply all monies received by virtue of
such other insurance towards making good with all speed the loss or damage in
respect of which the same shall have been received.
(27) Nuisance. Not to carry on or permit to be carried on upon the
--------
demised promises or any part thereof the business to be carried on thereon in a
noisy noisome offensive or dangerous manner or do in or upon the demised
premises or any part thereof or the Estate any act matter or thing which may be
or grow to be or become a nuisance or an annoyance or a disturbance to the
Landlord or its tenants or lessees or the owners lessees or occupiers for the
time being of any premises forming part of the Estate
(28) Auctions. Not at any time during the said term to hold or permit
--------
any sale by auction to be hold upon the demised
-23-
<PAGE>
promises or any part thereof without the written consent of the Landlord for
that purpose first obtained
(29) Obstruction etc.
---------------
(a) Not to do or permit any act or thing whereby the common parts or
any part thereof or any other part of the Estate may be damaged interfered with
or obstructed or the fair use thereof by others may be hindered impeded or
interfered with in any manner whatsoever and in particular not to leave or
permit to be left therein any goods or article of any kind and to perform and
observe and procure the performance and observance by all the Tenants servants
and agents and by all those coning into the Estate for any purpose connected
with the Tenants business of all bye-laws rules and regulations of the local
authority or other competent authority made from time to time in relation to any
part of the Estate
(b) Not to bring or allow to be brought into or upon nor permit to
remain in or upon the curtilage or the demised premises or the common parts or
any part thereof or any other part of the Estate or of any neighbouring or
adjoining premises any goods packaging or packing cases waste swarf trade
empties or any materials or other things of any kind whatsoever (so that the
same shall only be brought into the building or buildings at the demised
premises) and particularly not to trade other than from within the building or
buildings at the demised premises
-24-
<PAGE>
(30) Fire regulations.
----------------
(a) Not to use or permit or suffer to be used on any account except in
case of fire or other emergency any doors or special exits provided for escape
in case of fire
(b) At all times to comply with and observe the requirements of the
relevant authorities having power to deal with means of escape from buildings in
the event of fire so far as such requirements affect the demised premises or the
fixtures fittings or furniture therein and in common with all other tenants of
the Estate entitled to use the same to comply with and observe all the
regulations of such authorities which may apply to tho remainder of the Estate
(c) Not to place or store in the demised premises or any part thereof
any article or thing which is or may become dangerous offensive combustible
inflammable or explosive without obtaining all required consents in relation
thereto
(31) Encroachments etc. Not to stop up darken or obstruct any windows
------------------
lights ventilators or other openings belonging to the demised premises nor to
permit any new windows lights ventilators passage drainage or any other
encroachment or easement whatsoever to be made or acquired on or over the
demised premises and that in case any encroachment or easement shall be made or
acquired or attempted to be made or acquired the Tenant will immediately upon
becoming aware of the same give notice thereof to the Landlord and at the
request and cost of the Landlord will adopt
-25-
<PAGE>
such means as may be reasonably required or deemed proper for preventing any
such encroachment or the acquisition of any such easement
(32) Landlord Regulations. To perform and observe such reasonable
--------------------
rules and regulations as the Landlord may from time to time make for the general
management and conduct of the Estate therein (particularly but without prejudice
to the generality of the aforesaid relating to the direction and flow of
traffic) and the appurtenances thereof and such regulations and all amendments
modifications or additions thereto when communicated in writing to the Tenant
shall be deemed to be incorporated in this Lease
(33) Let or sale boards. To permit the Landlord to enter upon the
------------------
demised promises and affix and retain without interference upon some part or
parts thereof (but not so as to obstruct the access of light and air to the
demised premises) notice for reletting or selling the same and to permit all
persons with authority from the Landlord at all reasonable hours during the
daytime upon at least 48 hours prior notice to enter and view the
demised premises
(34) Permit entry for repairing adjoining premises. To permit the
---------------------------------------------
Landlord and all others authorized by the Landlord and the adjoining or
neighbouring owners tenants and occupiers with or without workmen and others and
plant materials and equipment at all reasonable times during the day time and
having made prior written appointment (save in the case of emergency) to enter
and remain
-26-
<PAGE>
upon the demised premises so far as may be necessary in order to build walls
(including party walls) or to stop up any openings in walls dividing the demised
premises from other parts of the Estate or any adjoining or contiguous premises
or to repair or rebuild any part of the Estate or any adjoining or contiguous
premises belonging to the Landlord or to cleanse lay re-lay maintain renew empty
or repair any of the sewers drains conduits gutters watercourses pipes cables
wires machinery equipment apparatus mains and roads and common parts belonging
to the same and for all purposes connected with the Landlords obligations and
rights under those presents in circumstances where such works cannot otherwise
conveniently be carried out the person exercising such rights causing as little
noise dust damage and inconvenience as reasonably practicable and forthwith
making good all damage to the demised premises or any chattels thereon
occasioned by the exercise of such rights and causing as little interference as
is reasonably possible to the Tenant's use of the demised premises during the
time that such work is being carried out AND ALSO that in case any dispute or
--------
controversy shall at any time or times arise between the Tenant and the tenants
or occupiers of any adjoining or contiguous premises belonging to the Landlord
including any other part of the Estate the same shall from time to time be
settled and determined by the Landlord in such manner as it in writing shall
direct in that behalf to which determination the Tenant shall from time to time
-27-
<PAGE>
submit and which determination shall be conclusive and binding upon the Tenant
save in the case of manifest error
(35) Prevention of damage by effluent etc. discharge.
-----------------------------------------------
(a) Not to permit but to take such measures as may be necessary to
ensure that any effluent discharged from the demised promises into the drains or
sewers which belong to or are used for the demised premises whether or not in
common with other promises will not be corrosive or in any way harmful to the
said drains or sewers or cause any obstruction or deposit therein and to keep
all pipes watercourses gullies and drains belonging to and used exclusively by
the demised promises properly flushed cleansed and free from obstruction and if
any such obstruction shall occur forthwith upon becoming aware of the
obstruction to remove the same and make good any damage caused thereby whether
to the structure or the demised premises or otherwise and to indemnify the
Landlord against any claims arising from damage caused by such obstruction to
adjoining or neighboring premises or any part of the Estate
(b) Not to discharge or allow to be discharged from the demised
premises any fluid or anything of a poisonous or noxious nature of a kind that
will contaminate or pollute the air or water and to Indemnify the Landlord
against any claims &rising from damage caused by such contamination or pollution
(c) To take at all times throughout the said term all such steps as
are necessary and proper to prevent the emanation from the demised promises of
noise fumes heat or excessive
-28-
<PAGE>
vibration especially but not only where such emanation is to the detriment of
the Landlord or any others aware or occupiers of the Estate or of the adjoining
or nearby promises
(36) Cost of Licences. To pay the proper and reasonable legal charges
----------------
and surveyors fees of the Landlord resulting from all applications by the Tenant
for any consent of the Landlord required by these presents and also the proper
and reasonable legal charges and surveyors fees actually incurred by the
Landlord in cases where consent is refused or the application is withdrawn
(37) Indemnity. When required and on demand to contribute and pay to
---------
the Landlord or to it may direct a fair and proper proportion of the cost of
repairing maintaining replacing renewing and cleansing all party walls fences
sewers drains pipes watercourses roads passages pavements and other easements
used in co@n with the occupiers of any neighbouring or adjoining promises on the
Estate
Landlords Covenants
- -------------------
4. Tenants covenants. The Tenant hereby covenants with the Landlord as
----------------- ---------------------------
follows:
(1) To keep the demised promises insured in some insurance office of
repute against loss or damage by fire explosion flood storm tempest aircraft
(and articles dropped therefrom) impact riot civil commotion malicious damage
burst pipes and overflowing of cisterns lightning and earthquake (subject to
such risks being accepted by Insurers) and such other risks as the
-29-
<PAGE>
Landlord shall in its absolute discretion think fit (such policy to contain a
non-invalidation clause subject to the same being accepted by Insurers) to such
full reinstatement value (having regard for escalation of costs) as the
Landlord's Surveyors may from time to time recommend including cover to respect
of Architects Surveyors and other professional fees on reinstatement and three
years loss of rent and upon written request to produce details of the policy to
the Tenant together with confirmation of payment of the last premium and in the
event of the demised premises being destroyed or damaged by any of the insured
risks during the said term forthwith (as soon as the necessary labour materials
and permits are obtained) to lay out all monies received under or by virtue of
any insurance effected thereon (other than monies received in respect of loss of
rents) in rebuilding or reinstating the same in a good and substantial manner
PROVIDED THAT the Tenant may at any time request the Landlord to increase the
- -------------
amount of insurance cover to such amount as it thinks appropriate provided that
the Landlord shall be under no obligation to do so where the cover is maintained
in respect of the demised premises and other premises and to agree would mean
increasing the premium payable by the tenants of the other premises and those
tenants object
(2) Subject to payment by the Tenant of the rents herein reserved and
provided that the Tenant has complied with all the covenants and obligations on
the part of the Tenant to be performed
-30-
<PAGE>
and observed to use its best endeavours to provide such services as are
specified in the Fifth Schedule hereto PROVIDED NEVERTHELESS that the Tenant
---------------------
shall have no claim against the Landlord arising out of or in respect of the
failure of the Landlord to provide any of the said services by reason directly
or indirectly or circumstances outside the reasonable control of the Landlord
and in particular (but without prejudice to the generality of the foregoing) by
reason directly or indirectly of any act of God or of third parties or any
strike lockout or labour dispute or any shortage of labour fuel water gas
electricity or other supplies or of any material or other defect or breakdown
arising in or occurring to any part of the service installations or other
equipment in the Estate used for or in connection with the furnishing of any
service provided the Landlord shall have done all it reasonably could to prevent
such an event occurring nor shall the Landlord be responsible for or incur any
liability in respect of:
(a) any damage to any person or property by reason of any defect in
the structure (including but not exclusively foundations) of any part of the
Estate or by reason of the defective working stoppage or breaking of any
machinery power or appliance in connection therewith in circumstances beyond the
Landlord's control or
(b) any loss or inconvenience which may be occasioned by any delay or
want of supply of water (including heated water)
-31-
<PAGE>
electric current gas or other fuel caused by any service Installation or other
equipment connected with the supply thereof being defective or out of repair or
by the closing down or temporary withdrawal from use of any service
installations or boiler or other service equipment for periodic inspection
repairs or other necessary purposes in circumstances beyond the Landlord's
control
(c) the act or default of any other tenant or any servant or agent of
any other tenant or occupant of the Estate nor for any lose occasioned by theft
or negligence of such persons or otherwise
Quiet Enjoyment
- ---------------
(3) That the Tenant paying the rents hereby reserved and observing and
performing the Tenants covenants hereinbefore contained shall and say peaceably
hold and enjoy the demised promises during the said term without any
interruption or disturbance from or by the Landlord or any person lawfully
claiming through under or in trust for it
5. PROVIDED ALWAYS AND IT IS HEREBY AGREED AND DECLARED that Re-entry
---------------------------------------------------- --------
(1) If the said rents hereby reserved or any part thereof shall at any
time be in arrear and unpaid for twenty-one days after the same shall have
become due (whether any formal or legal demand therefor shall have been made or
not) or if there shall be any breach of any of the covenants conditions or
-32-
<PAGE>
agreements herein contained and on the part of the Tenant to be performed and
observed or if the Tenant or other person or persons in whom for the time being
the said term shall be vested (being an individual or Individuals) or any of
them shall become bankrupt or have a receiving order made against his her or
thou or sake any arrangement or composition with or for the benefit of his her
or their creditors or suffer any execution to be levied at the demised promises
or if the Tenant or any assignee of the Tenant being a company shall enter into
liquidation whether compulsory or voluntary (not being merely a voluntary
liquidation for the purpose of amalgamation or reconstruction) or suffer any
execution to be levied at the demised premises or have a Receiver or Manager
appointed then and in such case it shall be lawful for the Landlord or any
person or persons duly authorized by the Landlord in that behalf Into or upon
the demised premises or any part thereof in the name of the whole to re-enter
and the demised premises peaceably to hold and enjoy thenceforth as if these
presents had not been made without prejudice to any right of action or remedy of
either party against the other in respect of any antecedent breach of any
covenant or condition herein contained
Notices
- -------
(2) Any notice required to be given or served under, these presents
and not otherwise provided for shall be served or deemed to be served if served
in accordance with Section 196 of the Law of Property Act 1925 (as amended)
-33-
<PAGE>
Landlords Development
- ---------------------
(3) Subject to the terms of clause 4(3) hereof nothing herein
contained or implied shall impose or be deemed to impose any restriction on the
use of any land or building not comprised in these presents or to prevent or
restrict in any way the development of any land not comprised in these presents
and further that nothing herein contained shall by implication of law or
otherwise operate or be deemed to confer upon the Tenant any easement right or
privilege whatsoever (other than those herein expressly granted) over or against
any adjoining or neighbouring property which now does or hereafter within the
specified period shall belong to the Landlord which would or might restrict or
prejudicially affect the future rebuilding alteration or development of such
adjoining or neighbouring property and that the Landlord shall have the right at
any time to make such alterations to or to pull down and rebuild or redevelop
any such adjoining or neighbouring property as it may deem fit without obtaining
any consent from the Tenant PROVIDED ALWAYS that no unreasonable interference or
disturbance shall materially affect the Tenant from carrying an its trade and
business and as soon as is reasonably practicable making good any damage thereby
caused to the demised premises
Suspension of Rent
- ------------------
(4) In case the demised premises or any part thereof shall at any tint
be destroyed or so damaged by any of the insured risks as to be unfit for
occupation or use then and in any such
-34-
<PAGE>
case (unless the Insurance of the demised premises shall have been vitiated by
the act neglect default or omission of the Tenant) the rents hereby reserved or
a fair and just proportion thereof according to the nature and extent of the
damage sustained shall be suspended and cease to be payable from the date of
such destruction or damage aforesaid until the demised promises shall again be
fit for use and occupation and such proportion in case of disagreement shall be
referred to a single arbitrator in accordance with and subject to the provisions
of the Arbitration Act 1930 or any statutory modification or re-enactment
thereof
Acceptance of Rent
- ------------------
(5) Notwithstanding the acceptance of demand for rent by the Landlord
or its agent with knowledge of a breach of any of the covenants on the part of
the Tenant herein contained the Landlords right to forfeit these presents an the
ground of such breach shall remain in force And the Tenant shall not in any
proceedings for forfeiture be entitled to rely upon any such acceptance or
demand as aforesaid as a defence
Statutory Compensation
- ----------------------
(6) Except where any statutory provision prohibits the Tenants right
to compensation being reduced or excluded by agreement the Tenant shall not be
entitled to claim from the Landlord an quitting the demised promises or any part
thereof any
-35-
<PAGE>
compensation under the Landlord and Tenant Act 1954 or any statute modifying or
re-enacting the same
Exclusion of any warranty of fitness
- ------------------------------------
(7) Neither the granting of this Lease nor any provision herein
contained shall operate or be construed as warranting that the demised premises
are suitable for the purpose or purposes of the Tenant and the use to which the
Tenant proposes now or hereafter to put the demised premises or any use to which
(whether subject to conditions or not) the Tenant may be at liberty or may be
required under the provisions of these presents to put the demised premises is
or may, be or become legally permitted whether under the provisions of the
Planning Acts or otherwise
IN WITNESS whereof these presents have been entered into the day and
----------
year first above written
THE FIRST SCHEDULE
------------------
"THE DEMISED PREMISES"
- ----------------------
ALL THOSE parts of the Estate shown for the purpose of Identification only on
- ---------
the plan annexed hereto and thereon edged red Together with the buildings
erected thereon or on some part thereof and known as unit 9 Solent Industrial
Estate Hedge End Southampton including but not exclusively doors windows window
frames and glass the whole of any structural and non-structural walls and
columns forming part of the demised premises one half in thickness of any
structural and/or non-structural wall which forms
-36-
<PAGE>
a party wall or boundary of the demised premises with adjoining premises the
screeding the foundations and the floor and the ceilings (if any) and the roof
or roofs of the demised premises AND ALSO including all air water electricity
--------
gas and other service pipes wires ducts and conduits which are within and serve
only the demised premises
THE SECOND SCHEDULE
-------------------
Rights and Privileges
- ---------------------
(a) the right at all times with or without vehicles for the purpose
only of access to and egress from the demised premises in over and along those
parts of the common parts shown coloured brown and yellow an the plan annexed
hereto as may from time to time be varied at the discretion of the Landlord
pursuant to clause 1(4)(c) of this Lease
(b) the right to use and the benefit of all easements and quasi
easements and services subsisting at the date hereof or created within the
specified period or maintained for the benefit of the demised premises in over
under or against any adjoining or adjacent promises of the Landlord to the
extent that the same are necessary for the reasonable enjoyment of the demised
premises but excluding any rights of light and air which are and to the extent
to which the saw are specifically excepted and reserved heroin
(c) the right to use such part of the general car park or car parking
area provided by the Landlord (if any), as may be determined by the Landlords
surveyor (subject to contributions of
-37-
<PAGE>
service charge as hereinbefore contained) provided that such space so met aside
will not be used otherwise than by the Tenant Its servants invites or agents for
the sole purpose of parking motor vehicles in such manner as may be approved by
the Landlord"s surveyor and that no nuisance shall be occasioned In the us*
thereof
THE THIRD SCHEDULE
------------------
Exceptions and reservations
- ---------------------------
(a) all rights of light air and easements (but without prejudice to
those expressly hereinbefore granted to the Tenant) now or hereafter within the
specified period belonging to or enjoyed by adjacent or neighbouring land or
building from over or against the demised premises
(b) the right to build or rebuild or alter any adjacent or
neighbouring land or building of the Landlord (whether or not comprised within
the Estate) in any manner whatsoever including where necessary to erect
scaffolding or gantries and to let the a=* for any purpose or otherwise deal
therewith notwithstanding that tho light or air to the demised premises is in
any such case thereby diminished or any other liberty easement right or
advent&&* belonging to the Tenant to thereby diminished or prejudicially
affected
(c) the right of support and shelter and all other easements and
rights now or hereafter belonging to or enjoyed by all adjacent or neighbouring
land or buildings an interest wherein
-38-
<PAGE>
in possession or reversion is at any time during the said term vested in the
Landlord
(d) the free passage and running of air gas electricity water and soil
telephone and other services through or along the pipes wires channels drains
and watercourses already or hereafter within the specified period to be built or
placed in through over or under the demised premises to and from all other parts
of the Estate and the right to lay and connect up to the same
(e) the right in cases of emergency only to use the emergency or
escape routes now or hereafter enjoyed or required over or through the demised
premises
THE FOURTH SCHEDULE
-------------------
Provision as to Service Charge
- ------------------------------
1. The service charge contribution payable by the Tenant shall
be calculated by reference to the proportion which the gross area (by external
admeasurement) of the buildings from time to time on the demised premises bear
to the aggregate gross area (similarly measured) of the other buildings from
time to time on the Estate and shall be a fair and reasonable proportion (to be
certified by the Landlords Surveyor whose decision shall be final and binding
save in the case of manifest error) of the costs and expenses in respect of the
Landlords annual expenditure which shall be the aggregate of:-
-39-
<PAGE>
(a) the actual cost to the Landlord of the provision by it of the
services mentioned In the Fifth Schedule hereto during the relevant year (due
allowance being made where any expenditure is met out of the reserve hereinafter
mentioned) and
(b) a sum being the annual depreciation over a fair and proper period
(to be determined by the Landlord) of all the capital plant and equipment used
in or for the provision of such services
PROVIDED THAT the Landlord may in its discretion include in the Landlords annual
- -------------
expenditure in any year a sum by way of reasonable reserve against anticipated
future expenditure on the said services
2. The Tenant shall pay to the Landlord on account of the annual
service charge on each quarter day in advance such a sum as shall in the
reasonable discretion of the Landlord be one equal fourth part of the
anticipated annual service charge for the current year such sum to be calculated
having regard to the actual service charge payable for the previous financial
year
3. At the end of each year the Landlord shall as soon as
practicable cause an account to be prepared by the Landlord's auditors of the
Landlords annual expenditure for that year and send a copy thereof to the Tenant
together with a statement shoving the annual service charge payable by the
Tenant and the amount paid on account by the Tenant in such year Any difference
due from the Tenant shall be paid to the Landlord within twenty-one days of the
receipt of such statement and any balance due to the Tenant shall
-40-
<PAGE>
be allowed against the next payment on account of service charge due from it
4. For the purposes of this Schedule "year" shall mean the
period from First January to the next ensuing Thirty First December or such
other commencement and expiration dates as the Landlord may declare in writing
and insofar to be calculated for any period other than a year or a payment on
account for any period other than a quarter the same shall be calculated by
apportionment on a daily basis
5. The Landlords certificate as to the amount of the Landlords
annual expenditure in any year shall be final and conclusive as between the
Landlord and the Tenant save In the case of manifest error and the Landlord
shall make available to the Tenant all vouchers and receipts detailing the
expenditure incurred by the Landlord
6. The Landlord will hold in trust for the benefit of all the
tenants for the time being of the Landlord's Estate all monies hold by way of
reserve and the Landlord hereby covenants with the Tenant that upon the sale or
other transfer of the reversion immediately expectant upon the term hereby
created that it will cause the Purchaser or transferee to become trustee of such
reserve on behalf cf the tenants as aforesaid the annual service charge has
-41-
<PAGE>
THE FIFTH SCHEDULE
------------------
The services to be provided by the Landlord
-------------------------------------------
(1) replacement rebuilding cleansing decorating and otherwise the
keeping in good and substantial repair and condition and the lighting of:-
(a) the common parts and
(b) the boundary walls fences and gates of and in the curtilage of the
Estate and any notice or other boards erected for the benefit of the occupiers
of the Estate
PROVIDED THAT the Landlord shall not be liable to the Tenant for any defects or
- -------------
want of repair unless the Landlord or its agents have had notice in writing
thereof and otherwise subject to the other provisions of these presents
(2) The operation amendment repair renewal replacement rebuilding
cleansing and maintenance in good working order and repair of the equipment
apparatus and appliances (if any) in the common parts including (where
applicable but without prejudice to the generality of the foregoing) the
watercourses the soakways channels pipes drains sewers cables wires pumps motors
ducts and other conducting media the water systems and tanks the reservoirs the
sanitary appliances the electrical installation and lamps and light fittings an
the Estate and the host reels and other fire fighting appliances which the
Landlord is required to provide by statute and all other things provided for the
benefit of the Estate
-42-
<PAGE>
and for which no losses or occupier of the Estate is exclusively liable
(3) (a) grassing and tending and keeping tidy and planting with such
flora trees and shrubs as the Landlord shall deem at its absolute discretion to
be appropriate or such areas as the Landlord may deem at its absolute discretion
desirable
(b) maintaining renewing replacing repairing and keeping in good order
and condition all installations appurtenances appointment$ fixtures fittings
bins receptacles tools appliances materials and other things which the Landlord
may does desirable or necessary for the maintenance upkeep or cleanliness of the
Estate and the supply of services to the Estate
(c) employing such solicitors and other professionals and agents
managers contractors staff and workmen as the Landlord may at its absolute
discretion deem desirable or necessary to enable or assist it to provide the
said services or any of then and for the general conduct management and security
of the Estate and all parts thereof and to pay all incidental foes and other
expenditure in relation to such employment (including but without limiting the
generality of such provision the payment of the statutory and such other
insurance health pension welfare and other payments contributions and premiums
as the Landlord may at its absolute discretion does desirable or necessary and
the provision of uniforms working clothes and other equipment for the proper
performance of their duties)
-43-
<PAGE>
(d) paying all rates taxes charges assessments impositions and other
outgoings (including but not exclusively charges (if any) for the supply of
water gas electricity or any other form of supply of energy utilities or
services) payable by the Landlord in respect of the common parts except insofar
as the Tenant or any other occupier of the Estate may be liable for the under
the terms of this or their lease or occupation
(e) keeping the common parts insured upon similar terms (including the
Landlords covenant to reinstate) as those set forth in clause 4(l) of this Lease
(f) taking all steps deemed desirable or expedient by the Landlord for
complying with making representations against or otherwise contesting the
incidence of the provisions of any legislation or orders or statutory
requirements thereunder concerning town planning public health highways streets
drainage or other matters relating to the Estate for which the Tenant is not
directly liable hereunder
(g) enforcing or attempting to enforce against (a) any other tenant of
the Estate the observance of any covenant in that tenant's lease the
nonobservance of which is or may be detrimental to the Tenant and (b) any owner
or occupier of adjoining or neighbouring promises the payment of any
contribution towards anything used in common with the Estate
(h) paying a contribution towards the expense of repairing renewing
and maintaining and cleansing all ways roads
-44-
<PAGE>
pavements severe drains pipes watercourses party wells party structures party
fences wells or other conveniences which may belong to or be used by the
occupiers of the Estate in common and in common with other premises near or
adjoining thereto
(i) executing any works as are or at any time during the said term
shall under or by virtue of any enactment for the time being in force or by any
local or other competent Authority be directed or required to be done or
executed in respect of the Estate and for which none of the occupiers of the
Estate are liable
(j) providing any service for the benefit of the Estate as a whole
including but not exclusively at the Landlords discretion a general estate board
indicating the names of the occupiers of the Estate
PROVIDED ALWAYS that the Landlord say from time to time withhold add to extend
- ---------------
vary or make any alterations in the rendering of the said services or any of
them as the Landlord deem desirable so to do in :he interests of good estate
management
(4) in the event only of the Landlord not appointing managing agents
the reasonable cost in respect of the general supervision and management of the
Estate by the Landlord (but not including any payment in respect of the
collection of rent)
(5) the costs and expenses of supplying the account and vouchers and
receipts mentioned in the Fourth Schedule hereto
-45-
<PAGE>
(6) the supply of copies of regulations made by the Landlord under the
foregoing provision hereof and copies of all amendments or additions made from
time to time thereto
THE SIXTH SCHEDULE
------------------
PART I
------
IN this Schedule the following expressions shall have the meanings respectively
- --
assigned to them unless the context otherwise requires:
(1) "the Initial Rent" the sum of (Pounds)18800.00 per annum (and so
------------------
proportionately for any part of a year) payable in respect of the period
expiring an the Review Date first occurring during the said term
(2) "the Reserved Rent" the yearly rent from time to time payable
-------------------
being the initial Rant for the period expiring on the Review Date first
occurring during the said term and thereafter as reviewed in accordance with the
provisions of this Schedule
(3) "Review Date" the date of expiration of the fifth year of the said
-------------
term and the date of expiration of each successive period of five years
thereafter during the said term (but subject to the provisions of Paragraph (9)
of Part II of this Schedule)
(4) "Review period" the period between a Review Date and the next
---------------
succeeding Review Date and the expression "Relevant Review Period" shall be
construed accordingly
-46-
<PAGE>
(5) "Open Market Rent" the yearly rent at which the demised premises
------------------
might reasonably be expected to be let at the Relevant Review Date or other date
upon which such assessment falls to be made by a willing Landlord to a willing
tenant in the open market with vacant possession and without fine or premium for
a term equal to the residue of the term hereby granted or for a term equal to
ten years whichever is the greater assuming
(i) that the buildings comprised in the demised premises remain in
existence and that the covenants and conditions on the part of the Tenant and
the Landlord contained in these presents have been duly observed and performed
and
(ii) by a Lease containing the same terms and provisions in all
respects as these presents (including the provisions for review of rent but
excluding the amount of the Reserved Rent) there being disregarded
(a) any effect on rant of the fact that the Tenant or any undertenant
or their respective predecessors in title have been in occupation of the demised
premises and
(b) any goodwill attached to the demised premises by reason of the
carrying on thereat of the business of the Tenant or any undertenant or their
respective predecessors in title and
(c) any increase in rental value of the demised premises attributable
to the existence at the Review Date of any improvement to the demised premises
or any part thereof carried out with consent where required otherwise than in
pursuance of an
-47-
<PAGE>
obligation to the Landlord or its predecessors in title by the Tenant any
undertenant or their respective predecessors in title during the said term and
(d) any effect on rent of the Rent Restrictions or any law for the
time being in force which imposes restraint upon increase in the rent payable in
respect of the demised premises or recovery of such increases
(6) "Rent Restrictions" restrictions imposed by any Statute for the
-------------------
time being in force and any regulations or orders made thereunder which operate
to impose any limitation whether in time or amount on the review of the Reserved
Rent and/or the collection of any increase in the Reserved Rent or any part
thereof
PART II
-------
(1) The Reserved Rent shall be reviewed as at and (if appropriate)
increased as from each Review Data during the said term as hereinafter provided
and the amount of the Reserved Rent payable for each Review Period shall be the
Reserved Rent at the yearly rate which was payable in accordance with the
provisions of these presents immediately preceding the Relevant Review Date
Increased by the amount (if any) by which the Open Market Rent &* at such Review
Date exceeds the Reserved Rent at the aforesaid yearly rate
(2) The Landlord and the Tenant shall endeavor to agree the Open
Market Rent at each Relevant Review Date and any such
-48-
<PAGE>
agreement shall be in writing signed by or on behalf of the Landlord and the
Tenant
(3) If the Open Market Rent shall not have been agreed between the
Landlord and the Tenant one mouth before the Relevant Review Date for whatever
reason and the Landlord shall not have previously given to the Tenant notice in
writing that there will be no Increase in the Reserved Rent for the Relevant
Review Period either the Landlord or the Tenant may at any time (whether before
or after the Review Date) subject to giving prior notice in writing to the other
of not less than seven days duration require the Open Market Rent to be
determined by a single arbitrator who shall be an Independent Chartered Surveyor
to be jointly appointed by agreement between the Landlord and the Tenant
Provided that such arbitrator must have substantial experience of the area and
of properties of a similar nature to the demised premises and of the matters In
dispute
(4) In default of agreement between the Landlord and the Tenant on the
joint appointment of an arbitrator such arbitrator whose appointment shall be
subject to the proviso to Paragraph (3) of this Part of this Schedule shall be
appointed by the President (or other the Chief Officer or acting Chief Officer)
for the time being of the Royal Institution of Chartered Surveyors on the
written application of the Landlord or the Tenant who shall be at liberty to
make such application at any time after giving the
-49-
<PAGE>
notice last referred to accordance with Paragraph (3) of this part of this
Schedule
(5) The arbitration shall be conducted in accordance with the
Arbitration Act 1950 and the determination shall be final and binding upon the
parties and shall be notified in writing to the Landlord and the Tenant
(6) If such arbitrator does not live notice of his determination
within a period of two months of his appointment or within such extended period
as the Landlord and the Tenant shall jointly agree or in manner aforesaid or if
for any reason it becomes apparent that he will be unable to complete his duties
under these presents the Landlord and the Tenant my agree upon or either of them
may apply for the appointment of a new arbitrator in his place (which procedure
may be repeated as many times as may be necessary) and the provisions of this
Part of this Schedule will operate in relation to that agreement or application
as in relation to any earlier agreement or application
(7) The arbitrator's fees or charges shall be borne by the Landlord
and the Tenant in such proportions as the arbitrator shall determine
(8) If the amount of the Open Market Rent has not been ascertained by
the Review Data in accordance with the provisions hereof the Tenant shall pay to
the Landlord for any interval between the Review Date and the date when the Open
Market Rent has been ascertained as aforesaid the Reserved Rent at the yearly
rate
-50-
<PAGE>
payable immediately preceding such the Review Date and upon the amount of the
Reserved Rent payable from the Review Date being ascertained any additional
amount payable for the period commencing on the Review Date and ending on the
quarter day immediately following such ascertainment shall be forthwith paid by
the Tenant to the Landlord together with Interest thereon at the base rate from
time to time of Barclays Bank P.l.c. for the period from the Review Date to the
date of actual payment such interest to be recoverable an if it were part of the
Reserved Rent
(9) On each and every occasion during the said terms that the Rent
Restrictions shall prevent or prohibit either wholly or partially:
1) the operation of the above provisions for review of the
Reserved Rent and/or
2) the collection of the Reserved Rent or any instalment or part
thereof by the Landlord or the retention thereof at any time after collection
than and in any such case:-
3) any Review Date shall be postponed to take effect on the first
date or dates thereafter upon which such review my occur and if there shall be a
partial relaxation of the Rent Restrictions there shall be a further review of
the Reserved Rent on the first date thereafter as aforesaid notwithstanding that
the Reserved Rent may have been increased in part on or since the Review Date
and/or
-51-
<PAGE>
4) the collection of any increase In the Reserved Rent shall be
postponed to take effect on the first date thereafter that such increase may be
collected and/or retained in whole or part and on as many occasions as shall be
required to ensure the collection of the whole increase
AND until the Rant Restrictions shall be relaxed either partially or wholly the
- ---
Reserved Rent shall be the maximum sum from time to time permitted by the Rent
Restrictions
(10) On each occasion that the Reserved Rent is reviewed pursuant to
the provisions of this Part of this Schedule the Landlord and the Tenant shall
cause a memorandum of the amount thereof payable for the Relevant Review Period
to be prepared and a counterpart thereof and for such memorandum to be signed
respectively by or on behalf of the Landlord and Tenant
(11) The Reserved Rent payable for any Review Period shall not be less
than the amount of the Reserved Rent payable for the period immediately
preceding the commencement of such Review Period.
THE COMMON SEAL of MARWELL )
- --------------- ------- )
PROPERTY INVESTMENTS LIMITED )
- ---------------------------- )
was hereunto affixed in the )
presence of:- )
Director
--------
Secretary C. Matthews
---------
-52-
<PAGE>
DATED 21 October 1988
- --------------------------------------------------------------------------------
MARWELL PROPERTY INVESTMENTS LIMITED
- and -
COOPERVISION HOLDINGS
------------------------------
L E A S E
relating to
Unit 10 The Solent Industrial
Estate Hedge End
Southampton
------------------------------
DAVIES ARNOLD & COOPER
12 Bridewell Place
London
EC4V 6AD
Tel: 01-353 6555
Ref: 25/032/FA19/8/9/88
<PAGE>
THIS LEASE is made the 21st day of October One thousand nine hundred and eighty-
- ----------
eight B E T W E E N (1) MARWELL PROPERTY INVESTMENTS LIMITED whose registered
------------- ------------------------------------
office at 437A Midsummer Boulevard Saxon Gate West Central ____________
(hereinafter called "the Landlord") and (2) COOPERVISION HOLDINGS whose
---------------------
registered office is at Permalens House 1 Botley Road Hedge End Southampton
(hereinafter called "the Tenant")
WITNESSETH as follows:-
- ----------
Interpretation
- --------------
1. In this Lease and in the Schedules hereto:-
(1) Words importing one gender shall include all other genders and words
importing the singular shall include the plural and vice versa
(2) The headings to the clauses hereof and Schedules hereto shall be
deemed not to form any part hereof and shall not affect the
interpretation hereof in any way
(3) Where the Tenant consists of two or more persons all covenants and
agreements by and with the Tenant shall be construed as covenants and
agreements by and with such persons jointly and severally
<PAGE>
(4) Where the context so requires or admits the following words and
expressions shall have the following meanings:-
(a) "the Landlord" shall include the estate owner or owners for the
time being of the reversion immediately expectant on the term
hereby granted and shall also include all superior landlords
(b) "the Tenant" shall include the Tenant's successors in title
(c) "the demised premises" shall mean the premises described in the
First Schedule hereto together with all additions and
improvements at any time and from time to time made thereto and
all fixtures and fittings installed by the Landlord of every kind
which shall from time to time be in or upon the said premises
(whether originally affixed or fastened to or upon the same or
otherwise) except tenants and trade fixtures
(d) "the Estate" shall mean the industrial complex situated at Hedge
End Southampton known as The Solent Industrial Estate shown on
the plan annexed hereto and thereon edged in blue or such other
larger or smaller area as the Landlord may in its discretion from
time to time stipulate
(e) "the common parts" shall mean all those parts of the Estate shown
coloured yellow and brown on the plan annexed hereto and also
those parts (if any) of
- 2 -
<PAGE>
the Estate which are not included or intended to be included in
any lease granted or to be granted by the Landlord the Landlord
reserving to itself the right from time to time when necessary in
the interests of good estate management of amending or varying
the general layout of the Estate and/or the common parts but not
the demised premises Provided Always that such amendments or
variations shall cause as little inconvenience as possible to the
Tenant in the use and enjoyment of the demised premises
(f) "the said term" shall mean the term hereby granted and any
statutory continuation or extension thereof
(g) "determination of the said term" shall mean the determination of
the said term whether by effluxion of time re-entry notice
surrender or any other means or cause whatsoever
(h) "the specified period" shall man the period of eighty years from
the date of this Lease which shall be the perpetuity period
applicable to these Presents
(i) "the Planning Acts" shall mean the Town and Country Planning Acts
1971 and 1972 the Town and Country Planning (Amendments) Act 1977
the Town and Country Amenities Act 1974 and the Local Government
Planning and Land Act 1980
- 3 -
<PAGE>
(j) "these presents" shall mean this Lease and the Schedules thereto
any licence granted pursuant thereto any deed of variation of the
provisions hereof and any instrument made supplemental hereto
(k) "insured risks" shall mean the risks from time to time covered by
the policy or policies of insurance effected by the Landlord
pursuant to its covenant hereinafter contained
(l) "prescribed rate" shall mean interest at an annual rate of 2%
above the base lending rate of Midland Bank Plc applicable from
time to time during any period during which any payment of
interest accrues due under these presents
(5) These present shall unless the context otherwise requires be construed
on the basis that:
(a) any reference to any Act. or any section of any Act shall be
deemed to include any amendment modification or re-enactment
thereof and any statutory instrument bye-law rule directive order
or regulation made thereunder for the time being In force
(b) any covenant by the Tenant not to do any act or thing shall be
deemed to include a covenant not to suffer or permit the doing of
that act or thing
- 4 -
<PAGE>
(c) covenants and obligations made or assumed by any party shall be
binding and enforceable against his personal representatives
2. IN consideration of the rents covenants and conditions hereinafter reserved
and contained and on the part of the Tenant to be paid performed and
observed the Landlord HEREBY DEMISES unto the Tenant ALL THAT the premises
--------------
described in the First Schedule hereto TOGETHER WITH (in common with the
-------------
Landlord and all other persons entitled thereto and subject to the
exceptions reservations and provisions hereinafter contained) the rights
and privileges set out in the Second Schedule hereto EXCEPT AND RESERVING
--------------------
unto the Landlord and its lessees tenants agents servants licensees and
other persons claiming through or under the Landlord and all other persons
who now have or may hereafter be entitled to or are granted by the Landlord
a similar right or rights the easements rights and privileges specified in
the Third Schedule hereto TO HOLD the same unto the Tenant subject to any
-------
rights of statutory or other undertakings in respect of services to the
Estate and the demised premises now existing or to be created within the
specified period for a term of Twenty Years from the 25th day of March 1988
hereof PAYING therefor throughout the said term and so in proportion for
any lose time than a year FIRST the yearly rent of EIGHTEEN THOUSAND AND
----- ---------------------
EIGHT HUNDRED POUNDS ((Pounds)18,800.00) by four equal quarterly payments
--------------------
in advance on the usual quarter days in every year without deduction
whatsoever the first of such quarterly payments hereof for the period of
the 25th day of March 1988 until the 24th day of June 1988 shall be paid on
the signing hereof AND SECONDLY by way of further rent an amount equal to
------------
that incurred by the Landlord from time to time in complying with the
covenant in clause 4(l) hereof for the insurance of the demised premises
such rent to be paid on demand AND THIRDLY by way of further rent a
-----------
contribution payable in
- 5 -
<PAGE>
accordance with the provisions of the Fourth Schedule hereto in respect of
the service charge mentioned in the said Fourth Schedule (together with any
Value Added Tax due and payable thereon) the first payment of rents under
this Lease being made on the execution hereof PROVIDED ALWAYS that in the
---------------
event of the said rents or any part thereof being in arrear for more than
14 days whether in the case of the rent first hereinbefore reserved
lawfully demanded or not the Tenant shall pay interest calculated on a
daily basis with quarterly rests at the Prescribed Rate on the amount in
arrear from the day on which it became payable until the day payment is
made and to be payable to the Landlord on demand without prejudice to any
other rights the Landlord may enjoy and the aggregate amount for the time
being so payable shall at the option of the Landlord be recoverable by
action or as rent in arrear
Tenants covenants
- -----------------
3. THE Tenant HEREBY COVENANTS with the Landlord as follows:-
----------------
To pay rent
-----------
(1) To pay the rents hereby reserved and any interest on arrears of rent as
hereinbefore provided on the days and in manner aforesaid without any
deduction whatsoever
Taxes
- -----
- 6 -
<PAGE>
(2) To bear pay and discharge all existing and future rates taxes levies
assessments duties outgoings charges and impositions whatsoever
(whether imposed by statute or otherwise and whether of a national or
local character) now or at any time or times during the said term
assessed imposed or charged upon or payable in respect of the demised
premises or any part or parts thereof and whether payable by the
Landlord or Tenant or by the owner or occupier thereof save for any
tax assessable on the Landlord in respect of the rents payable
hereunder or in respect of any dealing with the reversion either
mediately or immediately expectant on the term hereof
V.A.T.
- ------
(3) To pay to the Landlord or (as the case may be) to its solicitors
surveyors or other agents to whom any payment is due under the
covenants agreements and provisions herein contained or implied which
is a payment whereon Value Added Tax or other similar fiscal charge is
chargeable if the Landlord is not eligible to treat as an input credit
the amount of Value Added Tax or other similar fiscal charge
chargeable in respect of the payment at the rat applicable to that
payment
Gas electricity and water charges
- ---------------------------------
(4) To pay for all gas and electricity and water consumed on or by the
demised premises and all telephone charges and to observe and perform
at the Tenants expense all
- 7 -
<PAGE>
present and future regulations and requirements of the gas and electricity
and water supply authorities and the Post Office concerning the demised
premises and to keep the Landlord indemnified in respect thereof and to
reimburse to the Landlord a properly apportioned part (to be determined by
the Landlord in case the same is not separately metered or gauged) of all
sums paid by the Landlord from time to time to the electricity gas or water
supply authorities or to the Post Office in respect of any consumption or
supply of electricity gas or water or telephone or in respect of any
connection to or alteration or repair of the wiring or piping or other
machinery or equipment in or about the Estate used for electricity or water
supply or gas or telephone which benefits the demised premises or any part
thereof
Repair
- ------
(5) At all times during the said term to keep and maintain the whole of the
demised premises in good and substantial order repair and condition and in
whole or in part rebuild or renew the same as necessary (except damage by
the insured risks provided such policy or policies shall not have become
vitiated or payment of the policy monies refused in whole or in part in
consequence of some act neglect or default of the Tenant or of any sub-
tenant or any other party under the control of the Tenant) PROVIDED THAT
-------------
nothing contained in this sub-clause shall require the Tenant to put or
keep the demised premises in any better state of repair or condition than
the same are in at the date hereof
- 8 -
<PAGE>
Decoration
- ----------
(6) Without prejudice to the generality of the next preceding sub-clause in
every fifth year of the said term and also in the year preceding the
determination of the said term to paint in a proper and workmanlike manner
all the inside wood iron and other parts heretofore or usually painted of
the demised premises with a sufficient number of costs of good quality
paint and also with every such internal painting to clean wash stop whiten
distemper and otherwise decorate and treat in a proper and workmanlike
manner all such internal parts of the demigod premises that have been so
treated and also in every third year of the said term and in the year
preceding 'the determination of the said term (unless the last exterior
painting was done within twelve months of the date of such determination)
to paint in a proper and workmanlike manner all the external parts
heretofore or usually painted and all additions thereto with a sufficient
number of coats of good quality paint and so that in the year preceding the
determination of the said term the tints or colours on each occasion to be
approved in writing by the Landlord (such approval not to be unreasonably
withheld) and french polish or otherwise treat in a good and-workmanlike
manner using good quality materials all exterior parts of the demigod
premises an are usually or heretofore french polished or otherwise treated
AND to wash down all tiles cladding glazed bricks or polished stone or
similar washable surfaces and repoint all brickwork as and when required
and to keep the windows of the demised premises properly cleaned inside and
outside and to keep any part of the demised premises not covered by
buildings in a neat and tidy condition and free from weeds
- 9 -
<PAGE>
Yield Up
- --------
(7) At the determination of the said term quietly to yield up to the Landlord
the demised premises duly painted repaired cleaned maintained amended and
kept in accordance with the covenants in that behalf herein contained
Provided however that the Tenant may prior to tho date of such expiration
or determination remove all tenants or trad fixtures making good
nevertheless at the expense of the Tenant and to the reasonable
satisfaction of the Landlord any damage to the demised premises caused by
such removal and shall remove all the Tenants furniture fittings papers and
refuse and so that the Landlord may treat as abandoned by the Tenant and
may arrange for tho removal and destruction of any such fixtures and other
items not removed by the Tenant at the expiration or determination and the
cost of such removal and destruction shall be paid by the Tenant to the
Landlord on demand
Fire Fighting Equipment
- -----------------------
(8) To keep the demised provision sufficiently supplied and equipped with fire
fighting and extinguishing apparatus and appliances which shall b open to
the inspection and maintained to the reasonable satisfaction of the
Landlord and to the satisfaction of the local fire authority and of
insurers and also not to obstruct the access to or means of working of such
apparatus and appliances
- 10 -
<PAGE>
Entry for Repairs
- -----------------
(9) To permit the Landlord and any person authorised by it upon at least 48
hours prior written notice (except in emergency) to enter upon the demised
premises at all reasonable hours during the daytime to view the state and
condition and user of the same and the landlord's fixtures and fittings
therein and of all defects decays and wants of reparation there found for
which the Tenant shall be responsible hereunder to give notice in writing
to the Tenant and within two months next after every such notice an
aforesaid (or immediately in came of need) to commence to repair well and
substantially and make good all such defects decays and wants of reparation
to the demised premises and the fixtures and fittings therein for which the
Tenant is liable hereunder PROVIDED ALWAYS that if the Tenant shall make
---------------
default in the execution of the repairs and works referred to in such
notice it shall be lawful for the Landlord and any persons authorised by
the Landlord (but without prejudice to the right of re-entry hereinafter
contained) to enter upon the demised premises and execute such repairs and
works and the cost thereof (including any surveyors or other fees incurred
and whether or not such repairs and works are executed by the Landlord)
shall be repaid by the Tenant to the Landlord on demand together with
interest on the expenses incurred by the Landlord under the above proviso
in accordance with the terms of the proviso to clause 2 of this Lease
relating to lot payments of rents
- 11 -
<PAGE>
Taking inventories
- ------------------
(10) To permit the Landlord and any person authorised by the Landlord to enter
upon the demised premises at all reasonable hours during the daytime by
prior written appoint ment to take schedules or inventories of landlord's
fixtures and fittings and things to be yielded up at the determination of
the said term
Acts of Parliament
- ------------------
(11) To observe and comply with the provisions and requirements of every
enactment (which expression in this Loss includes as well every Act of
Parliament already or hereafter to be passed as every order regulation and
bye-law already or hereafter to be mad under or in pursuance of any such
Act and without prejudice to the generality of the foregoing specifically
includes the Factories Acts the Offices Shops and Railway Premises Act 1963
the Health and Safety at Work etc Act 1974 and every order and regulation
made or to be made thereunder) so far as they relate to or affect the
demised premises and maintain all arrangements which by or under any
enactment or bye-law are or may be required at any time during the said
term to be executed provided or maintained whether by the Landlord or the
Tenant and to indemnify the Landlord at all times against all costs charges
and expenses of or incidental to the execution of any works or tho
provision of maintenance of any arrangements so required an aforesaid and
not at any time during the said term to do or omit or suffer to be done or
omitted in or about the demised premises any act or
- 12 -
<PAGE>
thing by reason of which the Landlord may under any enactment incur or have
imposed upon it or become liable to pay any penalty damages compensation
costs charges or expenses
Planning Acts
- -------------
(12) (i) To comply in all respects during the currency of this Lease with the
provisions and requirements of the Planning Acts and all licences
consents permissions and conditions (if any) granted or imposed
thereunder or under any enactment repealed thereby so far as the same
respectively relate to or affect the demised premises or any parts
thereof or any operations works acts or things already or hereafter to
be carried out executed done or omitted thereon or the use thereof for
any purpose and to pay any development charge or other charge imposed
in respect of any such matter arising from any act commission or
omission whatsoever of the Tenant or any party under the control of or
on behalf of the Tenant and indemnify the Landlord against all
proceedings expenses claim and demands in respect of any contravention
by the Tenant of any provision of the Planning Acts
(ii) Not to do on or in relation to the demised premises anything by reason
of which the Landlord may under any enactment whatever become liable to
pay any penalty damages costs compensation charge levy tax or other
monies and in any event
- 13 -
<PAGE>
Subject only to any statutory requirement to the contrary to pay and
satisfy any charge levy tax or other monies which may now or hereafter
be imposed whether on the Landlord or the Tenant under any such
enactment in respect of any development or alteration or any change or
continuation of use or other like matter relating to the damaged
premises by the Tenant or any Sub-tenant or occupier of the demised
premises which shall occur during the said term
Copies of Notices
- -----------------
(13) Within seven days of the receipt by the Tenant of the same to supply a copy
to the Landlord of any notice or order or proposal for a notice or order or
licence consent permission or direction given or made under any enactment
and any regulations orders and instruments made thereunder and relating to
the demised premises And to permit the Landlord and all persons authorised
by it at all reasonable times during the daytime upon at least 48 hours
prior written notice to enter upon the demised premises to inspect the am
for any purpose in connection with any such notice order proposal licence
consent permission or Direction
Join with Landlord in making Appeals etc.
- -----------------------------------------
(14) At the request and cost of the Landlord to make or join with the Landlord
in making any objection representation or appeal in respect of any such
notice order proposal
- 14 -
<PAGE>
or direction as aforesaid or any refusal of or condition imposed under any
such licence consent or permission as aforesaid save where to do so would
be prejudicial to the Tenant's enjoyment of the demised premises
No application for Planning Permission
- --------------------------------------
(15) Not to make or suffer to be made without the consent of the Landlord (such
consent not to be unreasonably withhold or delayed) any application for
consent or permission to carry out or commence any development (within the
meaning of the Planning Acts) on or by reference to the demised premises
Complete Developments within Term
- ---------------------------------
(16) Unless the Landlord shall otherwise direct to carry out before the
determination of the said term any works (the carrying out of which is
otherwise permitted hereunder) required to be carried out in or on the
demised premises by a date subsequent to such determination as a condition
of, any planning permission which may have been granted to and implemented
by the Tenant during the said term
Compensation
- ------------
(17) If the Tenant shall receive any compensation because of any restriction
placed upon the user of the demised premises or any part thereof under or
by virtue of the
- 15 -
<PAGE>
Planning Acts then if and when its interest hereunder shall be determined
under the power of re-entry herein contained or otherwise forthwith to make
such provision as is Just and equitable for the Landlord to receive its due
benefit from such compensation unless the compensation authority shall
otherwise order
(18) To afford the Landlord during the six months preceding the determination of
the said term all reasonable facilities for the purpose of letting the
demised premises or at any time on prior reasonable written notice during
the said term of selling valuing or charging the same including access to
the demised premises by the Landlord or by prospective tenants or
purchasers or others having written authority from the Landlord PROVIDED
--------
THAT no inconvenience or disruption is caused to the Tenant
----
Assignment and underletting
- ---------------------------
(19) (a) Save as hereinafter expressly provided not to agree to nor assign
transfer underlet or part with or share the possession or occupation of
nor grant any occupational licence in respect of the whole of the
demised premises or any part or parts thereof nor to charge any part or
parts thereof
(b) Not to assign the demised premises (here meaning the whole thereof)
without the previous consent in writing of the Landlord which consent
shall not be unreasonably withhold or delayed in the case of a
respectable and responsible Assignee of satisfactory financial standing
subject to such Assignee if the
- 16 -
<PAGE>
Landlord so requires first entering into a direct covenant with the
Landlord to observe and perform the covenants on the part of the Tenant
herein contained during the residue of the said term and to pay the rents
hereby reserved and not further to assign or underlet or part with or share
the possession or occupation of the demised premises or any part thereof
except on the said terms as are herein contained and also subject if the
Landlord shall so require in the case of any Assignee who shall be a
corporate body without a quotation on a recognised stock exchange and in
the absence of any other acceptable security to not less than two
Guarantors (of a financial status acceptable to the Landlord) first to
enter into a direct covenant with the Landlord for guaranteeing the
observance and performance of the covenants on the part of the Tenant
herein contained and secondly to covenant with the Landlord that in the
event of the Tenant during the said tam becoming bankrupt or entering into
liquidation and the trustee in such bankruptcy or the liquidator as the
cast may be disclaiming those presents the Guarantor shall accept from the
Landlord a now lease of the demised premises for a term equal in duration
to the residue remaining unexpired of the said term at the date of
disclaimer such lease to contain the same terms in all respects (including
the proviso for reentry) as are contained in these presents
(c) Not without the Landlords prior written consent (not to be unreasonably
withhold or delayed) to underlet the whole of the demised premises except
on the same terms than those therein contained at a rout not less than that
- 17 -
<PAGE>
payable hereunder at the date of such Underlease (all commutations premiums
and fines being hereby expressly prohibited) which shall be subject to
review at such intervals as shall be normal in the market for similar
property at the time of the grant thereof (but in any event at least as of
ton as required by these presents and simultaneous therewith) PROVIDED
--------
ALWAYS that the Tenant shall not be entitled (and is hereby expressly
------
prohibited therefrom) to sub-let other than for occupation
(d) Any underlease granted under this sub-clause shall contain
(i) An unqualified covenant on the part of the Underlessee not to assign
transfer or underlet or part with possession or occupation of part or
parts only of the demised premises
(ii) A covenant on the part of the Underlessee that the Underlessee will
not assign or underlet the whole of the demised premises without
obtaining the previous written consent of Marwell Property Invest
ments Limited or other the Landlord under these presents (such consent
not to be unreasonably withheld) and of the Tenant under these
presents and to provide in such Underlease that any sub-underleases
granted out of such Underlease whether immediate or mediate shall
contain similar provisions to those contained in this sub-clause (19)
- 18 -
<PAGE>
(e) Notwithstanding the foregoing provisions of this sub-clause the Tenant
may share possession or occupation of part of the demised premises (as
distinct from the whole) with or in favour of any subsidiary or
associated company for so long as such relationship subsists and
provided that no relationship of landlord and tenant is thereby
created
(f) Within on month of every permitted assignment transfer underlease
(whether mediate immediate or derivative) parting with possession or
occupation of these presents or of the demised premises to give notice
thereof in writing with particulars thereof to the Landlord's
Solicitors and produce to then a certified copy of such instrument
(free of expense to the Landlord) for retention by the Landlord and to
pay to them a reasonable registration fee of fifteen pounds
((Pounds)15.00) in respect of each instrument
(g) Upon every application for consent required by this sub-clause (19) to
disclose to the Landlord such information as to the terms proposed by
the Tenant as the Landlord may reasonably require and whenever
required by the Landlord to provide in writing full details of the
actual occupation of the demised premises
(20) To indemnify and keep indemnified the Landlord from liability in respect of
any injury to or the death of any person damage to any property (real and
personal) the infringe ment disturbance or destruction of any right
easement or privilege or other-
- 19 -
<PAGE>
wise by reason of or arising directly or indirectly out of the repair state
of repair condition or any alteration to or to the us herein permitted of
the demised premises by the Tenant and from all proceedings costs claims
and demands of whatsoever nature in respect of any such liability or
alleged liability
(21) To pay to the Landlord all reasonable costs charges and expenses (including
legal costs and fees payable to a Surveyor) which may be reasonably
incurred by the Landlord in or in contemplation of or incidental to any
proceedings under Sections 146 and 147 of the Law of Property Act 1925 and
preparation and service of any notice in respect thereof notwithstanding
forfeiture for any breach by the Tenant shall be avoided otherwise than by
relief granted by the Court or for the purpose of or in reasonable
contemplation of or incidental to the preparation and service or
justifiable scheduled of dilapidations or notice under the foregoing
provisions of this Sub-clause during the said term or within three months
after the determination thereof
User
- ----
(22) (a) To use and occupy the demised premises for the purpose only of uses
within the meaning of Class B1 of The Town Country Planning (Use
Classes) Order 1987 or for such other use for which the Landlord may
give previous consent in writing (such consent not to be unreasonably
withheld) and for which the consent of the Planning Authority for the
time being shall have been obtained
- 20 -
<PAGE>
(b) Not to use or allow the demised premises or any part thereof to be used
for residential or sleeping purposes
(c) Not to use any other part of the Estate than the demised premises for
the parking of motor or other vehicles
(d) Not to load or unload or pack or stack upon any of the common parts
except those parts (if any) designated for that purpose
Alterations
- -----------
(23) Not at any time during the said term to damage interfere with or make any
addition to or alteration in the demised premises or any party wall or any
service conduit apparatus or installation therein but nothing herein
contained shall prevent the Tenant with the prior written consent of the
Landlord (which shall not be unreasonably withheld or delayed) from making
internal non-structural alterations and it may without such consent erect
or remove from time to time demountable partitioning PROVIDED ALWAYS that
---------------
at the determination of the said term the Tenant shall at the request of
the Landlord dismantle and remove all non-structural internal alterations
and demountable partitioning then in the demised premises and reinstate the
demised premises and make good forthwith any damage caused
- 21 -
<PAGE>
Advertisements
- --------------
(24) Not to exhibit affix to or display or permit or suffer to be exhibited
affixed to or displayed on or from the exterior of the demised premises or
on the external walls rails or fences thereof any sign signboard fascia
placard lettering notice price label blind flag pennant sky-sign or any
advertisement of any kind whatsoever except such as shall have been
previously approved in writing by the Landlord such approval not to be
unreasonably withheld or delayed in the case of the usual trade sips of the
Tenant and in the event of any such approval being given to observe the
terms thereof and at the determination of the said term to remove every
such thing so approved and forthwith make good the demised premises
Provided Always that the Tenant shall have the right in common with others
to place its name upon any general estate board erected for the purpose
subject to the same being previously approved by the Landlord
Floor loading
- -------------
(25) Not to knowingly place or suspend any object of excessive weight on or from
the floors ceilings roofs or walls or structure of the demised premises nor
without the Landlord's previous written consent nat to be unreasonably
withheld or delayed to set up or permit to be set upon on any part of the
demised premises any steam gas or electric or, other boiler engine machine
or mechanical contrivance other than the Tenant's usual business machinery
- 22 -
<PAGE>
Not to prejudice insurance
- --------------------------
(26) (a) Not to do in or on the demised premises or the Estate anything whereby
the insurance of the Estate the demised premises or the Landlords
fixtures and fittings against the insured risks may be vitiated or
prejudiced nor without the consent of the Landlord do or allow to be
done anything whereby any additional premium may become payable for the
insurance of the demised premises or of any other parts of the Estate
and in the event of any Landlords insurance policy for the Estate or
any part thereof being vitiated in conse quence of any act action or
omission of the Tenant or any Subtenant of the Tenant fully and
effectually to indemnify the Landlord against all costs claims
proceedings or losses resulting from any damage or injury to the Estate
or any part thereof in respect of which compensation is not forthcoming
from the Landlords insurance company and against all costs of any
increased or additional premiums incurred by the Landlord
(b) To notify the Landlord forthwith upon becoming aware of the same of any
damage to or destruction of the demised premises or any part thereof
occasioned by the occurrence of any of the insured risks
(c) In the event of the Estate or the demised premises or any part thereof
being damaged or destroyed by any of the insured risks at any time
during the said term and the insurance money under any Insurance
affected thereon by the
- 23 -
<PAGE>
Landlord being wholly or partially irrecoverable by reason of any act
or default of the Tenant or of any Sub-tenant of the Tenant then and in
every such cast the Tenant will forthwith (in addition to the said
rents) pay to the Landlord the whole (or as the cast may require) a
fair proportion of the cost of rebuilding and reinstating the same any
dispute as to the proportion to be so contributed by the Tenant or
otherwise in respect of or arising out of this provision to be referred
to arbitration in accordance with the provisions of the Arbitration Act
1950
(d) Not without the prior written consent of the Landlord to effect any
insurance (other than that of plate glass) of any buildings on the
demised premises but if at any time the Tenant is entitled to the
benefit of any insurance on the demised premises then to apply all
monies received by virtue of such other Insurance towards asking good
with all speed the loss or damage in respect of which the sea shall
have been received.
Nuisance
- --------
(27) Not to carry on or permit to be carried on upon the demised premises or any
part thereof the business to be carried on thereon In a noisy noisome
offensive or danger ous manner or do in or upon the demised premises or any
part thereof or the Estate any act matter or thing which may be or grow to
be or become a nuisance or an
- 24 -
<PAGE>
annoyance or a disturbance to the Landlord or its tenants or lessees or the
owners lessees or occupiers for the time being of any premises forming part
of the Estate
Auctions
- --------
(28) Not at any time during the said term to hold or permit any sale by auction
to be held upon the demised premises or any part thereof without the
written consent of the Landlord for that purpose first obtained
Obstruction etc
- ---------------
(29) (a) Not to do or permit any act or thing whereby tho common parts or any
part thereof or any other part of the Estate may be damaged interfered
with or obstructed or the fair use thereof by others may be hindered
impeded or interfered with in any manner whatsoever and in particular
not to leave or permit to be left therein any goods or article of any
kind and to perform and observe and procure the performance and
observance by all the Tenants servants and agents and by all those
coming into the Estate for any purpose connected with the Tenants
business of all bye-laws rules and regulations of the local authority
or other competent authority made from time to time in relation to any
part of the Estate
- 25 -
<PAGE>
(b) Not to bring or allow to be brought into or upon nor permit to remain
in or upon the curtilage or the demised premises or the common parts
or any part thereof or any other part of the Estate or of any
neighbouring or adjoining premises any goods packaging or packing
cases waste swarf trade empties or any materials or other things of
any kind whatsoever (so that the same shall only be brought into the
building or buildings at the demised premises) and particularly not,
to trade other than from within the building or buildings at the
demised premises
Fire regulations
- ----------------
(30) (a) Not to use or permit or suffer to be used on any account except in case
of fire or other emergency any doors or special exits provided for
escape in case of fire
(b) At all times to comply with and observe the requirements of the
relevant authorities having power to deal with means of escape from
buildings in the event of fire so far as such requirements affect the
demised premises or the fixtures fittings or furniture therein and in
common with all other tenants of the Estate entitled to use the same to
comply with and observe all the regulations of such authorities which
may apply to the remainder of the Estate
- 26 -
<PAGE>
(c) Not to place or store in the demised premises or any part thereof any
article or thing which is or may become dangerous offensive
combustible inflam mable or explosive without obtaining all required
consents in relation thereto
Encroachments etc.
- ------------------
(31) Not to stop up darken or obstruct any windows lights ventilators or other
openings belonging to the demised premises nor to permit any new windows
lights ventilators passage drainage or any other encroachment or easement
whatsoever to be made or acquired on or over the demised premises and that
in cast any encroachment or easement shall be made or acquired or attempted
to be made or acquired the Tenant will immediately upon becoming aware of
the same give notice thereof to the Landlord and at the request and cost of
the Landlord will adopt such means as may be reasonably required or deemed
proper for preventing any such encroachment or the acquisition of any such
easement
Landlords Regulations
- ---------------------
(32) To perform and observe such reasonable rules and regulations as the
Landlord may from time to time make for the general management and conduct
of the Estate therein (particularly but without prejudice to the generality
of the aforesaid relating to the direction and flow of traffic) and the
appurtenances thereof and such regulations and
- 27 -
<PAGE>
all amendments modifications or additions thereto when communicated in
writing to the Tenant shall be deemed to be incorporated in this Lease
Let or sale boards
- ------------------
(33) To permit the Landlord to enter upon the demised premises and affix and
retain without interference upon some part or parts thereof (but not so an
to obstruct the access of light and air to the demised premises) notice for
reletting or selling the same and to permit all persons with authority from
the Landlord at all reasonable hours during the daytime upon at least 48
hours prior notice to enter and view the demised premises
Permit entry for repairing adjoining premises
- ---------------------------------------------
(34) To permit the Landlord and all others authorised by the Landlord and the
adjoining or neighbouring owners tenants and occupiers with or without
workman and others and plant materials and equipment at all reasonable
times during the day time and having made prior written appointment (save
in the case of emergency) to enter and remain upon the demised premises so
far as may be necessary in order to build wells (including party walls) or
to stop up any openings in wells dividing the demised premises from other
parts of the Estate or any adjoining or contiguous premises or to repair or
rebuild any part of the Estate or any adjoining or contiguous premises
belonging to the Landlord or to cleanse lay re-lay maintain renew empty or
repair
- 28 -
<PAGE>
any of the sewers drains conduits gutters watercourses pipes cables wires
machinery equipment apparatus mains and roads and common parts belonging to
the same and for all purposes connected with the Landlords obligations and
rights under these presents in circumstances where such works cannot
otherwise conveniently be carried out the person exercising such rights
causing as little noise dust damage and inconvenience as reasonably
practicable and forthwith making good all damage to the demised premises or
any chattels thereon occasioned by the exercise of such rights and causing
as little interference as is reasonably possible to the Tenant's use of the
demised premises during the time that such work is being carried out AND
---
ALSO that in case any dispute or controversy shall at any time or times
----
arise between the Tenant and the tenants or occupiers of any adjoining or
contiguous premises belonging to the Landlord including any other part of
the Estate the same shall from time to time be settled and determined by
the Landlord in such manner as it in writing shall direct in that behalf to
which determination the Tenant shall from time to time submit and which
determination shall be conclusive and binding upon the Tenant save in the
case of manifest error
Prevention of damage by effluent etc. discharge
- -----------------------------------------------
(35) (a) Not to permit but to take such measures as may be necessary to ensure
that any effluent discharged from the demised premises into the drains
or sewers which belong to or are used for the demised premises whether
or not in common with other premises will not be corrosive or in any
way harmful to
- 29 -
<PAGE>
the said drains or sewers or cause any obstruction or deposit therein
and to keep all pipes watercourses gullies and drains belonging to and
used exclu sively by the demised premises properly flushed cleansed and
free from obstruction and if any such obstruction shall occur forthwith
upon becom ing aware of the obstruction to remove the same and make
good any damage caused thereby whether to the structure or the demised
premises or otherwise and to indemnify the Landlord against any claims
arising from damage caused by such obstruction to adjoining or
neighbouring premises or any part of the Estate
(b) Not to discharge or allow to be discharged from the demised premises
any fluid or anything of a poisonous or noxious nature of a kind that
will contaminate or pollute the air or water and to indemnify the
Landlord against any claims arising from damage caused by such
contamination or pollution
(c) To take at all times throughout the said term all such steps as are
necessary and proper to prevent the emanation from the demised premises
of noise fumes heat or excessive vibration especially but not only
where such emana tion is to the detriment of the Landlord or any others
owners or occupiers of the Estate or of the adjoining or nearby
premises
- 30 -
<PAGE>
Cost of Licences
- ----------------
(36) To pay the proper and reasonable legal charges and surveyors fees of the
Landlord resulting from all applications by the Tenant for any consent of
the Landlord required by these presents and also the proper and reasonable
legal charges and surveyors fees actually incurred by the Landlord in cases
where consent is refused or the application is withdrawn
Indemnity
- ---------
(37) When required and on demand to contribute and pay to the Landlord or as It
may direct a fair and proper proportion of the cost of repairing
maintaining replacing renewing and cleansing all party wells fences severs
drains pipes watercourses roads passages pavements and other easements used
in common with the occupiers of any neighbouring or adjoining premises on
the Estate
Landlords Covenants
- -------------------
4. The Landlord hereby covenants with the Tenant as follows:
-----------------------------
Insurance
---------
(1) To keep the demised premises insured in some insurance office of repute
against loss or damage by fire explosion flood stars tempest aircraft
(and articles dropped there from) impact riot civil commotion malicious
damage burst pipes and overflowing of
- 31 -
<PAGE>
cisterns lightning and earthquake (subject to such risks being accepted by
insurers) and such other risks as the Landlord shall in its absolute
discretion think fit (such policy to contain a non-invalidation clause
subject to the same being accepted by Insurers) to such full reinstatement
value (having regard for escalation of costs) as the Landlord's Surveyors
may from time to time recommend including cover In respect of Architects
Surveyors and other professional fees on reinstatement and three years loss
of rent and upon written request to produce details of the policy to the
Tenant together with confirmation of payment of the last premium and in the
event of the demised premises being destroyed or damaged by any of the
insured risks during the said term forthwith (as soon as the necessary
labour materials and permits are obtained) to lay out all monies received
under or by virtue of any insurance affected thereon (other than monies
received in respect of lose of rents) in rebuilding or reinstating the same
in a good and substantial manner PROVIDED THAT the Tenant may at any time
-------------
request the Landlord to increase the amount of insurance cover to such
amount as it thinks appropriate provided that the Landlord shall be under
no obligation to do so where the cover is maintained in respect of the
demised premises and other premises and to agree would mean increasing the
premium payable by the tenants of the other premises and those tenants
object
(2) Subject to payment by the Tenant of the rents herein reserved and provided
that the Tenant has complied with all the covenants and obligations on the
part of the Tenant to be performed and observed to use its best endeavours
to provide such services as are specified in the Fifth Schedule hereto
PROVIDED NEVERTHELESS that the
---------------------
- 32 -
<PAGE>
Tenant shall have no claim against the Landlord arising out of or in
respect of the failure of the Landlord to provide any of the said services
by reason directly or indirectly or circumstances outside the reasonable
control of the Landlord and in particular (but without prejudice to the
generality of the foregoing) by reason directly or indirectly of any act of
God or of third parties or any strike lockout or labour dispute or any
shortage of labour fuel water gas electricity or other supplies or of any
material or other defect or breakdown arising in or occurring to any part
of the service installations or other equipment in the Estate used for or
in connection with the furnishing of any service provided the Landlord
shall have done all it reasonably could to prevent such an event occurring
nor shall the Landlord be responsible for or incur any liability in respect
of:
(a) any damage to any person or property by reason of any defect in the
structure (including but not exclusively foundations) of any part of
the Estate or by reason of the defective working stoppage or breaking
of any machinery power or appliance in connection therewith in
circumstances beyond the Landlord's control or
(b) any loss or inconvenience which may be occasioned by any delay or want
of supply of water (including heated water) electric current gas or
other fuel caused by any service installation or other equipment
connected with the supply thereof being defective or out of repair or
by the closing down or temporary withdrawal from use of any service
installations or boiler or other
- 33 -
<PAGE>
service equipment for periodic inspection repairs or other necessary
purposes in circumstances beyond the Landlord's control
(c) the act or default of any other tenant or any servant or agent of any
other tenant or occupant of the Estate nor for any loss occasioned by
theft or negligence of such persons or otherwise
Quiet Enjoyment
- ---------------
(3) That the Tenant paying the rents hereby reserved and observing and
performing the Tenants covenants hereinbefore contained shall and may
peaceably hold and enjoy the demigod premises during the said term without
any interruption or disturbance from or by the Landlord or any person
lawfully claiming through under or in trust for it
5. PROVIDED ALWAYS AND IT IS HEREBY AGREED AND DECLARED that
----------------------------------------------------
Re-entry
- --------
(1) If the said rents hereby reserved or any part thereof shall at any time be
in arrear and unpaid for twenty-one days after the same shall have become
due (whether any formal or legal demand therefor shall have been mad or
not) or if there shall be any breach of any of the covenants conditions or
agreements herein contained and on the
- 34 -
<PAGE>
part of the Tenant to be performed and observed or if the Tenant or other
person or persons in whom for the time being the said term shall be vested
(being an individual or individuals) or any of them shall become bankrupt
or have a receiving order made against him her or then or make any
arrangement or composition with or for the benefit of his her or their
creditors or suffer any execution to be levied at the demised premises or
if the Tenant or any assignee of the Tenant being a company shall enter
into liquidation whether compulsory or voluntary (not being merely a
voluntary liquidation for the purpose of amalgamation or reconstruction) or
suffer any execution to be levied at the demised premises or have a
Receiver or Manager appointed then and in such case it shall be lawful for
the Landlord or any person or persons duly authorised by the Landlord in
that behalf into or upon the demised premises or any part thereof in the
name of the whole to re-enter and the demised premises peaceably to hold
and enjoy thenceforth as if these presents had not been made without
prejudice to any right of action or remedy of either party against the
other in respect of any. antecedent breach of any covenant or condition
herein contained
Notices
- -------
(2) Any notice required to be given or served under these presents and not
otherwise provided for shall be served or deemed to be served if served in
accordance with Section 196 of the Law of Property Act 1925 (as amended)
- 35 -
<PAGE>
Landlords development
- ---------------------
(3) Subject to the terms of clause 4(3) hereof nothing herein contained or
implied shall impose or be deemed to impose any restriction on the use of
any land or building not comprised in these presents or to prevent or
restrict in any way the development of any land not comprised in these
presents and further that nothing herein contained shall by implication of
law or otherwise operate or be deemed to confer upon the Tenant any
easement right or privilege whatsoever (other than those herein expressly
granted) over or against any adjoining or neighbouring property which now
does or hereafter within the specified period shall belong to the Landlord
which would or might restrict or prejudicially affect the future rebuilding
alteration or development of such adjoining or neighbouring property and
that the Landlord shall have the right at any time to make such alterations
to or to pull down and rebuild or redevelop any such adjoining or
neighbouring property as it may deem fit without obtaining any consent from
the Tenant PROVIDED ALWAYS that no unreasonable interference or disturbance
shall materially affect the Tenant from carrying on its trade and business
and as soon as is reasonably practicable making good any damage thereby
caused to the demised premises
Suspension of rent
- ------------------
(4) In case the demised premises or any part thereof shall at any time be
destroyed or so damaged by any of the insured risks as to be unfit for
occupation or use then and in
- 36 -
<PAGE>
any such case (unless the insurance of the demigod premises shall have been
vitiated by the act neglect default or omission of the Tenant) the rents
hereby reserved or a fair and just proportion thereof according to the
nature and extent of the damage sustained shall be suspended and cease to
be payable from the date of such destruction or damage aforesaid until the
demised premises shall again be fit for use and occupation and such
proportion in case of disagreement shall be referred to a single arbitrator
in accordance with and subject to the provisions of the Arbitration Act
1950 or any statutory modification or re-enactment thereof
Acceptance of Rent
- ------------------
(5) Notwithstanding the acceptance of of demand for rent by the Landlord or its
agent with knowledge of a breach of any of the covenants on the part of the
Tenant herein contained the Landlords right to forfeit these presents an
the ground of such breach shall remain in force And the Tenant shall not in
any proceedings for forfeiture be entitled to rely upon any such acceptance
or demand as aforesaid as a defence
Statutory Compensation
- ----------------------
(6) Except where any statutory provision prohibits the Tenants right to
compensation being reduced or excluded by agreement the Tenant shall not be
entitled to claim from the Landlord on quitting the demised premises or any
part thereof any
- 37 -
<PAGE>
compensation under the Landlord and Tenant Act 1954 or any statute
modifying or re-enacting the same
Exclusion of any warranty of fitness
- ------------------------------------
(7) Neither the granting of this Lease nor any provision herein contained shall
operate or be construed as warranting that the demised premises are
suitable for the purpose or purposes of the Tenant and the use to which the
Tenant proposes now or hereafter to put the demised premises or any use to
which (whether subject to conditions or not) the Tenant may be at liberty
or may be required under the provisions of these presents to put the
demised premises is or may be or become legally permitted whether under the
provisions of the Planning Acts or otherwise
IN WITNESS whereof theme presents have been entered into the day and year
first above written
THE FIRST SCHEDULE
"THE DEMISED PREMISES"
- ----------------------
ALL THOSE parts of the Estate shown for the purpose of identification only on
- ---------
the plan annexed hereto and thereon edged red Together with the buildings
erected thereon or on nose part thereof and known as Unit 10 Solent Industrial
Estate Hedge End Southampton including but not exclusively doors windows window
frames and glass the whole of any structural and non-structural walls and
- 38 -
<PAGE>
columns forming part of the demised premises out half in thickness of any
structural and/or non-structural wall which form a party wall or boundary of the
demised premises with adjoining premises the screeding the foundations and the
floor and the ceilings (if any) and the roof or roofs of the demised premises
AND ALSO including all air water electricity gas and other service pipes wires
- --------
ducts and conduits which are within and serve only the demised premises
THE SECOND SCHEDULE
-------------------
Rights and Privileges
- ---------------------
(a) the right at all times with or without vehicles for the purpose
only of access to and egress from the demised premises in over and
along those parts of the common parts shown coloured brown and
yellow on the plan annexed hereto as may from time to time be
varied at the discretion of the Landlord pursuant to clause 1(4)(e)
of this Lease
(b) the right to use and the benefit of all easements and quasi
easements and services subsisting at the date hereof or created
within the specified period or maintained for the benefit of the
demised premises in over under or against any adjoining or adjacent
premises of the Landlord to the extent that the same are necessary
for the reasonable enjoyment of the demised premises but excluding
any rights of light and air which are and to the extent to which
the same or specifically excepted and reserved herein
- 39 -
<PAGE>
(c) the right to use such part of the general car park or car parking
area provided by the Landlord (if any), as may be determined by the
Landlords surveyor (subject to contributions of service char e as
hereinbefore contained) provided that such space so set aside will
not be used otherwise than by the Tenant its servants invitees or
agents for the sole purpose of parking motor vehicles in such
manner as may be approved by the Landlord's surveyor and that no
nuisance shall be occasioned in the use thereof
THE THIRD SCHEDULE
------------------
Exceptions and reservations
- ---------------------------
(a) all rights of light air and easements (but without prejudice to
those expressly hereinbefore granted to the Tenant) now or
hereafter within the specified period belonging to or enjoyed by
adjacent or neighbouring land or building from over or against the
demised premises
(b) the right to build or rebuild or alter any adjacent or neighbouring
land or building of the Landlord (whether or not comprised within
the Estate) in any manner whatsoever including where necessary to
erect scaffolding or gantries and to let the same for any purpose
or otherwise deal therewith notwithstand ing that the light or air
to the demised premises is in any such case thereby diminished or
any other liberty easement right or advantage belonging to the
Tenant is thereby
- 40 -
<PAGE>
diminished or prejudicially affected
(c) the right of support and shelter and all other easements and rights
now or hereafter belonging to or enjoyed by all adjacent or
neighbouring land or buildings an interest wherein in possession or
reversion in at any time during the said term vested in the
Landlord
(d) the free passage and running of air gas electricity water and soil
telephone and other services through or along the pipes wires
channels drains and water courses already or hereafter within the
specified period to be built or placed in through over or under the
demised premises to and from all other parts of the Estate and the
right to lay and connect up to the same
(e) the right in cases of emergency only to use the emergency or escape
routes now or hereafter enjoyed or required over or through the
demised premises
- 41 -
<PAGE>
THE FOURTH SCHEDULE
-------------------
Provision as to Service Charge
- ------------------------------
1. The service charge contribution payable by the Tenant shall be calculated
by reference to the proportion which the gross area (by external
admeasurement) of the buildings from time to time on the demised premises
bear to the aggregate gross area (similarly measured) of the other
buildings from time to time on the Estate and shall be a fair and
reasonable proportion (to be certified by the Landlords Surveyor whose
decision shall be final and binding save in the case of manifest error) of
the costs and expenses in respect of the Landlords annual expenditure which
shall be the aggregate of:-
(a) the actual cost to the Landlord of the provision by it of the services
mentioned in the Fifth Schedule hereto during the relevant year (due
allowance being made where any expenditure is met out of the reserve
hereinafter mentioned) and
(b) a sun being the annual depreciation over a fair and proper period (to
be determined by the Landlord) of all the capital plant and equipment
used in or for the provision of such services
- 42 -
<PAGE>
PROVIDED THAT the Landlord may in its discretion include in the Landlords annual
- -------------
expenditure in any year a sum by way of reasonable reserve against anticipated
future expenditure on the said services
2. The Tenant shall pay to the Landlord on account of the annual service charge
on each quarter day in advance such a sum as shall in the reasonable
discretion of the Landlord be one equal fourth part of the anticipated
annual service charge for the current year such sum to be calculated having
regard to the actual service charge payable for the previous financial year
3. At the end of each year the Landlord shall as soon as practicable cause an
account to be prepared by the Landlord's auditors of the Landlords annual
expenditure for that year and send a copy thereof to the Tenant together
with a statement showing the annual service charge payable by the Tenant and
the amount paid on account by the Tenant in such year. Any difference due
from the Tenant shall be paid to the Landlord within twenty-one days of the
receipt of such statement and any balance due to the Tenant shall be allowed
against the next payment on account of service charge due from it
4. For the purposes of this Schedule "year" shall mean the period from First
January to the next ensuing Thirty First December or such other commencement
and expiration dates as the Landlord may declare in writing and insofar as
the annual service charge has to be calculated for any period other than a
year or a payment on account for any
- 43 -
<PAGE>
period other than a quarter the same shall be calculated by apportionment on
a daily basis
5. The Landlords certificate as to the amount of the Landlords annual
expenditure in any year at 11 be final and conclusive as between the
Landlord and the Tenant save in the case of manifest error and the Landlord
shall make available to the Tenant all vouchers and receipts detailing the
expenditure incurred by the Landlord
6. The Landlord will hold in trust for the benefit of all the tenants for the
time being of the Landlord's Estate all monies held by way of reserve and
the Landlord hereby covenants with the Tenant that upon the sale or other
transfer of the reversion immediately expectant upon the term hereby created
that it will cause the Purchaser or transferee to become trustee of such
reserve on behalf of the tenants as aforesaid
THE FIFTH SCHEDULE
------------------
The services to be provided by the Landlord
- -------------------------------------------
(1) The maintenance amendment repair renewal replacement rebuilding cleansing
decorating and otherwise the keeping in good and substantial repair and
condition and the lighting of:-
(a) the common parts and
- 44 -
<PAGE>
(b) the boundary wells fences and gates of and in the curtilage of the
Estate and any notice or other boards erected for the benefit of the
occupiers of the Estate
PROVIDED THAT the Landlord shall not be liable to the Tenant for any
- -------------
defects or want of repair unless the Landlord or its agents have had notice in
writing thereof and otherwise subject to the other provisions of these presents
(2) The operation amendment repair renewal replacement rebuilding cleansing and
maintenance in good working order and repair of the equipment apparatus and
appliances (if any) in the common parts including (where applicable but
without prejudice to the generality of the foregoing) the watercourses the
soakways channels pipes drains sewers cables wires pumps motors ducts and
other conducting media the water systems and tanks the reservoirs the
sanitary appliances the electrical installa tion and lamps and light
fittings on the Estate and the hose reels and other fire fighting
appliances which the Landlord is required to provide by statute and all
other things provided for the benefit of the Estate and for which no losses
or occupier of the Estate is exclusively liable
(3) (a) grassing and tending and keeping tidy and planting with such flora
trees and shrubs as the Landlord shall deem at its absolute discretion
to be appropriate or such areas as the Landlord may deem at its
absolute discretion desirable
- 45 -
<PAGE>
(b) maintaining renewing replacing repairing and keeping in good order and
condition all installations appurtenances appointments fixtures
fittings bins receptacles tools appliances materials and other things
which the Landlord may deem desirable or necessary for the maintenance
upkeep or cleanliness of the Estate and the supply of services to the
Estate
(c) employing such solicitors and other professionals and agents managers
contractors staff and workmen as the Landlord may at its absolute
discretion deem desirable or necessary to enable or sexist it to
provide the said services or any of them and for the general conduct
management and security of the Estate and all parts thereof and to pay
all incidental fees and other expenditure in relation to such
employment (including but without limiting the generality of such
provision the payment of the statutory and such other insurance health
pension welfare and other payments contributions and premiums as the
Landlord may at its absolute discretion deem desirable or necessary
and the provision of uniforms working clothes and other equipment for
the proper performance of their duties)
(d) paying all rates taxes charges assessments impositions and other
outgoings (including but not exclusively charges (if any) for the
supply of water gas electricity or any other form of supply of energy
utilities or services) payable by the Landlord in respect of the
common parts except insofar as the Tenant
- 46 -
<PAGE>
or any other occupier of the Estate may be liable for the same under
the terms of this or their lease or occupation
(e) keeping the common parts insured upon similar terms (including the
Landlords covenant to reinstate) as those set forth in clause 4(l) of
this Lease
(f) taking all steps deemed desirable or expedient by the Landlord for
complying with making representations against or otherwise contesting
the incidence of the provisions of any legislation or orders or
statutory requirements there under concerning town planning public
health highways streets drainage or other matters relating to the
Estate for which the Tenant is not directly liable hereunder
(g) enforcing or attempting to enforce against (a) any other tenant of the
Estate the observance of any covenant in that tenant's lease the non-
observance of which is or may be detrimental to the Tenant and (b) any
owner or occupier of adjoining or neighbouring premises the payment of
any contribution towards anything used in common with the Estate
(h) paying a contribution towards the expense of repairing renewing and
maintaining and cleansing all ways roads pavements sewers drains pipes
water courses party walls party structures party fences walls or other
conveniences
- 47 -
<PAGE>
which may belong to or be used by the occupiers of the Estate in
common and in common with other premises near or adjoining thereto
(i) executing any works as are or at any time during the said term shall
under or by virtue of any enactment for the time being in force or by
any local or other competent Authority be directed or required to be
done or executed in respect of the Estate and for which none of the
occupiers of the Estate are liable
(j) providing any service for the benefit of the Estate as a whole
including but not exclusively at the Landlords discretion a general
estate board indicating the names of the occupiers of the Estate
PROVIDED ALWAYS that the Landlord may from time to time withhold add to extend
- ---------------
vary or make any alterations in the rendering of the said services or any of
then as the Landlord deems desirable so to do in :he interests of good estate
management
(4) in the event only of the Landlord not appointing managing agents the
reasonable cost in respect of the general supervision and management of the
Estate by the Landlord (but not including any payment in respect of the
collection of rent)
(5) the costs and expenses of supplying the account and vouchers and receipts
mentioned in the Fourth Schedule hereto
- 48 -
<PAGE>
(6) the supply of copies of regulations made by the Landlord under the
foregoing provision hereof and copies of all amendments or additions made
from time to time thereto
THE SIXTH SCHEDULE
------------------
PART I
------
IN this Schedule the following expressions shall have the meanings respectively
- --
assigned to them unless the context otherwise requires:
(1) "the Initial Rent" the sum of (Pounds)18800.00 per annum (and so
------------------
proportionately for any part of a year) payable in respect of the period
expiring on the Review Date first occurring during the said term
(2) "the Reserved Rent" the yearly rent from time to time payable being the
-------------------
Initial Rent for the period expiring on the Review Date first occurring
during the said term and thereafter as reviewed in accordance with the
provisions of this Schedule
(3) "Review Date" the date of expiration of the fifth year of the said term and
-------------
the date of expiration of each successive period of five years thereafter
during the said term (but subject to the provisions of Paragraph (9) of
Part 11 of this Schedule)
- 49 -
<PAGE>
(4) "Review period" the period between a Review Date and the next succeeding
---------------
Review Date and the expression "Relevant Review Period" shall be construed
accordingly
(5) "Open Market Rent" the yearly rent at which the demised premises might
------------------
reasonably be expected to be let at the Relevant Review Date or other date
upon which such assessment falls to be made by a willing Landlord to a
willing tenant in the open market with vacant possession and without fine
or premium for a term equal to the residue of the term hereby granted or
for a term equal to ten years whichever is the greater assuming
(i) that the buildings comprised in the demised premises remain in
existence and that the covenants and conditions on the part of the
Tenant and the Landlord contained in these presents have been duly
observed and performed and
(ii) by a Lease containing the same terms and provisions in all respects as
these presents (including the provisions for review of rent but
excluding the amount of the Reserved Rent) there being disregarded
(a) any effect on rent of the fact that the Tenant or any undertenant
or their respective predecessors in title have been in occupation
of the demised premises and
- 50 -
<PAGE>
(b) any goodwill attached to the demised premises by reason of the
carrying on thereat of the business of the Tenant or any
undertenant or their respective predecessors in title and
(c) any increase in rental value of the demised premises attributable
to the existence at the Review Date of any improvement to the
demised premises or any part thereof carried out with consent
where required otherwise than in pursuance of an obligation to
the Landlord or its predecessors in title by the Tenant any
undertenant or their respective predecessors in title during the
said term and
(d) any effect on rent of the Rent Restrictions or any law for the
time being in force which imposes restraint upon increase in the
rent payable in respect of the demised premises or recovery of
such increases
(6) "Rent Restrictions" restrictions imposed by any Statute for the time being
-------------------
in force and any regulations or orders made thereunder which operate to
impose any limitation whether in time or amount on the review of the
Reserved Rent and/or the collection of any increase in the Reserved Rent or
any part thereof
- 51 -
<PAGE>
PART II
-------
(1) The Reserved Rent shall be reviewed as at and (if appropriate increased as
from each Review Date during the said term as hereinafter provided and the
amount of the Reserved Rent payable for each Review Period shall be the
Reserved Rent at the yearly rate which was payable in accordance wit.. the
provisions of these presents immediately preceding the Relevant Review Date
increased by the amount (if any) by which the Open Market Rent as at such
Review Date exceeds the Reserved Rent at the aforesaid yearly rate
(2) The Landlord cad the Tenant shall endeavour to agree the Open Market Rent
at each Relevant Review Date and any such agreement shall be in writing
signed by or on behalf of the Landlord and the Tenant
(3) If the Open Market Rent shall not have been agreed between the Landlord and
the Tenant one month before the Relevant Review Date for whatever reason
and the Landlord shall not have previously given to the Tenant notice in
writing that there will be no increase in the Reserved Rent for the
Relevant Review Period either the Landlord or the Tenant may at any time
(whether before or after the Review Date) subject to giving prior notice in
writing to the other of not less than seven days duration require the Open
Market Rent to be determined by a single arbitrator who shall be an
Independent Chartered Surveyor to be jointly appointed by agreement
between the Landlord and the Tenant Provided that such arbitrator must have
- 52 -
<PAGE>
substantial experience of the area and of properties of a similar nature to
the demised premises and of the matters in dispute
(4) In default of agreement between the Landlord and the Tenant on the joint
appointment of an arbitrator such arbitrator whose appointment shall be
subject to the proviso to Paragraph (3) of this Part of this Schedule shall
be appointed by the President (or other the Chief Officer or acting Chief
Officer) for the time being of the Royal Institution of Chartered Surveyors
on the written application of the Landlord or the Tenant who shall be at
liberty to make such application at any time after giving the notice last
referred to in accordance with Paragraph (3) of this part of this Schedule
(5) The arbitration shall be conducted in accordance with the Arbitration Act
1950 and the determination shall be final and binding upon the parties and
shall be notified in writing to the Landlord and the Tenant
(6) If such arbitrator does not give notice of his determination within a
period of two months of his appointment or within such extended period as
the Landlord and the Tenant shall Jointly agree or in manner aforesaid or
if for any reason it becomes apparent that he will be unable to complete
his duties under these presents the Landlord and the Tenant may agree upon
or either of them may apply for the appointment of a new arbitrator in his
place (which procedure may be repeated as many times as may be necessary)
and the provisions of this Part of this Schedule will
- 53 -
<PAGE>
operate in relation to that agreement or application as in relation to any
earlier agreement or application
(7) The arbitrator's fees or charges shall be borne by the Landlord and the
Tenant in such proportions as the arbitrator shall determine
(8) If the amount of the Open Market Rent has not been ascertained by the
Review Date in accordance with the provisions hereof the Tenant shall pay
to the Landlord for any interval between the Review Date and the date when
the Open Market Rent has been ascertained as aforesaid the Reserved Rent at
the yearly rate payable immediately preceding such the Review Date and upon
the amount of the Reserved Rent payable from the Review Date being
ascertained any additional amount payable for the period commencing on the
Review Date and ending on the quarter day immediately following such
ascertainment shall be forthwith paid by the Tenant to the Landlord
together with interest thereon at the bast rate from time to time of
Barclays Bank P.l.c. for the period from the Review Date to the date of
actual payment such interest to be recoverable as if it war part of the
Reserved Rent
(9) On each and every occasion during the said term that the Rent Restrictions
shall prevent or prohibit either wholly or partially:
(l) the operation of the above provisions for review of the Reserved Rent
and/or
- 54 -
<PAGE>
(2) the collection of the Reserved Rent or any instalment or part thereof by
the Landlord or the retention thereof at any time after collection then and
in any such case:-
(3) any Review Date shall be postponed to take effect on the first date or
dates thereafter upon which such review may occur and if there shall be a
partial relaxation of the Rent Restrictions there shall be a further review
of the Reserved Rent on the first date thereafter as aforesaid
notwithstanding that the Reserved Rent may have been increased in part on
or since the Review Date and/or
(4) the collection of any increase in the Reserved Rent shall be postponed to
take effect on the first date thereafter that such increase may be
collected and/or retained in whole or part and on as many occasions as
shall be required to ensure the collection of the whole increase
AND until the Rent Restrictions shall be relaxed either partially or wholly the
- ---
Reserved Rent shall be the maximum sum from time to time permitted by the Rent
Restrictions
(10) On each occasion that the Reserved Rent is reviewed pursuant to the
provisions of this Part of this Schedule the Landlord and the Tenant shall
cause a memorandum of the mount thereof payable for the Relevant Review
Period to be prepared and a
- 55 -
<PAGE>
counterpart thereof and for such memorandum to be signed respectively by or
on behalf of the Landlord and Tenant
(11) The Reserved Rent payable for any Review Period shall not be less than the
amount of the Reserved Rent payable for the period immediately preceding
the commencement of such Review Period
THE COMMON SEAL of MARWELL )
- --------------- ------- )
PROPERTY INVESTMENTS LIMITED )
- ---------------------------- )
was hereunto affixed in the )
presence of:- )
Director
--------
Secretary
---------
- 56 -
<PAGE>
DATED 23 JULY 1996
--------------------------------------
(1) BRITISH GAS PLC
(2) PILKINGTON BARNES-HIND LIMITED
LICENCE FOR CAR PARKING
-----------------------
AT BOTLEY STORES,
SOLENT INDUSTRIAL ESTATE,
HEDGE END, SOUTHAMPTON, HANTA
EVERSHEDS
FITZALAN HOUSE
FITZALAN ROAD
CARDIFF
CF2 1XZ
(REF. 4/SEL\X1867)
EVERSHEDS
<PAGE>
LICENCE FOR CAR PARKING
-----------------------
PARTICULARS
-----------
DATE : 23 JULY 1996
- ----
<TABLE>
<S> <C> <C>
Licensor : BRITISH GAS PLC whose registered office is at Rivermil House
---------------
152 Grosvenor Road London SW1V 3JL
Licensee : PILKINGTON BARNES-HIND LIMITED whose
------------------------------
registered office is at Permalens House, 1 Botley Road,
Hedge End, Southampton, SO3Q 3HB
Property : the Licensor's property known as Botley Stores, Solent
Industrial Estate, Hedge End, Southampton, Hampshire
Parking Area A : the car park forming part of the Property shown edged red
on the attached plan
Parking Area B : the car park forming part of the Property shown edged
green on the attached plan
Licence fee : (Pounds)3,000 (inclusive of rates taxes and all other
outgoings) plus all VAT properly chargeable thereon payable by installments of
(Pounds)500 monthly in advance, the first payment for the month of July to be
made on the date hereof
Licence Periods : the period of 1 month from 1 July 1996 to 31 July 1996
in respect of Parking Area A and the period of 5 months from 1 August 1996 to 31
December 1996 in respect of Parking Area B
Licensed Use : the parking of private motor vehicles and goods vans (but for
the avoidance of doubt not Heavy Goods Vehicles) belonging to the Licensee its
employees agents and/or visitors
Permitted Accesses : the means of access to and from Parking Area A and
Parking Area B specified from time to time by the Licensor
</TABLE>
THIS LICENCE is made on the date specified in the Particulars
- ------------
- 2 -
<PAGE>
BETWEEN:
- --------
(1) THE LICENSOR
------------
(2) THE LICENSEE
------------
1 GRANT OF THE LICENCE
--------------------
In consideration of the Licence Fee (receipt of which is hereby
acknowledged) and the conditions at clause 2 the Licensor grants to the
Licensee right to park in Parking Area A and Parking Area B during the
respective Licence Periods for the Licenced Use and the right to draw to
the reasonable satisfaction of the Licensor white demarcation lines to
delineate individual spaces on Parking Area B only, and rights of way over
the Permitted Access for the access to and from Parking Area A and Parking
Area B respectively in common with all others similarly entitled.
2 LICENSEE'S OBLIGATIONS
----------------------
The Licensee hereby agrees with the Licensor:
2.1 Not at any time to carry on or about the Parking Area A or Parking
Area B any activity whatsoever other than the Licensed Use and not at
anytime to carry on or about the Permitted Accesses any activity other
than as necessary for the purpose of access to and from Parking Area A
and Parking Area B respectively.
2.2 Not to permit to be done on Parking Area A or Parking Area B or the
Permitted Accesses ("the Specified Areas") anything which may be or
become:
a) a nuisance or annoyance to the Specified Areas or the Property or
to the owner or occupier of the other property in the
neighbourhood
b) in breach of any legislation relating to the Specified Areas or
the Property or its use
c) in breach of the terms of the Licensor's lease or other title to
the Specified Areas or the Property as advised from time to time
by the Licensor in writing
d) in breach of the requirements or recommendations of the Licensor's
insurers or which may vitiate any insurance policy relating to the
Specified Areas or the Property.
- 3 -
<PAGE>
2.3 To keep the Licensor indemnified against all claims made against the
Licensor (save in so far as any such claims are met by the Licensor's
insurer) which arise out of:
a) the breach of the Licensee of any of its obligations
b) the exercise by the Licensee or its invitees and any person using
the Specified Areas with the consent of the Licensee of the rights
hereby granted
AND ACCORDINGLY the Licensor shall not be liable to the Licensee or
---------------
any person as aforesaid for any personal injury damage loss or
negligence howsoever caused to them or to any goods or chattels
brought by any person upon the Specified Areas it being the intention
of and agreed between the Licensor and the Licensee that the Licensee
and other persons as aforesaid shall use the rights hereby granted at
the sole risk of the Licensee
2.4 Not to make any alterations or additions to the Specified Areas and at
the end of this Licence (however terminated) to leave the Specified
Areas in as good a condition as at the beginning of the Licence and
otherwise clean and tidy save that the Licensee is not responsible for
any damage caused by a risk against which the Licensor has insured or
for any wear or tear caused by the proper exercise of the rights
granted
2.5 Not to assign the benefit of this Licence nor to sub-licence or part
with the rights hereby granted over the Specified Areas or any part
thereof this Licence being personal to the Licensee
2.6 To insure the Licensee and all its employees and lawful visitors
against all claims arising from the exercise of the rights or for any
negligence or default in connection therewith
2.7 The Licensee shall not carry out any repair or maintenance work to any
motor vehicle in the Specified Areas (save for emergency repairs)
2.8 In the course of the exercise of the rights granted by this
Licence the Licensee shall ensure that:
2.8.1 no unnecessary noise fumes or vibration are caused on
the Specified Areas or on the Property and
2.8.2 no litter is deposited on the Specified Areas or on
the Property and
- 4 -
<PAGE>
2.8.3 no part of the Specified Areas or the Property is damaged
or rendered unclean or untidy save that the Licensee is
not responsible for any damage caused by a risk against
which the Licensor has insured or for any wear or tear
caused by the proper exercise of the rights granted
2.9 The Licence shall not allow petrol oil or other inflammable
material to be stored in the Parking Area A or Parking Area B
(other than petrol in the tank of any motor vehicle parked
therein)
2.10 The Licensee shall comply with all requirements rules and
regulations which may from time to time be made by the Licensor
or its agents relating to the control and use of the Specified
Areas and the parking of motor vehicles in Parking Area A or
Parking Area B and shall conform to all applicable rules and
regulations made by any local or other competent authority
3 AGREEMENTS AND DECLARATIONS
---------------------------
3.1 This Licence may be terminated by the Licensor or the Licensee on not
less than one month's previous notice in writing
3.2 The Licensor may by two weeks written notice to the Licensee
terminate this Licence if the Licensor requires to carry out a
contamination survey/works to the Property
3.3 The Licensor may by written notice to the Licensee terminate this
Licence forthwith if at any time the Licensee is in breach of any of
its obligations in this Licence
3.4 The termination or expiry of the Licence shall be without prejudice
to any claim by one against the other in respect of any breach of its
respective obligations in this Licence
3.5 This Agreement constitutes a Licence and confers no tenancy or right
to exclusive possession upon the Licensee and possession of the
Parking Area A and Parking Area B is retained by the Licensor who
retains the right to enter them for any reason without notice
4 LICENSOR'S OBLIGATIONS
----------------------
The Licensor agrees to pay the Rates due in respect of the Specified Areas
- 5 -
<PAGE>
5 LEGAL FEES
----------
5.1 The Licensee and the Licensor will be responsible for their own legal
costs in connection with this Licence
6 NOTICES
-------
6.1 Any notice required to be given hereunder shall be sufficiently given
by one party to the other if sent by first class post to the address
of the other stated at the head of this Licence and the date of
service shall be the next working day after postage
IN WITNESS the hands of the duly authorised representatives of the parties
- ----------
hereto the day and year first before written
SIGNED on behalf of the Licensor:
- ------
SIGNED on behalf of the Licensee: S. Thakrar
- ------
- 6 -
<PAGE>
DATED 1994
- --------------------------------------------------------------------------------
MIDLAND BANK TRUST COMPANY LIMITED (1)
PILKINGTON BARNES-HIND LIMITED (2)
--------------------------------------
C O U N T E R P A R T L E A S E
- relating to -
100 Car Parking Spaces
at Flanders Industrial Park, Hedge End
Eastleigh, Hants
--------------------------------------
REYNOLDS PORTER CHAMBERLAIN
CHICHESTER HOUSE
278/282 HIGH HOLBORN
LONDON WCIV 7HA
REF: DGH/ABB.6-159
<PAGE>
THIS LEASE is made the day of One thousand nine
- ----------
hundred and ninety-four BETWEEN MIDLAND BANK TRUST COMPANY LIMITED whose
------------------------------------------
registered office is at 27/32 Poultry London EC2P 2BX (hereinafter called "the
Lessor" which expression shall where the context so admits include the estate
owner or estate owners for the time being of the reversion of the parking spaces
the subject of this Lease expectant on the cessation of the term hereby granted)
of the one part and PILKINGTON BARNES-HIND LIMITED whose registered office is at
------------------------------
Permalens House 1 Botley Road Hedge End Southampton S03 3HB (hereinafter called
"the Lessee") of the other part
1. SUBJECT to the provisions of Clause 4 (2) hereof the Lessor grants to the
-------
Lessee a right to use 100 car parking spaces (hereinafter called "the
Spaces") in the car park at Flanders Industrial Park Hedge End Eastleigh
Hampshire (hereinafter called "the Car Park") the Spaces being shown for the
purpose of identification only shown on the plan attached hereto and thereon
edged red and edged green TOGETHER WITH rights of pedestrian and vehicular
-------------
access to and egress from the Car Park over the service roads and access
ways serving the same for the purposes of gaining access to and egress from
the Spaces EXCEPTING AND RESERVING unto the Lessor the rights more
-----------------------
particularly described in the Schedule hereto for a term of two years
commencing on the 9th day of May One thousand nine hundred and ninety-four
and ending on the 8th day of May One thousand nine hundred and ninety-six
subject to determination by either side giving to the other one calendar
month's notice in writing paying therefor during the said term by monthly
instalments in advance on the ninth day of each calendar month the monthly
rent of (Pounds)2,083.33 together with Value Added Tax thereon
<PAGE>
2. THE Lessee HEREBY AGREES with the Lessor as follows:-
--- -------------
(1) to pay the said rent whether formally demanded or not
(2) to pay all rates and outgoings of an annual or recurring nature payable
in respect of the Spaces
(3) to use the Spaces for the parking of private motor vehicles and light
vans only (save that those spaces that are shown edged green on the
Plan can also be used for other commercial vehicles) in accordance with
the agreements conditions and reservations hereinafter mentioned and to
exercise the rights hereby granted at all times in a safe and orderly
manner and at no time to drive or permit any vehicles in the control of
the Lessee to be driven otherwise than at a safe speed and at all times
to have due regard for the safety of others
(4) to keep the Spaces clean and tidy and not to do or permit anything to
be done upon the Spaces or any part thereof which may be or become a
nuisance annoyance or inconvenience to the Lessor or any of its tenants
or the occupiers of the Car Park or other property in the neighbourhood
and in particular to avoid all unnecessary noise in connection with the
user of the same
(5) forthwith to make good to the satisfaction of the Lessor all damage
caused to the Spaces or to the Car Park by the Lessee or the Lessee's
employees servants visitors
-2-
<PAGE>
licensees or permitted sub-tenants but this provision does not impose
any liability whatsoever on the Lessee to maintain the Spaces or repair
any damage which may be caused only as a result of the exercise of the
rights hereby granted in accordance with the provisions herein
(6) not to do or permit to be done anything whereby the policy or policies
or insurance on the Spaces or the Car Park or any adjoining building
may become void or voidable or whereby the rate of premium thereon may
be increased
(7) not to make any alterations or additions to the Spaces
(8) not to allow any person other than employees servants visitors
licensees or permitted sub-tenants of the Lessee to use the Spaces
without the previous consent in writing of the Lessor nor to assign the
benefit of the whole or part of this Lease
(9) not to permit the storage of materials or merchandise within the Spaces
or in any part of the Car Park nor to place or deposit or permit to be
placed or deposited in the Car Park any rubbish or refuse or chattels
of any description and at all times to ensure that no obstruction or
inconvenience is caused to others (other than transitory obstruction or
inconvenience)
-3-
<PAGE>
(10) not to permit any washing of vehicles to be carried out on the Spaces
nor to carry out any works of maintenance or repair to any vehicle
thereon except such as may be necessary to enable the vehicle to be
moved from the Spaces
(11) to use best endeavours to ensure at all times that the user of the
Spaces complies with any security system which the Lessor may implement
from time to time including any scheme relating to the exhibition of
car parking identification stickers or notices and at all times to
ensure that the user of the Spaces has any necessary pass card as may
be required for access to and egress from the Car Park
(12) not to obstruct or knowingly permit the obstruction of the service
roads and access ways serving the Car Park
(13) (i) not to affix or exhibit or to permit to be affixed or exhibited to
or upon any part of the Spaces any placard poster signboard flag
or other advertisement
(ii) not to affix or exhibit or permit to be affixed or exhibited to or
upon any part of the Spaces any sign or paint markings
(14) not knowingly to allow to pass into the sewers drains or watercourses
serving the Spaces or the Car Park any noxious or deleterious effluent
or other substance whatsoever which may cause an obstruction in or
injure the said sewers drains or watercourses and in the event of any
obstruction or injury forthwith to make good
-4-
<PAGE>
all such damage and any damage caused to the Spaces or the Car Park to
the satisfaction of the Lessor
(15) to indemnify the Lessor against all claims loss damage accident costs
expenses or liability whatsoever in respect of any injury to any person
or property occasioned howsoever out of this Licence or the use of the
Spaces hereunder in the exercise or purported exercise of the rights
granted herein
(16) not to bring or permit to be brought into the Spaces or into the Car
Park any flammable or combustible materials other than petrol or oil
contained in the tank and engine of any vehicle for the time being
using the Spaces
(17) to comply with the requirements of all Statutes (including in
particular the requirements of any Petroleum Acts or related
legislation in force) order byelaws planning permissions advertisements
consent, and all other permissions consents and licences applicable to
the Spaces or the Car Park
(18) to comply with all rules and regulations which the Lessor or the Local
or any other competent Authority may from time to time make in
connection with the user of the Car Park in respect of the Spaces
and/or the Car Park subject to such variation in respect of the Spaces
as may from time to time be agreed between the parties hereto in
writing and which are compatible with the provisions of this Licence
and are
-5-
<PAGE>
reasonably intended for the good management of the Car Park and the
Spaces and for the comfort and convenience of the permitted users and
occupiers of the Car Park
THE Lessor agrees with the Lessee that the Lessor will (subject to contribution
- ---
by the Lessee as herein for provided) discharge all rates taxes and outgoings
payable in respect of that part of the Car Park not included in the Spaces
PROVIDED ALWAYS AND IT IS HEREBY AGREED as follows:-
- ---------------------------------------
If any of the rents hereby reserved or any part thereof shall at any time remain
unpaid for fourteen days after the same shall become due and whether the same
shall have been legally demanded or not or if there shall be a breach of any of
the Lessee's covenants or agreements herein contained then the Lessor may re-
enter upon the Spaces and thereupon this Lease shall absolutely determine but
without prejudice to the rights of the Lessor in respect of any antecedent
breach of any agreement by the Lessee herein contained
The Lessor shall be at liberty from time to time to allot to the Lessee an
alternative or alternative car parking spaces in substitution for the Spaces
such alternative spaces to be of approximately the same dimensions as those to
be withdrawn from this Licence upon giving to the Lessee not less than seven
days notice in writing and immediately upon the expiration of such notice the
Lessor will give up or cause to be given up possession of the Spaces so to
be withdrawn and accept in lieu thereof the alternative spaces specified in such
notice and
-6-
<PAGE>
thereupon the provisions and agreements herein contained shall apply to such
alternative spaces in like manner as to the original Spaces the subject of this
Licence
If at any time during this Licence it shall be necessary for the Lessor to carry
out any repairs or other works to the Car Park (including the Spaces) or any
services therein the Lessor must use all reasonable endeavours to provide
alternative car parking spaces in substitution for the Spaces affected but
otherwise the rights and liberties in respect of those of the Spaces affected
thereby granted may be temporarily suspended for the period of such repairs or
other works and the rent payable hereunder or a proportion of part thereof shall
cease to be payable until the Spaces or suitable alternative spaces shall again
be made available for use provided that no abatement of the rent shall be made
for any period of suspension not exceeding seven working days
The Lessor shall have the right to remove or wheel clamp any vehicle which is is
not parked in accordance with the terms herein and is in so doing the Lessor
shall not be responsible for any loss or damage to any vehicle which has been so
removed or wheel clamped
No liability shall attach to the Lessor or its servants or agent, if for any
reason the Spaces is occupied in a manner not authorised by this Licence
The Lessor shall not be responsible for any loss or damage which at
any time during the said period may be done to or suffered by the Lessee or any
of the Lessee's employees or servants or visitors of the Lessee or its permitted
subtenants or be done to any vehicle or other goods
-7-
<PAGE>
or property of the Lessee or of sub-tenants as aforesaid by reason of any
neglect or default of any other tenant or occupier of the Car Park or of any
servant or agent of the Lessor in breach neglect or non fulfilment of its duty
Any notice under this Licence shall be in writing and any notice to the Lessee
shall be valid and effectual and shall be deemed to be sufficiently served if
addressed to the Lessee at its registered office or sent to it by prepaid post
and any notice to the Lessor shall be deemed to be sufficiently served if
addressed to Property Investment Department Abbey Life Assurance Company Limited
at Abbey Life Centre 100 Holdenhurst Road Bournemouth BH8 8AL or to such other
address as the Lessor may specify by notice in writing to the Lessee
EXCLUSION OF LANDLORD AND TENANT ACT
- ------------------------------------
It is hereby agreed and declared that the provisions of Sections 24 to 28
(inclusive) of the Landlord and Tenant Act 1954 as amended by Section 5 of the
Law of Property Act 1969 shall not apply hereto and this Lease has beer. duly
authorised by Order of the Lambeth County Court dated the day of
1994
AGREEMENT FOR LEASE
- -------------------
We certify that there is no Agreement for Lease to which this lease gives effect
IN WITNESS whereof the Lessor and the Lessee have caused this document to be
- ----------
executed as a deed the day and year first above written
-8-
<PAGE>
THE SCHEDULE hereinbefore referred to
-------------------------------------
Rights and Reservations in favour of the Lessor
-----------------------------------------------
To the free and uninterrupted passage of sewers drains channels pipes conduits
and cables and the use thereof for the running of soil water gas or electricity
from or to other property of the Lessor
To install additional sewers drains channels pipes conduits and cables in the
use thereof as may be necessary from time to time to serve the adjoining
property of the Lessor but so that this right shall not be exercised without the
Lessor first making suitable alternative arrangements as may be necessary for
the Lessee's parking rights
The use of and the right to repair and alter the adjoining property of the
Lessor notwithstanding that temporary interference may be caused to the Lessee
subject however to the Lessor making such satisfactory temporary alternative
arrangements as may be necessary for the Lessee's parking rights but so that
this right shall not be exercised without the Lessor first making suitable
alternative arrangements as may be necessary for the Lessee's parking rights
Subject to the provisions of clauses 4.2 and 4.3 and paragraphs 2 and 3 of this
Schedule to allocate alternative car parking spaces on a temporary basis or
temporarily suspend all rights liberties and services relating to the Spaces at
any time as may be necessary to enable repairs or other works to be carried out
to the Car Park and subject when it is not possible to make satisfactory
alternative arrangements to a proportionate suspension of the rent
-9-
<PAGE>
For an authorised appointee of the Lessor or the Local or other competent
Authority to patrol the Car Park for the purpose of removal therefrom of any
unauthorised vehicle
EXECUTED AS A DEED (but not delivered )
- ------------------
until the date hereof) and THE COMMON )
----------
SEAL of PILKINGTON BARNES-HIND )
----------------------
LIMITED was affixed in )
_______ presence of:- )
Director
Secretary R. M. Visick
-10-
<PAGE>
THIS ASSIGNMENT is made the 2nd day of October One Thousand nine hundred and
- ---------------
ninety-six BETWEEN PILKINGTON BARNES-HIND OPTICS LIMITED whose registered office
------- -------------------------------------
is at Permalens House, Botley Road, Hedge End, Southampton S03 3HB (hereinafter
called "the Assignor") of the one part and PILKINGTON BARNES-HIND LIMITED whose
------------------------------
registered office is at Permalens House aforesaid (hereinafter called "the
Assignee") of the other part
WHEREAS:-
- -------
1) By a Lease (hereinafter called "the Lease") particulars of which are set out
in the First Schedule hereto the property more particularly described in the
Second Schedule hereto (hereinafter called "the Property") was demised for
the term of years and at the yearly rent specified in the Lease and subject
to the performance and observance of the covenants on the part of the lessee
and the conditions contained in the Lease
2) The property remains vested in the Assignor for the residue of the term
granted by the Lease subject to the covenants but otherwise free from
encumbrances
3) The Assignor has agreed with the Assignee for the assignment to it of the
Property for the residue now unexpired of the term granted by the lease
4) The consent of the Lessor has been obtained as required by the Lease
<PAGE>
NOW THIS DEED WITNESSES as follows:-
1. In pursuance of the above agreement and In consideration of the covenants
contained on the part of the Assignee the Assignor as beneficial owner
assigns to the Assignee ALL THAT the Property TO HOLD to the
-------- -------
Assignee for all the residue now unexpired of the term of years granted
by the Lease SUBJECT henceforth to the payment of the rent reserved by
-------
and the performance and observance of the covenants and agreements on the
part of the lessee and the conditions contained in the Lease
2. With the object of and intention of affording to the Assignor a full and
sufficient indemnity but not further or otherwise the Assignee covenants
with the Assignor that they and their successors in title will:-
(1) during the term granted by the Lease duly pay all rent becoming due
under the Lease and perform and observe all the covenants and conditions
contained in the Lease and henceforth on the part of the lessee to be
performed and observed and
(2) keep the Assignor indemnified against all proceedings costs claims and
expenses on account of any omission to pay the said rent or breach of
any of the said covenants and conditions
3. It shall not be implied that any of the covenants on the part of the lessee
contained in the Lease have been performed or observed which is performed or
observed would put the Property into a state or condition other than that
which it is now
2
<PAGE>
I N W I T N E S S whereof the Assignor and the Assignee have caused their
- -------------------
respective Common Seals to be hereunto affixed to this Deed the day and year
first before written
THE FIRST SCHEDULE above referred to
------------------
(Particulars of the Lease)
Date Parties Term
- ----- ------- -----
8th April 1980 Redland Automation Limited (1) 25 years from the 25th
Global Vision UK Limited (2) March, 1980
Cooper Health Products Limited (3)
THE SECOND SCHEDULE above referred to
-------------------
(The Property)
ALL THAT premises at Brickfield Land Chandlers Ford Eastleigh Hampshire as
- --------
described in Part I of the First Schedule to the Lease
THE COMMON SEAL of PILKINGTON BARNES-HIND
----------------------
OPTICS LIMITED was hereunto affixed in the presence of:-
- --------------
............................................................ Director
............................................................ Secretary
THE COMMON SEAL of PILKINGTON BARNES-HIND
----------------------
LIMITED ws hereunto affixed in the presence of:-
- -------
S. B. L. Fraser............................................. Director
S. Thakrar.................................................. Secretary
3
<PAGE>
Dated 1996
-----------------------------------------------------
PILKINGTON BARNES-HIND OPTICS
-----------------------------
LIMITED
-------
and
PILKINGTON BARNES-HIND LIMITED
------------------------------
Assignment of
Premises at
Brickfield Lane, Chandlers Ford,
Eastleigh, Hampshire,
Pilkington Properties Limited
Legal Section,
The Court,
Alexandra Park,
Prescot Road,
ST. HELENS,
WA10 3TT
4
<PAGE>
THIS ASSIGNMENT is made the 4th day of July One thousand nine hundred and ninety
- ---------------
six BETWEEN PILKINGTON BARNES-HIND (U.K.) whose registered office is at
------- -----------------------------
Permalens House, Botley Road Hedge End, Southampton, S03 3BB (hereinafter called
"the Assignor") of the one part and PILKINGTON BARNES-HIND LIMITED whose
------------------------------
registered office is at Permalens House aforesaid (hereinafter called "the
Assignee") of the other part
WHEREAS:-
- -------
1. By a lease (hereinafter called "the Lease") particulars of which an set out
in the First Schedule hereto the property more particularly described in the
Second Schedule hereto (hereinafter called "the Property") was demised for
the term of years and at the yearly rent specified in the Lease and subject
to the performance and observance of the covenants on the part of the lessee
and the conditions contained in the Lease
2. The Property remains vested in the Assignor for the residue of the term
granted by the Lease subject to the covenants but otherwise free from
incumbrances
3. The Assignor has agreed with the Assignee for the assignment to it of the
Property for the residue now unexpired of the term granted by the Lease
4. The consent of the Lessor has been obtained as required by the Lease
<PAGE>
NOW THIS DEED WITNESSES as follows:-
- -----------------------
1. In pursuance of the above agreement and in consideration of the covenants
hereinafter contained on the part of the Assignee the Assignor assigns with
limited title to the Assignee ALL THAT the Property TO HOLD the Property to
-------- -------
the Assignee for all the residue now unexpired of the term of years granted
by the Lease SUBJECT henceforth to the payment of the rent reserved by and
-------
the performance and observance of the covenants and agreements on the part
of the tenant and the conditions contained in the Lease
2. With the object of and intention of affording to the Assignor a full and
sufficient indemnity but not further or otherwise the Assignee covenants
with the Assignor that they and their successors in title will:-
(1) during the term granted by the Lease duly pay all rent becoming due
under the Lease and perform and observe all the covenants and
conditions therein contained and henceforth on the part of the Lessee
to be performed and observed and
(2) keep the Assignor indemnified against all proceedings costs claims and
expenses on account of any omission to pay the said rent or breach of
any of the said covenants and conditions
-2-
<PAGE>
3. It shall not be implied that any of the covenants on the part of the lessee
contained in the Lease have been performed or observed which if performed or
observed would put the Property into a state or condition other than that
which it is now
IN WITNESS whereof the Assignor and the Assignee have caused their respective
- ----------
Common Seals to be hereunto affixed to this Deed the day and year first before
written
THE FIRST SCHEDULE above referred to
------------------
(Particulars of the Lease)
Date Parties Term Initial
- ---- ------- ---- -------
Rent
----
1.11.1973 Ronverworth Limited (1) 25 years from the
C.J. Murray D.A. Murray 29th September, 1973
and P.T. Murray (2)
-3-
<PAGE>
THE SECOND SCHEDULE above referred to
-------------------
(The Property)
The Premises more particularly described in the Lease but in short known as Unit
in Speedwell Close, Chandlers Ford Industrial Estate, Eastleigh, Hampshire
THE COMMON SEAL of PILKINGTON )
BARNES-HIND (U.K.) LIMITED was )
hereunto affixed in the presence of:- )
Director
- -----------------------------------------------
Secretary
- -----------------------------------------------
THE COMMON SEAL of PILKINGTON )
BARNES-HIND LIMITED was )
hereunto affixed in the presence of:- )
S.B.L.Fraser Director
- ------------------------------------------------
S. Thakrar Secretary
- -----------------------------------------------
-4-
<PAGE>
M E M O R A N D U M
THE LANDLORD Midland Bank Trust Company Limited
As Trustee for Abbey Life
Assurance Company Limited
THE TENANT PILKINGTON BARNES-HIND (UK) LTD
WHEREAS The Landlord at the date hereof is entitled to the reversion
expectant on the termination of the term of the Lease, short particulars of
which are set out in the Schedule hereto and the term thereby created is
vested in the Tenant, IT IS HEREBY RECORDED that the rent reserved
thereunder has been revised pursuant to the rent review provisions therein
contained and with effect from 1 November 1993 the revised provisions
therein contained and with effect from 1 November 1993 the revised rent is
(Pounds) 265,000 (Two Hundred Sixty Five Thousand Pounds and 00 Pence) per
annum.
THE SCHEDULE
DATE: 1 November 1983
DOCUMENT: UNDER LEASE
PARTIES: DEVON COUNTY COUNCIL
AND
COOPERVISION (UK) LTD
AND
PROPERTY: 1 TO 9 ODD NOS INCLUSIVE
BOTLEY ROAD AND LAND ADJOINING HEDGE END
SOUTHAMPTON
TERM: 25 years 0 months 0 days from 1 November 1983
================================================================================
SIGNED DATED 25th November 1994
-------------------- -------------------------
Duly authorised
for and on behalf of
MIDLAND BANK TRUST CO LTD
================================================================================
SIGNED R. M. Visick DATED 5th December 1994
------------------------ -------------------------
Duly authorised Director*
for and on behalf of
THE TENANT
Name in Block Capitals R. M. Visick
----------------------------------------
- ----------
================================================================================
*delete as applicable
<PAGE>
THIS UNDERLEASE is made the first day of November One thousand nine hundred and
- ---- ----------
eighty-three B E T W E E N (1) DEVON COUNTY COUNCIL of County Hall Topsham Road
------------- ----- ------ -------
Exeter Devon (hereinafter called "the Landlord") and (2) COOPERVISION (UK)
------------ ----
LIMITED whose registered office is situate at Unit 18 Solent Industrial Estate
- -------
Hedge End Southampton SO3 2FY (hereinafter called "the Tenant").
WITNESSETH as follows:
- ----------
Interpretation
- --------------
1. In this Underlease and in the Schedules hereto:
1(1) Words importing one gender shall include all other genders and words
importing the singular shall include the plural and vice versa
1(2) The headings to the clauses hereof and Schedules hereto shall be
deemed not to form any part hereof and shall not affect the
interpretation hereof in any way
1(3) Where the Tenant consists of two or more persons covenants and
agreements by and with the Tenant shall be construed as covenants and
agreements by and with such persons jointly and severally
1(4) Where the context so requires or admits the following words and
expressions shall have the following meanings:
(a) "the Landlord" shall include the estate owner or owners for the
time being of the reversion immediately expectant on the term
hereby granted and shall where the context admits also include
all superior landlords
(b) "the Tenant" shall include the Tenant's successors in title
<PAGE>
(c) "the demised premises" shall mean the property described in the
First Schedule hereto including but not exclusively:
(c)(i) all walls exterior and interior whether load bearing or not
as well as all floors foundations joists beams and other load
bearing parts thereof and all roofs over the property and all
buildings and structures from time to time thereon
(c)(ii) all glass paving boundary walls gates and fences and railings
vaults pavement lights and appurtenances in or on the
property
(c)(iii) all pipes wires cables or other service media (hereinafter
referred to as "Conduits") which serve the property and which
definition shall include the radiators and central heating
pipes and fire alarm system situate within the property
(c)(iv) any alteration reconstruction rebuilding addition or
improvement to the property
(c)(v) all Landlords fixtures and fittings in the property and plant
machinery and equipment whether now or hereafter affixed
thereto
(d) "the said term" shall mean the term hereby granted and any statutory
continuation or extension thereof
Demise and Rents
- ----------------
2. In consideration of the rents covenants and conditions hereinafter reserved
and contained and on the part of the Tenant to be paid performed and observed
the Landlord HEREBY DEMISES unto the Tenant ALL THAT the demised premises EXCEPT
------ ------- --- ---- ------
AND RESERVING unto the Landlord and its lessees tenants agents servants
licensees and other persons claiming
-2-
<PAGE>
through or under the Landlord and all other persons who now
have or may hereafter be entitled to or are granted by the Landlord a similar
right or rights the easements rights and privileges specified in the Second
Schedule hereto TO HOLD the same unto the Tenant Subject so far as the same
-- ----
relate to the demised premises and are still subsisting and capable of being
enforced to the matters contained or referred to in the documents specified in
the Third Schedule hereto (hereinafter together called "the encumbrances") from
the _____ day of __________ One thousand nine hundred and eighty ______ for a
term of TWENTY FIVE YEARS PAYING therefor throughout the said term and so in
------ ---- ----- ------
proportion for any less time than a year FIRST the yearly rent of One hundred
-----
and seventy five thousand pounds ((Pounds)175,000) (subject to revision as
hereinafter provided) by four equal quarterly payments in advance on the usual
quarter days in every year without any deduction whatsoever AND SECONDLY by way
--- --------
of further rent a fair proportion to be determined by the Landlord of the cost
incurred by the Landlord from time to time in complying with the covenants in
clause 5(1) hereof (including valuations from time to time as may be reasonable)
for the insurance of the demised premises (the premiums for such insurance to be
at normal market rates unless circumstances otherwise require) such rent to be
paid on demand the first payment of rents under this Underlease in respect of
the period from the ___ day of ________ One thousand nine hundred and eighty
_____ to the next ensuing quarter day to be made on the execution hereof
PROVIDED ALWAYS that in the event of the said rents or any part thereof being in
- -------- ------
arrear for more than fourteen days whether lawfully demanded or not the Tenant
shall pay interest calculated on a daily basis with quarterly rests at the rate
of Three per centum per annum above the base lending rate of Barclays Bank
Limited for the time being in force on the amount in arrear from the day on
which it became payable until the day payment is made and to be payable to the
Landlord on demand but without prejudice to any other rights the Landlord may
enjoy and the aggregate amount for the time being so payable shall at the option
of the Landlord be recoverable by action or as rent in arrear
Tenants covenants
- -----------------
3. THE Tenant HEREBY COVENANTS with the Landlord as follows:
------ ---------
To pay rent
-----------
-3-
<PAGE>
3(1) To pay the rents hereby reserved and any interest on arrears of rent
as hereinbefore provided on the days and in manner aforesaid without
any deduction whatsoever
Taxes
-----
3(2) Subject as indicated hereunder to bear pay and discharge all existing
and future rates taxes levies assessments duties outgoings charges
and impositions whatsoever (whether imposed by statute or otherwise
and whether of a national or local character) now or at any time or
times during the said term assessed imposed or charged upon or
payable in respect of the demised premises or any part or parts
thereof or in respect of any development or any realisation of
development value in respect thereof or of any part or parts thereof
arising from any act commission or omission whatsoever of the Tenant
or any party under the control or on behalf of the Tenant and whether
payable by the Landlord or Tenant or by the owner or occupier thereof
save only such occasioned by any disposition of the ownership of the
reversion to this Underlease PROVIDED that the Tenant shall not be
--------
liable to make any such payments as aforesaid insofar as they are
incurred by the Landlord or the occupier of the demised premises
prior to the date hereof
V.A.T.
- ------
3(3) To pay to any superior landlord and the Landlord or (as the case may
be) to its solicitors surveyors or other agents to whom any payment
is due under the covenants agreements and provisions herein contained
or implied which is a payment whereas Value Added Tax or other
similar fiscal charge is chargeable the amount of Value Added Tax or
other similar fiscal charge chargeable in respect of the payment at
the rate applicable to that payment PROVIDED THAT the obligation to
-------- ----
pay the value added tax or similar duty imposed by this sub-clause
shall not arise where the party to be paid is a registered trader for
the
-4-
<PAGE>
purposes of the said tax and is in a position to claim a refund of
the tax from H.M. Customs and Excise
Gas electricity and water charges
---------------------------------
3(4) To pay for all gas and electricity and water consumed on or by the
demised premises and all telephone charges and to observe and perform
at the Tenants expense all present and future regulations and
requirements of the gas and electricity and water supply authorities
and the Post Office concerning the demised premises and to keep the
Landlord indemnified in respect thereof
Repair
------
3(5) From time to time and at all times during the said term to keep and
maintain (and where appropriate renew rebuild and replace) the whole
of the demised premises (including the carpet if any laid to the
floor thereof) in good and substantial order repair and condition
(but excepting damage by the insured risks provided that such damage
is not excluded by the Landlords policy or policies of insurance and
such policy or policies shall not have become vitiated or payment of
the policy monies refused in whole or in part in consequence of some
act neglect or default of the Tenant) AND to repair or replace
---
forthwith by new articles of similar quality and function any fixture
or fitting or plant or equipment (other than Tenants or trade
fixtures or fittings) upon or in the demised premises which shall
become in need of repair or replacement
Decoration
----------
3(6) Without prejudice to the generality of the next preceding sub-clause
to the reasonable satisfaction of the Surveyor for the time being of
the Landlord in every fifth year of the said term (to run from the
commencement of the said term) and also in the last year thereof
(howsoever determined) to paint in a proper and workmanlike manner
all the inside wood iron and other parts heretofore or usually
painted of the demised premises with a sufficient number (not being
less
-5-
<PAGE>
than two) of coats of best quality paint and so that such internal
painting in the last year of the said term shall be of a tint or
colour approved in writing by the Landlord and also with every such
internal painting to clean wash whitewash colourwash grain varnish or
wax polish paper stop whiten distemper and otherwise decorate and
treat in a proper and workmanlike manner all such internal parts of
the demised premises that have been so treated and as often as may be
necessary to clean and treat in a suitable manner for its maintenance
in good condition all the inside wood and metal work and polished
stone not required to be painted or polished or distempered and to
clean all tiles glazed bricks and similar washable surfaces and so
that in the last year of the said term the tints and colours of all
such works of internal decoration shall be approved by the Landlord
in writing AND in every third year of the said term to run from the
---
commencement of the said term and in the last year thereof (howsoever
determined) but not so as to occur in two consecutive years but
rather in the later thereof to paint all parts of the outside wood
and ironwork of the demised premises and all additions thereto as are
usually or heretofore painted with a sufficient number (not being
less than two) of coats of best quality paint in accordance with the
existing colour scheme or some other colour scheme previously
approved in writing by the Surveyor for the time being of the
Landlord such approval not to be unreasonably withheld and also with
every such external painting to clean wash whitewash colourwash grain
varnish or wax polish all such external parts of the demised premises
that have been so treated and where necessary make good and clean and
treat in a suitable manner and repaint all outside cladding stucco or
cement or brickwork and surfaces AND in every tenth year of the said
---
term and in the last year thereof (howsoever determined) to replace
the carpet laid to the floor of the demised premises or any part
thereof with carpet of similar quality AND also to keep the windows
---
of the demised premises properly cleaned inside and outside AND to
---
keep any part of the demised premises not covered by buildings in a
neat and tidy condition and free from weeds and where appropriate
properly landscaped and tended
-6-
<PAGE>
Yield Up
--------
3(7) At the expiration or sooner determination of the said term quietly to
yield up to the Landlord the demised premises duly painted repaired
rebuilt renewed cleaned maintained amended and kept in all respects
consistent with a full and due performance of the covenants in that
behalf herein contained Provided however that the Tenant may prior to
the date of such expiration or determination remove all tenants or
trade fixtures making good nevertheless at the expense of the Tenant
and to the reasonable satisfaction of the Landlord any damage to the
demised premises caused by such removal and shall remove all the
Tenants furniture fittings papers and refuse and so that the Landlord
may treat as abandoned by the Tenant and may arrange for the removal
and destruction of any such fixtures and other items not removed by
the Tenant prior to the said expiration or determination and the cost
of such removal and destruction shall be paid by the Tenant to the
Landlord on demand AND PROVIDED FURTHER that if the Tenant shall fail
--- -------- -------
to leave the demised premises in such condition as aforesaid then and
in such case the Landlord may do or effect all such repairs
replacements renovations and decorations for which the Tenant shall
be liable hereunder and the cost thereof shall be paid by the Tenant
to the Landlord on demand and the certificate of the Landlords
Surveyor certifying the cost to the Landlord shall be final and
binding on the Tenant in the absence of any manifest error and the
Tenant will also pay to the Landlord mesne profits at the rate of the
rent payable hereunder immediately prior to the said expiration or
determination during the period reasonably required for carrying out
such work and the amount of such mesne profits to be added to the
cost of carrying out such work as aforesaid
Fire Fighting Equipment
-----------------------
3(8) To keep the demised premises sufficiently supplied and equipped with
fire fighting and extinguishing apparatus and appliances which shall
be open to the inspection and maintained to the reasonable
satisfaction of the Landlord and of
-7-
<PAGE>
the local fire authority and also not to obstruct the access to or
means of working of such apparatus and appliances
Entry for Repairs
-----------------
3(9) To permit the Landlord and any person authorised by it upon prior
reasonable notice in writing (except in emergency) to enter upon the
demised premises at all convenient hours during the daytime to view
the state and condition and user of the same and the fixtures and
fittings therein and to take a plan thereof and of all defects decays
and wants of reparation there found for which the Tenant shall be
responsible hereunder to give notice in writing to the Tenant and
within two months next after every such notice as aforesaid (or
immediately in case of need) to repair well and substantially and
make good all such defects decays and wants of reparation to the
demised premises and the fixtures and fittings therein for which the
Tenant is liable hereunder PROVIDED ALWAYS that if the Tenant shall
-------- ------
make default in the execution of the repairs and works referred to in
such notice it shall be lawful for the Landlord and any persons
authorised by the Landlord (but without prejudice to the right of re-
entry hereinafter contained) to enter upon the demised premises and
execute such repairs and works and restore the same and the cost
thereof (including any surveyors or other fees incurred and whether
or not such repairs and works are executed by the Landlord) shall be
repaid by the Tenant to the Landlord on demand as liquidated damages
together with interest on the expenses incurred by the Landlord under
the above proviso in accordance with the terms of the proviso to
clause 2 of this Underlease relating to late payments of rents
Taking inventories
------------------
3(10) To permit the Landlord and any person authorised by the Landlord to
enter upon the demised premises upon prior reasonable notice in
writing at all reasonable hours during the daytime to take schedules
or inventories of fixtures and fittings and things to be yielded up
at the determination of the said term
-8-
<PAGE>
Acts of Parliament
------------------
3(11) To observe and comply with the provisions and requirements of every
enactment (which expression in this Underlease includes as well every
Act of Parliament already or hereafter to be passed (whether or not
being a modification or re-enactment) as every instrument rule notice
order regulation and bye-law already or hereafter to be made under or
in pursuance of any such Act and without prejudice to the generality
of the foregoing specifically includes the Factories Acts the Offices
Shops and Railway Premises Act 1963 the Health and Safety at Work etc
Act 1974 and every order and regulation made or to be made
thereunder) so far as they relate to or affect the demised premises
or any part thereof and maintain all arrangements which by or under
any enactment or bye-law are or may be required at any time during
the said term to be executed provided or maintained whether by the
Landlord or the Tenant and to indemnify the Landlord at all times
against all costs charges and expenses of or incidental to the
execution of any works or the provision or maintenance of any
arrangements so required as aforesaid and not at any time during the
said term to do or omit or suffer to be done or omitted in or about
the demised premises any act or thing by reason of which the Landlord
may under any enactment incur or have imposed upon it or become
liable to pay any penalty damages compensation costs charges or
expenses
Planning Acts
-------------
3(12)(i) To comply in all respects during the currency of this Underlease
with the provisions and requirements of the Planning Acts (which
expression in this Underlease means the Town and Country Planning
Acts 1971 to 1974 and any enactment subsequent thereto whether of
modification or re-enactment) and all licences consents
permissions and conditions (if any) granted or imposed thereunder
or under any enactment repealed thereby so far as the same
respectively relate to or affect the demised premises or any part
thereof or any operations works acts or things already or
hereafter to
-9-
<PAGE>
be carried out executed done or omitted thereon or the use
thereof for any purpose and to pay any development charge or
other charge imposed in respect of any such matter arising from
any act commission or omission whatsoever of the Tenant or any
party under the control of or an behalf of the Tenant and
indemnify the Landlord against all proceedings expenses claims
and demands in respect of any contravention by the Tenant of any
provision of the said Acts
3(12)(ii) Not to do or permit anything to be done on or in relation to the
demised premises by reason of which any Superior landlord or the
Landlord may under any enactment whatever become liable to pay
any penalty damages costs compensation charge levy tax or other
monies and in any event to pay and satisfy any charge levy tax or
other monies which may now or hereafter be imposed whether on the
Landlord or the Tenant under any such enactment in respect of any
development or alteration or any change or continuation of use or
other like matter relating to the demised premises which shall
occur during the said term
Copies of Notices
-----------------
3(13) Within seven days of the receipt by the Tenant of the same to supply
a copy to the Landlord of any notice or order or proposal for a
notice or order or licence consent permission or direction given or
made under any enactment and any regulations orders and instruments
made thereunder and relating to the demised premises and to permit
the Landlord and all persons authorized by it at all reasonable times
to enter upon the demised premises to inspect the same for any
purpose in connection with any such notice order proposal licence
consent permission or direction
Join with Landlord in making Appeals etc.
-----------------------------------------
-10-
<PAGE>
3(14) At the request of the Landlord to make or join with the Landlord in
making any reasonable objection representation or appeal in respect
of any such notice order proposal or direction as aforesaid or any
refusal of or condition imposed under any such licence consent or
permission as aforesaid
No application for Planning Permission
--------------------------------------
3(15) Not without the previous consent of the Landlord in writing to make
or suffer to be made any application for consent or permission to
carry out or commence any development (within the meaning of the
Planning Acts) on or by reference to the demised premises or any part
thereof nor carry out any operations works acts or things in the
demised premises or any part thereof or make any change of use of the
same for which planning permission needs to be obtained
Complete Developments within Term
---------------------------------
3(16) Unless the Landlord shall otherwise direct to carry out before the
determination of the said term (however terminated) any works (the
carrying out of which is otherwise permitted hereunder) required to
be carried out in or on the demised premises by a date subsequent to
such determination as a condition of any planning permission which
may have been granted and implemented by the Tenant during the said
term
Purchase Notice
---------------
3(17) Not to serve any purchase notice under the Planning Acts requiring
any local authority to purchase the Tenants interest in the demised
premises or any part thereof without first offering to surrender this
Underlease to the Landlord at the price that might reasonably be
expected to be obtained from the local authority pursuant to such a
purchase notice such price in the absence of agreement between the
parties to be referred to the decision of an independent surveyor
nominated on the application of either party by the President for the
time being of
-11-
<PAGE>
the Royal Institution of Chartered Surveyors whose decision shall be
final and binding upon the parties and who shall act as an expert and
not an arbitrator
Compensation
------------
3(18) If the Tenant shall receive any compensation because of any
restriction placed upon the user of the demised premises or any part
thereof under or by virtue of the Planning Acts then if and when its
interest hereunder shall be determined under the power of re-entry
herein contained or otherwise forthwith to make such provision as is
just and equitable for the Landlord to receive its due benefits from
such compensation unless the compensation authority shall otherwise
order
Assignment and underletting
---------------------------
3(19)(a) Save as hereinafter mentioned not to part with the possession or
share the occupation of the whole of the demised premises or any
part or parts thereof nor to assign transfer or underlet or part
with the whole or any part or parts of the demised premises
PROVIDED THAT the Tenant may throughout the said term without
such consent of the Landlord permit any holding or subsidiary
company of the Tenant or any subsidiary of the Tenant's holding
company (such expressions to be construed according to the
Companies Act for the time being in force) to occupy the demised
premises or any part thereof as a bare licensee only and without
creating the relationship of landlord and tenant so long only as
such permitted licensee remains a holding or subsidiary company
of the Tenant or a subsidiary of the Tenants holding company and
subject to the Tenant notifying the Landlord in writing within 14
days thereof of such licensed occupation being permitted or
terminated
3(19)(b) Not to assign the demised premises (here meaning the whole
thereof) without the previous consent in writing of any Superior
landlord and of the Landlord which consents shall not be
unreasonably withheld subject to
-12-
<PAGE>
such Assignee if the Landlord so requires first entering into a
direct covenant with the Landlord to observe and perform the
covenants on the part of the Tenant herein contained during the
residue of the said term and to pay the rents hereby reserved and
not further to assign or underlet or part with or share the
possession or occupation of the demised premises or any part
thereof except on the same terms as are herein contained
3(19)(c) Not to underlet the demised premises (here meaning the whole
thereof) without the previous consent in writing of any Superior
landlord and of the Landlord which consents shall not be
unreasonably withheld and all underlettings shall be at a full
market rent (all premiums and fines being prohibited) and not
being less than that reserved by this Underlease which shall be
reviewed in an upwards direction only at intervals of not less
than five years with reviews in any event co-terminous with those
of this Underlease the rent the sub-tenant and the terms of the
sub-lease (which shall with such amendments as may be necessary
follow the terms of this Underlease) being subject to the
previous written approval of any Superior landlord and the
Landlord such approval not to be unreasonably withheld or delayed
3(19)(d) Provided further that any sub-leases granted under this sub-
clause shall contain
(1) an unqualified covenant on the part of the Underlessee with
the Landlord of this Underlease not to assign transfer or
underlet or part with possession or occupation of part or
parts only of the demised premises
(2) A covenant on the part of the Underlessee with the Landlord
of this Underlease that the Underlessee will not assign the
whole of
-13-
<PAGE>
the demised premises or underlet or part with the possession
or occupation of the whole of the demised premises without
obtaining the previous written consent (not to be
unreasonably withheld) of the Landlord of this Underlease
and to provide in such Underlease that any sub-underleases
granted out of such Underlease whether immediate or mediate
shall contain similar provisions to those contained in this
sub-paragraph (d) Provided Always and it is hereby expressly
agreed and declared that if the Landlord and the Tenant
shall not be able to agree that the rent to be reserved by a
proposed Underlease is a full rack rent the dispute shall be
referred to arbitration in accordance with the Arbitration
Act 1950 or any statutory re-enactment thereof
(3) Such covenants by the Underlessee which the Tenant hereby
undertakes to enforce as to prohibit the Underlessee from
doing or suffering any act or thing upon or in relation to
the premises demised by the Underlease which will contravene
any of the Tenants obligations in this Underlease
Register Assignments etc.
-------------------------
3(20) Within one month after any charge or mortgage or assignment or
underletting or sub-underletting of the demised premises or any
devolution of any interest therein or any parting with possession or
occupation whether immediate mediate or derivative to give notice
thereof in writing to the Landlord or its solicitors and to produce
to them a certified copy of the assignment transfer counterpart
underlease sub-underlease or other instrument under which such
charge or mortgage or devolution shall have occurred and pay a fee
of Ten Pounds (plus Value Added Tax) for registration thereof by the
Landlords solicitors and in addition such registration fee as may be
payable to any Superior landlord
-14-
<PAGE>
User
----
3(21)(a) Not to use or occupy the demised premises for any purpose
otherwise than as a use within Class III or X of the Town and
Country Planning (Use Classes) Order 1972 subject always to
compliance with clause 3(12) of this Underlease
3(21)(b) Not to use or allow the demised premises or any part thereof to
be used for residential or sleeping purposes
Alterations
-----------
3(22) Not at any time during the said term to do or suffer in or upon the
demised premises any wilful or voluntary waste or spoil and not to
damage interfere with or make any addition to or alteration whether
internal or external in the demised premises or any party wall or any
conduit apparatus or installation therein unless for the purpose of
supplying and making good any defect therein unless the Tenant shall
have first obtained the consent in writing of the Landlord such
consent not to be unreasonably withheld in the case of non-structural
matters and no such consent being required of the Landlord in respect
of internal non-structural alterations and subject to the Tenant if
so required by the Landlord reinstating to the satisfaction of the
Landlord the demised premises to their former state and condition at
the end or sooner determination of the said term and making good any
damage thereby occasioned
Advertisements
--------------
3(23) Not to exhibit affix to or display or permit or suffer to be
exhibited affixed to or displayed on or from the exterior of the
demised premises or on the external walls rails or fences or on the
inside of any windows thereof any sign signboard pole fascia placard
figure lettering inscription notice price label blind flag pennant
sky-sign or any advertisement of any kind whatsoever except as shall
have been previously approved in writing by the Landlord and where
applicable any
-15-
<PAGE>
Superior landlord such consents not to be unreasonably withheld and
in the event of any such approval where required being given to
observe the terms thereof and at the expiry or sooner termination of
the said term to remove every such thing so approved and make good
the demised premises and not to hang place deposit or expose outside
any part of the demised premises any goods articles or things for
sale or trade other than from within the demised premises
Floor loading
-------------
3(24) Not to place or suspend or suffer to be placed or suspended any object
or weight on or from the floors ceilings or walls or structure of the
demised premises which may put thereon any weight or impose strain in
excess of that which the demised premises are calculated to bear with
due margin for safety
Not to prejudice insurance
--------------------------
3(25)(a) Not to do or allow to be done or omitted in or on the demised
premises anything whereby the insurance of the demised premises
or any adjoining property of the Landlord against the insured
risks may be vitiated or prejudiced nor without the consent of
the Landlord such consent not to be unreasonably withheld do or
allow to be done anything whereby any additional premium may
become payable for the insurance of the demised premises and in
the event of any Landlords insurance policy for the demised
premises or any part thereof being vitiated in consequence of any
act action or omission of the Tenant fully and effectually to
indemnify the Landlord against all costs claims proceedings or
losses resulting from any damage or injury to the demised
premises or any part thereof in respect of which compensation is
not forthcoming from the Landlords insurance company and against
all costs of any increased or additional premised incurred by the
Landlord in respect of any adjoining or neighbouring property
-16-
<PAGE>
(b) To notify in writing the Landlord forthwith of any damage to or
destruction of the demised premises or any part thereof
occasioned by the occurrence of any of the insured risks
(c) In the event of the demised premises or any part thereof being
damaged or destroyed by any of the insured risks at any time
during the said term and the insurance money under any insurance
effected thereon by the Landlord being wholly or partially
irrecoverable by reason of any act or default of the Tenant then
and in every such case the Tenant will forthwith (in addition to
the said rents) pay to the Landlord the whole (or as the case may
require) a fair proportion of the cost of rebuilding and
reinstating the same any dispute as to the proportion to be so
contributed by the Tenant or otherwise in respect of or arising
out of this provision to be referred to arbitration in accordance
with the provisions of the Arbitration Act 1950 or any statutory
modification or re-enactment thereof for the time being in force
(d) Not to effect or permit or suffer to be effected by any other
person any insurance against any of the insured risks in respect
of or relating to the demised premises (subject to paragraph (f)
of this sub-clause)
(e) If at any time the Tenant is entitled to the benefit of any other
insurance on the demised premises then to apply all monies
received by virtue of such other insurance towards making good
with all speed the loss or damage in respect of which the same
shall have been received
(f) To insure and keep insured any plate glass windows of the demised
premises against damage or destruction in some insurance office
or offices or with underwriters of repute to be directed by the
Landlord and to pay all premiums necessary for this purpose
within the usual days of grace after the same shall become due
and whenever required produce to the Landlord or its agent the
-17-
<PAGE>
policy or several policies of such insurance and the receipts for
the current year's premium and in each case of destruction of or
damage to the plate glass windows with all convenient speed to
expend all monies received by virtue of such insurance in
reinstating the same and to make up any deficiency out of its own
money PROVIDED ALWAYS that if the Tenant shall fail to make and
-------- ------
maintain any such insurance as aforesaid the Landlord may from
time to time at its discretion effect and keep on foot such
insurance and the Tenant will on demand repay to the Landlord all
sums of money expended by it for that purpose as if the same were
rent in arrear
Nuisance
--------
3(26) Not to carry on or permit to be carried on upon the demised premises or
any part thereof the business to be carried on thereon in a noisy
noisome offensive or dangerous manner or do or permit or suffer to be
done in or upon the demised premises or any part thereof any act matter
or thing which may in the reasonable opinion of the Landlord or any
Superior landlord be or grow to be or become or cause damage or a
nuisance or an annoyance or a disturbance to or to the prejudice of the
Landlord or its tenants or lessees or the owners lessees or occupiers
for the time being of any premises in the neighborhood
Auctions
--------
3(27) Not at any time during the said term to hold or permit any sale by
auction to be held upon the demised premises or any part thereof
without the written consent of the Landlord for that purpose first
obtained such consent not to be unreasonably withheld
Obstruction etc
---------------
3(28)(a) Not to do or permit any act or thing whereby any things which
may be used in common with others may be damaged interfered with
or obstructed or the fair use thereof by others may be hindered
impeded or interfered with in any
-18-
<PAGE>
manner whatsoever and in particular not to leave or permit to be
left therein any vehicles goods or article of any kind
(b) Not to allow nor permit to remain in or upon the curtilage of
the demised premises or any areas used in common with others any
goods packaging or packing cases waste swarf trade empties or
any materials or other things of any kind whatsoever so that the
same shall only be brought into or upon the demised premises or
only be placed or kept in proper receptacles or covered areas
provided for the purpose
Fire regulations
----------------
3(29)(a) Not to use or permit or suffer to be used on any account except
in case of fire or other emergency any doors or special exits
provided for escape in case of fire
(b) At all times to comply with and observe the requirements of the
relevant authorities having power to deal with mears of escape
from buildings in the event of fire so far as such requirements
affect the demised premises or the fixtures fittings or
furniture therein
(c) Not to place or store or suffer to be placed or stored in the
demised premises or any part thereof any article or thing which
is or may become dangerous offensive combustible inflammable or
explosive except to such extent as the Tenants trade or business
may require and then only where necessary first obtaining the
consent in writing of the relevant local or other competent
authority or authorities and of the Landlords insurers and
taking all requisite precautions and complying with all
conditions laid down by such parties and providing to the
Landlord a copy of such consents
Encroachments eta
-----------------
-19-
<PAGE>
3(30) Not to stop up darken or obstruct or suffer to be stopped up darkened
or obstructed any windows lights ventilators or other openings
belonging to the demised premises and to use its best endeavours to
prevent any new windows lights ventilators passage drainage or other
encroachment or easement to be made or acquired into on or over the
demised premises or any part thereof and that in case any encroachment
or easement shall be made or acquired or attempted to be made or
acquired the Tenant will give immediate notice thereof to the Landlord
and at the request of the Landlord will adopt such means as may be
reasonably required or deemed proper for preventing any such
encroachment or the acquisition of any such easement
Let or sale boards
------------------
3(31) To permit the Landlord and any persons authorised by it to enter upon
the demised premises and affix and retain without interference upon
some suitable part or parts thereof (but not so as to obstruct the
access of light and air to or the fascia signs of the demised premises)
such notice as the Landlord may consider desirable for reletting or
selling the same and generally to permit all persons with authority
from the Landlord upon prior reasonable notice in writing at all
reasonable hours during the daytime to enter and view the demised
premises
Permit entry for repairing adjoining premises
---------------------------------------------
3(32) To permit the agents or workmen with or without plant and machinery
engaged or authorised by the Landlord to enter and remain upon the
demised premises or any part or parts thereof at all reasonable times
in order to build walls (including party walls) or to stop up any
openings in walls dividing the demised premises from other premises or
to repair or alter or rebuild any part of any adjoining or contiguous
premises or to cleanse lay re-lay maintain renew empty or repair any of
the sewers drains conduits gutters watercourses pipes cables wires
machinery equipment apparatus and mains belonging to the same and for
all purposes connected with the Landlords obligations and rights
hereunder the Landlord or other party exercising such rights doing as
little damage as reasonably practicable and making good all
-20-
<PAGE>
damage to the demised premises or any chattels thereon occasioned by
the exercise of such rights AND ALSO that in case any dispute or
--- ----
controversy shall at any time or times arise between the Tenant and the
tenants or occupiers of any adjoining or contiguous premises belonging
to the Landlord the same shall from time to time be settled and
determined by the Landlord in such manner as it in writing shall
reasonably direct in that behalf to which determination the Tenant
shall from time to time submit and which determination shall be final
and binding upon the Tenant
Prevention of damage by effluent etc. discharge
-----------------------------------------------
3(33)(a) Not to permit but to take such measures as may be necessary to
ensure that any effluent discharged from the demised premises
into the watercourses drains or sewers which belong or are used
for the demised premises whether or not in common with other
premises will not be corrosive noxious deleterious or in any way
harmful to the said watercourses drains or sewers or cause any
obstruction or deposit therein and to keep all pipes
watercourses gullies and drains belonging to the demised
premises properly flushed cleansed and free from obstruction and
if any such obstruction or injury shall occur forthwith to
remove the same and make good any damage caused thereby whether
to the structure of the demised premises or otherwise and to
indemnify and keep entirely harmless the Landlord against any
claims damage or liability arising from damage caused by such
obstruction or injury to adjoining or neighbouring premises
(b) Not to discharge or allow to be discharged from the demised
premises any fluid or anything of a poisonous deleterious or
noxious nature of a kind that might or does in fact contaminate
or pollute the air or water and to indemnify the Landlord
against any claims damage or liability arising from damage
caused by such contamination or pollution
-21-
<PAGE>
(c) To take at all times throughout the said term all such steps as
are necessary and proper to prevent the emanation from the
demised premises of noise fumes heat or excessive vibration
especially but not only where such emanation will or might be to
the detriment of the Landlord or any others owners or occupiers
of the adjoining or neighbouring premises
Cost of notices
---------------
3(34) To pay all costs charges and expenses (including solicitors costs and
surveyors fees) incurred by the Landlord for the purpose or in
contemplation of or incidental to the preparation and service of a
notice under Section 146 or 147 of the Law of Property Act 1925
requiring the Tenant to remedy a breach of any of the covenants herein
contained notwithstanding forfeiture for such breach shall be avoided
otherwise than by relief granted by the Court or for the purpose or in
contemplation of or incidental to the preparation and service of
schedules of dilapidations or notice under the foregoing provisions of
this clause during the said term (or following the determination
thereof)
Costs of Licences
-----------------
3(35) To pay the proper and reasonable legal charges and surveyors fees of
the Landlord and any Superior landlord including the Stamp Duty on the
licences and counterparts resulting from all applications by the Tenant
for any consent of the Landlord required by this Underlease and also
the proper and reasonable legal charges and surveyors fees actually
incurred by the Landlord or any Superior landlord in cases where
consent is refused or the application is withdrawn
Legal Charges
-------------
3(36) To pay to the Landlords solicitors their proper charges for the
preparation of this Underlease and the Counterpart thereof and the
Stamp Duties thereon
-22-
<PAGE>
3(37) When required and on demand to contribute and pay to the Landlord or as
it may direct a rateable or due proportion of the cost and expenses of
repairing maintaining renewing rebuilding making and laying and
cleansing all party walls fences conduits ways roads pavements sewers
drains watercourses and other easements or structures or other items
used in common with the occupiers of any neighbouring or adjoining
premises and to keep the Landlord indemnified against such proportion
of such costs and expenses
3(38) With the object and intent of affording to the Landlord and any
Superior landlord a full and sufficient indemnity in respect of the
encumbrances but not further or otherwise henceforth to observe and
perform the same (so far as aforesaid) and to indemnify the Landlord
and any Superior landlord from and against all actions claims demands
and liability in respect thereof
3(39)(a) To indemnify and keep indemnified the Landlord and any Superior
landlord from liability in respect of any injury to or the death
of any person damage to any property movable or immovable the
infringement disturbance or destruction of any right easement or
privilege or otherwise by reason of or arising directly or
indirectly out of the repair state of repair condition or any
alteration to or to the user hereinbefore permitted of the
demised premises and from all proceedings costs claims and
demands of whatsoever nature in respect of any such liability or
alleged liability PROVIDED THAT this sub-clause will not be
-------- ----
operative in so far as such matters are covered by the insured
risks unless the policy or policies of insurance of the Landlord
shall have been vitiated or payment of the policy monies refused
in whole or in part in consequence of some act neglect or
default of the Tenant or any licensee or person for whom the
Tenant is responsible
(b) To be responsible for and to indemnify the Landlord and any
Superior landlord against all damage occasioned to the demised
premises or any
-23-
<PAGE>
adjacent or neighbouring premises or to any person caused by any
act default or negligence of the Tenant or the servants agents
licensees or invitees of the Tenant
(c) Not to do any act matter or thing which under the terms of the
Superior Lease under which the Landlord holds inter alia the
demised premises requires the approval of the Superior landlord
without obtaining such approval in addition to any approval of
the Landlord required by the terms of these presents in all
cases at the Tenants own expense whether or not such approvals
are granted
Rent Review Clause
------------------
4. IT IS HEREBY AGREED as follows:
-- -- ------ ------
(1) The amount of the yearly rent firstly hereinbefore reserved shall be
reviewed at the end of the fifth year of the said term and at the end of
each subsequent period of five years of the said term (each period of
five years after the end of the said fifth year of the said term being
hereinafter called a "Review Period") and after the said fifth year of
the said term the amount of the yearly rent payable hereunder shall be:
(a) For the first Review Period (the five years commencing at the end
of the fifth year of the said term) the amount of the yearly rent
firstly hereinbefore reserved aforesaid or such amount (whichever
shall be the greater) as shall be assessed (in manner hereinafter
appearing) as a reasonable yearly rent in respect of that first
Review Period and
(b) For each successive subsequent Review Period the amount of the
yearly rent payable during the immediately preceding Review Period
or such amount (whichever shall be the greater) as shall be
assessed (in manner hereinafter appearing) as a reasonable yearly
rent in respect of the relevant Review Period
-24-
<PAGE>
(2) Every such assessment shall be made in the following manner:
(i) Such assessment shall be agreed in writing between the
Landlord and the Tenant on or before the date of commencement
of the relevant Review Period (or such later date as may be
agreed by them in writing) but
(ii) If such assessment shall for any reason not be agreed as
aforesaid then (whether or not any negotiations to reach such
an agreement have been or are being conducted) the assessment
of the amount of a reasonable yearly rent for the relevant
Review Period shall be made by an expert appointed for that
purpose by the Landlord and the Tenant within thirty days (or
such greater period as may be agreed by them in writing) after
the commencement of the said Review Period and failing such
appointment then to be appointed (upon the application of the
Landlord or the Tenant) by the President for the time being of
the Royal Institution of Chartered Surveyors And the
assessment so made by such expert shall be communicated to the
Landlord and the Tenant in writing and shall be final and
binding
(iii) The amount of the yearly rent so assessed as a reasonable
yearly rent in respect of the relevant Review Period shall if
it is greater than the amount of the yearly rent payable
hereunder immediately before the commencement of such Review
Period become and be the yearly rent payable hereunder for
that Review Period and shall have effect from the commencement
of that Review Period and be payable accordingly
(iv) The fees payable to such expert and the costs of his
appointment shall be in the award of the expert
-25-
<PAGE>
(v) PROVIDED ALWAYS that any failure by the Landlord or the Tenant
-------- ------
to initiate negotiations with the other of them under
paragraph (i) of this sub-clause prior to the commencement of
the relevant Review Period or to negotiate with the other of
them on the appointment of an expert under paragraph (ii)
hereof shall not prejudice the right of the Landlord or the
Tenant after the commencement of such Review Period to require
the assessment of a reasonable yearly rent for such Review
Period to be made under paragraph (ii) aforesaid by an expert
appointed by the President of the Royal Institution of
Chartered Surveyors as therein provided Nor shall the right of
the Landlord or the Tenant to have the yearly rent reviewed as
provided by this clause be prejudiced by any delay or omission
whatsoever in the appointment of any such expert as aforesaid
(3) In this clause and for all the purposes thereof the expression "a
reasonable yearly rent" means the fair rental value of the demised
premises except and reserved as set out in the Second Schedule
hereto (including the Landlords fixtures and fittings) on the basis
of a letting in the open market by a willing lessor to a willing
lessee on the terms and conditions of this Underlease for a term of
years equivalent to the term hereby granted and with vacant
possession but disregarding any effect on rent:-
(i) of the fact that the Tenant its sub-tenants or their
respective predecessors in title or persons deriving title
mediately or immediately under them have been in occupation of
the demised premises
(ii) any goodwill attached to the demised premises by reason of the
business carried on thereat
-26-
<PAGE>
(iii) any improvements lawfully carried out at the cost of the
Tenant or any undertenants or their respective predecessors in
title or persons deriving title mediately or immediately under
them after the date hereof or during any period of occupation
prior thereto including those set out in the Fifth Schedule
hereto AND the value of any improvements carried out by the
---
Landlord at the Tenants expense (including any before the date
of this Underlease) otherwise than in pursuance of an
obligation to the Landlord
(iv) any diminution in the value of the demised premises
attributable to non-compliance with or non-performance of any
of the covenants on the part of the Tenant herein contained
(v) the fact (if it is a fact) that the making good of the demised
premises or any part thereof following destruction or damage
by any of the risks to be insured against under the provisions
of this Underlease has not been commenced or completed
(vi) of any law for the time being in force which imposes a
restraint upon increase in the rent of the demised premises
(vii) the value of any Tenants fixtures and fittings including
those belonging to any undertenant
(4) If at the commencement of any Review Period a reasonable yearly rent
in respect thereof shall not yet have been assessed under the
foregoing provisions of this clause then until a reasonable yearly
rent in respect thereof greater than the yearly rent payable
immediately prior to the commencement of such Review Period shall
have been, assessed under the said provisions (and thus become the
yearly rent payable for that Review Period) the Tenant
-27-
<PAGE>
shall continue to pay rent at the rate of that payable immediately
prior to such commencement and as soon as the said assessment shall
have been made the Tenant shall pay the excess of the aggregate
amount of rent which would have been payable hereunder for the period
from the commencement of the said Review Period until the said
quarter day next following if the said assessment had been made at or
prior to the said commencement over and above the aggregate amount of
rent actually paid by the Tenant during the said period during the
said period together with interest upon the said excess at the rate
equal to the rate paid to Investor Accounts with Barclays Bank
Limited for the time being
(5) If and whenever the amount of the yearly rent payable hereunder is
increased under the foregoing provisions of this clause the Landlord
and the Tenant shall cause a Memorandum of the amount of such
increased yearly rent to be endorsed on the Lease and the Counterpart
thereof and for such Memoranda to be signed by or on behalf of the
Landlord and the Tenant respectively
(6) If at any material time there shall be no President of the said Royal
Institution of Chartered Surveyors or if the said President shall for
any reason not be available or be unable or unwilling to make such an
appointment as aforesaid the said appointment may be made by the
Vice-President or next senior officer of the said Institution then
available and able and willing to make such appointment
(7) If any expert appointed in accordance with this clause shall fail to
make an assessment as hereinbefore provided or if he shall relinquish
his appointment or die or if it shall become apparent that for any
reason he will be unable to complete his duties hereunder the
Landlord or the Tenant may apply to the said President or other
person as hereinbefore provided for a substitute to be appointed in
his place which procedure may be repeated as many times as
-28-
<PAGE>
necessary and the appointment of any such substitute shall be of the
same effect as if it were an original appointment hereunder by the
President for the time being of the said Institution
(8) If at any time or times during the said term ascertainment of the
rent payable hereunder in manner above provided or recovery of the
amount so ascertained shall in any respect be unlawful so that the
Landlord is precluded or would having taken the necessary steps to
secure a rent review (assuming that were lawful) be precluded from
receiving or from receiving at the date or dates when it would
otherwise have been payable a reviewed rent as from the commencement
of each Review Period the Landlord shall be entitled at any time
after the date when ascertainment or recovery or increase again
becomes lawful (without prejudice to its right if any to recover any
rent the payment of which has only been deferred by law) to have the
rent for the time being payable hereunder reviewed at the date last
aforesaid in manner and according to the principles set out above
(mutatis mutandis) and the rent so ascertained shall be the rent
payable until the commencement of the next rent Review Period
(calculated as aforesaid and as from the date of such interim review)
or until the rent payable hereunder shall next be increased
5. Landlords Covenants
-------------------
The Landlord hereby covenants with the Tenant as follows:
-----------------------------
Insurance
---------
(1)(a) Subject to compliance by the Tenant with the provisions of clause
3(25) hereof at all times during the said term to keep or cause to be
kept the demised premises insured against
(1) loss or damage by fire storm tempest flood lightning earthquake
explosion aircraft articles dropped therefrom riot or civil
commotion malicious damage
-29-
<PAGE>
impact subsidence bursting and overflowing of pipes and such
other risks as the Landlord or the Tenant shall from time to time
reasonably require in such amount (determined by the Landlord
from time to time) as the Landlord shall in its discretion from
time to time deem sufficient to cover the full amount of the
costs (including reasonable provision for escalation of such
costs between the date of destruction or damage and the date of
rebuilding or reinstating the demised premises) of completely
rebuilding or reinstating the demised premises or in such higher
amount as the Tenant shall by notice in writing to the Landlord
from time to time reasonably specify
(2) professional fees including but not exclusively quantity
surveyors engineers project controllers and such other advisers
as the Landlord may deem it appropriate to instruct on such
amount assessed according to the scales or other method (if any)
for the time being adopted by the Royal Institute of British
Architects and the Royal Institution of Chartered Surveyors or
other appropriate professional body the cost of site clearance
(including demolition shoring up and debris removal) and three
years' rent of the demised premises at the rate for the time
being payable or prospectively payable
(3) (to the extent to which the same is not covered by paragraph (a)
of this sub-clause) breakdown of the boilers lifts and other
plant (if any) in the demised premises and
to effect such insurance with an Insurance Company or Underwriters of repute and
through such agency as the Landlord from time to time deems fit and proper and
to produce to the Tenant within fourteen days of the request the policy or
policies (together with all endorsements thereto) of such insurance and the
receipt for the current premium or premiums and if acceptable to the Landlord to
endorse a note of the Tenants interest on to the said policy or policies with
the interest of any mortgage
-30-
<PAGE>
(b) If the demised premises shall be destroyed or damaged by any of the
risks against which the Landlord has covenanted to insure
(1) if so required as soon as reasonably practicable to join with the
Tenant in making application for any planning or other permission
necessary for rebuilding or reinstating the demised premises and
(2) after such permissions shall have been obtained to apply as soon as
reasonably practicable the insurance monies received by the Landlord
(other than money received for loss of rent) towards reinstating the
demised premises
Quiet Enjoyment
---------------
(2) That the Tenant paying the rents hereby reserved and observing and
performing the Tenants covenants hereinbefore contained shall and may
peaceably hold and enjoy the demised premises during the said term
without any interruption or disturbance from or by the Landlord or any
person lawfully claiming through under or in trust for it
(3) To pay the rent reserved by the said Superior Lease under which the
Landlord holds the demised premises at the times and in the manner
therein provided and by way of indemnity only to perform and observe the
Landlords obligations as Tenant thereunder save insofar as such
performance and observance is the responsibility of the Tenant hereunder
6. PROVIDED ALWAYS AND IT IS HEREBY AGREED AND DECLARED that:
-------- ------ --- -- -- ------ ------ --- --------
Re-entry
--------
(1) If the said rents hereby reserved or any part thereof shall at any time
be in arrear and unpaid for twenty-one days after the same shall have
become due (whether any formal or legal demand therefor shall have been
made or not) or if there shall be any
-31-
<PAGE>
breach of any of the covenants conditions or agreements herein contained
and on the part of the Tenant to be performed and observed or if the
Tenant or other person or persons in whom for the time being the said
term shall be vested (being an individual or individuals) or any of them
shall become bankrupt or have a receiving order made against him her or
them or make any arrangement or composition with or for the benefit of
his her or their creditors or suffer any execution to be levied at the
demised premises or if the Tenant or any assignee of the Tenant being a
company shall enter into liquidation whether compulsory or voluntary
(not being merely a voluntary liquidation for the purpose of
amalgamation or reconstruction) or suffer any execution to be levied at
the demised premises or have a Receiver or Manager appointed then and in
such case it shall be lawful for the Landlord or any person or persons
duly authorised by the Landlord in that behalf into or upon the demised
premises or any part thereof in the name of the whole to re-enter and
the demised premises peaceably to hold and enjoy thenceforth as if these
presents had not been made without prejudice to any right of action or
remedy of either party against the other in respect of any antecedent
breach of any covenant or condition herein contained
Notices
-------
(2) Any notice required to be given or served under these presents and not
otherwise provided for shall be served or deemed to be served on the
Tenant if served in accordance with Section 196 of the Law of Property
Act 1925 as amended by Recorded Delivery Service Act 1962
Suspension of rent
------------------
(3) (a) In case the demised premises or any part thereof or access thereto
shall at any time be destroyed or so damaged by any of the insured
risks as to be unfit for occupation or use then and in any such
case (unless the insurance of the demised premises shall have been
vitiated by the act neglect default or omission of the Tenant) the
rents hereby reserved or a fair and just proportion
-32-
<PAGE>
thereof according to the nature and extent of the damage sustained
shall be suspended and cease to be payable from the date of such
destruction or damage aforesaid until the demised premises shall
again be fit for use and occupation or for a period of three years
therefrom whichever period is the shorter and such proportion in
case of disagreement shall be referred to a single arbitrator in
accordance with and subject to the provisions of the Arbitration
Act 1950 or any statutory modification or re-enactment thereof
(b) PROVIDED ALWAYS that the Landlord will within twenty-one days from
the date on which the rent shall be suspended or cease to be
payable hereunder refund to the Tenant the proportion of the rent
paid in advance for the period from the date when such rent was
suspended or ceased to be payable
Acceptance of Rent
------------------
(4) Notwithstanding the acceptance of or demand for rent by the Landlord or
its agent with knowledge of a breach of any of the covenants on the part
of the Tenant herein contained the Landlords right to forfeit this
Underlease on the ground of such breach shall remain in force And the
Tenant shall not in any proceedings for forfeiture be entitled to rely
upon any such acceptance or demand as aforesaid as a defence
Statutory Compensation
----------------------
(5) Except where any statutory provision prohibits the Tenants right to
compensation being reduced or excluded by agreement the Tenant shall not
be entitled to claim from the Landlord on quitting the demised premises
or any part thereof any compensation under the Landlord and Tenant Act
1954 or any statute modifying or reenacting the same
Exclusion of any warranty of fitness
------------------------------------
-33-
<PAGE>
(6) Neither the granting of this Underlease nor any provision herein
contained shall operate or be construed as warranting that the demised
premises are suitable for the purpose or purposes of the Tenant and that
the use to which the Tenant proposes now or hereafter to put the demised
premises or that any use to which (whether subject to conditions or not)
the Tenant may be at liberty or may be required under the provisions of
this Underlease to put the demised premises is or may be or become
legally permitted whether under the provisions of the Planning Acts or
otherwise
(7) Each and every right vested in the Superior landlord by virtue of the
aforesaid Superior Lease (other than the right to receive rent) shall be
exercisable by the Superior landlord so far as it affects the demised
premises notwithstanding that it may not be expressly provided for in
any other provision of these presents
(8) If the Tenant shall be desirous of taking an Underlease of the demised
premises for a further term of 25 years from the expiration of the said
term hereby granted at the rent and on the terms and conditions
hereinafter mentioned and shall not more than 12 nor less than 6 months
before the expiration of the said term (time being of the essence)
hereby granted give to the Landlord notice in writing of such its desire
and if it shall have paid the rent hereby reserved (hereinafter called
"the current rent") and shall have reasonably performed and observed the
several stipulations herein contained and on its part to be performed
and observed up to the termination by effluxion of time of the
Underlease hereby created then the Landlord will at the expense of the
Tenant both as to the Landlords reasonable costs and expenses as well as
the Tenants own costs and expenses let the demised premises to the
Tenant for the further term of 25 years from the ____ day of _______
200___ at a rent and review pattern to be determined in the manner
provided by the Fourth Schedule hereto and payable as therein provided
and subject in all other respects to the same covenants conditions
provisions and stipulations as are herein contained except this sub-
clause for renewal PROVIDED ALWAYS that this sub-clause shall become
null and void if the option hereby given to the Tenant shall not be
registered as a Land Charge at
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<PAGE>
the Land Charges Registry or protected by registration of a notice
caution or other prescribed entry under the Land Registration Act 1925
or any statutory modification or re-enactment thereof for the time being
in force within a period of 3 months from the date of this Underlease
IN WITNESS whereof these presents have been entered into the day and
----------
year first before written
THE FIRST SCHEDULE
------------------
"the demised premises"
--------------------
ALL THAT piece or parcel of land with the buildings thereon (comprised
--- ----
in the Landlords title number ___________ at H.M. Land Registry) shown for the
purpose of identification only edged red on the plan annexed hereto and known as
1 to 9 (odd numbers inclusive) Botley Road and land adjoining Hedge End
Southampton Hampshire
THE SECOND SCHEDULE
-------------------
Exceptions and reservations
- ---------------------------
(a) all rights of light air and easements belonging to or enjoyed by the
adjacent or neighbouring land or buildings from over or against the demised
premises
(b) the right to build or rebuild or alter any adjacent or neighbouring land or
buildings of the Landlord in any manner whatsoever and to let the same for any
purpose or otherwise deal therewith provided that the light or air to the
demised premises or any other liberty easement right or advantage belonging to
the Tenant is not in any such case thereby materially diminished
(c) the right of support and shelter and all other easements and rights
belonging to or enjoyed by any adjacent or neighbouring land or buildings an
interest wherein in possession or reversion is at any time during the said term
vested in the Landlord
(d) the free passage and running of air gas electricity water and soil
telephone and other services through or along the pipes wires channels drains
and watercourses and Conduits already built or placed in through over or under
the demised premises to and from any other adjoining or neighbouring property
and the right to connect up to the same
THE THIRD SCHEDULE
------------------
Date Document Parties
---- -------- -------
16th December 1920 Conveyance Henry Bruno Aloysius
Digby Beste (1)
Albert Mark
Mills (2)
-35-
<PAGE>
18th September 1925 Conveyance The said A.B.A.
Digby Beste (1)
William Vidler (2)
3rd August 1966 Deed of Grant Sandringham Court
Investments
(Southampton)
Limited (1)
Southern Gas Board (2)
THE FOURTH SCHEDULE
-------------------
1. The Landlord shall be entitled if the Tenant exercises its option
pursuant to Clause 6(8) of this Underlease and a further term of twenty-five
years is granted pursuant thereto to have reviewed the frequency of the Review
Periods ("the review pattern") for the purpose of the said further term The
review pattern for the said further term shall be such frequency of Review
Periods as shall be agreed between the Landlord and the Tenant or determined as
hereinafter provided to represent the frequency of Review Periods considered
fair and reasonable in the light of such usual commercial leasing practice
current at the time of such agreement or determination thereof as might
reasonably be expected to apply in respect of the demised premises let with an
unexpired term of twenty-five years and in all other respects upon the terms
that relate to the review of the rent under the terms of this Underlease
Provided that at no time shall the frequency of the Review Periods for the said
further term be longer than every five years
2. The rent for the said further term (hereinafter called "the new rent")
shall be such annual sum as shall be agreed between the Landlord and the Tenant
or determined as hereinafter provided to be the current open market rental value
of the demised premises at the time of such agreement or determination and shall
be paid without any deduction by equal quarterly instalments on the usual
quarter days (hereinafter called "the rent days") the first of such quarterly
instalments to be paid on the ____ day of 200__
3. Any agreement between the Landlord and the Tenant as to the review
pattern and/or the new rent shall be in writing signed by the parties
4. If such agreement as to the review pattern and/or the new rent has not
been made six months before the date on which the said further term is due to
commence either party hereto may require an independent chartered surveyor
experienced in valuations and lettings of commercial premises (hereinafter
called "the surveyor") to determine the review pattern and/or the new rent
5. The surveyor may be nominated by agreement between the Landlord and the
Tenant or appointed by the President for the time being of the Royal Institution
of Chartered Surveyors on the application of either party hereto
-36-
<PAGE>
6. If the said President shall for any reason not be available or be unable
to make any such appointment at the time of application therefor the appointment
may be made by the Vice President or next Senior Officer of the said Institution
then available and able to make such appointment or if no such Officer of the
said Institution shall be so available and able by such Officer of such
professional body of surveyors as the Landlord shall designate
7. Notice in writing of his appointment shall be given by the surveyor to
the Landlord and the Tenant inviting each to submit within a specified period
(which shall not exceed four weeks) a statement and/or valuation accompanied if
desired by a statement of reasons
8. The surveyor shall act as an expert and not as an arbitrator He
shall consider any statement and/or valuation and reasons submitted to him
within the said period but shall not be in any way limited or fettered thereby
and shall determine the review pattern and/or the new rent in accordance with
his own judgment and opinion as to the frequency of reviews and/or the current
open market rental value of the demised premises upon the bases aforesaid
9. The surveyor shall give notice in writing of his decision to the
Landlord and the Tenant within two months of his appointment or within such
extended period as the Landlord may agree
10. If the surveyor comes to the conclusion that the current open
market rental value of the demised premises is less than the current rent the
new rent shall nevertheless be the same as the current rent and the decision of
the surveyor shall so state
11. If the surveyor shall fail to determine the review pattern and/or
the new rent and give notice thereof within the time and in the manner
hereinbefore provided or if he shall relinquish his appointment or die or if it
shall become apparent that for any reason he will be unable to complete his
duties hereunder the Landlord or the Tenant may apply to the said President or
other person as hereinbefore provided for a substitute to be appointed in his
place which procedure may be repeated as many times as necessary
12. The decision of the surveyor shall be final on all matters hereby
referred to him
13. Rent shall not be due at the rate of the new rent notwithstanding
that the said further term may already have commenced until after the Tenant has
been given such notice thereof as is hereby provided and if the said further
term shall have commenced before the Tenant has been given such notice the rent
shall for the time being and until such notice is given be at the rate of the
current rent but on the first rent day after the giving of such notice to the
Tenant there shall fall due in addition to the appropriate instalment of the new
rent a sum by way of additional rent equal to the difference between the new
rent and the current rent for the period since the commencement of the said
further term together with interest upon the said sum at the rate equal to the
rate paid to Investor Accounts with Barclays Bank Limited for the time being
14. The fees of the surveyor shall be shared equally between the
Landlord and the Tenant
-37-
<PAGE>
15. As respects all periods of time referred to in this Schedule time
shall not be deemed to be of the essence of the Contract
THE FIFTH SCHEDULE
------------------
The Tenants Improvements
------------------------
1. GROUND FLOOR SLAB
-----------------
Strengthening of floor slab to take future mezzanine floor from grid
line 1 - 9.
2. EXTERNAL ENVELOPE
-----------------
Omission of personnel door to loading bay.
Relocation of loading bay door.
Double doors to inflammable liquids store.
Double doors to garden equipment store.
Relocation of door to Engineering Department.
Relocation of door on grid line 1 between machine maintenance and dry
manufacturing.
Independent inflammable liquids store.
Louvres required for fresh air intake to a/c
plant and compressors, and inflammable liquids store.
3. DRUM STORE
----------
Provision of drum store, swarf bay and a/c plant deck over, including
foundations, structure, cladding, floors, drainage and associated external
works.
4. ROOF
----
Opening in ceilings and roof sheeting and linking ducts to process
plant, etc.
10. MEZZANINE FLOOR
---------------
Entire mezzanine floor including a/c plant equipment deck over machine
maintenance department, with associated access stairways.
-38-
<PAGE>
11. LAVATORIES
----------
Provision of lavatory to Engineering Department, and 4 No lavatories to
first floor, including all associated partitions, ceiling, wall and floor
finishes, sanitary fittings, drainage and services.
12. TEA ROOMS
---------
Provision of 2 No tea rooms including all associated partitions, ceil,
fittings, draining and services.
13. FITTINGS
--------
All kitchen equipment and .......
14. DRAINAGE
--------
Drainage in factory area including floor trenches and covers. Drainage
to canteen vending machines. 1 No service trench with continuous removable
access cover.
15. SERVICES
--------
Provision of high voltage cables, switchboard and transformers.
Electrical power distribution throughout factory area. Air conditioning
installation to serve the whole building. Arrangement of switchgear and
additional contacts to facilitate future provision of central computer control
of mechanical services and lighting. All access ladders, walkways, hatches,
etc. to facilitate maintenance of a/c equipment. Hot and cold water to serve
process plant in production area. All lighting to factory area and ground floor
offices. Compressed air distribution.
16. FIRE PROTECTION
---------------
Provision of all fire hoses etc. Provision of fully automatic fire
detection system.
17. SUNDRIES
--------
-39-
<PAGE>
Public address system, security barrier, closed circuit TV, security and
emergency lighting, intruder alarm installation, TV and radio aerials, card
entry security lock on staff entrance door.
(THE COMMON SEAL of DEVON COUNTY)
---------------------------------
(COUNCIL was hereunto affixed in
--------
(the presence of:
County Solicitor
-40-
<PAGE>
DATED 1 November 1983
-----------------------
CV LABORATORIES LIMITED
- and -
DEVON COUNTY COUNCIL
COUNTERPART
LEASE
relating to certain premises
at Botley Road
Hedge End
Southampton
<PAGE>
HM Land Registry
----------------
County: Hampshire
Title Number: HP218454
Property: 1 to 9 (odd)
Botley Road,
Hedge End and land adjoining
THIS LEASE is made the first day of November One thousand nine hundred and
- ---- -----
eighty three BETWEEN CV LABORATORIES LIMITED whose registered office is situate
------- -- ------------ -------
at Brickfield Lane Chandlers Ford Eastleigh Hants S05 3DP ("the Landlord" which
expression shall include the estate owner or owners for the time being of the
reversion immediately expectant on the term hereby granted) of the one part and
DEVON COUNTY COUNCIL of County Hall Topsham Road Exeter Devon ("the Tenant"
- ----- ------ -------
which expression shall include the Tenant's successors in title and assigns) of
the other part
WITNESSETH as follows:-
- ----------
1. In consideration of the sum of (Pounds)2.5 million paid by the Tenant to the
Landlord (the receipt whereof the Landlord hereby acknowledges) and of the rent
hereinafter reserved and covenants on the part of the Tenant hereinafter
contained the Landlord hereby demises unto the Tenant ALL THAT piece or parcel
--- ----
of land shown for the purpose of identification only edged red on the plan
annexed hereto known as 1 to 9 (odd numbers inclusive) Botley Road and land
adjoining Hedge End Southampton Hampshire ("the Premises") TO HOLD the same unto
-- ----
the Tenant from the first day of November One thousand nine hundred and eighty
three for the term of 999 years PAYING
------
<PAGE>
THEREFOR yearly during the said term a rent of TEN POUNDS on the 1st day
- -------- --- ------
of January in every year and so in proportion for any less time than one year in
advance the first payment to be made on the date hereof for the period from the
first day of November 1983 to the next ensuing 1st day of January TOGETHER WITH
-------- ----
AND SUBJECT TO the rights exceptions reservations conditions and other matters
- --- ------- --
set out or referred to in the Charges Register of the title above referred to
and also an Agreement dated 10th September 1982 made between Eastleigh Borough
Council (1) Hampshire County Council (2) and Leasepride Limited (3) and a Deed
of Grant dated 27th September 1982 made between British Gas Corporation (1) and
Leasepride Limited (2) so far as the same relate to and affect the Premises and
are still subsisting and capable of enforcement: ("the encumbrances")
2. The Tenant hereby covenants with the Landlord as follows namely:
(a) To pay the rent hereby reserved on the day and in manner aforesaid
(b) To pay and discharge all rates taxes assessments impositions duties
charges and outgoings whatsoever whether parliamentary local or
otherwise which are now or may hereafter be imposed or charged upon the
Premises in respect thereof
(c) To insure and keep insured (or procure the insurance of) the Premises
to the full reinstatement value thereof in some responsible insurance
office and upon request of the Landlord or its agent to produce the
policy of such insurance and the receipt for the last premium and to
cause all sums received
-2-
<PAGE>
in respect of such insurance to be laid out and expended with all
reasonable speed in rebuilding repairing or otherwise reinstating the
Premises in accordance with the present plan or elevation thereof or
otherwise as may be approved in writing by the Landlord such approval
not to be unreasonably withheld or delayed
(d) To keep the Premises and the buildings from time to time thereon and
subject from time to time any refurbishment development reconstruction
or redevel opment thereof including all fences drains and sewers
thereto in good and substantial repair and in the same good and
substantial repair peaceably to sur render and yield-up unto the
Landlord at the expiration or sooner determination of the said term
(e) To permit the Landlord and its agents with or without workmen or
otherwise twice in every year at reasonable hours in the daytime upon
prior reasonable notice in writing to enter upon and view the condition
of the Premises and to repair and make good all defects and wants of
reparation of which the Landlord shall give it notice in writing and
for which the Tenant is liable hereunder within three months after the
giving of such notice
(f) Within one month of every assignment of the Premises to give notice in
writing thereof together with a certified copy of the said assignment
to the
-3-
<PAGE>
Landlord or its solicitor and to pay a fee of (Pounds)10 for the
registration of the notice
(g) To observe and perform the covenants and other matters imposed upon the
Landlord by the encumbrances so far as the same are still subsisting
and capable of taking effect and to keep the Landlord its estate and
effects indemnified from and against all proceedings costs claims and
expenses in respect of the same
3. The Landlord to the intent to bind the reversion of the demised premises
expectant on the term hereby granted and the person or persons entitled thereto
but not so as to render the Landlord personally liable in damages after it shall
have parted with its interest in the demised premises hereby covenants with the
Tenant that the Tenant paying the rent hereby reserved and performing and
observing the covenants herein contained on the part of the Tenant to be
performed and observed shall and may peaceably hold and enjoy the Premises
during the said term without any interruption or disturbance from or by the
Landlord or any person claiming through under or in trust for it
-4-
<PAGE>
IN WITNESS whereof these presents have been entered into the day and
-- -------
year first before written
(THE COMMON SEAL of
--- ------ ----
DEVON COUNTY COUNCIL
----- ------ -------
(was hereunto affixed in
(the presence of:-
County Solicitor
DOCUMENT No 13624
-------------
-5-
<PAGE>
Exhibit 10.13
PROPERTY ADDRESS: BRINELL Suite ALL
---------------------------------- -----------
4676 Brinell Street
----------------------------------
San Diego, CA 92111
----------------------------------
LEASE SUMMARY
TENANT: SOLA/BARNES-HIND, a division of Pilkington Visioncare, Inc.
---------------------------------------------------------------------
CONTACT: PHONE:
--------------------------------- -------------------------------
USE OF PREMISES: Warehouse, light assembly and manufacturing
-------------------------------------------------------------
SECURITY DEPOSIT: 1,700.00 PAID ON:
------------- ---------------------------------
* Carried over from original lease dated 5/16/85 and subsequent addenda
dated 3/30/88, and 3/26/91
1ST MONTH'S RENT: $9,984.00 PAID ON:
-------------- ----------------------------------
LEASE TERM: Three (3) Years:
----------------------
(05-1-96 thru 04-30-99)
----------------------
OTHER:
---------------------------------------------------------------------
TOTAL SQ. FT. IN
LEASED SPACE: 19,200
-------------------------------------------------------------------
<PAGE>
ARVCO REALTY
4655 CASS ST., SUITE 400
SAN DIEGO, CA 92109
P.O. BOX 90948, SAN DIEGO, CA 92169
(619) 272-7070 FAX: (619) 272-7079
BUSINESS PARK LEASE
THIS LEASE is made this 17th day of January, 1996, at San Diego, California, by
and between ARVCO REALTY, Agent for William J. Ronan and Elena V. Ronan
and
SOLA/BARNES-HIND, a division of Pilkington Visioncare, Inc. hereafter
called respectively Lessor and Lessee, without regard to number and gender.
1. PREMISES: Lessor hereby leases to Lessee and Lessee hereby hires, upon the
---------
conditions and covenants herein set forth, the property described as follows,
and hereinafter referred to as "the premises:" 4676 Brinell Street, San Diego,
CA 92111
2. TERM: The term of this lease is for Three (3) Years, beginning May 1, 1996,
-----
and terminating on April 30, 1999, unless extended or sooner terminated in
accordance with terms of this lease. If Lessee shall take occupancy on a day
other than the first day of the month, the term of this lease has been extended
by the number of days remaining in the first month of occupancy. In the event,
for any reason, Lessor cannot deliver possession on the commencement date set
forth above, this lease shall remain in full force and effect provided that
Lessee shall not be required to pay any rent until date possession is delivered.
In the event of such entry into possession by Lessee at a date subsequent to the
commencement date set forth above, the term of this lease shall be extended by
the number of days of such delay.
3. RENTAL: The total rent for the term of this lease shall be $359,424.00 plus
-------
adjustments as provided herein, without offset or deduction, which Lessee agrees
to pay to Lessor at the office of ARVCO REALTY, Suite 400, 4655 Cass Street, San
Diego, California 92109 or if mailed to Arvco Realty, P. O. Box 90948, San
Diego, CA 92169, or other place Lessor shall designate, payable in monthly
installments of $9,984.00, payable in advance on the first day f each calendar
-------------------------
month of the term of this lease, commencing on the first day of the term hereof
- -----
and continuing throughout the term of this lease, except that if the
commencement date of this lease is a date other than the first day of the month.
Without exception, there is a $25.00 charge on all returned checks.
-1-
<PAGE>
4. SECURITY DEPOSIT: Lessee shall deposit with Lessor the sum of $1,700,000*,
-----------------
as security for full performance of the obligation of this lease. If Lessee
shall be in default in payment of rent or any other covenant herein, Lessor may
use all or any of such deposit to cure such default, or to repair damages to the
premises caused by Lessee, or to clean premises on termination, or for costs of
recovery of possession. If Lessee is not in default at termination of this
lease, Lessor shall return such deposit to Lessee with thirty (30) days.
Lessor's obligation for such deposit is that of a debtor, not a trustee, and the
money may be commingled or dissipated and no interest shall accrue thereon.
Security deposit is not to be used as last month' rent.
* Carried over from original lease dated May 16, 1985 and subsequent addenda
dated March 30, 1988 and March 26, 1991
(b) In the event of sale of Building by Lessor, Lessor may transfer
any sums received as deposit from lessee to the purchaser and shall be
thereafter discharged of further liability upon notice of such transfer to
Lessee giving name and address of transferee.
5. COST OF LIVING RENTAL ADJUSTMENT: The monthly rental payable under terms of
---------------------------------
this lease shall be adjusted annually at each lease anniversary date to reflect
the increase, if any, in the Consumer Price Index for the Los Angeles,
California area (1967 base) as reported by the Bureau of Labor Statistics of the
United States Department of Labor. Rent shall be increased by the percentage by
which the said Consumer Price Index has increased over it level as of the
commencement of the term of this lease. For purposes of computing the
adjustment applicable each anniversary date, the Consumer Price Index to be used
shall be that Index last reported. In the event the Index is unavailable or not
yet reported for that month, the Index to be used shall be the Consumer Price
Index most recently reported and available. In the event the Consumer Price
Index is eliminated or modified, the cost of living increase shall be measured
by such substitute system as shall be provided or placed in common use. Cost of
living rental adjustment shall be minimum 2% increase and a maximum 6% increase
per annum.
6. LATE CHARGE Lessee shall be liable for and pay promptly without specific
-----------
demand therefore, a service charge equal ten (10%) percent of the monthly rent
in addition to rent due, in the event, and each such event, that the rent is not
paid and received in Lessor's office in advance by the 5th of the month, unless
-------- -----------------------
postmarked on or prior to the first of the month.
7. USE: (a) Lessee agrees to use the leased premises for the purpose of:
----
-2-
<PAGE>
Warehouse, light assembly and manufacturing and for no other purpose without the
written consent of Lessor; personally to supervise the operation of said
business and to see that it is conducted in a businesslike manner and in such
manner that it shall not become a public nuisance or interfere in any way with
rights of the other tenants or occupants of the land or building of which the
leased premises are a part in their right to the peaceful enjoyment of their
premises on or in said land or building; neither to use or permit to be used the
leased premises for immoral purposes or in any way that would be a violation of
any Federal, State, or local law, regulation, or ordinance, that would injure
the reputation of the premises, said land and building, or the neighborhood, or
that would constitute a violation of any conditions or restrictions of record
affecting the leased premises or said land or building; to keep the leased
premises, storefront, including sidewalks and driveways adjacent thereto, and
identification signs, at his own expense, safe, secure, clean, sightly, and in a
------------------
wholesome condition at all times, abiding by all health and sanitation
regulations and requirements.
(b) It is understood that the premises are subject to restrictions
contained in the Declaration of Restrictions recorded ______, _____ as
instrument number in the office of the San Diego County Recorder, and Lessee's
use and occupancy shall be subject to the restrictions as to use and occupancy
contained therein. A copy of said Declaration of Restrictions is available to
Lessee, in the Lessor's office.
8. UTILITIES: Lessee agrees hereby to pay promptly al costs for gas,
----------
electricity, telephone, and Lessor shall have no responsibility therefore.
9. PROHIBITED USES: Lessee shall not use, or permit said premises or any part
----------------
thereof to be used, for any purpose or purposes other than the purpose or
purposes for which the said premises are hereby leased; and no use shall be made
or permitted to be made of the said premises, nor acts done, which will cause an
increased rate of or cancellation of any insurance policy covering said building
or any part thereof, in or about said premises, any article which may be
prohibited by the standard form of fire insurance policies. Lessee shall, at
his sole cost and expense, comply with any and all requirements, pertaining to
said premises, of any insurance organization or company, necessary for the
maintenance of insurance, as herein provided, covering any building and
appurtenance at any time located on said premises.
10. CONDITION AND MAINTENANCE OF PREMISES: (a) Lessee's acceptance of
--------------------------------------
possession of the premises shall constitute Lessee's
-3-
<PAGE>
acknowledgment that the premises are in good and tenantable condition. Lessee
understands and acknowledges that the lease premises were constructed a number
of years ago and may not be incompliance with all Federal, State and local
regulations, including "The Americans with disabilities Act of 1990" for your
proposed business. Should any standard or regulation now or hereafter be imposed
on Lessor or Lessee by any body, State or Federal, charged with the
establishment, regulation, and enforcement of occupational health or safety
standards or other standards for employers, employees, lessors, lessees, or the
premises, then Lessee agrees, at his sole cost and expense, to comply promptly
with such standards or regulations.
(b) Lessee shall keep and maintain the entire premises in as good,
clean, and sanitary order, condition, and repair, including maintenance and
-------------------------
repair of air conditioning units, water heaters, all plumbing, electrical,
- --------------------------------------------------------------------------
lighting, fixtures, etc., as they shall be upon the commencement of the term of
- -------------------------
this lease. If Lessee fails to keep and maintain the premises as aforesaid and
such failure is not cured within ten (10) days after Lessor's written notice to
Lessee of such failure, then Lessor shall have the option (but not the
obligation) to enter upon the premises and clean, repair, or otherwise maintain
the same to the extent that Lessee has failed to do so. The costs and expenses
incurred by Lessor in so doing shall be payable by Lessee to Lessor promptly
upon demand or, at the option of Lessor, shall be included in the next basic
monthly rent installment. Lessee waives right to make repairs at the expense of
Lessor as provided in Section 1942 of the Civil Code of the State of California,
and all rights provided by Section 1941 of said Civil Code, to the extent that
such rights may be legally waived. On the last day of the term hereof, or on
any sooner termination, Lessee shall surrender the premises to Lessor in the
same condition as when received, scrubbed clean, ordinary wear and tear
excepted. Attached inventory sheet shall be used as a basis for determining the
original condition of the space.
(c) All fixtures remaining on the premises when the tenancy terminates
become the property of the Lessor.
(d) Lessor, after the commencement of this lease, shall not be
------
required to make any expenditure whatsoever in connection with this lease or to
- --------------------------------
make any alterations or repairs to maintain the premises in any way during the
---------- ----------
term hereof, except that Lessor shall maintain exterior walls, the structural
portions of the floor, the sidewalks, and the roof in good repair. Lessee shall
diligently maintain, at their expense, the storefront, windows, doors, and floor
covering.
-4-
<PAGE>
11. WASTE: Lessee shall not commit, or suffer to be committed, any waste upon
------
the said premises, or any nuisance or maintenance of pets (cats, dogs, birds,
etc.).
12. HAZARDOUS SUBSTANCE: (a) Lessee agrees not to generate, treat, store,
--------------------
handle, release, dispose of or otherwise deal with hazardous substance on the
property or in the leased premises.
(b) Lessee shall indemnify and hold Lessor harmless from all
liability, claims, penalties, losses, damages and expenses of any kind,
including without limitation, cleanup costs and reasonable attorney's fees
incurred by Lessor as a result of Lessee''s breach of this agreement.
13. LOCKS AND KEYS: Lessor shall provide Lessee with one set of keys to
---------------
exterior doors and premises. Lessee shall not secure doors by additional
locking mechanisms nor by changing present locks, unless required by
circumstances of conduct of business, in which event Lessee shall notify Lessor.
In the case of Lessor not being able to have access to premises during an
emergency, due to aforementioned circumstances, or due to other reasons beyond
control of Lessor, Lessee and his agents assume full responsibility for damage
done to these or adjacent premises due to fire, explosion, flooding, or other
damaging circumstances originating in or spreading through the demised premises.
Upon termination of his tenancy, Lessee shall return all keys to the premises to
Lessor, and if keys are not returned or if the locks have been changed without
Lessor's permission, Lessee shall pay the cost of replacing the keys or changing
he locks, as the case may require. After expiration of the lease, and failure
------------------------------------------
to turn in keys, denying Lessor's access, rent shall accrue until keys are
- --------------------------------------------------------------------------
delivered to Lessor.
- --------------------
14. ABANDONMENT: Lessee shall not vacate or abandon the premises at any time
------------
during the term of the lease without notifying Lessor. The vacation or
abandonment for a period of five (5) days without said notice to Lessor is
considered an abandonment and default under the lease. If Lessee shall abandon,
vacate, or surrender said premises, or be dispossessed by process of law or
otherwise, any personal property belonging to Lessee and left on the premises
for a period of five (5) days or longer shall be deemed to be abandoned, at the
option of Lessor.
15. ENTRY BY LESSOR: Lessee shall permit Lessor and his agents to enter into
----------------
and upon said premises at all reasonable times without prior notice for the
purpose of inspecting the same, or for the purpose of posting notices of non-
responsibility for alterations, additions, or repair, without any rebate of rent
and without any liability to Lessee for any loss of occupation nor quiet
enjoyment
-5-
<PAGE>
of the premises thereby occasioned; and shall permit Lessor and his
agents, at any time within six (6) months prior to the expiration of this lease,
to place upon said premises any unusual or ordinary "to let" or "to lease" signs
and to exhibit the premises to prospective tenants at reasonable hours.
16. ESTOPPEL CERTIFICATE: If Lessor is not in default in performance of any of
---------------------
the terms, covenants and conditions of this lease, Lessee shall, on demand,
acknowledge and deliver to Lessor or any mortgagee, without charge, a duly
executed certificate, certifying that this lease is valid and subsisting and in
full force and effect and that Lessor, at the time, is not in default under any
terms or provisions of this lease.
17. NOTICES: All notices, demands, or other writings in the lease provided to
--------
be given, made, or sent, or which may be given, made, or sent, by either party
hereto to the other, shall be deemed to have been given, made, or sent when made
in writing and deposited in the United States mail, postage prepaid, and
addressed as follows:
To Lessor: P.O. Box 90948
San Diego, CA 92169
To Lessee:
The address to which any notice, demand, or other writing may be given, made, or
sent to any party as above provided may be changed by written notice given by
such party as above provided.
18. PERSONAL PROPERTY TAXES: Lessee agrees t pay prior to delinquency all
------------------------
taxes, assessments, license fees, or other charges made against or levied upon
the fixtures, furnishings, Lessee's improvements, merchandise, or other personal
property of Lessee, or upon the business of Lessee, or upon the use to which the
Premises are put by Lessee.
19. MECHANIC'S LIEN: Lessee agrees to keep the leased premises free from all
----------------
mechanic's liens or other liens or of like nature arising because of work done
or materials furnished upon the leased premises at the instance of or on behalf
of Lessee.
20. DEFAULT: The occurrence of any of the following shall constitute a material
-------
default and breach of the leave by Lessee:
(a) Any failure by Lessee to pay the rental or to make any other
payment required to be made by Lessee hereunder (where such failure continues
for three (3) days after written notice thereof by Lessor to Losses). If Lessee
fails to pay rent due within the
-6-
<PAGE>
five day (5 day) period specified in Article 6 above in two (2) of any four (4)
consecutive months, and Lessor has given Lessee written notice of such failure,
Lessor's acceptance of late rent and the service charge provided for in Article
6 does not waive default under this paragraph.
(b) The abandonment or vacation of the promises by Lessee.
(c) A failure by Losses to observe and perform any other provision of
this lease to be observed or performed by Lessee, where such failure continues
for thirty (30) days after written notice thereof by Lessor to Lessee; provided,
however, that if the nature of such default is such that the same cannot
reasonably be cured within such thirty-day (30-day) period, Lessee shall not be
deemed to be in default if Lessee shall within such period commence such cure
and thereafter diligently prosecute the same to completion.
(d) The making by Lessee of any general assignment for the benefit of
creditors; the filing by or against Lessee of a petition to have Losses adjudged
bankrupt or of a petition for re-organization or arrangement under any law
relating to bankruptcy; the appointment of a trustee or receiver to take
possession of substantially all of Lessee's assets located at the promises; or
the attachment, execution, or other judicial seizure of substantially all of
Lessee, a assets located at the promises or of Lessee's interest in this lease,
where such seizure in not discharged within thirty (30) days.
21. SECURITY INTEREST: To secure the payment of all rent due and to become due
-----------------
hereunder and the faithful performance of all of the other covenants of this
leave required to be performed by Lose", Lessee hereby gives to Lessor an
express contract lion on and security interest in all property, chattels, or
merchandise which may be placed in the promises and also upon all proceeds of
any insurance which may accrue to Lessee by reason of damage to or destruction
of any such property, chattels, or merchandise. All exemption laws are hereby
waived by Lessee. This lion and security interest are given in addition to the
Lessor's statutory lions and shall be cumulative thereto. This lion and
security interest may be foreclosed with or without court proceedings, by public
or private sale, upon not loss than twenty (20) days prior notice, and Lessor
shall have the right to become purchaser upon being the highest bidder at such
sale. Upon request of Lessor, Lessee shall execute Uniform Commercial Code
financing statements relating to aforesaid security interest.
-7-
<PAGE>
22. REMEDIES UPON DEFAULT: Lessor and Lessee agree as follows upon Lessor's
---------------------
remedies for any default by Lessee an set forth in Article 20 above:
(a) In the event of any such default by Lessee, then in addition to
any other remedies available to Lessor at law or in equity, Lessor shall have
the immediate option to terminate this lease and all rights of Lessee hereunder
by giving written notice of such intention to terminate. In the event that
Lessor shall elect to so terminate this lease, then Lessor may recover from
Lessee
(i) the worth at the time of award of any unpaid rent which had been
earned at the time at such termination; plus
(ii) the worth at the time of award of the amount by which the unpaid
rent would have been earned after termination until the time of award, exceeds
the amount of such rental long Leasee proves could have been reasonably avoided;
plus
(iii) the worth at the time of award of the amount by which the unpaid
rant for the balance of the term after the time of award exceeds the amount of
such rental loss Lessee proven could be reasonably avoided; plus
(iv) any other amount necessary to compensate Lessor for all the
detriment proximately caused by Lessee's failure to perform his obligations
under this lease which in the ordinary course of things would be likely to
result therefrom; and
(v) at Lessor's election, such other amounts in addition to or in lieu
of the foregoing as may be permitted from time to time by applicable California
law.
(b) The term "rent," as used herein, shall be deemed to be and to mean
the minimum rental and all sums required to be paid by Losses pursuant to the
terms of this lease.
(c) An used in subparagraphs (a)(i) and (ii) above, the "worth at the
time of award" in computed by allowing interest at the rate of ten (10%) percent
per annum. An used in subparagraph (a)(iii), the "worth at the time of award"
is computed by discounting such amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of award plus one (1%) percent.
(d) In the event of any such default by Lessee, Lessor shall also have
the right, with or without terminating this lease, to re-enter the premises and
remove all persons and property front the promises. Such property may be
removed and stored in a public
-8-
<PAGE>
warehouse or elsewhere at the cost of and for the account of Lessee.
(e) In the event of the vacation or abandonment of the promises by
Lessee, or in the event that Lessor shall elect to re-enter as provided in
paragraph (d) above or shall take possession of the premises pursuant to legal
proceeding or to any notice provided by law, then if Lessor does not elect to
terminate this lease as provided in paragraph (a) above, then Lessor may from
time to time, without terminating this lease, either recover all rental as it
becomes due or relet the promises or any part thereof for such term or terms and
conditions an Lessor in his sole discretion may doom advisable with the right to
make alterations and repairs to the promises.
(f) In the event that Lessor shall elect to so relet, then rentals
received by Lessor from such reletting shall be applied, first, to the payment
of any indebtedness other than rent due hereunder from Losses to Lessor, second,
to the payment of any cost of such reletting; third, to the payment of the cost
of any alterations and repairs to the promises fourth, to the payment of rent
due and unpaid hereunder, and the residue, if any, shall be hold by Lessor and
applied in payment of future rent as the same may become due and payable
hereunder. Should that portion of such rentals received from such resetting
during any month, which is applied by the payment of rent hereunder, be less
than the rent payable during that month by Lessee hereunder, then Lessee shall
pay such deficiency to Lessor immediately upon demand therefore by Lessor, such
deficiency shall be calculated and paid monthly.
(g) No re-entry or taking possession of the premises by Lessor
pursuant to paragraphs (d) or (e) of this Article 22 shall be construed as an
election to terminate this leave unless a written notice of such intention be
given Lessee or unless the termination thereof be directed by a court of
competent jurisdiction. Notwithstanding any reletting without termination by
Lessor because of any default by Lessee, Lessor may at any time after such
reletting elect to terminate this lease for any such default.
23. ATTORNEY'S FEES: If any action at law or in equity shall be brought to
---------------
recover any rent under this lease, or for or on account of any breach of, or to
enforce or interpret any of the covenants, terms, or conditions of this lease,
or for the recovery of the possession of the leased promises, the prevailing
party shall be entitled to recover from the other party an part of the
prevailing party's costs a reasonable attorney's fee, the amount of which shall
be fixed by the court and shall be made a part of any judgment rendered.
-9-
<PAGE>
24. INSURANCE: (a) Lessee agrees at all times during the term of this lease and
---------
at his sole expense to keep all trade fixtures and equipment and all Merchandise
of Lessee or any subtenant of Losses that may be in the promises from time to
time, insured by licensed insurance carrier rated 3 or better, against lose or
damage by fire and the extended coverage hazards for an amount that, in Lessee's
judgment, will insure the ability of Loans, and his subtenants, if any, to
replace such trade fixtures, equipment, and merchandise.
(b) Lessee further agrees to maintain in effect throughout the term of
this lease personal injury liability insurance covering the promises and its
appurtenances and sidewalks fronting thereon, including the sidewalk area used
for pedestrians or vehicular travel entering or leaving the promises, in the
amount of five Hundred Thousand ($300,000.00) Dollars for injury to or death of
any one person and One Million ($1,000,000.00) Dollars for injury to or death of
any number of persons in one occurrence, and property damage liability insurance
in the amount of Twenty Thousand ($20,000.00) Dollars against all liability. THE
---
INSURANCE POLICY OR POLICIES OF SUCH COVERAGE SHALL ON "LESSOR AS CO-INSURED,
- -----------------------------------------------------------------------------
AND LESSEE SHALL PROVIDE LESSOR WITH A CERTIFICATE OF INSURANCE ACCORDING WITHIN
- --------------------------------------------------------------------------------
TWO (2) WEEKS OF EXECUTING THIS LEASE.
- --------------------------------------
(c) The cost of all insurance herein provided to be carried by Lessee
shall be at the sole cost of Lessee.
25. HOLD HARMLESS: (a) shall indemnify and hold harmless Lessor against and
-------------
from any and all claims &rising from Lessee's use of the promises or from the
conduct of its business or from any activity, work or other things done,
permitted, or suffered by Lessee in or about the promises and shall further
indemnify and hold harmless Lessor against and from any and all claims arising
from any breach or default in the performance of any obligation on Lessee's part
to be performed under the terms of this lease or arising from any act or
negligence of Lessee or any officer, agent, employee, guest, or invitee of
Lessee and from all costs, attorney's fees, and liabilities incurred in or about
the defense of any such claim or any action or proceeding brought thereon, and
in case any action or proceeding be brought against Lessor by reason of such
claim, Lessee upon notice from Lessor shall defend the same at Lessees expense
by counsel reasonably satisfactory to Lessor.
(b) Lessee, an material part of the consideration to Lessor, hereby
assumes all risk of damage to property or injury to persons in, upon, or about
the promises from any cause other than Lessor's negligence, and Lessee hereby
waives all claims in respect thereof against Lessor. Lessee shall give prompt
notice to Lessor in case of casualty or accidents in the promises.
-10-
<PAGE>
(c) Lessee shall not record or allow any agency, lender firm or other
person to record any document against the leased premises, the Center, or Lessor
without the prior written knowledge and consent of Lessor. Any document so
recorded shall be considered fraudulent recording and the recordation will be
vacated by Lessor at Lessee's expense.
26. LIMIT OF LESSOR'S LIABILITY: Lessor's liability under the lease is limited
---------------------------
solely to its interest in the building or property in which the leaned premises
are located without liability on the part of the individual officers, directors,
and Limited Partners.
27. SUBORDINATION: (a) at Lessor's option, shall be subordinate to any
-------------
mortgage, deed of trust, or any other hypothecation for security now or
hereafter placed upon the real property of which the promises are a part and to
any and all advances made on the security thereof and to all renewals,
modifications, consolida tions, replacements, and extensions thereof.
Notwithstanding much subordination, Lessee's right to quiet possession of the
premise shall not be disturbed if Lessee is not in default and so long an Lessee
shall pay the rent and observe and perform all of the provisions of this lease,
unless this leave is otherwise terminated pursuant to its terms. If any
mortgages or trustee shall elect to have this lease prior to the lien of its
mortgage or deed of trust and shall give written notice thereof to Lessee, this
lease shall be deemed prior to such mortgage or dead of trust, whether this
lease is dated prior or subsequent to the date of said mortgage or deed of trust
or the date of recording thereof.
(b) Lessee shall attorn to the purchaser upon any foreclosure or sale
and recognize such purchaser an the Lessor under the lease.
(c) Lessee agrees to execute any documents required to effectuate such
subordination or to make this lease prior to the lien of any mortgage or dead of
trust, as the case may be, and if the Lessee deem not return the required
document within a ten (10) day period, Lessee is considered to be in automatic
default under the lease, and furthermore, that the matters stated in the
document are deemed to be true.
28. NOTICE OF NON-OCCUPANCY: Lessee agrees to notify Lessor in writing if at
-----------------------
any time during the term of this lease the leased promises are to be unoccupied
for more than five (5) consecutive days.
29. ASSIGNMENT AND SUBLETTING: Lessee agrees not to assign this lease, or
-------------------------
sublet the leased promises or any part thereof, or encumber his leasehold
Estate, or any interest therein, or permit the same to be occupied by another,
either voluntarily or by
-11-
<PAGE>
operation of law, without first obtaining the written consent of Lessor or his
duly authorized agent, which consent shall not be unreasonably withhold. It is
also agreed that the giving of the written consent required on any one or more
occasions shall not thereafter operate an a waiver of the requirement of written
consent on any one or more subsequent occasions, but that written consent must
first be obtained before any assignment, sublease, or encumbrance of the leased
promises can ever be made or another permitted to occupy the same. Lessor will
not approve any sublease unless said sublease conforms to the following
conditions:
(a) Rent shall be commercially reasonable, payable in monthly
installments.
(b) Subtenant shall be required to attorn to Lessor upon termination
of this lease for any cause prior to fulfillment of term.
(c) Sublease shall not be for a term longer than is provided in the
within lease.
(d) Should Lessee be in default in payment of rent hereunder,
subtenant shall, upon notice from Lessor of such default, make all subsequent
payments of rent for said sublease to Lessor, without liability therefore to
Lessee, and Lessor shall credit such payments upon rent due from Lessee.
(e) Should sublease require, or should subtenant make any payments for
advance rent in a sum greater than one month's rent, such payment shall be made
to Lessor to be hold by Lessor and credited upon rent due hereunder in a monthly
amount equal to the rental charged for such subtenancy.
(f) Subtenant shall be required to comply with all appropriate terms
and conditions of this lease, and a copy of this lease shall be made a part of
said sublease by attachment thereto.
(g) Losses agrees to pay ARVCO REALTY Two Hundred Fifty ($250.00)
Dollars for service in advance for each request to assign, re-draw, or otherwise
modify this lease. This fee shall include one credit report. Each additional
credit report required shall be an additional $25.00.
30. HOLDING OVER: Any holding over after the expiration of term of this lease,
------------
with the consent of Lessor, either expressed or implied, shall be construed to
be a tenancy from month-to-month at a fixed monthly rental equal to the last
month's rent paid during the term of this lease, including any additional rent
paid, plus twenty percent (20%), and shall otherwise be on the same terms and
-12-
<PAGE>
conditions as herein provided. This article shall be in effect only if Lessee
fails to desire new lease. When a mouth-to-mouth tenancy exists, Lessee must
give a thirty (30) day written notice to vacate. If a notice is received by
Lessor any time in the month after the first of the month, the 30-day notice
---------------
will take effect on the first of the following month.
---------
31. CUMULATIVE REMEDIES: It is agreed that the rights and remedies given to
-------------------
Lessor by this lease are cumulative and are not intended and shall not operate
to deprive Lessor of any other rights or remedies available to him, whether in
law or equity or pursuant to special proceedings.
32. BINDING ON HEIRS: It is agreed that all covenants, agreements, provisions,
----------------
terms, and conditions of this lease shall inure to the benefit of and be binding
upon the heirs, successors, legal representatives, and assigns of the respective
parties hereto as fully as though they were in each case specifically mentioned.
33. SALE BY LESSOR: In the event of a sale or conveyance by Lessor of the
--------------
building or the premises or any part containing the premises, Lessor shall be
released from future liability upon any of the covenants and conditions,
expressed or implied, in favor of Lessee, and, in such event, Lessee agrees to
look solely to the responsibility of the successor in interest of Lessor in and
to this lease.
34. ALTERNATIONS, ADDITIONS, OR IMPROVEMENTS: Lessee shall not make any
----------------------------------------
alternations, improvements, or additions to the premises without first obtaining
Lessor's permission in writing. Any such improvements or additions shall, at
the option of the Lessor, become a part of the realty and become the property of
Lessor upon termination of this lease. If Lessor shall deem removal, Lessee
shall put that part of the leased premises into like condition as existed prior
to the installation of such alteration, addition, or fixture or be financially
responsible for said cost and rent during restoration. Lessee shall pay
promptly all charges for such labor and materials furnished as may become a lien
upon the premises, and shall, prior to instituting any work of such kind,
provide to Lessor notice of the expected date of commencement so that Lessor
may, and is hereby authorized to, post such notices of non-responsibility as
Lessor deems necessary and appropriate. Lessee shall, upon termination of this
lease, and at option of Lessor, remove such trade fixtures as have been
installed and repair any damage to the premises caused by such removal.
35. EMINENT DOMAIN: (a) In the event of any eminent domain, condemnation, or
--------------
street widening proceedings, or purchase under threat of condemnation by public
authority, any monies payable as
-13-
<PAGE>
compensation for the taking of, or damages to, any portion of the leased
premises shall be the absolute property of Lessor, and Lessee shall have no
interest therein.
(b) If the premises or any part thereof are taken by right of eminent
domain, or purchase in lieu thereof, the proceeds awarded as damages, or as the
purchase price in lieu thereof, shall be apportioned among the parties as their
interest may appear. Should such taking result in diminishment of floor area in
excess of twenty-five (25%) percent, this lease shall terminate, and both
parties shall be relieved of further liability. In the event a partial taking
results in such damage to the premises as can be repaired within three (3)
months of said taking, and the premises restored to a condition reasonably
suitable to Lessee's enterprise, this granted to Lessee proportional abatement
of rent for the space and time lost. The determination as to whether such
repairs can be made shall be at Lessor's discretion.
36. DAMAGE OR DESTRUCTION: In the event that the premises or the building in
---------------------
which the premises are located is partially or completely damaged or destroyed,
or declared unsafe or unfit for occupance by any authorized public authority for
any reason other than Lessee's act or use of occupation, which declaration
requires repairs to either said premises or the building in which the premises
are located, the rights and obligations of Lessee and Lessor shall be as
follows:
(a) If the damage is covered under fire and extended coverage
insurance carried by Lessor, Lessor shall repair such damage as soon as is
reasonably possible, and this lease shall continue in full force and effect.
(b) In the event that such damage is not covered by fire and extended
coverage insurance carried by Lessor, Lessor shall repair such damage, provided
that such damage or destruction does not exceed twenty (20%) percent of the
then-replacement value of the improvements on the premises, exclusive of trade
fixtures, equipment, and foundations. If such damage exceeds twenty (20%)
percent of the then-replacement value, Lessor may elect not to restore by
written notice to Lessee to terminate this lease. Said written notice shall be
given within thirty (30) days from the date of damage or destruction and, if not
given, Lessor shall be deemed to have elected to restore the damage and
destruction and shall repair any damage as soon as reasonably possible.
(c) Notwithstanding anything contained.
(i) if the premises are damaged or destroyed to any extent during
the last three (3) years of the term of this lease,
-14-
<PAGE>
(ii) if the uninsured portion of such damage exceeds twenty (20%)
percent of the then-replacement value of the building of which the promises
constitute all or a part,
(iii) if over fifty (50%) percent of Lessee's premises shall be
damaged or destroyed at any time, Lessor may at Lessor's option, cancel and
terminate this lease as of the date of the occurrence of such damage by delivery
of written notice to Lessee within forty-five (45) days after the date of the
occurrence of such damage or destruction of Lessor's election to so terminate.
(d) If Lessor elects or is required to make repairs, Leasee shall be
entitled to a proportionate reduction in rent during the time in which the
repairs are being made, to the extent that Lessee is deprived of the use of the
premises.
(e) Lessor's obligation to restore shall not include the restoration
or replacement of Lessee's trade fixtures, equipment, merchandise, or any
improvements or alterations made by Lessor to the premises. Lessee shall
restore and replace the same in the event that Lessor is obligated or elects to
repair any damage or destruction of the premises.
37. WAIVERS: It is agreed that any waiver by Lessor of any breach of any one or
-------
more of the covenants, conditions, or agreements of this lease shall not be
construed to be a waiver of any subsequent or other breach of the same or any
other covenant, condition, or agreement; nor shall any failure an the part of
Lessor to require exact or full, complete and explicit compliance with any of
the covenants, conditions, or agreements in this lease be construed an in any
manner changing the terms hereof, or to stop Lessor from enforcing the full
provisions hereof; nor shall the terms of this lease be changed or altered in
any way whatsoever other than by written amendment, signed by both parties.
38. WHOLE AGREEMENT: This lease represents the whole agreement an to the hiring
---------------
of the premises, and may be modified only by an instrument in writing signed by
the parties hereto.
39. LAW APPLICABLE: This agreement shall be interpreted and construed in accord
--------------
with the laws of the State of California.
40. SURRENDER OF LEASE: The voluntary surrender of this lease by Lessee shall
------------------
not work a merger.
41. PARTIAL INVALIDITY: Any provision of this lease which shall prove to be
------------------
invalid, void, or illegal shall in no way affect, impair, or invalidate any
other provision hereof, and such other provisions shall remain in full force and
effect.
-15-
<PAGE>
42. RULES AND REGULATIONS: Lessee agrees to observe faithfully, and comply
---------------------
strictly with, the Rules and Regulations attached to this lease as Exhibit 8 and
hereby made a part hereof, and such other rules and regulations, promulgated
from time to time by Lessor, an in his judgment are necessary for the safety,
care and cleanliness of the building or the preservation of good order therein.
Lessor shall not be liable to Lessee for violation of such rules and regulations
by any other tenant, its servants, employees, agents, visitors, or licensees.
43. DRAPES: Lessee shall only install in the premises those window coverings or
------
drapes which have been approved by Lessor in writing.
44. FIRE EXTINGUISHER: Lessee shall have a suitable fire extinguisher mounted
-----------------
and accessible an the promises with an updated inspection tag on the
extinguisher.
45. SIGNS: Lessee may affix and maintain upon the glass panes and supports of
-----
the show windows and within twelve (12) inches of any window and upon the
exterior walls of the premises only such signs, advertising placards, names,
insignia, trademarks, and descriptive material as shall have first received the
written approval of Lessor an to type, size, color, location, copy nature, and
display qualities. Anything to the contrary in this lease notwithstanding,
Lessee shall not affix any sign to the roof.
Lessee shall however, erect one sign on the front of the premises not later than
the date Lessee opens for business, in accordance with a design to be prepared
by Lessee and approved in writing by Lessor. There is standardization criteria
in affect for the front Directory and the Lessor will order same per Exhibit C.
There is a $23.00 fee for this Directory strip.
46. JOINT & SEVERAL LIABILITY: If there be more than one Lessee the obligations
-------------------------
hereunder imposed upon Lessee shall be joint and several. If there be a
guarantor of Lessee's obligations hereunder, the obligations hereunder imposed
upon Lessee shall be the joint and several obligations of Lessee and such
guarantor and Lessor need not first proceed against the Lessee hereunder. The
Guarantor and/or Co-Lessees further jointly and severally covenant and agree to
pay all expenses and fees, including attorneys' fees which may be incurred by
the Lessor in the enforcement of the terms and conditions of this lease.
47. FINANCIAL STATEMENT: If it shall be determined at any time following the
-------------------
execution of this Lease that Lessee's financial statements as relied upon by
Lessor in executing this Lease are substantially untrue or inaccurate, Lessee
shall at that time be deemed in default of this Lease, which default shall not
be subject
-16-
<PAGE>
to cure, and Lessor may, at its election, exercise such remedies as are
specified in Article 22: Remedies Upon Default.
---------------------
Time and punctual and strict performance are each hereby declared to the essence
of this lease and of each and all of its covenants and conditions.
IN WITNESS WHEREOF, Lessor and Lessee have executed this lease as of the day and
year first above written.
ARVCO REALTY, Agent for Lessor
John R. Kenney, Jr.
- -------------------- ------------------------------
Date: Feb. 01, 1996
------------------
-17-
<PAGE>
PERSONAL GUARANTEE:
- ------------------
For value received and in consideration of this lease it is distinctly
understood and agreed that the faithful performance of all terms and conditions
of this lease in unconditionally and personally guaranteed by----------------,
and Lessor may proceed forthwith against said Guarantor for the breach by
Lessee of any obligation hereby guaranteed without first taking action against
Lessee. This guarantee shall inure to the benefit of and bind, as the case may
require, its successors, assigns, heirs, executors and administrators.
- ------------------------------
Date:
-------------------------
-18-
<PAGE>
EXHIBIT B
RULES AND REGULATIONS
---------------------
1. USE: All activities connected with the Tenant's use of the leased premises
---
shall be only for those purposes defined in the lease. No work or storage of
any kind including vehicles, shall be allowed in the parking lot or exterior
entrance of the leased premises, vehicle cleaning, maintenance or repair of any
kind is prohibited. Pallets may not be stored against the building or in the
parking lot.
2. LOCKS AND KEYS: No additional locks shall be placed upon any exterior or
--------------
interior door by Lessee, nor shall nay changes be made to existing locks or
mechanism thereof without first obtaining Lessor's permission in writing. Any
such locks installed shall become part of the realty.
3. WIRING: No additional electric wiring shall be installed except with prior
------
written approval by Lessor. All electrical operations or additions shall be
completed under permit. All electrical wires shall be installed in conduits.
4. DOORS AND WINDOWS: Doors shall not be defaced by signs, nails or other
-----------------
means. Windows shall be kept clean and free of signs or other obstructions,
except approved drapes or mini blinds.
5. PLUMBING: Water closets and other plumbing fixtures shall not be used for
--------
any purpose other than those for which they were constructed, and no rubbish,
rage, paper towels, coffee grounds or other substances shall bo thrown therein.
All damage resulting from any misuse of the plumbing fixtures shall be repaired
at Tenant's expense. If damage occurs in the main newer line and is traceable
to a certain tenant, responsible tenant shall be required to pay said cost.
6. SOLICITATION: Canvassing, soliciting, and peddling in the Center are
------------
prohibited; each Tenant shall cooperate to prevent the same by informing Lessor
and requesting such person to vacate the complex.
7. PARKING: Lessor has provided non-assigned limited parking that may be used
-------
by Lessee, Lessee employees, and customers. Parking is limited to daily use and
cannot be used for overnight storage of vehicles of any kind.
-19-
<PAGE>
8. ANIMALS: No animals, birds, or pets of any kind shall be permitted, kept or
-------
harbored in the leased premises or common area of the Center.
9. ADVERTISING MEDIUM: No use of advertising medium that shall be a nuisance to
------------------
Lessor or other tenants is allowed. No noise, music or other sounds shall be
permitted at any time in ouch a manner as to disturb or annoy other tenants.
10. USE OF SPACE: No space demised to any Tenant shall be used, or permitted to
------------
be used, for lodging or sleeping or for any immoral or illegal purpose.
11. NSF CHECKS: In the event Tenant's rental payment check is returned to
----------
Lessor for N.S.F. (bounced), Lessor will accept as payment only a cashier's
check or money order which shall include the amount of a late charge an provided
in the lease and a $20.00 return check service charge.
12. LEASE EXTENSIONS OR RENEWALS: Prior to the termination of this lease,
----------------------------
should Leasee hire a leaving agent or other third party to assist Lessee in
negotiating a lease extension or lease renewal with Lessor, all costs for said
third party services will be the sale responsibility of Lessee. The Lessor may
assume financial responsibility for the third party services if and only if all
three of the following conditions exists:
(a) Lessee has previously contacted Lessor requesting a lease
extension or renewal.
(b) Lessee and Lessor have failed to reach a satisfactory agreement
after fourteen (14) days of sincere negotiation.
(c) The terms and conditions negotiated by the Lessee's third party
are considered more favorable to Lessee than the one Lessor previously offered.
13. VACATING LEASED PREMISES: Provided the lease has expired, or proper written
------------------------
notice was given to Lessor on a month-to-month tenancy, or the termination of
the lessee has been warranted through other provisions in the lease, rent stops
accruing when Lessee has vacated the suite and all keys have boon turned in to
---
Lessor.
14. ODORS: No Tenant shall cause or permit any unusual or objectionable odors
-----
to be produced upon or emanate from the leased space.
-20-
<PAGE>
15. AUGMENTATION: Lessor reserves the right to rescind, amend, alter, or waive
------------
any of the foregoing Rules and Regulations at any time when its judgement deems
it necessary, desirable or proper for its bigot interest and for the best
interest of the Tenants, and no such rescission, amendment, alteration, or
waiver of any rule or regulation in favor of one Tenant shall operate as an
alteration or waiver in favor of any other Tenant. Landlord shall not be
responsible to any tenant for the nonobservance or violation by any other tenant
of any of these Rules and Regulations at any time.
16. EQUIPMENT: No equipment (i.e. hand trucks, fork lift, etc.) shall be used
---------
in a manner that will damage sidewalks or paving. Should the sidewalks or paving
be damaged by Leasee, Lessor at his option will repair such damage at Lessee's
expense.
17. PREMISES: The promises shall be maintained in a clean and sanitary
--------
condition at all times. Losses shall dispose of all rubbish and trash in an
approved dumpster. No trash generated off promises or from non-normal use shall
be placed into dumpster provided within the Center. All boxes shall be cut up
and placed flat in the trash container. No drums, pallets, or large objects way
be placed next to or in the dumpster for pickup.
18. FIRE EXTINGUISHERS: An adequate number of suitable fire extinguishers shall
------------------
be maintained on the promises for use in case of fire.
19. SPEED LIMIT: The speed limit throughout the Center is 15 miles per hour.
-----------
Violations, at the option of Lessor, will be excluded from driving and parking
within the complex.
20. ANTENNAS: No communication antenna shall be erected on the roof or exterior
--------
walls of the promises, or on the grounds without prior written consent of
Lessor. An aerial satellite antenna so installed without written consent shall
be subject be removal by Lessor without prior notice. The cost of such removal
and repair of damage, if any, shall be at the expense of Lessee.
21. ADVERTISEMENTS: No sign, advertisement, object, notice or other lettering
--------------
shall be exhibited, inscribed, painted or affixed on any part of the outside or
inside of Tenant's promises so as to be visible from the exterior without prior
written consent of Lessor.
22. TIE-INS: No Tenant shall tie-in or permit others to tie-in to the
-------
electrical or water supply within the promises without written consent from
Lessor.
23. OBSTRUCTION: Sidewalks and entryway shall not be obstructed or used for any
-----------
other purpose than for ingress and egress.
-21-
<PAGE>
24. ROOF DAMAGE: Roof damage occurs each time someone walks on the roof.
-----------
Tenants access to the roof is limited to the repair and maintenance of air
conditioning unit. Lessor reserves the right to charge Tenant for excessive use
of the roof to the extent of damage caused by such use.
I have read and understood the Rules and Regulations which will become part of
lease executed on ____________________, 1996.
John R. Kenney, Jr.
- ---------------------------
Date: Feb. 01 , 1996.
------------
-22-
<PAGE>
SUBLEASE
THIS SUBLEASE IS ENTERED INTO THIS 30TH DAY OF APRIL 1996, BY AND BETWEEN
PILKINGTON BARNES HIND (HEREINAFTER "SUBLESSOR") AND FAMILY FITNESS (HEREINAFTER
"SUBLESSEE").
1. PREMISES:
--------
Sublessor leases to Sublessee and Sublessee hires from Sublessor those certain
Premises (hereinafter "Premises") crosshatched on Exhibit A, together with
appurtenances, situated in the City of San Diego, County of San Diego, State of
California and further described as follows: Warehouse space at 4876 Brinell
Street, approximately 3,400 square feet.
2. NATURE OF THE SUBLEASE:
----------------------
Sublease hereby acknowledges that the hereinafter described Premises are being
leased by Sublessor pursuant to a Lease between Sublessor as Lessee and Arvco
Realty hereinafter referred to as Landlord. The Master Lease is attached hereto
as Exhibit B.
a. This Sublease is subject to all the terms and conditions of the
Exhibit B Master Lease and Sublessee shall assume and perform all of the
obligations of Sublessor as Lessee under said conditions are applicable to the
Premises subleased pursuant hereto. Sublessee shall not commit or permit to be
committed on the Premises any act or omission which violates any term or
condition of the Master Lease.
b. All the terms and conditions of the Exhibit B Master Lease are
incorporated herein, except for Sections ______________________________________
_______________________________________________________________________________
________________________________________________________ as terms and conditions
of this Sublease (with each reference therein to Landlord and Tenant to be
deemed to refer to Sublessor and Sublessee) and, along with all of the following
Sections, shall constitute the entire terms and conditions of this Sublease.
3. TERM:
----
The term of this sublease shall be for a period of Twelve (12) months commencing
on May 1, 1996 and ending on April 30, 1997. In the event the Sublessor is
unable to deliver possession of the Premises at the commencement date described
above,
-23-
<PAGE>
Sublessor shall not be liable for any damage caused thereby, nor shall this
Sublease be void or voidable, but Sublessee shall not liable for rent until such
time as Sublessor offers to deliver possession of the Premises to Sublessee at
its option to be exercised in writing within ten (10) days after the end of said
sixty (60) day period may terminate this Sublease. In no event shall the term of
the Lease be extended by any such delay in delivery of possession.
4. RENT:
----
On or before the first day of each calendar month of the term of this Sublease,
Sublessee shall pay to Sublessor in advance as rent for the Premises and without
deduction, offset, prior notice or demand, the sum of One Thousand, Seven
Hundred, Sixty-Four and no/100 Dollars ($1,764.00). If the date on which the
Sublease terminates is other than the last day of a calendar month, then
Sublessee shall pay a prorated monthly installment at the then current rate for
the fractional month during which the Sublease commences and/or terminates.
5. SECURITY DEPOSIT:
----------------
Concurrently with Sublessee's execution of this Sublease, Sublease shall deposit
with Sublessor the sum Five Hundred and no/100 Dollars ($500.00), to be held by
Sublessor as a security deposit for the full and faithful performance of all of
the terms, covenants and conditions of the Sublease. If Sublessee defaults with
respect to any provision hereof, Sublessor may at its election apply or retain
all or any part of the aforesaid deposit for the payment of any other amount
which Sublessor may speed or become obligated to spend by reason of Sublessee's
default. Sublessor shall not be required to maintain this security deposit
separate from its general funds, and Sublessee shall not be entitled to interest
thereon. If Sublessee fully and faithfully performs every provision of this
Sublease to be performed by it, the security deposit or any balance thereof
shall be returned to Sublessee (or, at Sublessor's option, to the last assignee
of Sublessee's interest hereunder) at the expiration of the term of the Sublease
and after Sublessee has vacated the Premises.
6. USE:
---
Sublessee shall use the Premises for storage, general warehouse and for no other
purpose without the prior written consent of Sublessor. Sublessee shall not use
or permit the Premises to be used for the conduct of any offensive, noisy or
dangerous trade, business manufacture or occupation, nor shall
-24-
<PAGE>
the Premises be used to conduct as auction sale. Sublessee shall not do or allow
anything to be done upon the Premises which will cause structural injury to the
Premises or any building of which the Premises may form a part. The Premises
shall not be overloaded and no machinery, apparatus or other appliance shall be
used or operated in or upon the Premises which will in any manner injure,
vibrate or shake the Premises or the building of which it may form a part. No
use shall be made of the Premises which will any way impair the efficient
operation of the sprinkler system (if any) within the building containing the
Premises. Sublessee shall not leave the Premises unoccupied or vacant during the
term. No musical instrument or noise making device of any sort will be operated
or allowed upon the Premises for the purpose of attracting trade or otherwise.
Sublessee shall not use or permit the use of the Premises or any party thereof
for any purpose which will increase the existing rate of insurance or cause a
cancellation of any insurance policy covering the Premises or upon any building
in which the Premises may be. If Sublessee's act or use of the Premises causes
directly or indirectly, any increased in Sublessor's insurance expense, said
additional expense shall be paid by Sublessee to Sublessor upon demand. No such
payment by Sublessee shall limit Sublessor in the exercise of any other rights
or remedies, or constitute a waiver of Sublessor's right to require Sublessee to
discontinue such act or use.
7. NOTICE:
------
All notices or demands of any kind required or desired to be given by Sublessor
or Sublessee hereunder shall be in writing and shall be deemed delivery forty-
eight (48) hours after depositing the notice or demand in the United States
mail, certified or registered, postage prepaid addressed to the Sublessor or
Sublessee respectively at the addresses set forth after their signatures at the
end of this Sublease. All rent and other payments due under this Sublease or
the Master Lease shall be made by Sublessee at the same address.
8. OTHER TERMS AND CONDITIONS:
--------------------------
1. Subject warehouse in rear of building approximately 87 ft. x 39 ft. to be
taken "as-is".
2. Tenant to pay any utilities which are separately metered.
3. Tenant's rent to commence May 1, 1996.
-25-
<PAGE>
4. Tenant to carry adequate insurance to cover
all equipment in storage.
AGREED AND ACKNOWLEDGED BY:
SUBLESSOR: PILKINGTON BARNES HIND SUBLESSEE: FAMILY FITNESS (DAVE
GORDON)
ADDRESS: 7976 Engineer Road
San Diego, CA 92111-1975 ADDRESS: P.O. Box 2409
Carlsbad, CA 92018
By: Ralph Faluotico By:
-------------------------- -------------------------------
Date: April 30, 1996 Date:
-------------------------- -----------------------------
THE UNDERSIGNED LESSOR, UNDER THE EXHIBIT B MASTER LEASE, HEREBY CONSENTS TO
THE SUBLETTING OF THE PREMISES DESCRIBED IN EXHIBIT A ON THE TERMS AND
CONDITIONS CONTAINED IN THE SUBLEASE. THIS CONSENT SHALL APPLY ONLY TO THIS
SUBLEASE AND SHALL NOT BE DEEMED TO BE A CONSENT TO ANY OTHER SUBLEASE.
Date: April 24, 1996 LESSOR: ARVCO REALTY AGENT FOR
------------------------- WILLIAM & ELENA RONAN
ADDRESS: 4655 Cass Street, #400
San Diego, CA 92109
By: Joan M. Barnes
---------------------------------
By: Joan M. Barnes
---------------------------------
-26-
<PAGE>
O F F I C E L E A S E
-----------------------
This Lease is entered into on _____________________, by and between JUDITH
------
V. BRUCKER, TRUSTEE OF THE BRUCKER TRUST, referred to in this Lease as
- -------------------
"Landlord", and _____________________________________________________________,
--------
referred to in this Lease as "Tenant."
AGREEMENT
---------
IN CONSIDERATION of the rent to be paid by Tenant and of the covenants and
provisions to be kept and performed by Tenant under this Lease, Landlord leases
to Tenant, and Tenant leases from Landlord, the real property, including the
building, paved parking areas, patio, landscaped and surrounding areas and
improvements commonly known as 7990, 8006 and 8046 Engineer Road, San Diego,
--------------------------------------------
California and legally described as Exhibit "A" attached hereto and incorporated
herein by this reference ("the Premises").
1. GENERAL - By this Lease, Landlord leases the Premises to Tenant in an "as
-------
is" condition. This Lease shall be a "triple net" lease with Tenant responsible
---------- ----- ------------------
for all costs and expenses arising from or related to the Premises, including
- ------------------------------------------------------------------
but not limited to, maintenance and repair of the structure, roof, parking area,
----------------------
surrounding landscaped area, outdoor patio area, plumbing, heating, air
conditioning, telephone, payment of all utilities, water, sewage, trash, gas,
-------------
electricity, security, termite, payment of all insurance (plate glass, general
liability, personal property, workers' compensation), payment of all personal
and real property tax, and all other expenses related to the Premises. Landlord
--- --------
shall have no expense whatsoever.
- ---------------------
2. TERM & OPTION TO RENEW - The term of this Lease shall commence on May 1,
---------------------- ------------------
1995 and shall terminate at 12:01 a.m., on April 30, 1997, unless terminated
- ---- --------- --------------
earlier as provided in this Lease. Landlord hereby grants to Tenant the option
------ ------
to extend the term of this lease for a period of two additional years at the
- ----------------------------------------------------------------------------
same rent and under the same terms herein. The option shall be exercised by
- ----------------------------------
giving written notice to Landlord of the exercise of option between January 1,
---------------------------------------------------------------
1997 and February 28, 1997.
- --------------------------
3. RENT - A. Rent: Tenant agrees to pay to Landlord as rent for the use and
---- ----
occupancy of the Premises, the sum of $480,000 for a twenty-four month period,
--------------------------------------
and $480,000 for the option period, if exercised. Rent shall be increased by
-------------------------------------------
the cost of living provisions below. Such rent shall be paid in monthly
installments of $20,000 per month on the first day of each and every calendar
----------------
month during the term of this lease and any extensions thereof in lawful money
of the United States at Landlord's address herein or at such other address as
Landlord may designate in writing.
Late payments: If any installment of rent is not postmarked and sent to
- ------------- --------------------------------------------
Landlord by the 10th day of each month, Tenant shall pay to
----------------------------- -------------------
<PAGE>
Landlord a late penalty of 10% of the monthly installment rent due in the sum of
- ---------------------------------------------------------
$2,000.
-----
B. Cost of Living Increase: During the term of this Lease, the rent
----------------------- ----
provided for herein shall be increased on May 1st of each year in accordance
---------------------------------
with the increase in the United States Department of Labor, Bureau of Labor
Statistics, Consumer Price Index for San Diego, for All Urban Consumers (for the
-----------------------------------------------------------
geographical Statistical Area in which the Premises is located on the basis of
1982-1984 = 100) ("CPI INDEX"). The rent in effect immediately before each
anniversary date shall be increased by the percentage that the CPI has increased
during the previous calendar year, as published in March of the following year.
The rent shall not be reduced by reason of such computation. In no event shall
-----------------
the new rent be more than 5% higher than the prior year's rent. If the cost of
- -----------------------------------
living index indicates a rent increase of more than 5%, the increase shall be
capped at 5%. The new rent shall be payable effective on May 1st of each year
of this Lease. If the format or components of the CPI are materially changed
after the effective date of this Lease, an index which is published by the
Bureau of Labor Statistics or similar agency which is most nearly equivalent to
the CPI in affect on the effective date of this Lease shall be substituted.
Tenant shall notify Landlord in writing of the substitution of the index. The
substitute index shall be used to calculate the increase in the rent. If either
Landlord or Tenant object, Landlord and Tenant shall submit the selection of the
substitute index for binding arbitration in accordance with the rules and
regulations of the American Arbitration Association at its office closest to the
Premises. The cost of arbitration shall be borne equally by Landlord and
Tenant.
4. USE OF PREMISES - The premises shall continue to be used by Tenant in the
---------------
same way and in the same capacity as in the prior lease. Tenant may not alter
the use without the express, prior, written consent of Landlord.
5. ALTERATIONS BY TENANT - No alteration or improvement to the Premises shall
--------------------- ----------------------------
be made by Tenant without the written consent of Landlord. Concurrently with
---------------------------------------
requesting Landlord's consent to the proposed alteration or improvement, Tenant
shall submit to Landlord preliminary plans for the alteration or improvement.
Landlord shall, in its sole discretion, approve or disapprove the proposed
alteration or improvement, within fifteen days after its receipt of Tenant's
written request for approval. Tenant shall obtain all necessary governmental
permits required for any alteration or improvement, and shall comply with all
applicable governmental laws, regulations, ordinances, and codes. Tenant shall
be responsible for making any and all alterations or improvements that are
required by any governmental entity in conjunction with the Americans With
Disabilities Act. Any alteration or improvement made by Tenant, after consent
has been given, and any fixtures
-2-
<PAGE>
installed as part of the construction, shall at Landlord's option become the
property of Landlord on the expiration or other earlier termination of this
Lease; provided, however, that Landlord shall have the right to require Tenant
to remove the fixtures at Tenant's cost on termination of this Lease. If Tenant
is required by Landlord to remove the fixtures on termination of this Lease,
Tenant shall repair and restore any damages to the Premises caused by such
removal.
6. MECHANIC'S LIENS - Tenant shall pay when due all claims for labor or
----------------
materials furnished or alleged to have been furnished to or for the benefit of
Tenant at or for the use of the premises, which claims are/or may be secured by
any mechanic's, materialmen's lien against the premises, or any interest
therein. Tenant shall give Landlord not less than 10 days written notice prior
to commencement of any work on the premises and Landlord shall have the right to
post any notices of non-responsibility in or on the premises as provided by law.
If any lien results in a final judgment, tenant shall have 30 days in which to
pay off the judgment. Thereafter, Tenant shall be considered in default under
the terms of this Lease.
7. UTILITIES - Tenant shall pay, and hold Landlord free and harmless from, all
--------- ----------------
charges for the furnishing of gas, water, sewer, electricity, telephone service,
--------------------------------------------------
garbage pick-up and disposal, and other public utilities to the Premises during
- --------------------------------------------------------
the term of this Lease. All such charges shall be paid by Tenant directly to
the provider of that service and shall be paid as they become due and payable,
but in any event, before delinquency.
8. PROPERTY TAXES - (a) Personal Property: Tenant shall pay before they become
-------------- -----------------
delinquent, all taxes, assessments, and other charges levied or imposed by any
governmental entity on the furniture, trade fixtures, appliances, and other
personal property placed by Tenant in, on, or about the Premises. (b) Real
----
Property: All real property taxes and assessments levied or against the Premises
- --------
by any governmental entity, including any special assessments, shall be paid by
Tenant. Tenant acknowledges that the property encompass three separate parcels
of real property. Further, Tenant acknowledges that the real property tax has
recently increased due to a transfer of part of the property to Landlord. All
such payments of personal property and real property taxes shall be made at
least 10 days prior to the delinquency date of such tax payment. Tenant shall
promptly furnish Landlord with satisfactory evidence that such taxes have been
paid. If Tenant fails to pay said taxes, Landlord shall have the right to pay
same. Reimbursement therefore shall be immediately due and repayable and Tenant
shall repay such amount to Landlord with interest as provided herein.
-3-
<PAGE>
9. CONDITION OF PREMISES - Tenant accepts the Premises in their present
---------------------
condition, and stipulates with Landlord that the Premises are in good, clean,
safe, and tenantable condition as of the date of this Lease. Tenant further
represents that Tenant is intimately knowledgeable about the condition of the
premises since Tenant, or its predecessor's in interest, have been in continuous
occupancy of the premises for the past 15 years and have done all of the
repairs, maintenance and improvements of the premises. Further, Tenant
acknowledges that Landlord has had no involvement in the repairs, maintenance or
improvements of the premises in the last 15 years. Tenant has done all of the
maintenance and repairs to maintain the premises in good condition including but
not limited to the structure, roof, parking area, surrounding landscaped area,
hydro-patio area, plumbing, heating, air conditioning, telephone, utilities,
waters, sewage, trash, gas, electricity, appliances, security, termite, interior
and exterior walls, floor coverings, ceilings, the exterior and interior
portions of all doors, paved driveways, adjacent sidewalks, and parking areas,
etc.
10. MAINTENANCE BY TENANT - Tenant shall, at its own expense, maintain in good
---------------------
condition or repair all structural and non-structural elements of the Premises.
Tenant shall, at its own expense, keep and maintain all portions of the Premises
in good order and repair, and in as safe and clean a condition as they were when
received by Tenant from Landlord. Tenant's obligation to repair shall include,
but not be limited to, the structure, roof, parking area, surrounding landscaped
area, hydro-patio area, plumbing, heating, air conditioning, telephone,
utilities, waters, electricity, appliances, security, termite, interior and
exterior walls, floor coverings, ceilings, the exterior and interior portions of
all doors, paved driveways, adjacent sidewalks, and parking areas, etc.
Landlord shall incur no expense nor have any obligation of any kind whatsoever
in connection with the repair and maintenance of the premises. Tenant expressly
waives the benefit of any statute now or hereinafter in effect which would
otherwise afford to Tenant the right to make repairs at Landlord's expense, or
to terminate this lease because of Landlord's failure to keep the premises in
good order, condition or repair.
Further Tenant shall not use or permit the use of the premises in any
manner that will tend to create waste or a nuisance. If Landlord deems that any
repairs are necessary, Landlord may make a written demand that Tenant's make the
same forthwith and if the Tenant refuses or neglects to commence such repairs
within thirty (30) days after such demand, or to complete the same with
reasonable diligence, the Landlord may make or cause such repairs to be made and
shall not be responsible to the Tenant for any loss or damage which may occur to
Tenant's business by reason thereof except as caused by Landlord's negligence;
and if the Landlord makes or causes such repairs to be made, the Tenant shall on
demand pay the Landlord the cost thereof with legal interest.
-4-
<PAGE>
11. INSPECTION BY LANDLORD - Tenant shall permit Landlord or Landlord's agents,
----------------------
to enter the Premises at all reasonable times, for the purpose of inspecting the
Premises to determine whether Tenant is complying with the terms of this Lease,
for the purpose of doing other lawful acts that may be necessary to protect
Landlord's interest in the Premises, or for the purpose of performing Landlord's
duties under this Lease.
12. SURRENDER OF PREMISES - On expiration or earlier termination of this Lease,
---------------------
Tenant shall promptly surrender and deliver the Premises to Landlord in at least
as good condition as they are at the date of this Lease, excluding reasonable
wear and tear. Tenant shall remove all of its signs from the premises on or
before the last day of the term or any extension thereof. Tenant shall leave
all improvements which are an integral part of the building or are attached to
the building. Said improvements shall become the property of Landlord.
13. LIABILITY INSURANCE - For the mutual benefit of Landlord and Tenant, Tenant
-------------------
shall during the term of this Lease cause to be issued and maintained public
liability insurance in the sum of at least $2,000,000.00 for injury to or death
of one person, and $4,000,000.00 for injury to or death of more than one person
in any one accident, insuring the Tenant against liability for injury and or
death occurring in or on the Premises or the immediate areas. Such insurance
shall further insure Landlord and Tenant against liability for property damage
of at least $500,000. The limits of said insurance shall not however limit the
liability of Tenant hereunder. Landlord shall be named as an additional
insured, and the Policy shall contain cross liability endorsements. Tenant
shall maintain all such insurance in full force and effect during the entire
term of this Lease, and shall pay all premiums for the insurance. Evidence of
insurance and of the payment of premiums shall be delivered to Landlord. If the
Tenant shall fail to procure and maintain said insurance, the Landlord may but
shall not be required to procure and maintain the same and Landlord shall be
reimbursed within 20 days of written notice by Landlord demanding reimbursement
for any expenses incurred in the procurement and maintenance of said insurance.
14. FIRE AND EXTENDED COVERAGE - Tenant shall, during the term of this Lease,
--------------------------
procure, carry, and pay for fire and extended coverage insurance insuring the
Premises for $800,000. The term "extended coverage" as used herein shall mean
any casualties that are commonly included under the term "extended coverage" as
that term is known and used in the casualty insurance business, which shall
include but not be limited to fire, extended coverage, vandalism, malicious
mischief, and special extended perils (all risk). This insurance coverage shall
be paid by Tenant. Landlord shall be listed as a co-owner of the policy and as
a loss-payee.
-5-
<PAGE>
If Tenant shall fail to procure and maintain said insurance, Landlord may,
but shall not be required to, procure and maintain the same, and Landlord shall
be reimbursed by Tenant for any expenses incurred in the procurement and
maintenance of said insurance. Reimbursement shall be made within 20 days of
written notice by Landlord demanding reimbursement.
15. CANCELLATION - Each of the Tenant's insurance policies shall be in a form
------------ ------------------
satisfactory to Landlord and shall carry an endorsement that, before changing or
------------------------------------
canceling any policy, the issuing insurance company shall give Landlord at least
- --------------------------------------------------------------------------------
30 days' prior written notice. Duplicate originals or certificates of all such
- -----------------------------
insurance policies shall be delivered to Landlord.
16. WAIVER OF SUBROGATION - Landlord and Tenant each hereby waive any and all
---------------------
rights of recovery against the other or against the officers, employees and
agents, and representatives of the other, for loss of or damage to such waiving
party or its' property or the property of others under its' control to the
extent that such loss or damage is insured against under any insurance policy in
force at the time of such loss or damage. Tenant shall, upon obtaining the
policy of insurance required herein, give notice to such insured the foregoing
mutual waiver of subrogation is contained in this lease.
17. INSURANCE HAZARDS - No use shall be made or permitted to be made of the
-----------------
Premises, nor acts done, which will increase the existing rate of insurance upon
the Premises, or cause a cancellation of any insurance policy covering the
Premises, or any part thereof, nor shall Tenant sell, or permit to be kept,
used, or sold, in or about the Premises, any article which may be prohibited by
the standard form of fire insurance policies. Tenant shall, at its sole cost
and expense, comply with the requirements necessary to maintain the fire and
public liability insurance hereinabove specified.
18. INDEMNITY - Except for damages and injury caused by Landlord's misconduct
---------
or negligence, Tenant shall indemnify and hold harmless Landlord from and
against any and all claims arising from Tenant's use of the Premises, or from
the conduct of Tenant's business or from any activity or work permitted or
suffered by Tenant in or about the Premises or elsewhere and shall further
indemnify and hold harmless Landlord from and against any and all claims arising
from any conduct of Tenant in violation of any provision of this Lease, or
arising from any misconduct of negligence of the Tenant, or any of Tenant's
agents, contractors, or employees, and from and against all costs, attorneys'
fees, expenses and liabilities incurred in the defense of any such claim or any
action or proceeding brought thereon; and in case any action or proceeding be
brought against Lessor by reason of such claim, Tenant, upon notice from
Landlord, shall defend the Landlord at Tenant's expense and
-6-
<PAGE>
shall employ counsel satisfactory to landlord. Except as hereinabove provided,
Tenant, as a material part of the consideration to Landlord, shall assume all
risk of damage to property or injury to persons in, upon and about the Premises
arising from any cause and Tenant hereby waives all claims in respect thereof
against Landlord.
19. LANDLORD'S LIABILITY - Except for damages or injury cause by Landlord's
--------------------
misconduct or negligence, Landlord shall not be liable for injury to Tenant's
business or any loss of income therefrom or for damage to any of Tenant's
personal property, fixtures, employees, invitees, customers or any other person
in or about the Premises, or for injury to Tenant, its' employees, agents or
contractors.
20. DESTRUCTION OF PREMISES - In the event the Premises are destroyed in whole
-----------------------
or in part at any time during the term of this Lease or any extension or renewal
thereof to the point where they are untenantable either in whole or in part, and
such destruction is due to a cause covered by the Tenant's insurance, then the
basic rental payable hereunder shall be abated in the same proportion as the
gross income based upon the average for the twelve preceding months is reduced,
the Landlord shall rebuild or repair the Premises, the lease term shall continue
and the full rental shall be reinstated when such repair or rebuilding has been
completed.
In the event that such destruction is due to a cause not covered by the
Tenant's insurance, or in the event the destruction occurs in the last year of
the primary term of this Lease or in the last year of any renewal period then
the Landlord shall have the option to terminate this Lease or repair and rebuild
as she may determine.
21. SIGN - Tenant may erect, maintain, permit, and from time to time remove any
----
signs in or about the Premises that Tenant may deem necessary or desirable,
provided that any signs erected or maintained by Tenant shall comply with all
requirements of any governmental authority with jurisdiction.
22. CONDEMNATION - (a) If all or any part of the Premises is taken by any
------------
public or quasi-public agency or entity under the power of eminent domain during
the term of this Lease:
(1) Either Landlord or Tenant may terminate this Lease by giving the other
30 days' written notice of termination; provided, however, that Tenant cannot
terminate this Lease unless the portion of the Premises taken by eminent domain
is so extensive as to render the remainder of the Premises useless for the uses
permitted by this Lease.
-7-
<PAGE>
(2) If only a portion of the Premises is taken by eminent domain and
neither Landlord nor Tenant terminates this Lease, the rent thereafter payable
under this Lease shall be reduced by the same percentage that the floor area
portion taken by eminent domain bears to the floor area of the entire Premises.
(b) Any and all damages and compensation awarded or paid because of a taking of
the Premises shall belong to Landlord, and Tenant shall have no claim
against Landlord or the entity exercising eminent domain power for the
value of the unexpired term of this Lease or any other right arising from
this Lease.
23. ASSIGNMENT AND SUBLETTING - Tenant shall not encumber, assign, or otherwise
------------------------- -----------------------------------------------
transfer this Lease, any right or interest in this Lease, or any right or
- --------------------------------------------------------
interest in the Premises without first obtaining the express written consent of
Landlord. Furthermore, Tenant shall not sublet the Premises or any part of it
or allow any other entity, other than Tenant's employees and agents, to occupy
or use the Premises or any part of it without the prior written consent of
Landlord. Tenant may assign or sublet this lease to any of its' subsidiaries
-----------------------------------------------------------
without the prior written consent of Landlord. A consent by Landlord to one
- ---------------------------------------------
assignment, subletting, or occupation and use by another person shall not be
deemed to be a consent to any subsequent assignment, subletting, or occupation
and use by another person. Any encumbrance, assignment, transfer, or subletting
----------------------------------------------------
without the prior written consent of Landlord, whether voluntary or involuntary,
- --------------------------------------------------------------------------------
by operation of law or otherwise, is void and shall, at the option of Landlord,
- -------------------------------------------------------------------------------
terminate this Lease. The consent of Landlord to any assignment of Tenant's
- --------------------
interest in this Lease or the subletting by Tenant of the Premises shall not be
unreasonably withheld.
24. ACTS CONSTITUTING BREACH BY TENANT - The following shall constitute a
----------------------------
default under and a breach of this Lease by Tenant:
- -------
(a) A failure to perform any provision, covenant, or condition of this Lease
--------------------
other than one for the payment of rent, when that failure is not cured
---------
within fifteen days after written notice of the specific failure is given
-------------------
by Landlord to Tenant;
(b) The breach of this Lease and abandonment of the Premises before expiration
-----------
of the term of this Lease;
(c) A receiver is appointed to take possession of all or substantially all of
--------
Tenant's property located at the Premises or of Tenant's interests in this
Lease, when possession is not restored to Tenant within thirty (30) days;
(d) Tenant makes a general assignment for the benefit of creditors;
------------------
-8-
<PAGE>
(e) The execution, attachment, or other judicial seizure of substantially all
-------
of Tenant's assets located at the Premises or of Tenant's interest in this
Lease, when the seizure is not discharged within fifteen (15) days;
(f) The filing by or against Tenant of a petition to have Tenant adjudged a
------
bankrupt or of a petition for reorganization or arrangement under the
--------
federal bankruptcy law (unless, in the case of a petition filed against
Tenant, it is dismissed within sixty (60) days).
25. LANDLORD'S REMEDIES - If Tenant breaches or is in default under this Lease,
------------------- -----------------------------------
Landlord, in addition to any other remedies given Landlord by law or equity,
- --------
may:
- ---
(a) Continue this Lease in effect by not terminating Tenant's right to
-------------------
possession of the Premises and thereby be entitled to enforce all
Landlord's rights and remedies under this Lease including the right to
recover the rent specified in this Lease as it becomes due under this
Lease; or
(b) Terminate this Lease and all rights of Tenant under the Lease and recover
--------------------
from Tenant:
(1) The worth at the time of award of the unpaid rent that had been earned
at the time of termination of the Lease;
(2) The worth at the time of award of the amount by which the unpaid rent
that would have been earned after termination of the Lease until the time of
award exceeds the amount of rental loss that Tenant proves could have been
reasonably avoided;
(3) The worth at the time of award of the amount by which the unpaid rent
for the balance of the term after the time of award exceeds the amount of rental
loss that Tenant proves could be reasonably avoided; and
(4) Any other amount necessary to compensate Landlord for all detriment
-------------------------------------------------------------------
proximately caused by Tenant's failure to perform Tenant's obligations under
- --------------------------------------
this Lease;
(c) In addition to bringing an action for any or all of the recoveries
described in subparagraph (b) of this paragraph, Landlord may bring an
action to recover and regain possession of the Premises in the manner
provided by the California law of unlawful detainer then in effect.
26. LANDLORD'S RIGHT TO RELET - In the event Tenant breaches this Lease,
------------------------- ----------------------------
Landlord may enter on and relet the Premises or any part of the Premises to a
third party or third parties for any term, at any rental, or on any other terms
and conditions that Landlord in its
-9-
<PAGE>
sole discretion may deem advisable, and shall have the right to make alterations
and repairs to the Premises. Tenant shall be liable for all of Landlord's costs
------------ ----------------------------------
in reletting, including but not limited to remodeling costs required for the
- ------------
reletting. In the event Landlord relets the Premises, Tenant shall pay all rent
due under and at the times specified in this Lease, less any amounts or amount
actually received by Landlord from the reletting.
27. LANDLORD'S RIGHT TO CURE TENANT DEFAULTS - If Tenant breaches or fails to
---------------------------------------- ------------------------------
perform any of the covenants or provisions of this Lease, Landlord may, but
- ----------- -----------------
shall not be required to, cure Tenant's breach. Any sum expended by Landlord,
- ----------------------------------------------
with the then maximum legal rate of interest, shall be reimbursed by Tenant to
Landlord with the next due rent payment under this Lease.
28. CUMULATIVE REMEDIES - The remedies granted to Landlord in this Article
-------------------
shall not be exclusive but shall be cumulative and in addition to all remedies
now or hereafter allowed by law or provided in this Lease.
29. WAIVER OF BREACH - The waiver by Landlord of any breach by Tenant of any of
----------------
the provisions of this Lease shall not constitute a continuing waiver of any
subsequent breach by Tenant either of the same or another provision of this
Lease.
30. TERMINATION NOTICE - No act of Landlord, including but not limited to
------------------
Landlord's entry on the Premises or efforts to relet the Premises, or the giving
by Landlord to Tenant of a notice of default, shall be construed as an election
to terminate this Lease unless a written notice of the Landlord's election to
terminate this Lease is given by Tenant.
31. NOTICES - All notices required or permitted by this Lease or by law to be
-------
served on or given to either party shall be in writing, and shall be deemed duly
served and given when personally delivered to the party to whom it is directed
or any managing employee of that party, or, in lieu of personal service, when
deposited in the United States mail, first-class postage prepaid, addressed to
Landlord, JUDITH BRUCKER C/O OF TRICIA A. SMITH, ATTORNEY AT LAW, 1330 CAMINO
DEL MAR, DEL MAR, CA 92014; OR TO TENANT AT: PILKINGTON, BARNES & HIND, 8006
ENGINEER ROAD, SAN DIEGO, CA, 92111.
Either party may change its address for purposes of this paragraph by giving
written notice of the change to the other party in the manner provided in this
paragraph.
32. PARTIAL INVALIDITY - If any provision of this Lease is held by a court of
------------------
competent jurisdiction to be either invalid, void, or unenforceable, the
remaining provisions of this Lease shall remain in full force and effect
unimpaired by the holding.
-10-
<PAGE>
33. ATTORNEY'S FEES - If any litigation is commenced between the parties to
---------------
this Lease concerning the Premises, this Lease, or the rights and duties of
either in relation to the Premises or the Lease, the party prevailing in that
litigation shall be entitled, in addition to any other relief granted, to a
reasonable sum as and for its attorneys' fees in the litigation.
34. BINDING ON HEIRS AND SUCCESSORS - This Lease shall be binding on and shall
-------------------------------
inure to the benefit of the heirs, executors, administrators, successors, and
assigns of the parties, but nothing in this paragraph shall be construed as a
consent by Landlord to any assignment of this Lease or any interest therein by
Tenant.
35. TIME IS OF THE ESSENCE - Time is expressly declared to be of the essence in
----------------------
this Lease.
36. SOLE AND ONLY AGREEMENT - This instrument constitutes the sole and only
-----------------------
agreement between Landlord and Tenant respecting the Premises or the Lease of
the Premises to Tenant, and correctly sets forth the obligations of Landlord and
Tenant to each other as of its dates. Any agreements or representations with
respect to the Premises or their leasing by Landlord to Tenant not expressly set
forth in this instrument are null and void.
37. CHOICE OF LAW - This Lease shall be governed by the laws of the State of
-------------
California.
38. INTEREST - When the payment of interest or of legal interest is required
--------
hereunder, said interest shall be paid at the rate of ten (10) percent per
annum.
39. MERGER - No subtenancy, surrender of this Lease by Tenant, or mutual
------
cancellation thereof, shall work a merger, unless Landlord so elects. If no
such election is made any surrender shall operate as an assignment to Landlord
of all subtenancies.
40. CAPTIONS - The caption of each paragraph hereof is added as a matter of
--------
convenience only and shall not affect the construction of any provision of this
Lease.
41. LANDLORD'S LIABILITY - In the event of any transfer of Landlord's title or
--------------------
interest in the Premises, Landlord (and in the case of any subsequent transfers,
the then-grantors) shall be relieved from and after the date of such transfer of
all liability with respect to Landlord's obligations thereafter to be performed.
Landlord's obligations hereunder shall be binding on Landlord's heirs and
assigns only during their respective periods of ownership.
Executed on the date set forth above at Del Mar, California.
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<PAGE>
LANDLORD:
Judith V. Brucker
- ------------------------------
JUDITH V. BRUCKER, TRUSTEE
of the Judith V. Brucker Trust
UDT dated 12/12/95
----------------------------
TENANT:
PILKINGTON, BARNES & HIND
8006 Engineer Road
San Diego, CA 92111
By: Ralph Faluotico
--------------------
V. P. Gen. Mgr.
---------------
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<PAGE>
EXHIBIT "A" to LEASE
LEGAL DESCRIPTION OF PREMISES:
Lots 9, 10 and 11 of AERO INDUSTRIAL PARK in the City of San Diego, County of
- ----------------------------------------- ---------
San Diego, according to Map thereof No. 4639, filed in the office of the County
Recorder of San Diego County, September 30, 1960.
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<PAGE>
STANDARD BUSINESS PROPERTY LEASE
The Business Property Lease entered into this 1st day of January 1994
by and between Willis L. or Ann J. Fehlman hereinafter called the Lessor and
Pilkington Barnes Hind hereinafter called the Lessee.
WITNESSETH: That the Lessor, for and in consideration of the mutual
covenants herein contained, agrees to lease to the Lessee for the purpose of
Offices, Laboratories, Manufacturing & Computer Facil and for no other purpose,
property situated in the County of San Diego, State of California, more
particularly described as follows: Buildings F (7901), G (7979), H (8001/05), I
(8033), K (7999), L (8007/09), M (8037/39) Vickers Street, San Diego, CA 92111
for the term of Five years beginning July 1, 1994 and ending one minute before
midnight on June 31, 1999 for a guaranteed rental of 2,332,200 dollars lawful
money of the United States of America payable as follows:
1. On or before the First of each calendar month within said term,
commencing the beginning date of said term and continuing monthly on said date,
Lessee shall pay to Lessor 38,870 which sum shall be the "minimum guaranteed
monthly rental."
2. Upon execution of this lease, Lessee agrees to pay Lessor the sum
of $ N.A. Said sum will apply to the N.A. months rent of the original term of
this lease. Existing Security Deposit of $19,411.00 to remain.
3. In the event during any month N.A. of Lessee's Gross Sales shall
exceed the minimum guaranteed rental as provided for under Paragraph A, above,
Lessee shall in addition to the minimum guaranteed rental, pay Lessor the
difference between the aforesaid minimum and N.A. of the Gross Sales. On the
First of each and every month for the term of this lease, and beginning one (1)
month after the date mentioned above as the beginning of this lease. Lessee
shall deliver to Lessor a written statement of the Gross Sales for the preceding
month. Concurrently with the furnishing of each monthly statement, Lessee shall
pay to Lessor the amount of rent payable with respect to Gross Sales during the
month covered by said statement pursuant to the provisions of this paragraph.
4. As used in the lease, Gross Sales is intended to refer to and
include all sales made and services rendered at or from the leased premises by
Lessee, their agents, servants, employees, sub-lessors, concessionaires,
licensees, or otherwise, and upon
<PAGE>
orders and sales taken or made at or from the leased premises but delivered by
or through any other store or unit operated by Lessee. All such Gross Sales
whether made for cash or credit shall be treated as cash sales as of the date on
which they were made. Gross sales shall not be deemed to include the amount of
any federal, state or municipal sales tax, processing tax, or other similar tax
in respect to sales, collected by Lessees or any other such person and which are
actually paid or payable by them. There may be deducted from the Gross Sales of
any period the amount of all proper charges against sales by reason of refunds
or returns by customers which are accepted and allowed during such periods by
Lessors or by any other persons, the amount of which sales is included in the
computation of rent. Lessee shall keep in leased premises true, actual, complete
and up-to-date books, accounts of records, sales tax reports, vouchers, invoices
and such other supporting documents as may be necessary and proper to
substantiate said statements of Gross Sales, which shall at all times during
regular business hours be available to Lessor or his agents for examination and
audit.
5. If Lessor, for any reason, cannot deliver possession of said
premises to Lessee at the commencement of said term, this lease shall not be
void or voidable, nor shall Lessor be liable to Lessee for any loss or damage
resulting therefrom; but there shall be a proportionate reduction of rent
covering the period between the commencement of said term and the time when
Lessor can deliver possession.
6. UTILITIES AND SERVICES (Insert word "Lessor" or "Lessee" on dotted
line)
The parties agree that each shall furnish and pay for services as
indicated below on or before delinquency:
<TABLE>
<CAPTION>
<S> <C>
a. Heat and force air ventilation: d. Water for ordinary office
Furnish Lessor and store purposes Lessee
Maintain Lessee e. Gas for such installations
b. Air conditioning: Furnish Lessor as may require it Lessee
Maintain Lessee f. Janitor and cleaning
c. Electricity for such installations as may services Lessee
require it including lighting and g. Towels and washroom supplies
replacement of bulbs and fluorescent tubes Lessee
Lessee h. Washing and cleaning of windows
Lessee
i. Cleaning of sidewalks, parking
areas and yard Lessor
</TABLE>
7. DESTRUCTION - In the event of (a) a partial destruction of the leased
premises or the building containing same during said term which requires repairs
to either the leased premises or said building, or (b) the leased premises or
said building being declared unsafe or unfit for occupancy by any authorized
public authority for any reason other than Lessee's act, use or occupation which
declaration requires repairs to either said
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<PAGE>
premises or said building, Lessor shall forthwith make such repairs, provided
such repairs can be made with sixty (60) days under the laws and regulations of
authorized public authorities, but such partial destruction (including any
destruction necessary in order to make repairs required by any such declaration)
shall in no wise annul or void this lease, except that Lessee shall be entitled
to a proportionate reduction of rent until such repairs are being made, such
proportionate reduction to be based upon the extent to which said destruction
and the making of such repairs shall interfere with the business carried on by
Lessee in said premises, provided that in making such repairs Lessor shall be
obligated to replace only such glazing as shall have been damaged by fire and
other damaged glazing shall be replaced by Lessee. If such repairs cannot be
made within sixty (60) days, Lessor may at his option make same within a
reasonable time, this lease continuing in full force and effect and the rent to
be proportionately rebated, as in this paragraph provided. In the event that
Lessor does not so elect to make such repairs which cannot be made within sixty
(60) days, or such repairs cannot be made under such laws and regulations, this
lease may be terminated at the option of either party. In respect to any partial
destruction (including any destruction necessary in order to make repairs
required by any such declaration) which Lessor is obligated to repair or may
elect to repair under the terms of this paragraph, the provisions of Section
1932. Subdivision (2), and Section 1933, Subdivision (4), of the Civil Code of
the State of California are waived by Lessee. A total destruction (including any
destruction required by any authorized public authority) of either said premises
or said building shall terminate this lease. If the parties cannot agree, then
these matters shall be determined by arbitration as set forth and defined in
this lease. If the parties cannot agree on any matter which, by the terms
hereof, is required to be settled by arbitration, the same shall be resolved by,
and under the rules and procedures of, the American Arbitration Association.
8. ARBITRATION - If the parties cannot agree on any matter which, by the terms
hereof, is required to be settled by arbitration, the same shall be resolved by,
and under the rules and procedures of, the American Arbitration Association.
9. TRADE FIXTURES - All trade fixtures installed in or on the leased premises
by Lessee shall, unless Lessor has a security interest therein by reason of a
separate security agreement, be removed from the leased premises within 10 days
after expiration of this lease, abandonment of the leased premises by Lessee or
termination of Lessee's rights to possession because of Lessee's breach of this
lease. Provided, however, Lessee shall have no such right of removal unless,
prior to such removal, Lessor
-3-
<PAGE>
receives reasonable assurance that (i) immediately upon such removal the leased
premises will, in all respects, be repaired and restored to their former
condition, and (ii) such removal and restoration will be accomplished at no cost
whatsoever to Lessor. In the event such trade fixtures are not so removed within
said 10 day period, the same will be deemed abandoned by Lessee and shall belong
to Lessor absolutely.
10. MAINTENANCE AND REPAIRS - The Lessee accepts the leased premises in their
present condition. The Lessor shall maintain and repair when necessary the roof
and exterior walls (except glazing) of the leased premises and any portion of
the leased or adjacent premises used by Lessee in common with other tenants. The
Lessee shall maintain and repair when necessary all other portions of the leased
premises, including but not limited to glazing, to the end that the leased
premises shall be returned to the Lessor at the termination hereof in as good a
condition as when received by Lessee, reasonable wear and tear and damage by the
elements excepted. In the event Lessee shall fail to perform any such repair or
maintenance, Lessor may enter upon the leased premises perform such repair or
maintenance, and Lessee shall thereupon be liable to Lessor for the actual cost
to Lessor of such repair or maintenance. The Lessee waives all rights given by
sections 1941 and 1942 of the California Civil Code. Lessor shall not be liable
to Lessee for loss or damage to property occasioned by fire or by the bursting
or leaking of any water, oil, gas, steam or other pipes, plumbing or sewages, or
by the overflow of any tank or closet located in the leased premises or in other
parts of the building in which the leased premises are situated, whether as a
result of storm, accident or any other cause, or by any act or neglect of other
tenants of the said building.
11. ALTERATIONS, ADDITIONS AND IMPROVEMENTS - Lessee shall not make any
alterations or place or permit to be placed any sign, marquee or awning on the
premises without written consent of Lessor first obtained, and Lessor may post
notices on said premises to exempt him from responsibility for any work done by
Lessee on the leased premises. All alterations, additions, or improvements made
by either of the parties upon the premises, except moveable office furniture and
trade fixtures, shall remain on the premises and become the property of the
Lessor at the termination of this lease.
Lessor reserves the right to approve the size, style, colors and dimensions of
all signs of Lessee.
It is understood and agreed that Lessee may install in leased premises at its
sole cost and expense certain fixtures and
-4-
<PAGE>
other equipment required by it for the conduct of its business, and that such
installation may be made during the construction of the building, provided,
however, that said installation of fixtures and equipment shall not interfere
with the construction of the building by Lessor.
12. CHANGES REQUIRED BY LAW - In event any changes, improvements, or additions
to the leased premises, as distinguished from repairs, are required to be made
during the term of this lease by any governmental authority or under or by
virtue of any law, ordinance or governmental regulation because of the nature of
Lessee's business or its use of the premises, the same shall be made and paid
for by Lessee. Provided that if such change, improvement or addition is
structural, the same shall be made and paid for by Lessor and in such event
there shall be added to the minimum rental an amount that will amortize the said
cost of the structural change, improvement or addition together with interest
thereon at the rate of eight percent (8%) per annum over the balance of the term
of the lease.
13. HOLDING OVER - If the Lessee shall hold over after the expiration of the
term of this lease for any cause, such holding over shall be deemed a tenancy
from month to month only.
14. LESSEE'S FAILURE TO FULFILL CERTAIN OBLIGATIONS - In the event Lessee
shall fail to pay any sum or do any act required by this lease (except the
payment of rental), Lessor may pay such sum or do such act (without, however,
the obligation so to do), and such sum or the actual cost to Lessor of doing
such act shall be due and payable to Lessor with the next following installment
of rental, and Lessor may, at his option, enforce the collection of such sum or
such cost as if the same were rental hereinunder.
15. DEFAULT - In the event that Lessee shall at any time failed, neglect or
refuse to pay the rent or any part thereof, as herein agreed, or fail, neglect
or refuse to pay when due any other sum or sums which may become due from Lessee
to Lessor hereunder, or shall fail, neglect or refuse to perform or observe any
one or more of the other covenants or conditions of this lease on its part to be
performed or observed, or should the leased premises be vacated or abandoned,
and in the event that any such failure, neglect, refusal or abandonment shall
continue after the expiration of a three (3) day period from and after the
service of written notice by Lessor upon Lessee in the event of nonpayment of
rent, or of a three (3) day period from and after the service of such a notice
in the event of any other default, then, after the expiration of said period or
at any time thereafter during the continuance of such failure, neglect, refusal
or abandonment without further notice or demand either to
-5-
<PAGE>
Lessee or any person or persons claiming under it, Lessor may, at its option,
(a) accelerate the rental for the whole of the unexpired term and it shall
become immediately due and payable, (b) remain out of possession of the leased
premises and continue to enforce all of the terms and conditions of this lease,
which shall include the right to recover from Lessee each installment of rent as
it becomes due, (c) enter upon and repossess the leased premises and pursue any
of the following remedies: (1) terminate this lease and all rights of Lessee
under it and to the leased premises; (2) rent the leased premises or any part
thereof, as the agent of Lessee, for the remainder or any part of the unexpired
term of this lease, applying rental payments so received first to the payment of
such expenses as Lessor may have incurred in re-entering, repossessing and
reletting the premises, including court costs and attorneys' fees, and the
balance to the payment of the rent due under this lease and should the monthly
rental be less than the monthly rental provided in this lease, Lessee agrees to
pay the amount of such deficiency to Lessor from month to month as it accrues;
however, in the event Lessor is able to relet the premises for the entire
balance of the term, Lessor may, at its option, recover from Lessee at the time
of such reletting the difference if any, between the total rental provided in
this lease and the total rental procured by such reletting; (3) terminate this
lease and all rights of Lessee under it and to the leased premises and recover
from Lessee the worth at the time of such termination, of the excess, if any, of
the amount of rent reserved in this lease for the balance of its term, or any
shorter period of time, over the then reasonable rental value of the premises
for the same period.
16. TAXES AND ASSESSMENTS - (a) Lessor agrees to pay all real property taxes
assessed against the leased premises. Lessee agrees to pay all taxes, licenses
and fees levied, assessed or imposed by reason of Lessee's use of said premises,
and all taxes or personal property located on the premises including but not
limited to fixtures. (b) Lessee shall pay promptly upon demand any increase in
taxes over the 93/94 tax bill and it is agreed that since the Lessee is
occupying a portion of the leased premises being assessed that Lessee shall pay
the increase in tax bill each year in proportion to the amount of premises
Lessee occupies. The amount shall be determined upon presentation by Lessor's
Agent of the above-mentioned tax bill and the tax bill for the year involved.
17. NOTICE AND PAYMENTS - Any notice herein required or permitted to be given
by Lessor to Lessee shall be deemed given if and when mailed, postage prepaid,
properly addressed to Lessee at 8006 Engineer Road San Diego, CA 92111 Tel.
(619) 277-9873 Fax 268-7830. Any notice herein required or permitted to be
given by
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<PAGE>
Lessee to Lessor shall be deemed given if and when so mailed to Lessor or a
designated representative at 8051 Vickers Street, San Diego, CA 92111 Tel. (619)
292-1770 Fax. 292-9350. Each installment of rent herein provided is to be paid
by Lessee to Lessor, in lawful money of the United States, by check, draft, or
like instrument payable to the order of the Lessor or a designated
representative. Any rent accruing under the terms of this lease, which shall not
be paid when due, shall bear interest at the rate of ten percent (10%) per annum
from the date when payable until said rent shall have been paid by Lessee.
Until changed, notices and communications to Lessor and Lessee shall be sent
to their respective addressee as designed above. Each party shall have the
right to specify as its proper address any other address in the United States.
18. HOURS AND ENTRY - Lessee understands and agrees that Lessor is willing to
execute this lease with Lessee only on the expressed understanding that at all
times during the term of this lease and with adequate facilities, fixtures,
employees and merchandise, said Lessee shall carry on and operate in
substantially all of the leased premises a Manufacturing Business as has
existed; that they will keep the premises open for business during the usual
business hours of each business day; and that they will endeavor in the utmost
good faith to exploit and develop said business in such a manner so as to
produce the maximum value of Gross Sales consistent with sound business
practice. Lessees further agree to maintain competitive prices on services
rendered and items sold on said leased premises. Lessees shall use the leased
premises for no other purpose without prior written consent of Lessor. If
Lessees at any time discontinue use of said premises for said purpose, it shall
constitute a material breach of the terms of this lease.
Lessor shall, at all reasonable times, have access to the leased premises for
the purpose of inspection and repair.
Lessee shall permit Lessor, at any time within thirty days prior to the
expiration date of this lease, to place upon said premises any usual or ordinary
"for rent" or "for lease" signs.
19. INSURANCE - Lessee shall not use, or permit the leased premises, or any
part thereof, to be used for any purpose or purposes which will increase the
existing rate of insurance upon the building in which said premises may be
located, or cause a cancellation of any insurance policy covering said building
or any part thereof. Lessee shall, at his sole cost, comply with any and all
requirements, pertaining to the use of the leased premises, of any insurance
organization or company necessary for
-7-
<PAGE>
maintenance of reasonable fire and public liability insurance, covering said
building and appurtenances. In the event occupancy of said premises by the
Lessee should cause the present fire and liability insurance rates to be
increased, Lessee shall pay the differences upon the amount of fire and
liability insurance now being carried by the Lessor and said difference shall be
in addition to the amount of rental specified herein and shall be paid to Lessor
on demand.
20. LIABILITY - Lessee agree to protect, indemnify, and save harmless the
Lessor from and against any and all claims, demands, and causes of action of any
nature whatsoever, and any expense incident to defense by Lessor of any such
demand or action for injury to or death of persons or loss of or damage to
property occurring on the leased premises or the adjoining sidewalks, streets or
ways, or in any manner growing out of or connected with the Lessee's use and
occupation of said premises. Lessee, at its expense, shall maintain in force
public liability insurance which will insure against liability for injury to
said persons in an amount not less than One Million for any one person injured
or Three Million for any one accident, and Five Million for property damage, in
companies satisfactory to Lessor, naming Lessor as an additional insured and
furnish Lessor with copies or certificates thereof. Each such policy shall
provide that the same shall not be cancelled by the insurer except upon 10 days'
advance written notice to Lessor.
21. OPTION TO RENEW - Lessor hereby gives the Lessor the option to renew this
Lease for Two additional Five year periods provided that:
a. Lessee shall not be in default in any terms of this lease.
b. Lessee notifies Lessor at least six months prior to the termination of this
lease, and each subsequent renewal, in writing of his intention to exercise this
option.
c. At the expiration of the first Five years and expiration of each subsequent
Five year renewal, rental shall be adjusted in accordance with the following
formula:
The Consumer Price Index in effect on the first month (or if monthly indices
are not published, then the quarter) of the original term (hereinafter termed
"Original Index") shall be compared with the respective Consumer Price Index
(hereinafter called "Comparison Index") in effect on the last month (or if
monthly indices are not published, then
-8-
<PAGE>
the quarter) of the original term or each subsequent _______ year renewal.
The Consumer Price Index intended to be referred to herein is the one
determined by the Bureau of Labor Statistics, United States Department of Labor,
for all items--San Diego with the base period 1965 = 100 or any successor index
which has been subjected to all requisite statistical adjustments so that a
comparison of old and new Consumer Price Index numbers is statistically
meaningful.
Monthly rental for each subsequent Five year renewal shall be computed by
multiplying the monthly rental ascertained under the provisions of Paragraph 1
by a fraction of which the numerator shall be the Comparison Index and the
denominator shall be the Original Index. Maximum to be 3% per year.
22. VEHICLE PARKING - Lessee's customers shall have the non-exclusive joint
use of the adjoining parking facilities with other patrons of businesses located
in the building or shopping center of which the leased premises are a part.
Lessee and its employees shall not park their vehicles in any parking areas
designated by Lessor to be for patrons.
Lessee shall pay to Lessor for maintenance and lighting of said parking area
$ N/A_________ per month in advance on the first day of each and every month
during the term of this lease or any extensions thereof.
23. USE - Lessee covenants that during the life of this lease it will not
cause nor permit any use of the leased premises nor any portion thereof in any
illegal manner, and that Lessee will comply with all governmental rules,
regulations, ordinances and laws. Lessee's use must comply with all reasonable
rules and regulations pertaining to the premises that Lessor may, from time to
time, establish for the mutual benefit of other tenants of related premises.
24. LIENS - The Lessee agrees to execute such documents necessary to subject
and subordinate this lease to the lien of any mortgage or deed of trust now or
hereafter placed upon the Lessor's interest in the leased premises and on the
land and buildings of which the said premises are a part.
Lessee covenants to keep the leased premises and the improvements thereon at
all times during the term hereof free of mechanics' liens and other liens of
like nature other than liens created or claimed by reason of any work done by or
at the instance of Lessor, and at all times to protect fully and
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<PAGE>
indemnify Lessor against all such liens or claims which may ripen into such
liens and against all attorneys' fees, and other costs and expenses growing out
of or incurred by reason of or on account of any such liens or claims. Should
Lessee fail to fully discharge any such lien or claim, Lessor at its option may
pay the same or any part thereof, and Lessor shall be the sole judge of the
legality of such lien or claim. All amounts so paid by Lessor, together with
interest thereon at the rate of ten percent (10%) per annum from the time of
payment by Lessor until repayment by Lessee, shall be paid by Lessee to Lessor
as so much additional rent on or before the next succeeding rent day after
payment has been made by Lessor and if not so paid shall continue to bear
interest at the aforesaid rate, interest payable monthly as additional rent, or
Lessor may at its option treat the failure to pay said lien claim amount as
herein specified, as a default in the payment of rent.
25. COSTS AND FEES - In the event Lessor employs an attorney to recover rent,
dispossess Lessee or in any manner enforce the provisions of this lease or act
to effect any remedy hereunder for Lessor, Lessee shall pay reasonable
attorney's fees and other expenses incurred by Lessor, which fees and expenses
shall constitute additional rent.
26. QUIET ENJOYMENT - Provided the Lessee performs all its covenants,
agreements, and obligations hereunder, the Lessor covenants that the Lessee
shall have the peaceful and quiet enjoyment of the leased premises without
hindrance on the part of the Lessor.
27. EMINENT DOMAIN - In the event all or any part of the leased premises shall
be condemned and taken for a public or quasi-public use, then all and any award
or compensation arising out of such condemnation shall be paid to the Lessor.
If, after condemnation of less than all of the leased premises, the remaining
portion is susceptible of occupation for the purposes contemplated under this
lease, then there shall be an abatement in rent payable during the balance of
the term hereof in the proportion that the floor area of the portion of the
leased premises taken bears to the total floor area of the leased premises
immediately prior to such taking. Should all of the leased premises be
condemned and taken, or if less than all are taken and remaining portion is not
susceptible of occupation for the purposes contemplated under this lease, then
this lease shall terminate. If the lease is not so terminated the Lessor shall
repair the leased premises and improvements. The sale of all or any part of the
leased premises under threat of the exercise of the power of eminent domain to
an entity which possesses such
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<PAGE>
power shall constitute a condemnation and taking for purposes of this lease.
28. INSOLVENCY AND BANKRUPTCY - In the event Lessee shall file a voluntary
petition in bankruptcy or shall institute any proceedings of whatsoever kind or
character under any bankruptcy or insolvency law in effect at the date hereof or
which may hereafter be enacted or become effective wherein and whereby any right
of Lessor shall or may be affected in any degree, or in the event Lessee shall
be adjudged a bankrupt or insolvent by any court, or in the event Lessee shall
make an assignment, general or otherwise, for the benefit of creditors, or in
the event a receiver of any interest of Lessee in said leased premises shall be
appointed by any court, Lessor may, in any such event, at its option, without
notice or demand upon Lessee, or upon any person or persons claiming by, through
or under the Lessee immediately cancel and terminate this lease and terminate
each, every and all of the rights of Lessee and of any and all persons claiming
by, through or under Lessee, in and to the leased premises. In the event of
termination of this letting as in this paragraph above provided, the Lessor
shall have the right to repossess the leased premises and such structures,
buildings, improvements and equipment, either with or without process of law or
through any form of sent or proceedings, as well as the right to sue for and
recover all rents and other sums accrued up to the time of such termination,
including damages arising out of any breach on the part of the Lessee. The
Lessor shall also have the right, with or without resuming possession of the
premises or terminating this lease, to sue for and recover all rents and other
sums, including damages, at any time and from time to time accruing hereunder
and such other rights as may be provided by law.
29. WAIVER - Except to the extent that the Lessor may have otherwise agreed in
writing, no waiver by Lessor of any breach by Lessee of any of its obligations,
agreements or covenants hereunder shall be deemed to be a waiver of any
subsequent breach of the same or any other covenant, agreement or obligation.
Nor shall any forbearance by Lessor to seek a remedy for any breach by Lessee be
deemed a waiver by Lessor of its right or remedies with respect to such breach.
30. WARRANTY - Lessor hereby warrants that he is the owner in fee of the
leased premises or that he holds a leasehold estate in the premises for at least
the term of this lease and that he has full power to enter into this lease.
31. AGREEMENT - This lease contains a complete expression of the agreement
between the parties hereto, and there are no promises, representations,
agreements, warranties or inducements
-11-
<PAGE>
except such as are made herein and fully set forth. No alternations of any of
its terms, covenants or conditions shall be binding unless reduced to writing
and signed by the parties hereto. It is agreed that all of the rights, remedies
and benefits provided by this lease shall be cumulative, and shall not be
exclusive of any other of said rights, remedies, and benefits, or of any other
rights, remedies and benefits allowed by law.
32. CONDITION OF PREMISES - Lessee, upon occupancy of leased premises, accepts
the premises in their then existing condition of repair and agrees that said
premises are suitable and satisfactory for the use intended by Lessee. Lessor
shall not be called upon to make any additional repairs and/or additions to
leased premises, except as herein provided.
33. ASSIGNMENT - The Lessee shall not sublet the leased premises or any part
thereof, nor assign or transfer, this lease without the written consent of
Lessor, and should Lessor consent to such assignment, subletting, or transfer,
it will not relieve Lessee of the agreements and obligations contained herein.
The voluntary or other surrender of this lease by Lessee, or a mutual
cancellation thereof, shall not work a merger, and shall, at the option of the
Lessor, terminate all or any existing subleases or subtenancies or may, at the
option of the Lessor, operate as an assignment to him of any or all of such
subleases or subtenancies.
34. TIME OF ESSENCE - Time is expressly declared to be of the essence of this
lease, and of each, every and all of the covenants and conditions herein
contained.
35. SUCCESSORS AND ASSIGNS - The covenants and conditions herein contained
shall, subject to the provisions as to assignments, apply to and bind the heirs,
successors, executors, administrators and assigns of all the parties hereto; and
all of the parties hereto shall be jointly and severally liable hereunder.
36. It is agreed that Lessee will make arrangements for their own trash
collections.
37. It is agreed that Lessee will make all lease improvements and unless
otherwise agreed upon, Lessee will return the facilities to their original
state.
IN WITNESS WHEREOF the Lessor and Lessee have executed this lease agreement as
of the day and year first above written.
-12-
<PAGE>
LESSOR
Willis L. or Ann J. Fehlman
---------------------------
AGENT Willis L. Fehlman 11/8/93
---------------------------
BY: Ann J. Fehlman 11/8/93
--------------------------- ---------------------------
LESSEE
- ------------------------------ Pilkington Barnes-Hind
---------------------------
DATE: Garry Malloy 6/10/94
------------------------- ---------------------------
---------------------------
-13-
<PAGE>
Exhibit 10.14
WESLEY-JESSEN CORPORATION
PROFESSIONAL INCENTIVE PLAN
CALENDAR YEAR 1996
<PAGE>
WESLEY-JESSEN CORPORATION
PROFESSIONAL INCENTIVE PLAN
CALENDAR YEAR 1996
PURPOSE:
- --------
This Plan is established to provide incentive compensation to key professionals
who have an impact on major business segments of the organization that drive the
performance of the business. The Plan focuses and reinforces W-J's belief in
pay for performance by providing the opportunity to earn additional bonus
dollars. In this regard, the Plan's Objective is to recognize and reward key
professionals' achievement at the defined performance levels.
OBJECTIVES:
- -----------
The Plan has three objectives:
1. To reinforce the Company's policy of pay for performance.
2. To provide an incentive and reward. in addition to competitive
salaries, to those who contribute significantly to the profitability of the
Company.
3. To assist in attracting, retaining and providing motivation to key
management personnel.
PLAN OUTLINE
- ------------
Prior to the Plan calendar year, the President, CFO and Director, HR (the PIP
Evaluation Team) must approve the PIP goals that have been submitted by the,
participants. This Plan will function on an annual basis which will allow short
term fluctuations to smooth out over the term of the Plan year. At Wesley-
Jessen, the major components are recognized to be quantifiable financial
objectives, Examples of these goals will include, earnings before interest,
taxes, depreciation on assets (EBITDA), and cash. This will ensure fairness and
objectivity in the calculation of the incentive payments and either eliminate or
minimize the use of discretionary decisions.
The PIP Evaluation team will establish for each professional participant, salary
incentive targets and the weightings for the components of the PIP. The
incentive target will be expressed as a percent of base salary in effect at the
end of the Plan year-. Individual PIP worksheets will specify the salary
incentive target and the weightings for each business component. See PIP
Worksheets, The degree to which PIP goals are achieved will result in actual
incentive award payments.
PERFORMANCE GOALS
- -----------------
The Company will establish two levels of performance for each annual goal from
which the incentive award will be calculated:
<PAGE>
TARGET LEVEL: the performance level at which 100% incentive is paid.
OVER ACHIEVEMENT LEVEL: the performance level at which target performance is
exceeded and paid in increments above 100%.
The achievement of Target Level performance is consistent with the Company
philosophy that Target is an aggressive goal. The achievement of Target is a
stretch and challenges every PIP participant to manage his or her area of
responsibility in a professional manner consistent with the values of the
Company. Final performance measurement and results will be determined by the
PIP Evaluation Team.
TARGET LEVEL
- ------------
Target Level is equal to 100% of the Target goal.
Achievement of the Target Level will result in payment of I 00% of the
salary incentive.
For example, a participant at the 10% salary incentive level will earn 10%
of eligible base salary for achievement of 1000/c of the Target goal.
OVER ACHIEVEMENT LEVEL
- ----------------------
Over Achievement Level payments are calculated for every 2.5% of Targeted
performance in excess of 100%. See the incentive Payment Schedule.
For example, a participant at the 10% salary incentive level with an
achievement of 110% of Target will earn 14% of base salary, The plan has no
maximum cap.
- 2 -
<PAGE>
ADMINISTRATION AND REVIEW
- -------------------------
1. Performance to Target is reviewed annually following the financial close.
Final review of the Plan results and payments to all participants will be,
approved by the PIP Evaluation Team. Distribution of actual incentive awards
will be made by the participant's immediate supervisor.
2. Newly hired or newly eligible participants become eligible for payments on
the next fall month following the commencement of full time employment and
final payment will be pro-rated based on the period of participation during
the Plan year. Participants must be employed by the company at the time of
the incentive payout to be eligible for payment.
3. All participants must achieve a performance rating of at least "Good" to
receive an incentive payment. Additionally, participants must be actively
employed during the eligible performance period of the Plan year. Payment
will be pro-rated for the period of time the participant is inactive during
the Plan year.
4. Incentive awards, will be paid within 90 days following the end of the
fiscal year.
5. Participants transferring to a position within the Company in which
eligibility is lost for continued participation in the Plan will receive a
pro-rata share at the time of Plan incentive payments. This payment is
contingent upon all the Plan Administrative Rules.
6. A participant who separates the employment of the Company due to retirement,
disability or death will be eligible for a pro-rata share for the period of
time of active participation in the Plan.
7. In the event of a resignation or termination of employment for reasons other
than retirement, disability or death, any incentive participation is
canceled and all monies will be forfeited.
8. "Special Incentive" participation may be extended to individuals who make a
significant contribution to the business and, by definition, would not be
eligible as a PIP participant. The PIP Evaluation Team will require written
documentation supporting the justification of an incentive award for special
participants.
9. All participants are to keep this information private and confidential and
are only to discuss its contents with their direct supervisor or a member of
the PIP Evaluation Team.
10. Participation in this Plan is not to be construed as a contract of
employment. The Company reserves the right to change, amend or terminate
this Plan at any time.
- 3 -
<PAGE>
WESLEY-JESSEN
PROFESSIONAL INCENTIVE PLAN
1996
QUESTIONS & ANSWERS
-------------------
Q-1 What is the philosophy about compensation?
A-1 Wesley-Jessen, the compensation philosophy is to reward achievement and
performance through a "pay for performance" program. This is demonstrated
at W-J through competitive base salaries and incentive plans that provide
the opportunity to earn incentive pay. In this manner W-J continues to
attract and retain employees who can make significant contributions to the
business and motivate its employees to perform to standards that meet
customer requirements,
Q-2 What makes the design of the PIP relevant to Wesley-Jessen, why not just
use a discretionary plan?
A-2 A successful incentive/bonus plan is one that is participatory by both the
Company and the employee, thus seeking a win/win situation. Discretionary
plans are totally subjective and fail because they become popularity
contests, thus become win/lose situations. The W-J PIP deals directly with
pre-established goals and objectively outlines the requirements for
"targeted" performance in the form of quantitative financial goals. In this
manner, each participant is in control of their outcome and reward. The
design is relevant because the pay-off is based on the issues that drive
the business, profitability and cash.
Q-3 Why does W-J have an PIP.?
A-3 It is the desire of W-J to pay for performance. When the Company succeeds
and does well, we believe that the key people who make the decisions, put
in endless hours, anticipate changes and turn them into opportunities for
the Company should share in the rewards. As can be seen by the design, some
of these rewards can be substantial.
Q-4 What is meant by "stretch goal?"
A-4 A "stretch goal" requires great effort. For example, it requires planning,
coordination, organizing, discussion, negotiation, vision, influence, the
development of successful interpersonal relationships within the
organization and with external customers and sometimes the "buy-in" of the
entire organization. It is not a "given," which means that it would get
done anyway without much effort. In summary "stretch goals" are real
challenges that have been included in the W-J incentive plan.
Q-5 Why are the goals in the PIP weighted?
- 4 -
<PAGE>
A-5 The weighting of the goals allows the PIP Evaluation Team to emphasize
specific areas of the business that require all participants' attention to
make the business successful. The weightings give the Plan flexibility. As
a start for the 1996 Plan year all participants will receive two goals,
EBITDA and CASH, weighted on a 50/50 basis.
Q-6 What is EBITDA?
A-6 Earnings Before Interest Taxes Depreciation Amortization and Extraordinary
non-operating items.
Q-7 What is Cash?
A-7 Cash Flow from operating activities before debt service or extraordinary
non-operating items.
Q-8 How is my PIP calculated?
A-8 The PIP is calculated in the following manner.
Participant A has a 10% target incentive.
Participant A has 2 goals that are weighted as follows:
#1 EBITDA 50%
#2 CASH 50%
The performance of each goal results in the following:
EBITDA 100% = 10% BASE SALARY (TARGET LEVEL)
CASH 110% = 14% BASE SALARY (OVER ACHIEVEMENT LEVEL)
PIP calculation:
Goal #1 50 X .10 5.0
Goal #2 50 X .14 7.0
---
TOTAL 12.0% OF BASE SALARY
- 5 -
<PAGE>
1996 PROFESSIONAL INCENTIVE PLAN FOR:
- --------------------------------------------------------------------------------
GOAL SETTING
- ------------
To stress the financial impact of the Plan, an EBITDA and cash goal will be
established for every participant.
INCENTIVE PAYMENT SCHEDULE
- --------------------------
(EXAMPLES ONLY)
10% SALARY INCENTIVE TARGET
- -----------------------------
TARGET PERCENT OF
ACHIEVEMENT BASE SALARY
- -----------------------------
100% 10.0%
101-102.5% 11.0%
102.6-105% 12.0%
105.1-107.5% 13.0%
107.6-110% 14.0%
Participant Example:
- --------------------
Incentive Target: 10%
-----------
Base Salary: $
-----------
Incentive payout at:
Target (100%) $
-----------
Over Achievement (110%) $
-----------
THE ACTUAL INCENTIVE AWARD WILL DEPEND UPON INDIVIDUAL PERFORMANCE AND THE
FINANCIAL PERFORMANCE OF THE COMPANY. THE COMPLETION OF THE ABOVE EXAMPLE WILL
PROVIDE THE PARTICIPANT WITH AN IDEA OF THE FINANCIAL AWARDS AND THE AMOUNT OF
POTENTIAL INCENTIVE PAY OVER BASE SALARY.
- 6 -
<PAGE>
1996 PROFESSIONAL INCENTIVE PLAN FOR:
- --------------------------------------------------------------------------------
GOAL SETTING
- ------------
To stress the financial impact of the Plan, an EBITDA and cash goal will be
established for every participant.
INCENTIVE PAYMENT SCHEDULE
- --------------------------
(EXAMPLES ONLY)
- -----------------------------------
TARGET PERCENT OF
ACHIEVEMENT BASE SALARY
- -----------------------------------
100% 20.0%
101-102.5% 22.0%
102.6-105% 24.0%
105.1-107.5% 26.0%
107.6-110% 28.0%
Participant Example:
- --------------------
Incentive Target: 20%
-----------
Base Salary: $
-----------
Incentive payout at:
Target (100%) $
-----------
Over Achievement (110%) $
-----------
THE ACTUAL INCENTIVE AWARD WILL DEPEND UPON INDIVIDUAL PERFORMANCE AND THE
FINANCIAL PERFORMANCE OF THE COMPANY. THE COMPLETION OF THE ABOVE EXAMPLE WILL
PROVIDE THE PARTICIPANT WITH AN IDEA OF THE FINANCIAL AWARDS AND THE AMOUNT OF
POTENTIAL INCENTIVE PAY OVER BASE SALARY.
- 7 -
<PAGE>
1996 PROFESSIONAL INCENTIVE PLAN FOR:
- --------------------------------------------------------------------------------
GOAL SETTING
- ------------
To stress the financial impact of the Plan, an EBITDA and cash goal will be
established for every participant.
INCENTIVE PAYMENT SCHEDULE
- --------------------------
(EXAMPLES ONLY)
30% SALARY INCENTIVE TARGET
- -----------------------------------
TARGET PERCENT OF
ACHIEVEMENT BASE SALARY
- -----------------------------------
100% 30.0%
101-102.5% 33.0%
102.6-105% 36.0%
105.1-107.5% 39.0%
107.6-110% 42.0%
Participant Example:
- --------------------
Incentive Target: 30%
-----------
Base Salary: $
-----------
Incentive payout at:
Target (100%) $
-----------
Over Achievement (110%) $
-----------
THE ACTUAL INCENTIVE AWARD WILL DEPEND UPON INDIVIDUAL PERFORMANCE AND THE
FINANCIAL PERFORMANCE OF THE COMPANY. THE COMPLETION OF THE ABOVE EXAMPLE WILL
PROVIDE THE PARTICIPANT WITH AN IDEA OF THE FINANCIAL AWARDS AND THE AMOUNT OF
POTENTIAL INCENTIVE PAY OVER BASE SALARY.
- 8 -
<PAGE>
EXHIBIT 10.15
DRAFT 12/18/96
--------------
WESLEY JESSEN VISIONCARE, INC.
EMPLOYEE STOCK DISCOUNT PURCHASE PLAN
-------------------------------------
1. Title. The plan described herein shall be known as the Wesley
-----
Jessen VisionCare, Inc. Employee Stock Discount Purchase Plan (the "Plan"). The
----
Plan will be maintained by the Company and any of its subsidiaries that may
adopt the Plan from time to time in accordance with the procedures set forth in
Section 23 hereof (each such adopting subsidiary referred to herein as a
"Covered Entity") with the Company's consent.
- ---------------
2. Purpose. The purpose of the Plan is to give employees wishing to
-------
do so a convenient means of purchasing at a discount shares of shares of Common
Stock of Wesley Jessen VisionCare, Inc. (the "Shares") through payroll
------
deductions. The Company believes that ownership of Shares by employees will
foster greater employee interest in the Company's growth and development. The
Plan is intended to qualify as an "employee stock purchase plan" under Section
423 of the Internal Revenue Code of 1986, as amended (the "Code").
----
3. Shares Reserved for the Plan. There shall be reserved for
----------------------------
issuance and purchase by employees of the Company under this Plan an aggregate
of __________ Shares, subject to adjustment as provided in Section 17 hereof.
Shares subject to the Plan may be shares now or hereafter authorized and
unissued or shares already authorized, issued and owned by the Company. The
right to purchase shares pursuant to the Plan shall be made available by a
series of quarterly offerings to employees eligible to participate in the Plan
pursuant to Section 8 hereof. If and to the extent that any right to purchase
reserved Shares shall not be exercised by any employee for any reason or if such
right to purchase shall terminate as provided herein, Shares that have not been
so purchased under the Plan shall again become available for the purposes of the
Plan during the remaining term of the Plan.
4. Effective Date. The Plan shall become effective on the date of
--------------
the consummation of the initial public offering of the Company's Common Stock,
par value $.01 per share (the "Effective Date").
--------------
5. The Plan Year. The Plan shall operate on a fiscal year beginning
-------------
on the first day of January in each year and ending on the 31st day of December.
This fiscal year is referred to
-1-
<PAGE>
herein as the "Plan year." The initial Plan year shall begin on the Effective
---------
Date.
6. Plan Quarters. The Plan year shall be divided into four Plan
-------------
quarters ending March 31, June 30, September 30 and December 31. Each such
quarter is referred to herein as a "Plan quarter."
------------
7. Plan Administration. The Plan shall be administered by the
-------------------
Compensation Committee of the Company's Board of Directors (the "Committee").
---------
As Plan administrator, the Committee shall have complete control of the
administration of the Plan, which includes the determination of employees,
eligibility for participation in accordance with the standards set forth in
Section 8 hereof, the interpretation of provisions of the Plan, the adoption of
any rules or regulations which may be necessary, advisable or desirable in the
operation of the Plan including rules governing the participation of officers
and directors in the Plan in order to exempt transactions under the Plan in
accordance with Rule 16b of the Securities and Exchange Commission, and the
delegation of certain of the duties of the Committee to an agent to facilitate
the purchase and transfer of Shares and to otherwise assist in the
administration of the Plan. The Committee shall control the general
administration of the Plan with all powers necessary to enable it to carry out
its duties in that respect, except that, if for any reason a Committee shall not
have been appointed, all authority and duties of the Committee under this Plan
shall be vested in and exercised by the Board of Directors of the Company.
8. Eligibility. Any employee of the Company who is a United States
-----------
resident or who is a United States citizen temporarily on location at a facility
outside of the United States and any Covered Entity (as defined in Section 22
hereof) shall be eligible to participate in the Plan on the day next following
the six-month anniversary of such employee's employment provided such employee
(i) regularly works at least 1,000 hours during the calendar year, (ii) has an
average work week of 20 hours or more during the period worked and (iii) would
not own, immediately after the exercise of any right granted hereunder, stock
possessing five percent (5%) or more of the combined voting power or value of
all classes of capital stock of the Company. The Committee shall determine
which employees are eligible to participate in the Plan in accordance with the
standards set forth in this Section.
9. Election to Participate, Payroll Deductions and Lump Sum
--------------------------------------------------------
Contributions. An eligible employee may elect to participate in the Plan on any
- -------------
day within the Plan quarter in which such employee becomes eligible to
participate, and thereafter as of the
-2-
<PAGE>
first day of any Plan quarter, by correctly completing and returning to the
Company an enrollment form authorizing a specified payroll deduction to be made
from each subsequent paycheck for the purchase of Shares under this Plan (the
"payroll deduction"). The minimum allowable payroll deduction is $20.00 per
- ------------------
payroll period. All payroll deductions shall be made regularly and in equal
amounts and shall be credited on the records of the Company in the name of the
eligible employee. Such credit shall constitute only a bookkeeping entry by the
Company and no interest will be paid or due on any money paid into this Plan or
credited to such eligible employee. Employees who elect to participate in the
Plan are referred to herein as "participating employees."
-----------------------
A participating employee will be deemed to have authorized the same
payroll deduction for each subsequent payroll period provided that he or she is
eligible to participate during each subsequent payroll period. A participating
employee may increase or decrease his or her payroll deduction as of the first
day of the first full payroll period of any Plan quarter by filing the required
form, in the time and manner prescribed by the Committee.
Upon the request of any participating employee, the Company shall
suspend making any payroll deduction with respect to such employee as soon as
practicable after the employee notifies the Company of such request. In such
event, the earliest date upon which payroll deductions may be resumed with
respect to such employee shall be the first day of the Plan quarter occurring
immediately after the first full Plan quarter that follows the suspension of the
employee's payroll deductions.
In the event that an employee ceases to be a participating employee,
or if for any reason the Company does not invest the aggregate amount of payroll
deductions of a participating employee, the amount of payroll deductions not
theretofore invested shall be returned to such employee.
10. Limitation of Number of Shares That an Employee May Purchase. A
------------------------------------------------------------
participant shall be allocated the number of Shares which may be purchased with
such participant's contributions; provided, that a participant may purchase no
more than 50 Shares in any Plan quarter under this Plan; and further provided
that an eligible employee whose purchases for the Plan year do not equal 200
Shares (or, in the case of any partial calender year in which the Plan is in
effect, a number of Shares equal to (i) the number of full or partial Plan
quarters in such year in which the Plan is in effect, multiplied by (ii) 50
Shares) shall be entitled to make a lump sum contribution to such employee's
cash account at any time
-3-
<PAGE>
during the period from January 15 through January 31 of the following Plan year,
the maximum amount of any such contribution to be the amount necessary to
purchase the number of Shares equal to the difference between the participant's
aggregate purchases for the immediately preceding Plan year and 200 Shares (or
such lesser number of Shares for any partial Plan year as determined above). In
the case of any such lump sum contribution, the cost per Share shall be
calculated as set forth in Section 12 hereof based upon the closing prices with
respect to the immediately preceding Plan quarter. Notwithstanding the
foregoing, no right to purchase Shares under this Plan shall permit an employee
to purchase stock under all employee stock purchase plans (as defined in Section
423 of the Code) of the Company at a rate which in aggregate exceeds $25,000 of
fair market value of such stock (determined at the time the right is granted)
for each calendar year in which the right is outstanding at any time. In
addition, the total number of Shares purchased under the Plan shall not exceed
__________ and if, for any purchase date, the number of Shares to be purchased
with participants' cash account balances, when aggregated with all prior
purchases under the Plan, would exceed __________ Shares, allocations to
participants for such purchase date shall be reduced pro rata in accordance with
their respective cash account balances, so that the total allocations shall not
cause the total Shares purchased under the Plan to exceed __________ Shares.
11. Accounting for Participant Contributions. The Committee will
----------------------------------------
cause to be established a "cash account" and a "Share account" for each
participant under the Plan for bookkeeping purposes. As soon as practicable on
or after the last day of each Plan quarter, but in no case later than the
fifteenth day of the month immediately following the end of the Plan quarter,
the Committee will credit each participant's cash account with such
participant's payroll deductions during the Plan quarter ("credited payroll
----------------
deductions"). The date of crediting of such credited payroll deductions is
- ----------
referred to herein as the "deduction crediting date." The Company shall not be
------------------------
required to pay or accrue interest on the cash balances in participants' cash
accounts or on the value of participants' Share accounts.
12. Share Purchases. The Committee will use the entire balance of
---------------
funds in participants' cash accounts to purchase Shares to be allocated to
participants' Share accounts within the first 15 working days following each
deduction crediting date. The cost per Share to participants will be 85% of the
lower of the closing price for the Shares on the Nasdaq National Market
("Nasdaq") on the first or the last day of the Plan quarter with respect to
------
which such purchase relates; provided that if the first or last day of the Plan
quarter is a day on which Nasdaq is closed, the price for
-4-
<PAGE>
such day shall be determined as of the last preceding day on which Nasdaq is
open.
13. Allocation of Shares. As soon as practicable after all necessary
--------------------
Shares have been purchased by the Committee (or its agent) for the benefit of
participants, the Committee will allocate such Shares to participants' Share
accounts (the date of such allocation to be referred to as the "Share allocation
----------------
date") in the following manner:
- ----
(a) The Committee will allocate full Shares and fractional Shares to
the Share accounts of the individual participants to the extent of the balances
in their respective cash accounts, subject to the limitations set forth in
Section 10. The cash accounts will be charged with the cost to participants of
all Shares so allocated. No cash balances will remain in the participants' cash
accounts immediately after each Share allocation date;
(b) Until certificates are issued, no person shall have any right to
sell, assign, mortgage, pledge, hypothecate or otherwise encumber any of the
Shares allocated to a participant's Share account.
14. Issuance of Share Certificates. Share certificates for the
------------------------------
number of whole Shares in each participant's Share account may be issued to
participants only upon the receipt by the Committee (or its agent) of a
participant's written request indicating the number of Shares (to a maximum of
the number of full Shares in the participant's Share account) for which the
participant wishes to receive certificates. Such request shall be made on a
form at the time prescribed by the Committee and filed with the Committee (or
its agent). Share certificates shall be issued to the participant as soon as
practicable after the end of a Plan quarter.
15. Restrictions on Transfer.
------------------------
(a) Restrictive Legend. Unless the Shares purchased hereunder are
------------------
covered by an effective registration statement under the Securities Act of 1933,
as amended (the "Securities Act"), the certificates representing the Shares
--------------
shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY
STATE SECURITIES LAWS AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
AN
-5-
<PAGE>
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN EXEMPTION FROM REGISTRATION THEREUNDER."
(b) Opinion of Counsel. The participant may not sell, transfer or
------------------
dispose of any Shares (except pursuant to an effective registration statement
under the Securities Act) without first delivering to the Company an opinion of
counsel reasonably acceptable in form and substance to the Company that
registration under the Securities Act or any applicable state securities law is
not required in connection with such transfer.
16. Expenses. The Company or the Covered Entity will bear the costs
--------
associated with administering the Plan and purchasing Shares. No expenses
attributable to a participant's sale of Shares, however, will be borne by the
Company or the Covered Entity.
17. Cash Dividends, Share Splits and Distributions.
----------------------------------------------
(a) Cash Dividends. Cash dividends attributable to Shares allocated
--------------
to participants' Share accounts as of the record date for which such cash
dividends are declared will be credited to participants' cash accounts as of the
dividend payment date and applied to Share purchases and allocations on the next
Share allocation date in accordance with the methods set forth in Sections 12
and 13 hereof.
(b) Share Distributions and Share Splits. Share distributions and
------------------------------------
Share splits attributable to Shares allocated to participants' Share accounts as
of the Share distribution record date or the Share split effective date will be
credited directly to participants' Share accounts as of the record date and the
effective date, respectively, of such Share distributions and such Share splits.
(c) Share Rights and Warrants. The Company may, from time to time, in
-------------------------
the exercise of its sole discretion, declare Share rights or warrants with
respect to Shares. Following and as of the record date for determining those
shareholders of record entitled to receive Share rights or warrants with respect
to their Shares, the Company shall issue, and the Committee shall allocate, such
Share rights and/or warrants directly to the appropriate participants as though
the Shares allocated to the account of each such participant were held of record
by such participant. Certificates representing such Share rights or warrants, if
any such certificates have been authorized by the Board of Directors of
-6-
<PAGE>
the Company, may be issued to participants pursuant to the procedures set forth
in Section 14 of this Plan.
(d) Change in Common Stock. In the event of a reorganization,
----------------------
recapitalization, stock split, merger, consolidation or other increase or change
in the common stock of the Company, the Committee may make appropriate changes
in the number and type of Shares that at the time of such event remain available
for purchase under this Plan.
18. Voting Rights. Holders of Shares have the right to vote on
-------------
matters affecting the Company. If one of these matters is submitted to the
shareholders for a vote, then following the record date for any shareholder
meeting at which such vote is to occur, the Committee shall advise the Company
of the number of participants for whom Shares are held in Share accounts on such
record date, and the Company shall furnish the Committee (or its agent) with
sufficient sets of its proxy soliciting materials to deliver one set to each
such participant. The Committee shall thereupon forward one set to each
participant for whom allocated Shares are being held and request voting
instructions. Upon receipt of voting instructions, the Committee shall vote the
Shares (including any fractional Shares) as instructed. The Committee shall not
vote any Share allocated to a participant's Share account unless voting
instructions have been received from the participant.
19. Records and Reports to Participants. The Committee shall cause
-----------------------------------
to be maintained true and accurate books of account, and a record of all
transactions under the Plan, and such accounts, books and records relating
thereto shall be open to inspection and audit by such person or persons
designated by the Company. At least annually, but in all cases on or before
March 31 of each year, the Committee shall file with the Chief Financial Officer
of the Company a written report setting forth all receipts and disbursements and
other transactions effected on behalf of the Plan during the last preceding Plan
year, including a description of all Shares purchased together with the cost of
all such Shares. Such report shall also disclose any liabilities of the Plan
and shall show, as of the close of the Plan year, the value of each active cash
account and Share account of each participant together with the record of Share
certificates delivered to each of the participants during such Plan year. The
Committee shall have the right to maintain one or more bank accounts for funds
contributed to the Plan, and to make deposits in and withdrawals therefrom in
connection with its administration of the Plan.
-7-
<PAGE>
An annual report shall be rendered to each participant in the Plan
annually within 90 days after the close of the Plan year, showing for the Plan
year just ended:
(a) the amounts of employee payroll deductions made for each
participant;
(b) the amounts of cash dividends credited to such
participant's cash account;
(c) the number of Shares acquired for such participant's Share account
(including the amounts of Share distributions or Share splits so allocated or
credited);
(d) the cost to the participant per Share of Shares purchased for such
participant;
(e) the number of Shares, if any, for which certificates were
delivered to such participant; and
(f) the beginning and ending balances in the participant's Share and
cash accounts.
20. Termination of Employment. Settlement of the accounts of
-------------------------
participants whose employment has terminated shall be made as of the beginning
of the Plan quarter following the Plan quarter in which termination of
employment occurred.
As promptly as practicable after the close of the Plan quarter in
which termination of employment occurred, the Committee will deliver to such
former participant a certificate for the number of full Shares allocated to such
participant's account and not previously distributed, together with a check for
(i) any remaining cash balance and (ii) the value of any fractional Shares
allocated to such participant's account.
In the event of a participant's death, settlement will be made to the
participant's duly appointed legal representative after the satisfaction of any
applicable legal requirements.
21. Amendment and Termination of the Plan. Subject to the provisions
-------------------------------------
of Section 423 of the Code and Rule 16b-3 under the Securities Exchange Act of
1934, as amended ("Exchange Act"), the Board of Directors may amend this Plan in
------------
any respect; provided, that no amendment may affect any participant's right to
the benefit of contributions made by such participant prior to the date of the
amendment.
-8-
<PAGE>
The Board of Directors reserves the right to terminate or temporarily
suspend this Plan at the end of any Plan quarter. In the event of termination
or suspension of the Plan, the Committee will make an allocation of Shares to
the Share accounts of the participants in the usual manner. As soon as
practicable, the Committee will distribute to or on behalf of each participant
all of the Shares held in such participant's Share account plus an amount of
cash equal to the balance in such participant's cash account.
22. Limitation on Sale of Shares. No Shares will be sold under the
----------------------------
Plan to any employee residing or employed in any jurisdiction where the sale of
such Shares is not permitted under the applicable laws.
23. Adopting Subsidiaries. Any subsidiary of the Company may adopt
---------------------
the Plan on behalf of its employees either unilaterally or by collective
bargaining by filing with the Company a certified copy of a resolution of the
Board of Directors (or other appropriate authorization satisfactory to the
Secretary of the Company) of the subsidiary providing for such subsidiary's
adoption of the Plan and a certified copy of a resolution of the Board of
Directors of the Company consenting to such adoption. Each such adopting
subsidiary is referred to herein as a "Covered Entity."
-9-
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 (File No. 333-17353) of our report dated
December 4, 1996, except as to Note 15 which is as of January 20, 1997, and
our report dated September 17, 1996, relating to the financial statements of
Wesley Jessen VisionCare, Inc. (formerly known as Wesley-Jessen Holding, Inc.)
and its Predecessor (the Wesley-Jessen contact lens business of Schering-
Plough Corporation), respectively, which appear in such Prospectus. We also
consent to the application of such reports to the Financial Statement Schedule
for the periods from January 1, 1993 through September 28, 1996 listed under
Item 16(b) of this Registration Statement when such schedule is read in
conjunction with the financial statements referred to in our reports. The
audits referred to in such reports also included this schedule. We also
consent to the references to us under the headings "Experts," and "Selected
Historical Consolidated Financial Data" in such Prospectus. However, it should
be noted that Price Waterhouse LLP has not prepared or certified such
"Selected Historical Consolidated Financial Data."
PRICE WATERHOUSE LLP
Chicago, Illinois
January 20, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (File
No. 333-17353) of our report, which includes explanatory paragraphs relating
to substantial doubt regarding the entity's ability to continue as a going
concern and the sale of certain assets and liabilities of the entity, dated
July 26, 1996 on our audits of the financial statements of Pilkington Barnes
Hind Group. We also consent to the reference to our firm under the caption
"Experts."
Coopers & Lybrand L.L.P.
San Jose, California
January 20, 1997
