<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 14, 1998
REGISTRATION NO. 333-60153
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 1
to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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GRIFFITH MICRO SCIENCE INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7389 36-3552153
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
2001 SPRING ROAD, SUITE 500
OAK BROOK, ILLINOIS 60523-1887
TELEPHONE (630) 571-1280
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
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KEVIN M. SWAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
GRIFFITH MICRO SCIENCE INTERNATIONAL, INC.
2001 SPRING ROAD, SUITE 500
OAK BROOK, ILLINOIS 60523-1887
TELEPHONE: (630) 571-1280
(Name, Address, Including Zip Code, and Telephone
Number, Including Area Code, of Agent For Service)
Copies to:
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<S> <C>
JOHN C. BLEW, ESQ. LOUIS E. ROSEN, ESQ.
BELL, BOYD & LLOYD LORD, BISSELL & BROOK
THREE FIRST NATIONAL PLAZA 115 SOUTH LASALLE STREET
CHICAGO, ILLINOIS 60602 CHICAGO, ILLINOIS 60603
TELEPHONE: (312) 372-1121 TELEPHONE: (312) 443-0700
</TABLE>
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Amending the Prospectus and filing certain exhibits
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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 THE 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> 2
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.
SUBJECT TO COMPLETION, DATED OCTOBER 14, 1998
PROSPECTUS
2,500,000 SHARES
[GRIFFITH MICRO SCIENCE LOGO]
CLASS A COMMON STOCK
All of the shares of Class A Common Stock offered hereby (the "Offering")
are being issued and sold by Griffith Micro Science International, Inc. (with
its subsidiaries and predecessors, the "Company" or "Griffith Micro Science"
unless the context otherwise requires).
The Company has two classes of Common Stock, Class A Common Stock and Class
B Common Stock (collectively, the "Common Stock"). Except with respect to voting
and conversion, the rights of the holders of Class A Common Stock and Class B
Common Stock are substantially identical. Each share of Class A Common Stock is
entitled to one vote and each share of Class B Common Stock is entitled to ten
votes. See "Description of Capital Stock -- Recapitalization" and "-- Class A
Common Stock and Class B Common Stock."
All of the outstanding capital stock of the Company is currently owned by
Griffith Laboratories International, Inc., a subsidiary of Griffith
Laboratories, Inc. (collectively, the "Parent Company" unless the context
otherwise requires). Upon completion of the Offering, the Parent Company will
continue to own all of the outstanding shares of Class B Common Stock and will
hold 67.6% of the total number and have 95.4% of the combined voting power of
the outstanding shares of both classes of Common Stock. A total of approximately
$12.2 million of the net proceeds of the Offering will be used by the Company to
discharge indebtedness owing to the Parent Company. See "Use of Proceeds."
Prior to the Offering, there has been no public market for the Class A
Common Stock. It is currently estimated that the initial public offering price
per share will be between $13.00 and $15.00. For factors which are expected to
be considered in determining the initial public offering price, see
"Underwriting." Application has been made for the listing of the Class A Common
Stock on the Nasdaq National Market under the symbol "GMSI."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OF CLASS A 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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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share $ $ $
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Total(3) $ $ $
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</TABLE>
(1) The Company and Griffith Laboratories International, Inc. have agreed to
indemnify the Underwriters against certain liabilities, including
liabilities arising under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting estimated expenses of $900,000 which are payable by the
Company.
(3) The Company has granted the Underwriters an option for 30 days to purchase
up to an additional 375,000 shares of Class A Common Stock, at the Price to
Public, less the underwriting discount, 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 Class A Common Stock offered hereby are offered severally by
the Underwriters, as specified herein, subject to receipt and acceptance by them
and subject to their right to reject any order in whole or in part. It is
expected that delivery of the shares of Class A Common Stock will be made
against payment therefor in Chicago, Illinois on or about , 1998.
ABN AMRO INCORPORATED ROBERT W. BAIRD & CO.
INCORPORATED
, 1998
<PAGE> 3
GRIFFITH MICRO SCIENCE NETWORK
[MAP OF NORTH AMERICA AND EUROPE]
- - Sterilization Facility * Headquarters O Sterilization and Laboratory
Facility
---------------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN
SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements
appearing elsewhere in this Prospectus. Unless otherwise indicated, the
information contained in this Prospectus assumes that the Underwriters'
over-allotment option will not be exercised and, except in the Consolidated
Financial Statements and notes thereto, gives effect to the recapitalization of
the Company described under "Description of Capital Stock -- Recapitalization."
As used in this Prospectus in conjunction with any given year, the term "Fiscal"
refers to the fiscal year of the Company which ended on September 30. For
example, Fiscal 1997 ended on September 30, 1997.
THE COMPANY
Griffith Micro Science is the largest multinational provider of
sterilization management services and the only one with extensive operations in
both North America and Europe. The Company offers comprehensive sterilization
processing and related laboratory testing, consulting and logistics management
services to manufacturers of single use medical devices and, to a much lesser
extent, pharmaceuticals, cosmetics and food products. The Company pioneered the
development and use of ethylene oxide as a sterilant beginning in the 1930s.
Griffith Micro Science regards itself as the premier full service provider of
ethylene oxide sterilization management services and has recently begun to offer
gamma sterilization services. The Company currently operates a network of eleven
ethylene oxide sterilization facilities in North America (eight in the United
States, two in Canada and one in Mexico) and a network of seven ethylene oxide
sterilization facilities and one gamma sterilization facility in Europe. The
Company has also formed a joint venture to design, construct and operate a gamma
sterilization facility in Mexico. Over the past five years, the Company has
opened three new sterilization facilities, acquired five others, replaced one
and closed one.
Of the Company's Fiscal 1997 net revenues of $60.2 million, approximately
61% was derived from its operations in North America and 39% from its operations
in Europe. In Fiscal 1997, the Company provided sterilization management
services to approximately 530 customers in North America and approximately 980
customers in Europe. The Company's customers include many of the world's largest
medical products manufacturers, such as: Abbott Laboratories; Allegiance
Healthcare Corporation; Baxter International, Inc.; Becton, Dickinson and Co.;
The Kendall Company (a subsidiary of Tyco International, Ltd.); Mallinckrodt
Inc.; Medtronic, Inc.; Merck & Co., Inc.; Pfizer, Inc.; and Schering-Plough
Corporation. The Company's five largest customers accounted for approximately
38% of its net revenues in Fiscal 1997, including one customer, Allegiance
Healthcare Corporation, which accounted for approximately 20% of net revenues.
A substantial portion of single use prepackaged medical devices and kits
are required by government regulation in the United States and many other
countries to be "sterile" or to have minimal levels of microbial contamination
when sold. In addition, other products, such as pharmaceuticals, cosmetics,
spices and herbs, frozen and dried foods, and animal feed, undergo sterilization
processing to improve their safety, reduce microbial contamination and extend
shelf-life. Manufacturers sterilize their products after assembly and packaging
using either or both of their own in-house sterilization facilities ("captive
processors") or the services of commercial sterilization processing companies
such as Griffith Micro Science ("contract processors"). The two most widely used
methods of commercial sterilization utilize either ethylene oxide in gaseous
form ("ethylene oxide sterilization") or gamma radiation from a radioactive
Cobalt 60 isotope ("gamma sterilization"). Other methods include E-beam
sterilization ("E-beam"), accomplished using a high-energy electron beam, and
steam sterilization, which to date have only been employed to a limited extent
for contract sterilization.
Although the Company is not aware of any published industry statistics and
precise numbers are difficult to determine, the Company estimates that in 1997
the market for sterilization services in North America and those European
countries in which the Company has sterilization facilities was approximately
$500 million, consisting of approximately $300 million in aggregate net revenues
generated by contract processors (approximately $200 million in North America
and $100 million in Europe) and $200 million in equivalent net revenue value for
products sterilized by captive processors (approximately $140 million in North
America and $60 million in Europe). Of this total market, the Company estimates
that slightly more than 50% was
3
<PAGE> 5
attributable to ethylene oxide sterilization, approximately 40% to 45% to gamma
sterilization and the balance to E-beam and other forms of sterilization.
Beginning in Fiscal 1995 under new senior management, the Company initiated
a comprehensive program to: (i) increase its sterilization processing capacity;
(ii) strengthen the quality and training of its personnel; (iii) improve the
process capability as well as the efficiency of its operations on a system-wide
basis; (iv) expand its customer base; (v) provide greater focus to and expand
the laboratory services it offers; and (vi) broaden its service offering to
include gamma sterilization, sterilization consulting and logistics management.
These efforts, together with a continuing trend by manufacturers of single use
medical devices to use contract processors for their sterilization requirements,
have resulted in compound annual growth rates for the Company of 14.1% and 65.6%
in net revenues and pro forma operating profit, respectively, during the
three-year period ended September 30, 1997.
The Company's primary strategic objective is to expand and strengthen its
position as the largest multi-national provider of a full range of sterilization
management services. The Company believes the extensive experience, know-how,
expertise and data it has gathered over the more than 60 years since it
pioneered the use of ethylene oxide as a sterilant has created a significant and
unique core competency, which it refers to as its "scientific platform." The
Company's business strategy is to continue to take advantage of its scientific
platform, enhancing its position as a full service provider of comprehensive
sterilization management services and allowing it to further pursue "Value
Managed Relationships" with its customers. The key components of this strategy
include: (i) expanding its core medical device sterilization business; (ii)
optimizing the sterilization process through continuous improvement programs
with customers; (iii) broadening its laboratory and related service offerings;
and (iv) expanding its processing of non-medical products.
All of the outstanding capital stock of the Company is currently owned by
Griffith Laboratories International, Inc. which in turn is wholly owned by
Griffith Laboratories, Inc. Upon completion of the Offering, the Parent Company
will continue to own all of the outstanding shares of Class B Common Stock and
will hold 67.6% of the total number and have 95.4% of the combined voting power
of all outstanding shares of Common Stock. As a result, the Parent Company will
be able to control the election of directors and the vote on other matters
submitted to the Company's stockholders, including the approval of extraordinary
corporate transactions. In addition, two of the Company's directors, including
Dean L. Griffith, its Chairman of the Board, are directors and senior officers
of the Parent Company, which was organized in 1919. Mr. Griffith, members of his
family and trusts established for their benefit collectively beneficially own a
substantial majority of the voting stock of the Parent Company. There is no
public market for the stock of the Parent Company.
The Company was organized in 1987 under the laws of Delaware. Its corporate
headquarters is located at 2001 Spring Road, Suite 500, Oak Brook, Illinois
60523-1887 and its telephone number is (630) 571-1280.
RISK FACTORS
An investment in the shares of Class A Common Stock being offered hereby
involves a high degree of risk. Accordingly, prospective purchasers should
carefully consider each of the risk factors set forth beginning on page 7, as
well as the other information set forth in this Prospectus.
4
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THE OFFERING
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<S> <C>
Class A Common Stock offered by the Company................. 2,500,000 shares
Common Stock to be outstanding after the Offering(1):
Class A Common Stock...................................... 2,500,000 shares(2)
Class B Common Stock...................................... 5,225,000 shares(3)
----------------------------------
Total............................................. 7,725,000 shares
==================================
Use of Proceeds............................................. To repay approximately $12.2
million of short-term debt payable
to the Parent Company (incurred in
payment of a dividend), to repay
short-term bank debt and for
general corporate purposes,
including capital expenditures.
See "Use of Proceeds."
Proposed Nasdaq National Market Symbol for
Class A Common Stock...................................... GMSI
</TABLE>
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(1) Two classes of Common Stock will be outstanding after the Offering: Class A
Common Stock, entitled to one vote per share, which will be owned by the
public stockholders; and Class B Common Stock, entitled to ten votes per
share, which will be owned by the Parent Company. The two classes of Common
Stock generally will vote as a single class with respect to all matters
submitted to a vote of stockholders. Class B Common Stock will be
convertible into Class A Common Stock on a share-for-share basis at the
option of the holder at any time or upon transfer to a person or entity
which is not a Permitted Transferee (as defined). See "Description of
Capital Stock."
(2) Excludes 179,000 shares of Class A Common Stock issuable upon exercise of
options to be granted under the Company's 1998 Employee Stock Option Plan
and its 1998 Director Stock Option Plan effective on the date of the
Offering at an exercise price per share equal to the initial public offering
price. See "Management -- 1998 Director Stock Option Plan" and "-- Employee
Stock Option Plans -- 1998 Plan."
(3) Excludes 504,306 shares of Class B Common Stock subject to options
outstanding at June 30, 1998 at a weighted average exercise price per share
of $7.45 which were granted by the Company under its 1996 Key Employee Stock
Option Plan. See "Management -- Employee Stock Option Plans -- 1996 Plan."
5
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SUMMARY FINANCIAL DATA
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NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
---------------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Net revenues..................... $ 37,184 $ 40,587 $ 50,117 $ 54,771 $ 60,247 $ 44,111 $ 54,953
Gross profit..................... 13,270 12,344 15,275 16,452 19,602 14,198 17,628
Royalty expense to Parent
Company(1)..................... 1,653 1,911 2,275 2,481 2,747 2,027 2,432
Operating profit(1).............. 4,589 152(2) 2,912 3,800 4,852 3,667 4,950
Interest expense, net............ 335 822 1,705 1,355 875 711 783
Earnings (loss) before income
taxes.......................... 4,231 (1,277) 1,056 2,761 3,699 2,806 3,797
Net earnings (loss).............. $ 2,633 $ (816) $ 1,017 $ 1,784 $ 2,726 $ 1,742 $ 2,294
Diluted net earnings (loss) per
common share(3)................ $ 0.50 $ (0.16) $ 0.19 $ 0.34 $ 0.52 $ 0.33 $ 0.43
Weighted average number of common
shares and dilutive potential
common shares outstanding(3)... 5,225,000 5,225,000 5,225,000 5,225,000 5,242,782 5,242,782 5,291,286
PRO FORMA DATA (UNAUDITED):
Operating profit(4).............. $ 7,099 $ 7,007
Net earnings(4).................. $ 4,431 $ 3,575
Diluted net earnings per common
share(3)(4).................... $ 0.85 $ 0.68
CASH FLOW DATA:
Depreciation and amortization.... $ 3,664 $ 4,380 $ 5,380 $ 5,884 $ 6,108 $ 4,564 $ 5,629
Capital expenditures............. 6,864 23,189(5) 8,533 3,943 8,885(5) 3,560 19,671(5)
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
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ACTUAL ADJUSTED(6)
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BALANCE SHEET DATA:
Working capital (deficit).......................................................... $(25,590)(7) $ 6,060
Total assets....................................................................... 81,476 86,247
Long-term debt, less current portion............................................... 17,015 17,015
Stockholders' equity............................................................... 17,851 49,501
</TABLE>
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(1) For all periods presented the Company has paid to the Parent Company a
royalty (classified as an operating expense) equal to 5% of net revenues
from ethylene oxide sterilization management services for the license of
certain intellectual property owned by the Parent Company. Effective upon
completion of the Offering, the Parent Company will assign this intellectual
property to the Company and the royalty payment to the Parent Company will
cease.
(2) Operating profit for Fiscal 1994 is net of costs associated with the closing
of a sterilization facility in Bound Brook, New Jersey. These costs include
approximately $1,264 for equipment value write downs and dismantling charges
and $147 for severance payments.
(3) The earnings per share and weighted average number of common shares
outstanding give effect to the 5.5 for one stock reclassification to occur
as part of the recapitalization of the Company described under "Description
of Capital Stock -- Recapitalization."
(4) Pro forma operating profit for Fiscal 1997 and the nine months ended June
30, 1998 include the following adjustments: (i) the elimination of the 5%
royalty payable to the Parent Company; and (ii) the inclusion of an
incremental amount payable to the Parent Company under the Administrative
Services Agreement estimated to be $500 per year (see "Relationship with
Parent Company -- Administrative Services Agreement"). Pro forma net
earnings and diluted net earnings per common share for those periods also
include adjustments for (x) assumed interest savings of $67 and $63,
respectively, from the net cash flows resulting from the adjustments in (i)
and (ii) above; and (y) an increase in estimated income tax expense of $609
and $839, respectively, resulting from the foregoing adjustments.
(5) Capital expenditures for Fiscal 1994, Fiscal 1997 and the nine months ended
June 30, 1998 include $8,138, $2,585 and $9,727, respectively, for
acquisitions.
(6) The adjusted balance sheet data as of June 30, 1998 gives effect to the sale
by the Company of the shares of Class A Common Stock offered hereby at an
assumed initial public offering price of $14.00 per share and the
application of the estimated net proceeds therefrom. See "Use of Proceeds."
(7) The working capital (deficit) at June 30, 1998 results primarily from a
$12,000 note payable to the Parent Company which was issued June 1, 1998 in
payment of a dividend, $9,600 of short-term debt incurred for the
acquisition of Sorex Medical, Inc. and $5,218 of other short-term borrowings
primarily incurred for capital expenditures.
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RISK FACTORS
AN INVESTMENT IN THE CLASS A COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
ACCORDINGLY, PROSPECTIVE PURCHASERS SHOULD CONSIDER CAREFULLY EACH OF THE RISK
FACTORS SET FORTH BELOW, AS WELL AS THE OTHER INFORMATION SET FORTH IN THIS
PROSPECTUS, PRIOR TO INVESTING IN THE SHARES OF CLASS A COMMON STOCK OFFERED
HEREBY.
SUBSTANTIAL DEPENDENCE ON THE STERILIZATION OF SINGLE USE MEDICAL DEVICES
In Fiscal 1997, the Company derived approximately 86% of its net revenues
from the provision of sterilization management services to manufacturers of
single use medical devices. The Company anticipates that its sterilization
management services for such products will continue to provide a substantial
majority of the Company's net revenues for the foreseeable future. Accordingly,
the future growth of the Company is dependent in large part upon continued
growth in the market for single use medical devices in North America, Europe and
any other regions or countries in which the Company subsequently establishes
sterilization facilities.
There are several developments which could adversely affect the market for
single use medical devices. In North America and Europe environmental and health
and safety concerns have been raised concerning the proper disposal of such
devices following their use. If any significant disposal restrictions or
requirements are imposed which materially increase the cost or administrative
burden of the disposal process, hospitals and other end users of such devices
might increase their use of reusable medical products. Also, in various
countries in which the Company operates, including the United States, there are
government and private insurance company efforts to change or reform the way in
which healthcare is delivered and paid for. The Company believes that these
efforts to contain or reduce healthcare costs are likely to continue. This could
result in fewer and shorter hospital stays and a reduction in the number and
nature of medical procedures which are performed. Were either or both of these
developments to lead to a material increase in reusable medical products or a
decrease in the use of hospitals or reduction in medical procedures, demand for
the Company's services could be adversely affected. See "Business -- The
Sterilization Processing Industry" and "-- Customers."
CUSTOMER CONCENTRATION
The Company's five largest customers accounted for approximately 38% of its
net revenues in Fiscal 1997, including one customer, Allegiance Healthcare
Corporation, which accounted for approximately 20% of net revenues. The loss by
the Company of any of these major customers, or any substantial reduction in the
volume of their business with the Company, could have a material adverse effect
on the Company's business, financial condition and results of operations. In
October 1998, Allegiance and Cardinal Health, Inc. announced an agreement to
merge the two companies pursuant to which Allegiance would operate as a wholly
owned subsidiary of Cardinal Health, Inc. Cardinal Health, Inc., headquartered
in Dublin, Ohio, is a wholesale distributor of pharmaceuticals, surgical and
hospital supplies, and health and beauty aids to retail drug stores, hospitals
and other health care providers. The Company does not believe that the proposed
merger, if consummated, will have any adverse effect on the Company's commercial
relationship or the volume of business it does with Allegiance.
In addition, at three of the Company's sterilization facilities in the
United States, the business from an individual customer accounts for a
substantial majority of the total net revenues generated by that facility. Any
substantial reduction in the volume of business at any individual sterilization
facility of the Company could also have a material adverse effect on the
Company's business, financial condition and results of operations due to the
significant level of fixed operating costs at each of the Company's
sterilization facilities. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Customers."
LIKELY FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
There can be no assurance that the Company's net revenues will grow or be
sustained in future periods or that the Company will maintain its current
profitability in the future. In addition, the Company has
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<PAGE> 9
experienced, and expects to continue to experience, significant fluctuations in
net revenues and operating results from quarter to quarter. As a result, the
Company believes that period-to-period comparisons of its operating results are
not necessarily meaningful, and that such comparisons cannot be relied upon as
indicators of future performance. An important cause of such quarterly
fluctuations has been material increases or decreases in demand by the Company's
customers for its ethylene oxide sterilization services, resulting from such
factors as changes in customers' product mix or sterilization technology
preferences or in the demand for their products. Another important factor has
been the timing of the opening of new operating facilities or of significant
capacity expansions at existing facilities. In addition to the substantial
capital requirements which capacity expansion entails, the start-up of a new
facility typically involves substantial added costs and any new facility
typically requires several years before achieving profitability.
As a result of these and other factors, it is likely that in one or more
future quarters or other interim reporting periods the Company's operating
results will be less favorable than the estimates made by or the expectations of
market analysts or investors and may be materially lower than the prior period
in the same fiscal year or the comparable period of the prior fiscal year. In
either event, the prevailing market price of the Class A Common Stock could be
materially adversely affected. See "Selected Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations -- Quarterly Results."
CHANGES IN EXCHANGE RATES
Exchange rates between the United States dollar, in which the Company's
results are reported, and the local currency in each of the seven foreign
countries in which the Company currently operates, may fluctuate from quarter to
quarter. Since the Company reports its interim and annual results in United
States dollars, it is subject to the risk of translation losses for reporting
purposes. Whenever the United States dollar gains against the local currency in
any reporting period, the actual earnings generated by the Company's operations
in that country are diminished in translation. Additionally, to the extent the
Company's foreign operations' revenue and expense transactions are not
denominated in the local currency and/or to the extent the Company's foreign
earnings are not reinvested overseas, the Company is also subject to the risk of
transaction losses (actual financial losses occurring when the currency of one
country is exchanged for the currency of another country). In Fiscal 1997,
approximately 47% of the Company's net revenues were derived from operations
outside the United States. Consequently, translation and transaction losses
could be significant in any given reporting period. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Results of
Operations" and "-- European Monetary Union."
AVAILABILITY OF ALTERNATIVE TECHNOLOGIES
All but one of the Company's 19 sterilization facilities currently employ
ethylene oxide technology exclusively. Certain of the Company's competitors
utilize alternative sterilization technologies, principally gamma radiation, in
some or all of their processing facilities. Gamma radiation has certain
advantages over ethylene oxide as a sterilant. As a result of these advantages,
while the business of both ethylene oxide and gamma contract processors has
grown rapidly during the past ten years, the use of gamma sterilization
increased at a faster rate as many medical device manufacturers which could
easily do so converted certain of their products from ethylene oxide to gamma
sterilization and designed certain new products and packaging to be gamma
compatible. Any significant further shift by manufacturers of single use medical
devices in their sterilization technology requirements from ethylene oxide to
gamma or other technologies would likely have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
any effort by the Company to effect a material and rapid conversion of its
facilities to gamma or some other sterilization technology or to rapidly
establish a number of new facilities employing such an alternative technology,
whether as a result of regulatory changes, customer preferences or some other
reason, would not be financially or operationally feasible. See "Business -- The
Sterilization Processing Industry," "-- Competition" and "-- Regulatory,
Environmental and Health and Safety Matters."
The Company believes that operating margins for most gamma facilities are
higher than the margins for comparable ethylene oxide facilities, primarily due
to the higher capital costs typically required to build and
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<PAGE> 10
equip an ethylene oxide facility and the higher operating costs typically
required to run the facility. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview."
HEALTH AND SAFETY RISKS OF ETHYLENE OXIDE AND GAMMA
Ethylene oxide is a toxic and hazardous chemical which is flammable and
explosive. It has also been identified as a cancer and reproductive hazard. The
Cobalt 60 isotope used in gamma sterilization is highly radioactive and
corrosive. As a result, the operation of the Company's ethylene oxide and gamma
facilities involves special safety risks and potential liabilities resulting
from exposure to ethylene oxide or radioactive material or from an explosion or
fire involving the use of ethylene oxide and the possible business interruption
associated with any such explosion or fire. The Company is also subject to a
variety of specific regulatory, health and safety and environmental requirements
stemming from the use of these hazardous materials.
Health risks. The cancer and reproductive hazards associated with exposure
to ethylene oxide subject the Company to the risk of liability claims being made
against it by workers and others who are exposed to ethylene oxide. The highly
radioactive Cobalt 60 isotope used in gamma sterilization subjects the Company
to the risk of liability claims for damages caused by radioactive contamination
being made against it by workers who load the isotope into the facility, those
who remove the spent isotope from the facility and those who handle the isotope
in the facility. There can be no assurance that such claims will not be made
against the Company in the future and, if made, that the Company will not be
held liable for damages that are alleged to have resulted from such exposure.
Both the Company and the Parent Company's Food Group are covered by the same
liability insurance coverage. There can be no assurance that such liability
insurance coverage will be adequate or remain available to the Company at
acceptable costs. A successful claim brought against the Company in excess of
the insurance coverage then available to it could have a material adverse effect
on the Company's business, financial condition and results of operations.
Additionally, any such adverse liability actions could result in adverse
publicity to the Company and have a negative impact on market acceptance of the
Company's services and the Company's ability to obtain and maintain regulatory
approval for the products it processes.
These hazards have resulted in government regulations in the countries in
which the Company operates which strictly limit the exposure of workers to
ethylene oxide and gamma radiation. The United States Occupational Safety and
Health Administration ("OSHA") limits worker exposure to ethylene oxide gas to
one part per million as an 8-hour time weighted average and five parts per
million in any 15-minute short-term exposure. The regulations in most other
countries where the Company has facilities are similar. These regulations also
have the indirect effect of limiting the permissible amount of residual ethylene
oxide left on a product following completion of the sterilization process, since
such residuals are one source of exposure to ethylene oxide. OSHA regulations
also require that equipment used in connection with ethylene oxide at the
Company's facilities be designed and operated in a manner which is safe and that
the Company use proper safety precautions and practices when handling,
monitoring and storing ethylene oxide. Compliance by the Company with these
regulations significantly increases the cost of operating its ethylene oxide
facilities and, in the case of certain products, increases their turn-around
time through the Company's facilities.
In addition to extensive regulation by various governmental bodies and
agencies, these hazards have resulted in standards, guidelines and requirements
established by industry organizations and other non-governmental bodies, such as
the International Organization for Standardization ("ISO"), which impact the
Company's operations. The ISO 10993-7 standard, adopted in 1995, limits the
permissible levels of residual ethylene oxide on sterilized medical devices in
order to protect patients who come into contact with such devices. These residue
limits are readily achievable by the existing process technology and procedures
employed by the Company for most of the medical devices manufactured by its
customers. The ISO is currently engaged in a process to review and revise its
existing ethylene oxide residue standard. The Company is unable to predict the
final outcome of this review process, although it believes that it will likely
result in some reduction in the permissible ethylene oxide residue limits set
forth in the ISO standard. Depending upon the extent of any such reduction,
aeration times (the processing step which follows exposure of the products to
ethylene oxide during which residual amounts of gas are removed from the
sterilized products) might need to be increased for some products or, in an
extreme case, certain products might require redesign or significant
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changes in ethylene oxide sterilization technology and equipment might be
required to assure compliance. In any such event, manufacturers might shift
their sterilization requirements to gamma or other existing or new sterilization
techniques.
The Company anticipates that ethylene oxide will be subjected to further
risk assessment by international standards organizations and by various
governmental entities and institutions in one or more of the countries in which
the Company operates. Furthermore, it is likely that more restrictive ethylene
oxide regulations or industry standards will be adopted as a result of such
studies. The expenditures required by the Company or its customers to comply
with any additional restrictions could be material. The further operating
restraints or burdens which any additional restrictions might entail, as well as
any increased concern over the health and safety risks of ethylene oxide, could
also result in customer shifts away from ethylene oxide sterilization. In either
event, any additional regulations could have a material adverse effect on the
Company's business, financial condition and results of operations.
Safety risks. The exposure of ethylene oxide in gaseous form to air
combined with an ignition source in a sterilization facility can result in an
explosion or fire. The ethylene oxide sterilization process equipment and
procedures employed by the Company at its facilities are designed to avoid
creating flammable conditions. However, the use of certain types of
environmental control equipment at some facilities requires the use of heat and
particular care must be exercised in order to avoid inadvertently causing
circumstances under which an explosion or fire could result, thereby
interrupting normal operations at or the temporary shut-down of the facility
while repairs are made. During the last five years, there have been three such
incidents at the Company's facilities in North America and two at its facilities
in Europe. See "Business -- Regulatory, Environmental and Health and Safety
Matters."
In addition to being highly radioactive, Cobalt 60 is a corrosive material.
While the Company's existing gamma facility in Belgium, the gamma facility now
being established by its Mexican joint venture and any additional gamma
facilities which the Company may build or acquire in the future are or will be
designed to protect against such corrosion, there can be no assurance that the
steel capsules which contain the Cobalt 60 will not corrode. Depending upon the
seriousness of any such corrosion, the Company might be required to replace such
Cobalt 60 and, if it was responsible, to bear the cost of removing and
reencapsulating the Cobalt 60. It is also possible that such corrosion could
result over time in radioactive material being released in the facility, which
could result in the contamination of portions or all of the facility. Any
contamination resulting from such a release, as well as the related
decontamination process, could have a material adverse effect on the Company's
business, financial condition and results of operations.
Any incident occurring at any of the Company's ethylene oxide or gamma
facilities which causes harm to workers or others or the interruption of normal
operations at the facility could result in substantial liability to the Company.
Such an incident might also result in adverse community or regulatory reaction,
which could affect the Company's ability to continue to operate the facility
involved in the incident. To the extent any such liability is not covered by
insurance or able to be recovered from others, the Company's business, financial
condition and results of operations could be materially adversely affected. A
similar result could occur if any incident and the related interruption of
normal operations of the facility caused any significant customer served by that
facility to switch to an alternative sterilization service provider. In
addition, the Company may encounter resistance, protests or other actions from
those communities in which its existing facilities are located or where it seeks
to establish or expand facilities based on the perceived risk of exposure to
ethylene oxide or radiation on the part of the residents of these communities.
See "Business -- Regulatory, Environmental and Health and Safety Matters."
RISKS RELATED TO COMPLIANCE WITH ENVIRONMENTAL REGULATIONS
Government regulations intended to protect the environment are applicable
in varying degrees to the Company's facilities in each of the countries in which
it operates. Ethylene oxide is evacuated in a high concentration when the sealed
sterilization chamber is purged at the end of each cycle. Thereafter, residual
ethylene oxide is evacuated in a low concentration after the chamber is opened
and during aeration following
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removal of the sterilized products from the chamber. See "Business -- The
Sterilization Processing Industry -- The principal sterilization in processes."
The release of high concentration emissions into the atmosphere is
prohibited or strictly limited in most of the countries in which the Company has
facilities. Each of the Company's sterilization facilities throughout North
America utilize either a wet scrubber system or catalytic oxidizer to treat its
high concentration emissions. In its European ethylene oxide facilities, the
Company uses several different technologies (including wet scrubbers,
incinerators and catalytic converters) to control their high concentration
emissions.
Low concentration ethylene oxide emissions are currently regulated by state
and local governmental entities in certain of the U.S. states in which the
Company's facilities are located. In addition, regulations to control low
concentration ethylene oxide emissions were adopted by the United States
Environmental Protection Agency ("EPA") in 1994 and were originally scheduled to
become effective in December 1997. However, certain types of low concentration
emissions control equipment used by ethylene oxide sterilizers, including the
Company, have a risk of explosion. As a result, the original effective date was
postponed to December 1998, and the EPA has announced its intention to again
postpone the effective date of the regulations to December 1999 to assure that
most sterilizers can comply without compromising the safety of their operations.
If the regulations take effect in their present form, the Company will be
required to incur substantial cost to acquire the control equipment necessary to
bring certain of its facilities in the United States into compliance.
Regulations restricting low concentration emissions in the European
countries in which the Company has facilities vary from country to country. The
Company believes that all of its European facilities are in material compliance
with applicable low concentration emissions regulations. However, due to the
greater volume of absorbent products now being sterilized at its facility at
Herentals, Belgium, the Company believes that a new control system will be
required in order for that facility to remain in compliance with those
regulations. Accordingly, the Company has proposed to local governmental
authorities the installation of a new state-of-the-art system which would
control both the high concentration and low concentration emissions at the
Herentals facility. The Company believes that the installation of the new
equipment (currently planned for Fiscal 1999 and Fiscal 2000) will be approved
by such authorities and that any necessary waivers pending its installation will
be obtained.
Compliance by the Company with applicable environmental regulations
significantly increases the cost of constructing and operating its ethylene
oxide facilities. Although the Company believes it has received all material
environmental permits necessary to conduct its current business, there can be no
assurance that the Company will not be found in violation of applicable
requirements or that more stringent emission control requirements will not be
adopted by governmental entities which will apply to some or all of the
Company's ethylene oxide facilities. Any such violations or more stringent
regulations could result in fines, adverse publicity and increased capital and
operating costs. They might also, in an extreme case, force the Company to alter
or cease the operation of one of more of its facilities. See "Business --
Regulatory, Environmental and Health and Safety Matters -- Emission control
regulations."
RISKS RELATED TO OTHER GOVERNMENT REGULATIONS AND STANDARDS COMPLIANCE
The design, construction and operation of the Company's sterilization
facilities are subject to a variety of federal, state and local regulations in
each of the countries where they are located. Although the Company believes it
has received all material licenses and permits necessary to conduct its current
business, there can be no assurance that the Company will not be found in
violation of applicable requirements or that governmental entities will not seek
to impose more stringent regulatory requirements on the Company and its
business. In addition, the long-term course of regulatory policy cannot be
predicted, and there can be no assurance that laws and regulations will not be
applied in a manner that adversely affects the Company. The imposition of such
regulatory requirements could force the Company to alter or cease the operation
of one or more of its facilities and could otherwise have a material adverse
effect on the Company's business, financial condition and results of operations.
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Sterilization of medical devices is subject to regulation by the United
States Food and Drug Administration (the "FDA") pursuant to the Federal Food,
Drug and Cosmetic Act. The FDA has promulgated a Quality System Regulation
("QSR") which sets forth detailed Good Manufacturing Practices ("GMP") that
manufacturers of medical devices, including providers of contract sterilization
of medical devices, are required to follow. Consequently, the Company is
required to comply with the GMP requirements set forth in the QSR with respect
to its operating facilities in the United States and those outside the United
States which sterilize devices for export to the United States. These facilities
are subject to periodic inspections by the FDA to determine whether they are in
compliance with such requirements. A similar regulatory framework, also
administered by the FDA, applies to the processing in the United States of food,
cosmetics and pharmaceutical products. Regulatory agencies in each of the other
countries in which the Company has ethylene oxide facilities conduct periodic
inspections and otherwise enforce local regulations applicable to their
operations. The Company's gamma facility in Belgium is subject to regulations of
the Belgian government (and the governments of other European countries in which
food products processed at the Company's facility are sold) which limit those
food products which can be processed for sale in those countries and which
impose labelling requirements on the Company with respect to those food
products.
The parametric release system now being implemented by the Company to
increase sterilization processing efficiency (see "Business -- Sterilization
Management Services -- Continuous improvement initiatives") is subject to
compliance with FDA GMPs. This system permits release of processed products
based upon achieving electronically measured levels of temperature, humidity,
ethylene oxide concentration and time of exposure, thus avoiding the need for
laboratory testing of biological indicators. The Company has only recently begun
to commercially process certain products for one of its customers using the
parametric release system. The Company's parametric release system adheres to
the standards for parametric release included in the ISO 11135 standard for
ethylene oxide sterilization. However, the Company has not been inspected by the
FDA since implementing the system and no assurance can be given that the FDA
will accept the Company's use of its parametric release system. Further, there
can be no assurance that the Company's customers will accept the use of
parametric release for contract sterilization.
Failure by the Company at any time to comply with applicable FDA
requirements could lead the FDA to institute enforcement actions against the
Company or its customers, including, among other things, warning letters, recall
or seizure of products, fines, injunctions, civil penalties, total or partial
suspension of sterilization operations and criminal prosecution. Such
enforcement actions would also harm the Company's business reputation and could
cause the Company to lose customers to competitors. During the last five years,
the Company has not received any warning letters from or been subjected to any
more stringent compliance action by the FDA. See "Business -- Regulatory,
Environmental and Health and Safety Matters -- Health regulations."
The Company and its medical device manufacturing customers are also subject
to standards, guidelines and requirements established by industry organizations
and other non-governmental entities, such as the ISO and the Committee for
European Normalization ("EN"). The ISO 9001 and 9002 standards are international
quality standards that require the Company to implement and document an
effective quality assurance program which is subject to periodic quality systems
surveillance audits. The ISO 10993-7 standard, adopted in 1995, limits the
permissible levels of residual ethylene oxide on sterilized medical devices in
order to protect patients who come into contact with such devices. See "Risk
Factors -- Health and Safety Risks of Ethylene Oxide and Gamma."
Demonstrated compliance by a contract processor with the ISO and EN
certifications is becoming a requirement for doing business in or exporting
sterilized products to Canada and Europe and is expected by most medical device
manufacturers in the United States. Medical devices to be sold in countries
which are members of the European Community must carry the "CE" symbol on their
labels. In order to affix the CE symbol to any sterile medical device it must,
among other requirements, have been sterilized in a facility which is certified
as ISO 9000 series and EN 46000 series compliant and it must satisfy the ISO
10993-7 ethylene oxide residue standard. See "Business -- Quality Assurance."
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POTENTIAL FOR SHORT-TERM CAPACITY CONSTRAINTS
Demand for the Company's sterilization services has been growing rapidly,
in some cases temporarily exceeding the capacity of certain of its processing
facilities. Certain of the Company's existing facilities are now at or are
expected over the next two years to reach their maximum capacity, which will
necessitate increases in capacity at some or all of these facilities or the
opening of new facilities. During the first nine months of Fiscal 1998, the
Company added capacity at seven facilities and is currently adding capacity at
four facilities. Any substantial and prolonged inability on the part of the
Company to maintain sufficient sterilization capacity to fully serve the needs
of its customers could have a material adverse effect on its relationships with
affected customers and put at risk key elements of its business strategy. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview" and "-- Liquidity and Capital Resources" and
"Business -- Facilities."
SUPPLY RISKS
While ethylene oxide is a relatively common chemical with many different
uses, its use as a sterilant in the United States is subject to stringent
regulation under the Federal Insecticide, Fungicide and Rodenticide Act
("FIFRA"). The Company is aware of only two sources in the United States which
possess the FIFRA registration necessary to produce ethylene oxide for use as a
sterilant, only one of which, the ARC Chemical Division of Balchem Corporation,
actually engages in such production. In September 1997, the Company entered into
a seven-year agreement with Balchem Corporation to supply ethylene oxide to all
of its sterilization facilities in the United States and Canada. Balchem
Corporation is a publicly held company which files periodic reports, including
financial statements and other information, with the Securities and Exchange
Commission, all of which is publicly available. Any interruption in the supply
of ethylene oxide to the Company's sterilization facilities, or substantial
increase in the cost of such supply, would have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company is aware of only two principal sources in the world for Cobalt
60, the radioactive isotope which emits gamma radiation. One of these sources is
MDS Nordion Inc., a Canadian company, and the other is the Puridec Irradiation
Technologies Division of Amersham International plc, a United Kingdom company.
The Company's gamma facility in Belgium purchases its Cobalt 60 requirements
under contract from Puridec. MDS Nordion is the Company's partner in a joint
venture to design, build and operate a gamma facility in Mexico. The joint
venture is contractually committed to acquire its Cobalt 60 requirements from
MDS Nordion. While the Company has not experienced any shortages of Cobalt 60
since the acquisition of its Belgian gamma facility in August 1997, there can be
no assurance that it will be able to obtain sufficient supplies of Cobalt 60 in
the future. In addition, the availability and price of Cobalt 60 to the Company
and its suppliers is dependent in part on the political situation in countries
with large deposits of Cobalt 59 (the material that is processed into Cobalt
60), such as the Democratic Republic of Congo and the republics of the former
Soviet Union. Such countries have recently experienced political unrest. In
addition, since mined Cobalt 59 must be converted into Cobalt 60 in nuclear
reactors, the supply of Cobalt 60 to the Company's suppliers is dependent upon
the availability of nuclear reactors. If interruptions in the supply or
increases in the price of Cobalt 60 were to occur for any reason, including a
decision by any of the Company's suppliers to decrease or discontinue supplies
of Cobalt 60 to the Company, trade restrictions with Canada or the United
Kingdom, political unrest, labor disputes or other factors, the Company's
business, financial condition and results of operations might be materially
adversely affected. See "Business -- Sterilization Management
Services -- Availability of raw materials."
COMPETITION
The Company is subject to intense competition in the provision of
sterilization services in each of the countries where it has operations. The
market for such services is fragmented as a result of traditional geographical
limitations on the area which can be served by each sterilization facility,
multiple sterilization technologies and the mix of captive and contract
facilities. Certain of the Company's competitors in North America have
substantially greater financial, marketing, technical and other resources or
offer a broader range of sterilization technologies than the Company, which may
give them a competitive advantage over the
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Company. Two of its major competitors in the United States, Isomedix, Inc. (a
subsidiary of Steris Corporation) and SteriGenics International, Inc., have
extensive gamma sterilization networks. In Europe, many of the Company's local
competitors benefit from long-term relationships with individual customers.
Also, to the extent that the Company expands into additional foreign countries
it could be faced with competition from existing providers of contract
sterilization services in those countries. See "Business -- Competition."
ACQUISITIONS
The Company has recently completed several acquisitions and expects to
continue to pursue acquisitions in the future. Some of the Company's major
competitors have similar acquisition strategies. As a result, competition for
suitable acquisition candidates is increasing, and the number of potential
acquisition candidates, particularly in the United States, is limited. There can
be no assurance that the Company will be able to acquire companies on favorable
terms, if at all. If the Company continues to complete acquisitions, it will
encounter various associated risks, including possible difficulty in integrating
an acquired business into the Company's sterilization or laboratory networks,
diversion of management's attention and unanticipated problems or liabilities,
some or all of which could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company does not
currently have any understandings, commitments or agreements with respect to any
potential acquisition. See "Business -- Business Strategy" and "-- Strategic
Acquisitions and Alliances."
ADDITIONAL INTERNATIONAL EXPANSION
Part of the Company's business strategy is to enter additional foreign
countries. Further expansion into additional countries will require substantial
capital and be subject to a number of risks, including any or all of the
following: (i) differing and evolving regulatory requirements for ethylene oxide
or gamma sterilization; (ii) political, economic, cultural and language
differences; (iii) economic recession and financial instability; (iv)
fluctuating currency exchange rates; (v) difficulties in staffing and managing
such operations and of integrating them into the Company's business; (vi) the
inability to establish a stable and profitable customer base for such
operations; (vii) higher operating and administrative costs; and (viii)
potentially adverse tax consequences. Such factors, either individually or in
combination, could result in operating losses for any such facility or
facilities for several years or more and have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Business Strategy" and "-- Sterilization Management Services."
CAPITAL REQUIREMENTS
In order to expand its sterilization capacity sufficiently to meet
anticipated increases in the demand for its services, as well as to carry out
other components of its business strategy, the Company expects to require
substantially greater capital than it has previously required. Prior to the
Offering, a material portion of the Company's capital requirements was funded by
or through the Parent Company. Following completion of the Offering, no further
financing can be expected to be available from or through the Parent Company. No
assurance can be given that the Company's existing financial resources,
including cash flow from operations and amounts available under a new
$50-million Revolving Credit Agreement which the Company expects to enter into
with a syndicate of major banks prior to completion of the Offering, will be
sufficient to fund its future growth. The Company may be required to seek other
external funding sources in order to finance its business strategy, which
sources may not be available on terms favorable to the Company or at all. These
sources could include, subject to market conditions, additional offerings by the
Company of its equity or debt securities. Any such offerings of additional
equity securities might have the effect of diluting the interests of purchasers
of the Shares in the Offering made hereby. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Shares Eligible For Future Sale."
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FINANCIAL EXPOSURE TO PRODUCT AND OTHER LIABILITY CLAIMS
The Company faces the risk of financial exposure to product and other
liability claims alleging that the Company's failure to adequately perform its
services resulted in adverse effects. While the Company's customers are
generally responsible for determining the cycle parameters (the levels of
temperature, humidity and ethylene oxide concentration to which products are
exposed during the sterilization process, and the duration of such exposure) or
dosage specifications (the amount of gamma radiation to which products are
exposed) for their products, the Company is required to certify that such cycle
or dosage parameters were achieved. In the event of the failure of the Company
to process the customer's product in accordance with the cycle parameters or
dosage specifications prescribed by the customer, the Company's standard
contract requires it to inform its customer of the nonconformance, to reprocess
the product if that is a feasible alternative and to reimburse the customer
(subject to a maximum) for the cost of any such product which is damaged as a
result of the nonconformance. In Belgium and France, contract processors,
including the Company, are required by law to certify that products they have
processed are "sterile." There can be no assurance that the Company will not be
held liable for damages that are alleged to result from improper or incorrect
processing, cycle parameters or dosage specifications, product damage or the
failure to achieve "sterility." In such event, the Company also could receive
adverse publicity. Both the Company and the Parent Company's Food Group are
covered by the same liability insurance coverage. There can be no assurance that
such liability insurance coverage will be adequate or remain available to the
Company at acceptable costs. A successful claim brought against the Company in
excess of the insurance coverage then available to it could have a material
adverse effect on the Company's business, financial condition and results of
operations. Additionally, adverse product or other liability actions could have
a negative impact on market acceptance of the Company's services and the
Company's ability to obtain and maintain regulatory approval for the products it
processes. See "Risk Factors --Health and Safety Risks of Ethylene Oxide and
Gamma" and "Business -- Sterilization Management Services -- Achieving
'sterility,' " "-- Quality Assurance" and "-- Regulatory, Environmental and
Health and Safety Matters."
CONTROL BY THE PARENT COMPANY
The Parent Company is currently the sole stockholder of the Company. Upon
completion of the Offering, the Parent Company will continue to own all of the
outstanding shares of Class B Common Stock (each of which entitles the holder to
ten votes) and will hold 67.6% of the total number and have 95.4% of the
combined voting power of the Common Stock. As a result, the Parent Company will
be able to control the election of directors and the vote on other matters
submitted to the Company's stockholders, including the approval of extraordinary
corporate transactions (such as a sale of assets, merger or other transaction
involving a change of control). In addition, two of the Company's directors,
including its Chairman of the Board, are also directors and senior officers of
the Parent Company.
The Company's Restated Certificate of Incorporation permits the Parent
Company to transfer shares of Class B Common Stock which it holds to any person
who is a Permitted Transferee. "Permitted Transferees" for such purpose include:
(i) the shareholders of the Parent Company, but only pursuant to a single
transaction in which all outstanding shares of Class B Common Stock held by the
Parent Company are distributed to the shareholders of the Parent Company as part
of a tax free spin off; and (ii) an unaffiliated corporation or business entity,
but only pursuant to a single transaction approved by the board of directors of
the Parent Company in which all outstanding shares of Class B Common Stock held
by the Parent Company are sold to, exchanged with or otherwise transferred to
such other corporation or business entity. Accordingly, it will be possible for
the Parent Company, as part of a spin off or sale, to convey to its shareholders
or to an unrelated purchaser all of the Class B Common Stock then held by it and
the voting power (which would be likely to include at least a majority of the
combined voting power of all shares of Common Stock then outstanding)
represented by such shares. See "Relationship with Parent Company" and
"Description of Capital Stock."
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POSSIBLE CONFLICTS OF INTEREST WITH THE PARENT COMPANY
There is almost no operational overlap between the business of the Parent
Company and the business of the Company. The Parent Company does, however,
render a variety of administrative and financial support services to the
Company, and it is expected to continue to do so after completion of the
Offering. In order to document and establish the terms of these arrangements and
other aspects of their continuing relationship, the Company and the Parent
Company will, prior to the completion of the Offering, enter into a series of
agreements (the "Intercompany Agreements"). The Intercompany Agreements will
include a Shareholder Agreement, an Administrative Services Agreement and a Tax
Matters Agreement.
The Intercompany Agreements will not be the result of arm's length
negotiations between independent parties, and there can be no assurance that
their terms and conditions will be the same as if so negotiated. The Company
estimates that in Fiscal 1999 its incremental payments under the Administrative
Services Agreement to the Parent Company for services rendered to the Company,
including internal tax administration services called for by the Tax Matters
Agreement, will not exceed $500,000.
Conflicts of interest may arise in the future between the Company and the
Parent Company. The Company has not adopted any formal plan or arrangement to
address such potential conflicts of interest. It is anticipated that the
directors of the Company would take such steps as they deem reasonable under all
of the circumstances to resolve any specific conflict of interest that may
occur. There can be no assurance, however, that any such conflicts will be
resolved in a manner favorable to the Company. See "Relationship With Parent
Company."
Approximately $12.2 million of the net proceeds to the Company from the
Offering being made hereby will be paid to the Parent Company to discharge in
full the principal of and accrued interest on a promissory note issued by the
Company on June 1, 1998 in payment of a dividend declared by the Company on May
21, 1998. The promissory note is payable on demand and bears interest at the
annual rate of 6%, payable at maturity. See "Use of Proceeds."
Under the Shareholder Agreement to be entered into between the Company and
the Parent Company, the Parent Company will have the right, at any time when it
holds less than 50% of the combined voting power of all outstanding shares of
capital stock of the Company, to require the Company to cease using the name
"Griffith" in its corporate name and its trademarks and trade names and to cease
using the "flask and world" logo and trademark (a version of which appears on
the cover page of this Prospectus). Any exercise by the Parent Company of this
right could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Relationship With Parent
Company -- Shareholder Agreement."
POSSIBLE ANTI-TAKEOVER EFFECTS OF THE COMPANY'S CAPITAL STRUCTURE
The Company's Restated Certificate of Incorporation will provide for two
classes of Common Stock with differing voting rights. The Class A Common Stock
(the class to be sold to the public in the Offering) will have one vote per
share, while the Class B Common Stock (all of the outstanding shares of which
will be held by the Parent Company at the conclusion of the Offering) will have
ten votes per share. Immediately after the Offering, the Parent Company will
hold 67.6% of the Common Stock, but as a result of the voting rights of the
Class B Common Stock, will have 95.4% of the combined voting power of the Common
Stock. Due to its ownership of Class B Common Stock, the Parent Company will be
able to maintain voting control of the Company even if its ownership is reduced
substantially below 50% of the total number of outstanding shares of Common
Stock. Such voting control may have the effect of discouraging or preventing
proposed merger, acquisition or other change in control transactions which might
be favored by the holders of Class A Common Stock, since any such transaction
would require the approval of the Parent Company.
In addition, the Board of Directors has the authority, without further
action by the stockholders, to issue up to 10,000,000 shares of Preferred Stock
in one or more series and to fix the rights, preferences, privileges and
restrictions thereof, and to issue authorized but unissued shares of Class A
Common Stock up to a maximum of 50,000,000 shares. The issuance of Preferred
Stock or additional shares of Class A Common Stock could have the effect of
discouraging or preventing takeover proposals that might otherwise be favored
16
<PAGE> 18
by stockholders. Provisions in the Company's bylaws requiring that stockholders
follow advance notification procedures for nominations for candidates for the
board of directors and to present other business to be considered at any meeting
of stockholders may have similar anti-takeover effects.
POTENTIAL SALES OF CLASS A COMMON STOCK BY THE PARENT COMPANY OR THE COMPANY
Sales by the Parent Company or by the Company of substantial amounts of
Class A Common Stock could adversely affect prevailing market prices of the
Class A Common Stock. Upon the consummation of the Offering, the Parent Company
will own all of the outstanding shares of Class B Common Stock (which will
represent 67.6% of the total number of shares of Common Stock outstanding or
64.5% if the Underwriters' over-allotment option is exercised in full). Pursuant
to the Company's Restated Certificate of Incorporation, the Parent Company will
be able at any time or from time to time to convert any or all of its Class B
Common Stock to Class A Common Stock on a share-for-share basis. Pursuant to the
Shareholder Agreement, the Parent Company will also be able to cause the Company
to register under the Securities Act of 1933 (the "Securities Act"), in
connection with their public sale, any or all of the shares of Class A Common
Stock resulting from such conversion. In addition, the Parent Company will be
permitted to sell in the public market specified amounts of such Class A Common
Stock without registration pursuant to Rule 144 under the Securities Act. The
Company may also issue and sell shares of Class A Common Stock in the future to
fund acquisitions, raise additional capital or for other purposes.
The Parent Company has informed the Company that it has no current
intention to sell any of its shares of Common Stock. In addition, each of the
Parent Company, the Company and each of the directors and officers of the
Company has agreed with the Underwriters that it or he will not sell or
otherwise dispose of any Common Stock or securities convertible into Common
Stock for a period of 180 days after the date of this Prospectus without the
prior written consent of ABN AMRO Incorporated. The Company's agreement in this
regard excludes from such restriction Common Stock issued in connection with
acquisitions (provided that any recipient of Common Stock in an acquisition
during such 180-day period agrees to be bound by such prohibition during the
remainder of the 180-day period) and pursuant to the exercise of stock options
by directors and employees of the Company. See "Shares Eligible for Future
Sale."
ABSENCE OF PRIOR PUBLIC MARKET FOR THE CLASS A COMMON STOCK
Prior to the Offering, there has been no public market for the Common
Stock. There can be no assurance that an active trading market will develop for
the Class A Common Stock after the Offering or, if one does develop, that it
will be maintained. The initial public offering price of the Class A Common
Stock offered hereby will be determined through negotiations among the Company
and the representatives of the Underwriters, and may not be indicative of future
market prices. See "Underwriting" for the factors which are expected to be
considered in determining the initial public offering price of the Class A
Common Stock offered hereby.
POTENTIAL VOLATILITY OF THE MARKET PRICE OF THE CLASS A COMMON STOCK
There can be no assurance that the market price of the Class A Common Stock
will not be highly volatile or that it will not decline below the initial public
offering price. Factors such as variations in the Company's quarterly or annual
financial results, comments by securities analysts and others, changes in
earnings estimates by securities analysts, fluctuations in the stock prices of
the Company's competitors, any loss by the Company of a key member of senior
management, adverse regulatory actions or decisions, adverse evidence regarding
the health or safety effects of ethylene oxide, announcements of extraordinary
events such as litigation or acquisitions, announcements of technical
innovations or changes in pricing policies by the Company or its competitors,
the development or retention of in-house sterilization capabilities by
manufacturers of single use medical devices, changing government regulations or
industry standards, and changes in the market for single use medical devices or
in general economic, political and market conditions in the United States or
elsewhere, may have a significant effect on the market price of the Class A
Common Stock.
17
<PAGE> 19
In addition, stock markets have experienced extreme price and volume
trading volatility in recent years. This volatility has had a substantial effect
on the market prices of securities of many companies for reasons frequently
unrelated or disproportionate to the operating performance of the specific
companies. These broad market fluctuations may adversely affect the market price
of the Class A Common Stock. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business."
DEPENDENCE ON KEY PERSONNEL
The Company's progress to date has been dependent to a significant extent
upon the skills of its senior management and other key personnel, many of whom
would be difficult to replace. There can be no assurance that the Company can
retain such personnel or that it can attract and retain other highly qualified
personnel in the future. The loss of any of the Company's senior management or
other key marketing, technical or administrative personnel, particularly if lost
to competitors, or the failure of any such key personnel to perform well in his
or her current positions, could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Management."
YEAR 2000 ISSUES
Many currently installed computer systems and software products throughout
the world, including certain of those used by the Company, are coded to accept
only two digit entries in the date code field. Any computer programs that have
date-sensitive software will require, prior to January 1, 2000, date code fields
which accept four digit entries or other revisions to enable them to distinguish
21st century dates from 20th century dates. As a result, prior to the end of
1999, certain of the computer systems and/or software used by the Company will
need to be upgraded or replaced to become "Year 2000 compliant."
The Company's principal computer applications cover three broad areas of
its operation: (i) those associated with the process controls at its
sterilization facilities (which include both information technology and embedded
technology); (ii) those which relate to its general operations (including
invoicing, purchasing, receiving and payroll); and (iii) those which pertain to
its financial and accounting systems (including its general ledger, receivables,
payables and fixed assets). The Company currently utilizes the Parent Company as
a service provider with respect to its financial and accounting systems
throughout North America and also with respect to its general operations systems
in Mexico.
Commencing late in 1997, the Company began an evaluation and conversion
project covering all of its systems to identify and address all necessary code
changes, testing and implementation related to Year 2000 compliance issues. At
the same time, the Company also began an evaluation of Year 2000 compliance
issues for its critical customers and suppliers. Internal resources are being
used to make these evaluations and test Year 2000 compliance. The Company
expects to conclude its evaluation and testing of all systems under its direct
control by the end of February 1999 and to complete necessary systems
modifications or conversions and testing by mid-1999. The Parent Company has
informed the Company that (i) it has undertaken a similar evaluation and
conversion project with respect to its computer systems including those which
are used by the Company and (ii) it expects to bring such systems into Year 2000
compliance by mid-1999. Based upon its evaluation to date, the Company estimates
its aggregate cost will not be material to bring into Year 2000 compliance all
of the computer systems utilized by the Company, including those of the Parent
Company. Through August 31, 1998, the Company had incurred costs approximating
$25,000 to perform the evaluation and testing of its systems.
There can be no assurance that the foregoing compliance schedule will be
met by the Company or the Parent Company or that any software or systems of the
Company's customers and suppliers, on which the Company's business is dependent,
will be corrected in a timely manner. The Company has not prepared contingency
plans pending completion of its evaluation of the extent and nature of its
compliance issues. The Company expects to complete its contingency plans by the
end of February 1999. In a worst case scenario, any failure by the Company, the
Parent Company or such third parties to become Year 2000 compliant on a timely
basis could result in disruption of the Company's normal operations and in the
inability or unwillingness of its customers to utilize the Company's services.
Any such failure or disruption could have a material adverse
18
<PAGE> 20
effect on the Company's business, financial condition and results of operations
and could result in litigation against the Company based upon any such
disruption or failure. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Year 2000 Issues."
ABSENCE OF DIVIDENDS
The Company intends to retain its earnings to finance its growth and for
general corporate purposes and therefore does not anticipate paying any cash
dividends in the foreseeable future on the Common Stock. In addition, the
Company expects to enter into a Revolving Credit Agreement prior to completion
of the Offering which it anticipates will contain a covenant restricting the
amount of dividends which the Company will be permitted to pay. See "Dividend
Policy."
DILUTION
Investors purchasing shares of Class A Common Stock in the Offering will
experience immediate and substantial dilution of $8.47 per share in the net
tangible book value of their shares. See "Dilution."
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
approximately $31.7 million ($36.5 million if the Underwriters' over-allotment
option is exercised in full) assuming an initial public offering price of $14.00
per share and after deduction of the estimated underwriting discount and
offering expenses.
Approximately $12.2 million of the proceeds will be paid to the Parent
Company to discharge in full the principal of and accrued interest on a
promissory note issued by the Company on June 1, 1998 in payment of a dividend
declared by the Company on May 21, 1998. The promissory note is payable on
demand and bears interest at the annual rate of 6%, payable at maturity.
The Company expects to use approximately $14.5 million of the remaining
approximately $19.4 million of the net proceeds ($24.3 million if the
Underwriters' over-allotment option is exercised in full) to repay some
short-term bank debt. At June 30, 1998, the Company's aggregate short-term bank
debt was approximately $14.8 million, bore interest at a weighted average rate
of 6.15% per annum and had an average maturity of seven days. Approximately $9.6
million of the Company's short-term bank debt outstanding at June 30, 1998 was
used to finance the purchase of Sorex Medical, Inc. and the balance was used
primarily to fund other parts of the Company's capital expenditure program. The
remaining approximately $4.9 million of net proceeds not used to retire
short-term debt will be available for general corporate purposes, including to
fund capital expenditures. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources," "Business -- Business Strategy" and "-- Strategic Acquisitions and
Alliances."
DIVIDEND POLICY
The Company has not declared or paid any dividends on its capital stock
since the beginning of Fiscal 1996 except for a dividend of $12.0 million paid
on June 1, 1998 to the Parent Company. It is the Company's current intention to
retain its earnings to finance its growth and for general corporate purposes.
Therefore the Company does not anticipate paying any cash dividends in the
foreseeable future. The declaration and payment of any future dividends will be
subject to the discretion of the Board of Directors of the Company. In addition,
the Revolving Credit Agreement which the Company expects to enter into prior to
the completion of the Offering will contain a covenant restricting the amount of
dividends which the Company will be permitted to pay. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
19
<PAGE> 21
CAPITALIZATION
The following table sets forth the capitalization of the Company at June
30, 1998 on an actual basis and as adjusted to give effect to the sale by the
Company of the shares of Class A Common Stock offered hereby at an assumed
initial public offering price of $14.00 per share and the application of the
estimated net proceeds therefrom. See "Use of Proceeds." This table should be
read in conjunction with the Selected Financial Data, the Consolidated Financial
Statements, and the related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
---------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 3,069 $ 7,840
======= =======
Short-term debt:
Bank overdrafts........................................... $ 183 $ --
Short-term credit facilities.............................. 14,635 --
Note due to Parent Company................................ 12,060 --
------- -------
Total short-term debt............................. 26,878 --
------- -------
Long-term debt, including current portion:
Borrowings under notes payable and Industrial Revenue
Bonds.................................................. 19,386 19,386
------- -------
Stockholders' equity:
Preferred Stock, par value, $.01 per share, 10,000,000
shares authorized and none issued or outstanding....... -- --
Class A Common Stock, par value $.01 per share, 50,000,000
shares authorized, 2,500,000 issued and outstanding, as
adjusted(1)............................................ -- 25
Class B Common Stock, par value $.01 per share, 40,000,000
shares authorized, 5,225,000 issued and
outstanding(2)......................................... 53 53
Additional paid-in capital................................ 12,004 43,629
Retained earnings......................................... 7,751 7,751
Equity adjustment from foreign currency translation....... (1,957) (1,957)
------- -------
Total stockholders' equity........................ 17,851 49,501
------- -------
Total capitalization.............................. $64,115 $68,887
======= =======
</TABLE>
- ---------------
(1) Excludes 179,000 shares of Class A Common Stock issuable upon exercise of
options to be granted under the Company's 1998 Employee Stock Option Plan
and its 1998 Director Stock Option Plan effective on the date of the
Offering at an exercise price per share equal to the initial public offering
price. See "Management -- 1998 Director Stock Option Plan" and "-- Employee
Stock Option Plans -- 1998 Plan."
(2) Excludes 504,306 shares of Class B Common Stock issuable upon exercise of
outstanding options granted under the Company's 1996 Key Employee Stock
Option Plan. See "Management -- Employee Stock Option Plans -- 1996 Plan."
No further options will be granted under the 1996 Plan.
20
<PAGE> 22
DILUTION
The net tangible book value of the Company at June 30, 1998 was
approximately $11.1 million, or $2.13 per share. "Net tangible book value" per
share represents the amount of total tangible assets of the Company less its
total liabilities, divided by the number of shares of Common Stock outstanding.
After giving effect to the sale by the Company of the 2,500,000 shares of Class
A Common Stock in the Offering at an assumed initial public offering price of
$14.00 per share and the deduction of the estimated underwriting discount and
expenses of the Offering the adjusted net tangible book value of the Company at
June 30, 1998 would have been approximately $42.8 million, or $5.53 per share.
This represents an immediate increase in such net tangible book value of $3.40
per share to the Parent Company and an immediate dilution of $8.47 per share to
new investors purchasing shares of Class A Common Stock at the initial public
offering price. Net tangible book value dilution per share represents the
difference between the amount paid by purchasers of the shares of Class A Common
Stock in the Offering and the adjusted net tangible book value per share of
Common Stock immediately after completion of the Offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $14.00
Net tangible book value per share at June 30, 1998........ $2.13
Increase in net tangible book value per share attributable
to new investors....................................... 3.40
-----
Adjusted net tangible book value per share after the
Offering.................................................. 5.53
------
Dilution in net tangible book value per share to new
investors(1).............................................. $ 8.47
======
</TABLE>
- ---------------
(1) As of June 30, 1998, there were outstanding options to purchase a total of
504,306 shares of Class B Common Stock at a weighted average price per share
of $7.45 under the Company's 1996 Key Employee Stock Option Plan. The
foregoing table does not give effect to the exercise of any such options
subsequent to June 30, 1998. To the extent any such outstanding options are
exercised, there will be further dilution to new investors. See
"Management -- Employee Stock Option Plans -- 1996 Plan" and Note 17 of the
Notes to Consolidated Financial Statements.
21
<PAGE> 23
SELECTED FINANCIAL DATA
The following table presents selected consolidated or combined financial
information for the Company. The financial information as of September 30, 1997,
1996 and 1995 and for each of the years then ended was derived from the
Company's audited consolidated financial statements. This information should be
read in conjunction with the audited consolidated financial statements,
including the notes thereto, for each of the years in the three year period
ended September 30, 1997 included elsewhere in this Prospectus. Prior to Fiscal
1995, some of the Company's operations were held by other affiliates of the
Parent Company. See "Relationship with Parent Company -- Background." As such,
the financial information as of September 30, 1994 and 1993 and for the two
years then ended was derived from the audited financial statements of the Parent
Company and in the opinion of management of the Company has been prepared on a
basis consistent with the audited financial statements of the Company and
includes all normal and recurring adjustments and eliminations for a fair
presentation of such information. The selected financial information as of June
30, 1998 and 1997 and the nine month periods then ended was obtained from the
Company's unaudited financial statements. In the opinion of the Company's
management all normal and recurring adjustments and eliminations necessary for a
fair presentation of the interim results have been included. The results of
operations for the nine months ended June 30, 1998 are not necessarily
indicative of the results for any future periods. This selected financial
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
---------------------------------------------------------- -----------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- ---------- ----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Net revenues............... $ 37,184 $ 40,587 $ 50,117 $ 54,771 $ 60,247 $ 44,111 $ 54,953
Cost of revenues......... 23,914 28,243 34,842 38,319 40,645 29,913 37,325
--------- --------- --------- --------- --------- ---------- ----------
Gross profit............... 13,270 12,344 15,275 16,452 19,602 14,198 17,628
Selling and
administrative
expenses............... 7,028 9,017 10,088 10,171 12,003 8,504 10,246
Royalty expense to Parent
Company(1)............. 1,653 1,911 2,275 2,481 2,747 2,027 2,432
--------- --------- --------- --------- --------- ---------- ----------
Operating profit(1)........ 4,589 152(2) 2,912 3,800 4,852 3,667 4,950
Interest expense, net...... 335 822 1,705 1,355 875 711 783
Earnings (loss) before
income taxes............. 4,231 (1,277) 1,056 2,761 3,699 2,806 3,797
Net earnings (loss)........ $ 2,633 $ (816) $ 1,017 $ 1,784 $ 2,726 $ 1,742 $ 2,294
Basic net earnings (loss)
per common share(3)...... $ 0.50 $ (0.16) $ 0.19 $ 0.34 $ 0.52 $ 0.33 $ 0.44
Diluted net earnings (loss)
per common share(3)...... $ 0.50 $ (0.16) $ 0.19 $ 0.34 $ 0.52 $ 0.33 $ 0.43
Weighted average number of
common shares
outstanding(3)........... 5,225,000 5,225,000 5,225,000 5,225,000 5,225,000 5,225,000 5,225,000
Weighted average number of
common shares and
dilutive potential common
shares outstanding(3).... 5,225,000 5,225,000 5,225,000 5,225,000 5,242,782 5,242,782 5,291,286
Cash dividends paid........ -- -- -- -- -- -- $ 12,000(7)
PRO FORMA DATA (UNAUDITED):
Operating profit(4)........ $ 7,099 $ 7,007
Net earnings(4)............ $ 4,431 $ 3,575
Diluted net earnings per
common share(3)(4)....... $ 0.85 $ 0.68
CASH FLOW DATA:
Depreciation and
amortization............. $ 3,664 $ 4,380 $ 5,380 $ 5,884 $ 6,108 $ 4,564 $ 5,629
Capital expenditures....... 6,864 23,189(5) 8,533 3,943 8,885(5) 3,560 19,671(5)
</TABLE>
22
<PAGE> 24
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
---------------------------------------------------------- -----------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- ---------- ----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital
(deficit)................ $ (1,244) $ (15,656) $ (10,478) $ (3,500) $ (583) $ 1,818 $ (25,590)(6)
Total assets............... 35,210 56,074 62,631 58,294 66,719 58,637 81,476
Long-term debt, less
current portion.......... 1,510 6,987 11,777 15,391 19,208 16,938 17,015
Stockholder's equity....... 22,784 21,952 25,262 26,385 28,006 27,146 17,851(7)
</TABLE>
- ---------------
(1) For all periods presented the Company has paid to the Parent Company a
royalty (classified as an operating expense) equal to 5% of net revenues
from ethylene oxide sterilization management services for the license of
certain intellectual property owned by the Parent Company. Effective upon
completion of the Offering, the Parent Company will assign this intellectual
property to the Company and the royalty payment to the Parent Company will
cease.
(2) Operating profit for Fiscal 1994 is net of costs associated with the closing
of the Company's sterilization facility in Bound Brook, New Jersey. These
costs include approximately $1,264 for equipment value write downs and
dismantling charges and $147 for severance payments.
(3) The earnings per share and weighted average number of common shares
outstanding give effect to the 5.5 for one stock reclassification to occur
as part of the recapitalization of the Company described under "Description
of Capital Stock -- Recapitalization."
(4) Pro forma operating profit for Fiscal 1997 and the nine months ended June
30, 1998 include the following adjustments: (i) the elimination of the 5%
royalty payable to the Parent Company; and (ii) the inclusion of an
incremental amount payable to the Parent Company under the Administrative
Services Agreement estimated to be $500 per year (see "Relationship with
Parent Company -- Administrative Services Agreement"). Pro forma net
earnings and diluted net earnings per common share for those periods also
include adjustments for (x) assumed interest savings of $67 and $63,
respectively, from the net cash flows resulting from the adjustments in (i)
and (ii) above; and (y) an increase in estimated income tax expense of $609
and $839, respectively, resulting from the foregoing adjustments.
(5) Capital expenditures for Fiscal 1994, Fiscal 1997 and the nine months ended
June 30, 1998 include $8,138, $2,585 and $9,727, respectively, for
acquisitions.
(6) The working capital (deficit) at June 30, 1998 results primarily from a
$12,000 note payable to the Parent Company issued in payment of a dividend
(see note (6) above), $9,600 of short-term debt incurred for the acquisition
of Sorex Medical, Inc. and $5,218 of other short-term borrowings primarily
incurred for capital expenditures.
(7) On June 1, 1998, the Company paid a $12,000 dividend to the Parent Company
in the form of a promissory note. The promissory note is due on demand and
bears interest at the rate of 6% per annum which is payable at maturity.
23
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the Company's financial condition and results
of operations should be read in conjunction with "Selected Financial Data" and
the Consolidated Financial Statements and notes thereto of the Company included
elsewhere in this Prospectus. Figures may vary due to rounding.
OVERVIEW
Griffith Micro Science's principal line of business, representing
approximately 92% of net revenues in Fiscal 1997, is providing sterilization
management services to manufacturers of single use medical devices and, to a
much lesser extent, pharmaceuticals, cosmetics and food products. Its
sterilization management services include comprehensive sterilization processing
and related laboratory testing, consulting and logistics management services.
Substantially all of the remainder of the Company's net revenues are derived
from the distribution of a variety of sterilization packaging materials,
disinfection products and related items in Europe. Revenue from the Company's
contract sterilization services is recognized upon the completion of an error
free sterilization cycle as defined by the individual parameters or dosage level
specified for the customer's product. Revenue for laboratory testing, consulting
and logistics management is recognized when the related service is performed.
In the early 1990's, senior management of the Parent Company decided to
significantly strengthen the operations at Griffith Micro Science and
implemented several initiatives which included: (i) strengthening senior
management at the Company; (ii) increasing sterilization processing capacity;
(iii) completing acquisitions to increase capacity and expand geographically;
and (iv) improving overall profitability. During this period, the Company opened
three new ethylene oxide facilities, acquired five operations and added capacity
to existing facilities. The three new facilities are: Ontario, California
(August 1994); Glens Falls, New York (October 1994); and Charlotte, North
Carolina (October 1995). The five acquisitions include: ethylene oxide
facilities in eastern Belgium (July 1998), Salt Lake City, Utah (April 1998),
and France (two plants -- July 1994), and one gamma facility in Belgium (August
1997 -- 82.8% ownership). The implementation of these initiatives, as well as
the continuing trend of medical device manufacturers to outsource sterilization
processing, have resulted in compound annual growth rates of 14.1% and 65.6% in
net revenues and pro forma operating profit, respectively, during the three-year
period ended September 30, 1997.
For all periods presented the Company has paid to the Parent Company a
royalty equal to 5% of net revenues from ethylene oxide sterilization management
services for the license of certain intellectual property owned by the Parent
Company. Effective upon the completion of the Offering, the Parent Company will
contribute this intellectual property to the Company and the royalty payment to
the Parent Company will cease. The royalty currently is an operating expense of
the Company which it pays in cash. Accordingly, its elimination will have a
positive impact on the operating results and cash flows of the Company for all
periods subsequent to the Offering. The amount of royalty expense incurred
during Fiscal 1995, 1996 and 1997 and for the nine months ended June 30, 1998
was $2.3 million, $2.5 million, $2.7 million and $2.4 million, respectively.
Also effective upon completion of the Offering, the Company will make payments
to the Parent Company for certain support services to be rendered pursuant to
the proposed Administrative Services Agreement. The Company estimates that in
Fiscal 1999 its aggregate incremental payments to the Parent Company under the
Administrative Services Agreement are not likely to exceed $500,000. Excluding
these royalty expense amounts and including estimated incremental payments of
$500,000 per year under the Administrative Services Agreement, pro forma
operating profit was approximately $4.7 million, $5.8 million, $7.1 million and
$7.0 million for Fiscal 1995, 1996, 1997 and the nine months ended June 30,
1998, respectively. This represents a compound annual growth rate of
approximately 65.6% in pro forma operating profit during the three-year period
ended September 30, 1997. Moreover, pro forma operating margins improved from
3.9% in Fiscal 1994 to 11.8% in Fiscal 1997. See "Selected Financial Data."
Although the Company acquired a gamma facility in August 1997, most of the
Company's sterilization business continues to utilize the ethylene oxide
process. Both ethylene oxide and gamma sterilization operations are capital
intensive, resulting in significant depreciation expense. Efficiency and
capacity
24
<PAGE> 26
utilization are therefore key determinants of the margins for both ethylene
oxide and gamma operations. The Company believes that operating margins for most
gamma facilities are higher than the margins for comparable ethylene oxide
facilities because while there appears to be little difference in the prices
charged to customers for ethylene oxide and gamma sterilization, the costs for
an ethylene oxide facility are higher than for a comparable gamma facility. The
Company estimates that the capital cost to build and equip an ethylene oxide
facility is higher than the cost (excluding the cost of Cobalt 60) to build a
comparable gamma facility primarily due to the need for emission control
equipment in the ethylene oxide facility. Further, in a gamma facility the cost
of the source for sterilization, Cobalt 60, is capitalized and then amortized
over time at a rate corresponding to its natural decay rate of 12.3% per year.
Ethylene oxide is purchased as it is used, and recorded as an operating cost.
The Company believes that the costs to operate an ethylene oxide sterilization
facility tend to be substantially higher than the operating costs for a
comparable gamma facility, principally because of the more complex nature of the
ethylene oxide sterilization process. This greater complexity tends to result in
higher costs in such areas as utilities, labor, repairs and maintenance. The
lower margins associated with the ethylene oxide sterilization process could
result in the Company's results of operations and liquidity related to a given
volume of business being lower than for a comparable gamma processing company.
Compliance by the Company with applicable environmental regulations
significantly increases the cost of an ethylene oxide facility. Regulations to
control low concentration ethylene oxide emissions were adopted by the United
States EPA in 1994 and were originally scheduled to become effective in December
1997. However, the original effective date was postponed to December 1998, and
the EPA has announced its intention to again postpone the effective date of the
regulations, to December 1999 (see "Risk Factors -- Risks Related to Compliance
With Environmental Regulations"). The Company believes that it will be able to
comply with the EPA's 1994 low concentration ethylene oxide emission regulations
by December 1999. The Company estimates that its capital expenditures for
environmental control equipment, including equipment necessary to comply with
the EPA's low concentration ethylene oxide emissions regulations (assuming they
take effect in their present form), for the last quarter of Fiscal 1998 and for
Fiscal 1999 and Fiscal 2000 will be approximately $175,000, $4.1 million and
$2.45 million, respectively.
The Company's average amount of annual capital expenditures (including
amounts for acquisitions) during the last five fiscal years was approximately
$10.3 million. The Company estimates that its total capital expenditures
(including approximately $9.8 million for the acquisition of Sorex Medical,
Inc.) for Fiscal 1998 will be approximately $26.0 million. In order to meet
anticipated increases in demand for its services, as well as to implement key
components of its growth strategy, the Company expects that its annual capital
expenditures in the next three fiscal years will be substantial and are likely
to exceed historical levels, more closely resembling the estimated Fiscal 1998
level. While the Company believes that net revenues and profits will ultimately
be generated from capital expenditures for additional capacity, there could be
significant lead times before this occurs.
The following tables set forth for the periods indicated a breakdown of the
Company's net revenues and operating profit between North America and Europe:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS
SEPTEMBER 30, ENDED JUNE 30,
----------------------- --------------
1995 1996 1997 1997 1998
----- ----- ----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net revenues:
North America............................ $28.4 $31.0 $36.9 $26.6 $35.4
Europe................................... 21.7 23.7 23.3 17.5 19.6
----- ----- ----- ----- -----
Total............................ $50.1 $54.7 $60.2 $44.1 $55.0
===== ===== ===== ===== =====
Operating profit:
North America............................ $ 0.9 $ 1.6 $ 2.9 $ 1.9 $ 3.2
Europe................................... 2.8 3.0 3.1 2.6 2.7
Corporate overhead....................... (0.8) (0.8) (1.1) (0.8) (0.9)
----- ----- ----- ----- -----
Total............................ $ 2.9 $ 3.8 $ 4.9 $ 3.7 $ 5.0
===== ===== ===== ===== =====
</TABLE>
25
<PAGE> 27
In Fiscal 1997 and for the nine months ended June 30, 1998, the Company's
net revenues generated outside North America were 38.7% and 35.7%, respectively.
The Company's European operating margins are typically higher than those of
North America due to: (i) higher use of plant capacity; (ii) lower depreciation
and rent expense associated with older facilities; and (iii) shorter term
contracts, which generally do not provide for any pricing incentives. See Note 3
of the Notes to Consolidated Financial Statements for further operating segment
data.
Since the vast majority of the Company's foreign operations' revenue and
expense transactions are denominated in local currency and it has typically been
the Company's policy to reinvest its foreign earnings overseas, the Company's
foreign exchange rate exposure has primarily been one of financial statement
translation exposure rather than transaction exposure. The Company utilizes
interest rate cap, collar and swap agreements to reduce the impact of increases
in interest rates on certain of its floating rate debt. The primary instruments
used for this purpose are "zero cost collars" acquired from the Company's
relationship banks. These collar transactions limit the Company's interest rate
risk by effectively constraining the floating rates within a limited range.
Historically, gains and losses on these contracts have not been material. In
entering into these contracts, the Company has assumed the risk which might
arise from the possible inability of the counterparties to meet the terms of
their contracts. Counterparties to the interest rate contracts are major
financial institutions. Accordingly, the Company does not anticipate any losses
as a result of counterparty defaults. The Company does not hold or issue
derivative financial instruments for trading purposes nor is it a party to any
leveraged derivatives.
Over the past five years, the Company has closed one older ethylene oxide
facility in conjunction with the opening of the Glens Falls, New York facility
and replaced one of the acquired facilities in France. The Company plans to
close an additional small facility in Montreal, Canada and consolidate its
activities with the Company's Toronto, Canada facility during the third quarter
of Fiscal 1999. In June 1998, the Company recorded an operating expense reserve
of approximately $320,000 for estimated costs associated with the closing of the
Montreal facility.
The United States operating results of the Company and the Parent Company
are included in the consolidated federal income tax returns of Griffith
Laboratories, Inc. Income taxes have been allocated to the Company based upon
the estimated taxes which the Company would have paid on a separate company
basis. Subsequent to the Offering, the Company's operating results will no
longer be consolidated with those of the Parent Company for United States
federal income tax purposes.
RESULTS OF OPERATIONS
The following tables set forth for the periods indicated the percentage of
net revenues and the percentage change from the prior period of certain items
reflected in the Company's consolidated statements of income:
<TABLE>
<CAPTION>
PERCENTAGE OF NET REVENUES
---------------------------------------
FISCAL YEAR ENDED NINE MONTHS
SEPTEMBER 30, ENDED JUNE 30,
--------------------- ---------------
1995 1996 1997 1997 1998
----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Net revenues................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues............................... 69.5 70.0 67.5 67.8 67.9
----- ----- ----- ----- -----
Gross profit................................... 30.5 30.0 32.5 32.2 32.1
Selling and administrative expenses............ 20.1 18.6 19.9 19.3 18.7
Royalty expense to Parent Company.............. 4.6 4.5 4.6 4.6 4.4
----- ----- ----- ----- -----
Operating profit............................... 5.8 6.9 8.0 8.3 9.0
----- ----- ----- ----- -----
Other (income) expense:
Interest expense, net........................ 3.4 2.5 1.5 1.6 1.4
Other (income) expense....................... 0.3 (0.6) 0.4 .3 .7
----- ----- ----- ----- -----
Earnings before income taxes................... 2.1 5.0 6.1 6.4 6.9
Income tax expense............................. 0.1 1.7 1.6 2.4 2.7
----- ----- ----- ----- -----
Net earnings................................... 2.0% 3.3% 4.5% 4.0% 4.2%
===== ===== ===== ===== =====
</TABLE>
26
<PAGE> 28
<TABLE>
<CAPTION>
PERCENTAGE CHANGES
---------------------------------------
NINE
MONTHS
FISCAL YEAR ENDED ENDED
SEPTEMBER 30, JUNE 30,
------------------------- -----------
1996 1997 1998
COMPARED TO COMPARED TO COMPARED TO
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net revenues..................................... 9.3% 10.0% 24.6%
Cost of revenues................................. 10.0 6.1 24.8
Gross profit..................................... 7.7 19.2 24.2
Selling and administrative expenses.............. 0.8 18.0 20.5
Operating profit................................. 30.5 27.7 35.0
Earnings before income taxes..................... 161.5 34.0 35.3
</TABLE>
NINE MONTHS ENDED JUNE 30, 1998 COMPARED TO NINE MONTHS ENDED JUNE 30, 1997
Net revenues. Net revenues increased $10.8 million, or 24.6%, to $55.0
million in the nine months of Fiscal 1998 from $44.1 million in the nine months
of Fiscal 1997. This increase was primarily due to additional volume in North
America, reflecting (a) the continued strength of the single use medical device
industry and industry trends towards consolidation and outsourcing, and (b) the
Company's acquisition of Sorex Medical, Inc., in April 1998. Also, European net
revenues increased due to new revenues generated by Griffith Mediris, the
Belgian gamma company acquired in August 1997.
Cost of revenues. Cost of revenues increased $7.2 million, or 24.8%, to
$37.3 million in the nine months of Fiscal 1998 from $30.1 million in the nine
months of Fiscal 1997. Cost of revenues for the nine months of Fiscal 1998
include expenses of Sorex Medical, Inc. (acquired in April 1998) and Griffith
Mediris (acquired in August 1997), as well as an approximate $320,000 expense
reserve provision for estimated costs associated with the closing of the
Company's Montreal facility. Gross margin decreased to 32.1% for the nine months
of Fiscal 1998 from 32.2% for the nine months of Fiscal 1997.
Selling and administrative expenses. Selling and administrative expenses
increased $1.7 million, or 20.5%, to $10.2 million for the nine months of Fiscal
1998 from $8.5 million for the nine months of Fiscal 1997. This increase is
primarily a result of additional costs related to increasing sales and marketing
initiatives in North America, incremental fees for outside consultants and the
addition of the Griffith Mediris operation. However, such expenses as a percent
of net revenues declined to 18.7% in the nine months of Fiscal 1998 from 19.3%
in the nine months of Fiscal 1997, due to economies of scale.
Operating profit. As a result of the preceding factors, operating profit
increased $1.3 million, or 35.0%, to $4.9 million for the nine months of Fiscal
1998 from $3.7 million for the nine months of Fiscal 1997. Fluctuations in
foreign exchange rates between fiscal years had an unfavorable translation
impact of approximately $200,000 on the reported amount of operating profit for
the nine months of Fiscal 1998 as compared to the nine months of Fiscal 1997.
Other (income) expense. Net other expenses increased to approximately $1.2
million for the nine months of Fiscal 1998 from $861,000 for the nine months of
Fiscal 1997 primarily due to the write-off of idle fixed assets and interest
expense on a $12.0 million promissory note dated June 1, 1998 payable to the
Parent Company for a dividend (see "Liquidity and Capital Resources").
Income tax expense. The Company's income tax expense represented a 39.6%
effective tax rate for the nine months of Fiscal 1998 as compared to a 37.9%
effective tax rate for the nine months of Fiscal 1997. The net increase in the
effective tax rate is primarily due to the relative weight of earnings before
income taxes generated during the Fiscal 1998 period in those European countries
in which the Company operates, which generally have higher statutory tax rates
than those in effect in North American countries.
27
<PAGE> 29
FISCAL YEARS ENDED SEPTEMBER 30, 1997 AND 1996
Net revenues. Net revenues increased $5.4 million, or 10.0%, to $60.2
million in Fiscal 1997 from $54.8 million in Fiscal 1996. This increase was due
to volume increases in North America with a number of existing customers. The
addition of capacity in the Glens Falls, New York facility during Fiscal 1997
also contributed to the net revenue increase. Net revenues from European
operations increased approximately 5.0% in local currency primarily due to
increased volume; however, unfavorable exchange rate variances resulted in a
slight decrease when translated into United States dollars.
Cost of revenues. Cost of revenues increased $2.3 million, or 6.1%, to
$40.6 million in Fiscal 1997 from $38.3 million in Fiscal 1996. Gross margin
increased to 32.5% in Fiscal 1997 from 30.0% in Fiscal 1996 due to the favorable
impact of higher volume against the Company's fixed cost structure.
Selling and administrative expenses. Selling and administrative expenses
increased $1.8 million, or 18.0%, to $12.0 million in Fiscal 1997 from $10.2
million in Fiscal 1996. This increase primarily resulted from additional North
American sales and marketing initiatives and increased professional fees.
Selling and administrative expenses as a percent of net revenues increased to
19.9% in Fiscal 1997 from 18.6% in Fiscal 1996 as a result.
Operating profit. As a result of the preceding factors, operating profit
increased $1.1 million, or 27.7%, to $4.9 million for Fiscal 1997 from $3.8
million for Fiscal 1996. Fluctuations in foreign exchange rates between fiscal
years had an unfavorable translation impact of approximately $300,000 on
operating income in Fiscal 1997 as compared to Fiscal 1996.
Other (income) expense. Net other expenses increased to $1.2 million in
Fiscal 1997 from $1.0 million in Fiscal 1996. Interest expense decreased
approximately $500,000 in Fiscal 1997. However, in Fiscal 1996 other income
included $653,000 of insurance recoveries related to equipment damage claims at
the Company's Charlotte, North Carolina and Herentals, Belgium facilities.
Income tax expense. While the United States federal income tax rate was
34.0% in both fiscal years, the Company's effective tax rate in Fiscal 1997 and
Fiscal 1996 was 26.3% and 35.4%, respectively. The difference between the
Company's effective tax rate and the statutory rate, as well as the difference
between the Company's effective tax rates between years, was primarily due to
variations in foreign tax rate differentials and amounts of state income taxes
net of federal tax benefits.
FISCAL YEARS ENDED SEPTEMBER 30, 1996 AND 1995
Net revenues. Net revenues increased $4.7 million, or 9.3%, to $54.8
million in Fiscal 1996 from $50.1 million in Fiscal 1995. Net revenues in North
America increased $2.6 million largely due to volume increases made possible by
the opening of the Charlotte, North Carolina facility in early Fiscal 1996, and
by additional capacity added to the Glens Falls, New York facility. Net revenues
in Europe increased $2.1 million as a result of strong revenue growth in the
United Kingdom, growth in the Belgian and Dutch core sterilization operations
and in the European distribution business.
Cost of revenues. Cost of revenues increased $3.5 million, or 10.0%, to
$38.3 million in Fiscal 1996 from $34.8 million in Fiscal 1995. Gross margin
decreased to 30.0% in Fiscal 1996 from 30.5% in Fiscal 1995.
Selling and administrative expenses. Selling and administrative expenses
remained essentially level between Fiscal 1996 at $10.2 million and Fiscal 1995
at $10.1 million. Selling and administrative expenses as a percent of net
revenues decreased to 18.6% in Fiscal 1996 from 20.1% in Fiscal 1995, due to
economies of scale.
Operating profit. As a result of the preceding factors, operating profit
increased $888,000, or 30.5%, to $3.8 million for Fiscal 1996 from $2.9 million
for Fiscal 1995. Fluctuations in foreign exchange rates between years had an
unfavorable impact of approximately $400,000 in Fiscal 1996 as compared to
Fiscal 1995.
Other (income) expense. Net other expenses decreased to $1.0 million for
Fiscal 1996 from $1.9 million for Fiscal 1995. As previously indicated, in
Fiscal 1996 other income included $653,000 of insurance
28
<PAGE> 30
recoveries related to equipment damage claims at the Company's Charlotte, North
Carolina and Herentals, Belgium facilities.
Income tax expense. While the United States federal income tax rate was
34.0% in both fiscal years, the Company's effective tax rate in Fiscal 1996 and
Fiscal 1995 was 35.4% and 3.7%, respectively. The difference between the
Company's effective tax rate and the statutory rate, as well as the difference
between the Company's effective tax rates between years, was primarily due to
variations in foreign tax rate differentials and amounts of state income taxes
net of federal tax benefits.
QUARTERLY RESULTS
The following table sets forth consolidated statement of operations data
for the eleven quarters in the period ended June 30, 1998. This information has
been derived from unaudited consolidated financial statements that, in the
Company's opinion, reflect all normal recurring adjustments and eliminations
that the Company considers necessary for a fair presentation of the results of
operations in the quarterly periods. The data set forth should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus. The operating results for any quarter
are not necessarily indicative of results for future quarters.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------
FISCAL 1996 FISCAL 1997
------------------------------------------- -------------------------------------------
DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1995 1996 1996 1996 1996 1997 1997 1997
-------- --------- -------- --------- -------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues................... $12,963 $13,530 $14,244 $14,034 $13,779 $14,566 $15,766 $16,136
Gross profit................... $ 3,635 $ 3,744 $ 4,655 $ 4,418 $ 4,258 $ 4,708 $ 5,232 $ 5,404
% of net revenues............ 28.0% 27.7% 32.7% 31.5% 30.9% 32.3% 33.2% 33.5%
Operating profit............... $ 304 $ 677 $ 1,543 $ 1,276 $ 832 $ 1,238 1,596 $ 1,186
% of net revenues............ 2.4% 5.0% 10.8% 9.1% 6.0% 8.5% 10.1% 7.4%
Net earnings (loss)............ $ (127) $ 285 $ 1,055 $ 571 $ 363 $ 534 $ 862 $ 967
% of net revenues............ (1.0%) 2.1% 7.4% 4.1% 2.6% 3.8% 5.2% 6.0%
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------
FISCAL 1998
-------------------------------
DEC. 31, MARCH 31, JUNE 30,
1997 1998 1998
-------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenues................... $17,607 $17,310 $20,036
Gross profit................... $ 5,917 $ 5,155 $ 6,556
% of net revenues............ 33.6% 29.8% 32.7%
Operating profit............... $ 1,862 $ 1,269 $ 1,819
% of net revenues............ 10.6% 7.3% 9.1%
Net earnings................... $ 953 $ 690 $ 651
% of net revenues............ 5.4% 4.0% 3.2%
</TABLE>
Quarterly fluctuations. The Company has experienced, and expects to
continue to experience, significant fluctuations in net revenues and operating
results from quarter to quarter. In general, fluctuations in the Company's
quarterly net revenues and operating results can be caused by a variety of items
including, among other things, fluctuations in the timing and size of customer
orders, volatility in the market for single use medical devices, and the timing
of construction and commencement of new capacity. Historically, due to the
seasonality of the manufacturing cycles for the single use medical device
industry, the Company's first and second fiscal quarters' net revenues and
operating results tend to be lower than such amounts in the third and fourth
quarters. The Company's third quarter net revenues and operating results have
typically benefited from increased sterilization processing resulting from
European manufacturers' desire to sterilize products prior to the traditional
European holiday month of August.
29
<PAGE> 31
Gross and operating profits for the quarters ended December 31, 1995 and
March 31, 1996 were negatively impacted by start-up costs associated with the
opening of the Charlotte, North Carolina ethylene oxide sterilization facility.
Operating profit decreased between the quarters ended June 30, 1997 and
September 30, 1997 primarily due to the establishment of a reserve related to
the Griffith Mediris operation during the quarter ended September 30, 1997 which
was subsequently reversed in the quarter ended March 31, 1998. The decrease in
gross margins between the quarters ended December 31, 1997 and March 31, 1998
primarily resulted from increased costs incurred in the quarter ended March 31,
1998 related to adding new capacity that became operational primarily in the
following quarter.
Because it has experienced significant fluctuations in net revenues and
operating results, the Company believes that period-to-period comparisons of its
operating results are not necessarily meaningful, and that such comparisons
cannot be relied upon as indicators of future performance. See "Risk Factors --
Unpredictability of Future Operating Results; Likely Fluctuations in Quarterly
Operating Results."
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations to date with cash flow from
operations, Industrial Revenue Bonds ("IRB's"), Parent Company financing and
bank financing. In addition to providing direct financing to the Company in the
form of capital contributions and loans, historically the Parent Company has
also guaranteed the Company's obligations for some of its bank debt and for
letters of credit required pursuant to the IRB's. Bank financing utilized by the
Company has historically been in the form of bank short-term credit facilities
and term loans generally bearing interest at floating market interest rates.
Following completion of the Offering, no further financing can be expected
to be available to the Company directly or indirectly from the Parent Company.
Therefore, in the future the Company expects to finance operations with cash
flows from operations, existing financial resources, including existing
short-term credit facilities with various banks in the United States and Europe,
a proposed new $50.0 million unsecured Revolving Credit Agreement which the
Company expects to enter into with a syndicate of banks prior to the completion
of this Offering, and, if necessary and to the extent allowed under the
provisions of the Revolving Credit Agreement, obtaining additional debt
financing. The Company may also raise cash to finance operations by the issuance
of additional equity securities.
In early July 1998, the Company and The First National Bank of Chicago (the
"Bank") signed a commitment letter for the Revolving Credit Agreement referred
to above. Although the commitment letter expired on September 30, 1998, the Bank
(which would form a syndicate with other banks) has informally indicated to the
Company its willingness to proceed with the financing on terms similar to those
proposed in the commitment letter, subject to pricing conditions prevailing in
the market at the time any such commitment is reissued. The following summary of
the proposed Revolving Credit Agreement is based upon the provisions of the
recently expired commitment letter, all of which are subject to change as a
result of further negotiation between the Company and the Bank. The Revolving
Credit Agreement is expected to provide for aggregate borrowings of $50.0
million, be unsecured, require interest at a floating rate based upon a leverage
formula, expire in three years and contain a number of restrictive covenants
including, among other restrictions, required minimum net worth and interest
coverage ratios, maximum levels of debt and annual capital expenditures, and
limitations regarding acquisitions and the payment of dividends. It is expected
that the Revolving Credit Agreement will restrict the Company's ability to
create indebtedness (as defined) to specific types of indebtedness (including
such items as borrowings under existing credit facilities, intercompany
indebtedness, certain rate hedging obligations, indebtedness of acquired
subsidiaries that was not incurred in connection with or in anticipation of such
acquisition, and certain contingent obligations) and to other indebtedness at no
time exceeding $15 million in aggregate principal amount. Additionally, the
Company expects that the Revolving Credit Agreement will require that the
Company's ratio of consolidated indebtedness (as defined) to EBITDA (i.e.,
earnings before interest, taxes, depreciation and amortization expenses) for the
preceding four quarters not exceed 3.0 to 1.0 at the end of each fiscal quarter.
The letter of credit provisions of the Revolving Credit Agreement are expected
to reduce amounts available for borrowing under the Revolving Credit Agreement
by the principal amount of letters of credit issued. It is anticipated that,
concurrent with the execution of the Revolving Credit Agreement, the provisions
of the IRB agreements
30
<PAGE> 32
requiring that the Parent Company guaranty IRB-related letters of credit will be
canceled. Similarly, it is expected that a Parent Company guaranty of the
Company's debt payable to a German bank will be removed.
As of June 30, 1998, the Company had approximately $3.1 million in cash and
cash equivalents and a $25.6 million working capital deficit. The working
capital deficit is primarily a result of: (i) a $12.0 million promissory note
payable to the Parent Company in payment of a dividend; (ii) short-term bank
debt incurred to finance approximately $9.6 million of the cost of acquiring
Sorex Medical, Inc.; and (iii) amounts borrowed from banks and the Parent
Company under short-term credit facilities to finance various facility expansion
projects. Historically, the Company's cash in the United States has been pooled
with the Parent Company's cash resources, with separate records maintained. The
Company has sometimes had an overdraft due to the Parent Company.
At June 30, 1998, the Company's short-term debt consisted of approximately
$14.8 million of bank short-term credit facilities with a variable interest rate
(weighted average interest rate of 6.15% at June 30, 1998). At June 30, 1998,
the Company had approximately $5.5 million of unused lines of credit available.
The Company's existing short-term credit facilities have various maturities
extending to April 2003, and contain various restrictive covenants. The Company
plans to use a portion of the proceeds of the Offering to repay short-term debt.
See "Use of Proceeds."
Long-term debt at June 30, 1998 consisted of $9.5 million of IRB's in the
United States and approximately $9.9 million (of which $1.4 million represents
the current portion) of notes payable to various European banks. This debt
contains certain restrictive covenants, including restrictions as to payment of
dividends and requirements that specified minimum levels of working capital and
tangible net worth be maintained. The IRB's are supported by bank letters of
credit. Further, the Company has pledged most of its shares in Griffith Mediris,
its 82.8% owned Belgian gamma entity, against the approximate $2.6 million
acquisition loan facility with a European bank expiring February 2003. The IRB's
and the majority of the European bank notes had floating market interest rates
approximating 4.5% at June 30, 1998. The weighted average interest rate on the
Company's total debt was approximately 4.7% on June 30, 1998.
Net cash provided by operating activities was $6.7 million, $8.3 million,
$10.7 million and $8.7 million in Fiscal 1995, 1996 and 1997, and the nine
months ended June 30, 1998, respectively. The increases between fiscal years are
primarily the result of increased operating profits and increased depreciation
and amortization reflecting increased capacity. Deferred income tax expense also
significantly contributed to net cash provided by operating activities in Fiscal
1995, while working capital changes significantly impacted net cash provided by
operating activities in Fiscal 1997.
Net cash used in investing activities was $9.8 million, $3.8 million, $9.2
million and $20.4 million in Fiscal 1995, 1996 and 1997, and the nine months
ended June 30, 1998, respectively. The investing activities were primarily
attributable to the purchase of property, plant and equipment and, in the nine
months ended June 30, 1998, the Company's acquisition of Sorex Medical, Inc.
Fiscal 1997 net cash used in investing activities also reflected the Company's
acquisition of its majority interest in the Belgian gamma operation, and a
$923,000 advance made by the Company to the Parent Company which was repaid
during the first six months of Fiscal 1998 before an additional advance of
$725,000 was made by the Company to the Parent Company in the third quarter of
Fiscal 1998. Net cash used in investing activities in Fiscal 1995 also included
a $910,000 increase in restricted cash and investments representing unused
proceeds of IRB's held in trust until expended. In Fiscal 1996 and 1997, net
cash of $457,000 and $413,000, respectively, was provided by reductions in such
restricted cash and investments.
The Company made capital expenditures (including acquisitions) of $8.5
million, $3.9 million, $8.9 million and $19.7 million in Fiscal 1995, 1996, 1997
and the nine months ended June 30, 1998, respectively. The Company currently
expects to make additional capital expenditures of approximately $6.3 million
during the last three months of Fiscal 1998. However, in order to expand its
sterilization capacity sufficiently to meet anticipated increases in the demand
for its services, as well as to carry out other components of its business
strategy, the Company expects that its annual capital expenditures in the next
three fiscal years will be substantial and are likely to exceed historical
levels, more closely resembling the level of capital expenditures in Fiscal
1998. During the first nine months of Fiscal 1998, the Company added capacity at
seven facilities,
31
<PAGE> 33
and is currently adding capacity at four facilities. Additionally, the Company,
through its joint venture with MDS Nordion Inc., has a commitment of
approximately $3.6 million over the next 15 months for work related to its
planned Mexican gamma facility. While management believes that revenues will
ultimately be generated from additional capacity created by such capital
expenditures, the timing of the realization of such additional revenues cannot
be known with certainty. Typically, there is a lag between the start-up of a new
facility or expansion of an existing facility and the point when such facility
generates adequate amounts of annual revenues to achieve profitability.
Net cash provided by (used in) financing activities was $4.1 million,
($4.9) million, $424,000 and $12.2 million in Fiscal 1995, 1996 and 1997 and the
nine months ended June 30, 1998, respectively. Net cash provided by financing
activities in Fiscal 1995 was primarily the net result of $5.3 million of IRB
proceeds relating to the Glens Falls, New York facility, $1.0 million of
proceeds from other long-term debt, $1.2 million from short-term credit
facilities and a $1.1 million capital contribution from the Parent Company
offset partially by $3.0 million of net repayments of debt payable to the Parent
Company and $1.2 million of other debt payments. In Fiscal 1996, net cash used
in financing activities was primarily attributable to repayments of $7.1 million
of short-term credit facilities, repayment of $2.7 million of amounts owed to
the Parent Company, and $1.4 million of principal payments on some of the
Company's long-term debt and notes payable, partially offset by approximately
$6.4 million of proceeds from additional long-term debt and notes payable,
including $4.2 million of proceeds from IRB's relating to the Company's
Charlotte, North Carolina facility. Net cash provided by financing activities in
Fiscal 1997 was primarily attributable to $6.7 million of long-term debt
proceeds in several European countries pursuant to bank agreements finalized
with a European bank in January 1997 and pursuant to an approximate $800,000
floating rate note related to the Company's acquisition of its majority interest
in the Belgian gamma operation, largely offset by repayments of bank short-term
credit facilities and notes payable to the Parent Company and banks of $2.4
million and $4.0 million, respectively. Net cash provided by financing
activities during the nine months ended June 30, 1998 consisted primarily of
approximately $13.9 million of short-term credit provided to the Company by
banks, offset by net repayment of approximately $1.7 million of long-term bank
debt.
In April 1998, the Company obtained approximately $9.6 million to finance
substantially all of the cost of acquiring Sorex Medical, Inc. under a
short-term variable rate (approximately 6.3% per annum rate to date) bank credit
line guaranteed by the Parent Company. In conjunction with the acquisition of
Sorex Medical, Inc., approximately $2.5 million of deferred tax assets were
recorded and are included in the consolidated balance sheet of the Company at
June 30, 1998. These deferred tax assets pertain principally to approximately
$6.7 million of net operating loss carryforwards generated by Sorex Medical,
Inc. prior to its acquisition by the Company. These losses will be available to
offset future taxable income of the acquired company subject to an annual
limitation of approximately $821,000. These losses begin to expire in 2005
through 2018.
In July 1998, the Company obtained approximately $1.6 million under its
unsecured long-term facility with a European bank to purchase ethylene oxide
sterilization assets in eastern Belgium. Since October 1997, the Company had
been operating the eastern Belgian sterilization facility pursuant to
arrangements with the seller. Net revenues and operating income of approximately
$234,000 and $78,000 respectively, for such Belgian operation were included in
the Company's consolidated results for the nine months ended June 30, 1998.
On June 1, 1998 the Company issued a promissory note payable on demand to
the Parent Company for $12.0 million in payment of a dividend declared by the
Company on May 21, 1998. Such promissory note bears interest at an annual rate
of 6.0%, payable at maturity. The Company will use approximately $12.2 million
of its net proceeds from the Offering to discharge the principal of this
promissory note and related accrued interest and will use most of the remaining
net proceeds for repayment of short-term debt payable to banks incurred for
capital expenditures and general corporate purposes. See "Use of Proceeds."
The Company believes that the net proceeds of the Offering, together with
existing cash, cash generated from operations, its existing credit facilities
and the proposed $50.0 million unsecured Revolving Credit Agreement which the
Company expects to enter into with a syndicate of banks prior to the completion
of the Offering will be sufficient to fund the Company's anticipated capital
expenditures and operations through at
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least the end of Fiscal 2001. The Company also believes that it may be able to
finance certain of its expansion projects via the issuance of additional IRB's
(until the maximum tax-free IRB limit of $40.0 million is reached), although
eligibility to receive IRB proceeds is subject to specific rules and
regulations, and the availability of IRB funds from governmental Industrial
Development Agencies in the specific geographic regions of the Company's
expansion therefore cannot be assured. Overall, there can be no assurance that
adequate sources of capital will be available to the Company in the future or,
if available, will be on terms acceptable to the Company. See "Risk
Factors -- Capital Requirements."
IMPACT OF INFLATION
The Company believes that inflation has not had a material effect on its
overall financial condition or results of operations during the nine months
ended June 30, 1998 and Fiscal 1997, 1996 and 1995.
YEAR 2000 ISSUES
The Company's principal computer applications cover three broad areas of
its operation: (i) those associated with the process controls at its
sterilization facilities (which include both information technology and embedded
technology); (ii) those which relate to its general operations (including
invoicing, purchasing, receiving and payroll); and (iii) those which pertain to
its financial and accounting systems (including its general ledger, receivables,
payables and fixed assets). The Company currently utilizes the Parent Company as
a service provider with respect to its financial and accounting systems
throughout North America and also with respect to its general operations systems
in Mexico.
Commencing late in 1997, the Company began an evaluation and conversion
project covering all of its systems to identify and address all necessary code
changes, testing and implementation related to Year 2000 compliance issues. At
the same time, the Company also began an evaluation of Year 2000 compliance
issues for its critical customers and suppliers. Internal resources are being
used to make the evaluation and test Year 2000 compliance. The Company expects
to conclude its evaluation and testing of all systems under its direct control
by the end of February 1999 and to complete necessary systems modifications or
conversions and testing by mid-1999. The Parent Company has informed the Company
that (i) it has undertaken a similar evaluation and conversion project with
respect to its computer systems including those which are used by the Company
and (ii) it expects to bring such systems into Year 2000 compliance by mid-1999.
The Company has not yet prepared contingency plans pending completion of
its evaluation of the extent and nature of its compliance issues. The Company
expects to complete its contingency plans by the end of February 1999. Based
upon its evaluation to date, the Company estimates its aggregate cost will not
be material to bring into Year 2000 compliance all of the computer systems
utilized by the Company, including those of the Parent Company. The Company
expects to be able to better estimate the cost which it may incur to repair any
software problems and to replace any problem systems and equipment following
completion of its evaluation. Through August 31, 1998, the Company had incurred
costs approximating $25,000 to perform the evaluation and testing of its
systems. No other technology projects have been deferred by the Company due to
its Year 2000 compliance efforts. See "Risk Factors -- Year 2000 Issues."
ANTICIPATED IMPLICATIONS OF THE EUROPEAN MONETARY UNION
On January 1, 1999 eleven of the fifteen members of the European Union will
adopt the euro as their common legal currency. These eleven countries are:
Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the
Netherlands, Portugal and Spain. Denmark, Greece, Sweden and the United Kingdom
will not participate initially, but may do so at a later date. On January 1,
1999 a fixed conversion rate between the local currency of each of the eleven
participating countries and the euro will be established, and the euro will
begin trading on world currency exchanges. Exchange rates between each of the
individual local currencies will no longer be quoted. Additionally, the monetary
policy for these eleven countries will be directed by the new European Central
Bank.
During the period from January 1, 1999 through January 1, 2002, also known
as the transition period, the local currencies will remain legal tender as
sub-denominations of the euro in the eleven countries. However,
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parties may use either the euro or the local currencies to pay for goods and
services. Beginning on January 1, 2002 the participating countries will
introduce new euro denominated currency and withdraw their local currencies from
circulation. After July 1, 2002 the euro will be the only legal tender for the
participating countries.
While the euro is expected to provide benefits to the members of the
European Union in terms of increased economic importance in the world, reduction
of exchange risk, greater price stability, the promotion of competition and the
opportunity for improved political cooperation among member countries, it does
present certain challenges to companies operating in Europe. These challenges
include the readiness of computer systems to accommodate the euro, increased
cross-border competition and price transparency, currency risks and continuity
of contracts. Given the Company's significant operations within the European
Union, it will be subject to the changes brought about by the introduction of
the euro.
However, the Company believes that the impact of the euro on the Company's
operations will not be significant. The Company's existing computer systems can
already accommodate transactions in both local currencies and the euro, as well
as the required currency translations and decimal requirements for the euro. In
addition, given the service nature of the Company's business, the geographical
limitations on the areas which can be served by individual sterilization
facilities and the factors which affect pricing within the industry, the
introduction of the euro is not expected to alter the Company's ability to price
its services effectively nor to increase the cross-border competition
experienced by the Company. See "Business -- Customers," "-- Sales and
Marketing" and "-- Competition." Substantially all of the Company's net revenues
from its European operations are derived from countries within the European
Union. Consequently, the continuity of customer and supplier contracts within
those countries is facilitated by European Union regulations. Existing risk to
the Company from cross-border currency flow is minimal and is expected to be
reduced through the introduction of euro.
RECENTLY ISSUED ACCOUNTING STANDARDS
SFAS No. 130, Reporting Comprehensive Income, establishes standards for
reporting and display of comprehensive income, its components and accumulated
balances in a financial statement that is displayed with the same prominence as
other financial statements. Comprehensive income is defined to include all
changes in equity except those resulting from investments by owners and
distributions to owners. For the Company, comprehensive income will basically
consist of reported income plus the change in the balance of the cumulative
translation account. SFAS No. 130 is effective for the Company for Fiscal 1999
and requires comparative information for earlier years to be restated.
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, which supersedes SFAS No. 14, Financial Reporting for Segments of a
Business Enterprise, establishes standards for the way that public enterprises
report information about operating segments in annual and interim financial
statements. It also establishes new standards for disclosures regarding products
and services, geographic areas and major customers. This statement is effective
for the Company for Fiscal 1999. However, the segment disclosures in the
footnotes to the Company's financial statements included in this registration
statement have already presented information regarding the Company's North
American and European operations in accordance with the provisions of SFAS No.
131.
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
establishes the accounting and reporting standards for derivative instruments
and for hedging activities. This statement will be effective for the Company's
Fiscal Year 2000. Given the Company's current and anticipated use for derivative
instruments, SFAS No. 133 is not expected to have a material effect on the
Company's results of operations or financial position.
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BUSINESS
INTRODUCTION
Griffith Micro Science is the largest multinational provider of
sterilization management services and the only one with extensive operations in
both North America and Europe. See "Business -- Competition." The Company offers
comprehensive sterilization processing and related laboratory testing,
consulting and logistics management services to manufacturers of single use
medical devices and, to a much lesser extent, pharmaceuticals, cosmetics and
food products. The Company pioneered the development and use of ethylene oxide
as a sterilant beginning in the 1930s. Griffith Micro Science regards itself as
the premier full service provider of ethylene oxide sterilization management
services and has recently begun to offer gamma sterilization services. See
"Business -- Sterilization Management Services." The Company currently operates
a network of eleven ethylene oxide sterilization facilities in North America
(eight in the United States, two in Canada and one in Mexico) and a network of
seven ethylene oxide sterilization facilities and one gamma sterilization
facility in Europe. The Company has also formed a joint venture to design,
construct and operate a gamma sterilization facility in Mexico. Over the past
five years, the Company has opened three new sterilization facilities, acquired
five others, replaced one and closed one.
THE STERILIZATION PROCESSING INDUSTRY
Overview
A substantial portion of single use prepackaged medical devices and kits
are required by government regulation in the United States and many other
countries to be "sterile" or to have minimal levels of microbial contamination
when sold. Similar regulations apply to certain pharmaceutical products and
packaging materials. In addition, other products, such as cosmetics, spices and
herbs, frozen and dried foods, and animal feed are sterilized to improve their
safety, reduce microbial contamination and extend shelf-life. Manufacturers
sterilize their products after assembly and packaging using either or both of
their own in-house sterilization facilities ("captive processors") or the
services of contract sterilization processing companies such as Griffith Micro
Science ("contract processors"). The two most widely used methods of
sterilization utilize either ethylene oxide in gaseous form ("ethylene oxide
sterilization") or gamma radiation from a radioactive Cobalt 60 isotope ("gamma
sterilization"). Other methods include E-beam sterilization ("E-beam"),
accomplished using a high-energy electron beam, and steam sterilization, which
to date have only been employed to a limited extent for contract sterilization.
Until the 1980s, most major manufacturers of single use medical devices
performed the bulk of their sterilization in-house. As a result of a number of
factors, in the mid-1980s manufacturers began to outsource an increasing amount
of their sterilization requirements. The increased volume of outsourced
sterilization to contract processors reflects a trend among manufacturers to
focus on their core competencies. Specific factors contributing to this trend
include the logistical flexibility afforded by contract processors, the
significant capital required to construct and maintain an in-house sterilization
facility and the need to comply with dynamic environmental and health and safety
regulations. Today, the sterilization of single use medical devices represents
by far the largest component of the overall contract sterilization business. The
Company estimates that in 1997 a substantial majority of the aggregate revenues
of all contract processors was derived from the sterilization of single use
medical devices and related services.
Although the Company is not aware of any published industry statistics and
precise numbers are difficult to determine, the Company estimates that in 1997
the market for sterilization services in North America and those European
countries in which the Company has sterilization facilities was approximately
$500 million and that it consisted of the following components:
- contract processors generated aggregate net revenues of approximately
$300 million, including approximately $200 million in North America and
approximately $100 million in Europe; of this total, approximately 50% to
55% was attributable to ethylene oxide sterilization, 40% to 45% to gamma
sterilization and 5% to 7% to E-beam and other forms of sterilization;
and
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- captive processors sterilized a volume of products which, had they been
sterilized by contract processors, would have generated aggregate net
revenues of approximately $200 million, including approximately $140
million in North America and approximately $60 million in Europe; the
Company estimates the breakdown of this total volume among sterilization
technologies is similar to that for contract processors.
In determining whether to use a contract processor for its sterilization
needs, a manufacturer considers a number of factors, including the cost of
transporting its products to the contract processor's sterilization facility,
the turn-around time required for processing, the price charged by the contract
processor and the expense associated with in-house processing. Sterilization
facilities operated by contract processors have traditionally tended to be
located within a 300-mile radius of most of the manufacturing plants served by
such facilities. In many cases, contract processors have chosen to strategically
locate a particular sterilization facility in close proximity to a large
customer's manufacturing facility. In those cases, the financial viability of
the sterilization facility is often tied to the volume of sterilization business
received from that customer.
Beginning in the 1960's, the medical products industry in the United States
began to develop and market an array of single use medical devices for a variety
of often highly specialized surgical and other applications. Some of these
single use devices replaced reusable medical devices, while many others were
employed in new procedures or applications for which reusables would have been
impractical or impossible. Today, throughout North America and Europe, a broad
range of single use medical devices are used by hospitals, clinics and other
healthcare organizations in performing surgical and other medical procedures and
in the treatment and care of patients. Such devices include catheters,
intravenous feeding sets, dental and orthopedic implants, surgical instruments,
blood collection devices, gowns and caps, specimen bottles and syringes. A
recent and rapidly-developing trend is the assembly and sale by medical device
manufacturers of specialized "kits" containing all of the individual single use
medical devices necessary to perform a particular surgical or other medical
procedure or sub-procedure. Some of these kits are customized for individual
hospitals and even individual physicians.
A variety of non-medical products are also commercially processed,
primarily due to concerns over health risks and potential product liability as
well as economic considerations such as losses due to infestation and spoilage.
The principal types of non-medical products being commercially processed include
certain food ingredients and products, food packaging materials, cosmetics and
pharmaceuticals. The FDA has approved the use of gamma processing for spices,
fruits, vegetables, chicken and most recently red meat to kill bacteria and
other disease-causing microorganisms. However, the Company believes commercial
development of gamma radiation for food products such as poultry and red meat is
subject to several significant uncertainties, including the need for consumer
education and acceptance of foods processed using gamma and the willingness of
consumers to pay the higher prices likely to be charged for such products. In
addition, most existing gamma facilities will require significant modifications
or new gamma facilities will have to be built in order to meet the particular
design requirements for the processing of such food products, including the
installation of refrigeration facilities. The Company believes the use of
ethylene oxide processing for such food products as red meat, poultry and fish
is unlikely to develop.
The principal sterilization processes
Validation. Prior to the commencement of sterilization of any medical
product, whether accomplished by ethylene oxide, gamma or any other
sterilization technology, the process parameters for each step in the
sterilization cycle require "validation" in each chamber or cell in which the
product will be sterilized. The manufacturer establishes the cycle parameters or
dosage specifications for its products, often in consultation with the contract
processor. The cycle parameters or dosage specifications for any given product
vary, often significantly, among different products. The validation process is
intended to assure that the proposed sterilization cycle will consistently
achieve the desired sterility assurance level and that the product and its
packaging will be able to withstand the sterilization process. Validation
involves test runs of the proposed cycle or dosage in the contract processor's
chamber or cell, the results of which are documented in detail.
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Ethylene oxide sterilization. Ethylene oxide sterilization is accomplished
by exposing products to ethylene oxide in gaseous form, which destroys
microorganisms by disrupting their cells' metabolism and ability to reproduce.
Ethylene oxide sterilization in a contract processor's facility typically
involves five principal steps: (i) product pre-processing; (ii) preconditioning;
(iii) exposure to ethylene oxide; (iv) aeration; and (v) storage and shipment.
Product pre-processing involves completing the appropriate documentation and
preparing the product for sterilization, which includes placement of biological
indicators ("BIs") throughout the palletized product load. BIs are test strips,
test packs or product samples rich in microorganisms which, upon exposure to a
critical amount of ethylene oxide, will be destroyed, confirming sterility of
the processed batch. The preconditioning step involves exposure of the product
to elevated temperature and humidity to ensure that any microorganisms on the
product are active and therefore susceptible to the ethylene oxide. Exposure to
ethylene oxide occurs in an airtight chamber under specific parameters of time,
temperature, humidity and pressure. Once exposure to ethylene oxide is complete,
the product is removed from the chamber, the BIs are sent to a laboratory for
analysis and the product is transferred to an aeration area where residual
ethylene oxide is removed. Once aeration is complete and the test results of the
BIs are received confirming sterility, the product is released for use.
Gamma sterilization. Gamma sterilization is accomplished by exposing
products to Cobalt 60, an isotope that emits gamma radiation and disrupts the
DNA structure of microorganisms, thereby eliminating their ability to reproduce.
Similar to ethylene oxide sterilization, gamma sterilization is a multi-step
process that involves: (i) product staging and pre-processing; (ii) exposure to
Cobalt 60; and (iii) storage and shipment. Product staging involves completing
the appropriate documentation and preparing the product for sterilization.
Typically this includes removing the product from its pallets, placing it in
tote boxes, inserting a dose monitor in the tote to verify appropriate radiation
exposure and staging the product with other products requiring similar exposure
parameters. Once a staged batch of products has been prepared, the totes are
loaded on a conveyor and passed through a radiation cell (a concrete enclosure
in which the product is exposed to radiation). After exposure to the radiation,
the dose monitors are verified to confirm achievement of the desired sterility
assurance level and the product is re-palletized and then released for use.
Comparison of ethylene oxide sterilization and gamma sterilization
Versatility. Ethylene oxide sterilization is highly versatile. Ethylene
oxide is compatible with, and will not change the molecular structure of,
virtually all types of materials which are used in manufactured products and
permeable packaging. Gamma sterilization, on the other hand, causes certain
plastics, rubber and other materials to discolor, become brittle, deform or
otherwise degrade. As a result, gamma sterilization may not be used to sterilize
such gamma sensitive materials, which are contained in many single use medical
devices or their packaging. In addition, gamma cannot be used to sterilize
multiple product surgical kits if they contain any item that is not gamma
compatible or any medications that have not been approved by the FDA for gamma
sterilization.
Turn-around time. Turn-around time (measured from intake of the product to
its release following confirmation of sterility) for ethylene oxide
sterilization in the Company's facilities is typically five to ten days, with
the average being approximately seven to eight days, while the industry standard
for turn-around time for gamma sterilization is approximately five days. The
Company believes this difference in average turn-around time between the two
technologies exists principally because: (i) the gamma process involves fewer
steps than the ethylene oxide process; (ii) the gamma process does not require
the use and testing of BIs to confirm sterility; and (iii) surgical and medical
kits, most of which can only be sterilized using ethylene oxide, tend to have
longer turn-around times. The Company believes there are additional
opportunities to optimize the ethylene oxide sterilization process and thereby
further reduce the average turn-around time through its facilities. See
"Business -- Sterilization Management Services -- Continuous improvement
initiatives."
Service pricing. The Company believes there is little difference in
customer pricing of ethylene oxide and gamma sterilization. In the case of both
technologies, the Company believes that contract processors typically charge
prices which range from 1% to 5% of the unit manufacturing cost of the products
being processed.
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Current trends in use of the two technologies. Ethylene oxide sterilization
was the dominant technology for sterilization until the 1980s. Although
commercial gamma sterilization began in the early 1960s, its widespread use did
not occur until the 1980s when radiation compatible plastics became readily
available for use in products and packaging materials. This was also the period
when manufacturers of single use medical devices began to significantly increase
the outsourcing of their sterilization requirements to contract processors. As a
result, while the business of both ethylene oxide and gamma contract processors
has grown rapidly during the past ten years, the use of gamma sterilization
increased at a faster rate as many medical device manufacturers which could
easily do so converted the sterilization method used for certain of their
products from ethylene oxide to gamma and increasingly designed new products and
packaging to be gamma compatible.
The Company believes that most of the sterilization processing business
which can be feasibly converted from ethylene oxide to gamma (taking into
account technical, operational, financial and FDA regulatory considerations) has
already been converted by medical device manufacturers. The Company also
believes that innovations in gamma compatible resins have slowed. Based upon
these considerations, the Company believes that over the next several years any
further shift by manufacturers of medical devices from ethylene oxide to gamma
sterilization will occur at a very moderate rate. The Company is also aware of
two recent instances in which manufacturers of certain medical devices have
shifted their sterilization from gamma to ethylene oxide due to concerns about
possible degradation caused by exposure to gamma.
The Company believes the overall trend among single use medical device
manufacturers is distinctly toward a technology neutral position with respect to
those products for which manufacturers have a choice of sterilization
technologies, with much greater emphasis being placed by customers on the
quality and extent of the service being offered by contract processors.
BUSINESS STRATEGY
The Company's primary strategic objective is to expand and strengthen its
position as the largest multinational provider of a full range of sterilization
management services. The Company believes the extensive experience, know-how,
expertise and data it has gathered over the more than 60 years since it
pioneered the use of ethylene oxide sterilization has created a significant and
unique core competency, which it refers to as its "scientific platform." The
Company's business strategy is to continue to leverage its scientific platform,
enhancing its position as a full service provider of comprehensive sterilization
management services and allowing it to further pursue "Value Managed
Relationships" with its customers. The key components of this strategy include
the following:
Expand its core medical device sterilization business. The Company will
seek to increase revenues in its core medical device sterilization business
through a combination of methods, including the following:
- increase its ethylene oxide sterilization capacity in North America and
Europe through the further expansion of existing facilities, the start-up
of new facilities and the completion of strategic acquisitions;
- continue to promote outsourcing by manufacturers which currently
sterilize their products in-house;
- continue to pursue business from manufacturers currently served by other
contract processors;
- pursue expansion into additional foreign countries consistent with the
needs of its multinational customer base;
- increase its gamma sterilization capacity on a selective basis; and
- continue to build long-term "Value Managed Relationships" with new and
existing customers by offering coordinated "one-stop shopping" for all of
their sterilization management requirements.
Optimize the sterilization process through continuous improvement programs
with customers. The Company believes it is uniquely positioned, due to its
scientific platform and the continuous improvement initiatives which it is
implementing (see "Business -- Sterilization Management Services -- Continuous
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improvement initiatives"), to assist its customers in increasing the efficiency
of the ethylene oxide sterilization process for their products, thereby reducing
turn-around time and cost. By optimizing the ethylene oxide sterilization
process, the Company seeks to establish a technology neutral position with
respect to those products for which manufacturers have a choice of sterilization
technologies. The Company is taking the following actions, among others:
- develop alternative sterility assurance measurement practices, such as
the use of innovative technologies to measure achievement of key cycle
parameters;
- continue to collaborate with its customers in designing the optimum
ethylene oxide cycles for the sterilization of their products; and
- improve validation efficiency and flexibility through the use of
statistical methods to achieve cycle revalidation and multiple chamber
validation.
Broaden its laboratory and related services offering. The Company believes
the market for sterilization related and other laboratory services offers an
opportunity to broaden its testing and consulting services through a combination
of methods, including the following:
- capitalize upon the trend among the Company's current sterilization
processing customers toward outsourcing their laboratory testing
requirements;
- establish additional satellite laboratories; and
- expand its laboratory service offering through the employment of
additional technical personnel or through selective acquisitions.
Expand processing of non-medical products. The Company currently processes
a wide range of non-medical products at its ethylene oxide facilities in the
United States and Europe. Approximately 60% of the net revenues generated by its
gamma facility in Belgium are derived from processing food products. The gamma
facility in Mexico, which is being built by the Company's joint venture with MDS
Nordion, has been designed to process both food and non-food products. The
Company intends to continue its current overall sterilization focus on single
use medical devices, while maintaining the operational and financial flexibility
necessary to expand its non-medical products business if and to the extent
warranted by changing market conditions or opportunities.
STERILIZATION MANAGEMENT SERVICES
Ethylene oxide sterilization services. The Company's greatest expertise and
experience is in ethylene oxide sterilization processing and related
sterilization management services. This expertise represents the culmination of
over 40 years of commercial ethylene oxide processing experience and is based
upon and derived from the basic ethylene oxide sterilization research conducted
in the 1930s and 1940s by the Parent Company.
The Company currently operates a network of eleven ethylene oxide
processing facilities in North America (eight in the United States, two in
Canada and one in Mexico) and a network of seven ethylene oxide processing
facilities in Europe (two each in Belgium and France and one each in Germany,
the Netherlands and the United Kingdom). Since the beginning of 1994, in
addition to expanding sterilization processing capacity at a number of its
existing facilities, the Company opened newly constructed ethylene oxide
sterilization facilities in Ontario, California in August 1994, Glens Falls, New
York in October 1994 and Charlotte, North Carolina in October 1995. During the
same period, the Company acquired ethylene oxide sterilization facilities near
Paris and Lyon, France in July 1994, in Salt Lake City, Utah in April 1998 and
near Verviers, Belgium in July 1998. See "Business -- Strategic Acquisitions and
Alliances" and "-- Facilities."
Each of the Company's 18 ethylene oxide processing facilities is equipped
with multiple sterilization chambers which typically vary in size. This provides
flexibility and operational efficiency, so that the Company can more effectively
and quickly serve the sterilization needs of its small and medium-sized
customers, as well
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as those of its larger customers. The ethylene oxide sterilization process, as
practiced in substantially all of the chambers at the Company's facilities, is
precisely managed by computer systems which constantly monitor and control the
process and record and store detailed data covering key parameters of the
sterilization cycle. Each product to be sterilized has specific cycle
instructions which incorporate the manufacturer's sterilization cycle parameters
for that product. All of the Company's sterilization facilities are designed to
be operated 24 hours per day, 7 days a week. The Company typically operates each
facility on three eight-hour shifts, requiring two to seven employees for each
shift.
The Company promotes sterilization processing at convenient points along
the distribution routes for its customers' products, rather than solely at the
facilities closest to their manufacturing plants. The effect of this has been to
increase the geographic area served by those sterilization facilities which are
positioned to take advantage of this trend. The Company's extensive geographic
networks of facilities in North America and Europe contribute to its ability to
capitalize on this trend.
Gamma sterilization services. The Company expanded its service offering to
include gamma sterilization processing with its purchase in August 1997 of Caric
Mediris, S.A., a Belgian company now named Griffith Mediris (in which the
Company holds an 82.8% equity interest). Griffith Mediris operates an
established gamma facility in southern Belgium which contains two completely
automated and segregated gamma systems and storage areas, one for food products
(with temperature controlled storage areas, both refrigerated and deep-freeze)
and the other for medical devices and pharmaceuticals. It also possesses a
laboratory gamma irradiator for testing purposes as well as a dosimetry
laboratory. The Griffith Mediris irradiators are designed to optimize dose
uniformity. Their processing parameters are controlled and monitored by computer
systems which also provide associated process documentation. Each product to be
sterilized has specific cycle instructions which incorporate the manufacturer's
sterilization cycle parameters for that product. Currently approximately 60% of
the net revenues generated by the Griffith Mediris facility is derived from
processing various food products (including fresh or frozen shrimp, clams, frog
legs, cheese, pasta and spices) and 40% is derived from processing medical
products and pharmaceuticals.
The Company is further expanding its gamma processing facilities with its
joint venture entered into in June 1997 with MDS Nordion Inc. The purpose of the
joint venture is to design, construct and operate a state-of-the-art gamma
sterilization facility near Mexico City, Mexico (where the Company already
operates an ethylene oxide sterilization facility). The joint venture's gamma
facility has been designed to process both medical and food products. The
Company currently anticipates that the facility will become operational early in
Fiscal 2000, although no assurance can be given that the current target for
start-up will be met. See "Business -- Strategic Acquisitions and Alliances."
Continuous improvement initiatives. The Company has undertaken a number of
initiatives, some of which are ongoing, primarily designed to increase the
efficiency of the sterilization process at its ethylene oxide facilities. During
the last three years, largely as a result of these initiatives, the Company has
significantly reduced the average turn-around time through its ethylene oxide
facilities. The Company is aggressively continuing to develop, promote and
implement several initiatives which it believes will further reduce its average
turn-around time or otherwise increase the operating efficiency and thereby the
capacity of its facilities and reduce overall processing costs. These
initiatives include:
- Parametric release. "Parametric release" is a system which permits
release of a processed product for use based on the measured and
confirmed achievement of key processing cycle parameters, including heat,
humidity, ethylene oxide concentration and time. This avoids the
time-consuming laboratory testing of BIs, a step which often delays the
release of sterilized products. The system being implemented by the
Company uses proprietary technology for measuring ethylene oxide
concentration which was developed by the University of Wales College of
Medicine ("UWCM") and the Company. The Company has licensed the
acquisition and use of 15 of these measuring units from UWCM and has
exclusive rights until January 1, 2000. The Company has installed
measuring units on three of its sterilization chambers and is processing
certain products of one of its customers through one such chamber using
parametric release. It intends to install units on additional chambers
when and as warranted by customer demand. At the present time, the
Company has not identified the need for
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additional measuring units beyond the licensed number. However, if customer
demand warrants acquisition of additional measuring units and the Company is
unable to license these units from UWCM, parametric release alternatives are
available. See "Risk Factors -- Risks Related to Other Government
Regulations and Standards Compliance."
- Optimization of cycle efficiency. For many years it was the industry
practice to use substantial amounts of ethylene oxide for virtually all
product sterilization cycles, regardless of the particular features of
the product or its packaging. In recent years, the Company has been an
industry leader in dramatically changing this "overkill" approach to
ethylene oxide sterilization. Using its scientific platform, the Company
assists its customers to determine the amount of ethylene oxide
sufficient, in combination with the other ethylene oxide cycle
parameters, to achieve the desired sterility assurance level. The primary
objectives of this effort have been to reduce ethylene oxide residuals in
sterilized products and turn-around times through the Company's
facilities.
- Statistical cycle revalidation and multiple chamber validation. Utilizing
its scientific platform, the Company is able to revalidate the cycle
parameters for a customer's product based upon the demonstrated
statistical results of their use on the same or similar products. This
avoids the delay, cost and normal processing downtime associated with
traditional physical validation of cycle parameters. The Company also
uses a similar process, based upon its ability to statistically
demonstrate chamber equivalency, to validate a customer's product for
sterilization in multiple chambers operated by the Company, including
chambers at more than one facility, without the need to physically
validate the product at each additional chamber. The Company promotes
this "retrospective validation" process among its customers.
- Fully integrated plant information system. The Company is currently
designing a new and more sophisticated plant information system for use
in all of its facilities. When fully operational, the new system will
strengthen the Company's scientific platform and make it more accessible
to customers. The Company plans to install and test the new system in two
of its North American facilities later this year and in one of its
European facilities in 1999. The initial functions of the new system will
include product tracking, processing data and electronic data interchange
with customers. When fully installed and operational, which as currently
planned will require approximately five years, the new system will
integrate all of the Company's operating facilities and create a
worldwide data bank accessible to the Company's customers.
Laboratory and consulting services. The Company offers a variety of
microbiological and analytical laboratory testing and consulting services
related to and built upon the Company's expertise in sterilization. The
manufacture and sale of a medical device involves several stages, starting with
product development, design and testing, followed by the establishment and
validation of sterilization cycle parameters (where applicable), commercial
production and thereafter, as the final step for some but not all such products,
sterilization. Laboratory services are required at most of these stages. They
include testing pertaining to product validation, biocompatibility, package
integrity, bioburden, sterility assurance and endotoxins, as well as
environmental and air monitoring. The Company's current focus is on providing
services with respect to the sterility assurance stage. Future plans include
providing services during the product development and production stages. The
Company also assembles sterilization test packs, including biological
indicators, which are marketed primarily to the Company's sterilization
processing customers.
As in the case of sterilization services, laboratory services are performed
both in-house by product manufacturers and outsourced to commercial
laboratories. The Company believes that its existing sterilization processing
relationships with a large number of medical device manufacturers and its
reputation as a leading sterilization management company provide it with a
significant advantage in marketing its laboratory services and test pack
offerings.
In 1989 the Company established a central laboratory in the United States,
now located in Burr Ridge, Illinois, a suburb of Chicago. It opened satellite
laboratories at its Santa Teresa, New Mexico sterilization facility in 1990 and
at its Ontario, California sterilization facility in 1997. In 1995, the Company
provided
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<PAGE> 43
greater focus to its laboratory services offering in the United States by
organizing it into a distinct operating division named Griffith Analytical.
In every country in Europe in which the Company operates sterilization
facilities, it maintains a microbiological and analytical laboratory capable of
offering a range of testing and other services to its sterilization processing
customers. The Company's European laboratory facilities grew out of applicable
regulatory requirements and have typically been operating for as long as the
sterilization facilities with which they are associated.
Logistics management services. The Company has recently begun to offer a
variety of logistics management services to certain of its sterilization
processing customers. They include product deployment, coordination of product
transportation and shipping, order fulfillment and warehousing services, cross
docking operations and related types of services. Since sterilization is the
final step in the manufacturing process, the Company's sterilization facilities
in some cases perform the function of a regional distribution center for its
customers. The Company's logistics management services facilitate the movement
of a customer's products, following sterilization, along the customer's
distribution system and in some cases direct to the end user, such as a hospital
or other healthcare facility.
Other activities. The Company engages in the distribution throughout Europe
of a wide range of sterilization packaging materials, plastic disposables and
indicator systems and disinfection products direct to manufacturers of medical
devices, industrial users and hospitals. The Company estimates that
approximately 8% of its Fiscal 1997 net revenues was derived from this
distribution business.
Achieving "sterility." The Company, in common with industry practice, does
not guarantee or warrant sterility in the United States or in most of the other
countries in which it operates. Its only responsibility to its customer is to
process the customer's products in accordance with the ethylene oxide cycle
parameters (heat, humidity, gas concentration and time) specified by the
customer (or, in the case of the Company's gamma facility, in accordance with
the dosage level specified by the customer). The customer is responsible for
validation of the sterilization cycle parameters for its products, for
determining achievement of product sterility assurance, for the integrity of
product packaging to withstand the vacuum, heat and humidity levels of the
sterilization process and for the adequacy and regulatory compliance of the
labeling of its products.
In the event of the failure of the Company to process the customer's
product in accordance with the cycle parameters or dosage specifications
prescribed by the customer (commonly referred to as a "nonconformance"), the
Company is typically required by contract to inform its customer of the
nonconformance, to reprocess the product if feasible and to reimburse the
customer, subject to a maximum, for the cost of any such product which is
damaged as a result of such nonconformance. In Belgium and France, ethylene
oxide contract processors, including the Company, are required by law to certify
that a product which has been processed at one of its facilities in those
countries is sterile and in both countries, gamma processors must certify that
the correct dosage has been given.
Availability of raw materials. The only significant raw materials required
by the Company's processing operations are ethylene oxide and nitrogen for its
ethylene oxide facilities and Cobalt 60 for its gamma facility. While ethylene
oxide is a relatively common chemical with many different uses, its production
in the United States for use as a sterilant is subject to stringent regulation
under the Federal Insecticide, Fungicide and Rodenticide Act ("FIFRA"). The
Company is aware of only two sources in the United States which possess the
necessary FIFRA registration to package ethylene oxide for use as a sterilant,
only one of which, the ARC Chemical Division of Balchem Corporation ("ARC"),
currently engages in such production. ARC has been the Company's principal
supplier of ethylene oxide in North America for many years. In September 1997,
the Company and ARC entered into a new multi-year supply and service agreement,
pursuant to which ARC agrees to supply all of the Company's requirements for
ethylene oxide for its facilities in the United States and Canada for a
seven-year period. While there is only one source within Mexico of which the
Company is aware for the ethylene oxide required by the Company's facility in
Mexico City, if necessary ARC is also able to supply that facility's ethylene
oxide requirements from its plants in the United States.
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<PAGE> 44
Subject to obtaining necessary regulatory approvals, which it believes
might take at least a year, the Company could package ethylene oxide for use as
a sterilant in its North American facilities. Any interruption in the supply of
ethylene oxide to the Company's sterilization facilities in North America, or
any substantial increase in the cost of such supply, would have a material
adverse affect on the Company's results of operations. In Europe, ethylene oxide
for use as a sterilant is readily available from a number of different sources
on competitive terms. Liquid nitrogen, which is used in certain of the Company's
ethylene oxide cycles, is readily available from a number of different sources
in both North America and Europe.
The Cobalt 60 radioactive isotope for use as a sterilant in the Company's
gamma facility in Belgium is available from two primary sources, one in Canada
(MDS Nordion, the world's largest supplier and the Company's joint venture
partner in Mexico), and one in the United Kingdom (Puridec Irradiation
Technologies, a division of Amersham International, plc). The Company purchases
"pencils" of Cobalt 60 each year sufficient to compensate for the normal decay
of the existing Cobalt 60 source. The Company currently purchases its Cobalt 60
requirements from Puridec on competitive terms. The gamma facility which the
Company's joint venture plans to establish near Mexico City is committed to
acquire its Cobalt 60 from MDS Nordion.
CUSTOMERS
Medical device manufacturers. The Company's principal customers in both
North America and Europe are manufacturers of single use medical devices,
including most of the major companies engaged in that business. In many cases,
the Company renders services to these customers at more than one of its
sterilization facilities, including in some cases facilities located in both
North America and Europe. In Fiscal 1997, the Company performed sterilization
processing and related services for approximately 300 manufacturers of single
use medical devices in North America and approximately 650 in Europe. A
representative sample of the Company's larger medical device customers is set
forth below:
<TABLE>
<S> <C>
Abbott Laboratories The Kendall Company
Alcon Laboratories, Inc. (subsidiary of Tyco International,
Allegiance Healthcare Corporation Ltd.)
C. R. Bard, Inc. Mallinckrodt Inc.
Baxter International, Inc. Medtronic, Inc.
Becton, Dickinson and Co. Merck & Co., Inc.
Boston Scientific Corporation Pfizer, Inc.
The Clinipad Corporation Rusch, Inc.
Gambro AB Schering-Plough Corporation
Fresenius USA, Inc. Smith & Nephew plc
Hartmann AG Terumo Medical Corporation
</TABLE>
Most major manufacturers of single use medical devices in North America and
Europe have multiple plants at disparate locations in a given country or, in
many cases, in more than one country. The Company believes that its geographic
network of strategically located sterilization processing facilities in North
America and Europe and its ability to effectively serve all of the contract
ethylene oxide sterilization needs of many of its largest customers give it a
unique marketing tool and have been factors in its success to date.
The Company's five largest customers accounted for approximately 38% of its
net revenues in Fiscal 1997, including Allegiance Healthcare Corporation, which
accounted for approximately 20% of such revenues. While the loss of Allegiance's
business would likely have a material adverse effect on the Company, the Company
has been the principal supplier of contract ethylene oxide sterilization
services to Allegiance and its predecessors for many years. The Company and
Allegiance are parties to a multi-year sterilization contract pursuant to which
Allegiance purchases from the Company all of Allegiance's requirements in the
United States for ethylene oxide sterilization of products which Allegiance does
not perform in house. The initial term of the contract expires on June 30, 2001
and may be renewed with the consent of both parties for an additional term of
three years and thereafter for additional one-year terms. If purchases by
Allegiance of sterilization management services in any calendar year exceed
certain predetermined amounts, then Allegiance may
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<PAGE> 45
renegotiate or terminate the agreement; if purchases by Allegiance during a
calendar year fall short of certain predetermined amounts, then the Company may
renegotiate or terminate the agreement. In October 1998, Allegiance and Cardinal
Health, Inc. announced an agreement to merge the two companies pursuant to which
Allegiance would operate as a wholly owned subsidiary of Cardinal Health, Inc.
Cardinal Health, Inc., headquartered in Dublin, Ohio, is a wholesale distributor
of pharmaceuticals, surgical and hospital supplies, and health and beauty aids
to retail drug stores, hospitals and other health care providers. The Company
does not believe that the proposed merger, if consummated, will have any adverse
effect on the Company's commercial relationship or the volume of business it
does with Allegiance.
An important class of the Company's customers are medium and small-sized
manufacturers of single use medical devices which cannot justify the
establishment of their own processing facilities and which utilize the Company
for virtually all of their sterilization processing and related validation,
laboratory and logistics management services.
There has been a consolidation trend in recent years in the medical device
manufacturing industry, with a smaller number of larger companies having
multiple plants and more extensive distribution networks. The Company expects
this trend to continue. The Company believes that consolidation among its core
business customer base has worked to its competitive advantage. Because the
Company has the most extensive ethylene oxide sterilization network in both
North America and Europe, it believes it is in a superior position to take
advantage of the consolidation trend among medical device manufacturers by
serving the increasing number of manufacturing plants operated by fewer
customers. While some large medical device manufacturers divide their business
between their own captive sterilization facilities and those of one or more
contract processors such as the Company, the Company's extensive geographic
facilities network enables it to more aggressively seek to encourage such
customers to outsource more of their captive processing volume to one or more of
the Company's facilities. At the same time, the greater size and sterilization
volume requirements of certain of the Company's customers, resulting in part
from this consolidation trend, may also enhance their bargaining power over
contract terms with the Company.
Other customers. The Company also furnishes sterilization processing
services to producers of a variety of non-medical device products and to
hospitals. In Fiscal 1997, the Company performed sterilization processing
services for approximately 230 such customers in North America and approximately
330 in Europe. These customers include producers or processors of a wide range
of dry or frozen food products, cosmetics, pharmaceuticals and packaging
products, as well as hospitals.
Contracts with customers. The Company's commercial agreements with its
customers vary from purchase order arrangements to multiple year contracts. Its
standard contract, which it uses for most of its medium-sized and small
customers and some of its large customers, typically has a term of one year and
provides for price adjustments based upon changes in ethylene oxide prices. The
Company enters into separately negotiated, customized and in most cases
multi-year contracts with many of its larger North American sterilization
processing customers. These contracts with its larger customers typically
require the customer to purchase from the Company all of its ethylene oxide
sterilization processing requirements which it does not perform in-house or
provide for a minimum specified annual volume of sterilization processing
business to the Company. They also typically provide for price adjustments based
upon various factors, including changes in ethylene oxide prices, the amount of
ethylene oxide used in providing the services, and regulatory changes.
In its European operations, the Company enters into a standard commercial
contract with some customers, separately negotiated, customized contracts with a
few of its larger customers and relies on traditional purchase order
arrangements with the rest of its customers.
In combination with its commercial contracts, the Company enters into
technical agreements, specifying cycle parameters and related technical terms,
with its customers covering virtually all of the products it processes.
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SALES AND MARKETING
The Company's sterilization management services are sold principally by its
direct sales force based throughout North America and Europe, the efforts of
which are coordinated with respect to many of its global customers. In most
cases, a single senior sales representative is assigned to each of the Company's
largest customers, with overall responsibility for the Company's relationship
with that customer on a worldwide basis.
The Company's sales force is trained to assist customers in maximizing
their sterilization efficiency and cost effectiveness. This marketing focus
seeks to ensure that each of the sterilization cycle parameters for the
customer's products has been optimized so as to shorten and improve the cycle
and otherwise assure that the required sterility assurance level is achieved as
quickly and cost-effectively as possible. The Company's sales staff and senior
management draw upon their experience in sterilization, engineering,
microbiology, component materials and packaging, medical devices and regulatory
compliance, as well as the Company's scientific platform, to assist customers in
devising the optimal cycle for its product and sterility assurance level.
The Company promotes its sterilization management services by participating
in industry trade shows, advertising in trade journals, sponsoring educational
seminars and promotional events, direct mail campaigns and addressing industry
organizations. The Company also encourages participation by members of its
corporate staff in the United States and Europe on technical committees and
advisory boards responsible for implementing industry standards or advising
government bodies with respect to the establishment of regulations applicable to
the provision of sterilization services.
RESEARCH, DEVELOPMENT AND ENGINEERING
The Company engages in research, development and engineering projects aimed
at, among other goals, improving the efficiency and reducing the cost of
operating its sterilization facilities, reducing and more effectively
controlling emissions arising from its ethylene oxide sterilization operations
and reducing the turn-around times for processing its customers' products at
those facilities. The Company's engineering group is also responsible for
designing the Company's operating facilities and process equipment and for
overseeing the fabrication and installation of such equipment. The Company's
total expenses for research, development and engineering activities in Fiscal
1995, Fiscal 1996 and Fiscal 1997 were $910,000, $764,000 and $695,000,
respectively.
QUALITY ASSURANCE
The Company's quality control systems and procedures are intended to ensure
that each of the Company's sterilization facilities complies with the processing
and operating standards and specifications required by various governmental and
industry standards organizations and customers, such as the FDA's Quality System
Regulation which sets forth the good manufacturing practices that contract
sterilizers of medical devices are required to follow. The Company maintains a
quality assurance support staff at the corporate level and a quality assurance
manager at each of its sterilization facilities. The principal responsibilities
of the support staff are to design, review and refine the Company's quality
control system and the operating procedures necessary to implement that system.
The support staff also monitors regulatory developments at all levels of
government and within international standards organizations which pertain to
sterilization. The primary responsibilities of the quality assurance managers
are to ensure that the Company's Total Quality Management (TQM) system is
observed and all customer processing specifications are complied with at each of
the Company's sterilization facilities. The quality assurance manager at each
facility also represents the Company in the many audits of that facility's
procedures and processes which are conducted by or on behalf of governmental
agencies, standards organizations and customers.
All but two of the Company's 18 ethylene oxide sterilization facilities in
North America and Europe are certified as compliant with: (i) International
Organization for Standardization ("ISO") 9001, Quality Systems -- Model for
Quality Assurance in Design, Development, Production, Installation, and
Servicing; (ii) the Committee for European Normalization ("EN") 46001, Quality
Systems -- Medical Devices -- Particular Requirements for the Application of ISO
9001; and (iii) EN 550, Sterilization of Medical Devices -- Validation and
Routine Control of Ethylene Oxide Sterilization (the only exceptions are the
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recently acquired facility at Verviers, Belgium, which was so certified under
its prior owner, and the facility at Montreal, Canada, which is currently
scheduled to be closed during the third quarter of Fiscal 1999). The Company's
gamma sterilization facility in Belgium is certified as compliant with ISO 9002,
Quality System -- Model for Quality Assurance in Production, Installation and
Servicing and with EN 46002 -- Quality Systems -- Medical Devices -- Particular
Requirements for the Application of ISO 9002.
The Company's headquarters and North American facilities were audited by
and received their certifications from TUV Product Service GmbH; its European
facilities were audited by and received their certifications from BSI Quality
Assurance. Both TUV and BSI are approved Quality Registrars for ISO and EN,
respectively. The Company's headquarters and each of its operating facilities
are subject to periodic quality system surveillance audits by such Quality
Registrars to ensure continued compliance with such standards.
Certification to the ISO 9000 standards demonstrates that the facility has
implemented the essential elements necessary for an effective quality control
system. Of the ISO 9000 standards, the ISO 9001 is the most comprehensive in
scope and the most difficult to achieve. Demonstrated compliance by a contract
sterilizer with the requirements for such ISO and EN certifications is becoming
a requirement for doing business in or exporting sterilized products to Canada
and Europe and is expected by most medical device manufacturers in the United
States. Medical devices to be sold in countries which are members of the
European Community must carry the "CE" symbol on their labels; in order to affix
the CE symbol to any medical device it must have been sterilized in a facility
which is certified as ISO 9000 series and EN 46000 series compliant. The Company
believes that its ability to obtain and maintain these certifications for its
facilities is an important factor in its success. See "Risk Factors -- Risks
Related to Government Regulations and Standards Compliance."
STRATEGIC ACQUISITIONS AND ALLIANCES
The Company has effected a number of strategic acquisitions and established
several strategic alliances during the past five years, principally those
identified below.
On July 2, 1998, the Company completed the purchase from a subsidiary of
Boston Scientific Corporation of an ethylene oxide sterilization facility
located at Verviers, Belgium, near the border with Germany. The seller had
operated the facility as an in-house sterilizer for its medical device
manufacturing operations in the same plant. Boston Scientific, having moved the
device manufacturing operations to another European country, subdivided the
building and sold the sterilization facility to the Company. The Company had
operated the facility since October 1997 under arrangements with Boston
Scientific.
On April 28, 1998, the Company completed the purchase of Sorex Medical,
Inc., which owns and operates a full service ethylene oxide sterilization
facility located in Salt Lake City, Utah, a major medical products manufacturing
and distribution center. This strategic acquisition increased the Company's
sterilization processing presence in the western United States.
In August 1997, the Company acquired Caric Mediris, S.A., a Belgian company
now named Griffith Mediris (in which the Company holds an 82.8% equity interest)
which operates a full service gamma sterilization facility in southern Belgium.
The remaining interest is held by an agency of the Belgian government (the
National Institute of Radioelements), which owned and operated the facility
until 1990, when it was largely privatized. The facility contains two
independent gamma irradiation cells. Most of the Company's shares in Griffith
Mediris are pledged to a European bank as collateral for a loan, the proceeds of
which were used to fund the purchase price for that company.
In June 1997, the Company entered into a joint venture with MDS Nordion
Inc. to design, construct and operate a state-of-the-art gamma sterilization
facility near Mexico City, Mexico. The Company has a 60% interest in the joint
venture, subject to an agreement to divide equally the aggregate net profit, if
any, generated by the joint venture during the first five years of the
facility's operation. MDS Nordion, a Canadian company, is the leading designer
and supplier of gamma processing facilities and the world's largest supplier of
Cobalt 60. The gamma facility has been designed to process both medical and food
products. The Company
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currently anticipates that the facility will become operational during the
second half of 1999. However, there is no assurance that the current target for
start-up will be met.
In July 1994, the Company acquired all of the outstanding capital stock of
and the Rantigny real estate used by Laboratoires Perouse, S.A., a French
company which owns and operates two ethylene oxide sterilization processing
facilities in France (one of which the Company has since replaced).
FACILITIES
The following table provides information, as of June 30, 1998, with respect
to each of the Company's sterilization processing facilities and the laboratory
facilities of Griffith Analytical, including its location, approximate building
size, occupancy status (whether the building is owned or leased by the Company)
and, if leased, the expiration date of the lease. Each such sterilization
facility includes multiple sterilization chambers, preconditioning and aeration
rooms and/or cells, staging, quarantine and warehouse space, control rooms, an
office area, receiving and shipping docks and, where specifically indicated, a
testing laboratory.
<TABLE>
<CAPTION>
LEASE EXPIRATION
APPROXIMATE DATE (INCLUDING
BUILDING SIZE COMPANY
LOCATION (SQUARE FEET) OCCUPANCY STATUS RENEWAL OPTIONS)
-------- ------------- ---------------- ----------------
<S> <C> <C> <C>
North American Facilities:
Ontario, CA................................. 69,000(1) Leased March 2011
Los Angeles, CA............................. 90,000(2) Part owned; March 2002
part leased(2)
Santa Teresa, NM............................ 72,000(1) Leased March 2019
(near El Paso, TX)
Salt Lake City, UT.......................... 59,000 Owned --
Burr Ridge, IL(3)........................... 11,200 Leased February 2006
(near Chicago)
Willowbrook, IL............................. 67,000 Leased September 2004
(near Chicago)
Smyrna, GA.................................. 45,000 Leased June 2004
(near Atlanta)
Charlotte, NC............................... 40,000 Leased(4) January 2017
Glens Falls, NY............................. 33,000 Leased(5) December 2014
(upstate New York)
Toronto, Canada(7).......................... 23,000 Leased(6) September 2008
Montreal, Canada(7)......................... 10,000 Leased May 1999
Mexico City, Mexico......................... 43,000 Leased March 2003
European Facilities:
Somercotes, England......................... 55,500(8) Owned --
(near Birmingham)
Zoetermeer, the Netherlands................. 28,000(8) Leased (9)
(between Amsterdam and Rotterdam)
Herentals, Belgium.......................... 66,700(8)(10) Leased July 2000
(near Antwerp)
Verviers, Belgium........................... 21,500 Owned(11) --
(near the border with Germany)
</TABLE>
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<TABLE>
<CAPTION>
LEASE EXPIRATION
APPROXIMATE DATE (INCLUDING
BUILDING SIZE COMPANY
LOCATION (SQUARE FEET) OCCUPANCY STATUS RENEWAL OPTIONS)
-------- ------------- ---------------- ----------------
<S> <C> <C> <C>
Fleurus, Belgium............................ 46,000(12) Owned --
(near the border with France)
Rantigny, France............................ 35,500(8) Owned --
(40 miles north of Paris)
Anse, France................................ 22,000(8) Leased August 2005
(15 miles north of Lyon)
Moerfelden, Germany......................... 35,400(8) Leased (13)
(near Frankfurt)
</TABLE>
- ---------------
(1) Includes a full service Griffith Analytical satellite laboratory (occupying
1,650 square feet at the Ontario, CA facility and 610 square feet at the
Santa Teresa, NM facility).
(2) Consists of two separate, but adjacent buildings, one of which is owned
(19,000 square feet) and one of which is leased (71,000 square feet).
(3) The central full service laboratory and headquarters of the Griffith
Analytical Division.
(4) Certain equipment and leasehold improvements are subject to a financing
lease expiring in 2007 used to fund repayment of industrial development
revenue bonds.
(5) Occupied under a financing lease to fund repayment of industrial
development revenue bonds; Company will acquire ownership of the facility
when bonds are paid at maturity in 2014.
(6) Located within a physically segregated portion of a food plant owned by,
and leased from, the Canadian subsidiary of the Parent Company.
(7) The Company intends to close the facility at Montreal when its lease
expires in May 1999 and to consolidate its operations with the existing
Toronto facility.
(8) Includes a testing laboratory.
(9) Consists of two separate leases, one of which expires July 1999 and one of
which expires July 2001.
(10) Includes approximately 10,000 square feet of space used by the Company's
distribution business and approximately 3,500 square feet of office space
which houses the Company's European headquarters staff.
(11) Occupies physically segregated premises comprising approximately 30% of a
larger building.
(12) Includes a dosimetry laboratory with a gamma irradiator used for testing
purposes.
(13) Consists of two separate leases, one of which expires September 1999 and
one of which expires August 2000.
The Company's corporate headquarters is located in approximately 13,000
square feet of leased space in an office building located in Oak Brook,
Illinois, a suburb of Chicago. The lease expires in March 2000.
The Company's operating facilities are well maintained and generally
adequate to meet the current demand for its sterilization services. The Company
has installed and is testing a new maintenance software system at one of its
U.S. facilities which enables it to monitor and statistically determine when
virtually every important piece of equipment at the facility requires
maintenance or replacement. The system is designed to increase the operational
efficiency of the facility and minimize unscheduled maintenance downtime or
equipment malfunctions. If the test system is successful, as to which no
assurance can be given, the Company currently plans to install the system in all
of its facilities by the end of the year 2000.
Due to increasing demand for its sterilization services, the Company
currently has underway or in the advanced planning stage several projects to add
additional sterilization processing capacity to four of its existing facilities.
When its lease expires in May 1999, the Company intends to close its small
sterilization
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facility in Montreal, Canada and consolidate its operations with the Company's
larger facility near Toronto. The Company does not expect such consolidation to
result in any significant loss of business currently being processed at the
Montreal facility.
COMPETITION
The Company is subject to intense competition in the provision of
sterilization services. The sterilization industry is fragmented as a result of
geographical limitations on the area which can be served by each sterilization
processing facility, multiple sterilization technologies and the mix of captive
and contract facilities. The Company believes that quality of service, price,
location and capacity, customer relationships, turn-around time and availability
of support services are the key factors on which competition is based in the
sterilization processing industry.
The market for contract sterilization services is characterized by
significant price competition, particularly in gaining new business. However,
since achieving the specified sterility assurance level is so important to
customers and the cost of sterilization is a relatively small part of the total
cost of the product, the Company believes the quality of service rendered by the
contract processor becomes as important as price once a customer relationship is
established. Due to validation requirements, design and materials compatibility
limitations and regulatory constraints, switching from one contract processor to
another or from one sterilization technology to another can be costly and
administratively burdensome to customers. The Company believes that its long
experience with and widely recognized expertise in sterilization helps it
attract and retain business.
Facility location and capacity are also important marketing factors,
particularly for large medical device manufacturers. The Company's extensive
ethylene oxide sterilization facility network in North America and Europe, and
its ability to add sterilization capacity to most of its facilities, also give
it a valuable marketing tool.
In North America, the principal contract processors other than the Company
are: Isomedix, Inc. (a subsidiary of Steris Corporation), which operates
multiple gamma and ethylene oxide processing facilities in the United States and
Canada and one E-beam facility in the United States; SteriGenics International,
Inc., which operates multiple gamma facilities and one E-beam facility in the
United States; and Cosmed Group, Inc. and the Sterilization Services
subsidiaries of Vacudyne Incorporated, both of which operate multiple ethylene
oxide facilities in the United States. In addition, the Company competes in
North America against many local contract processors, each of which typically
operates only a single ethylene oxide sterilization facility.
In Europe, the Company believes that only two other contract processors
operate sterilization facilities in more than one country, and the competition
within each country is more fragmented than in the United States, typically
involving a greater number of smaller firms. The largest contract processors,
each of which is believed to be smaller than the Company, are: Isotron plc,
which operates gamma, ethylene oxide and E-beam facilities in the United Kingdom
and an ethylene oxide facility in Ireland; and Gammaster B.V., which operates
gamma facilities in France, Germany, the Netherlands and Ireland.
In addition to other contract processors, the Company competes in both
North America and Europe with manufacturers which have existing, or may in the
future establish, captive sterilization processing operations.
Certain of the Company's competitors have greater financial, marketing,
technical and other resources than the Company or offer a broader range of
sterilization technologies, which may give them a competitive advantage over the
Company. Steris Corporation (the parent of Isomedix), SteriGenics International,
Inc. and Isotron plc are publicly traded companies with access to public debt
and equity capital markets. Isomedix and SteriGenics have extensive gamma
sterilization networks in the United States, giving them a competitive advantage
over the Company with those customers which prefer to sterilize their products
using gamma. In Europe, some of the Company's smaller local competitors have
close relationships with important individual customers, established over long
periods of time. To the extent that the Company expands into additional foreign
countries it could be faced with competition from existing providers of contract
sterilization services in
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those countries. See "Risk Factors -- Competition" and "-- Availability of
Alternative Technologies" and "Business -- The Sterilization Processing
Industry -- Comparison of ethylene oxide sterilization and gamma sterilization."
REGULATORY, ENVIRONMENTAL AND HEALTH AND SAFETY MATTERS
Ethylene oxide is a toxic and hazardous chemical which is flammable and
explosive. It has also been identified as a cancer and reproductive hazard. As a
result, to varying degrees in each of the countries in which the Company
operates, the use of ethylene oxide is subject to a variety of existing and
proposed national, state and local regulations which limit permissible emission
levels, worker exposure and residues on sterilized products and provide for
labeling requirements. In addition, the operation of the Company's gamma
facility in Belgium, including the use of radioactive Cobalt 60 therein, is
subject to extensive regulation by the Belgian government, and the design,
construction, use and operation of the gamma facility proposed to be built near
Mexico City by the Nordion Joint Venture is and will be similarly regulated by
the Mexican government.
The Company has been and continues to be an industry leader in seeking to
ensure that its facilities meet or exceed all applicable environmental and
health and safety regulations. The Company believes that it possesses all
licenses and permits necessary to conduct its business and that it is in
material compliance with all environmental and health and safety regulations
which govern its operations. Nevertheless, changes in, or reinterpretations of,
existing requirements or adoption of new requirements beyond those described
below, the failure of the Company at any time to comply with any applicable
material regulations and standards or the loss by the Company of any of its
material licenses and permits could have a material adverse effect on the
Company's business, financial condition and results of operations.
There can be no assurance that the Company will not incur significant costs
to comply with laws, regulations and other requirements in the future or that
such laws, regulations and other requirements will not have a material adverse
effect upon the Company's business, financial condition and results of
operations. See "Emission control regulations."
Emission control regulations. Ethylene oxide is evacuated in a high
concentration when the sealed sterilization chamber is purged at the end of each
cycle. Thereafter, residual ethylene oxide is evacuated in a low concentration
after the chamber is opened and during aeration following removal of the
sterilized products from the chamber. The release of high concentration
emissions into the atmosphere is prohibited or strictly limited in most of the
countries in which the Company has facilities. Each of the Company's
sterilization facilities throughout North America utilizes either a wet scrubber
system or catalytic oxidizer to treat its high concentration emissions. The wet
scrubber system converts the ethylene oxide into ethylene glycol, a byproduct
which in most cases the Company sells for various commercial applications. The
catalytic oxidizer converts the ethylene oxide into carbon dioxide and water in
a catalyst bed. In its European ethylene oxide facilities, the Company uses
several different technologies (including wet scrubbers, incinerators and
catalytic converters) to control their high concentration emissions.
Low concentration ethylene oxide emissions are currently regulated by state
and local governmental entities in certain of the U.S. states in which the
Company's facilities are located. In addition, regulations to control low
concentration emissions were adopted by the EPA in 1994 and were originally
scheduled to become effective in December 1997. However, certain types of low
concentration emissions control equipment used by ethylene oxide sterilizers,
including the Company, have a risk of explosion. As a result, the original
effective date was postponed to December 1998, and the EPA has announced its
intention to again postpone the effective date of the regulations to December
1999 to assure that most sterilizers can comply without compromising the safety
of their operations. All but three of the Company's facilities in the United
States are already operating with control systems which the Company believes are
capable of satisfying the new regulations if they take effect in their present
form. However, in that event, the Company would be required to incur substantial
cost to acquire control systems at those three facilities.
Regulations restricting low concentration emissions in the European
countries in which the Company has facilities vary from country to country. The
Company believes that all of its European facilities are in material compliance
with applicable low concentration emissions regulations. However, due to the
greater volume of
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<PAGE> 52
absorbent products now being sterilized at its facility at Herentals, Belgium,
the Company believes that a new control system will be required in order for
that facility to remain in compliance with those regulations. Accordingly, the
Company has proposed to local governmental authorities the installation of a new
state-of-the-art system which would control both the high concentration and low
concentration emissions at the Herentals facility. The Company believes that the
installation of the new equipment (currently planned for Fiscal 1999 and Fiscal
2000) will be approved by such authorities and that any necessary waivers
pending its installation will be obtained.
The use of environmental control equipment at an ethylene oxide
sterilization facility requires care in order to avoid circumstances which could
result in an explosion or fire and the interruption of normal operations at or
the temporary shut-down of the facility while repairs are made. During the last
five years, there have been three such incidents at the Company's facilities in
North America (one in 1994 at its Montreal facility which did not interrupt
normal operation, one in 1995 at its Charlotte facility which interrupted normal
operation for approximately 30 days, and one in 1997 at its Los Angeles facility
which resulted in a shut-down of the facility for four days) and two at its
facilities in Europe (one in 1994 at its Herentals, Belgium facility which
prevented the start-up of a new sterilization chamber for approximately five
months and one in 1995 at its facility in the Netherlands which interrupted
production for about 10 days). In order to reduce the commercial risks
associated with any such mishap, the Company encourages its customers to cross
validate, at two or more of its facilities, those products which the Company
processes in large volume.
Compliance by the Company with applicable environmental regulations
significantly increases the cost of constructing and operating its ethylene
oxide facilities. The Company estimates that its capital expenditures for
environmental control equipment for the last quarter of Fiscal 1998 and for
Fiscal 1999 and Fiscal 2000 will be approximately $175,000, $4.1 million and
$2.45 million, respectively; such estimates are based upon current and proposed
regulations and include the projects discussed above. See "Risk Factors -- Risks
Related to Compliance With Environmental Regulations" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Overview" and "-- Liquidity and Capital Resources."
Worker and patient safety regulations and standards. Because of its status
as a cancer and reproductive hazard, government regulations in the countries in
which the Company operates strictly limit the exposure of workers to ethylene
oxide. The United States Occupational Safety and Health Administration ("OSHA")
limits worker exposure to one part per million as an 8-hour time weighted
average and five parts per million in any 15-minute short-term exposure. The
regulations in most other countries where the Company has facilities are
similar. These regulations also have the indirect effect of limiting the
permissible amount of residual ethylene oxide left on a product following
completion of the sterilization process, since such residuals are one source of
exposure to ethylene oxide. OSHA regulations also require that equipment used in
connection with ethylene oxide at the Company's facilities be designed and
operated in a manner which is safe and that the Company use proper safety
precautions and practices when handling, monitoring and storing ethylene oxide.
In order to provide a safe working environment for its employees and to
comply with such regulations, the Company utilizes a combination of methods,
including engineering controls, respiratory and other personal protection
apparatus and clothing, designation of restricted areas, continuous monitoring
equipment, detailed and strictly enforced employee safety procedures and
periodic physical examinations. The Company believes that all of its facilities
are in material compliance with all applicable regulations.
In addition to extensive regulation by various governmental bodies and
agencies, the Company is subject to standards, guidelines and requirements
established by industry organizations and other non-governmental bodies, such as
the ISO. The ISO 10993-7 standard, adopted in 1995, limits the permissible
levels of residual ethylene oxide on sterilized medical devices in order to
protect patients who come into contact with such devices. See "Risk
Factors -- Health and Safety Risks of Ethylene Oxide and Gamma."
Health regulations. Sterilization of medical devices is subject to
pervasive regulation by the FDA pursuant to the Federal Food, Drug and Cosmetic
Act. The FDA has promulgated a Quality System Regulation which sets forth
detailed Good Manufacturing Practices that manufacturers of medical devices are
required to follow. Under the QSR, a medical device manufacturer includes those
who perform the function of contract sterilization of medical devices.
Consequently, the Company is required, with respect to its operating
51
<PAGE> 53
facilities in the United States and those outside the United States which
sterilize devices for export to the United States, to comply with the
requirements set forth in the QSR. All such facilities are subject to periodic
audits by the FDA to determine whether they are in compliance with such
requirements.
Failure by the Company at any time to comply with applicable FDA
requirements could lead the FDA to institute enforcement actions against the
Company or its customers, including, among other things, warning letters, recall
or seizure of products, fines, injunctions, civil penalties, total or partial
suspension of sterilization operations and criminal prosecution. Such
enforcement actions would also harm the Company's business reputation and could
cause the Company to lose customers to competitors. During the last five years,
the Company has not received any warning letters from or been subjected to any
more stringent compliance action by the FDA.
A similar regulatory framework, also administered by the FDA, applies to
the processing in the United States of food, cosmetics and pharmaceutical
products. Regulatory agencies in each of the other countries in which the
Company has ethylene oxide sterilization facilities conduct periodic inspections
and otherwise enforce local regulations applicable to their operation.
Regulation of gamma sterilization facilities. Regulations of the Belgian
government apply to various aspects of the operation of the Company's gamma
sterilization facility in that country, including regulations designed to
protect workers and others from exposure to gamma radiation. Government
inspectors visit the facility on a bi-monthly basis to audit the Company's
compliance with such regulations. Failure by the Company at any time to comply
with these regulations could subject it to a variety of sanctions, including
citations, fines or total or partial suspension of sterilization operations.
Any gamma sterilization facility located in Mexico, including the one to be
built near Mexico City by the Company's joint venture, is subject to extensive
regulation by the national and local governments of Mexico with respect to its
design, construction and operation. The Company's joint venture is currently
seeking to obtain the necessary government permits and licenses needed to
construct and operate the facility. Although not contemplated, any material
delay in or inability to obtain such approvals on satisfactory terms could
compromise the success of the project. The gamma sterilization of medical
devices, foods, cosmetics and other products is regulated by the Mexican
National Commission on Nuclear Safety and Safeguards. Failure to comply with the
Commission's regulations could result in significant fines, penalties or the
shut-down of the facility.
The design, construction, use and operation in the United States of
commercial gamma sterilization facilities, and the radioactive materials used in
such facilities, are extensively regulated by the United States Nuclear
Regulatory Commission, or in some cases by various state regulatory agencies and
authorities that undertake a comparable regulatory function from the Nuclear
Regulatory Commission. Such facilities are also subject to regulation by other
regulatory bodies at the federal, state and local levels, depending upon the
type of product that is being irradiated. Requirements of the FDA similar to
those described above for ethylene oxide facilities in the United States apply
to the use of gamma to sterilize medical devices, foods, cosmetics and
pharmaceuticals. When and if the Company constructs or acquires one or more
gamma sterilization facilities in the United States, it would be required to
comply with all such regulations.
EMPLOYEES
At June 30, 1998, the Company had a total of 483 employees, 303 of whom
were employed in North America and 180 in Europe. The only Company employees
subject to collective bargaining agreements are those in Belgium, France and
Mexico. The Company has never experienced a labor related work stoppage. It
considers its relations with its employees to be good.
LEGAL PROCEEDINGS
The Company is from time to time involved in routine litigation incidental
to the conduct of its business. The Company believes that no pending or
threatened litigation to which it is or may be a party will have a material
adverse effect on its business, financial condition or results of operations.
52
<PAGE> 54
MANAGEMENT
DIRECTORS AND OFFICERS
The directors, nominees for director and executive officers of the Company
and their respective ages and positions with the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Dean L. Griffith(1)(4)................ 71 Chairman of the Board and a Director
Kevin M. Swan......................... 41 President, Chief Executive Officer and
a Director
John P. Sabalaskey.................... 39 Senior Vice President and Chief
Financial Officer
Peter D. Gortz........................ 39 Senior Vice President and Chief
Operating Officer -- North America
Dirk Barrie........................... 46 Senior Vice President and President --
European Group
Brian J. Tuttle....................... 48 Treasurer
James S. Legg......................... 41 Secretary and General Counsel
Joseph R. Maslick(2)(4)............... 50 Director
John G. Kringel(1)(2)(3)(4)........... 59 Nominee for Director
L. Peter Smith(1)(2)(3)(4)............ 50 Nominee for Director
</TABLE>
- ---------------
(1) Member or nominee to be a member of the Compensation Committee of the Board
of Directors
(2) Member or nominee to be a member of the Audit Committee of the Board of
Directors
(3) Nominee to be a member of the Committee of Independent Directors of the
Board of Directors
(4) Messrs. Griffith and Maslick are the current members of the Stock Option
Committee; they will be succeeded by Messrs. Kringel and Smith upon the
election of the latter as directors of the Company following completion of
the Offering.
Dean L. Griffith has served as Chairman of the Board of the Company since
its incorporation in 1987. Mr. Griffith has been President and Chief Executive
Officer since 1975 and Chairman of the Board since 1989 of the Parent Company.
Mr. Griffith joined the Parent Company in 1950 and thereafter worked in a
succession of administrative and executive positions of increasing
responsibility.
Kevin M. Swan has served as President, Chief Executive Officer and a
Director of the Company since September 1994. Prior thereto, Mr. Swan served in
various capacities at Baxter International, Inc. including as President of Multi
Hospital Systems during 1994, as Vice President and General Manager of the
Ambulatory Infusion Division from 1992 to 1993 and as Vice President of the
Interlink(TM) Business Unit from 1991 to 1992.
John P. Sabalaskey has served as Senior Vice President and Chief Financial
Officer of the Company since March 1998. Prior thereto, Mr. Sabalaskey served in
various capacities at Information Resources, Inc., including as an Executive
Vice President from 1994 until 1998, head of International Finance from 1992
through 1998 and Director of Internal Audit from 1991 to 1992. Previously, Mr.
Sabalaskey was a Senior Manager in the Audit and Financial Consulting Division
of Arthur Andersen & Co. Mr. Sabalaskey is both a Certified Public Accountant
and a Certified Management Accountant.
Peter D. Gortz has served as Senior Vice President and Chief Operating
Officer -- North America of the Company since February 1998. Mr. Gortz joined
the Company's operating subsidiary in the United States as Vice President of
Sales and Marketing in November 1994 and continued to serve in that capacity
until February 1998. Prior to joining the Company, Mr. Gortz was employed by
Baxter International, Inc. since 1988 in various positions, including as
Director of Business Development of its Ambulatory Infusion Division from
November 1993 to November 1994. Prior to joining Baxter, Mr. Gortz was a
co-founder of Infusion Systems Corporation, which was acquired by Baxter in
1988.
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<PAGE> 55
Dirk Barrie has served as Senior Vice President of the Company and
President of its European Group since February 1998. Prior thereto, Mr. Barrie,
who joined the Parent Company in 1979, served in various senior management
capacities for the European subsidiaries of the Company, most recently as
Managing Director.
Brian J. Tuttle has served as Treasurer of the Company since February 1992.
He is principally employed as Vice President, a position he has held since 1997,
and Treasurer, a position he has held since 1992, of the Parent Company. Prior
thereto, Mr. Tuttle served as Treasurer of Applied Power, Inc. from 1986 to
1992.
James S. Legg has served as Secretary of the Company since February 1991
and General Counsel since February 1995. Mr. Legg is principally employed as
Vice President and General Counsel of the Parent Company, positions he has held
since 1997. Prior thereto, Mr. Legg served as Assistant General Counsel from
1984 to 1989 and Corporate Counsel from 1989 to 1997 of the Parent Company.
Joseph R. Maslick has served as a Director of the Company since 1989. Mr.
Maslick is principally employed as Executive Vice President and Chief Financial
Officer of the Parent Company, positions he has held since 1993 and 1988,
respectively. After holding several positions in accounting and finance at the
Parent Company, he was elected Vice President and Treasurer in 1983 and Senior
Vice President and Chief Financial Officer in 1988. Mr. Maslick joined the
Parent Company in 1970.
The Company's Board of Directors has nominated, and shortly after
completion of the Offering intends to elect, two independent directors of the
Company. The nominees, John G. Kringel and L. Peter Smith, are not affiliated
with the Company or with the Parent Company.
John G. Kringel retired July 1, 1998 as Senior Vice President -- Hospital
Products of Abbott Laboratories, a position he held since October 1990. Prior
thereto he was employed since 1980 in several other senior management positions
with Abbott Laboratories, including Vice President -- Hospital Products from
September 1983 to October 1990. He is also a director of Navix Radiology
Systems, Inc.
L. Peter Smith is the Chief Executive Officer of Ralin Medical, Inc., a
position he has held since 1989. Ralin Medical, headquartered in Buffalo Grove,
IL, provides a variety of cardiac disease management services to managed
healthcare organizations, large physician practice groups, hospitals, employers
and others. Prior to joining Ralin Medical, Mr. Smith was employed for 11 years
in a series of positions of increasing management responsibility with Baxter
International, Inc., including serving from 1987-89 as President of its
Caremark, Inc. subsidiary. While at Baxter, Mr. Smith had significant
international management experience. He is also a director of Ralin Medical,
Inc., Coram Healthcare Corporation and Sabratek Corporation.
COMMITTEES OF THE BOARD
The Board of Directors has designated a Compensation Committee, an Audit
Committee, a Committee of Independent Directors and a Stock Option Committee,
the members of each of which will include or consist of the two independent
directors to be elected shortly after completion of the Offering.
The Compensation Committee when fully constituted will be composed of three
members, none of whom may be an employee of the Company. The Compensation
Committee is responsible for establishing all executive officer compensation and
adopting and administering stock option and variable compensation programs
applicable to employees and officers.
The Audit Committee when fully constituted will be composed of three
members, a majority of whom must be independent directors. The committee will
meet periodically with management and representatives of the Company's
independent auditors to assure that appropriate audits of the Company's affairs
are being conducted. In carrying out these responsibilities, the committee will
review the scope of audit activities and the results of the annual audit. The
committee is also responsible for recommending to the Board of Directors a
public accounting firm to serve as independent auditors each year. The
independent auditors have direct access to the Audit Committee to discuss the
results of their examinations, the adequacy of internal accounting controls, and
the integrity of financial reporting.
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<PAGE> 56
The Committee of Independent Directors when constituted will be composed of
two members, both of whom must be independent directors having no other
affiliation with either the Company or the Parent Company. It will be the
principal responsibility of this Committee to review and approve the terms of
all material agreements and transactions, and any material amendments to such
agreements, between the Company and the Parent Company which are entered into or
occur subsequent to the Offering.
The Stock Option Committee is composed of two members, neither of whom may
receive an option granted under the Company's 1998 Employee Stock Option Plan
and each of whom is required to be, if and to the extent any member or members
of the Board of Directors so qualify, a "non-employee director" of the Company
(as defined in Rule 16b-3 of the Securities and Exchange Commission under the
Securities Exchange Act of 1934) and an "outside director" of the Company
(within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as
amended). The principal duties of the Stock Option Committee are to administer
the Company's employee stock option plans.
COMPENSATION OF NON-AFFILIATED DIRECTORS
Each director of the Company, except any director who is also an employee
of the Company or the Parent Company, will receive from the Company for his or
her services: (i) an annual retainer of $10,000, payable in quarterly
installments; (ii) an annual fee of $2,000 for each committee of the Board of
Directors of which he or she is the chairman; and (iii) a fee of $500 for each
meeting of the Board of Directors or any committee of the Board of Directors
which he or she attends. Each such non-employee director will also be eligible
to participate in the 1998 Director Stock Option Plan described below. In
addition, all directors will be reimbursed for travel and other out-of-pocket
expenses related to attending meetings of the Board of Directors and its
committees.
1998 DIRECTOR STOCK OPTION PLAN
The Board of Directors of the Company has adopted, and the Parent Company
as sole stockholder of the Company has approved, the Company's 1998 Director
Stock Option Plan (the "DSOP"). The DSOP is administered by the Board of
Directors.
A total of 50,000 shares of Class A Common Stock will be subject to the
DSOP and reserved for the grant of options thereunder (subject to antidilution
and similar adjustment provisions). If an option expires or is terminated or
canceled unexercised as to any shares, such released shares may again be
optioned. No options may be granted under the DSOP after August 31, 2008.
The DSOP provides for the automatic granting of options to purchase shares
of Class A Common Stock to certain directors of the Company ("Eligible
Directors"). An Eligible Director consists of (i) every incumbent director who
at the time of grant is not an employee of the Company or any of its
subsidiaries and (ii) every newly elected or appointed director who at the time
of his or her initial election or appointment is neither an employee of the
Company or any of its subsidiaries nor a director, officer or employee of any
other company which directly or indirectly controls the Company (a "Newly
Elected Independent Director").
Effective at the time of the Offering, Messrs. Kringel and Smith (each of
whom is deemed by the DSOP, as of that time, to be a Newly Elected Independent
Director) and Mr. Maslick will each be automatically granted an option under the
DSOP to purchase 3,000 shares of Class A Common Stock at an exercise price per
share equal to the initial public offering price. Thereafter, (i) each incumbent
Eligible Director, on the date he or she is annually reelected a director of the
Company, will be automatically granted an option under the Plan to purchase
1,000 shares of Class A Common Stock at an exercise price per share equal to the
fair market value of a share of Class A Common Stock on the date of grant and
(ii) each Newly Elected Independent Director, on the date he or she first
becomes a director of the Company, will be automatically granted an option under
the Plan to purchase 3,000 shares of Class A Common Stock at an exercise price
per share equal to the fair market value of a share of Class A Common Stock on
the date of grant.
Options granted under the DSOP will be for a term of ten years. Each such
option will vest and become exercisable in full on the first anniversary of its
date of grant. In the event a director is removed for cause, his
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<PAGE> 57
or her options granted under the DSOP will expire immediately. In the event a
director ceases to serve as such because of any other reason, including not
being reelected, such director may exercise his or her options at any time prior
to the earlier of (i) the close of business on the normal expiration date of
such options or (ii) the close of business on the first anniversary of the date
of such cessation to the extent his or her options were exercisable as of the
date of such cessation. No option is transferable by the optionee other than by
the laws of descent and distribution, pursuant to a qualified domestic relations
order or upon the consent of the Board of Directors.
The exercise price of any option granted under the DSOP may be paid by a
director, in his or her discretion, by delivery to the Company of any of the
following: (i) a certified or cashier's check; (ii) a one year promissory note
(with shares purchased thereby having a value equal to at least 150 percent of
the principal amount of the note pledged thereunder); (iii) other shares of
Class A Common Stock owned by the director which have an aggregate fair market
value equal to the exercise price; (iv) notice to withhold from the shares
otherwise deliverable upon exercise that number of such shares having an
aggregate fair market value equal to the exercise price; or (v) notice to
deliver to a broker selected by the Company, for sale by the broker, a
sufficient number of such shares to enable the broker to deliver to the Company
a guarantee of cash equal to the aggregate exercise price. The payment methods
specified in clauses (iv) and (v) above may only be utilized by a director for
options exercised during a specified "window period" following the date of
public release of the Company's quarterly or annual results of operations.
The Board of Directors may amend or discontinue the DSOP at any time.
However, no such amendment or discontinuation may: (i) without the consent of
the optionee, change or impair any outstanding option in a manner detrimental to
the optionee; or (ii) without the approval of stockholders, (x) materially
increase the benefits accruing to optionees, (y) materially increase the maximum
number of shares which may be purchased upon exercise of options granted under
the DSOP or (z) materially modify the requirements for eligibility for
participation in the DSOP.
The Company understands that no gain or loss will be recognized to an
optionee upon the grant of an option under the DSOP, but that upon exercise of
the option ordinary income will be recognized by the optionee measured by the
excess of the fair market value of the shares of Class A Common Stock acquired
over the option price. The Company will be entitled to a deduction equal to the
amount of ordinary income recognized to the optionee. An optionee's basis in
shares acquired upon the exercise of an option will be equal to the option price
plus the amount of ordinary income recognized to the optionee. An optionee's
holding period begins on the date on which the option is exercised.
EXECUTIVE COMPENSATION
The following table sets forth information regarding the compensation paid
to the Company's Chief Executive Officer and to each of its other executive
officers whose total annual salary and bonus exceeded $100,000 (collectively,
the "Named Executive Officers") for all services rendered to the Company during
Fiscal 1997.
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<PAGE> 58
SUMMARY COMPENSATION TABLE FOR FISCAL 1997
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------- -------------
OTHER SECURITIES
FISCAL ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2) OPTIONS(#)(3) COMPENSATION(4)
- --------------------------- ------ -------- -------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Kevin M. Swan(5).......... 1997 $257,718 $225,250 $4,940 27,500 $14,791
President and Chief
Executive Officer
Peter D. Gortz(5)......... 1997 133,521 58,185 -- 20,268 12,095
Senior Vice President and
Chief Operating
Officer -- North America
Dirk Barrie(6)............ 1997 141,303 50,431 -- 20,268 3,900
Senior Vice President and
President -- European
Group
</TABLE>
- ---------------
(1) The bonus amounts reported for Mr. Swan and Mr. Gortz include a formula
based nondiscretionary payment and a discretionary payment pursuant to a
bonus plan for domestic employees of the Company. The bonus amount reported
for Mr. Barrie includes a formula based nondiscretionary payment and a
discretionary payment pursuant to a bonus plan for European employees of the
Company.
(2) The amount reported in this column reflects the payment by the Company of
federal income tax incurred by the Named Executive Officer relating to
certain executive officer benefits. This column excludes perquisites and
other personal benefits because for each Named Executive Officer those items
did not exceed the lesser of $50,000 or 10% of his total annual salary.
(3) The underlying securities shown consist of shares of Class B Common Stock
subject to options granted under the Company's 1996 Key Employee Stock
Option Plan.
(4) The amount reported in this column for Mr. Barrie is a pension allowance.
Amounts reported in this column for Messrs. Swan and Gortz include the
following:
<TABLE>
<CAPTION>
PAID PORTION OF
PARENT COMPANY PARENT COMPANY EXECUTIVE
CONTRIBUTIONS TO ITS ALLOCATIONS TO ITS OFFICER
SUPPLEMENTAL RETIREMENT EMPLOYEE STOCK LIFE INSURANCE
NAME YEAR AND SAVINGS PLAN OWNERSHIP PLAN* PROGRAMS
---- ---- ----------------------- ------------------ ---------------
<S> <C> <C> <C> <C>
Kevin M. Swan.................... 1997 $9,396 $4,975 $420
Peter D. Gortz................... 1997 7,146 4,763 186
</TABLE>
- ---------------
* The Parent Company allocated 32.7 shares of its capital stock to the
account of Mr. Swan and 31.3 shares of its capital stock to the account
of Mr. Gortz under its Employee Stock Ownership Plan. The fair market
value of those shares was determined by independent appraisal in
connection with the annual valuation of the Parent Company's capital
stock for the Trustees of the Employee Stock Ownership Trust.
(5) Mr. Swan also participated in the Parent Company's long-term incentive plan
for senior management personnel (the "Parent Incentive Plan"). The Parent
Incentive Plan, which is based upon economic value added (EVA(R))
principles, is administered with respect to separate three-year periods.
Prior to the commencement of each three-year period, every participant is
assigned a target award for each of the three years; the target award for
any given year may or may not be met or exceeded based upon the EVA
performance for that year of the business unit or units for which the
participant renders services (the Company, in the case of Mr. Swan). The
amount actually earned for each such year (there is no maximum limit on any
such earned amount) is not paid out until after completion of the third and
final year of each three-year period; instead, the earned amount is credited
to the participant's account under
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<PAGE> 59
the Parent Incentive Plan. The current three-year period under the Parent
Incentive Plan consists of Fiscal 1996, 1997 and 1998. The amounts earned by
Mr. Swan for Fiscal 1996 and 1997 were $143,325 and $178,875, respectively,
and his target award for Fiscal 1998 is $135,000. It is anticipated that Mr.
Swan will receive payment of the aggregate earned amount for the current
three-year period in January 1999. Messrs. Swan and Gortz will participate
in the Parent Incentive Plan for Fiscal 1999.
(6) Mr. Barrie's compensation is paid in Belgium francs. Accordingly, the
amounts reported in the table have been translated into U.S. dollars based
upon the average exchange rate during Fiscal 1997 of .027125 U.S. dollar per
Belgium franc.
Stock Option Grants in Fiscal 1997
The following table provides information concerning grants of options to
purchase shares of Class B Common Stock made during Fiscal 1997 to the Named
Executive Officers under the Company's 1996 Key Employee Stock Option Plan.
OPTION GRANTS IN FISCAL 1997(1)
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(3)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ----------------------
NAME GRANTED FISCAL YEAR SHARE(2) DATE 5% 10%
- ---- ---------- ------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Kevin M. Swan......... 27,500 31.4% $4.51 6-1-07 $77,983 $197,624
Peter D. Gortz........ 20,268 23.1 4.51 6-1-07 57,473 145,649
Dirk Barrie........... 20,268 23.1 4.51 6-1-07 57,473 145,649
</TABLE>
- ---------------
(1) During Fiscal 1998, the Company granted options under the 1996 Key Employee
Stock Option Plan with an exercise price of $10.09 per share to the Named
Executive Officers for the following numbers of shares of Class B Common
Stock: Mr. Swan -- 66,000; Mr. Gortz -- 16,500; and Mr. Barrie -- 16,500.
The Company intends to grant additional options effective at the
commencement of the Offering under the Company's 1998 Employee Stock Option
Plan with an exercise price per share equal to the initial public offering
price to the Named Executive Officers for the following numbers of shares of
Class A Common Stock: Mr. Swan -- 100,000; Mr. Gortz -- 25,000; and Mr.
Barrie -- 20,000.
(2) The exercise price of options granted under the 1996 Key Employee Stock
Option Plan is equal to the fair market value of the Company's Class B
Common Stock on the date of grant. The fair market value was determined in
reliance upon an appraisal prepared by an independent investment banking
firm, ABN AMRO Incorporated, at the direction of the Board of Directors.
(3) The assumed 5% and 10% rates of stock appreciation are provided in
accordance with rules of the Securities and Exchange Commission and do not
represent the Company's estimate or projection of the possible future
appreciation of the Company's Common Stock. The dollar amounts in these
columns are not discounted to present value and are prior to the payment of
applicable taxes. This table does not account for any appreciation in the
actual price of the Common Stock from the date of grant to the current date.
Option Exercises in Fiscal 1997 and Fiscal 1997 Year-End Values
None of the Named Executive Officers exercised any options to purchase
Common Stock during Fiscal 1997. The following table provides certain
information concerning the value of unexercised options held by the Named
Executive Officers at September 30, 1997.
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AGGREGATE OPTION VALUES AT FISCAL 1997 YEAR-END
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT SEPTEMBER 30, 1997 AT SEPTEMBER 30, 1997(1)
------------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C>
Kevin M. Swan...................... 25,751 78,996 $158,720 $470,902
Peter D. Gortz..................... 6,006 20,267 37,019 113,127
Dirk Barrie........................ 6,006 20,267 37,019 113,127
</TABLE>
- ---------------
(1) The amounts reported were calculated by subtracting the exercise price from
$10.09, the fair market value at September 30, 1997 of the Company's Class B
Common Stock as determined in reliance upon an appraisal prepared by an
independent investment banking firm, ABN AMRO Incorporated, at the direction
of the Board of Directors.
EMPLOYEE STOCK OPTION PLANS
1998 Plan
The Board of Directors of the Company has adopted, and the Parent Company
as sole stockholder of the Company has approved, the Company's 1998 Employee
Stock Option Plan (the "1998 Plan"). The 1998 Plan is administered by the Stock
Option Committee of the Board of Directors (the "Committee"). See
"Management -- Committees of the Board." The Committee has authority, among
other things, to determine the persons to be granted options under the 1998
Plan, the number of shares subject to each option and the time or times at which
options will be granted.
Options may be granted under the 1998 Plan to employees of the Company and
its subsidiaries. Initially, options may be granted under the 1998 Plan with
respect to a total of not more than 300,000 shares of Class A Common Stock
(subject to antidilution and similar adjustment provisions). An additional
150,000 shares of Class A Common Stock will be reserved for options to be
granted under the 1998 Plan on October 1 of each of the years 1999 through 2001
(subject to the same adjustment provisions). No options may be granted under the
1998 Plan after August 31, 2008. If an option expires or is terminated or
canceled unexercised as to any shares, such released shares may again be
optioned (including a grant in substitution for a canceled option). No single
optionee may be granted, in any calendar year, options which in the aggregate
cover more than 125,000 shares.
Unless otherwise determined by the Committee, options granted under the
1998 Plan will be for a term of ten years and will vest and become exercisable
as to one-fourth of the shares subject thereto on each of the first, second,
third, and fourth anniversaries of the date of grant. The Committee may
accelerate the exercisability of any option or, at any time before the
expiration or termination of an option previously granted, extend the term of
such option for such additional period as the Committee, in its discretion,
shall determine, except that the aggregate option period with respect to any
option, including the original term of the option and any extensions thereof,
may not exceed ten years. In addition, in the event of a Change in Control (as
defined) of the Company, all options then outstanding under the 1998 Plan will
become immediately exercisable.
The exercise price per share of each option granted under the 1998 Plan
must be the fair market value of a share of Class A Common Stock on the date of
grant. Upon exercise of an option, the optionee is required to pay the aggregate
exercise price to the Company by means of a certified or cashier's check.
However, the Committee may permit the exercise price to be paid by delivery to
the Company of any of the following: (i) a one year promissory note (with shares
purchased thereby having a value equal to at least 150 percent of the principal
amount of the note pledged thereunder); (ii) other shares of Class A Common
Stock owned by the optionee which have an aggregate fair market value equal to
the exercise price; (iii) notice to withhold from the shares otherwise
deliverable upon exercise that number of such shares having an aggregate fair
market value equal to the exercise price; or (iv) notice to deliver to a broker
selected by the Company, for sale by the broker, a sufficient number of such
shares to enable the broker to deliver to the Company a guarantee of cash
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<PAGE> 61
equal to the aggregate exercise price. The payment methods specified in clauses
(iii) and (iv) above may only be utilized by an optionee for options exercised
during a specified "window period" following the date of public release of the
Company's quarterly or annual results of operations.
In the event an optionee's employment with the Company is terminated for
cause (as defined) or an optionee voluntarily resigns, such optionee's options
will expire immediately. In the event of an optionee's death, permanent
disability or retirement after reaching the age of 65, any option then held by
such optionee may continue to be exercised by the optionee (or, in the case of
death or permanent disability, his or her heirs or legal representative), to the
extent such option was exercisable on the date his or her employment was so
terminated, until the earlier of (i) the close of business on the first
anniversary of the date his or her employment was so terminated or (ii) the
close of business on the normal expiration date of such option. In the event an
optionee's employment with the Company terminates due to his or her discharge
without cause, any option then held by such optionee may continue to be
exercised by such optionee, to the extent such option was exercisable on the
date his or her employment was so terminated, until the earlier of (i) the close
of business on the 90th day after the date his or her employment was so
terminated or (ii) the close of business on the normal expiration date of such
option. No option is transferable by the optionee other than by the laws of
descent and distribution, pursuant to a qualified domestic relations order or
upon the consent of the Committee.
The Board of Directors may amend or discontinue the 1998 Plan at any time.
However, no such amendment or discontinuation may: (i) without the consent of
the optionee, change or impair any outstanding option in a manner detrimental to
the optionee; or (ii) without the approval of stockholders, (x) materially
increase the benefits accruing to optionees; (y) materially increase the maximum
number of shares of Class A Common Stock that may be purchased upon exercise of
options granted under the 1998 Plan or (z) materially modify the requirements of
eligibility for participation in the 1998 Plan.
The Company understands that no gain or loss will be recognized to an
optionee upon the grant of an option under the 1998 Plan, but that upon exercise
of the option ordinary income will be recognized to the optionee measured by the
excess of the fair market value of the shares of Common Stock acquired over the
option price. The Company will be entitled to a deduction equal to the amount of
ordinary income recognized to the optionee. An optionee's basis in shares
acquired upon the exercise of an option will be equal to the option price plus
the amount of ordinary income recognized to the optionee. An optionee's holding
period begins on the date on which the option is exercised.
1996 Plan
Under the Company's 1996 Key Employee Stock Option Plan, as amended and
restated ("1996 Plan"), a committee of the Company's Board of Directors granted
options to purchase shares of the Company's common stock in each of the years
1996, 1997 and 1998 to certain employees, including executive officers of the
Company. Options granted under the 1996 Plan are intended not to be treated as
"incentive stock options" as that term is defined in Section 422 of the Internal
Revenue Code of 1986, as amended. When the Recapitalization becomes effective,
the options granted under the 1996 Plan will be reclassified as options to
purchase shares of Class B Common Stock of the Company. See "Description of
Capital Stock -- Recapitalization." No additional options will be granted
pursuant to the 1996 Plan. The 1996 Plan is now administered by the Stock Option
Committee of the Board of Directors.
Each option granted under the 1996 Plan has a term of ten years. The
exercise price per share of each such option is the fair market value of a share
of the Company's common stock on the date the option was granted, as determined
by the committee which granted the option. As determined by the committee at the
time of grant, each option granted under the 1996 Plan vests and becomes
exercisable either (i) with respect to the total number of shares subject to the
option on the first anniversary of the date of grant, (ii) with respect to
one-third of the total number of shares subject to the option on each of the
first, second and third anniversaries of the date of grant or (iii) as otherwise
determined by the committee. The Stock Option Committee may accelerate the
exercisability of any option granted under the 1996 Plan. All options granted
under the 1996 Plan will expire not later than April 9, 2006.
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<PAGE> 62
The purchase price of the shares subject to any option granted under the
1996 Plan which is exercised after the completion of the Offering may be paid,
in the optionee's discretion, either by delivery to the Company of (i) a
cashier's or certified check or (ii) irrevocable instructions directing the
Company to deliver that portion of shares being purchased pursuant to such
exercise to a broker for sale in the public market subject to such broker's
guarantee to deliver cash sufficient to cover the exercise price in full.
In the event of an optionee's death or permanent disability any option
granted to such optionee may continue to be exercised by such optionee (or, in
the case of death or permanent disability, his or her heirs or legal
representative) to the extent such option was exercisable on the date his or her
employment was so terminated, until the earlier of (i) the close of business on
the 90th day after the date his or her employment was so terminated or (ii) the
close of business on the normal expiration date of such option. In the event an
optionee's employment with the Company is terminated without cause, any option
granted to such optionee may continue to be exercised by such optionee, to the
extent such option was exercisable on the date his or her employment was so
terminated, until the earlier of (i) the close of business on the 60th day after
the date his or her employment was so terminated or (ii) the close of business
on the normal expiration date of such option. In the event an optionee's
employment with the Company is terminated for any other reason, such optionee's
options and all rights pursuant thereto will expire immediately.
No option is transferable by the optionee other than by the laws of descent
and distribution or upon the consent of the Committee. The Board of Directors
may amend or discontinue the 1996 Plan at any time. However, no such amendment
or discontinuation shall change or impair any option previously granted in a
manner detrimental to the optionee without his or her consent.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to this Offering, the compensation of the Company's executive
officers was determined and fixed by the Company's Board of Directors,
consisting of Dean L. Griffith, Joseph R. Maslick and Kevin M. Swan, the
Company's President and Chief Executive Officer. Subsequent to this Offering,
the terms of compensation of the Company's executive officers will be determined
by the Compensation Committee of the Company's Board of Directors, none of whose
members will be employees of the Company. No executive officer of the Company
serves as a member of the board of directors or compensation committee of any
entity which has one or more executive officers serving as members of the
Company's Board of Directors or Compensation Committee.
TRANSACTIONS WITH MANAGEMENT
In accordance with a standing policy of the Parent Company applicable to
certain senior officers of the Parent Company and its subsidiaries, including
the Company, in May 1995 the Company made a loan to Mr. Swan in the principal
amount of $50,000. Interest on the principal amount of the Company's loan to Mr.
Swan accrues at a rate of 7%, compounded annually. Mr. Swan is obligated to pay
the Company the outstanding amount of the loan, including accrued interest, in
the event his employment with the Company terminates for any reason prior to May
4, 2000. If he remains in the employ of the Company through that date, the loan
and related accrued interest will be forgiven by the Company.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of the date of this Prospectus, no shares of Class A Common Stock are
outstanding. Upon completion of the Offering, the only shares of Class A Common
Stock that will be outstanding are those that will be issued in the Offering.
The following table sets forth as of June 30, 1998, and as adjusted to reflect
the sale of the shares of Class A Common Stock offered hereby, certain
information regarding the beneficial ownership of the Class B Common Stock by
(i) each person known by the Company to be the beneficial owner of 5% or more of
any class of the Company's voting securities, (ii) each of the Company's
directors and nominees for director, (iii) each of the Named Executive Officers,
and (iv) all directors, nominees for director and executive officers of the
Company as a group. Certain employees of the Company, including the Named
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<PAGE> 63
Executive Officers, will be given the opportunity to purchase shares of Class A
Common Stock in the Offering at the public offering price set forth on the cover
page of this Prospectus.
<TABLE>
<CAPTION>
SHARES OF CLASS B
COMMON STOCK BENEFICIALLY SHARES OF CLASS B
OWNED BEFORE OFFERING(1) COMMON STOCK BENEFICIALLY
---------------------------- OWNED AFTER OFFERING(1)
% OF TOTAL -------------------------------------
EQUITY AND TOTAL % OF TOTAL % OF TOTAL
NAME(2) NUMBER VOTING POWER NUMBER EQUITY VOTING POWER
- ------- --------- ---------------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Griffith Laboratories International,
Inc.(3).............................. 5,225,000 97.6 5,225,000 66.6 93.3
Dean L. Griffith(3).................... 5,225,000 97.6 5,225,000 66.6 93.3
Joseph R. Maslick...................... -- -- -- -- --
Kevin M. Swan(4)....................... 51,502 * 51,502 * *
Peter D. Gortz(4)...................... 12,017 * 12,017 * *
Dirk Barrie(4)......................... 12,017 * 12,017 * *
John G. Kringel........................ -- -- -- -- --
L. Peter Smith......................... -- -- -- -- --
All directors, nominees for director
and executive officers as a group (10
persons)(4).......................... 75,536 1.4 75,536 * 1.4
</TABLE>
- ---------------
* Represents less than 1% of the outstanding shares of Class B Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. Under those rules, a person is generally
regarded as the beneficial owner of: (i) shares as to which he, she or it
possesses sole or shared voting or investment power; and (ii) shares which,
although not issued, such person has the right to acquire (upon exercise of
stock options, conversion rights or otherwise) within 60 days of the date of
this Prospectus. Each outstanding share of Class B Common Stock is
convertible at any time by the holder thereof into one share of Class A
Common Stock. See "Description of Capital Stock." Accordingly, each
beneficial owner of shares of Class B Common Stock set forth in the table is
deemed, under the foregoing rules of the Securities and Exchange Commission,
to beneficially own the same number of shares of Class A Common Stock. Mr.
Griffith disclaims beneficial ownership of all such shares of Class A Common
Stock.
(2) Unless otherwise indicated, the address of such person is c/o Griffith Micro
Science International, Inc., 2001 Spring Road, Suite 500, Oak Brook,
Illinois 60523-1887.
(3) Griffith Laboratories International, Inc. ("GLII") is a wholly-owned
subsidiary of Griffith Laboratories, Inc. ("GLI"). As a result of his
beneficial ownership of voting securities of GLI, the positions which he
holds with GLI and GLII and his authority under the bylaws of GLI and GLII,
Mr. Griffith may be deemed to be the indirect beneficial owner of all of the
shares of Class B Common Stock which are beneficially owned by GLII, as
beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission summarized in note (1). Mr. Griffith
disclaims beneficial ownership of all such shares of Class B Common Stock.
The address of GLII, GLI and Dean L. Griffith is in each case One Griffith
Center, Alsip, Illinois 60803-3495.
(4) Consists entirely of shares of Class B Common Stock subject to outstanding
stock options held by such person which are exercisable within 60 days of
the date of this Prospectus.
RELATIONSHIP WITH PARENT COMPANY
BACKGROUND
The Parent Company, which was organized in 1919 and is headquartered in
Alsip, Illinois, a suburb of Chicago, is engaged through subsidiaries which
comprise its Food Group in the creation and manufacture of custom blended
coatings, flavorings and flour-based blends used by food processing and food
service companies worldwide to impart or improve the taste, texture and
appearance of a variety of food products and
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<PAGE> 64
in the production of soup bases. During the 1930s, the Parent Company patented
the use of ethylene oxide to sterilize dry food ingredients. During the 1940s,
the Parent Company received patents for ethylene oxide sterilization of hospital
and medical devices. Initially, the Parent Company used the process to sterilize
herbs and spices which it imported for use by its Food Group. Beginning in the
1950s, while continuing to do its own sterilization, the Parent Company began
offering contract ethylene oxide sterilization services to others. In 1970, the
Parent Company organized a separate division to operate its contract ethylene
oxide sterilization business. Thereafter, the business was transferred to the
Company, except that its attendant intellectual property was retained by the
Parent Company and its use licensed to the Company.
Today, there is relatively little operational overlap between the business
of the Parent Company and the business of the Company. The Parent Company does
render a variety of administrative and financial support services to the
Company, and it is expected to continue to do so after completion of the
Offering. The Parent Company is also the owner of certain intellectual property
which it licenses to the Company for use in the Company's business. Prior to
completion of the Offering, the Parent Company will have assigned this
intellectual property to the Company as a contribution to capital. In order to
document and establish the terms of these arrangements and other aspects of
their continuing relationship, the Company and the Parent Company will, prior to
the completion of the Offering, have entered into the Intercompany Agreements,
which are described below.
The Intercompany Agreements are not the result of arm's length negotiations
between independent parties, and their terms were not reviewed or approved by
the Committee of Independent Directors of the Company's Board of Directors
(which will not be constituted until after completion of the Offering). There
can be no assurance that their terms and conditions are or will remain the same
as those for agreements negotiated at arm's length. It is the intention of the
Company and the Parent Company, however, that the Intercompany Agreements, taken
as a whole, should accommodate the parties' respective interests in a manner
that is fair to each of them, while continuing certain mutually beneficial
arrangements. In addition, the principal responsibility of the Committee of
Independent Directors, whose members will not be otherwise affiliated with
either the Company or the Parent Company, will be to review and approve the
terms of all material agreements and transactions, and any material amendments
to such agreements (including amendments to the Intercompany Agreements) between
the Company and the Parent Company which are entered into or occur subsequent to
the Offering.
The following summary of the material terms of the Intercompany Agreements
is qualified in its entirety by reference to the provisions of such agreements,
which have been filed as exhibits to the Registration Statement of which this
Prospectus is a part.
SHAREHOLDER AGREEMENT
Prior to the completion of the Offering, the Company and the Parent Company
will have entered into a Shareholder Agreement (the "Shareholder Agreement"),
pursuant to which the Company has granted certain rights (the "Registration
Rights") to the Parent Company with respect to the registration under the
Securities Act of: (i) the shares of Class B Common Stock owned by the Parent
Company at the closing of the Offering; and (ii) the shares of Class A Common
Stock into which such shares of Class B Common Stock are convertible (together,
the "Registrable Securities"). Pursuant to the Shareholder Agreement, the Parent
Company will be able to require the Company, not more than once in any 365-day
period, commencing on the first anniversary of the closing of the Offering, to
file a registration statement under the Securities Act covering the registration
of the Registrable Securities, including in connection with an offering by the
Parent Company of its securities that are exchangeable for the Registrable
Securities (the "Demand Registration Rights"). The Parent Company's Demand
Registration Rights are subject to certain limitations, including that any such
registration cover a number of Registrable Securities having a fair market value
of at least $2.5 million at the time of the request for registration and that
the Company may be able to temporarily defer a Demand Registration to the extent
it conflicts with another public offering of securities by the Company or would
require the Company to disclose certain material non-public information. In
addition, after the Parent Company no longer owns a majority of the voting power
of the outstanding capital stock of the Company, it may exercise its Demand
Registration Rights on not more than three occasions. The Parent Company will
also
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<PAGE> 65
be able to require the Company to include Registrable Securities owned by the
Parent Company in a registration by the Company of its securities (the
"Piggyback Registration Rights"), subject to certain conditions, including the
ability of the underwriters to limit or exclude Registrable Securities from such
an offering.
The Company and the Parent Company will share equally the out-of-pocket
fees and expenses of the Company associated with a demand registration and the
Parent Company will pay its pro rata share of underwriting discounts,
commissions, and related expenses (the "Selling Expenses"). The Company will pay
all expenses associated with a piggyback registration except that the Parent
Company will pay its pro rata share of the Selling Expenses. The Shareholder
Agreement contains certain indemnification and contribution provisions (i) by
the Parent Company for the benefit of the Company and related persons, as well
as any potential underwriter, and (ii) by the Company for the benefit of the
Parent Company and related persons, as well as any potential underwriter. The
Parent Company's Demand Registration Rights will terminate on the date that the
Parent Company owns, on a fully converted or exercised basis with respect to
such securities held by the Parent Company, Registrable Securities representing
less than 10% of the then issued and outstanding voting stock of the Company.
The Parent Company's Piggyback Registration Rights will terminate at such time
as it is able to sell all of its Registrable Securities pursuant to Rule 144
under the Securities Act within a three-month period. The Parent Company also
may transfer its Registration Rights to any Permitted Transferee of Class B
Common Stock, as defined in the Company's Restated Certificate of Incorporation,
or to any transferee from it of Registrable Securities that represent, on a
fully converted or exercised basis with respect to the Registrable Securities
transferred, at least 20% of the then issued and outstanding voting stock of the
Company at the time of transfer; provided, however, that any such transferee
will be limited to (i) two demand registrations if the transfer conveys less
than a majority but more than 30% and (ii) one demand registration if the
transfer conveys 30% or less of the then issued and outstanding voting stock of
the Company.
The Shareholder Agreement also provides that the Parent Company, at any
time when it holds less than 50% of the combined voting power of all outstanding
shares of capital stock of the Company, may demand that within 12 months the
Company: (i) change its name to a name that does not include the word
"Griffith," cease using any trademark or trade name that contains the word
"Griffith," and cease using the word "Griffith" in any manner in connection with
the Company's business; and (ii) cease using the "flask and world" logo and
trademark (a version of which appears on the cover page of this Prospectus) in
any manner in connection with the Company's business and assign to the Parent
Company all of the Company's right, title and interest in and to that trademark.
ADMINISTRATIVE SERVICES AGREEMENT
Prior to the completion of the Offering, the Company and the Parent Company
will have entered into an agreement (the "Administrative Services Agreement")
governing the terms upon which the Parent Company may continue to provide
various services to the Company. These services include information systems,
finance and accounting, treasury, legal, insurance and risk management,
taxation, human resources and employee benefits, strategic planning, management
services and systems and procedures. Services governed by the Administrative
Services Agreement will be performed only upon the request of the Company and at
the discretion of the Parent Company. The Administrative Services Agreement will
have an initial term of five years and thereafter will renew automatically for
successive one year terms unless either party gives the other not less than six
months' prior written notice of termination. In addition, the Agreement may be
terminated at any time by mutual consent or by the Parent Company at any time
after it owns less than 20.1% of the outstanding Common Stock of the Company.
The Company will pay a quarterly fee for these services intended to reflect
a reasonable approximation of the cost to the Parent Company of providing such
services to the Company. A portion of the services have been and will continue
to be provided by the Parent Company's Food Group. In prior periods, the Company
has paid the Parent Company for the cost of the Food Group services, which
amounted to approximately $313,000 in Fiscal 1997. The balance of the services
have been and are expected to continue to be provided principally by the Parent
Company's Corporate Group. No charge was previously made to the Company for the
Corporate Group services. The Company believes that in Fiscal 1999 its aggregate
cost for the Corporate
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<PAGE> 66
Group services is not likely to exceed $500,000. At the request of the Company,
the Parent Company may also elect, at its sole option and discretion, to provide
guaranties of specified financial obligations of the Company, in which case the
Parent Company would receive additional fees.
TAX MATTERS AGREEMENT
Prior to the completion of the Offering, the Company and the Parent Company
will have entered into an agreement (the "Tax Matters Agreement") which governs
the allocation between the parties of state and federal tax liabilities and
obligations. Pursuant to the Tax Matters Agreement, for periods prior to the
date of completion of the Offering (the "Deconsolidation Date"), the Company is
responsible for its tax liabilities computed as though it filed separate tax
returns for such periods. From and after the Deconsolidation Date, the Company
is responsible for all tax liabilities incurred by it but the Parent Company
will have the right and obligation, subject to certain constraints, to: (i)
prepare and file the Company's tax returns; (ii) conduct all audits of and
litigation regarding the Company's tax returns; and (iii) determine the final
disposition of all tax matters. The Company will reimburse the Parent Company
through the Administrative Services Agreement for all internal tax
administration costs relating to the Company incurred by the Parent Company. The
Tax Matters Agreement will have an initial term of five years and thereafter
will renew automatically for additional terms of one year unless either party
gives the other not less than 90 days prior written notice of termination.
INTELLECTUAL PROPERTY ASSIGNMENT
Effective upon the completion of the Offering, the Parent Company will have
assigned to the Company all of the trademarks, technical know-how, and other
intellectual property owned by the Parent Company and used in or associated with
the business of the Company (which intellectual property is currently licensed
by the Parent Company to the Company). As a result of such assignment, the
Company will no longer pay a royalty to the Parent Company for the license of
such intellectual property.
CERTAIN OTHER ARRANGEMENTS
The Company's sterilization facility near Toronto, Canada is located in
space leased from the Parent Company. The leased premises occupy a portion of a
building which also houses production facilities of the Parent Company's Food
Group. The space leased by the Company is physically separated from the rest of
the building. The lease will expire in September 2008. In Fiscal 1997, the
Company paid the Parent Company approximately $219,000 in rent and related
charges for this space. See "Business -- Facilities" and Note 12 of the Notes to
Consolidated Financial Statements.
The Company also renders services in the ordinary course of its business
and on customary and competitive terms for the Parent Company's Food Group, the
aggregate amount of which in Fiscal 1997 was approximately $371,000 and which
consist principally of laboratory testing services performed by the Company for
the Food Group in the United Kingdom and sterilization processing performed for
the Food Group in North America. The Company also purchases certain
administrative services in the ordinary course of its business from various
operating units of the Parent Company's Food Group in North America. Subsequent
to the Offering, these services, the aggregate cost of which was approximately
$313,000 in Fiscal 1997, will be performed pursuant to the Administrative
Services Agreement. See Note 12 of the Notes to Consolidated Financial
Statements. In addition, the Parent Company has issued non-binding "comfort
letters" to various European financial institutions in support of borrowings
made by the Company from those institutions.
The Company participates in the qualified profit sharing plan maintained by
the Parent Company, under which substantially all of the Company's employees in
the United States are eligible to participate after six months of employment.
Contributions charged to earnings consist of matching contributions based on the
amount contributed by employees and discretionary amounts set by the Board of
Directors of the Parent Company, a portion of which is allocated to the Company.
The Company will continue to participate in this plan after completion of the
Offering.
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<PAGE> 67
DESCRIPTION OF CAPITAL STOCK
RECAPITALIZATION
Prior to the completion of the Offering, a recapitalization of the Company
will have been effected pursuant to which the following will occur
(collectively, the "Recapitalization"):
(i) the total number of authorized shares of capital stock of the
Company will be increased to 100,000,000, consisting of 50,000,000 shares
of Class A Common Stock, 40,000,000 shares of Class B Common Stock and
10,000,000 shares of Preferred Stock; and
(ii) each of the currently outstanding 950,000 shares of common stock
of the Company, all of which are owned by the Parent Company, will be
reclassified into 5.5 shares of Class B Common Stock.
Upon the effectiveness of and to give effect to the Recapitalization, each
of the outstanding options to purchase shares of existing common stock of the
Company which were previously granted pursuant to the 1996 Plan will be
converted, pursuant to the provisions of the 1996 Plan, into an option to
purchase that number of shares of Class B Common Stock determined by multiplying
the number of shares of existing common stock subject to the option by 5.5 at an
exercise price per share equal to the current exercise price divided by 5.5.
Each share of Class A Common Stock to be sold by the Company in the
Offering will be issued by the Company from its newly authorized but unissued
shares of Class A Common Stock.
After giving effect to the Recapitalization, the authorized capital stock
of the Company will consist of: (i) 50,000,000 shares of Class A Common Stock,
$.01 par value per share; (ii) 40,000,000 shares of Class B Common Stock, $.01
par value per share; and (iii) 10,000,000 shares of Preferred Stock, $.01 par
value per share. Upon completion of the Offering, there will be outstanding:
2,500,000 shares of Class A Common Stock (2,875,000 if the Underwriters'
over-allotment option is exercised in full); 5,225,000 shares of Class B Common
Stock; and no shares of Preferred Stock. The following summary of the material
terms of the capital stock of the Company is qualified in its entirety by
reference to the provisions of the Restated Certificate of Incorporation of the
Company, which has been included as an exhibit to the Registration Statement of
which this Prospectus is a part.
CLASS A COMMON STOCK AND CLASS B COMMON STOCK
Except as described below under "Voting," "Dividends and Distributions,"
"Conversion and Other" and "Liquidation and Mergers," the Class A Common Stock
and the Class B Common Stock are identical to each other.
Voting. Each share of Class B Common Stock entitles the holder thereof to
ten votes per share on all matters on which stockholders are entitled to vote
(including election of directors). Each share of Class A Common Stock entitles
the holder thereof to one vote per share on all such matters. All actions
submitted to a vote of stockholders will be voted on by holders of Class A and
Class B Common Stock voting together as a single class, except on matters where
a separate class vote is required by Delaware law. Such matters include
amendments of the Certificate of Incorporation to change the number of
authorized shares of such class, to change the par value of the shares of such
class, or to alter or change the powers, preferences or special rights of the
shares of such class so as to affect them adversely.
There is no provision in the Certificate of Incorporation permitting
cumulative voting.
All of the currently outstanding shares of Class B Common Stock are owned
by the Parent Company. As a result, the Parent Company will be able to control
the election of directors and the vote on other matters submitted to
stockholders, including the approval of extraordinary corporate transactions.
See "Risk Factors -- Control by the Parent Company" and "-- Antitakeover Effects
of the Company's Capital Structure" and "Relationship With Parent Company."
66
<PAGE> 68
Dividends and Distributions. Subject to the paragraph below, the Class A
Common Stock and Class B Common Stock have identical dividend rights, with any
payment of dividends to one class of Common Stock requiring payment of an
identical dividend to the other class.
Dividends consisting of one class of Common Stock may be paid on that class
of Common Stock if dividends consisting of the other class of Common Stock are
paid on the other class of Common Stock on an equal per share basis. The shares
of one class may not be reclassified, subdivided or combined unless there is a
simultaneous equivalent reclassification, combination or subdivision of the
shares of the other class.
The Revolving Credit Agreement which the Company expects to enter into
prior to the Offering will contain a covenant restricting the amount of
dividends which the Company will be permitted to pay. See "Dividend Policy" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Conversion and Other. The Class B Common Stock is convertible, at the
option of the holder, into Class A Common Stock on a share-for-share basis. Any
shares of Class B Common Stock which are transferred (other than to certain
Permitted Transferees) shall automatically be converted into Class A Common
Stock on a share-for-share basis. For such purpose, a "Permitted Transferee"
shall mean: (i) any Person which directly or indirectly controls, is controlled
by or is under common control with, the Company (an "affiliate of the Company");
(ii) the shareholders of the Parent Company, but only pursuant to a single
transaction in which all outstanding shares of Class B Common Stock then held by
the Parent Company are distributed to the shareholders of the Parent Company as
part of a tax free spin off; and (iii) any other corporation or business entity
which is not an affiliate of the Company, but only pursuant to a single
transaction approved by the Board of Directors of the Parent Company in which
all outstanding shares of Class B Common Stock held by the Parent Company are
sold to, exchanged with or otherwise transferred to such other corporation or
business entity; and "Person" means any individual, corporation, association,
partnership, limited liability company, joint venture, trust, organization,
business, government or any government agency or political subdivision thereof
or any other entity. In addition, at the close of business on the first date
that the number of outstanding shares of Class B Common Stock represents less
than 10% of the aggregate number of then outstanding shares of Common Stock, all
of the Class B Common Stock shall be automatically converted into Class A Common
Stock on a share-for-share basis. See "Risk Factors -- Control by the Parent
Company."
Shares of Class B Common Stock which are converted become authorized and
unissued shares which may be issued by the Board of Directors without further
action by stockholders, except as required by law, and subject to the
limitations on future issuances of Class B Common Stock described below.
Neither the Class A Common Stock nor the Class B Common Stock has any
preemptive rights enabling a holder to subscribe for or receive shares of stock
of the Company of any class.
Shares of Class B Common Stock currently outstanding are, and shares of
Class A Common Stock offered by the Company hereby will be, fully paid and
non-assessable.
Under provisions of the Restated Certificate of Incorporation, every
reference in the Company's Restated Certificate of Incorporation or Bylaws to a
majority or other proportion of stock shall refer to such majority or other
proportion of the votes of such stock (except with respect to the provision
providing for conversion of the Class B Common Stock into Class A Common Stock
upon the Class B Common Stock representing less than 10% of the Common Stock).
Limitation on Future Class B Issuances. The Restated Certificate of
Incorporation prohibits issuances of additional Class B Common Stock other than
upon exercise of existing options or pursuant to any permitted stock dividend or
distribution, as described above.
Liquidation and Mergers. The holders of the Class A Common Stock and Class
B Common Stock will have equal rights, on a share-for-share basis, in the event
of liquidation of the Company (subject to any preferential rights of any
outstanding series of Preferred Stock) or mergers or consolidations of the
Company in which shares of Common Stock are converted into cash, securities or
other property, provided that if the
67
<PAGE> 69
consideration in a merger or consolidation consists of voting securities, the
merger or consolidation agreement may provide for the holders of Class B Common
Stock to receive, on a per share basis, voting securities with ten times the
number of votes per share as those voting securities to be received by the
holders of shares of Class A Common Stock.
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
stockholders, to issue up to 10,000,000 shares of Preferred Stock in one or more
series and to fix the voting powers, designations, preferences, and relative,
participating, optional, or other special rights, and qualifications,
limitations, and restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences, and the
number of shares constituting any series. Because the Board of Directors has the
power to establish the preferences and rights of the shares of any such series
of preferred stock, it may afford holders of any preferred stock preferences,
powers and rights (including voting rights), senior to the rights of holders of
Common Stock, which could adversely affect the rights of holders of Common
Stock. The Company has no present plan to issue any shares of Preferred Stock.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is Harris Trust and
Savings Bank.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no market for the Common Stock. The
Company cannot predict the effect, if any, that future sales of shares, or the
availability of shares for future sale, will have on the market price prevailing
from time to time. Sales of substantial amounts of Common Stock in the public
market, or the perception that such sales could occur, could adversely affect
prevailing market prices of the Common Stock.
Upon completion of the Offering, the Company will have 2,500,000 shares of
Class A Common Stock outstanding (2,875,000 if the Underwriters' over-allotment
option is exercised in full). All such shares of Class A Common Stock will be
freely tradable (other than by an "affiliate" of the Company as such term is
defined in the Securities Act) without restriction or registration under the
Securities Act.
Upon completion of the Offering, the Parent Company will own 5,225,000
shares of Class B Common Stock. All such shares were issued and sold by the
Company in a private transaction and are "restricted securities" as such term is
defined in the Securities Act ("Restricted Shares"). Accordingly, neither they
nor the shares of Class A Common Stock into which they are convertible may be
resold by the Parent Company unless registered under the Securities Act or sold
in accordance with an exception therefrom, such as Rule 144 or Rule 144A
thereunder. Due to the restrictions on transferability of the Class B Common
Stock contained in the Company's Restated Certificate of Incorporation, no
public market is expected to develop in the shares of Class B Common Stock. Each
share of Class B Common Stock is however, convertible at any time by the holder
thereof (including the Parent Company) into a share of Class A Common Stock. The
Parent Company has informed the Company that it has no present intention to
convert and sell any shares of Common Stock owned by it and has also agreed not
to convert and sell any Common Stock owned by it prior to the expiration of 180
days from the date of this Prospectus without the prior written consent of ABN
AMRO Incorporated.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, an affiliate of the Company, or a holder of
Restricted Shares who beneficially owns shares that were not acquired from the
Company or an affiliate of the Company within the previous year (all of the
Restricted Shares held by the Parent Company were acquired more than one year
ago for purposes of this condition), would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of 1% of
the then outstanding shares of Class A Common Stock (approximately 25,000 shares
of Class A Common Stock immediately after the Offering, assuming no exercise of
the Underwriters' over-allotment option) or the average weekly trading volume of
Class A Common Stock during the four calendar weeks preceding the date on which
notice of the sale is filed with the Securities and Exchange Commission. Sales
under Rule 144 are
68
<PAGE> 70
subject to certain requirements relating to manner of sale, notice and
availability of current public information about the Company. However, a person
(or persons whose shares are aggregated) who is not deemed to have been an
affiliate of the Company at any time during the 90 days immediately preceding
the sale and who owns beneficially Restricted Shares is entitled to sell such
shares under Rule 144(k) without regard to the limitations described above,
provided that at least two years have elapsed since the later of the date the
shares were acquired from the Company or from an affiliate of the Company. The
foregoing is a summary of Rule 144 and is not intended to be a complete
description of it.
In addition, as of June 30, 1998 there were outstanding options, granted
under the Company's 1996 Plan, to purchase a total of 504,306 shares of Class B
Common Stock; as of such date, these options had vested and were exercisable as
to 124,806 such shares. Upon the exercise of any such options and the conversion
of the shares of Class B Common Stock issued upon such exercise, the resulting
shares of Class A Common Stock may be publicly sold by the holders thereof,
subject to compliance with the Securities Act. The directors and officers of the
Company have agreed not to convert and sell any Common Stock owned by them prior
to the expiration of 180 days from the date of this Prospectus without the prior
written consent of ABN AMRO Incorporated. The Company also expects to grant
options to purchase an aggregate of 179,000 shares of Class A Common Stock
effective on the date of the Offering pursuant to its 1998 Plan and its DSOP.
None of these options would begin to vest until the first anniversary of their
date of grant. Upon the exercise of any such options, the shares of Class A
Common Stock purchased thereby may also be publicly sold by the holders thereof
subject to compliance with the Securities Act.
The Company intends to file a registration statement on Form S-8 under the
Securities Act covering approximately 856,000 shares of Class A Common Stock
reserved for issuance under the 1996 Plan and the 1998 Plan and DSOP. Such
registration statement is expected to be filed soon after the Offering and will
automatically become effective upon filing. Accordingly, shares registered under
such registration statement will be available for sale in the open market when
and as such options are exercised.
UNDERWRITING
The underwriters named below (the "Underwriters"), for whom ABN AMRO
Incorporated and Robert W. Baird & Co. Incorporated are acting as
representatives (the "Representatives"), have severally agreed, subject to the
terms and conditions specified in the underwriting agreement between the Company
and the Representatives (the "Underwriting Agreement"), to purchase from the
Company the respective numbers of shares of Class A Common Stock set forth
opposite their names below:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
UNDERWRITER CLASS A COMMON STOCK
----------- ---------------------
<S> <C>
ABN AMRO Incorporated.......................................
Robert W. Baird & Co. Incorporated..........................
---------
Total............................................. 2,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions and that the Underwriters will be
obligated to purchase all of the shares of Class A Common Stock offered hereby
(other than those shares covered by the over-allotment option described below)
if any are purchased. The Underwriting Agreement provides that, in the event of
a default by an Underwriter, in certain circumstances the purchase commitments
of non-defaulting Underwriters may be increased or the Underwriting Agreement
may be terminated.
69
<PAGE> 71
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Class A Common Stock to the public initially at
the public offering price set forth on the cover page of this Prospectus and to
certain selected dealers at such public offering price less a concession not in
excess of $
per share, and that the Underwriters and such dealers may reallow to certain
other dealers, including any Underwriters, a discount not in excess of $ per
share. After the initial offering to the public, the public offering price and
other selling terms may be changed by the Representatives.
The Company has granted to the Underwriters an option, exercisable by the
Representatives, expiring at the close of business on the 30th day after the
date of the execution of the Pricing Agreement referred to in the Underwriting
Agreement, to purchase up to an aggregate of 375,000 additional shares of Class
A Common Stock from it at the public offering price less the underwriting
discount, all as set forth on the cover page of this Prospectus. Such option may
be exercised only to cover over-allotments in the sale of the shares of Class A
Common Stock offered hereby. 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 of Class A Common
Stock as it was obligated to purchase pursuant to the Underwriting Agreement.
The Company, all of the Company's directors and officers and the Parent
Company have agreed for a period of 180 days after the date of this Prospectus
not to register for sale, sell, offer, contract to sell, grant an option for
sale or otherwise dispose of or transfer any capital stock of the Company or any
securities convertible into or exchangeable or exercisable for capital stock of
the Company, without the prior written consent of ABN AMRO Incorporated, except,
in the case of the Company, registration and issuances of capital stock pursuant
to the exercise of director and employee stock options granted under the
Company's existing incentive plans and in connection with acquisitions (provided
that any recipient in an acquisition of Class A Common Stock during such 180 day
period agrees to be bound by such prohibition during the remainder of the 180
day period) and, in the case of the officers and directors, pledges of shares
and gifts of shares where the pledgees agree in writing to be bound by the terms
of such agreement.
Prior to the Offering, there has been no public market for the Class A
Common Stock. The initial public offering price will be determined by
negotiations between the Company and the Representatives. Among the factors to
be considered in determining the initial public offering price will be the
future prospects of the Company and its industry in general, revenues, earnings
and certain other financial operating information of the Company in recent
periods, the experience of the Company's management, the general condition of
the equity securities markets, and the price-earnings ratios, price-sales
ratios, market prices of securities and certain financial and operating
information of companies engaged in activities similar to those of the Company.
The estimated initial public offering price range set forth on the cover page of
this Preliminary Prospectus is subject to change as a result of market
conditions and other factors.
The Company and GLII have agreed to indemnify the Underwriters and their
controlling persons against certain liabilities, including civil liabilities
under the Securities Act, or contribute to payments that the Underwriters may be
required to make in respect thereof.
The Company has submitted an application to list the shares of Class A
Common Stock offered hereby on the Nasdaq National Market under the symbol GMSI.
The Representatives, on behalf of the Underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M of the Exchange Act. Over-allotment
involves syndicate sales in excess of the size of the Offering, which creates a
syndicate short position. Stabilizing transactions permit bids to purchase the
underlying security so long as the stabilizing bids do not exceed a specified
maximum. Syndicate covering transactions involve purchases of the Class A Common
Stock in the open market after the distribution has been completed in order to
cover syndicate short positions. Penalty bids permit the Representatives to
reclaim a selling concession from a syndicate member when the Class A Common
Stock originally sold by such syndicate member is purchased in a syndicate
covering transaction to cover syndicate short positions. Such stabilizing
transactions, syndicate covering transactions and penalty bids may cause the
price of the Class A Common Stock to be higher than it would otherwise be in the
absence of such transactions. These transactions may be effected on the Nasdaq
National Market or otherwise and, if commenced, may be discontinued at any time.
70
<PAGE> 72
The Representatives have informed the Company that they do not intend sales
to discretionary accounts to exceed five percent of the total number of shares
of Class A Common Stock offered by them.
ABN AMRO Incorporated, one of the Representatives, has for many years
provided financial advisory and investment banking services to the Parent
Company and, more recently, to the Company as well. These services have included
stock valuation appraisals and assistance in connection with certain asset
acquisitions and dispositions.
LEGAL MATTERS
The validity of the Class A Common Stock will be passed upon for the
Company by Bell, Boyd & Lloyd, Chicago, Illinois. Certain legal matters will be
passed upon for the Underwriters by Lord, Bissell & Brook, Chicago, Illinois.
EXPERTS
The consolidated financial statements as of September 30, 1996 and 1997 and
for each of the periods ended September 30, 1995, 1996 and 1997 included in this
Prospectus and elsewhere in the Registration Statement have been audited by KPMG
Peat Marwick LLP, independent certified public accountants, as indicated in
their reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington, D.C. a Registration Statement on Form S-1 (the
"Registration Statement") under the Securities Act with respect to the Class A
Common Stock offered hereby. As used herein, the term "Registration Statement"
means the initial Registration Statement and any and all amendments thereto.
This Prospectus omits certain information contained in said Registration
Statement as permitted by the rules and regulations of the Commission. For
further information with respect to the Company and the Class A Common Stock
offered hereby, reference is made to the Registration Statement, including the
exhibits thereto. Statements herein concerning the contents of any contract or
other document are not necessarily complete and in each instance reference is
made to such contract or other document filed with the Commission as an exhibit
to the Registration Statement, or otherwise, each such statement being qualified
by and subject to such reference in all respects.
As a result of this offering, the Company will become subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and in accordance therewith will file reports and other information with the
Commission. Reports, registration statements, proxy statements, and other
information filed by the Company with the Commission can be inspected and copied
at the public reference facilities maintained by the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the
Commission's Regional Offices: 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, New York, New York 10048. Copies of
such materials can be obtained at prescribed rates from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549. In addition, the Commission has a web site on the World Wide Web at
http://www.sec.gov, containing registration statements, reports, proxy and
information statements and other information that registrants, such as the
Company, file electronically with the Commission. The Class A Common Stock will
be listed on the Nasdaq National Market, and such reports, registration
statements, proxy statements and other information concerning the Company will
be available at the offices of the Nasdaq National Market, located at 1735 K
Street, N.W., Washington, D.C. 20006.
71
<PAGE> 73
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Earnings......................... F-4
Consolidated Statements of Changes in Stockholder's
Equity.................................................... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 74
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Griffith Micro Science International, Inc.
We have audited the accompanying consolidated balance sheets of Griffith
Micro Science International, Inc. (a wholly owned subsidiary of Griffith
Laboratories International, Inc.), and its subsidiaries as of September 30, 1996
and 1997, and the related consolidated statements of earnings, changes in
stockholder's equity, and cash flows for each of the years in the three-year
period ended September 30, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Griffith
Micro Science International, Inc. and its subsidiaries as of September 30, 1996
and 1997 and the results of their operations and their cash flows for each of
the years in the three-year period ended September 30, 1997, in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
December 3, 1997
Chicago, Illinois
F-2
<PAGE> 75
GRIFFITH MICRO SCIENCE INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------ JUNE 30,
1996 1997 1998
------- ------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR
SHARE INFORMATION)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 1,077 $ 2,722 $ 3,069
Due from Parent -- advance................................ -- 923 1,648
Receivables:
Trade, less allowance for doubtful accounts of $78 in
1996, $201 in 1997 and $221 in 1998................... 6,799 9,233 9,795
Affiliates.............................................. 11 18 76
Other................................................... 379 456 483
------- ------- --------
Receivables, net.......................................... 7,189 9,707 10,354
------- ------- --------
Inventories............................................... 817 737 776
Prepaid expenses and other current assets................. 580 657 846
Income taxes recoverable.................................. 165 -- --
Current deferred income taxes............................. 145 652 521
------- ------- --------
Total current assets................................ 9,973 15,398 17,214
------- ------- --------
Other assets:
Intangible and other assets............................... 7,205 7,549 7,004
Restricted cash and investments........................... 453 40 --
Long-term receivable -- affiliate......................... 374 -- --
Deferred income taxes..................................... 132 536 2,895
------- ------- --------
Total other assets.................................. 8,164 8,125 9,899
------- ------- --------
Property, plant and equipment:
Land...................................................... 443 480 778
Buildings and improvements................................ 15,385 16,201 20,402
Equipment................................................. 53,778 59,868 64,586
Cobalt source............................................. -- 3,821 3,746
Construction in progress.................................. 3,364 2,591 11,138
------- ------- --------
Total property, plant and equipment....................... 72,970 82,961 100,650
Less accumulated depreciation and amortization............ 32,813 39,765 46,287
------- ------- --------
Property, plant and equipment, net.................. 40,157 43,196 54,363
------- ------- --------
$58,294 $66,719 $ 81,476
======= ======= ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Bank overdrafts........................................... $ 393 $ -- $ 183
Short-term credit facilities.............................. 318 951 14,635
Current maturities of long-term notes payable............. 2,224 2,020 2,371
Due to Parent -- overdraft................................ 1,962 -- --
Note payable -- Parent.................................... -- -- 12,060
Accounts payable:
Trade and other......................................... 4,308 4,919 4,557
Affiliates.............................................. 407 262 78
Accrued liabilities....................................... 3,861 6,768 7,836
Income taxes.............................................. -- 1,058 1,058
Current deferred income taxes............................. -- 3 26
------- ------- --------
Total current liabilities........................... 13,473 15,981 42,804
------- ------- --------
Long-term liabilities and deferred credits:
Notes payable, less current maturities.................... 15,391 19,208 17,015
Notes payable -- Parent................................... 392 -- --
Deferred income taxes..................................... 2,650 2,956 3,169
Minority interest in consolidated subsidiary.............. -- 360 419
Other..................................................... 3 208 218
------- ------- --------
Total long-term liabilities and deferred credits.... 18,436 22,732 20,821
------- ------- --------
Stockholder's equity:
Common stock, par value $.01 per share. Authorized
1,000,000 shares in 1996 and 1997 and 1,050,000 in 1998;
issued and outstanding 950,000 shares in 1996, 1997 and
1998.................................................... 10 10 10
Additional paid-in capital................................ 12,004 12,004 12,004
Retained earnings......................................... 14,774 17,500 7,794
Equity adjustment from foreign currency translation....... (403) (1,508) (1,957)
------- ------- --------
Total stockholder's equity.......................... 26,385 28,006 17,851
------- ------- --------
$58,294 $66,719 $ 81,476
======= ======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 76
GRIFFITH MICRO SCIENCE INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, JUNE 30,
------------------------------ -------------------
1995 1996 1997 1997 1998
-------- -------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR PER SHARE INFORMATION)
<S> <C> <C> <C> <C> <C>
Net revenues................................. $50,117 $54,771 $60,247 $44,111 $54,953
Cost of revenues............................. 34,842 38,319 40,645 29,913 37,325
------- ------- ------- ------- -------
Gross profit................................. 15,275 16,452 19,602 14,198 17,628
Selling and administrative expenses.......... 10,088 10,171 12,003 8,504 10,246
Royalty expense to Parent.................... 2,275 2,481 2,747 2,027 2,432
------- ------- ------- ------- -------
Operating profit............................. 2,912 3,800 4,852 3,667 4,950
------- ------- ------- ------- -------
Other (income) and expense:
Interest expense........................... 1,774 1,519 1,020 805 914
Interest income............................ (69) (164) (145) (94) (131)
Insurance recoveries....................... -- (653) -- -- --
Other, net................................. 151 337 278 150 370
------- ------- ------- ------- -------
Other expense, net........................... 1,856 1,039 1,153 861 1,153
------- ------- ------- ------- -------
Earnings before income taxes................. 1,056 2,761 3,699 2,806 3,797
------- ------- ------- ------- -------
Income tax expense........................... 39 977 973 1,064 1,503
------- ------- ------- ------- -------
Net earnings................................. $ 1,017 $ 1,784 $ 2,726 $ 1,742 $ 2,294
======= ======= ======= ======= =======
Net earnings per common share:
Basic...................................... $ 1.07 $ 1.88 $ 2.87 $ 1.83 $ 2.41
======= ======= ======= ======= =======
Diluted.................................... $ 1.07 $ 1.88 $ 2.86 $ 1.83 $ 2.38
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 77
GRIFFITH MICRO SCIENCE INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
EQUITY
ADJUSTMENT
ADDITIONAL FROM FOREIGN TOTAL
COMMON PAID-IN RETAINED CURRENCY STOCKHOLDER'S
STOCK CAPITAL EARNINGS TRANSLATION EQUITY
------ ---------- -------- ------------ -------------
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE INFORMATION)
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1994........... $ 1 $ 9,728 $11,983 $ 240 $21,952
Net earnings............................ -- -- 1,017 -- 1,017
Capital contribution from Griffith
Laboratories International, Inc....... -- 2,275 -- -- 2,275
Current year foreign currency
translation effect.................... -- -- -- 18 18
--- ------- ------- ------- -------
Balance at September 30, 1995........... 1 12,003 13,000 258 25,262
Net earnings............................ -- -- 1,784 -- 1,784
Reduction of par value from $1.00 per
share to $.01 per share............... (1) 1 -- -- --
Issuance of 949,000 shares of common
stock to effect a 950-for-1 stock
split................................. 10 -- (10) -- --
Current year foreign currency
translation effect.................... -- -- -- (661) (661)
--- ------- ------- ------- -------
Balance at September 30, 1996........... 10 12,004 14,774 (403) 26,385
Net earnings............................ -- -- 2,726 -- 2,726
Current year foreign currency
translation effect.................... -- -- -- (1,105) (1,105)
--- ------- ------- ------- -------
Balance at September 30, 1997........... 10 12,004 17,500 (1,508) 28,006
Net earnings (unaudited)................ -- -- 2,294 -- 2,294
Dividend paid to Parent (unaudited)..... -- -- (12,000) -- (12,000)
Current period foreign currency
translation effect (unaudited)........ -- -- -- (449) (449)
--- ------- ------- ------- -------
Balance at June 30, 1998 (unaudited).... $10 $12,004 $ 7,794 $(1,957) $17,851
=== ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 78
GRIFFITH MICRO SCIENCE INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, JUNE 30,
--------------------------- -----------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings.............................................. $ 1,017 $ 1,784 $ 2,726 $ 1,742 $ 2,294
Adjustments to reconcile net earnings to net cash provided
by operating activities net of acquisitions:
Depreciation and amortization........................... 5,380 5,884 6,108 4,564 5,629
Deferred income tax (benefit) expense................... 1,049 370 (795) 91 205
Provision for plant closing costs....................... -- -- -- -- 320
Cash provided by (used in) changes:
Receivables, net...................................... (251) (95) (1,699) (1,947) (110)
Inventories........................................... (120) (159) 109 19 (13)
Prepaid expenses and other current assets............. (21) (173) (13) (6) (109)
Accounts payable and accrued liabilities.............. 1,237 (700) 2,992 84 (6)
Income taxes.......................................... (1,513) 1,296 1,163 267 153
Other, net.............................................. (44) 124 59 (2) 377
------- ------- ------- ------- -------
Net cash provided by operating activities................... 6,734 8,331 10,650 4,812 8,740
------- ------- ------- ------- -------
Cash flows from financing activities:
Increase (decrease) in bank overdrafts and short-term
credit facilities....................................... 1,209 (7,066) (1,019) 2,077 13,867
Decrease in due to Parent -- overdraft.................... (3,858) (1,636) (1,962) (1,962) --
Proceeds from additional long-term debt and notes
payable................................................. 6,343 6,440 6,735 2,859 171
Principal payments of long-term debt and notes payable.... (1,240) (1,441) (2,965) (2,567) (1,827)
Increase (decrease) in notes payable -- Parent............ 864 (1,016) (392) (392) --
Increase in debt issuance costs........................... (199) (134) -- -- --
(Decrease) increase in other long-term liabilities and
deferred credits........................................ (83) (21) 27 1 16
Capital contribution from Griffith Laboratories
International, Inc. .................................... 1,090 -- -- -- --
------- ------- ------- ------- -------
Net cash provided by (used in) financing activities......... 4,126 (4,874) 424 16 12,227
------- ------- ------- ------- -------
Cash flows from investing activities:
Increase in due from Parent -- advance.................... -- -- (923) (1,017) (725)
Proceeds from disposition of property, plant and
equipment............................................... 3 18 5 5 --
Additions to property, plant and equipment................ (8,533) (3,943) (6,300) (3,560) (9,944)
Acquisitions, net of cash and cash equivalents............ -- -- (2,585) -- (9,727)
(Increase) decrease in restricted cash and investments.... (910) 457 413 413 40
(Increase) decrease in long-term receivables and other
assets.................................................. (403) (378) 173 349 (36)
------- ------- ------- ------- -------
Net cash used in investing activities....................... (9,843) (3,846) (9,217) (3,810) (20,392)
------- ------- ------- ------- -------
Effect of foreign currency rate fluctuations................ (275) 97 (212) (187) (228)
------- ------- ------- ------- -------
Net increase (decrease) in cash and cash equivalents........ 742 (292) 1,645 831 347
Cash and cash equivalents at beginning of the period........ 627 1,369 1,077 1,077 2,722
------- ------- ------- ------- -------
Cash and cash equivalents at end of the period.............. $ 1,369 $ 1,077 $ 2,722 $ 1,908 $ 3,069
======= ======= ======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest................................................ $ 1,273 $ 1,165 $ 996 $ 668 $ 873
Income taxes............................................ 494 731 992 986 1,051
======= ======= ======= ======= =======
Noncash financing and investing activities:
Stock split............................................. $ -- $ 10 $ -- $ -- $ --
Reduction in par value of common stock.................. -- 1 -- -- --
Dividend paid to Parent in the form of a promissory
note.................................................. -- -- -- -- 12,000
Contribution to capital by Griffith Laboratories
International, Inc. of its receivable from Griffith
Micro Science, Limited (U.K.)......................... $ 1,185 $ -- $ -- $ -- $ --
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 79
GRIFFITH MICRO SCIENCE INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1998 AND FOR THE NINE MONTHS
ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE INFORMATION)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Griffith Micro Science International, Inc. (the Company) is a multinational
provider of contract sterilization services utilizing ethylene oxide and gamma
radiation technologies. The Company's principal line of business is providing
sterilization management services to manufacturers of single-use medical
devices, and to a much lesser extent pharmaceuticals, cosmetics and food
products and to hospitals. In addition, the Company also provides related
laboratory testing, consulting and logistics management services to its
customers. Sterilization services are sold to customers primarily in the United
States, Europe, Canada and Mexico.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries, after elimination of significant intercompany balances and
transactions. The Company is a wholly owned subsidiary of Griffith Laboratories
International, Inc. (Parent). The ultimate parent of the Company is Griffith
Laboratories, Inc. (the Holding Company).
Fiscal Year
The fiscal year-end of the Company and its subsidiaries is September 30.
Prior to 1996, the fiscal year of certain subsidiaries of the Company ended on
the last Saturday in September. The fiscal years ended September 30, 1997 and
1996 contained 52 weeks, and the year ended September 30, 1995 contained 53
weeks.
Revenue Recognition
Revenue from the Company's contact sterilization services is recognized
upon the completion of an error free sterilization cycle as defined by the
individual parameters or dosage level specified for the customer's product.
Revenue for laboratory testing, consulting and logistics management is
recognized when the related service is performed.
Translation of Currencies
Assets and liabilities of the Company's non-U.S. subsidiaries are
translated into U.S. Dollars at the current rate of exchange in effect on the
balance sheet date. The resulting translation adjustments are recorded as a
currency component in stockholder's equity. Income and expenses are translated
at the average rates of exchange prevailing during the year.
Inventories
Inventories are stated at the lower of cost or realizable value. The cost
of inventory is determined by the first-in, first-out (FIFO) method.
F-7
<PAGE> 80
GRIFFITH MICRO SCIENCE INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are computed
principally on a straight-line basis over the estimated useful lives of the
related assets. The following ranges of lives are used for depreciation and
amortization purposes:
<TABLE>
<CAPTION>
TYPE YEARS
---- -----
<S> <C>
Buildings................................................... 20-40
Leasehold improvements...................................... 5-10
Machinery and equipment..................................... 3-10
Furniture and fixtures...................................... 5-10
</TABLE>
Cobalt Source
Cobalt 60 isotope is used by the Company in providing gamma sterilization
services. The isotope is stated at acquired cost and is amortized using the
declining balance method, which is similar to the natural decay factor of the
material. The annual amortization charge is approximately 12.3% of the net book
value per year, plus the residual value amortized on a straight-line basis over
a useful life of 20 years.
Intangible and Other Assets
Intangible and other assets include primarily goodwill and debt issuance
costs. Goodwill represents the cost in excess of the fair value of the net
assets of acquired companies, and is amortized on a straight-line basis over a
20-year period. Debt issuance costs are amortized on the straight-line method
over the term of the related debt.
Management periodically reviews whether there has been a permanent
impairment to the value of goodwill and other assets by evaluating various
factors including current operating results, market and economic conditions, and
anticipated future results and cash flows.
Income Taxes
The operating results of the Company and the Parent are included in the
consolidated federal income tax returns of the Holding Company. U.S. income
taxes have been allocated to the Company based upon income taxes which the
Company would have provided on a separate company basis.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
The Company provides U.S. income taxes on its equity in the undistributed
earnings of those subsidiaries when management intends that such earnings will
be remitted in the future. For all other subsidiaries (principally non-U.S.
subsidiaries), management intends to reinvest its equity in undistributed
earnings (approximately $6,832 at September 30, 1997) indefinitely, and
accordingly, no U.S. income taxes have been provided thereon.
F-8
<PAGE> 81
GRIFFITH MICRO SCIENCE INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cash Equivalents
Cash and cash equivalents include cash on hand, amounts due from banks,
treasury bills, commercial paper and money market funds.
Restricted Cash and Investments
Restricted cash and investments consist of unused proceeds of industrial
revenue bonds issued for purposes of plant construction. The restricted cash and
investments are held in trust until expended, and are presented as a long-term
asset on the consolidated balance sheets.
Financial Instruments and Risk Management
The Company does not hold or issue financial instruments for trading
purposes nor is it party to any leveraged derivatives. The Company utilizes
interest rate cap, collar and swap agreements which involve little complexity to
reduce the impact of increases in interest rates on certain of its floating rate
debt. Premiums paid for interest rate agreements are recorded on the balance
sheet and amortized to interest expense over the life of the agreement. Gains
and losses on these contracts have not been significant and are recorded as a
component of interest expense.
Stock-based Compensation
In fiscal 1997, the Company adopted the disclosure requirements of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," ("Statement 123"). As allowed under Statement 123, the Company
continues to account for its employee stock option plans in accordance with the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25"). Under APB 25, no compensation expense is
recognized when the exercise price of the Company's stock options equals the
fair market value of the underlying stock on the date of grant. Pro forma
disclosure of net earnings is provided in Note 17 as if the fair value basis
method prescribed by Statement 123 had been applied in measuring employee
compensation expense.
Net Earnings Per Share
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings per Share," ("Statement 128") which replaces the
provisions of Accounting Principles Board Opinion No. 15, "Earnings per Share".
Statement 128, which establishes the standards for computing and reporting
earnings per share, requires the presentation of basic and diluted earnings per
share. Basic earnings per share excludes dilution and is computed by dividing
income available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the entity.
Minority Interest in Consolidated Subsidiary
The minority interest in consolidated subsidiary represents the minority
stockholder's proportionate share of the equity of Griffith Mediris S.A. At
September 30, 1997 and June 30, 1998, the Company's ownership interest in
Griffith Mediris S.A. was 82.8%.
F-9
<PAGE> 82
GRIFFITH MICRO SCIENCE INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the balance sheet date of the Company, and the reported amounts of net
revenues and expenses during its fiscal year. Actual results may differ from
those estimates.
Unaudited Interim Financial Statements
In the opinion of the Company's management the interim financial statements
as of June 30, 1998 and for the nine month periods ended June 30, 1997 and 1998
include all normal and recurring adjustments and eliminations that are necessary
for the fair presentation of the Company's financial position at June 30, 1998
and its results of operations, changes in stockholder's equity and cash flows
for the for the nine month periods ended June 30, 1997 and 1998. The results for
the nine months ended June 30, 1998 are not necessarily indicative of the
results expected for the entire year.
(2) SUMMARY OF SIGNIFICANT ALLOCATION POLICIES
Operating Costs and Selling and Administrative Expenses
During the fiscal years presented, the Company's Canadian subsidiary shared
an operating facility with a related company. Operating expenses for this shared
facility are allocated based upon the amount of space occupied by the Company.
All of the selling expenses and a significant amount of the administrative
expenses are incurred directly by the Company and its subsidiaries. Those
elements of operating costs and administration which are supplied by the Parent
and related companies are generally allocated based upon the estimated
percentage of personnel time devoted to Company matters. Management of the
Company and the Parent believe the operating cost and administrative expense
allocations are both reasonable and equitable.
Cash and Interest Allocation
The Company's domestic cash is pooled with the Parent's cash resources,
with separate records being maintained. Any negative cash balance would
represent an overdraft due to the Parent. Interest expense is allocated to the
Company based upon these overdraft balances and the applicable rates on the
Parent's short-term borrowings. Management of the Company and the Parent believe
the cash and interest allocations are both reasonable and equitable.
(3) OPERATING SEGMENT AND GEOGRAPHIC INFORMATION
For purposes of management decision making and performance evaluation the
Company's operations are organized into two distinct geographic groups, North
America and Europe. Within each of these groups, the Company's principle source
of revenue is derived from the provision of sterilization management services to
manufacturers of single-use medical devices, and to a much lesser extent
pharmaceuticals, cosmetics and food products and to hospitals. In addition, the
Company also provides related laboratory testing, consulting and logistics
management services to its customers. Of its fiscal 1997 revenue total,
approximately 92% was derived from providing sterilization management services.
The Company's operating groups in North America and Europe are considered
operating segments for purposes of satisfying the disclosure requirements of
Statement of Financial Accounting Standards No. 131,
F-10
<PAGE> 83
GRIFFITH MICRO SCIENCE INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
"Disclosures about Segments of an Enterprise and Related Information." Presented
below are disclosures for the Company's operating segments for 1995, 1996 and
1997:
<TABLE>
<CAPTION>
NORTH CORPORATE/
AMERICA EUROPE ELIMINATIONS CONSOLIDATED
------- ------- ------------ ------------
<S> <C> <C> <C> <C>
1995:
Net revenues............................ $28,412 $21,705 $ -- $50,117
Operating profit (loss)................. 918 2,799 (805) 2,912
Interest expense, net................... 788 917 -- 1,705
Depreciation and amortization expense... 3,396 1,984 -- 5,380
Income tax expense (benefit)............ (595) 634 -- 39
Total assets............................ 34,430 28,166 35 62,631
Capital expenditures.................... 4,889 3,644 -- 8,533
1996:
Net revenues............................ $31,036 $23,735 $ -- $54,771
Operating profit (loss)................. 1,553 3,016 (769) 3,800
Interest expense, net................... 630 699 26 1,355
Depreciation and amortization expense... 3,674 2,210 -- 5,884
Income tax expense (benefit)............ (177) 1,127 27 977
Total assets............................ 31,647 26,542 105 58,294
Capital expenditures.................... 2,278 1,665 -- 3,943
1997:
Net revenues............................ $36,925 $23,322 $ -- $60,247
Operating profit (loss)................. 2,828 3,124 (1,100) 4,852
Interest expense, net................... 453 422 -- 875
Depreciation and amortization expense... 3,985 2,123 -- 6,108
Income tax expense (benefit)............ 582 497 (106) 973
Total assets............................ 34,299 32,558 (138) 66,719
Capital expenditures.................... 3,720 2,580 -- 6,300
</TABLE>
The Company maintains general purpose financial statements for each of the
countries in which it operates. Revenues and assets are recorded in the separate
company financial statements of the unit which provides the related
sterilization management services and owns the underlying assets. There were no
intersegment revenues during 1995, 1996 or 1997.
The Company's North American operations are located in the United States,
Canada and Mexico. For fiscal 1997 the net revenues and total assets of the
operations located in Canada and Mexico, combined, accounted for approximately
13%, and 9%, respectively, of the totals for the North American group.
The Company's European group operations are located in Belgium, France,
Germany, the Netherlands and the United Kingdom.
F-11
<PAGE> 84
GRIFFITH MICRO SCIENCE INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) INVENTORIES
Inventories at September 30, 1996 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Raw materials............................................... $125 $143
Finished goods.............................................. 692 594
---- ----
$817 $737
==== ====
</TABLE>
The Company's operations primarily consist of providing sterilization
management services. Raw materials consist of ethylene oxide, nitrogen and
supplies used in the sterilization process. Finished goods are comprised
primarily of sterilization packaging materials, disinfection products and
related items purchased mainly for resale to manufacturers of medical devices
and hospitals.
(5) INTANGIBLE AND OTHER ASSETS
The components of intangible and other assets at September 30, 1996 and 1997
are summarized as follows:
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Goodwill, net of accumulated amortization of $368 in 1996
and $475 in 1997........................................ $6,617 $6,776
Debt issuance costs, net of accumulated amortization of
$18 in 1996 and $28 in 1997............................. 317 307
Long-term receivables..................................... 55 58
Long-term deposits........................................ 146 130
Advanced Corporation Tax -- United Kingdom................ -- 202
Other, net................................................ 70 76
------ ------
$7,205 $7,549
====== ======
</TABLE>
(6) SHORT-TERM CREDIT FACILITIES
At September 30, 1997 the Company had $8,522 of unused lines of credit
available for short-term financing. The weighted average interest rate on the
Company's outstanding short-term borrowings was 4.83% and 4.94% at September 30,
1996 and 1997, respectively. At September 30, 1997 the Company had outstanding
letters of credit in the amount of $5,000 and $4,500 which carry an annual fee
of 0.875% and 0.75%, respectively. These letters of credit support the Company's
borrowings under Industrial Revenue Bonds in the United States. At June 30, 1998
the Company had $5,506 (unaudited) of unused lines of credit available and a
weighted average interest rate of 6.15% (unaudited) on outstanding short-term
borrowings at June 30, 1998.
F-12
<PAGE> 85
GRIFFITH MICRO SCIENCE INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) LONG-TERM LIABILITIES
Long-term notes payable at September 30, 1996 and 1997, net of current
maturities, are summarized as follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Notes payable in the United States:
Griffith Micro Science, Inc. Industrial Revenue Bonds,
floating rates (4.15% and 4.1% at September 30, 1997),
due on November 1, 2007 and December 1, 2014........... $ 9,500 $ 9,500
------- -------
Notes payable outside the United States:
GMS S.A.S. (France):
Note at floating rate (3.7% at September 30, 1997),
semi-annual payments due 1998-2002.................... -- 2,124
Term loan at floating rate............................. 2,421 --
Griffith Micro Science S.A. (France):
Note at floating rate (3.7% at September 30, 1997),
semi-annual payments due 1998-2002.................... -- 1,989
Notes payable at floating rates........................ 1,220 --
N.V. Griffith Micro Science S.A. (Belgium):
Notes at floating rates (3.7% at September 30, 1997),
semi-annual payments due 1998-2003.................... -- 3,248
Term loan at 6.54%..................................... 620 --
Griffith Micro Science G.m.b.H. (Germany) term loans at
5.75% and 6%, due 1998-2005............................ 778 589
Griffith Micro Science, Limited (U.K.):
Note at 11%, semi-annual payments due 1998-1999........ 391 202
Note at floating rate (7.6% at September 30, 1997),
semi-annual payments due 1998-2002.................... -- 712
Note at 8.5%........................................... 391 --
Griffith Mediris S.A. (Belgium) note at floating rate
(3.7% at September 30, 1997) due 1999-2003............. -- 823
Other..................................................... 70 21
------- -------
5,891 9,708
------- -------
$15,391 $19,208
======= =======
</TABLE>
At September 30, 1997 the Company's outstanding Industrial Revenue Bonds in
the United States and notes in the United Kingdom are guaranteed by the Parent
and Holding Company, respectively. Most of the Company's shares in Griffith
Mediris S.A. are pledged as collateral for approximately $2,633 of the floating
rate notes payable outstanding at September 30, 1997 in Belgium.
The aggregate maturities for long-term debt at September 30, 1997 are as
follows:
<TABLE>
<Captin>
FISCAL YEAR AMOUNT
- ----------- -------
<S> <C>
1998....................................................... $ 2,020
1999....................................................... 2,417
2000....................................................... 2,205
2001....................................................... 2,203
2002....................................................... 2,202
Later years................................................ 10,181
-------
$21,228
=======
</TABLE>
F-13
<PAGE> 86
GRIFFITH MICRO SCIENCE INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The notes described above contain certain restrictive covenants, including
restrictions as to payment of dividends and requirements that specified minimum
levels of working capital and tangible net worth be maintained. In 1995, 1996
and 1997 the Company was in compliance with these covenants.
The carrying values of the Company's floating rate long-term notes payable
approximate fair value because the interest rates on these debt instruments
change with market rates of interest. There are no quoted market prices for the
Company's fixed rate notes payable. Using discounted cash flow analysis and the
Company's current incremental borrowing rate, the estimated fair values of its
fixed rate long-term notes payable approximate the carrying values at September
30, 1996 and 1997.
(8) BENEFIT PLANS
The Company participates in the qualified profit sharing and employee stock
ownership plans maintained by the Parent, in which substantially all full-time
U.S. employees are eligible to participate after one year of employment.
Contributions are discretionary amounts set by the Board of Directors of the
Parent. The Company's proportionate share of contributions charged to earnings
amounted to approximately $269 in 1995, $362 in 1996 and $455 in 1997.
Retirement plan assets, obligations and expenses of the Company's non-U.S.
subsidiaries are not material.
(9) ACCRUED LIABILITIES
Accrued liabilities at September 30, 1996 and 1997 and June 30, 1998 are
summarized as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Payroll............................................... $ 856 $ 877 $ 874
Employee incentives................................... 995 1,387 1,403
Customer incentives................................... -- 1,324 1,556
Retirement plan contributions......................... 403 596 502
Professional fees and insurance....................... 355 573 819
Warranty costs........................................ 71 282 264
Provision for plant closing costs..................... -- -- 316
All others............................................ 1,181 1,729 2,102
------ ------ ------
$3,861 $6,768 $7,836
====== ====== ======
</TABLE>
F-14
<PAGE> 87
GRIFFITH MICRO SCIENCE INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) INCOME TAXES
Income tax expense (benefit) is summarized as follows:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- ------
<S> <C> <C> <C>
1995:
Federal................................................. $(1,120) $ 677 $ (443)
State................................................... (282) 128 (154)
Foreign................................................. 392 244 636
------- ------ ------
$(1,010) $1,049 $ 39
======= ====== ======
1996:
Federal................................................. $ (287) $ 39 $ (248)
State................................................... (187) 6 (181)
Foreign................................................. 1,081 325 1,406
------- ------ ------
$ 607 $ 370 $ 977
======= ====== ======
1997:
Federal................................................. $ 624 $ (461) $ 163
State................................................... 122 (93) 29
Foreign................................................. 1,022 (241) 781
------- ------ ------
$ 1,768 $ (795) $ 973
======= ====== ======
</TABLE>
The provisions for income taxes for the nine month periods ended June 30,
1997 and 1998 are based upon the Company's estimate of annual effective tax
rates for full fiscal years.
Deferred income taxes are recognized for the future tax consequences of
temporary differences between the financial statement carrying amounts and the
tax bases of assets and liabilities. The types of temporary differences that
give rise to significant portions of the deferred tax assets and liabilities and
the effect on deferred tax expense of changes in those temporary differences are
presented below:
<TABLE>
<CAPTION>
1995 1996 1997
------ ---- -----
<S> <C> <C> <C>
Excess of tax over book depreciation........................ $ 287 $123 $ 344
Inflation indexing.......................................... 559 -- (105)
Deferred compensation and accrued severance................. 102 -- (527)
Goodwill amortization....................................... 112 114 (160)
Loss carryforwards.......................................... -- 140 (238)
Other, net.................................................. (11) (7) (109)
------ ---- -----
$1,049 $370 $(795)
====== ==== =====
</TABLE>
F-15
<PAGE> 88
GRIFFITH MICRO SCIENCE INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effect of temporary differences and carryforwards that give rise to
significant portions of deferred tax assets and liabilities consists of the
following at September 30, 1996 and 1997:
<TABLE>
<CAPTION>
ASSETS LIABILITIES
1996: ------ -----------
<S> <C> <C>
Depreciation.............................................. $ -- $2,495
Goodwill.................................................. -- 221
Inflation indexing........................................ 132 --
Deferred state income tax expense......................... 99 --
Deferred compensation and accrued severance............... 52 --
Other..................................................... 60 --
------ ------
$ 343 $2,716
====== ======
1997:
Depreciation.............................................. $ -- $2,980
Goodwill.................................................. -- 85
Net operating loss carryforwards.......................... 227 --
Inflation indexing........................................ 235 --
Deferred state income tax expense......................... 62 --
Deferred compensation and accrued severance............... 568 --
Other..................................................... 202 --
------ ------
$1,294 $3,065
====== ======
</TABLE>
No valuation allowance has been recorded against the deferred tax assets as
of September 30, 1996 or 1997, as management believes it is more likely than not
that the results of future operations will generate sufficient taxable income to
realize the deferred tax assets.
In conjunction with the acquisition of Sorex Medical, Inc. (see footnote
15), $2,489 (unaudited) of deferred tax assets were recorded and are included in
the consolidated balance sheet of the Company at June 30, 1998. These deferred
tax assets pertain principally to $6,749 (unaudited) of net operating loss
carryforwards generated by Sorex Medical, Inc. prior to its acquisition by the
Company. These losses will be available to offset future taxable income of the
acquired company subject to an annual limitation of $821 (unaudited). These
losses begin to expire in 2005 (unaudited) through 2018 (unaudited). No
valuation allowance has been recorded against these deferred tax assets as
management believes it is more likely than not that future taxable income of the
acquired company will be sufficient to realize the deferred tax assets.
The effective tax rate is summarized as follows:
<TABLE>
<CAPTION>
1995 1996 1997
----- ---- ----
<S> <C> <C> <C>
United States federal tax rate.............................. 34.0% 34.0% 34.0%
Increase (decrease) resulting from:
Foreign tax rate differential............................. (12.8) 5.3 (8.8)
State income taxes, net of federal income tax benefit..... (9.6) (4.3) (1.2)
Other, net................................................ (7.9) 0.4 2.3
----- ---- ----
Effective tax rate.......................................... 3.7% 35.4% 26.3%
===== ==== ====
</TABLE>
The consolidated federal income tax returns of the Holding Company, which
include the results of operations of the Company, have been accepted by the
Internal Revenue Service through September 30, 1995.
F-16
<PAGE> 89
GRIFFITH MICRO SCIENCE INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) LEASE COMMITMENTS
The Company is liable under noncancelable long-term leases (operating
leases that are principally for real property and equipment) providing for the
following approximate aggregate minimum rentals:
<TABLE>
<CAPTION>
AGGREGATE
MINIMUM
FISCAL YEAR RENTALS
- ----------- ---------
<S> <C>
1998....................................................... $2,433
1999....................................................... 2,187
2000....................................................... 1,534
2001....................................................... 1,034
2002....................................................... 713
Later years................................................ 1,968
------
Total minimum lease payments..................... $9,869
======
</TABLE>
Most of the Company's real property leases provide that the Company pay
taxes, maintenance, and certain other operating expenses applicable to the
leased premises. The Company expects that leases that expire and are renewable
will be renewed or replaced by other leases in the normal course of business.
Total rental expense (including other than noncancelable leases) aggregated
approximately $2,817 in 1995, $3,088 in 1996 and $3,174 in 1997.
(12) TRANSACTIONS WITH THE PARENT AND RELATED COMPANIES
The following summarizes the income and expenses reflected in the
accompanying consolidated statements of earnings that were paid to the Parent or
related companies:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Cost of revenues -- rent and related expenses.............. $ 211 $ 212 $ 219
Administrative expenses.................................... 445 327 313
Royalty paid to Parent..................................... 2,275 2,481 2,747
Other (income) expenses:
Interest expense......................................... 362 340 36
Interest income.......................................... -- (14) (9)
------ ------ ------
Total expenses, net.............................. $3,293 $3,346 $3,306
====== ====== ======
</TABLE>
Net revenues from related companies amounted to $208, $281 and $371 in
fiscal 1995, 1996 and 1997, respectively.
On June 1, 1998 the Company paid a $12,000 (unaudited) dividend to the
Parent in the form of a promissory note. The promissory note is due on demand
and bears interest at a rate of 6% per annum which is payable at maturity.
(13) NET REVENUES FROM SIGNIFICANT CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK
Net revenues from the Company's five largest customers accounted for
approximately 32%, 33% and 38% of the consolidated fiscal 1995, 1996 and 1997
totals, respectively. The Company's largest individual customer accounted for
approximately 20%, 18% and 20% of consolidated fiscal 1995, 1996 and 1997 net
revenues, respectively. For the (unaudited) nine months ended June 30, 1997 and
1998 this customer accounted for approximately 18% and 21%, respectively, of
consolidated net revenues. No other individual customer
F-17
<PAGE> 90
GRIFFITH MICRO SCIENCE INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accounted for more than 10% of consolidated net revenues during 1995, 1996 and
1997 or the (unaudited) nine month periods ended June 30, 1997 and 1998.
The Company's trade receivables consist primarily of balances due from its
customers for the performance of sterilization management services. Amounts due
from the Company's largest individual customer accounted for 12% and 11%
(unaudited) of total trade receivables at September 30, 1997 and June 30, 1998,
respectively. Concentrations of credit risk with respect to trade receivables
are limited due to the large number of entities which comprise the Company's
customer base and their geographic dispersion. The Company performs ongoing
credit evaluations of its customers and generally does not require collateral.
Management also believes that any concentration of credit risk is substantially
reduced by its collection practices. The Company establishes an allowance for
doubtful accounts based upon factors surrounding the credit risk of specific
customers, historical trends and other information. Actual bad debt experience
has been insignificant.
(14) CONTINGENCIES
The Company is party to various suits and claims which arise in the normal
course of business. Although the ultimate disposition of these suits and claims
is not presently determinable, management does not believe that the outcome of
these matters will have a material adverse effect on the business, financial
position or results of operations of the Company.
(15) ACQUISITIONS
On August 29, 1997, the Company's wholly owned subsidiary, N.V. Griffith
Micro Science S.A. acquired an 80.1% interest in Caric Mediris S.A. ("Mediris").
Mediris is located in Belgium and is engaged in providing gamma irradiation
processing and sterilization services for a variety of products including food,
single-use medical devices and others. The cost of the acquisition was $2,869
and has been accounted for as a purchase. Accordingly, the net assets and
results of operations of Mediris are included in the consolidated financial
statements from the date of acquisition. The purchase price resulted in an
excess of consideration paid over the fair value of net assets acquired of
$1,120. This excess is recorded as goodwill and is being amortized on a
straight-line basis over 20 years. Concurrent with the acquisition, the Company
made an additional $439 capital investment in Mediris stock which raised the
Company's ownership interest to 82.8% and changed the name of Mediris to
Griffith Mediris S.A.
The following unaudited pro forma information presents a summary of the
consolidated results of operations of the Company and Mediris as if the
acquisition had occurred at the beginning of fiscal 1996, with pro forma
adjustments to give effect to amortization of goodwill, interest expense on
acquisition debt and certain other adjustments, together with the related income
tax effects.
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Net revenues................................................ $58,731 $63,473
Net earnings................................................ 1,741 2,876
Net earnings per share:
Basic..................................................... $ 1.83 $ 3.03
Diluted................................................... $ 1.83 $ 3.02
</TABLE>
The pro forma financial information is not necessarily indicative of the
operating results that would have occurred had Mediris been acquired as of
October 1, 1995, or of the future results of the consolidated companies.
On April 28, 1998 the Company acquired all of the outstanding capital stock
of Sorex Medical, Inc. ("Sorex") for approximately $9,750 (unaudited). The
acquisition has been accounted for as a purchase and
F-18
<PAGE> 91
GRIFFITH MICRO SCIENCE INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accordingly the net assets and results of operations of Sorex are included in
the consolidated financial statements from the date of acquisition. The fair
value of the net assets acquired exceeded the purchase price paid for Sorex.
Accordingly, the values assigned to noncurrent assets, primarily property, plant
and equipment, have been reduced by a proportionate share of the excess. Sorex
operates an ethylene oxide sterilization facility in Salt Lake City, Utah which
provides sterilization services to single-use medical device and disposable
products manufacturers. Substantially all of the cost of the acquisition was
funded through borrowings under the Company's existing lines of credit in the
United States.
The following unaudited pro forma information presents a summary of the
consolidated results of the Company and Sorex as if the acquisition occurred at
the beginning of fiscal 1997, with pro forma adjustments to give effect to
interest on acquisition debt and certain other adjustments, with the related
income tax effects:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
1997 JUNE 30, 1998
---- -------------
<S> <C> <C>
Net revenues................................................ $62,997 $56,654
Net earnings................................................ 2,596 2,186
Net earnings per share:
Basic..................................................... $ 2.73 $ 2.30
Diluted................................................... $ 2.72 $ 2.27
</TABLE>
The pro forma financial information is not necessarily indicative of the
operating results that would have occurred had Sorex been acquired as of October
1, 1996, or of future results of the consolidated Companies.
(16) STOCKHOLDER'S EQUITY
At September 30, 1995 there were 1,000 shares of the Company's $1.00 par
value common stock authorized, issued, and outstanding. All of these shares were
held by the Parent.
On June 6, 1996 the Company's Certificate of Incorporation was amended to
increase the number of authorized shares of common stock from 1,000 to 1,000,000
and reduce the par value of the Company's common stock from $1.00 per share to
$.01 per share. As a result of the reduction in par value, the common stock
account was reduced by $1 and the additional paid-in capital account increased
by the same amount.
On June 7, 1996 the Company split its common stock 950-for-1 in the form of
a stock dividend to the Parent. As a result of the split, 949,000 additional
shares of the Company's $.01 par value common stock were issued to the Parent on
June 10, 1996 and retained earnings were reduced by $10.
On January 29, 1998 the Company's Certificate of Incorporation was amended
to increase the number of authorized shares of common stock from 1,000,000 to
1,050,000 (unaudited).
(17) STOCK OPTIONS
On June 14, 1996 the Company adopted the 1996 Key Employee Stock Option
Plan ("1996 KESOP"). Under the terms of the 1996 KESOP, 50,000 shares of the
Company's authorized but unissued $.01 par value common stock are reserved for
grant under the plan. On February 28, 1998 the Board of Directors of the Company
approved an amendment to the 1996 KESOP which increased from 50,000 to 100,000
(unaudited) the number of shares which are reserved for grant under the terms of
the plan.
F-19
<PAGE> 92
GRIFFITH MICRO SCIENCE INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Activity in the Company's 1996 KESOP is summarized in the table below:
<TABLE>
<CAPTION>
SHARES EXERCISE PRICE
------ --------------
<S> <C> <C>
Outstanding at September 30, 1995........................... -- $ --
Options granted............................................. 25,173 21.60
------ ------------
Outstanding at September 30, 1996........................... 25,173 21.60
Options granted............................................. 15,945 24.80
Forfeited................................................... (126) 21.60
------ ------------
Outstanding at September 30, 1997........................... 40,992 $21.60-24.80
Options granted (unaudited)................................. 50,951 55.50
Forfeited (unaudited)....................................... (251) 21.60-24.80
------ ------------
Outstanding at June 30, 1998 (unaudited).................... 91,692 $21.60-55.50
====== ============
</TABLE>
The exercise price of the options granted in 1996, 1997 and 1998 was equal
to the fair market value of the Company's stock at the date of the grant.
The following table summarizes information about the Company's outstanding
stock options at September 30, 1997:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL LIFE EXERCISE NUMBER EXERCISE
DATE OF GRANT OUTSTANDING OF OPTION IN YEARS PRICE EXERCISABLE PRICE
- ------------- ----------- ------------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
June 14, 1996................ 25,047 8.7 $21.60 11,314 $21.60
June 23, 1997................ 15,945 9.8 24.80 -- --
------ --- ------ ------ ------
40,992 9.1 $22.84 11,314 $21.60
====== === ====== ====== ======
</TABLE>
Unexercised stock options at September 30, 1997 vest and become exercisable
as follows:
<TABLE>
<CAPTION>
YEAR VESTING SHARES VESTING
- ------------ --------------
<S> <C>
1998.................................................... 11,627
1999.................................................... 9,551
2000.................................................... 8,500
------
29,678
======
</TABLE>
The shares under the 1998 option grants vest and become exercisable as
follows: 32,986 (unaudited) shares in 1999, 8,986 (unaudited) shares in 2000 and
8,979 (unaudited) shares in 2001.
The Company has elected to follow APB 25 and its related interpretations in
accounting for its employee stock option plan. Under APB 25, no compensation
expense is recognized in the financial statements when the exercise price of the
option is equal to the fair value of the underlying stock at the date of the
grant. Accordingly, no compensation expense has been recognized for the
Company's stock option plan in fiscal 1996 or 1997. Had compensation cost for
the Company's stock option plan been determined consistent with the fair value
method provided by Statement 123, consolidated net earnings would have decreased
to $1,775 in 1996 and $2,691 in 1997.
The fair value of each option is estimated on the date of the grant using
the Black-Scholes option pricing model. The following assumptions were used in
estimating the fair values for the options: a risk free interest rate of 6.49%
in 1996 and 6.04% in 1997; an expected option life of 2.7 years in 1996 and 2.4
years in 1997; and
F-20
<PAGE> 93
GRIFFITH MICRO SCIENCE INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
no dividend yield for both 1996 and 1997. Since the Company is a nonpublic
entity, with no trading history for its common stock, no volatility was assumed
for 1996 or 1997. The weighted average fair value of the options granted in
fiscal 1996 and 1997 was $3.42 and $3.30, respectively.
Option valuation models require the use of subjective assumptions,
including the expected option life. Changes in the input assumptions used in the
option pricing model can have a significant impact on the estimated fair value
of the Company's stock options.
On September 3, 1998 the Company adopted and the Parent as sole stockholder
approved the 1998 Employee Stock Option Plan (the "1998 Plan") and the 1998
Director Stock Option Plan ("1998 DSOP"). Under these plans options may be
granted to purchase shares of the Company's Class A common stock which will be
issued in conjunction with an anticipated initial public offering and upon
completion of a recapitalization of the Company. Under the proposed
recapitalization the authorized capital stock of the Company will be increased
to 100,000,000 (unaudited) shares, consisting of 50,000,000 (unaudited) shares
of Class A common stock, 40,000,000 (unaudited) shares of Class B common stock
and 10,000,000 (unaudited) shares of preferred stock. Under the 1998 Plan,
initially options to purchase up to 300,000 (unaudited) shares of the Company's
Class A common stock may be granted to employees of the Company and its
subsidiaries. An additional 150,000 (unaudited) shares of the Company's Class A
common stock will be reserved for options to be granted under the 1998 Plan on
October 1 of each of the years 1999 through 2001. No options may be granted
under the 1998 Plan after August 31, 2008. A total of 50,000 (unaudited) shares
of the Company's Class A common stock will be reserved for option grants to
eligible directors under the 1998 DSOP. Under the terms of the 1998 DSOP each
eligible director will receive an option to purchase 3,000 (unaudited) shares of
Class A common stock on the date that they are first elected, and then will
receive an option to purchase an additional 1,000 (unaudited) shares of Class A
common stock on each annual reelection date. The exercise price for options
granted under both the 1998 Plan and the 1998 DSOP is equal to the fair market
value of the Company's Class A common stock at the date of grant.
(18) FINANCIAL INSTRUMENTS
At September 30, 1997, the Company had interest rate collars and swap
contracts in place to manage interest costs and risk associated with movements
in interest rates on its floating rate debt. Debt denominated in Belgian Francs
and French Francs with an aggregate notional principal amount of $8,917 was
covered by interest rate collars. The collar agreements in place are zero cost
collars which require no up-front cash payment to put in place and do not result
in income or expense unless the interest rates on the applicable debt move
outside of agreement rate collar. The interest rate collars in place provide a
lender floor at rates of 3.15% through 4% and the Company a cap at rates of 3.9%
through 5.8%. At September 30, 1997, interest rates on all of the covered
floating rate debt were within the lender and borrower contract rates. The
interest collars expire beginning January 31, 1998 through June 30, 2002.
Interest rate swaps with a notional principal value of $809 covering floating
rate debt in British Pounds Sterling were outstanding at September 30, 1997.
These swaps effectively fix the rate on this debt at 7.45% to 7.57% through
December 31, 1998. At September 30, 1997 the carrying values and fair values of
the interest rate collars and swaps are not material.
In entering into these contracts, the Company has assumed the risk which
might arise from the possible inability of the counterparties to meet the terms
of their contracts. Counterparties to the interest rate contracts are major
financial institutions. Management does not anticipate any losses as a result of
counterparty defaults.
(19) EARNINGS PER SHARE
The Company follows Statement 128 in computing earnings per common share.
For purposes of determining diluted earnings per share the only potential common
shares are in the form of outstanding stock
F-21
<PAGE> 94
GRIFFITH MICRO SCIENCE INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
options. The Company does not have outstanding any convertible securities or
other contracts to issue common stock nor has there been any payment of
dividends on preferred stock for any period presented.
For fiscal 1995 and 1996 there were no dilutive potential common shares nor
adjustments to net earnings available for common stockholders. Accordingly,
basic and diluted earnings per share for fiscal 1996 and 1997 are the same.
During fiscal 1995, 1996 and 1997 the total weighted average common shares
outstanding were 950,000. Below is a reconciliation of the numerators and
denominators of the basic and diluted earnings per share computations for fiscal
1997:
<TABLE>
<CAPTION>
NUMERATOR DENOMINATOR PER SHARE
(EARNINGS) (SHARES) AMOUNT
---------- ----------- ---------
<S> <C> <C> <C>
Net earnings........................................ $2,726
Basic earnings per share............................ -- 950,000 $2.87
=====
Effect of dilutive stock options.................... -- 3,233
------ -------
Diluted earnings per share.......................... $2,726 953,233 $2.86
====== ======= =====
</TABLE>
Options to purchase an additional 15,945 shares of common stock at $24.80
were outstanding during fiscal 1997 but were not included in the computation of
diluted earnings per share because the exercise price of the options were equal
to the fair market price of the Company's stock.
F-22
<PAGE> 95
[THE COMPANY'S "MISSION" LOGO]
<PAGE> 96
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY THE SHARES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL. UNDER NO
CIRCUMSTANCES SHALL THE DELIVERY OF THIS PROSPECTUS OR ANY SALE MADE PURSUANT TO
THIS PROSPECTUS CREATE ANY IMPLICATION THAT INFORMATION CONTAINED IN THIS
PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 19
Dividend Policy....................... 19
Capitalization........................ 20
Dilution.............................. 21
Selected Financial Data............... 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 24
Business.............................. 35
Management............................ 53
Security Ownership of Certain
Beneficial Owners and Management.... 61
Relationship With Parent Company...... 62
Description of Capital Stock.......... 66
Shares Eligible for Future Sale....... 68
Underwriting.......................... 69
Legal Matters......................... 71
Experts............................... 71
Additional Information................ 71
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
THROUGH , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,500,000 SHARES
[GRIFFITH MICRO SCIENCE LOGO]
CLASS A COMMON STOCK
PROSPECTUS
ABN AMRO INCORPORATED
ROBERT W. BAIRD & CO.
INCORPORATED
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 97
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 16. EXHIBITS BEING FILED BY THIS AMENDMENT
The exhibits to this registration statement which are being filed by this
Amendment are listed in the exhibit index which follows the signature page and
which is hereby incorporated by reference.
II-1
<PAGE> 98
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to the registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Chicago,
State of Illinois, on October 14 1998.
GRIFFITH MICRO SCIENCE
INTERNATIONAL, INC.
By: /s/ KEVIN M. SWAN
----------------------------------
Kevin M. Swan
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons in the
capacities indicated on October 14, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
PRINCIPAL EXECUTIVE OFFICER:
/s/ KEVIN M. SWAN President and Chief Executive Officer
- -----------------------------------------------------
Kevin M. Swan
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:
/s/ JOHN P. SABALASKEY Senior Vice President and Chief Financial
- ----------------------------------------------------- Officer
John P. Sabalaskey
A MAJORITY OF THE DIRECTORS:
/s/ DEAN L. GRIFFITH Chairman of the Board and a Director
- -----------------------------------------------------
Dean L. Griffith
/s/ JOSEPH R. MASLICK Director
- -----------------------------------------------------
Joseph R. Maslick
/s/ KEVIN M. SWAN Director
- -----------------------------------------------------
Kevin M. Swan
</TABLE>
II-2
<PAGE> 99
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our report dated December 3, 1997 on our audit of the consolidated financial
statements of Griffith Micro Science International, Inc. We also consent to the
references to our firm under the caption "Experts."
KPMG PEAT MARWICK LLP
Chicago, Illinois
October 13, 1998
II-3
<PAGE> 100
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
1.1 -- Proposed form of Underwriting Agreement
2.2(a) -- Amendment dated July 9, 1997 to Share Purchase Agreement
dated June 27, 1997 between the Company and Laboratories
Perouse S.A.
3.1(a) -- Certificate of Incorporation of the Company and all
amendments thereto
3.1(b) -- Revised proposed form of Restated Certificate of
Incorporation of the Company
3.2(b) -- Amended and Restated Bylaws of the Company
4.1+ -- Included in Exhibits 3.1(a), 3.1(b) and 3.2(b)
4.3* -- Proposed Revolving Credit Agreement with a syndicate of
banks led by The First National Bank of Chicago
4.4 -- Revised proposed form of Shareholder Agreement with the
Parent Company
5.1 -- Opinion of Bell, Boyd & Lloyd as to the legality of the
Class A Common Stock
10.2 -- 1998 Employee Stock Option Plan of the Company
10.3 -- 1998 Director Stock Option Plan of the Company
10.6 -- Proposed form of Administrative Services Agreement with
the Parent Company
10.7 -- Proposed form of Tax Matters Agreement with the Parent
Company
10.10++ -- Sterilization Contract with Allegiance Healthcare
Corporation and Acknowledgment of and Amendment thereto
10.11++ -- Ethylene Oxide Supply Agreement with the ARC Chemical
Division of Balchem Corporation
10.17(a) -- Facility Lease dated June 5, 1998 between Geo. A. Rediehs
Co., Inc. and the Company
10.20 -- Proposed form of Facility Lease to be entered into
between Griffith Laboratories Limited and the Company
10.23(a) -- Extension dated August 23, 1995 of Facility Lease dated
July 1, 1991 between Stichting Pensioenfonds De Eendragt
and the Company
10.23(b) -- Facility Lease dated July 1, 1986 between Stichting
Pensioenfonds De Eendragt and the Company
10.26(a) -- Complement dated August 6, 1998 to Facility Lease dated
October 1, 1995 between Helmut von Heesen GmbH & Co. KG
and the Company
10.26(b) -- Facility Lease dated August 1, 1990 between Helmut von
Heesen GmbH & Co. KG and the Company
23.1 -- Consent of KPMG Peat Marwick LLP (included in Part II of
this Amendment)
23.2 -- Consent of Bell, Boyd & Lloyd (included in Exhibit 5.1)
23.3 -- Consent of John G. Kringel
23.4 -- Consent of L. Peter Smith
27.3 -- Financial Data Schedule for the nine months ended June
30, 1998
</TABLE>
- -------------------------
* To be filed by Amendment
+ The Company agrees to furnish supplementally to the Commission upon request
a copy of any instrument with respect to long-term debt not being filed as
an exhibit in reliance on Item 601(b)(4)(iii)(A) of Regulation S-K
++ The Company has requested confidential treatment with respect to a portion
of this exhibit
<PAGE> 1
EXHIBIT 1.1
2,500,000 SHARES*
GRIFFITH MICRO SCIENCE INTERNATIONAL, INC.
CLASS A COMMON STOCK
UNDERWRITING AGREEMENT
______________ , 1998
ABN AMRO Incorporated
Robert W. Baird & Co. Incorporated
As Representatives of the
several Underwriters named
in Schedule I hereto
c/o ABN AMRO Incorporated
208 South LaSalle Street
Chicago, Illinois 60604
Ladies and Gentlemen:
Subject to the terms and conditions set forth in this Underwriting
Agreement (this "Agreement"), Griffith Micro Science International, Inc., a
Delaware corporation (the "Company"), proposes to issue and sell an aggregate of
2,500,000 shares of Class A Common Stock, par value $.01 per share (the "Class A
Common Stock"), of the Company to the several underwriters named in Schedule I
hereto (collectively, the "Underwriters"). The Company also proposes to sell to
the several Underwriters, upon the terms and conditions set forth in Section 2
hereof, up to an additional 375,000 shares of Class A Common Stock. The Class A
Common Stock and the Class B Common Stock, par value $.01 of the Company are
collectively hereinafter referred to as the "Common Stock." The 2,500,000 shares
of Class A Common Stock to be sold by the Company are hereinafter referred to as
the "Firm Shares" and the 375,000 additional shares to be sold by the Company
are hereinafter referred to as the "Additional Shares." The Firm Shares and the
Additional Shares are hereinafter collectively referred to as the "Shares." ABN
AMRO Incorporated and Robert W. Baird & Co. Incorporated are acting individually
and as representatives of the several Underwriters and in such capacity are
hereinafter referred to as the "Representatives." The Company is currently
wholly-owned by
- -------------------------------
* Plus an option to purchase up to 375,000 Additional Shares to cover
over-allotments.
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Griffith Laboratories International, Inc. ("GLII"), a subsidiary of Griffith
Laboratories, Inc. ("GLI").
Prior to the purchase and public offering of the Shares by the several
Underwriters, the Company and the Representatives shall enter into an agreement
substantially in the form of Exhibit A hereto (the "Pricing Agreement"). The
Pricing Agreement may take the form of an exchange of any standard form of
written telecommunication between the Company and the Representatives and shall
specify such applicable information as is indicated in Exhibit A hereto. The
offering of the Shares will be governed by this Agreement, as supplemented by
the Pricing Agreement. From and after the date of the execution and delivery of
the Pricing Agreement, this Agreement shall be deemed to incorporate the Pricing
Agreement.
The Company is advised by the Representatives that the Underwriters have
agreed to make a public offering of their respective portions of the Shares as
soon after the Registration Statement (as defined below) has become effective
and the Pricing Agreement has been executed as in the judgment of the
Representatives is advisable and to first offer the Shares upon the terms
described in the Prospectus (as defined below).
The Company, GLII, the Representatives and the other Underwriters hereby
agree to the following matters with respect to the purchase and sale of the
Shares:
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND GLII.
(a) The Company represents and warrants to each Underwriter that:
(i) The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder (collectively, the "Act"), a registration statement on
Form S-1 (File No. 333-60153), including a preliminary prospectus, relating to
the Shares and one or more amendments thereto. The Company will next file with
the Commission one of the following: (A) prior to effectiveness of such
registration statement, a further amendment thereto, including the form of final
prospectus, (B) a final prospectus in accordance with Rules 430A and 424(b)
under the Act or (C) a term sheet (the "Term Sheet") as described in and in
accordance with Rules 434 and 424(b) under the Act. As filed, the final
prospectus, if one is used, or the Term Sheet and the latest Preliminary
Prospectus, if a final prospectus is not used, shall include all Rule 430A
Information (as defined below). There have been or will promptly be delivered to
you three signed copies of such registration statement and each such amendment,
three copies of each exhibit filed therewith, and conformed copies of such
registration statement and each such amendment (but without exhibits) and of the
related preliminary prospectus or prospectuses and final form of prospectus or
Term Sheet, if a Term Sheet is used, for each of the Underwriters. The term
"Registration Statement" as used in this Agreement shall mean such registration
statement at the time such registration statement becomes effective and, in the
event any post-effective amendment thereto becomes effective prior to the
Closing Date (as defined below), shall also mean such registration statement as
so amended; provided, however, that such term shall also include all Rule 430A
Information (as defined below) deemed to be included in such registration
statement at the time such registration
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statement becomes effective as provided by Rule 430A and, if a Term Sheet is
used, shall also include all information deemed to be included in such
registration statement at the time such registration statement becomes effective
as provided by Rule 434; provided, further, that if the Company files a
registration statement under the Act to register additional shares of Class A
Common Stock and relies on Rule 462(b) for such registration statement to become
effective upon filing with the Commission (the "Rule 462 Registration
Statement"), then any reference to "Registration Statement" herein shall be
deemed to be to both the registration statement referred to above (No.
333-60153) and the Rule 462 Registration Statement, as each such registration
statement may be amended pursuant to the Act. The term "Preliminary Prospectus"
as used in this Agreement shall mean any preliminary prospectus relating to the
Shares filed with the Commission under the Act and the rules and regulations
thereunder, including any preliminary prospectus included in the Registration
Statement at the time it becomes effective that omits Rule 430A Information. The
term "Prospectus" as used in this Agreement shall mean: (X) the prospectus
relating to the Shares in the form in which it is first filed with the
Commission pursuant to Rule 424(b) under the Act; (Y) if a Term Sheet is not
used and no filing pursuant to Rule 424(b) under the Act is required, the form
of final prospectus included in the Registration Statement at the time the
Registration Statement becomes effective; or (Z) if a Term Sheet is used in lieu
of a prospectus, the Term Sheet in the form in which it is first filed with the
Commission pursuant to Rule 424(b) under the Act, together with the latest
Preliminary Prospectus included in the Registration Statement at the time it
becomes effective (such Term Sheet and Preliminary Prospectus are sometimes
collectively referred to herein as the "Rule 434 Prospectus"). The term "Rule
430A Information" as used in this Agreement shall mean information with respect
to the Shares and the offering thereof permitted to be omitted from the
Registration Statement when it becomes effective pursuant to Rule 430A under the
Act. The Securities Exchange Act of 1934, as amended, and the rules and
regulations of the Commission thereunder are hereinafter collectively referred
to as the "Exchange Act."
(ii) The Commission has not issued any order preventing or suspending the
use of any Preliminary Prospectus, and each Preliminary Prospectus complied in
all material respects when so filed with the requirements of the Act (except to
the extent that, in conformity with the Act, such Preliminary Prospectus is
subject to completion).
(iii) The Registration Statement in the form in which it becomes effective
and also in such form as it may be when the Pricing Agreement is executed or any
post-effective amendment to the Registration Statement shall become effective,
and the Prospectus when and in the form last filed with the Commission as part
of the Registration Statement prior to effectiveness or, if applicable, first
filed pursuant to Rule 424(b) under the Act, and when any supplement or
amendment thereto is filed with the Commission, each will comply in all material
respects with the requirements of the Act and will not at any such time contain
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. This
representation and warranty does not apply to statements in or omissions from
the Registration Statement or the Prospectus (or any supplement or amendment
thereto) made in reliance upon and in conformity with information furnished to
the Company in writing by or on behalf of such Underwriter through the
Representatives specifically for use in the Registration
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Statement, which information solely consists of the disclosure included in the
Prospectus under the caption "Underwriting."
(iv) Subject to the Company's requests for confidential treatment under
Rule 406 of the Act, there is no contract or other document of a character
required to be described in the Registration Statement or Prospectus or to be
filed as an exhibit to the Registration Statement which is not described or
filed as required.
(v) The accountants who have expressed their opinions with respect to
certain of the financial statements of the Company included in the Registration
Statement and the Prospectus, are independent public accountants as required by
the Act.
(vi) The consolidated financial statements, together with the notes
thereto, of the Company included in the Registration Statement and the
Prospectus comply in all material respects with the Act and present fairly the
consolidated financial position of the Company as of the dates indicated, and
the consolidated results of operations and cash flows of the Company for the
periods specified. Such financial statements have been prepared in conformity
with generally accepted accounting principles applied on a consistent basis
throughout the entire period involved except to the extent disclosed therein. No
other financial statements, including pro forma financial statements, or
schedules are required by the Act to be included in the Registration Statement
or the Prospectus.
(vii) The Company and its subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; and (iii) access to assets
is permitted only in accordance with management's general or specific
authorization, except in any such case in which the failure to maintain such
controls would not have a material adverse effect upon the condition (financial
or otherwise), earnings, business or prospects of the Company and its
subsidiaries, taken as a whole.
(viii) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with full
corporate power and authority to own, lease and operate its properties and
conduct its business as described in the Registration Statement and Prospectus.
The Company is duly qualified to do business as a foreign corporation and in
good standing in each jurisdiction in which the ownership or leasing of its
properties or the conduct of its business requires such qualification, except in
any such case in which the failure to so qualify or be in good standing would
not have a material adverse effect upon the condition (financial or otherwise),
earnings, business or prospects of the Company and its subsidiaries, taken as a
whole; and no proceeding of which the Company has knowledge has been instituted
in any such jurisdiction, revoking, limiting or curtailing, or seeking to
revoke, limit or curtail, such power and authority or qualification.
(ix) The only subsidiaries of the Company are the subsidiaries listed on
Exhibit 21 to the Registration Statement. Each of the Company's subsidiaries has
been duly incorporated and
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is validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, with full corporate power and authority to own,
lease and operate its properties and conduct its business as described in the
Registration Statement and Prospectus. Each of the Company's subsidiaries is
duly qualified to do business as a foreign corporation in good standing in each
jurisdiction in which the ownership or leasing of its properties or the conduct
of its business requires such qualification, except in any such case in which
the failure to so qualify or be in good standing would not have a material
adverse effect on the condition (financial or otherwise), earnings, business or
prospects of the Company and its subsidiaries, taken as a whole; and no
proceeding of which the Company has knowledge has been instituted in any such
jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit or
curtail, such power and authority or qualification. Except for the capital stock
of the subsidiaries and except as otherwise described in the Prospectus, the
Company does not own any capital stock of, or other securities evidencing an
equity interest in, any corporation, partnership or other entity. All of the
issued and outstanding shares of capital stock of the Company's subsidiaries
have been duly and validly authorized and issued, are fully paid and
non-assessable, and except as described in the Prospectus or the Registration
Statement (including the exhibits thereto) and for directors' or shareholders'
qualifying shares held by nominees of the Company), are owned by the Company,
free and clear of any security interest, claim, lien, encumbrance or adverse
interest of any nature. There are no outstanding subscriptions, rights, warrants
or options to acquire, or instruments convertible into or exchangeable for, any
shares of capital stock of any of the Company's subsidiaries.
(x) The Company has an authorized and outstanding capitalization as
described in the Prospectus and the Shares conform to the description thereof
contained in the Prospectus. All of the issued and outstanding shares of Common
Stock have been duly authorized, validly issued and are fully paid and
non-assessable and free of preemptive or other similar rights and there are no
options, agreements, contracts or other rights in existence to acquire from the
Company any shares of Common Stock, except as described in the Prospectus.
(xi) The Shares to be sold by the Company pursuant to this Agreement and
the Pricing Agreement have been duly authorized and, when issued and paid for in
accordance with this Agreement and the Pricing Agreement, will be validly
issued, fully paid and non-assessable; the holders of the Shares will not be
subject to personal liability by reason of being such holders; there are no
holders of securities of the Company having rights, contractual or otherwise, to
registration thereof or preemptive rights to purchase Common Stock except
pursuant to the terms of the Shareholder Agreement dated as of ___________, 1998
by and between the Company and GLII; all corporate actions required to be taken
for the authorization, issue and sale of the Shares have been validly and
sufficiently taken; and upon delivery of and payment for such Shares hereunder,
the Underwriters will acquire valid and marketable title thereto, free and clear
of any security interest, claim, lien, encumbrance or adverse interest of any
nature.
(xii) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, except as otherwise stated or
contemplated therein, there has not been (A) any material adverse change in the
condition (financial or otherwise), earnings, business or prospects of the
Company and its subsidiaries, taken as a whole, whether or not arising in the
ordinary course of business, (B) any material transaction entered into, or any
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material liability or obligation incurred, by the Company or its subsidiaries
other than in the ordinary course of business, (C) any change in the capital
stock, or material increase in the long-term debt of the Company or its
subsidiaries, or (D) any dividend or distribution of any kind declared, paid or
made by the Company on its capital stock.
(xiii) The Company and each of its subsidiaries have good and marketable
title to all properties and assets reflected as owned in the financial
statements hereinabove described or described in the Prospectus as owned by
them, free and clear of all liens, charges, encumbrances or restrictions of any
kind, except such as are referred to in such financial statements or elsewhere
in the Prospectus or which are not material to the business of the Company and
its subsidiaries, taken as a whole; all of the leases and subleases material to
the business of the Company and its subsidiaries, taken as a whole or under
which the Company or any of its subsidiaries holds properties are in full force
and effect; and neither the Company nor any of its subsidiaries has received any
notice of any material claim of any sort which has been asserted by anyone
adverse to the rights of the Company or any subsidiary as owner or as lessee or
sublessee under any of the leases or subleases mentioned above, or affecting or
questioning the rights of the Company or such subsidiary to the continued
possession of the leased or subleased premises under any such lease or sublease.
(xiv) Neither the Company nor any of its subsidiaries is in default in the
observance of any provision of its Certificate of Incorporation (or other
charter or organizational documents) or by-laws (or other governing documents),
or in the performance or observance of any obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, loan agreement, note,
lease or other instrument to which it is a party or by which it or any of its
properties may be bound, the effect of which could be materially adverse to the
condition (financial or otherwise), earnings, business or prospects of the
Company and its subsidiaries, taken as a whole.
(xv) The execution and delivery of this Agreement and the Pricing
Agreement, the issuance and delivery of the Shares, the application of the net
proceeds from the offering in the manner described in the Prospectus under "Use
of Proceeds," the consummation of the transactions contemplated herein and in
the Registration Statement and compliance with the terms of this Agreement and
the Pricing Agreement have been duly authorized by all necessary corporate
action and will not result in any violation of the Certificate of Incorporation
(or other charter or organizational documents) or by-laws (or other governing
documents) of the Company or any of its subsidiaries, and will not conflict with
or result in a breach of any of the terms or provisions of, or constitute a
default under, or result in the creation or imposition of any lien, charge,
encumbrance or restriction of any kind upon any property or assets of the
Company or any of its subsidiaries under any contract, indenture, mortgage, loan
agreement, note, lease or other agreement or instrument to which the Company or
any of its subsidiaries is a party or by which the Company or any of its
subsidiaries, or any of their respective properties, is bound, or any existing
applicable law, rule, regulation, judgment, order or decree of any government,
governmental instrumentality or court, domestic or foreign, having jurisdiction
over the Company or any of its subsidiaries or any of their respective
properties. No approval, authorization or consent of any court, regulatory body,
administrative agency or other governmental body having jurisdiction over the
Company or any of its subsidiaries is required in
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connection with the sale of the Shares to the Underwriters, except such as may
be required under the Act, state securities or Blue Sky laws or from the
clearance of the offering with the National Association of Securities Dealers,
Inc. (the "NASD").
(xvi) Except as disclosed in the Registration Statement and the
Prospectus, there is no action, suit or proceeding before or by any court or
governmental agency or body, domestic or foreign, or any arbitrator or
arbitration panel, now pending or, to the knowledge of the Company, threatened
against or affecting the Company or any of its subsidiaries which could result
in any material adverse change to the condition (financial or otherwise),
earnings, business or prospects of the Company and its subsidiaries, taken as
whole; and there is no decree, judgment or order of any kind in existence
against or restraining the Company or any of its subsidiaries, or any of their
respective officers, employees or directors, from taking any actions of any kind
in connection with the business of the Company or any such subsidiary.
(xvii) The Company and each of its subsidiaries own or possess or have
obtained all licenses, permits, consents, orders, approvals and other
authorizations necessary to lease or own, as the case may be, and to operate
their respective properties and to carry on their respective businesses as
presently conducted, except where the failure to own or possess any such
license, permit, consent, order, approval or other authorization would not have
a material adverse effect on the condition (financial or otherwise), earnings,
business or prospects of the Company and its subsidiaries, taken as whole, and
neither the Company nor any such subsidiary has received any notice of
proceedings related to revocation or modification of any such licenses, permits,
consents, orders, approvals or authorizations which singly or in the aggregate,
if the subject of an unfavorable ruling or finding, would be materially adverse
to the condition (financial or otherwise), earnings, business or prospects of
the Company and its subsidiaries, taken as a whole.
(xviii) The conduct of the business of the Company and each of its
subsidiaries is in compliance with all applicable federal, state, local and
foreign laws and regulations that regulate or are concerned in any way with the
business of the Company or such subsidiaries, where the effect of the failure to
comply would be materially adverse to the condition (financial or otherwise),
earnings, business or prospects of the Company and its subsidiaries, taken as a
whole.
(xix) Except as disclosed in the Registration Statement and the
Prospectus, the Company together with its subsidiaries owns or possesses,
or can acquire on reasonable terms, all intellectual property, including
without limitation all right, title and interest in or to, or has duly licensed
from third parties, all patents, trademarks, service marks, copyrights, trade
names, trade secrets and other proprietary rights ("Trade Rights") necessary to
conduct the business now or proposed to be conducted by it, and neither the
Company nor any of its subsidiaries nor GLII has received any notice of, and
has no knowledge of, infringement of or conflict with asserted rights of others
with respect to any such Trade Rights which, singly or in the aggregate, if the
subject of any unfavorable decision, ruling or finding, would be materially
adverse to the condition (financial or otherwise), earnings, business or
prospects of the Company and its subsidiaries, taken as a whole.
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(xx) The Company and all of its subsidiaries have timely filed (or have
timely requested an extension of the time to file) all federal, state, local and
foreign tax returns required to be filed, or have been included in a
consolidated return filed by GLI with respect to such required filings, and have
paid all taxes which were payable pursuant to said returns or any assessments
with respect thereto, other than any taxes which the Company, any of its
subsidiaries or GLI is contesting in good faith or which are not material to the
Company and its subsidiaries, taken as a whole, and there is no tax deficiency
that has been, or to the knowledge of the Company might be, asserted against the
Company or any of its subsidiaries or the properties or assets of the Company or
any such subsidiary that would or could be expected to have a material adverse
affect upon the condition (financial or otherwise) or results of operations of
the Company and its subsidiaries, taken as a whole.
(xxi) This Agreement has been duly authorized, executed and delivered by
the Company; the Pricing Agreement, upon execution and delivery by the Company,
shall be duly authorized, executed and delivered by the Company; and this
Agreement constitutes, and when executed the Pricing Agreement shall constitute,
valid and binding obligations of the Company.
(xxii) The Company has filed a registration statement on Form 8-A to
register the Common Stock under Section 12(g) of the Exchange Act and has
requested that such registration statement be declared effective concurrent with
the effectiveness of the Registration Statement. The Company has filed an
application to list the Shares on The Nasdaq National Market and has received
notification that the listing has been approved, subject to notice of issuance
or sale of the Shares, as the case may be.
(xxiii) The Company is not, and does not intend to conduct its business in
a manner in which it would become, an "investment company" as defined in Section
3(a) of the Investment Company Act of 1940, as amended (the "Investment Company
Act").
(xxiv) All offers and sales of the Company's capital stock prior to the
date hereof were at all relevant times exempt from the registration requirements
of the Act and were duly registered with, or the subject of an available
exemption from, the registration requirements of the applicable state securities
or Blue Sky laws.
(xxv) No holder of securities of the Company has rights to the
registration of any securities of the Company because of the filing of the
Registration Statement.
(xxvi) The Company has not taken and will not take, directly or
indirectly, any action designed to cause or result in, or that has
constituted or might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company.
(xxvii) Except as disclosed in the Registration Statement and the
Prospectus, no transaction has occurred between or among the Company, on the one
hand, and any of its officers or directors or any affiliate or affiliates (as
defined under Rule 12b-2 of the Exchange Act) of any such officer or director,
on the other hand, that is required to be so disclosed, including, but not
limited to, any outstanding loans, advances or guaranties of indebtedness by
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the Company to or for the benefit of any affiliates of the Company, or any of
the officers or directors of the Company, or any family member of any of them.
(xxviii) The Company has not, directly or indirectly, at any time (A) made
any contributions to any candidate for foreign political office, or if made,
failed to disclose fully any such contribution made in violation of law, or (B)
made any payment to any state, federal or foreign governmental officer or
official, or other person charged with similar public or quasi-public duties,
other than payments or contributions required or allowed by applicable law.
(xxix) Except as disclosed in the Registration Statement and the
Prospectus, the Company and its subsidiaries are in compliance in all material
respects with all applicable Environmental, Health and Safety Requirements and
Radiological Health and Safety Requirements (each as hereinafter defined),
except where any such noncompliance, either individually or in the aggregate,
would not have a material adverse effect on the condition (financial or
otherwise), earnings, business or prospects of the Company and its subsidiaries,
taken as a whole. As used herein, (1) "Environmental, Health and Safety
Requirements" means all applicable foreign, federal, state and local laws and
regulations and non-governmental requirements relating to Hazardous Materials
(as hereinafter defined) and the protection of human health, safety, and the
environment, or imposing liability or standards of conduct concerning the
operation of the Company's business, including without limitation, requirements
administered, imposed, or enforced by the U.S. Environmental Protection Agency,
the U.S. Food and Drug Administration, or the U.S. Department of Agriculture,
any corresponding or delegated state agency, any equivalent foreign regulatory
agency and any non-governmental organization from which the Company or its
subsidiaries have applied for or obtained formal certification or registration,
which requirements govern the use and operation of the Company's processes,
facilities and equipment; (2) "Hazardous Material" includes without limitation
(A) ethylene oxide and any other sterilant used by the Company or any of its
subsidiaries, (B) any "hazardous substance" as defined by the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, (C)
any "hazardous waste" as defined by the Resource Conservation and Recovery Act,
as amended, (D) any petroleum or petroleum product, (E) any polychlorinated
biphenyl, (F) any pollutant or contaminant or hazardous, dangerous, or toxic
chemical, material, waste or substance regulated under or within the meaning of
any other Environmental, Health and Safety Requirement, and (G) radioactive or
radiological material, substance, waste, or by-product; and (3) "Radiological
Health and Safety Requirements" include without limitation requirements
administered, imposed or enforced by the U.S. Nuclear Regulatory Commission
("NRC") or any corresponding or delegated state agency (the "Agreement States"),
or equivalent foreign regulatory agency which requirements govern the use and
operation of the Company's processes, facilities and equipment.
(xxx) Except as described in the Registration Statement and the
Prospectus, since October 1, 1992, neither the Company nor its subsidiaries has
received any notice or other communication alleging that any of them is not in
compliance with any Environmental, Health and Safety Requirement or any
Radiological Health and Safety Requirement, except where any such noncompliance
would not, singly or in the aggregate, have a material adverse effect on the
condition (financial or otherwise), earnings, business or prospects of the
Company and its subsidiaries, taken as a whole. Since October 1, 1992, neither
the Company nor its subsidiaries
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has unlawfully generated, manufactured, produced, transported, imported, used,
treated, refined, processed, handled, stored, discharged, released, or disposed
of any quantity of Hazardous Material (a "release") at, on, under, from, or in
the vicinity of any site owned, leased, occupied, or controlled by the Company
or its subsidiaries, except for any releases which were promptly reported to the
applicable foreign, federal, state or local regulatory body or authority (if
such report is required), and which would not, singly or in the aggregate, have
a material adverse effect on the condition (financial or otherwise), earnings,
business or prospects of the Company and its subsidiaries, taken as a whole.
(xxxi) To the Company's knowledge, except as described in the
Registration Statement and the Prospectus, there are no costs or liabilities
associated with or arising in connection with Environmental, Health and Safety
Requirements or Radiological Health and Safety Requirements as currently in
effect or proposed (including, without limitation, costs of compliance
therewith) which would, singly or in the aggregate have a material adverse
effect on the condition (financial or otherwise), earnings, business or
prospects of the Company and its subsidiaries, taken as a whole. Except as
described in the Registration Statement and the Prospectus, the Company is not
aware of any circumstances that may prevent or interfere with the Company and
its subsidiaries' compliance with any material Environmental, Health and Safety
Law or Radiological Health and Safety Requirement.
(xxxii) The Company and each of its subsidiaries maintains or has the
benefit of insurance with respect to its properties and business of the types
and in amounts that the Company believes are reasonably adequate for its
business, all of which insurance is in full force and effect.
(xxxiii) With respect to each employee benefit plan, program and
arrangement (including, without limitation, any "employee benefit plan" as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")) maintained or contributed to by the Company, or with
respect to which the Company could incur any liability under ERISA
(collectively, the "Benefit Plans"), no event has occurred and, to the knowledge
of the Company, there exists no condition or set of circumstances, in connection
with which the Company could be subject to any liability under the terms of such
Benefit Plan, applicable law (including, without limitation, ERISA and the
Internal Revenue Code of 1986, as amended) or any applicable agreement that
would reasonably be expected to materially adversely affect the condition
(financial or otherwise), earnings, business or prospects of the Company and its
subsidiaries, taken as a whole.
(b) GLII represents and warrants to each Underwriter that:
(i) The Registration Statement in the form in which it becomes
effective and also in such form as it may be when the Pricing Agreement is
executed or any post-effective amendment to the Registration Statement shall
become effective, and the Prospectus when and in the form last filed with the
Commission as part of the Registration Statement prior to effectiveness or, if
applicable, first filed pursuant to Rule 424(b) under the Act, and when any
supplement or amendment thereto is filed with the Commission, each will comply
in all material respects with the requirements of the Act and will not at any
such time contain an untrue statement of a
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material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. This representation and warranty does not
apply to statements in or omissions from the Registration Statement or the
Prospectus (or any supplement or amendment thereto) made in reliance upon and in
conformity with information relating to any Underwriter furnished to the Company
in writing by or on behalf of such Underwriter through the Representatives
specifically for use in the Registration Statement.
(ii) GLII has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with full
corporate power and authority to own, lease and operate its properties and
conduct its business.
(iii) The execution and delivery of this Agreement and compliance with the
terms of this Agreement by GLII have been duly authorized by all necessary
corporate action, will not result in any violation of the charter or by-laws of
GLII, and will not conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, or result in the creation or
imposition of any lien, charge, encumbrance or restriction of any kind upon any
property or assets of GLII under any contract, indenture, mortgage, loan
agreement, note, lease or other agreement or instrument to which it is a party
or by which it or any of its properties is bound, except for such restrictions
which would not have a material adverse effect on the financial condition of
GLII and its subsidiaries, taken as a whole. No approval, authorization or
consent of any court, regulatory body, administrative agency or other
governmental body having jurisdiction over GLII or any of its subsidiaries is
required in connection with the execution and performance of this Agreement by
GLII.
(iv) This Agreement has been duly authorized, executed and delivered by
GLII and constitutes a valid and binding obligation of GLII.
SECTION 2. AGREEMENT TO SELL AND PURCHASE.
(a) Subject to such adjustments to eliminate any fractional share sales
or purchases as the Representatives in their discretion may make, (i) the
Company hereby agrees to issue and sell to the Underwriters an aggregate of
2,500,000 Firm Shares, and (ii) on the basis of the representations, warranties
and agreements of the Company and GLII herein contained and subject to the terms
and conditions set forth herein, each Underwriter agrees, severally and not
jointly, to purchase from the Company, at the purchase price per Share set forth
in the Pricing Agreement (the "Purchase Price per Share"), the number of Firm
Shares set forth opposite the name of such Underwriter in Schedule I hereto (or
such number of Firm Shares as such Underwriter shall be obligated to purchase
pursuant to the provisions of Section 9 hereof).
(b) The Company agrees to sell to the Underwriters and, on the basis
of the representations, warranties and agreements of the Company and GLII set
forth herein and subject to the terms and conditions set forth herein, the
Underwriters shall have the right to purchase, severally and not jointly, from
the Company up to 375,000 Additional Shares, at the Purchase Price per Share
upon delivery to the Company of the notice hereinafter referred to. Such
Additional Shares may be purchased solely for the purpose of covering
over-allotments made in
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connection with the offering of the Firm Shares. If any Additional Shares are to
be purchased, each Underwriter, severally and not jointly, agrees to purchase
from the Company the number of Additional Shares (subject to such adjustments to
eliminate fractional Shares as the Representatives may determine) which bears
the same proportion to the total number of Additional Shares to be purchased
from the Company as the number of Firm Shares set forth opposite such
Underwriter's name in Schedule I (or such number of Firm Shares increased
pursuant to the terms set forth in Section 9 hereof) bears to the total number
of Firm Shares.
SECTION 3. DELIVERY OF THE SHARES AND PAYMENT THEREFOR.
(a) Delivery to the Underwriters of the Firm Shares shall be made in
book-entry form through the facilities of the Depository Trust Company ("DTC")
against payment therefor by wire or other immediately available funds at 9:00
a.m., Chicago, Illinois time, on the third full business day following the date
of the Pricing Agreement (the "Closing Date"). The closing shall take place at
the offices of Lord, Bissell & Brook, 115 South LaSalle Street, Chicago,
Illinois. The place of the closing and the Closing Date may be varied by
agreement among the Representatives and the Company.
(b) Delivery to the Underwriters of any Additional Shares to be purchased
by the several Underwriters shall be made in book-entry form through the
facilities of DTC against payment therefor by wire or other immediately
available funds at such time on such date (the "Option Closing Date"), which may
be the same as the Closing Date, but shall in no event be earlier than the
Closing Date nor earlier than three nor later than ten business days after the
giving of the notice hereinafter referred to, as shall be specified in written
notice from the Representatives to the Company of the determination to purchase
a number, specified in said notice, of Additional Shares. Said notice may be
given at any time on or before 30 days after the date of the execution of the
Pricing Agreement. The option closing shall take place at the offices of Lord,
Bissell & Brook, 115 South LaSalle Street, Chicago, Illinois. The place of the
closing and the Option Closing Date may be varied by agreement between the
Representatives and the Company.
(c) If the Representatives and the Company have elected to enter into the
Pricing Agreement after the Registration Statement is effective, the Purchase
Price per Share to be paid by the several Underwriters for the Shares shall be
an amount equal to the initial public offering price, less an amount to be
determined by agreement between the Representatives and the Company. The initial
public offering price per share of the Shares shall be a fixed price to be
determined by agreement between the Representatives and the Company. The initial
public offering price and the Purchase Price per Share, when so determined,
shall be set forth in the Pricing Agreement. If such prices have not been agreed
upon and the Pricing Agreement has not been executed and delivered by all
parties thereto by the close of business on the fourth business day following
the date of this Agreement, this Agreement shall terminate forthwith, without
liability of any party to any other party, unless otherwise agreed to by the
Company and the Representatives and except as otherwise provided in Section 5
hereof. If the Representatives and the Company have elected to enter into the
Pricing Agreement prior to the Registration Statement becoming effective, the
initial public offering price and the Purchase Price per Share to be paid by the
several Underwriters for the Shares having each been determined and set forth
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<PAGE> 13
in the Pricing Agreement, the Company agrees to file an amendment to the
Registration Statement and the Prospectus before the Registration Statement
becomes effective.
(d) Unless the Representatives request otherwise, the Firm Shares shall be
delivered in global form and shall be deposited with, or on behalf of, DTC and
registered in the name of DTC's nominee. If at the request of the
Representatives the Firm Shares or the Additional Shares are delivered in
definitive form, certificates for such Shares shall be registered in such names
and in such denominations as the Representatives shall request upon at least 48
hours prior notice to the Company preceding the Closing Date or the Option
Closing Date, as the case may be. Such certificates shall be made available to
the Representatives at the office of the Representatives set forth in Section 12
hereof for inspection and packaging not later than at least 24 hours prior to
the Closing Date or the Option Closing Date, as the case may be.
(e) The Firm Shares and the Additional Shares shall be delivered to the
Representatives on the Closing Date or the Option Closing Date, as the case may
be, with any transfer taxes thereon duly paid by the Company for the respective
accounts of the several Underwriters, against payment of the purchase price
therefor by wire or other immediately available funds. It is understood by the
Company that each of the Underwriters has authorized the Representatives, for
its account, to accept delivery of, receipt for and make payment of the purchase
price for, the Shares it has agreed to purchase.
SECTION 4. AGREEMENTS OF THE COMPANY AND GLII.
(a) The Company covenants and agrees with the several Underwriters that:
(i) The Company will endeavor to cause the Registration
Statement to become effective and will advise the Representatives promptly and,
if requested by the Representatives, will confirm such advice in writing, (A)
when the Registration Statement has become effective and when any post-effective
amendment to it becomes effective, and of the filing of any final prospectus or
supplement or amendment to the Prospectus, (B) of any request by the Commission
for amendments or supplements to the Registration Statement or Prospectus or any
Preliminary Prospectus or for additional information, (C) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or of the suspension of qualification of the Shares for offering or
sale in any jurisdiction, or the initiation or contemplation of any proceeding
for such purposes, and (D) within the period of time referred to in paragraph
(f) below, of the happening of any event which makes any statement made in the
Registration Statement or Prospectus (as then amended or supplemented) untrue in
any material respect or which requires the making of any additions to or changes
in the Registration Statement or Prospectus (as then amended or supplemented) in
order to make the statements therein not misleading or the necessity to amend or
supplement the Prospectus to comply with the Act or any other law. If at any
time the Commission shall issue any stop order suspending the effectiveness of
the Registration Statement, the Company will make every reasonable effort to
obtain the withdrawal of such order at the earliest possible moment. If the
Company elects to rely on Rule 434 of the Act, the Company will prepare a Term
Sheet that complies with the requirements of Rule 434 of the Act and will
provide the Representatives with copies of the form of Rule 434 Prospectus in
such numbers as you may reasonably request and file or transmit for
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<PAGE> 14
filing with the Commission the form of Prospectus complying with Rule 434(c)(2)
of the Act in accordance with Rule 424(b) of the Act by the close of business in
Chicago on the business day immediately succeeding the date hereof. If the
Company elects not to rely on Rule 434, the Company will provide you with copies
of the form of Prospectus in such numbers as you may reasonably request and file
or transmit for filing with the Commission such Prospectus in accordance with
Rule 424(b) of the Act, by the close of business in Chicago on the business day
immediately succeeding the date hereof.
(ii) If, at the time that the Registration Statement becomes effective,
any information shall have been omitted therefrom in reliance upon Rule 430A
under the Act, then promptly following the execution of the Pricing Agreement,
the Company will prepare and file with the Commission, in accordance with Rule
430A and Rule 424(b) under the Act, copies of an amended Prospectus, or, if
required by Rule 430A, a post-effective amendment to the Registration Statement
(including an amended Prospectus) containing all information so omitted.
(iii) Neither the Company nor any of its subsidiaries will, prior to the
earlier of the Option Closing Date or termination or expiration of the related
option, incur any liability or obligation, direct or contingent, or enter into
any material transaction, other than in the ordinary course of business, except
as contemplated in the Registration Statement and the Prospectus.
(iv) The Company will not file any amendment to the Registration
Statement or make any amendment or supplement to the Prospectus of which the
Representatives shall not previously have been advised or to which the
Representatives shall promptly after being so advised reasonably object in
writing.
(v) Prior to the effective date of the Registration Statement, the
Company has delivered or will deliver to each of the Underwriters, without
charge, copies of each form of Preliminary Prospectus in such quantities as they
have reasonably requested or may hereafter reasonably request. The Company
consents to the use, in accordance with the provisions of the Act and with the
securities or Blue Sky laws of the jurisdictions in which the Shares are offered
by the several Underwriters and by dealers, prior to the effective date of the
Registration Statement, of each Preliminary Prospectus so furnished by the
Company.
(vi) On the effective date of the Registration Statement and thereafter
from time to time during such period as in the opinion of counsel for the
Underwriters a prospectus relating to the Shares is required by law to be
delivered in connection with offers or sales of the Shares by an Underwriter or
a dealer, the Company will deliver to each Underwriter and dealer, without
charge, as many copies of the Registration Statement, the Prospectus and each
Preliminary Prospectus (and of any amendment or supplement to such documents) as
they may reasonably request. During such period, if any event occurs which in
the judgment of the Company, or in the opinion of counsel for the Underwriters,
should be described in the Prospectus in order to ensure that no part of the
Prospectus includes an untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances at the time the Prospectus is delivered to a purchaser, not
misleading, the Company will forthwith prepare, submit to the Representatives,
file with the Commission and deliver, without charge to the several Underwriters
and dealers (whose names and addresses will
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<PAGE> 15
be furnished by the Representatives to the Company) to whom shares have been
sold by the Underwriters or to other dealers any amendments or supplements to
the Prospectus so that the statements in the Prospectus, as so amended or
supplemented, will comply with the standards set forth in this sentence. The
Company consents to the use of such Prospectus (and of any amendments or
supplements thereto) in accordance with the provisions of the Act and with the
securities or Blue Sky laws of the jurisdictions described in the preliminary
Blue Sky memorandum in which the Shares are lawfully offered by the several
Underwriters and by all dealers to whom Shares may be sold, both in connection
with the offering or sale of the Shares and for such period of time thereafter
as the Prospectus is required by law to be delivered in connection therewith. In
case any Underwriter is required to deliver a Prospectus (and any amendment or
supplement thereto) more than nine months after the first date upon which the
Shares are offered to the public, the Company will, upon request, but at the
expense of such Underwriter, promptly prepare and furnish such Underwriter with
reasonable quantities of a Prospectus complying with Section 10(a)(3) of the
Act.
(vii) The Company will cooperate with the Representatives and counsel for
the Underwriters in connection with the registration or qualification of the
Shares for offer and sale by the several Underwriters and by dealers under the
securities or Blue Sky laws of such jurisdictions as the Representatives may
designate, will continue such registrations or qualifications in effect so long
as reasonably required for the distribution of the Shares and will file such
consents to service of process or other documents as may be necessary in order
to effect such registration or qualification; provided that in no event shall
the Company be obligated (i) to qualify to do business in any jurisdiction where
it is not now so qualified, (ii) to file any general consent to service of
process, or (iii) take any action that would subject it to income taxation in
any jurisdiction where it is not so qualified.
(viii) For a period of three years after the date of the Pricing Agreement:
(A) the Company will furnish to the Representatives (i)
as soon as available, a copy of each report of the Company of general
interest mailed to any class of its security holders (ii) copies of all
annual reports and current reports filed with the Commission on Forms 10-K,
10-Q and 8-K and any amendment thereto or such other similar forms as may
be designated by the Commission and (iii) from time to time, such other
information concerning the Company as the Representatives may reasonably
request;
(B) if at any time during such three year period, the
Company shall cease filing with the Commission the annual reports and
current reports on Forms 10-K, 10-Q and 8-K or other similar forms referred
to in clause (A) above, the Company will forward to its stockholders
generally and the Representatives and upon request to each of the other
Underwriters (i) as soon as practicable after the end of each fiscal year,
copies of a balance sheet and statements of income and retained earnings of
the Company as of the end of and for such fiscal year, certified by
independent public accountants, and (ii) as soon as practicable after the
end of each quarterly fiscal period, except for the last quarterly fiscal
period in each fiscal year, a summary statement (which need not be
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<PAGE> 16
certified) of income and retained earnings of the Company for such period,
which shall also be made publicly available; and
(C) the Company will furnish to the Representatives and
to the NASD, and by issuance of a press release, on the date of
declaration, notice of all dividends, including the amount and medium of
payment, the record date (which shall be not less than ten days subsequent
to the declaration date) and the payment date (which shall be not less than
ten days subsequent to the record date).
(ix) The Company will make generally available to its security holders an
earnings statement of the Company, which need not be audited, covering a
twelve-month period commencing after the effective date of the Registration
Statement and ending not later than 15 months thereafter, as soon as practicable
after the end of such period, which earnings statement shall satisfy the
provisions of Section 11(a) of the Act and the rules and regulations of the
Commission thereunder (including Rule 158).
(x) The Company will not register for sale, sell, offer, contract to
sell, grant an option for sale, pledge or otherwise dispose of or transfer any
Common Stock or any securities convertible into or exchangeable or exercisable
for Common Stock for a period of 180 days after the date of the Pricing
Agreement without the prior written consent of the Representatives, except (i)
issuances of securities pursuant to the exercise of stock options granted
pursuant to the terms of an incentive plan in effect on the date hereof, and
(ii) issuances of securities as consideration in connection with acquisitions
(provided the recipient agrees not to sell, offer, contract to sell, grant an
option for sale or otherwise dispose of or transfer any Common Stock or any
securities convertible into or exchangeable or exercisable for Common Stock
during the remainder of the 180 day period described herein). The Company will
also obtain similar agreements from each of its executive officers and
directors.
(xi) The Company will apply the net proceeds from the sale of the shares
to be sold by it under this Agreement and the Pricing Agreement for the purposes
set forth in the Prospectus under the caption "Use of Proceeds."
(xii) The Company will use its best efforts to cause the Shares to be
approved for listing on the Nasdaq Stock Market, subject to notice of issuance
or sale.
(b) GLII covenants and agrees with the several Underwriters that GLII
will not register for sale, sell, offer, contract to sell, grant an option for
sale, pledge or otherwise dispose of or transfer any Common Stock or any
securities convertible into or exchangeable or exercisable for Common Stock for
a period of 180 days after the date of the Pricing Agreement without the prior
written consent of the Representatives. GLII will also obtain similar agreements
from each of its executive officers and directors who has not already executed
such an agreement and who owns shares of Common Stock or rights to acquire
Common Stock.
SECTION 5. PAYMENT OF EXPENSES. The Company will pay, or reimburse if paid
by the Representatives, whether or not the transactions contemplated hereby are
consummated or this Agreement is terminated, all costs and expenses incident to
the performance by it of its
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obligations under this Agreement and the Pricing Agreement, including, without
limiting the generality of the foregoing, (a) preparation, printing, filing and
distribution (including postage, air freight charges and charges for counting
and packaging) of the original registration statement, the Registration
Statement, each Preliminary Prospectus, the Prospectus (including any exhibits
and financial statements and any Term Sheet delivered by the Company pursuant to
Rule 434 of the Act), each amendment and/or supplement to any of the foregoing,
and this Agreement, the Pricing Agreement, the Agreement Among Underwriters,
Selected Dealers Agreement, Powers of Attorney and Underwriters' Powers of
Attorney and Questionnaires, (b) furnishing to the several Underwriters and
dealers copies of the foregoing materials (provided, however, that any such
copies furnished by the Company more than nine months after the first date upon
which the Shares are offered to the public shall be at the expense of the
several Underwriters or dealers so requesting as provided in Section 4(a)(vi)
above), (c) the registrations or qualifications referred to in Section 4(a)(vii)
above (including filing fees and fees and disbursements of counsel in connection
therewith) and expenses of printing and delivering to the several Underwriters
copies of the preliminary and final Blue Sky memoranda, (d) the review of the
terms of the public offering of the Shares by the NASD (including the filing
fees paid to the NASD in connection therewith) and the reasonable fees and
disbursements of counsel for the Underwriters in connection therewith, (e) the
performance by the Company of its other obligations under this Agreement,
including the fees of the Company's counsel and accountants, (f) the issuance of
the Shares and the preparation and printing of the stock certificates
representing the Shares, including any stamp taxes payable in connection with
the original issuance of the Shares (but not including any such taxes payable in
connection with the resale of the Shares by the Underwriters), (g) furnishing to
the several Underwriters copies of all reports and information required by
Section 4(a)(viii) above, including reasonable costs of shipping and mailing,
and (h) the listing of the Common Stock on the Nasdaq National Market. It is
understood, however, that except as otherwise provided in this Section and
Section 11, the Underwriters will pay all of their own costs and expenses,
including the fees and expenses of their counsel, and any advertising expenses
connected with any offers they may make.
SECTION 6. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The several
obligations of the Underwriters to purchase the Firm Shares hereunder are
subject to the following conditions:
(a) The Registration Statement shall have become effective not later than
1:00 p.m., Chicago time, on the first full business day after the date of this
Agreement, or at such later date and time as shall be consented to in writing by
the Representatives, and, if the Representatives and the Company have elected to
rely upon Rule 430A, the price of the Shares and any price-related or other
information previously omitted from the effective Registration Statement
pursuant to such Rule 430A shall have been transmitted to the Commission for
filing pursuant to Rule 424(b) within the prescribed time period, and, if the
Representatives and the Company have elected to rely upon a Term Sheet, such
Term Sheet shall have been transmitted to the Commission for filing pursuant to
Rule 434 and Rule 424(b) within the prescribed time period, and on or prior to
the Closing Date, the Company shall have provided evidence satisfactory to the
Representatives of such timely filing, or a post-effective amendment providing
such information shall have been promptly filed and declared effective in
accordance with the requirements of Rule 430A. No stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for such purpose shall have been instituted
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<PAGE> 18
or shall be pending or, to the knowledge of the Company, shall be contemplated
by the Commission and there shall not have come to the attention of the
Representatives any facts that would cause them to believe that the Prospectus,
at the time it was required to be delivered to purchasers of the Shares,
contained any untrue statement of material fact or omitted to state any material
fact necessary in order to make the statements therein, in light of the
circumstances under which there were made, not misleading.
(b) Subsequent to the effective date of the Registration Statement,
(i) there shall not have occurred any change, or any development involving a
prospective change, in or affecting particularly the business or properties of
the Company or its subsidiaries not contemplated by the Prospectus, which, in
the judgment of the Representatives, would materially adversely affect the
market for the Shares so as to make it impracticable or inadvisable to proceed
with the offering or the delivery of the Shares, as contemplated herein and in
the Prospectus, or to enforce contracts for the purchase of Shares, and (ii) the
business and operations of the Company and its subsidiaries, taken as a whole,
shall not have been materially and adversely affected by strike, fire, flood,
accident or other calamity (whether or not insured).
(c) The Representatives shall have received from Bell, Boyd & Lloyd,
counsel for the Company, a favorable opinion dated the Closing Date and
satisfactory to the Representatives and the Underwriters' counsel to the effect
that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with full corporate power and authority to own, lease and
operate its properties and conduct its business as described in the
Prospectus. The Company is duly qualified to do business as a foreign
corporation and in good standing in each jurisdiction where the ownership
or leasing of its properties or the conduct of its business requires such
qualification, except in any such case where the failure to so qualify or
be in good standing would not have a material adverse effect on the
condition (financial or otherwise) or results of operations of the Company
and its subsidiaries, taken as a whole.
(ii) An opinion to the same general effect as clause (i) of this
subparagraph (c) in respect of each direct and indirect subsidiary of the
Company; provided, however, that with respect to each of the Company's
foreign subsidiaries, the opinion as to good standing and qualification as
a foreign corporation may be modified to conform to comparable concepts
under local law.
(iii) All of the issued and outstanding capital stock of the
subsidiaries of the Company has been duly authorized and validly issued and
is fully paid and non-assessable, and the Company owns, of record (except
for directors' or shareholders' qualifying shares held by nominees of the
Company) and to such counsel's knowledge, beneficially, directly or
indirectly 100 percent of the outstanding capital stock of each subsidiary
and, to the knowledge of such counsel (with respect to the Company's
foreign subsidiaries, based solely on an examination of the Share Transfer
Register for such subsidiary), such stock is owned free and clear of any
security interests, claims, liens,
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encumbrances or adverse interests of any nature except as disclosed in the
Registration Statement (including the exhibits thereto).
(iv) The Company has an authorized and outstanding capitalization
as set forth in the Prospectus and the Shares conform to the description
thereof contained in the Prospectus. All of the issued and outstanding
shares of Common Stock have been duly authorized, validly issued and are
fully paid and non-assessable and free of preemptive or other similar
rights and, to such counsel's knowledge, there are no options, agreements,
contracts or other rights in existence to acquire from the Company any
shares of Common Stock, except as set forth in the Prospectus. Except as
described in the Prospectus, to such counsel's knowledge, there are no
holders of the securities of the Company having rights to the registration
thereof.
(v) The Shares to be sold by the Company pursuant to this
Agreement and the Pricing Agreement have been duly authorized and, when
issued and paid for in accordance with this Agreement and the Pricing
Agreement, will be validly issued, fully paid and non-assessable; the
holders of the Shares will not be subject to personal liability by reason
of being such holders; the Shares are not subject to the preemptive rights
of any stockholder of the Company and, to the knowledge of such counsel,
will be free of any security interest, claim, lien, encumbrance or adverse
interest of any nature; the Shares to be sold hereunder have been duly and
validly authorized and qualified for listing on The Nasdaq National Market,
subject to notice of issuance.
(vi) This Agreement and the Pricing Agreement have been duly and
validly authorized, executed and delivered by the Company and are legal,
valid and binding obligations of the Company, enforceable in accordance
with their terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally and by general principles of equity, and except
that such counsel need not express an opinion as to those provisions
relating to indemnities for liabilities under the Act.
(vii) No authorization, approval, order or consent of any
governmental authority or agency is required for the valid issuance and
sale of the Shares, except such as may be required under the Act or state
securities laws as to which such counsel need not express an opinion.
(viii) The execution, delivery and performance of this Agreement and
the Pricing Agreement by the Company, the issue and sale of the Shares, and
the consummation of the transactions contemplated hereby and thereby will
not conflict with or result in a breach of any of the provisions of, or
constitute a default under (A) the Company's Restated Certificate of
Incorporation or by-laws or any agreement, franchise, license, indenture,
mortgage, deed of trust or other instrument or agreement known to such
counsel to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries is bound or to which any of
their respective properties is subject or (B) so far as known to such
counsel, any statute, order, rule or regulation applicable to the Company
or any of its subsidiaries of any court or other
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governmental authority or body having jurisdiction over the Company or any
of its subsidiaries or any of their respective properties.
(ix) The Registration Statement has become effective under the Act,
and, to the knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the Act.
(x) The Registration Statement (including the information deemed
to be part of the Registration Statement at the time of effectiveness
pursuant to Rule 430A(b), if applicable) as amended or supplemented (except
counsel need not express an opinion on the financial statements and notes
thereto, the financial statement schedules and other statistical or
financial data included therein) and the Prospectus and any supplements or
amendments thereto (except counsel need not express an opinion on the
financial statements and notes thereto, the financial statement schedules
and other statistical or financial data included therein) comply as to form
in all material respects with the requirements of the Act and the rules of
the Commission thereunder.
(xi) The statements in the Prospectus in the sections captioned
"Management--1998 Director Stock Option Plan," "--Employee Stock Option
Plans," "Relationship with Parent Company," "Description of Capital Stock"
and "Shares Eligible for Future Sale" in each case insofar as such
statements reflect a summary of the material legal matters or the documents
referred to therein, fairly and accurately present the information called
for by the Act and the applicable rules and regulations promulgated
thereunder.
(xii) To the knowledge of such counsel there are no statutes or
regulations, provisions of the Delaware General Corporate Law or any
pending or threatened litigation or governmental proceedings against the
Company required to be described in the Prospectus which are not so
described, nor of any contracts or documents of a character required to be
described in or filed as a part of the Registration Statement which are not
described or filed as required.
(xiii) Neither the Company nor any of its subsidiaries is an
"investment company" or a person "controlled by" an "investment company"
within the meaning of the Investment Company Act.
(xiv) To such counsel's knowledge, all offers and sales of the
Company's and each of its subsidiaries capital stock prior to the date
hereof were at all relevant times exempt from the registration requirements
of the Act and were duly registered or the subject of an available
exemption from the registration requirements of the applicable state
securities or blue sky laws.
In rendering such opinion, such counsel may rely upon the opinions of
local and foreign counsel as to matters relating to the Company's subsidiaries
and, as to factual matters, on certificates of officers of the Company and of
state officials, in which case their opinion is to state that they are so doing
and copies of such opinions or certificates are to be attached to the
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opinion unless such opinions or certificates (or, in the case of certificates,
the information therein) have been furnished to the Representatives otherwise.
In addition, such counsel shall state that they have participated in
conferences with the Company and its representatives in connection with the
preparation of the Registration Statement and the Prospectus, and in connection
with their participation in the preparation of the Registration Statement and
the Prospectus, although such counsel has not independently verified the
accuracy, completeness or fairness of the statements contained therein, nothing
has come to the attention of such counsel that would cause such counsel to
believe that the Registration Statement (including the information deemed to be
part of the Registration Statement at the time of effectiveness pursuant to Rule
430A(b), if applicable) as amended or supplemented (except such counsel need not
express an opinion on the financial statements and notes thereto, the financial
statement schedules and other statistical or financial data included therein) at
the time it became effective, at the time the Pricing Agreement was executed and
at the Closing Date, contained any untrue statement of a material fact or
omitted or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, or that, as of its
date, the Prospectus or any amendment or supplement thereto (except such counsel
need not express an opinion on the financial statements and notes thereto, the
financial statement schedules and other statistical or financial data included
therein) included or includes any untrue statement of a material fact or omitted
or omits to state any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(d) The Representatives shall have received from Mr. James S. Legg,
Vice President and General Counsel for GLII, a favorable opinion dated the
Closing Date and satisfactory to the Representatives and the Underwriters'
counsel to the effect that:
(i) GLII has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with
full corporate power and authority to own, lease and operate its properties
and conduct its business.
(ii) This Agreement has been duly and validly authorized, executed
and delivered by GLII and is a legal, valid and binding obligation of GLII,
enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights generally and by general
principles of equity, and except that such counsel need not express an
opinion as to those provisions relating to indemnities for liabilities
under the Act.
(iii) The execution, delivery and performance of this Agreement by
GLII will not conflict with or result in a breach of any of the provisions
of, or constitute a default under GLII's charter or by-laws or any
agreement, franchise, license, indenture, mortgage, deed of trust or other
instrument or agreement known to such counsel to which GLII is a party or
by which it is bound or to which any of its properties is subject.
(iv) No authorization, approval, order or consent of any
governmental authority or agency is required for the valid issuance and
sale of the Shares, except such as may be
21
<PAGE> 22
required under the Act or state securities laws as to which such counsel
need not express an opinion.
(v) The statements in the Prospectus in the section captioned
"Relationship with Parent Company" insofar as such statements reflect a
summary of the material legal matters or the documents referred to therein,
fairly and accurately present the information called for by the Act and the
applicable rules and regulations promulgated thereunder.
In rendering such opinion, such counsel may rely upon certificates of
officers of the Company and of state officials relating to factual matters, in
which case his opinion is to state that he is so doing and copies of such
opinions or certificates are to be attached to the opinion unless such opinions
or certificates (or, in the case of certificates, the information therein) have
been furnished to the Representatives otherwise.
(e) The Representatives shall have received on the Closing Date a
favorable opinion dated the Closing Date from Lord, Bissell & Brook, counsel for
the Underwriters, as to such matters as the Representatives may reasonably
require.
(f) The Representatives shall have received letters addressed to the
Representatives and dated the date hereof, the Closing Date and the Option
Closing Date from KPMG Peat Marwick LLP, independent public accountants for the
Company, to the effect set forth in Schedule II. There shall not have been any
change or decrease specified in the letters referred to in this subparagraph
which makes it impractical or inadvisable in the judgment of the Representatives
to proceed with the public offering or purchase of the Shares as contemplated
hereby.
(g) (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been taken or, to the knowledge of the Company, shall be
contemplated by the Commission at or prior to the Closing Date; (ii) there shall
not have been any change in the capital stock of the Company nor any material
increase in the long- term debt of the Company from that set forth or
contemplated in the Registration Statement; (iii) there shall not have been,
since the respective dates as to which information is given in the Registration
Statement and the Prospectus, except as may otherwise be described or
contemplated in the Registration Statement and the Prospectus, any material
adverse change in the financial condition or results of operations of the
Company; and (iv) the Company shall not have incurred any material liabilities
or obligations, direct or contingent, other than in the ordinary course of
business or as described in or contemplated by the Registration Statement,
(h) All of the representations and warranties of the Company
contained in this Agreement shall be true and correct on and as of the date
hereof and the Closing Date and the Option Closing Date as if made on and as of
each such date, the Company shall have performed or complied in all material
respects with all of its agreements herein contained and required to be
performed or complied with by it at or prior to each such date, and the
Representatives shall have received certificates, dated the Closing Date and the
Option Closing Date and signed by the
22
<PAGE> 23
principal executive officer and the principal financial officer of the Company
(or such other officers as are acceptable to the Representatives), to the effect
set forth in this Section 6(h).
(i) All of the representations and warranties of GLII contained in
this Agreement shall be true and correct on and as of the date hereof and the
Closing Date and the Option Closing Date as if made on and as of each such date,
GLII shall have performed or complied in all material respects with all of its
agreements herein contained and required to be performed or complied with by it
at or prior to each such date, and the Representatives shall have received
certificates, dated the Closing Date and the Option Closing Date and signed by
the principal executive officer and the principal financial officer of GLII (or
such other officers as are acceptable to the Representatives), to the effect set
forth in this Section 6(i).
(j) Within 24 hours after the Registration Statement becomes
effective, or within such longer period as to which the Representatives shall
have consented, the Shares shall have been qualified for sale or exempted from
such qualification under the securities laws of such jurisdictions as the
Representatives shall have designated prior to the time of execution of the
Pricing Agreement and such qualification or exemption shall continue in effect
to and including the Closing Date.
(k) The several obligations of the Underwriters to purchase
Additional Shares hereunder are subject to the satisfaction on and as of the
Option Closing Date of the conditions set forth in paragraphs (a) through (i);
except that the opinions called for in paragraphs (c), (d) and (e) shall be
revised to reflect the sale of Additional Shares and shall be dated the Option
Closing Date, if different from the Closing Date.
SECTION 7. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company and GLII, jointly and severally (collectively, the
"Indemnitors") agree to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of the Act or
the Exchange Act from and against any and all losses, claims, damages or
liabilities, joint or several, whatsoever (including any investigation, legal or
other expenses incurred in connection with, and any amount paid in settlement
of, any action, suit or proceeding or any claim asserted) to which such
Underwriter, or such controlling person may become subject, arising out of or
based upon any untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus or the Registration Statement or the
Prospectus or in any amendment or supplement thereto or arising out of or based
upon any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such action or claim as such expenses are incurred, except insofar as such
losses, claims, damages or liabilities arise out of or are based upon any such
untrue statement or omission or allegation thereof which has been made therein
or omitted therefrom in reliance upon and in conformity with information
furnished in writing to the Company by or on behalf of any Underwriter through
the Representatives expressly for use therein, which information solely consists
of the disclosure included in the Prospectus under the caption "Underwriting";
provided, however, that the indemnification contained in this paragraph
23
<PAGE> 24
with respect to any Preliminary Prospectus shall not inure to the benefit of any
Underwriter (or of any person controlling such Underwriter) with respect to any
action or claim arising from the sale of the Shares by such Underwriter brought
by any person who purchased Shares from such Underwriter if (i) a copy of the
Prospectus (as amended or supplemented if any amendments or supplements thereto
shall have been furnished to the Underwriter prior to the written confirmation
of the sale involved) shall not have been given or sent to such person by or on
behalf of the Underwriter with or prior to the written confirmation of the sale
involved and (ii) the untrue statement or omission of a material fact contained
in such Preliminary Prospectus was corrected in the Prospectus (as amended or
supplemented if amended or supplemented as aforesaid).
Notwithstanding the foregoing, the Underwriters agree that, in the
case of any loss, claim, damage, liability or judgment for which they may claim
indemnification hereunder, they will make written demand for indemnification
from the Indemnitors, but will not seek to enforce any right or remedy granted
under this Section 7 against GLII for a period of 30 days after the date of such
demand. The Underwriters further agree that (x) they will not commence any legal
proceeding against GLII to recover such loss, claim, damage or liability unless,
prior to or concurrently therewith, they shall have commenced, in the same legal
proceeding, an action against the Company to recover the same, (y) they will
prosecute any such legal proceeding against the Company for as long as GLII is a
party thereto and (z) in the event that judgments are entered in favor of the
Underwriters against both the Company and GLII in any such legal proceeding, (1)
during the period from the date of each such judgment until the earlier of a
Triggering Event (as defined below) or 30 days after the date on which the
judgment against the Company and GLII becomes final and is not subject to
appeal, the Underwriters will take all reasonably necessary steps to enforce and
collect the judgment entered against the Company, and will not seek to enforce
or collect the judgment entered against GLII, and (2) after the expiration of
the period referred to in clause (1) of this sentence, the Underwriters may seek
to enforce and collect the judgment entered against GLII; provided that any
amounts collected by the Underwriters from the Company under the judgment
entered against the Company shall reduce the amount of the judgment entered
against GLII. As used in this Agreement, "Triggering Event" means any of the
following: (i) the Company or any subsidiary files a petition for relief under
the United States Bankruptcy Code (the "Bankruptcy Code"), (ii) an order or
decree for relief is entered against the Company or any subsidiary in an
involuntary case under the Bankruptcy Code and such order or decree is consented
to by the Company or any subsidiary or remains in effect for 30 consecutive
days, (iii) the Company or any subsidiary makes an assignment for the benefit of
its creditors, (iv) any court orders or approves, or the Company or any
subsidiary consents to, the appointment of a receiver, liquidator, assignee or
other similar official for the Company or any subsidiary or any substantial
portion of its respective assets, and such order or approval continues in effect
for 30 consecutive days, or (v) the dissolution, liquidation or winding up of
the affairs of the Company.
(b) Each Underwriter will severally indemnify and hold harmless GLII,
the Company, the Company's directors, its officers who sign the Registration
Statement and any person controlling the Company or GLII within the meaning of
the Act or the Exchange Act to the same extent as the foregoing indemnity from
the Indemnitors to each Underwriter, but only with respect to information
furnished in writing to the Company by or on behalf of such Underwriter
24
<PAGE> 25
through the Representatives expressly for use in the Registration Statement, the
Prospectus or any Preliminary Prospectus , which information solely consists of
the disclosure included in the Prospectus under the caption "Underwriting." This
indemnity will be in addition to any liability that each Underwriter might
otherwise have; provided, however, that in no case shall any Underwriter be
liable or responsible for any amount in excess of the underwriting discounts and
commissions received by such Underwriter.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party (who
shall not, except with the consent of the indemnified party, be counsel to the
indemnifying party), and, after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under such
subsection for any legal expenses of other counsel or any other expenses, in
each case subsequently incurred by such indemnified party, in connection with
the defense thereof other than reasonable costs of investigation. No
indemnifying party shall, without the written consent of the indemnified party,
effect the settlement or compromise of, or consent to the entry of any judgment
with respect to, any pending or threatened action or claim in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified party is an actual or potential party to such action or claim)
unless such settlement, compromise or judgment (i) includes an unconditional
release of the indemnified party from all liability arising out of such action
or claim and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of any indemnified party. No
indemnifying party shall be liable for any compromise or settlement of any such
action effected without its consent.
(d) (i) If the indemnification provided for in this Section 7 is
unavailable as a matter of law to any indemnified party under this Section 7 in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then the indemnifying party in lieu of indemnifying such indemnified
party thereunder, shall contribute to the amount paid or payable by the
indemnified party (A) in such proportion as is appropriate to reflect the
relative benefits received by the Indemnitors on the one hand and the
Underwriters on the other hand from the offering of the Shares or (B) if the
allocation provided by clause (A) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (A) above but also the relative fault of the Indemnitors
on the one hand and the Underwriters on the other hand in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The respective relative benefits received by the Indemnitors and the
Underwriters shall be deemed to be in the same proportion in the case of the
Indemnitors, as the total price paid to the Company for the Shares by the
Underwriters (net of underwriting discount
25
<PAGE> 26
but before deducting expenses), and in the case of the Underwriters as the
underwriting discount received by them bears to the total of such amounts paid
to the Company and received by the Underwriters as underwriting discount, in
each case as contemplated by the Prospectus. The relative fault of the
Indemnitors and the Underwriters shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by either of the Indemnitors or by the Underwriters and the
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission of the Indemnitors on the o ne hand and of
the Underwriters on the other hand. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, liabilities and expenses
referred to in this Section shall be deemed to include, subject to the
limitations set forth in this Section, any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim.
(ii) The Indemnitors and the Underwriters agree that the
determination of contribution pursuant to this Section based on pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph
would not be just and equitable (even if the several Underwriters were treated
as one entity for such purpose). Notwithstanding the provisions of this Section,
no Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Shares underwritten by it and
distributed to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section are several in proportion to their respective
underwriting commitments and not joint.
(e) The indemnity and contribution agreements contained in this
Section and the representations and warranties of the Company and GLII set forth
in this Agreement shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of any Underwriter or
any person controlling any Underwriter, the Company or its directors or officers
(or any person controlling the Company), (ii) acceptance of any Shares and
payment therefor hereunder and (iii) any termination of this Agreement. A
successor or assign of an Underwriter, the Company or its directors or officers,
and their legal and personal representatives (or of any person controlling an
Underwriter or the Company) shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section.
(f) The Company agrees to indemnify GLII for any amounts that GLII is
required to pay pursuant to the foregoing paragraphs of this Section 7. The
provisions of this paragraph (f) are solely for the purpose of regulating the
respective rights and obligations of the Company and GLII and shall have no
effect upon any rights of any Underwriter or any controlling person of any
Underwriter.
SECTION 8. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become
effective immediately as to Sections 5, 7, 10 and 11 and as to all other
provisions at 10:00 A.M., Chicago
26
<PAGE> 27
Time, on the day following the date upon which the Pricing Agreement is executed
and delivered, unless such a day is a Saturday, Sunday or holiday (and in that
event this Agreement shall become effective at such hour on the business day
next succeeding such Saturday, Sunday or holiday); but this Agreement shall
nevertheless become effective at such earlier time after the Pricing Agreement
is executed and delivered as you may determine on and by notice to the Company
or by release of any Shares for sale to the public. For the purposes of this
Section, the Shares shall be deemed to have been so released upon the release
for publication of any newspaper advertisement relating to the Shares or upon
the release by you of telegrams or telecopy (i) advising Underwriters that the
Shares are released for public offering, or (ii) offering the Shares for sale to
securities dealers, whichever may occur first.
SECTION 9. DEFAULT OF UNDERWRITERS. If any one or more of the Underwriters
shall fail or refuse to purchase Firm Shares which it or they have agreed to
purchase under this Agreement and the Pricing Agreement and the aggregate number
of Firm Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase is not more than one-tenth of the aggregate number
of Firm Shares, each non-defaulting Underwriter shall be obligated, severally,
in the proportion which the number of Firm Shares set forth opposite its name in
Schedule I bears to the aggregate number of Firm Shares set forth opposite the
names of all non-defaulting Underwriters or in such other proportion as the
Representatives may specify in accordance with the Agreement Among Underwriters,
to purchase the Firm Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase. If any Underwriter or Underwriters
shall fail or refuse to purchase Firm Shares and the aggregate number of Firm
Shares with respect to which such default occurs is more than one-tenth of the
aggregate number of Firm Shares and arrangements satisfactory to the
Representatives and the Company for the purchase of such Firm Shares are not
made within 36 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter or the Company. In any
such case which does not result in termination of this Agreement, either the
Representatives or the Company shall have the right to postpone the Closing
Date, but in no event for longer than seven days, in order that the required
changes, if any, in the Registration Statement and the Prospectus or any other
documents or arrangements may be effected. Any action taken under this paragraph
shall not relieve any defaulting Underwriter from liability in respect of any
such default of any such Underwriter under this Agreement. Any notice under this
Section 9 may be made by telecopy, telegram or telephone but shall be
subsequently confirmed by letter.
SECTION 10. TERMINATION OF AGREEMENT. This Agreement and the Pricing
Agreement shall be subject to termination by notice given by you to the Company,
if (a) after the execution and delivery of this Agreement and the Pricing
Agreement and prior to the Closing Date (and with respect to the Additional
Shares, the Option Closing Date) (i) trading generally shall have been suspended
or materially limited on or by, as the case may be, any of the New York Stock
Exchange, the American Stock Exchange, or the Nasdaq National Market, (ii)
trading of any securities of the Company shall have been suspended on any
exchange or in any over-the-counter market, (iii) a general moratorium on
commercial banking activities in New York or in Chicago shall have been declared
by either Federal, New York or Illinois State authorities or (iv) there shall
have occurred any outbreak or escalation of hostilities or any change in
financial markets that, in your reasonable judgment, is material and adverse and
(b) in the case of any of the events
27
<PAGE> 28
specified in clauses (a)(i) through (iv), such event, singly or together with
any other such event, makes it, in your judgment, impracticable to market the
Shares on the terms and in the manner contemplated in the Prospectus. Notice of
such cancellation shall be given to the Company by telecopy, telegram or
telephone but shall be subsequently confirmed by letter.
SECTION 11. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this Agreement is
terminated pursuant to Section 9 or Section 10, the Company and GLII shall not
then be under any liability to any Underwriter except as provided in Section 5
and Section 7. However, if the sale to the Underwriters of the Shares on the
Closing Date is not consummated because any condition to the Underwriters'
obligations hereunder set forth in Section 6 is not satisfied or because of any
refusal, inability or failure on the part of the Company or GLII to perform any
agreement herein or to comply with any provision hereof, unless such failure to
satisfy such condition or to comply with any provision hereof is due to the
default or omission of any Underwriter, the Company agrees to reimburse you and
the other Underwriters upon demand for all out-of-pocket expenses (including
reasonable fees and disbursements of counsel) that shall have been reasonably
incurred by you and them in connection with the proposed purchase and the sale
of the Shares. Any such termination shall be without further liability of any
party to any other party except that the provisions of this Section, Section 5
and Section 7 shall at all times be effective and shall apply.
SECTION 12. NOTICES. Except as otherwise provided in Sections 9 and 10
hereof, notice given pursuant to any of the provisions of this Agreement shall
be in writing and shall be delivered (a) if to the Company, at the office of the
Company at 2001 Spring Road, Suite 500, Oak Brook, IL 60521, Attention: Mr.
Kevin Swan, and if to GLII at One Griffith Center, Alsip, IL 60658-3495,
Attention: Mr. Joseph R. Maslick, Jr., with a copy to Bell, Boyd & Lloyd, Three
First National Plaza, 70 West Madison Street, Suite 3200, Chicago, IL 60602,
Attention Mr. John C. Blew or (b) if to the Representatives, at the offices of
ABN AMRO Incorporated, 208 South LaSalle Street, 4th Floor, Chicago, Illinois
60604, Attention: Corporate Finance Department, with a copy to Lord, Bissell &
Brook, 115 South LaSalle Street, Chicago, IL 60603, Attention: Mr. Louis E.
Rosen or in any case to such other address as the person to be notified may have
requested in writing.
SECTION 13. SUCCESSORS. The Agreement and the Pricing Agreement are made
solely for the benefit of the several Underwriters, the Company, GLII, their
respective directors and officers and their legal representatives and other
controlling persons referred to in Section 7 hereof, and their respective
successors and assigns, and no other person, either as a third party beneficiary
or otherwise, shall acquire or have any right under or by virtue of this
Agreement or the Pricing Agreement. The term "successors and assigns" as used in
this Agreement shall not include a purchaser from any of the several
Underwriters of any of the Shares in his status as such purchaser.
SECTION 14. REPRESENTATION OF UNDERWRITERS. The Representatives will act
for the several Underwriters in connection with the purchase, offering and sale
of the Shares, and any action taken by the Representatives will be binding upon
all the Underwriters.
28
<PAGE> 29
SECTION 15. PARTIAL UNENFORCEABILITY. If any section, paragraph or
provision of this Agreement is for any reason determined to be invalid or
unenforceable, such determination shall not affect the validity or
enforceability of any other section, paragraph or provision hereof.
SECTION 16. APPLICABLE LAW. This Agreement and the Pricing Agreement shall
be governed by and construed in accordance with the laws of the State of
Illinois.
SECTION 17. COUNTERPARTS. This Agreement may be signed in various
counterparts which together shall constitute one and the same instrument.
29
<PAGE> 30
Please confirm that the foregoing correctly sets forth the agreement
among the Company and the several Underwriters.
Very truly yours,
GRIFFITH MICRO SCIENCE
INTERNATIONAL, INC.
BY: _____________________________
NAME:
TITLE:
GRIFFITH LABORATORIES
INTERNATIONAL, INC.
BY: _____________________________
NAME:
TITLE:
ACCEPTED AND DELIVERED AS OF
THE DATE FIRST WRITTEN ABOVE.
ABN AMRO INCORPORATED
ROBERT W. BAIRD & CO. INCORPORATED
ACTING AS REPRESENTATIVES OF THE
SEVERAL UNDERWRITERS NAMED IN
SCHEDULE I HERETO
BY: ABN AMRO INCORPORATED
BY:
----------------------------------
NAME:
TITLE:
30
<PAGE> 31
GRIFFITH MICRO SCIENCE INTERNATIONAL, INC.
SCHEDULE I
UNDERWRITERS
NUMBER OF
NAME FIRM SHARES
ABN AMRO Incorporated..........................................................
Robert W. Baird & Co. Incorporated......................................_______
TOTAL............................................................
<PAGE> 32
GRIFFITH MICRO SCIENCE INTERNATIONAL, INC.
SCHEDULE II
Comfort Letter of KPMG Peat Marwick, LLP
(1) They are independent public accountants with respect to the Company and
its subsidiaries within the meaning of the Act.
(2) In their opinion the consolidated financial statements and schedules of
the Company and its subsidiaries included in the Registration Statement and the
consolidated and combined financial statements of the Company from which the
information presented under the caption "Selected Financial Data" has been
derived which are stated therein to have been examined by them comply as to form
in all material respects with the applicable accounting requirements of the Act.
(3) On the basis of specified procedures (but not an examination in
accordance with generally accepted auditing standards), including inquiries of
certain officers of the Company and its subsidiaries responsible for financial
and accounting matters as to transactions and events subsequent to September 30,
1997, a reading of minutes of meetings of the stockholders and directors of the
Company and its subsidiaries since September 30, 1997, a reading of the latest
available interim unaudited consolidated financial statements of the Company and
its subsidiaries (with an indication of the date thereof) and other procedures
as specified in such letter, nothing came to their attention which caused them
to believe that (i) the unaudited consolidated financial statements of the
Company and its subsidiaries included in the Registration Statement do not
comply as to form in all material respects with the applicable accounting
requirements of the Act or that such unaudited financial statements are not
fairly presented in accordance with generally accepted accounting principles
applied on a basis substantially consistent with that of the audited financial
statements included in the Registration Statement, (ii) the pro forma financial
data of the Company included in the Registration Statement does not comply as to
form with the applicable accounting requirements of the Act, or that the pro
forma adjustments have not been properly applied to the historical amounts for
the periods to which they relate and (iii) at a specified date not more than
five days prior to the date thereof in the case of the first letter and not more
than two business days prior to the date thereof in the case of the second and
third letters, there was any change in the capital stock or long-term debt or
short-term debt (other than normal payments) of the Company and its subsidiaries
on a consolidated basis or any decrease in consolidated net current assets or
consolidated stockholders' equity as compared with amounts shown on the latest
unaudited balance sheet of the Company included in the Registration Statement or
for the period from the date of such balance sheet to a date not more than five
days prior to the day thereof in the case of the first letter and not more than
two business days prior to the date thereof in the case of the second and third
letters, there were any decreases, as compared with the corresponding period of
the prior year, in consolidated net sales, consolidated income before income
taxes or in the total or per
<PAGE> 33
share amounts of consolidated net income except, in all instances, for changes
or decreases which the Prospectus discloses have occurred or may occur or which
are set forth in such letter.
(4) They have carried out specified procedures, which have been agreed to
by the Representatives, with respect to certain information in the Prospectus
specified by the Representatives, and on the basis of such procedures, they have
found such information to be in agreement with the general accounting records of
the Company and its subsidiaries.
<PAGE> 34
EXHIBIT A
2,500,000 SHARES*
GRIFFITH MICRO SCIENCE INTERNATIONAL, INC.
CLASS A COMMON STOCK
PRICING AGREEMENT
__________, 1998
ABN AMRO Incorporated
Robert W. Baird & Co. Incorporated
As Representatives of the
several Underwriters named
in Schedule I hereto
c/o ABN AMRO Incorporated
208 South LaSalle Street
Chicago, Illinois 60604
Ladies and Gentlemen:
Reference is made to the Underwriting Agreement, dated _______ __, 1998
(the "Underwriting Agreement"), relating to the purchase by the several
Underwriters named in Schedule I thereto (collectively, the "Underwriters"), for
whom you are acting individually and as representatives (the "Representatives"),
of the above referenced Class A Common Stock (the "Shares") of Griffith Micro
Science International, Inc. (the "Company").
Pursuant to Section 3 of the Underwriting Agreement, the Company agrees
with each of the Underwriters as follows:
1. The initial public offering price per share of the Shares determined as
provided in said Section 3 shall be $_______.
2. The purchase price per share of the Shares to be paid by the several
Underwriters shall be $________, being an amount equal to the initial public
offering price set forth above, less $_______ per Share.
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company a counterpart hereof, whereupon this
instrument, along
<PAGE> 35
with all counterparts, will become a binding agreement among the Underwriters
and the Company in accordance with its terms.
Very truly yours,
GRIFFITH MICRO SCIENCE
INTERNATIONAL, INC.
BY:___________________________
NAME:
TITLE:
Confirmed and Accepted, as of the date
first above written for themselves and
as Representatives of the other Underwriters
named in the Underwriting Agreement:
ABN AMRO INCORPORATED
ROBERT W. BAIRD & CO. INCORPORATED
Acting as Representatives of the Several
Underwriters named in Schedule I to
the Underwriting Agreement
BY: ABN AMRO INCORPORATED
BY: ____________________________________
2
<PAGE> 1
EXHIBIT 2.2(a)
AMENDMENT TO THE SHARE PURCHASE AGREEMENT
OF 27 JUNE 1997
BETWEEN THE UNDERSIGNED:
1. THE COMPANY LABORATOIRES PEROUSE S.A.,
Societe Anonyme with a capital of FRF 8,028,000, whose registered
office is at Zone d'Activites d'OUTREVILLE - BORNEL (Oise), re gistered
in the registry of commerce of BEAUVAIS under number B 317.883.999,
Represented by Mr Jean-Paul DELOUX, acting as the Administration and
Finance Director of the said company and having the power to sign the
amendment following a meeting of the Board of Directors of 20 June
1997.
HEREAFTER, "LABORATOIRES PEROUSE" OR "THE TRANSFEROR"
AND
2. THE COMPANY GRIFFITH MICRO SCIENCE N.V.,
Societe Anonyme whose registered office is at Atealaan 4 - 2200
HERENTALS, registered in the registry of commerce of TURNHOUT under
number 55083,
Represented by Mr Dirk BARRIE, acting as the managing director of said
company.
HEREAFTER, "THE BUYER"
Whereas Article 3(d) and (f) of the Share Purchase Agreement of June 27, 1997
provide for the acceptance by the Buyer by July 9, 1997 of the Guaranty Contract
with the representations of guarantees supplied by the Transferor, as well as
the delivery by the Transferor of the bank guaranty at first demand in the
amount of one million French francs and of the schedules to the Contract;
Whereas the parties have not been able to agree on the date in the text of the
guaranty covenant:
IT IS AGREED AS FOLLOWS:...
The parties agree to modify the date of July 9, 1997 which is mentioned in
Articles 3(d) and 3(f) to the date of July 31, 1997; it being understood that
the delay of 120 days foreseen by Article 3, starting from June 26, 1997 remains
unchanged.
All other provisions of the Share Puchase Agreement of June 26, 1997 remain
unchanged.
<PAGE> 2
Done in two originals
on 9 July 1997
/s/ Jean-Pierre DELOUX /s/ Dirk Barrie
Mr Jean-Pierre DELOUX Mr. Dirk BARRIE
Acting in the name and Acting in the name and
for the account of for the account of
"LABORATOIRES PEROUSE" "GRIFFITH MICRO SCIENCE N.V."
<PAGE> 1
EXHIBIT 3.1(a)
CERTIFICATE OF INCORPORATION
OF
GRIFFITH MICRO SCIENCE INTERNATIONAL, INC.
FIRST. The name of the Corporation is Griffith Micro Science International,
Inc.
SECOND. The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street in the City of Wilmington, County of New
Castle. The name of the registered agent at such address is The Corporation
Trust Company.
THIRD. 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 Delaware.
FOURTH. The total number of shares of stock which the Corporation shall
have authority to issue is one thousand (1,000) shares, all of which shall be
common stock, $1 par value.
FIFTH. The name and mail address of the sole incorporator is as follows:
Name Address
Griffith Laboratories, Inc. 1 Griffith Center
Alsip, Illinois 60658-3495
SIXTH. The original bylaws of the Corporation shall be adopted by the
incorporator. Thereafter, in furtherance and not in limitation of the powers
conferred by statute, the board of directors is expressly authorized to make,
alter or repeal the bylaws of the corporation.
SEVENTH. Meetings of stockholders may be held within or without the State
of Delaware, as the bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
board of directors or in the bylaws of the corporation.
<PAGE> 2
Elections of directors need not be by written ballot unless the bylaws of the
Corporation shall so provide.
EIGHTH. Any person (and the heirs, executors, administrators and estates of
any such person) who at any time shall serve, or shall have served, as a
director or officer of the Corporation or of any other enterprise at the request
of the corporation, shall be indemnified by the Corporation in accordance with
and to the fullest extent authorized by the General Corporation Law of Delaware
as it may exist from time to time. Any person (and their heirs, executors,
administrators and estates of any such person) who at any time shall serve, or
shall have served, as an employee or an agent of the Corporation, or of any
other enterprise at the request of the Corporation, may be similarly indemnified
at the discretion of the board of directors of the Corporation.
NINTH. No director of the Corporation shall be liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived an improper benefit.
TENTH. The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this restated certificate of incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
THE UNDERSIGNED, being the sole incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, does make this certificate, hereby declaring and certifying
that this is its act and deed and the facts herein stated are true and
accordingly has hereunto set its hand and seal this 20th day of October, 1987.
2
<PAGE> 3
GRIFFITH LABORATORIES, INC.
By /s/ Gregory L. Schmidt
------------------------------
Gregory L. Schmidt
Vice President
ATTEST:
(Corporate Seal)
/s/ James S. Legg
- -----------------------------------------
James S. Legg
Assistant Secretary
3
<PAGE> 4
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
GRIFFITH MICRO SCIENCE INTERNATIONAL, INC.
Griffith Micro Science International, Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "Corporation") DOES HEREBY CERTIFY:
FIRST: That by the unanimous written consent of the Board of Directors of
the Corporation, resolutions were duly adopted setting forth a proposed
amendment of the Certificate of Incorporation of the Corporation (the
"Amendment"), declaring said Amendment to be advisable and calling a meeting of
the stockholders of the Corporation for consideration thereof. The resolution
setting forth the proposed Amendment is as follows:
RESOLVED, that the Certificate of Incorporation of
this corporation be amended by changing the Article numbered
"Fourth" so that, as amended, said Article shall be read in
its entirety as follows:
"FOURTH. The total number of shares of stock
which the Corporation shall have authority to issue
is one million (1,000,000) shares, all of which shall
be common stock, $.01 par value per share."
FURTHER RESOLVED, that each share of common stock, $1
par value per share, of this corporation which is issued and
outstanding or held in the treasury of the corporation at the
time the proposed Amendment becomes effective shall, at and as
of such time, be reclassified into one fully paid and
nonassessable share of
<PAGE> 5
common stock, $.01 par value per share, of the corporation.
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, the sole stockholder of the Corporation, acting by written consent,
voted the necessary number of shares of the Corporation as required by statute
in favor of the said Amendment.
THIRD: That the said Amendment was thereby duly adopted in accordance with
the provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by Joseph R. Maslick, its Executive Vice President and
James S. Legg, its Secretary, this 6th day of June, 1996.
GRIFFITH MICRO SCIENCE
INTERNATIONAL, INC.
BY: /s/ Joseph Maslick
----------------------------
Executive Vice President
ATTEST: /s/ James S. Legg
-------------------------
Secretary
2
<PAGE> 6
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
GRIFFITH MICRO SCIENCE INTERNATIONAL, INC.
Griffith Micro Science International, Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "Corporation") DOES HEREBY CERTIFY:
FIRST: That by the unanimous written consent of the Board of Directors of
the Corporation, a resolution was duly adopted setting forth a proposed
amendment of the Certificate of Incorporation of the Corporation (the
"Amendment"), declaring said Amendment to be advisable and calling a meeting of
the stockholders of the Corporation for consideration thereof. The resolution
setting forth the proposed Amendment is as follows:
RESOLVED, that the Certificate of Incorporation of
this corporation be amended by changing the Article numbered
"Fourth" so that, as amended, said Article shall be read in
its entirety as follows:
"FOURTH. The total number of shares of stock
which the Corporation shall have authority to issue
is one million fifty thousand (1,050,000) shares, all
of which shall be common stock, $.01 par value per
share."
SECOND: That thereafter, pursuant to resolution of its Board of Directors,
the sole stockholder of the Corporation, acting by written consent, voted the
necessary number of shares of the Corporation as required by statute in favor of
the said Amendment.
<PAGE> 7
THIRD: That the said Amendment was thereby duly adopted in accordance with
the provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by Joseph R. Maslick, its Executive Vice President and
James S. Legg, its Secretary, this 29th day of January, 1998.
GRIFFITH MICRO SCIENCE
INTERNATIONAL, INC.
BY: /s/ Joseph Maslick
----------------------------
Executive Vice President
ATTEST: /s/ James S. Legg
-------------------------
Secretary
<PAGE> 1
EXHIBIT 3.1(b)
RESTATED CERTIFICATE OF INCORPORATION
OF
GRIFFITH MICRO SCIENCE INTERNATIONAL, INC.
Griffith Micro Science International, Inc., a corporation organized and
existing under the laws of the State of Delaware, hereby certifies as follows:
1. The corporation's present name is that shown above. The corporation was
originally incorporated under the same name and the date of filing of the
corporation's original certificate of incorporation with the Delaware Secretary
of State was October 30, 1987.
2. This Restated Certificate of Incorporation of the corporation, which
both restates and further amends the provisions of the corporation's Certificate
of Incorporation, was duly adopted in accordance with the provisions of Sections
242 and 245 of the General Corporation Law of the State of Delaware and by the
unanimous written consent of its stockholders in accordance with Section 228 of
the General Corporation Law of the State of Delaware.
3. The text of the corporation's certificate of incorporation, as
heretofore amended or supplemented, is hereby restated and further amended to
read in its entirety as follows:
FIRST: The name of this corporation is GRIFFITH MICRO SCIENCE
INTERNATIONAL, INC. (the "Corporation").
SECOND: The registered office of the Corporation in the State of Delaware
is located at Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name and address of its registered agent
is The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street,
Wilmington, Delaware 19801.
THIRD: 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.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is one hundred million (100,000,000),
of which (i) fifty million (50,000,000) shares of the par value of $.01 each are
to be of a class designated Class A Common Stock (the "Class A Common Stock"),
(ii) forty million (40,000,000) shares of the par
<PAGE> 2
value of $.01 each are to be of a class designated Class B Common Stock (the
"Class B Common Stock," and, together with the Class A Common Stock, the "Common
Stock") and, (iii) ten million (10,000,000) shares of the par value of $.01 each
are to be of a class designated Preferred Stock (the "Preferred Stock"). The
designations and the powers, preferences and rights and the qualifications,
limitations or restrictions thereof of the shares of each class of capital stock
of the Corporation are as follows:
4.1. COMMON STOCK
The powers, preferences and relative, participating, optional or other
special rights of the Common Stock and the qualifications, limitations or
restrictions thereof, are fixed as follows:
4.1.1 Dividends. Subject to Section 4.1.2, (i) whenever a dividend is
paid to the holders of Class A Common Stock, the Corporation also shall pay to
the holders of Class B Common Stock a dividend per share equal to the dividend
per share paid to the holders of Class A Common Stock, and (ii) whenever a
dividend is paid to holders of Class B Common Stock, the Corporation also shall
pay to the holders of Class A Common Stock a dividend per share equal to the
dividend per share paid to the holders of Class B Common Stock. Dividends shall
be payable only if, as and when declared by the Board of Directors.
4.1.2 Share Distributions. If at any time a distribution is to be
paid in Class A Common Stock or Class B Common Stock (hereinafter sometimes
called a "share distribution"), such share distribution may be declared and paid
only as follows:
(i) a share distribution consisting of Class A Common Stock may be
declared and paid to holders of Class A Common Stock only, but in any
such event there shall also be a simultaneous share distribution to
holders of Class B Common Stock consisting of shares of Class B Common
Stock on an equal per share basis; and
(ii) a share distribution consisting of Class B Common Stock may be
declared and paid to holders of Class B Common Stock only, but in any
such event there shall also be a simultaneous share distribution to
holders of Class A Common Stock consisting of shares of Class A Common
Stock on an equal per share basis.
The Corporation shall not reclassify, subdivide or combine one class of its
Common Stock without reclassifying, subdividing or combining the other class of
Common Stock, on an equal per share basis. For purposes of this Section 4.1.2,
(i) the term "equal per share basis" means that after the completion of any
share distribution or any such reclassification, subdivision or combination, the
number, dividend rights, voting power, conversion and liquidation rights of the
shares of each class of Common Stock will be in the same aggregate proportion as
they were before such share distributions or other transaction, and (ii) the
term "distribution" shall be deemed to include, but not be limited to, a stock
dividend.
2
<PAGE> 3
4.1.3 Voting. The holders of Class A Common Stock shall be entitled
to one vote per share on each matter submitted to a vote of the stockholders of
the Corporation. The holders of Class B Common Stock shall be entitled to ten
votes per share on each matter submitted to a vote of stockholders. The holders
of the Class A Common Stock and the holders of the Class B Common Stock shall be
entitled to vote as separate classes on such matters as may be required by law
to be submitted to such holders voting as separate classes. On all other
matters, holders of Common Stock shall vote together as a single class. Except
as provided in Section 4.1.5.2, every reference in the Corporation's Restated
Certificate of Incorporation or Bylaws to a majority or other proportion of
stock shall refer to such majority or other proportion of the votes of such
stock.
4.1.4 Liquidation and Mergers. The holders of Class A Common Stock
and the holders of Class B Common Stock shall share equally, on a share for
share basis, in any distribution of the Corporation's assets upon any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, after payment or provision for payment of the debts and other
liabilities of the Corporation, and payment in full of the amounts required to
be paid to the holders of any outstanding series of Preferred Stock, and shall
be treated identically, on a share for share basis, in the event of any merger
or consolidation of the Corporation in which shares of Common Stock of the
Corporation are converted into cash, securities or other property, provided that
if the securities or other property into which shares of Common Stock are
converted in a merger or consolidation includes voting securities, then the
agreement of merger or consolidation may provide for the holders of Class B
Common Stock to receive, on a per share basis, voting securities with up to ten
times the number of votes per share as those voting securities to be received by
the holders of the Class A Common Stock.
4.1.5 Conversion.
4.1.5.1 The Class A Common Stock has no conversion rights. Each
holder of record of Class B Common Stock may at any time or from time to
time, in such holder's sole discretion and at such holder's option, convert
any or all of such holder's shares of Class B Common Stock into fully paid
and non-assessable shares of Class A Common Stock at the rate of one share
of Class A Common Stock for each share of Class B Common Stock surrendered
for conversion. Any such conversion may be effected by any holder of Class
B Common Stock delivering such holder's certificate or certificates
evidencing the shares of Class B Common Stock to be converted, duly
endorsed or accompanied by duly executed stock powers, to the office of the
Corporation or any transfer agent for the Class B Common Stock, together
with a written notice to the Corporation specifying that such holder elects
to convert all or a specified number of the shares of Class B Common Stock
evidenced by such certificate or certificates into Class A Common Stock and
stating the name or names in which such holder desires the certificate or
certificates evidencing such shares of Class A Common Stock to be issued.
If so required by the Corporation, any certificate for shares of Class B
Common Stock surrendered for conversion shall be accompanied by instruments
of transfer, in form satisfactory to the Corporation, duly executed by the
holder of such shares or the duly authorized representative of such holder.
Promptly thereafter, the Corporation shall issue and deliver to such holder
or such holder's nominee or nominees or transferee or
3
<PAGE> 4
transferees, a certificate or certificates for the number of shares of
Class A Common Stock to which such holder shall be entitled as herein
provided. Such conversion shall be deemed to have been made at the close of
business on the date of receipt by the Corporation or any such transfer
agent of the certificate or certificates evidencing the shares to be
converted and the written notice of conversion in proper form, and the
person or persons entitled to receive the Class A Common Stock issuable on
such conversion shall be treated for all purposes as the record holder or
holders of such Class A Common Stock on that date.
4.1.5.2 At the close of business on the first date that the
number of outstanding shares of Class B Common Stock represents less than
10% of the aggregate number of then outstanding shares of Common Stock
(calculated without regard to the differing voting rights of the two
classes of Common Stock), all of the shares of Class B Common Stock then
issued shall automatically be converted into shares of Class A Common Stock
at the rate of one share of Class A Common Stock for each share of Class B
Common Stock converted. In the event of any automatic conversion of the
Class B Common Stock pursuant to this Section 4.1.5.2, certificates
formerly evidencing outstanding shares of Class B Common Stock will
thereafter be deemed for all purposes to evidence the same number of shares
of Class A Common Stock. Any holder of certificates which prior to any such
automatic conversion evidenced shares of Class B Common Stock may at any
time thereafter surrender such certificates pursuant to the same procedures
specified in Section 4.1.5.1 and receive from the Corporation or the
transfer agent for the Class B Common Stock certificates representing the
appropriate number of shares of Class A Common Stock.
4.1.5.3 Any purported transfer of shares of Class B Common
Stock by a holder thereof to any Person (as defined below) other than a
Permitted Transferee (as defined below) shall result in the automatic
conversion of such shares of the transferor's Class B Common Stock into
shares of Class A Common Stock at the rate of one share of Class A Common
Stock for each share of Class B Common Stock converted, effective at the
time of such purported transfer, and certificates formerly evidencing such
shares of Class B Common Stock will thereafter be deemed for all purposes
to evidence the same number of shares of Class A Common Stock. The
Corporation may, as a condition to the transfer or the registration of
transfer of any shares of Class B Common Stock to a purported Permitted
Transferee, require the furnishing of such affidavits or other proof as it
deems necessary to establish that such transferee is a Permitted
Transferee.
For purposes of this Section 4.1.5.3, a "Permitted Transferee"
shall mean only the following Persons:
(i) any Person which directly or indirectly controls, is controlled
by or is under common control with, the Corporation (an
"affiliate of the Corporation"); for purposes of this clause
(i), the term "control" (including the terms "controlling,"
"controlled by," and "under common control with") means the
possession, direct or indirect, of the power to direct or
4
<PAGE> 5
cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract
or otherwise;
(ii) the shareholders of Griffith Laboratories, Inc., an Illinois
corporation ("GLI"), but only pursuant to a single transaction
in which all outstanding shares of Class B Common Stock
beneficially owned by GLI are distributed by it to the
shareholders of GLI as part of a dividend intended not to be
subject to tax pursuant to Section 355 of the Internal Revenue
Code of 1986, as amended (the "Code") or any successor or other
provision of the Code (and commonly referred to as a "tax-free
spin-off"); and
(iii) any other corporation or business entity which is not an
affiliate of the Corporation, but only pursuant to a single
transaction approved by the board of directors of GLI in which
all outstanding shares of Class B Common Stock beneficially
owned by GLI are sold to, exchanged with or otherwise
transferred to such other corporation or business entity.
For purposes of this Section 4.1.5.3, "Person" shall mean any
individual, corporation, association, partnership, limited liability
company, joint venture, trust, organization, business, government or any
agency or political subdivision thereof or any other entity.
For purposes of this Section 4.1.5.3, "GLI" shall include any
successor to GLI, whether by merger, consolidation, sale of assets or other
similar transaction, if over 50% of the total equity interest of such
successor immediately after such transaction is held by the holders of the
equity interest in GLI immediately prior to such transaction.
For purposes of this Section 4.1.5.3, "transfer," when used as
a verb, means to sell, pledge, assign, encumber, dispose of or otherwise
transfer (including by merger, testamentary disposition, interspousal
disposition pursuant to a domestic relations proceeding or otherwise or
otherwise by operation of law), or, when used as a noun, means a sale,
pledge, assignment, encumbrance, disposition, or other transfer (including
a merger, testamentary disposition, interspousal disposition pursuant to a
domestic relations proceeding or otherwise or other transfer by operation
of law).
4.1.5.4 The issuance of certificates evidencing shares of Class
A Common Stock issuable upon the conversion of Class B Common Stock shall
be made without charge to the converting holder for any tax imposed on the
Corporation in respect of the issue thereof. The Corporation shall not,
however, be required to pay any tax which may be payable with respect to
any transfer involved in the issue and delivery of any certificate in a
name other than that of the holder of the shares being converted, and the
Corporation shall not be required to issue or deliver any such certificate
unless and until the person requesting the issue thereof shall have paid to
the Corporation the amount of such tax or has established to the
satisfaction of the Corporation that such tax has been paid or is not
applicable. Upon any conversion of shares of Class B Common Stock into
5
<PAGE> 6
shares of Class A Common Stock pursuant hereto, no adjustment with respect
to dividends shall be made; provided, however, that if a share of Class B
Common Stock shall be converted into a share of Class A Common Stock
subsequent to the record date for the payment of a dividend or other
distribution on the share of Class B Common Stock so converted but prior to
such payment, the registered holder of such share of Class B Common Stock
at the close of business on such record date shall be entitled to receive
the dividend or other distribution payable on such share of Class B Common
Stock on such payment date notwithstanding the conversion thereof into a
share of Class A Common Stock after such record date; and only those
dividends shall be payable on the share of Class A Common Stock issued upon
such conversion as may be declared and may be payable to holders of record
of shares of Class A Common Stock of that class on or after the conversion
date.
4.1.5.5 All shares of Class B Common Stock which shall have
been surrendered for conversion as herein provided shall no longer be
deemed to be outstanding, and all rights with respect to such shares,
including the rights, if any, to receive notices and to vote, shall
thereupon cease and terminate, except only the right of the holders
thereof, subject to compliance with the provisions of Section 4.1.5.1, to
receive certificates representing shares of Class A Common Stock in
exchange therefor. All shares of Class B Common Stock surrendered for
conversion shall resume the status of authorized but unissued shares of
Class B Stock.
4.1.5.6 Such number of shares of Class A Common Stock as may
from time to time be required for such purpose shall be reserved by the
Corporation for issuance upon conversion of outstanding shares of Class B
Common Stock.
4.1.5.7 In the event of a reclassification or other similar
transaction as a result of which the shares of Class A Common Stock are
converted into another security, then a holder of Class B Common Stock
shall be entitled to receive upon conversion the amount of such security
that such holder would have received if such conversion had occurred
immediately prior to the record date of such reclassification or other
similar transaction.
4.1.6 Pledge of Class B Common Stock. Notwithstanding anything to the
contrary set forth herein, any holder of Class B Common Stock may pledge any or
all of such holder's Class B Common Stock, pursuant to a bona fide pledge of
such shares as collateral security for indebtedness due to the pledgee, provided
that such shares shall not be transferred to, voted by or registered in the name
of the pledgee and shall remain subject to the provisions of Section 4.1.5. In
the event of foreclosure or other similar action by the pledgee, such pledged
Class B Common Stock may only be transferred to a Permitted Transferee (as
defined in Section 4.1.5); otherwise, such shares shall automatically be
converted into Class A Common Stock on a share for share basis pursuant to and
in accordance with Section 4.1.5.3 hereof.
4.1.7 Restrictions on Issuances of Class B Common Stock. Following the
initial issuance by the Corporation of shares of Class A Common Stock, the board
of directors may issue Class B Common Stock only (i) upon the exercise of
options to purchase Class B Common
6
<PAGE> 7
Stock outstanding at the time of such initial issuance, or (ii) in the form of a
distribution or distributions pursuant to a stock dividend on or split-up of the
Class B Common Stock and only to the then holders of the outstanding Class B
Common Stock in conjunction with and in the same ratio as a stock dividend on or
split-up of the Class A Common Stock; and no further issuance of options,
warrants or other rights to acquire Class B Common Stock shall be permitted.
4.1.8 Conversion Determinations. The board of directors of the
Corporation (or any duly authorized committee thereof) shall have the sole power
(i) to determine whether an event of automatic conversion has occurred pursuant
to Section 4.1.5 or 4.1.6 with respect to any share of Class B Common Stock, and
(ii) to otherwise administer such conversion provisions.
4.1.9 Reclassification. Upon the filing and effectiveness of this
Restated Certificate of Incorporation, each share of Common Stock, $.01 par
value, of the Corporation (the "Existing Common Stock") issued and outstanding
or held in the treasury of the Corporation immediately prior to such
effectiveness shall be reclassified (without any further action of the
Corporation or its stockholders) into 5.5 fully paid and nonassessable shares of
Class B Common Stock.
4.2. PREFERRED STOCK
4.2.1 The Preferred Stock may be issued from time to time in one or
more series. Subject to limitations prescribed by law and the provisions of
this Restated Certificate of Incorporation or any amendment hereto, authority is
expressly granted to the Board of Directors to authorize the issue of one or
more series of Preferred Stock without any vote or other action by the
stockholders of the Corporation, and to fix, by filing a Preferred Stock
Designation pursuant to the applicable provisions of the General Corporation Law
of the State of Delaware, the voting powers, designations, preferences and
relative, participating, optional or other special rights, and the
qualifications, limitations and restrictions thereof to the full extent now or
hereafter permitted by law, including but not limited to the following:
(a) The number of shares constituting that series and the distinctive
designation of that series;
(b) The dividend rate (or method of determining such rate) on the
shares of that series, the conditions and dates upon which such
dividends shall be payable, whether such dividends shall be
cumulative, and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that
series to the dividends payable on any other series of Preferred Stock
or any other class of stock of the Corporation;
(c) Whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting
rights;
7
<PAGE> 8
(d) Whether or not the shares of that series shall be convertible into
or exchangeable for shares of any other series of Preferred Stock or
of any other class or classes of stock of the Corporation, or
convertible into or exchangeable for other securities of the
Corporation or securities of any other corporation, partnership or
other person or entity, and, if so, the times, prices, rates,
adjustments, and other terms and conditions of such conversion or
exchange;
(e) Whether or not the shares of that series shall be redeemable, in
whole or in part, at the option of the Corporation or at the option of
the holder thereof or upon the happening of a specified event, and, if
so, the times, prices and other terms and conditions of such
redemption;
(f) Whether that series shall have a sinking fund for the redemption
or purchase of shares of that series, and, if so, the terms and amount
of such sinking fund;
(g) The rights of the shares of that series in the event of the
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, and the relative rights of priority, if any, with respect
to payment of amounts payable in such event on shares of that series
to amounts payable in such event on shares of any other series of
Preferred Stock or of any other class of stock of the Corporation; and
(h) Any other relative rights, preferences and limitations of that
series.
4.2.2 All shares of any one series of Preferred Stock shall be
identical except as to dates of issue and the dates from which dividends on
shares of the series issued on different dates shall cumulate (if cumulative).
FIFTH: The Corporation is to have perpetual existence.
SIXTH: In furtherance, and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to adopt, amend or
repeal the bylaws of the Corporation, subject to such restrictions upon the
exercise of such power as may be imposed by this Restated Certificate of
Incorporation or any amendment hereto.
SEVENTH: Meetings of stockholders of the Corporation may be held within or
outside the state of Delaware, as the bylaws of the Corporation may provide. The
books of the Corporation may be kept (subject to any provisions contained in the
statutes) outside the State of Delaware at such place or places as may be
designated from time to time by the Board of Directors or in the bylaws of the
Corporation. Elections of directors need not be by written ballot unless the
bylaws of the Corporation so provide.
8
<PAGE> 9
EIGHTH:
8.1 No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for any breach of fiduciary
duty by such director as a director. Notwithstanding the foregoing sentence, a
director shall be liable to the extent provided by applicable law (i) for breach
of the director's duty of loyalty to the Corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) pursuant to Section 174 of the General
Corporation Law of the State of Delaware, or (iv) for any transaction from which
the director derived an improper personal benefit. No amendment to or repeal of
this Section 8.1 shall apply to or have any effect on the liability or alleged
liability of any director of the Corporation for or with respect to any acts or
omissions prior to such amendment or repeal.
8.2 Subject to Section 8.3, each person (hereinafter in this Article
Eighth, a "Covered Person") who was or is made a party to or is threatened to be
made a party to or is otherwise subpoenaed in connection with any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter in this Article Eighth, a
"proceeding"), by reason of the fact that he or she or a person of whom he or
she is the legal representative 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,
trustee or agent of any other corporation or of any partnership, joint venture,
limited liability company, trust or other enterprise including without
limitation service with respect to any employee benefit plan or trust or any
charitable foundation (hereinafter in this Article Eighth, "another entity"),
shall be indemnified and held harmless by the Corporation to the fullest extent
authorized by the General Corporation Law of the State of Delaware, in each case
as the same exists or may hereafter be amended, against all expenses, judgments,
fines and amounts paid in settlement (including, without limitation, attorneys'
fees and disbursements, ERISA excise taxes, penalties or interest related to any
such obligations actually and reasonably incurred by the Covered Person in
connection therewith), and such indemnification shall continue as to a Covered
Person who has ceased to be a director or officer of the Company and shall inure
to the benefit of his or her heirs, executors and administrators; provided,
however, subject to Section 5.2 of the Bylaws of the Corporation, that the
Corporation shall indemnify any such Covered Person seeking indemnification in
connection with a proceeding (or part thereof) brought by or on behalf of such
Covered Person only if such proceeding (or part thereof) was authorized in
advance of commencement by a majority of the entire board of directors of the
Corporation.
8.3 Any indemnification pursuant to this Article Eighth (unless ordered by
a court) shall be made by the Corporation only as authorized in the specific
case upon a determination that indemnification of the Covered Person is proper
in the circumstances because he or she (or the person of whom he or she is the
legal representative) has met the applicable standards of conduct for
indemnification under subsection (a) or subsection (b) of Section 145 of the
General Corporation Law of the State of Delaware as the same exist or may
hereafter be amended. Such determination shall be made, with respect to a person
who is a director or officer of the Corporation at the time of such
determination, (1) by a majority vote of those directors of the Corporation who
are not parties to the proceeding, even though less than a quorum, or (2) by a
9
<PAGE> 10
committee of such directors designated by majority vote of such directors, even
though less than a quorum, or (3) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, such
counsel to be selected by the board of directors and paid by the Corporation, or
(4) by the stockholders.
8.4 The expenses (including attorneys' fees and disbursements) incurred by
a Covered Person in defending or responding to any proceeding to which such
person is a party or is threatened to be made a party or is otherwise subpoenaed
in connection with, by reason of the fact that such Covered Person (or the
person of whom he or she is the legal representative) is or was an officer or a
director 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, trustee or agent of another entity, shall be paid by the Corporation,
as those expenses become due, in advance of the final disposition of such
proceeding, upon receipt by the Corporation of an undertaking by such Covered
Person to repay such amounts so advanced if it shall ultimately be determined
that he or she is not entitled to be indemnified by the Corporation for such
expenses under this Article Eighth or otherwise; provided, however, that the
Corporation shall pay the expenses of any such Covered Person in advance, as
provided in this Section 8.4, which are incurred in connection with a proceeding
(or part thereof) brought by or on behalf of such person only if such proceeding
(or part thereof) was authorized in advance of its commencement by a majority of
the entire board of directors of the Company.
NINTH: The Corporation reserves the right to amend, alter, change, add to
or repeal any provisions contained in this Restated Certificate of Incorporation
in the manner now or hereafter prescribed by statute and any applicable
provision of this Restated Certificate of Incorporation or any amendment hereto
or any Preferred Stock Designation; and all rights, preferences and privileges
of whatsoever nature herein conferred are granted subject to this reservation.
TENTH: The Corporation expressly elects not to be governed by Section 203
of the General Corporation Law of the State of Delaware.
10
<PAGE> 11
IN WITNESS WHEREOF, GRIFFITH MICRO SCIENCE INTERNATIONAL, INC. has caused
this Restated Certificate of Incorporation to be signed by its President this
[___] day of [______], 1998.
GRIFFITH MICRO SCIENCE
INTERNATIONAL, INC.
By:
-----------------------------
Name:
-----------------------
Title: President
11
<PAGE> 1
EXHIBIT 3.2(b)
BYLAWS
OF
GRIFFITH MICRO SCIENCE INTERNATIONAL, INC.
AS AMENDED AND RESTATED AS OF
SEPTEMBER 3, 1998
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
Article I -- STOCKHOLDERS.........................................................................................1
Section 1.1 Annual Meeting.........................................................................1
Section 1.2 Special Meetings.......................................................................1
Section 1.3 Notice of Meetings.....................................................................1
Section 1.4 Adjournment of Meetings................................................................2
Section 1.5 Quorum at Meetings.....................................................................2
Section 1.6 Nominations and Business at Meetings...................................................2
Section 1.7 Organization and Conduct of Meetings...................................................4
Section 1.8 Required Vote..........................................................................5
Section 1.9 Voting; Proxies........................................................................5
Section 1.10 Record Dates for Meetings and Other Purposes...........................................5
Section 1.11 List of Stockholders Entitled to Vote..................................................6
Section 1.12 Inspectors of Election.................................................................6
Section 1.13 Stockholders of Record.................................................................7
Article II -- BOARD OF DIRECTORS..................................................................................7
Section 2.1 Powers.................................................................................7
Section 2.2 Number, Election, Term of Office and Qualifications....................................7
Section 2.3 Resignation, Removal and Vacancies.....................................................7
Section 2.4 Newly Created Directorships............................................................8
Section 2.5 Annual Meeting.........................................................................8
Section 2.6 Regular Meetings.......................................................................8
Section 2.7 Special Meetings.......................................................................8
Section 2.8 Telephonic Meetings Permitted..........................................................8
Section 2.9 Quorum; Vote Required for Action.......................................................8
Section 2.10 Organization of Meetings...............................................................9
Section 2.11 Action by Written Consent..............................................................9
Section 2.12 Committees of the Board................................................................9
Section 2.13 Notices to Directors...................................................................9
Section 2.14 Waiver of Notice......................................................................10
Section 2.15 Compensation of Directors.............................................................10
Article III -- OFFICERS..........................................................................................10
Section 3.1 Officers..............................................................................10
Section 3.2 Term of Office; Resignation; Removal; Vacancies.......................................11
Section 3.3 Compensation of Officers..............................................................11
Section 3.4 Powers and Duties of Officers.........................................................11
Section 3.5 Chief Executive Officer...............................................................11
Section 3.6 Chief Operating Officer...............................................................12
Section 3.7 Chief Financial Officer...............................................................12
Section 3.8 Chairman of the Board.................................................................12
Section 3.9 President.............................................................................13
</TABLE>
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<TABLE>
<S> <C> <C> <C>
Section 3.10 Vice Presidents.......................................................................13
Section 3.11 Treasurer.............................................................................14
Section 3.12 Secretary.............................................................................14
Section 3.13 General Counsel.......................................................................14
Section 3.14 Assistant Secretaries and Assistant Treasurers........................................14
Article IV -- STOCK..............................................................................................15
Section 4.1 Certificates..........................................................................15
Section 4.2 Lost, Stolen or Destroyed Certificates; Issuance of New Certificates..................15
Section 4.3 Registration of Transfers.............................................................16
Section 4.4 The Stock Ledger......................................................................16
Article V -- INDEMNIFICATION AND ADVANCEMENT OF EXPENSES.........................................................16
Section 5.1 Right to Indemnification..............................................................16
Section 5.3 Claims................................................................................16
Section 5.4 Nonexclusivity of Rights; Purchase of Insurance.......................................17
Section 5.5 Provisions Deemed a Contract..........................................................17
Section 5.6 Conclusive Presumption................................................................17
Section 5.7 Other Indemnification.................................................................17
Article VI -- MISCELLANEOUS PROVISIONS...........................................................................18
Section 6.1 Offices and Books and Records.........................................................18
Section 6.2 Fiscal Year...........................................................................18
Section 6.3 Seal..................................................................................18
Section 6.4 Form of Records.......................................................................18
Section 6.5 Signing of Checks, Notes, etc.........................................................18
Section 6.6 Voting of Shares in Other Companies...................................................18
Section 6.7 Amendment of Bylaws...................................................................19
</TABLE>
ii
<PAGE> 4
BYLAWS
OF
GRIFFITH MICRO SCIENCE INTERNATIONAL, INC.
AS AMENDED AND RESTATED AS OF
[________], 1998
---------------
ARTICLE I
STOCKHOLDERS
SECTION 1.1 ANNUAL MEETING. An annual meeting of stockholders shall be
held at such place, date and hour as may be determined by resolution of the
board of directors from time to time. At the annual meeting, the stockholders
shall elect directors and transact such other business as may properly come
before the meeting in accordance with Section 1.6 of these Bylaws.
SECTION 1.2 SPECIAL MEETINGS. Special meetings of stockholders for any
purpose or purposes may be called at any time by the chairman of the board of
the Corporation and shall be called by the president or the secretary at the
request in writing of a majority of the members of the whole board of directors.
Such request shall state the purpose or purposes of the proposed special
meeting. Except as otherwise prescribed by the General Corporation Law of the
State of Delaware or the Restated Certificate of Incorporation, special meetings
of stockholders may not be called by any other person or persons. The date, time
and place of any properly called special meeting shall be determined by the
chairman of the board. The business transacted at any special meeting of
stockholders shall be limited to the purpose or purposes for which the meeting
is called which are stated in the Corporation's notice of the meeting pursuant
to Section 1.3 of these Bylaws.
SECTION 1.3 NOTICE OF MEETINGS. Whenever stockholders are required or
permitted to take any action at a meeting, annual or special, a written notice
of the meeting shall be given to each stockholder entitled to vote at such
meeting that shall state the place, date and hour of the meeting and the purpose
or purposes for which the meeting is called. Unless otherwise provided by the
General Corporation Law of the State of Delaware, the Restated Certificate of
Incorporation or these Bylaws, the written notice of any meeting shall be given
not less than 10 nor more than 60 days before the date of the meeting to each
stockholder entitled to vote at such meeting. If mailed, such notice shall be
deemed to be given when deposited in the United States mail, postage prepaid,
directed to the stockholder at his, her or its address as it appears on the
records of the Corporation. Any meeting of stockholders as to which notice has
previously been
<PAGE> 5
given may at any time prior to its commencement be canceled by resolution of the
board of directors.
SECTION 1.4 ADJOURNMENT OF MEETINGS. Any meeting of stockholders,
annual or special, may adjourn from time to time to reconvene at the same or
some other place, and, except as otherwise provided herein, notice need not be
given of any such 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, notice of the
adjourned meeting shall be given to each stockholder of record entitled to vote
at the meeting.
SECTION 1.5 QUORUM AT MEETINGS. Except as otherwise provided by the
General Corporation Law of the State of Delaware, the Restated Certificate of
Incorporation or these Bylaws, at each meeting of stockholders the presence in
person or by proxy of the holders of a majority in voting power of the
outstanding shares of stock entitled to vote at the meeting shall be necessary
and sufficient to constitute a quorum. In the absence of a quorum, the
stockholders so present may, by majority vote, adjourn the meeting from time to
time in the manner provided in Section 1.4 of these Bylaws until a quorum shall
attend. Shares of its own stock belonging to the Corporation or to another
corporation, if a majority of the shares entitled to vote in the election of
directors of such other corporation is held, directly or indirectly, by the
Corporation, shall neither be entitled to vote nor be counted for quorum
purposes; provided, however, that the foregoing shall not limit the right of the
Corporation or any subsidiary of the Corporation to vote stock, including but
not limited to its own stock, held by it in a fiduciary capacity.
SECTION 1.6 NOMINATIONS AND BUSINESS AT MEETINGS. (a) Nominations of
persons for election as directors of the Corporation at any meeting of
stockholders called for the election of directors may be made by or at the
direction of the board of directors or by a stockholder who is entitled to vote
at such meeting and who complies with the applicable provisions of this Section
1.6. For a nomination of any person for election as a director of the
Corporation to be properly made by a stockholder at any meeting, the stockholder
must have given timely advance notice thereof in writing to the secretary of the
Corporation and must be a stockholder of record at the time of the delivery of
such notice.
(b) At any annual meeting of stockholders, only business shall be
conducted which has been properly brought before the meeting. To be properly
brought before an annual meeting of stockholders, business must be specified in
the notice of meeting given by, or at the direction of, the board of directors
or otherwise properly brought before the meeting by or at the direction of the
board of directors or by a stockholder who is entitled to vote at such meeting.
For business to be properly brought before an annual meeting by a stockholder,
the business must be a proper subject for stockholder action, and the
stockholder must have given timely advance notice thereof in writing to the
secretary of the Corporation and must be a stockholder of record at the time of
the delivery of such notice.
(c) To be timely, a stockholder's notice of his intention to nominate
a person for election as a director at any meeting pursuant to paragraph (a) of
this Section 1.6 or to bring
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<PAGE> 6
other business before any annual meeting pursuant to paragraph (b) of this
Section 1.6 must in either case be delivered to or mailed, postage prepaid, and
received by the secretary at the Corporation's headquarters:
(i) for an annual meeting (other than the 1999 annual
meeting), not less than 60, nor more than 90, days before the date on
which the Corporation first mailed its proxy materials for the prior
year's annual meeting; provided, however, that if the date of the
current year's annual meeting has been advanced by more than 30 days
from the date of the prior year's annual meeting, then such notice must
be received by the secretary not later than the close of business on
the tenth day following the date on which the Corporation first makes
public disclosure of the date of the meeting; and
(ii) for a special meeting, and for the 1999 annual meeting,
not more than 90 days before the date of such meeting and not later
than the later of 60 days before the date of the meeting and the close
of business on the tenth day following the date on which the
Corporation first makes public disclosure of the date of the meeting.
For purposes of this Section 1.6, "public disclosure" shall mean disclosure by
the Corporation in a press release reported by the Dow Jones News Service or
comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission.
(d) Any notice given by a stockholder pursuant to paragraph (a) of
this Section 1.6 shall set forth: (i) the name and address of the stockholder
who intends to make the nomination, as they appear on the Corporation's stock
ledger, and of the beneficial owner, if any, on whose behalf the nomination is
made; (ii) the name, age, business address and, if known, residence address of
the nominee; (iii) the principal occupation or employment of the nominee; (iv)
the class and number of shares of stock of the Corporation which are
beneficially owned by the nominee and by the nominating stockholder and any such
beneficial owner on whose behalf the nomination is made; (v) any other
information concerning the nominee that must be disclosed with respect to
nominees in a proxy statement pursuant to Regulation 14A under the Securities
Exchange Act of 1934; (vi) the executed consent of the nominee to serve as a
director of the Corporation, if elected; and (vii) whether the proponent intends
or is part of a group which intends to solicit proxies from other stockholders
in support of such nominations. The Corporation may require any such nominee to
furnish such other information as may reasonably be required to determine the
eligibility of the nominee to be a director of the Corporation.
(e) Any notice given by a stockholder pursuant to paragraph (b) of
this Section 1.6 shall set forth (i) a brief description of the business which
the stockholder desires to bring before the annual meeting, (ii) the name and
address of the stockholder giving the notice, as they appear on the
Corporation's stock ledger, and of the beneficial owner, if any, on whose behalf
such notice is given, (iii) the class and number of shares of stock of the
Corporation which are beneficially owned by the stockholder giving the notice
and by any such beneficial owner; (iv) the reasons for conducting such business
at the meeting and any material interest in such business of such stockholder
and any such beneficial owner; and (v) whether the proponent
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<PAGE> 7
intends or is part of a group which intends to solicit proxies from other
stockholders in support of such proposal. The Corporation may require any such
stockholder to furnish such other information as may reasonably be required to
determine whether any such proposed item of business is a proper subject for
stockholder action.
(f) In addition to, and not in limitation of, the provisions of this
Section 1.6, a stockholder shall also comply with all applicable requirements of
the Securities Exchange Act of 1934 and the rules and regulations thereunder
with respect to any nomination of a person for election as a director of the
Corporation or with respect to the proposal of any other business, as the case
may be, which such stockholder wishes to make or present at any meeting of
stockholders of the Corporation.
(g) Only persons who are nominated in accordance with the procedures
set forth in this Bylaw shall be eligible to serve as directors and only such
business shall be conducted at a meeting of stockholders as shall have been
brought before the meeting in accordance with the procedures set forth in this
Bylaw.
SECTION 1.7 ORGANIZATION AND CONDUCT OF MEETINGS. (a) The chairman of
the board of the Corporation shall be the chairman of, and shall preside at, all
annual and special meetings of stockholders. In the event of the absence of the
chairman of the board from any meeting of stockholders, the meeting will be
presided over by the president of the Corporation or, in his or her absence, by
a chairman designated by the board of directors, or in the absence of such
designation by a chairman chosen by the meeting. The secretary of the
Corporation shall act as secretary of the meeting, but in his or her absence the
chairman of the meeting may appoint any person to act as secretary of the
meeting.
(b) The date and time of the opening and the closing of the polls for
each matter upon which the stockholders will vote at a meeting shall be
announced at the meeting by the chairman of the meeting. The board of directors
of the Corporation may adopt by resolution such rules and regulations for the
conduct of any or all meetings of stockholders as it shall deem appropriate.
Except to the extent inconsistent with such rules and regulations, if any, as
adopted by the board of directors, the chairman of any meeting of stockholders
shall have the right and authority to prescribe such rules, regulations and
procedures and to do all such acts as, in the judgment of such chairman, are
appropriate for the proper conduct of the meeting. Such rules, regulations or
procedures, whether adopted by the board of directors or prescribed by the
chairman of the meeting, may include, without limitation, the following: (i) the
establishment of an agenda or order of business for the meeting; (ii) rules and
procedures for maintaining order at the meeting and the safety of those present;
(iii) limitations on attendance at or participation in the meeting to
stockholders of record of the Corporation, their duly authorized and constituted
proxies or such other persons as the chairman of the meeting shall determine;
(iv) restrictions on entry to the meeting after the time fixed for the
commencement thereof; and (v) limitations on the time allotted to questions or
comments by participants. Except to the extent determined otherwise by the board
of directors or the chairman of the meeting, meetings of stockholders shall not
be required to be held in accordance with the rules of parliamentary procedure.
4
<PAGE> 8
(c) The chairman of the meeting shall have the power and duty to
determine whether a nomination of a person for election as a director of the
Corporation or any other business proposed to be brought before the meeting was
made or brought in accordance with the procedures set forth in Section 1.6 of
these Bylaws and, if any proposed nomination or other business is not in such
compliance, to declare that such defective nomination or proposal shall be
disregarded.
SECTION 1.8 REQUIRED VOTE. A plurality of the votes cast at any meeting
for the election of directors shall be sufficient to elect. Except as otherwise
provided by the rules and regulations of any stock exchange applicable to the
Corporation, any other rule or regulation application to the Corporation or its
securities, applicable law, the Restated Certificate of Incorporation or these
Bylaws, all matters other than the election of directors submitted to the
stockholders at any meeting shall be decided by the affirmative vote of the
holders of a majority in voting power of the shares of stock which are present
in person or by proxy and entitled to vote thereon.
SECTION 1.9 VOTING; PROXIES. (a) Except as otherwise provided by law or
by the Restated Certificate of Incorporation, each stockholder entitled to vote
at any meeting of stockholders shall be entitled to that number of votes
specified in the Restated Certificate for each share of stock of each class held
by him, her or it which has voting power upon the matter in question. Each
stockholder entitled to vote at a meeting of stockholders may authorize another
person or persons to act for him, her or it 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. To be valid, a proxy must be filed with the secretary of
the Corporation or his or her representative at or before the time of the
meeting at which it is intended that it be voted or acted upon. A 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
stockholder may revoke any proxy which is not irrevocable by attending the
meeting and voting in person or by filing an instrument in writing revoking the
proxy or by delivering to the secretary of the Corporation a proxy in accordance
with applicable law bearing a later date. Except as otherwise provided in the
Restated Certificate of Incorporation or as determined by the chairman of the
meeting, voting at any meeting of stockholders need not be by written ballot.
SECTION 1.10 RECORD DATES FOR MEETINGS AND OTHER PURPOSES. 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, or to express
consent to corporate action in writing without a meeting, or entitled to receive
payment of any dividend or other distribution or allotment of any rights, or
entitled to exercise any rights in respect of any change, conversion or exchange
of stock or for the purpose 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 by the board of directors, and
which record date: (1) in the case of a determination of stockholders entitled
to vote at any meeting of stockholders or adjournment thereof, shall, unless
otherwise required by law, not be more than 60 nor less than 10 days before the
date of such meeting; (2) in the case of determination of stockholders entitled
to express consent to corporate action in writing without a meeting, shall not
be more than 10 days from the date upon which the resolution fixing the record
date is adopted by the board of directors; and (3) in the case of any other
action, shall not be more than 60 days prior to such other action. If no
5
<PAGE> 9
record date is fixed: (1) the record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held; (2) the record date for determining stockholders
entitled to express consent to corporate action in writing without a meeting,
when no prior action of the board of directors is required by law, shall be the
first date on which a signed written consent setting for the action taken or
proposed to be taken is delivered to the Corporation in accordance with
applicable law, or, if prior action by the board of directors is required by
law, shall be at the close of business on the day on which the board of
directors adopts the resolution taking such prior action; and (3) the record
date for determining stockholders for any other purpose shall be the close of
business on the day on which the board of directors adopts the resolution
relating thereto. 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 1.11 LIST OF STOCKHOLDERS ENTITLED TO VOTE. The secretary of
the Corporation shall prepare and make, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and 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. Upon the willful neglect or refusal of the directors to produce such a
list at any meeting for the election of directors, they shall be ineligible for
election to any office at such meeting.
SECTION 1.12 INSPECTORS OF ELECTION. By action of its board of
directors the Corporation shall, in advance of any meeting of stockholders,
appoint one or more inspectors of election, who may be employees of the
Corporation, to act at the meeting or any adjournment thereof and to make a
written report thereof. In the same manner, the Corporation may designate one or
more persons as alternate inspectors to replace any inspector who fails to act.
In the event that no inspector so appointed or designated is able to act at a
meeting of stockholders, the chairman of the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before entering upon the
discharge of his or her duties, shall take and sign an oath to execute
faithfully the duties of inspector with strict impartiality and according to the
best of his or her ability. The inspector or inspectors so appointed or
designated shall: (i) ascertain the number of shares of capital stock of the
Corporation outstanding at the record date for the meeting and the voting power
of each such share; (ii) determine the shares of capital stock of the
Corporation represented at the meeting and the validity of proxies and ballots;
(iii) count all votes and ballots; (iv) determine and retain for a reasonable
period a record of the disposition of any challenges made to any determination
by the inspectors; and (v) certify their determination of the number of shares
of capital stock of the Corporation represented at the meeting and such
inspectors' count of all votes and ballots. Such certification and report shall
specify such other information as may be required by law or specified by the
chairman of the meeting. In determining the validity and
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counting of proxies and ballots cast at any meeting of stockholders of the
Corporation, the inspectors may consider such information as is permitted by
applicable law. No person who is a candidate for an office at an election may
serve as an inspector at such election.
SECTION 1.13 STOCKHOLDERS OF RECORD. Except as otherwise provided by
law, the stock ledger of the Corporation provided for by Section 4.4 of these
Bylaws shall be the only evidence as to who are the stockholders of the
Corporation entitled, upon compliance with any applicable provisions of the
General Corporation Law of the State of Delaware: (i) to examine the stock
ledger, any list of stockholders (including the list of stockholders referred to
in Section 1.11 of these Bylaws) or the other books and records of the
Corporation; and (ii) to vote in person or by proxy at any meeting of
stockholders. The Corporation shall be entitled to treat the holder of record of
any shares of stock of the Corporation as the holder in fact thereof and,
accordingly, shall not be bound to recognize any equitable or other claim to or
interest in such shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise provided by law. All
references in the Restated Certificate of Incorporation or these Bylaws, unless
the context or the law otherwise requires, to "stockholders," "stockholders of
record," "registered owners" and similar terms shall refer in each case, at a
given date, only to the stockholders and the stock of the Corporation held by
them as such information is set forth on the stock ledger of the Corporation as
of such date.
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.1 POWERS. The business and affairs of the Corporation shall
be managed by or under the direction of the board of directors of the
Corporation, except as may be otherwise provided by law or the Restated
Certificate of Incorporation.
SECTION 2.2 NUMBER, ELECTION, TERM OF OFFICE AND QUALIFICATIONS. The
number of directors constituting the whole board shall be fixed from time to
time by resolution adopted by the affirmative vote of a majority of the entire
board of directors, except that the number of directors shall not be less than
three nor more than nine. Directors shall be elected at annual meetings of
stockholders, and each director shall hold office until a successor is elected
and qualified or until that director's earlier death, resignation,
disqualification or removal. Directors need not be stockholders.
SECTION 2.3 RESIGNATION, REMOVAL AND VACANCIES. Except as otherwise
required by law or by the Restated Certificate of Incorporation, any vacancies
on the board of directors resulting from death, resignation, disqualification,
removal or other cause shall be filled by the affirmative vote of a majority of
the directors then in office, even though less than a quorum, or by the sole
remaining director, as the case may be. If there are no directors in office,
then an election of directors may be held in the manner provided by law. A
director shall hold office until the next annual meeting of the stockholders and
until such director's successor shall have been elected and qualified, or until
such director's earlier death, resignation, disqualification or removal.
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SECTION 2.4 NEWLY CREATED DIRECTORSHIPS. A newly created directorship
resulting from an increase in the number of directors shall be construed not to
constitute a vacancy and shall be filled in the manner required by law.
SECTION 2.5 ANNUAL MEETING. The first meeting of the board of directors
following each annual meeting of stockholders shall be held immediately after,
and at the same place as, such annual meeting of stockholders, and no notice of
such meeting other than this Bylaw shall be necessary to any director, including
any director elected at such annual meeting of stockholders, in order legally to
constitute the meeting provided a quorum shall be present. In the event of the
failure to hold such meeting of the board of directors at the time and place
specified in the preceding sentence, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the board of directors, or as shall be specified in a
written waiver of notice signed by those directors who did not attend such
meeting.
SECTION 2.6 REGULAR MEETINGS. Regular meetings of the board of
directors, or of any committee thereof, may be held at such places within or
without the State of Delaware and at such times as the board of directors or
such committee may from time to time determine, and if so determined notices
thereof need not be given.
SECTION 2.7 SPECIAL MEETINGS. (a) Special meetings of the board of
directors may be held at any time or place within or without the State of
Delaware whenever called by the chairman of the board, the president or any two
members of the board of directors. Notice of a special meeting of the board of
directors shall be given by the person or persons calling the meeting, in the
manner specified in Section 2.13 of these Bylaws, at least 24 hours before the
special meeting.
(b) Special meetings of any committee of the board of directors may
be held at any time or place within or without the State of Delaware whenever
called by the chairman of the board, the president or the chairman of the
committee. Notice of a special meeting of any committee of the board of
directors shall be given by the person calling the meeting, in the manner
specified in Section 2.13 of these Bylaws, at least 24 hours before the special
meeting.
SECTION 2.8 TELEPHONIC MEETINGS PERMITTED. Members of the board of
directors, or of any committee thereof, may participate in a meeting thereof by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this Section 2.8 shall constitute
presence in person at such meeting.
SECTION 2.9 QUORUM; VOTE REQUIRED FOR ACTION. At all meetings of the
board of directors a majority of the whole board of directors shall constitute a
quorum for the transaction of business. Except in cases in which the Restated
Certificate of Incorporation, these Bylaws or applicable law otherwise provides,
the vote of a majority of the 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 a meeting until a quorum shall be present.
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SECTION 2.10 ORGANIZATION OF MEETINGS. Meetings of the board of
directors shall be presided over by the chairman of the board, or in his or her
absence by the vice chairman of the board, if any, or in his or her absence by
the president (if he or she is also a director) or in their absence by a
chairman chosen at the meeting. The secretary of the Corporation shall act as
secretary of the meeting, but in his or her absence the chairman of the meeting
may appoint any person to act as secretary of the meeting.
SECTION 2.11 ACTION BY WRITTEN CONSENT. Unless otherwise restricted by
the Restated Certificate of Incorporation or these Bylaws, 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 of
directors or such 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
of directors or such committee.
SECTION 2.12 COMMITTEES OF THE BOARD. (a) The board of directors shall
have such committees, if any, as the board of directors may designate, each such
committee to consist of one or more of the directors of the Corporation as
determined by the board of directors. The board of directors shall appoint the
member or members of each such committee, who shall serve at the pleasure of the
board, and shall designate one member of the committee to be its chairman. Each
such committee, to the extent permitted by law and provided in the resolution of
the board of directors designating it, shall have and may exercise all the
powers and authority of the board of directors in the management of the business
and affairs of the Corporation. Each such committee may authorize the seal of
the Corporation to be affixed to all papers which may require it.
(b) The board of directors may designate one or more directors as
alternate members of any committee of the board of directors, who may replace
any absent or disqualified member at any meeting of the committee. In addition,
in the absence or disqualification of a member of any committee of the board of
directors, 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.
(c) Unless the board of directors otherwise provides, each committee,
if any, designated by the board of directors may make, alter and repeal rules
for the conduct of its business. In the absence of such rules each committee
shall conduct its business in the same manner as the board of directors conducts
its business pursuant to this Article II. Each of the committees shall keep
minutes of all of its meetings which shall be open to the inspection of any
director at any time.
SECTION 2.13 NOTICES TO DIRECTORS. (a) All notices to directors shall
be in writing and shall be delivered by hand or sent by facsimile transmission
("fax") or mail to the directors at their respective addresses or fax numbers
most recently furnished by each of them in writing to the secretary of the
Corporation. Any notice delivered by hand to such address of a director shall be
deemed to have been given on the day it is so delivered at such address,
provided that if such day is not a business day then the notice shall be deemed
to have been given on the business
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day next following such day. Any notice sent by fax to such fax number of a
director shall be deemed to have been given on the date and time the fax is sent
if transmitted during normal business hours on a business day or otherwise shall
be deemed to have been given at the normal opening of business on the business
day next following the date of its transmission. Any notice sent by mail to such
address of a director shall be deemed to have been given when the notice is
deposited in the United States mail, postage prepaid. For purposes of this
Bylaw, the term "business day" means any day other than a Saturday, Sunday or
official national holiday in the United States.
(b) Notice to any member or alternate member of any committee of the
board of directors, in his or her capacity as a committee member, may be given
in the same manner as that specified in paragraph (a) for notices to directors
as such; notice to any committee member may also be given orally, in person or
by telephone, and in any such case shall be deemed to be given when actually
received by the committee member.
SECTION 2.14 WAIVER OF NOTICE. Whenever any notice is required to be
given to a director under the provisions of any statute, the Restated
Certificate of Incorporation or these Bylaws, a waiver thereof in writing signed
by the director entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent to notice. Attendance of a director at a
meeting of the board of directors or any committee thereof shall constitute a
waiver of notice of such meeting, except when the director attends a meeting 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 2.15 COMPENSATION OF DIRECTORS. Each director of the
Corporation shall be entitled to receive such compensation on such bases for his
or her services as a director and as a member of any standing or special
committee of the board of directors as the board of directors by resolution may
from time to time determine. In addition, each director, whether or not an
employee of the Corporation, shall be entitled to reimbursement for all expenses
reasonably incurred by him or her in connection with attending any meeting of
the board of directors or of any committee thereof.
ARTICLE III
OFFICERS
SECTION 3.1 OFFICERS. The officers of the Corporation shall be a
chairman of the board, a president, one or more vice presidents (the number and
designation thereof to be determined by the board of directors), a treasurer, a
secretary and a general counsel. The board of directors shall designate either
the chairman of the board or the president as the chief executive officer of the
Corporation, and it may designate the same or one or more other officers as the
chief operating officer and the chief financial officer of the Corporation. The
officers of the Corporation shall be elected by the board of directors;
provided, however, that in its discretion, the board of directors may leave any
such office unfilled. The board of directors may also from time-to-time elect
such other officers of the Corporation, including without limitation one or more
vice chairmen of the board, assistant treasurers, assistant controllers and
assistant secretaries, as it shall deem
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advisable. Any two or more offices may be held by the same person. No officer
other than the chairman of the board and any vice chairman of the board need be
a director of the Corporation.
SECTION 3.2 TERM OF OFFICE; RESIGNATION; REMOVAL; VACANCIES. Each
officer of the Corporation shall hold office until the first meeting of the
board of directors after the annual meeting of stockholders of the Corporation
next succeeding his or her election, and until his or her successor is elected,
or until his or her earlier death, resignation or removal. Any officer may
resign at any time upon written notice to the Corporation, but such resignation
shall be without prejudice to the contractual rights of the Corporation, if any,
with such officer. The board of directors may remove any officer with or without
cause at any time, but such removal shall be without prejudice to the
contractual rights of such officer, if any, with the Corporation. Any vacancy
occurring in any office of the Corporation by death, resignation, removal or
otherwise may be filled for the unexpired portion of the term by the board of
directors at any regular or special meeting thereof.
SECTION 3.3 COMPENSATION OF OFFICERS. The salaries and other
compensation (including, without limitation, bonuses and similar supplemental
payments) of the officers of the Corporation shall be fixed or approved from
time to time by or under the direction of the board of directors.
SECTION 3.4 POWERS AND DUTIES OF OFFICERS. Each of the officers of the
Corporation shall have such powers and perform such duties in the management of
the Corporation as are prescribed or assigned in these Bylaws or as may be
prescribed or assigned from time to time by the board of directors or by the
officer of the Corporation to whom he or she reports and, to the extent not so
prescribed or assigned, as generally pertain to his or her office, subject to
the control of the board of directors. The board of directors may require any
officer, agent or employee to give security for the faithful performance of his
or her duties in such form and amount as the board of directors shall determine.
Nothing in any other provision of this Article III is intended to limit the
generality of this Section 3.4.
SECTION 3.5 CHIEF EXECUTIVE OFFICER. (a) The chief executive officer of
the Corporation, who shall be designated by the board of directors and who shall
be either the chairman of the board or the president of the Corporation, shall
have general and active authority, control and supervision over the business,
property and affairs of the Corporation, subject to the board of directors. The
chief executive officer shall report to the board of directors. He or she shall
keep the board of directors fully informed, and shall freely consult it,
concerning the business and affairs of the Corporation, and he or she shall see
that all orders and resolutions of the board of directors are carried out.
(b) In the absence or disability of the chief executive officer, or
in case of an unfilled vacancy in that position, until such time as the board of
directors shall designate his or her successor, his or her duties shall be
performed and his or her powers shall be exercised by (i) whichever officer,
either the chairman of the board or the president, who is not then the
designated chief executive officer of the Corporation or (ii) in the absence or
disability of such officer or in the case of an unfilled vacancy in that office,
by other elected or appointed officers
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of the Corporation who are also directors of the Corporation, if any, in the
order of their election or appointment.
SECTION 3.6 CHIEF OPERATING OFFICER. The chief operating officer of the
Corporation, if one is designated by the board of directors, shall be in general
and active charge of the day-to-day operations and business of the Corporation.
Unless otherwise expressly provided by the board of directors, he or she shall
report to the chief executive officer. He or she shall keep the chief executive
officer and, when and as requested by it, the board of directors fully informed
concerning the day-to-day operations and business of the Corporation.
SECTION 3.7 CHIEF FINANCIAL OFFICER. The chief financial officer of the
Corporation, if one is designated by the board of directors, shall be the
principal financial officer and the principal accounting officer of the
Corporation and have responsibility for all of its financial affairs. In that
capacity, he or she shall: (i) protect the cash, securities, receivables and
other financial resources of the Corporation, have responsibility for
investment, receipt, custody and disbursement of such resources, and establish
policies for granting credit to customers; (ii) maintain the creditworthiness of
the Corporation; (iii) procure capital as required by the Corporation from such
sources as he or she deems appropriate, including without limitation long-term
bank borrowings or the public or private sale of debt or equity securities of
the Corporation, and maintain adequate sources for the Corporation's short-term
financing requirements; (iv) maintain the Corporation's banking relationships;
(v) administer the accounting policies of the Corporation and the internal
controls with respect to its financial affairs; and (vi) supervise the
preparation and maintenance of the Corporation's books of account, and have
access to all records of the Corporation. He or she shall supervise the
preparation and maintenance, on a current basis, of such accounting books,
records and reports as may be necessary for the directors, officers and
employees of the Corporation to discharge their respective duties or as may be
required by applicable law or regulation. He or she shall be responsible for
implementing the internal controls established by or under the direction of the
board of directors with respect to the financial affairs of the Corporation.
Unless otherwise expressly provided by the board of directors, he or she shall
report to the chief executive officer. He or she shall keep the chief executive
officer and, when and as requested by it, the board of directors fully informed
concerning the financial affairs of the Corporation.
SECTION 3.8 CHAIRMAN OF THE BOARD. The chairman of the board shall act
as chairman of, and preside at, all meetings of the stockholders and the board
of directors of the Corporation; provided, however, that he or she may delegate
to the president the authority and duty to act as chairman of, and preside at,
any particular meeting of stockholders. The chairman of the board shall consult
with the other directors and officers of the Corporation. If he or she has been
so designated by the board of directors, the chairman of the board shall have
those powers and duties conferred by these Bylaws upon the chief executive
officer of the Corporation. He or she may sign with the secretary or any other
officer of the Corporation thereunto authorized, certificates for shares or
other securities of the Corporation, the issuance of which shall have been duly
authorized by the board of directors. He or she shall have the authority to
execute, by and on behalf of the Corporation, deeds, mortgages, bonds, contracts
or other agreements and instruments, except in cases where the signing and
execution thereof shall be expressly delegated
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by the board of directors or by these Bylaws to some other officer or agent of
the Corporation or shall be required by law to be otherwise signed or executed.
SECTION 3.9 PRESIDENT. If he or she is a director, the president shall,
in the absence of the chairman of the board, preside at all meetings of the
board of directors. If the chairman of the board has been designated the chief
executive officer of the Corporation, then unless otherwise expressly provided
by the board of directors, the president shall report to him or her. If he or
she has been so designated by the board of directors, the president shall have
those powers and duties conferred by these Bylaws upon the chief executive
officer of the Corporation. If no chief operating officer has been designated by
the board of directors, the president shall have those powers and duties
conferred on the chief operating officer of the Corporation by these Bylaws.
In the absence of the chairman of the board, or in the event of his or
her inability or refusal to act, the president shall perform the duties of the
chairman of the board and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the chairman of the board. The president
may sign with the secretary or any other officer of the Corporation thereunto
authorized, certificates for shares or other securities of the Corporation, the
issuance of which shall have been duly authorized by the board of directors. He
or she shall have the power to execute, by and on behalf of the Corporation,
deeds, mortgages, bonds, contracts or other agreements and instruments, except
in cases where the signing and execution thereof shall be expressly delegated by
the board of directors or by these Bylaws to some other officer or agent of the
Corporation or shall be required by law to be otherwise signed or executed.
SECTION 3.10 VICE PRESIDENTS. In the absence of the president, or in
the event of his or her inability or refusal to act, the vice president (or if
there be more than one, first the executive vice presidents, then the senior
vice presidents and then the vice presidents in the order designated by the
board of directors, or in the absence of such designation, then in the order of
their election or in the order named for election) shall perform the duties of
the president, and when so acting, shall have all the powers of and be subject
to all the restrictions upon the president. Each vice president who is elected
as such with respect to a particular area of responsibility or function of the
Corporation shall, subject to the authority of the chief executive officer and
any chief operating officer, perform all duties and have all authority
pertaining to the general and active management of such area or function and
shall see that all orders and resolutions of the board of directors, the chief
executive officer or any chief operating officer pertaining to such area or
function are carried into effect. Unless otherwise expressly provided by these
Bylaws, by the board of directors or by the chief executive officer, each vice
president shall report to the president of the Corporation. Each vice president
may sign with the secretary or any other officer thereunto authorized,
certificates for shares or other securities of the Corporation, the issuance of
which shall have been duly authorized by the board of directors. Each vice
president shall have the power to execute, by and on behalf of the Corporation,
deeds, mortgages, bonds, contracts or other agreements and instruments, except
in cases where the signing and execution thereof shall be expressly delegated by
the board of directors or by these Bylaws to some other officer or agent of the
Corporation or shall be required by law to be otherwise signed or executed.
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SECTION 3.11 TREASURER. The treasurer shall have charge and custody of
and be responsible for all funds and securities of the Corporation, and the
deposit of all moneys and other valuable effects in the name and to the credit
of the Corporation in such banks, trust companies or other depositories as shall
be selected or approved by or in accordance with resolutions of the board of
directors. He or she shall be responsible for the disbursement of the funds of
the Corporation only upon vouchers duly processed and under such rules and
regulations as the board of directors may from time to time adopt. Unless
otherwise expressly provided by the board of directors or the chief executive
officer, the treasurer shall report to the chief financial officer of the
Corporation, if one has been designated by the board of directors. He or she may
sign, with the chairman of the board, the president or any vice president,
certificates for shares or other securities of the Corporation, the issuance of
which shall have been duly authorized by the board of directors.
SECTION 3.12 SECRETARY. The secretary shall: (i) attend and keep the
minutes of all meetings of the stockholders, the board of directors and such
committees of the board of directors as the board of directors may specify; (ii)
be custodian and have general charge of all corporate records (including,
without limitation, the stock ledger and all stock transfer books and other
stockholder records), contracts, papers, correspondence, instruments, documents
and books of the Corporation except those required by these Bylaws or the board
of directors to be kept and maintained by other officers of the Corporation;
(iii) see that all notices are duly given by the Corporation in accordance with
the provisions of these Bylaws or as required by law; (iv) be custodian of the
seal of the Corporation and see that the seal of the Corporation is affixed to
all securities and documents of the Corporation, the execution of which on
behalf of the Corporation under its seal is necessary or desirable; (v) have
authority to sign, with the chairman of the board, the president or any vice
president certificates for shares or other securities of the Corporation, the
issuance of which shall have been duly authorized by the board of directors;
(vi) attest to the genuineness of the signature on behalf of the Corporation of
any officer or agent of the Corporation on any deeds, mortgages, bonds,
contracts or other instruments; and (vii) certify the authenticity of any
instrument or record of the Corporation or of any resolution of the
stockholders, the board of directors or any committee of the board of directors
of the Corporation. Unless otherwise expressly provided by the board of
directors or the chief executive officer, the secretary shall report to the
chief executive officer of the Corporation.
SECTION 3.13 GENERAL COUNSEL. The general counsel shall be the chief
legal officer of and advisor to the Corporation as to all matters affecting the
Corporation or its business. He or she shall have authority to issue any legal
opinion which he or she deems appropriate with respect to the Corporation or any
aspect of its business or affairs. He or she shall supervise the provision of
legal advice and counsel to the board of directors, the officers and the
employees and agents of the Corporation with respect to all matters pertaining
to the Corporation and its business, and he or she shall be responsible for
supervising the prosecution of all claims made by the Corporation and the
defense of all claims made upon or against the Corporation.
SECTION 3.14 ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The
assistant secretary and assistant treasurer (or if in either case there be more
than one, in each case in the order determined by the board of directors, or if
there be no such determination, then in each case in the order of their election
or appointment) shall, in the absence of the secretary or the treasurer,
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as the case may be, or the inability or refusal of the secretary or the
treasurer, as the case may be, to act, perform the duties and exercise the
powers of the secretary or the treasurer, as the case may be. Each assistant
secretary may sign with the chairman of the board, the president, or a vice
president certificates for shares or other securities of the Corporation, the
issuance of which shall have been duly authorized by the board of directors, may
attest to the genuineness of the signature on behalf of the Corporation of any
officer or agent of the Corporation on any deeds, mortgages, bonds, contracts or
other instruments and may certify the authenticity of any instrument or record
of the Corporation. Each assistant treasurer may sign with the chairman of the
board, the president or a vice president, certificates for shares or other
securities of the Corporation, the issuance of which shall have been duly
authorized by the board of directors. Each assistant secretary shall report to
the secretary and each assistant treasurer shall report to the treasurer.
ARTICLE IV
STOCK
SECTION 4.1 CERTIFICATES. (a) Every holder of stock of the Corporation
shall be entitled to have a certificate signed by, or in the name of the
Corporation by, the chairman of the board, a vice chairman of the board or the
president or vice president and the secretary or an assistant secretary or
treasurer or an assistant treasurer of the Corporation, certifying the number of
shares owned by the holder in the Corporation. Any or all of the signatures on
the certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, the certificate may nevertheless be issued by
the Corporation with the same effect as if he, she or it was such officer,
transfer agent or registrar at the date of issue.
(b) If the Corporation shall be authorized to issue more than one
class of stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional, or other special rights of
each class of stock or series thereof and the qualifications, limitations, or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in Section 202 of the General Corporation Law of the State of
Delaware, in lieu of the foregoing requirements, there may be set forth on the
face or back of the certificate a statement that the Corporation will furnish,
without charge to each stockholder who so requests, the powers, designations,
preferences and relative, participating, optional, or other special rights of
each class of stock or series thereof and the qualifications, limitations, or
restrictions of such preferences and/or rights.
SECTION 4.2 LOST, STOLEN OR DESTROYED CERTIFICATES; ISSUANCE OF NEW
CERTIFICATES. The Corporation, when authorized to do so by the board of
directors, which authorization may be general or confined to specific instances,
may issue a new certificate of stock in place of any certificate representing
shares theretofore issued by the Corporation and alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the
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certificate for such shares to be lost, stolen or destroyed. When authorizing
such issuance 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 the
legal representative of the owner, to give the Corporation a bond in such sum as
it may direct as indemnity against any claim that may be made against the
Corporation in connection with the certificate alleged to have been lost,
stolen, or destroyed.
SECTION 4.3 REGISTRATION OF TRANSFERS. Upon surrender to the
Corporation or the transfer agent of the Corporation of a certificate
representing shares duly endorsed or accompanied by proper evidence of
succession, assignation or authority to transfer, the Corporation or its
transfer agent shall cancel the old certificate, record the transaction upon the
stock records of the Corporation and issue a new certificate or certificates to
the person or persons entitled thereto.
SECTION 4.4 THE STOCK LEDGER. The name and address of each holder of
shares of stock of the Corporation and the number of shares of each class or
series so held by such holder shall be recorded on the Corporation's stock
ledger. Each such holder shall be the holder of record of such shares of the
Corporation for all purposes.
ARTICLE V
INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
SECTION 5.1 RIGHT TO INDEMNIFICATION AND ADVANCEMENT OF EXPENSES. The
rights of certain persons to receive indemnification and advancement of expenses
from the Corporation shall be as set forth in Article Eighth of the
Corporation's Restated Certificate of Incorporation. Capitalized terms used but
not otherwise defined in this Article V shall have the meaning given to them in
Article Eighth of the Restated Certificate of Incorporation.
SECTION 5.2 CLAIMS. If a claim for indemnification or advancement of
expenses under Article Eighth of the Restated Certificate of Incorporation or
this Article V is not paid in full by or on behalf of the Corporation within 30
days after a written claim therefor by the Covered Person has been received by
the Corporation, the Covered Person may file suit to recover the unpaid amount
of such claim and, if successful in whole or in part, shall be entitled to be
paid by the Corporation an additional amount equal to the expense of prosecuting
such claim. In any such action the Corporation shall have the burden of proving
that the Covered Person was not entitled to the requested indemnification or
payment of expenses under applicable law. Neither the failure of the Corporation
(including its board or independent legal counsel) to have made a determination
prior to the commencement of such action that such indemnification or
reimbursement or advancement of expenses is proper in the circumstances nor an
actual determination by the Corporation (including its board, its independent
legal counsel and its stockholders) that such Covered Person is not entitled to
such indemnification or reimbursement or advancement of expenses shall
constitute a defense to the action or create a presumption that such Covered
Person is not so entitled.
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SECTION 5.3 NONEXCLUSIVITY OF RIGHTS; PURCHASE OF INSURANCE. (a) The
rights conferred on any Covered Person by Article Eighth of the Restated
Certificate of Incorporation or this Article V shall not be exclusive of any
other rights which such person may have or hereafter acquire under any statute,
the Restated Certificate of Incorporation, these Bylaws, any agreement, any vote
of stockholders or disinterested directors or otherwise. Any amendment or repeal
of any provision of Article Eighth of the Restated Certificate of Incorporation
or this Article V shall not limit the right of any person to indemnity or
advancement of expenses with respect to actions taken or omitted to be taken by
such person prior to such amendment or repeal.
(b) The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another entity, against any
liability asserted against such person and incurred by such person in any such
capacity, or arising out of such person's status as such, whether or not the
Corporation would have the power to indemnify such person against such liability
under the provisions of Section 145 of the General Corporation Law of the State
of Delaware.
SECTION 5.4 PROVISIONS DEEMED A CONTRACT. The provisions of Article
Eighth of the Restated Certificate of Incorporation and this Article V shall
constitute a contract between the Corporation, on the one hand, and each
director and officer of the Corporation who serves in such capacity at any time
while either of Article Eighth of the Restated Certificate of Incorporation and
this Article V is in effect and any other person entitled to indemnification
hereunder, on the other hand, pursuant to which the Corporation and each such
Covered Person intend to be, and shall be, legally bound. No repeal or
modification of any provision of Article Eighth of the Restated Certificate of
Incorporation or this Article V shall affect any rights or obligations with
respect to any state of facts then or theretofore existing or any proceeding
theretofore or thereafter brought or threatened based in whole or in part upon
any such state of facts.
SECTION 5.5 CONCLUSIVE PRESUMPTION. For purposes of Article Eighth of
the Restated Certificate of Incorporation and this Article V, any director or
officer of the Corporation serving in any capacity (a) another corporation of
which a majority of the shares entitled to vote in the election of its directors
is held, directly or indirectly, by the Corporation or (b) any employee benefit
plan or trust of the Corporation or any corporation referred to in clause (a),
shall in either case be conclusively presumed to be doing so at the request of
the Corporation.
SECTION 5.6 OTHER INDEMNIFICATION. The Corporation's obligation, if
any, to indemnify or to advance expenses to any Covered Person who was or is
serving at its request as a director, officer, employee, trustee or agent of
another entity shall be reduced by any amount such person may collect as
indemnification or advancement of expenses from such other entity.
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ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.1 OFFICES AND BOOKS AND RECORDS. (a) The registered office of
the Corporation in the State of Delaware shall be in the City of Wilmington,
County of New Castle.
(b) The Corporation may have offices at such other places, both
within and outside the State of Delaware, as the board of directors may from
time to time designate or as the business of the Corporation may require.
(c) The books and records of the Corporation may be kept at the
Corporation's headquarters at Oak Brook, Illinois and at such other locations
outside the State of Delaware as may be from time to time designated by the
board of directors.
SECTION 6.2 FISCAL YEAR. The fiscal year of the Corporation shall begin
on the first day of October in each year.
SECTION 6.3 SEAL. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its organization 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 6.4 FORM OF RECORDS. Any records maintained by the Corporation
in the regular course of its business, including its stock ledger, books of
account, and minute books, may be kept on, or be in the form of, punch cards,
magnetic tape, computer entry, photographs, microphotographs, or any other
information storage device, provided that the records so kept can be converted
into clearly legible form within a reasonable time.
SECTION 6.5 SIGNING OF CHECKS, NOTES, ETC. All checks, drafts, bills of
exchange, notes or other obligations or orders for the payment of money shall be
signed by such officer or officers or employee or employees of the Corporation
and in such manner as shall from time to time be determined by resolution of the
board of directors or by any officer of the Corporation authorized by resolution
of the board of directors to make such determinations.
SECTION 6.6 VOTING OF SHARES IN OTHER COMPANIES. Unless otherwise
expressly ordered by the board of directors, any one of the chairman of the
board, the president or any vice president of the Corporation shall have full
power and authority, on behalf of the Corporation, to consent to or approve of
any action by, and to attend, act and vote at any meeting of stockholders or
similar equity owners of, any Corporation in which the Corporation may hold
shares of stock or similar equity interests and in giving such consent or
approval or at any such meeting shall possess and may exercise any and all
rights and powers incident to the ownership of such shares or similar equity
interests and which, as the holder thereof, the Corporation might possess and
exercise if personally present, and may exercise such power and authority
through the execution of proxies or may delegate such power and authority to any
other officer, agent or employee of the Corporation. Provided that the transfer
thereof has been authorized by the board of directors
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or the chief executive officer, certificates or similar instruments representing
shares or similar equity interests owned by the Corporation in other companies
may be endorsed for transfer on behalf of the Corporation by any one of the
officers of the Corporation referred to in the preceding sentence.
SECTION 6.7 AMENDMENT OF BYLAWS. These Bylaws may be altered, amended
or repealed, or new Bylaws may be adopted, by the board of directors. Any Bylaws
adopted by the board of directors may be altered, amended or repealed by the
stockholders, and the stockholders may make additional Bylaws, at any annual
meeting or at any special meeting, provided that notice of such proposed
alteration, amendment or repeal or new Bylaw shall have been given in the notice
of the meeting. No such altered or amended or new Bylaw shall be inconsistent
with any provision of the Restated Certificate of Incorporation.
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<PAGE> 1
EXHIBIT 4.4
SHAREHOLDER AGREEMENT
SHAREHOLDER AGREEMENT (this "Agreement"), dated as of [_____ ___], 1998,
between GRIFFITH LABORATORIES INTERNATIONAL, INC., a Delaware corporation
("GLII"), and GRIFFITH MICRO SCIENCE INTERNATIONAL, INC., a Delaware corporation
(the "Company").
WHEREAS, GLII owns all of the currently outstanding Class B Common
Stock, $.01 par value per share ("Class B Common Stock") of the Company (which
is the only class of the Company's capital stock currently outstanding).
WHEREAS, the Company, with the consent of GLII, has determined to offer
to the public (the "Public Offering") up to [__________] shares of Class A
Common Stock, $.01 par value per share, of the Company ("Class A Common Stock"
and, together with the Class B Common Stock, the "Common Stock").
WHEREAS, in consideration for the consent of GLII to the Public Offering
by the Company (including the agreement of GLII to indemnify the underwriters
for the Public Offering), the Company has, among other things, agreed to grant
to GLII certain registration rights applicable to Registrable Securities (as
defined below) held by GLII, and agreed to certain limitations on the use of the
Griffith name.
WHEREAS, the parties hereto desire to enter into this Agreement to set
forth the terms of such registration rights and name use limitations.
NOW, THEREFORE, upon the premises and the mutual promises herein
contained, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties agree as follows:
1. Certain Definitions. As used in this Agreement, the following
initially capitalized terms shall have the following meanings:
(a) "Affiliate" means, with respect to any person, any other person who,
directly or indirectly, is in control of, is controlled by or is under common
control with the former person; and "control" (including the terms
"controlling," "controlled by," and "under common control with") means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a person, whether through the ownership of voting
securities, by contract or otherwise.
(b) "Company Securities" has the meaning set forth in Section 3 hereof.
(c) "Exchangeable Securities" has the meaning set forth in Section 6 of
this Agreement.
<PAGE> 2
(d) "Fair Market Value" means, with respect to any security, (i) if the
security is listed on a national securities exchange or authorized for quotation
on a national market quotation system, the closing price, regular way, of the
security on such exchange or quotation system, as the case may be, or if no such
reported sale of the security shall have occurred on such date, on the next
preceding date on which there was such a reported sale, or (ii) if the security
is not listed for trading on a national securities exchange or authorized for
quotation on a national market quotation system, the average of the closing bid
and asked prices as reported by the National Association of Securities Dealers
Automated Quotation System or such other reputable entity or system engaged in
the regular reporting of securities prices and on which such prices for such
security are reported or, if no such prices shall have been reported for such
date, on the next preceding date for which such prices were so reported, or
(iii) if the security is not publicly traded, the fair market value of such
security as determined by a nationally recognized investment banking or
appraisal firm mutually acceptable to the Company and the Holders, the fair
market value of whose Registrable Securities is to be determined; provided that,
for purposes of Section 2(a)(iii)(C), the Fair Market Value of Class B Common
Stock shall equal the Fair Market Value of the shares of Class A Common Stock
into which such shares of Class B Common Stock are convertible.
(e) "Holder" means GLII or any Qualifying Permitted Transferee.
(f) "Initiating Holders" has the meaning set forth in Section 3 of this
Agreement.
(g) "Other Holders" has the meaning set forth in Section 3 hereof.
(h) "Other Securities" has the meaning set forth in Section 3 hereof.
(i) "Other Voting Securities" means any options, rights, warrants or
other securities convertible into or exchangeable for Voting Stock of the
Company.
(j) "Permitted Transferee" has the meaning set forth in Section 11
hereof.
(k) "Person" means any individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, or other entity of whatever nature.
(l) "Registrable Securities" means (i) all shares of Class B Common
Stock owned on the date hereof by GLII and all shares of Class A Common Stock
issuable upon conversion of Class B Common Stock owned on the date hereof by
GLII, (ii) any stock or other securities into which or for which such Class A
Common Stock or Class B Common Stock may hereafter be changed, converted or
exchanged, and (iii) any other securities issued to holders of such Common Stock
(or such stock or other securities into which or for which such Common Stock are
so changed, converted or exchanged) upon any reclassification, share
combination, share subdivision, share dividend, merger, consolidation or similar
transaction or event, provided that any such securities shall cease to be
Registrable Securities when such securities are transferred in any manner to a
person who is not a Permitted Transferee.
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<PAGE> 3
(m) "Registration Expenses" means all out-of-pocket expenses incurred in
connection with any registration of Registrable Securities pursuant to this
Agreement including, without limitation, the following: (i) SEC filing fees;
(ii) the fees, disbursements and expenses of the Company's counsel(s) and
accountants in connection with the registration of the Registrable Securities to
be disposed of; (iii) all expenses in connection with the preparation, printing
and filing of the registration statement, any preliminary prospectus or final
prospectus and amendments and supplements thereto and the mailing and delivering
of copies thereof to any Holders, underwriters and dealers and all expenses
incidental to delivery of the Registrable Securities; (iv) the cost of printing
or producing any underwriting agreement, agreement among underwriters, agreement
between syndicates, selling agreement, blue sky or legal investment memorandum
or other document in connection with the offering, sale or delivery of the
Registrable Securities to be disposed of; (v) all expenses in connection with
the qualification of the Registrable Securities to be disposed of for offering
and sale under state securities laws, including the fees and disbursements of
counsel for the underwriters in connection with such qualification and the
preparation of any blue sky and legal investment surveys; (vi) the filing fees
incident to securing any required review by the National Association of
Securities Dealers, Inc. of the terms of the sale of the Registrable Securities
to be disposed of; (vii) transfer agents', depositaries' and registrars' fees
and the fees of any other agent appointed in connection with such offering;
(viii) all security engraving and security printing expenses, (ix) all fees and
expenses payable in connection with the listing of the Registrable Securities on
any securities exchange or inter-dealer quotation system; and (x) any one-time
payment for directors and officers insurance directly related to such offering,
provided the insurer provides a separate statement for such payment.
(n) "Rule 144" means Rule 144 promulgated under the Securities Act, or
any successor rule to similar effect.
(o) "SEC" means the United States Securities and Exchange Commission.
(p) "Securities Act" means the Securities Act of 1933, as amended, or
any successor statute.
(q) "Selling Expenses" means all underwriting discounts and commissions,
selling concessions and stock transfer taxes applicable to the sale by the
Holders of Registrable Securities pursuant to this Agreement and all fees and
disbursements of any legal counsel, investment banker, accountant or other
professional advisor retained by a Holder.
(r) "Selling Holder" has the meaning set forth in Section 5 hereof.
(s) "Transactional Deferral" has the meaning set forth in Section 2 of
this Agreement.
(t) "Voting Stock" means shares of the Company's capital stock having
the power under ordinary circumstances (and not merely upon the happening of a
contingency) to vote in the election of directors of the Company.
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<PAGE> 4
2. Demand Registration.
(a) At any time prior to such time as the rights under this Section 2
terminate with respect to a Holder as provided in Section 2(e) hereof, upon
written notice from such Holder in the manner set forth in Section 12(h) hereof
requesting that the Company effect the registration under the Securities Act of
any or all of the Registrable Securities held by such Holder, which notice shall
specify the intended method or methods of disposition of such Registrable
Securities, the Company shall use its best efforts to effect, in the manner set
forth in Section 5, the registration under the Securities Act of such
Registrable Securities for disposition in accordance with the intended method or
methods of disposition stated in such request (including in an offering on a
delayed or continuous basis under Rule 415, or any successor rule to similar
effect, promulgated under the Securities Act, if (x) the Company is then
eligible to register such Registrable Securities on Form S-3 (or a successor
form) for such offering and (y) the Company consents to such an offering, except
that no consent of the Company will be required if the contemplated offering on
a delayed or continuous basis under Rule 415 is the offering of Registrable
Securities upon the exercise, exchange or conversion of Exchangeable Securities
as contemplated by Section 6 hereof), provided that:
(i) if, within 5 business days of receipt by the Company of a
registration request pursuant to this Section 2(a), the Holder or Holders
making such request are advised in writing that the Company has in good
faith commenced the preparation of a registration statement for an
underwritten public offering prior to receipt of the notice requesting
registration pursuant to this Section 2(a) and the managing underwriter of
the proposed offering has determined, and set forth in writing to said
Holder or Holders, that in such firm's good faith opinion, a registration
at the time and on the terms requested would materially and adversely
affect the offering that is contemplated by the Company, the Company shall
not be required to effect a registration pursuant to this Section 2(a) (a
"Transactional Deferral") until the earliest of (A) the abandonment of such
offering by the Company, (B) 60 days after receipt by the Holder or Holders
requesting registration of the managing underwriter's written opinion
referred to above in this clause (i), unless the registration statement for
such offering has become effective and such offering has commenced on or
prior to such 60th day, and (C) if the registration statement for such
offering has become effective and such offering has commenced on or prior
to such 60th day, the day on which the restrictions on the Holders
contained in Section 10 hereof lapse, provided, however, that the Company
shall not be permitted to delay a requested registration in reliance on
this clause (i) more than once in any 12-month period;
(ii) if, while a registration request is pending pursuant to this
Section 2(a), the Company is advised in writing by its legal counsel that
the filing of a registration statement would require the disclosure of
material information that the Company has a bona fide business purpose for
preserving as confidential and the disclosure of which the Company
determines reasonably and in good faith would have a material adverse
effect on the Company, the Company shall not be required to effect a
registration pursuant to this Section 2(a) until the earlier of (A) the
date upon which such material information is
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<PAGE> 5
otherwise disclosed to the public or ceases to be material and (B) 90 days after
the Company makes such determination;
(iii) the Company shall not be obligated to file a registration
statement relating to a registration request pursuant to this Section 2:
(A) prior to the first anniversary of the closing of the Public Offering,
(B) within a period of 365 calendar days after the effective date of any
other registration statement of the Company demanded pursuant to this
Section 2(a), (C) if such registration request is for a number of
Registrable Securities having a Fair Market Value on the business day
immediately preceding the date of such registration request of less than
$2,500,000, or (D) if such registration request is for Registrable
Securities which consist in whole or in part of shares of Class B Common
Stock, unless such request is accompanied by an opinion of counsel for the
Holder submitting the request, which opinion is satisfactory in form and
substance to the Board of Directors of the Company, to the effect that: (x)
the sale or other transaction in connection with which registration of such
shares is requested will not result in their automatic conversion to Class
A Common Stock pursuant to the Amended and Restated Certificate of
Incorporation of the Company and (y) registration of such shares in
connection with such sale or other transaction is required by the
Securities Act; and
(iv) the Company shall not be obligated to file a registration
statement relating to a registration request pursuant to this Section 2:
(A) in the case of a registration request by GLII or any Permitted
Transferee that has acquired, in the transaction in which it became a
Permitted Transferee, at least a majority of the then issued and
outstanding Voting Stock, on more than three occasions after such time as
GLII or such Permitted Transferee, as the case may be, owns less than a
majority of the voting power of the outstanding capital stock of the
Company (it being acknowledged that so long as GLII or such Permitted
Transferee owns a majority of the voting power of the outstanding capital
stock of the Company, there shall be no limit to the number of occasions on
which GLII or such Permitted Transferee may exercise such rights), or (B)
in the case of a Holder other than GLII or a Permitted Transferee described
in clause (A) above, on more than the number of occasions permitted such
Holder in accordance with Section 11 hereof.
(b) Notwithstanding any other provision of this Agreement to the
contrary:
(i) a registration requested by a Holder pursuant to this Section 2
shall not be deemed to have been effected (and, therefore, not requested
for purposes of Section 2(a)), (A) unless the registration statement filed
in connection therewith has become effective, (B) if after such
registration statement has become effective, it becomes subject to any stop
order, or there is issued an injunction or other order or decree of the SEC
or other governmental agency or court for any reason other than a
misrepresentation or an omission by such Holder, which injunction, order or
decree prohibits or otherwise materially and adversely affects the offer
and sale of the Registrable Securities so registered prior to the
completion of the distribution thereof in
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<PAGE> 6
accordance with the plan of distribution set forth in the registration
statement or (C) if the conditions to closing specified in the purchase
agreement or underwriting agreement entered into in connection with such
registration are not satisfied by reason of some act, misrepresentation or
omission by the Company and are not waived by the purchasers or
underwriters; and
(ii) nothing herein shall modify a Holder's obligation to pay
Registration Expenses, in accordance with Section 4 hereof, that are
incurred in connection with any withdrawn registration requested by such
Holder.
(c) In the event that any registration pursuant to this Section 2 shall
involve, in whole or in part, an underwritten offering, Holders owning at least
50.1% of the Fair Market Value of the Registrable Securities to be registered in
connection with such offering shall have the right to designate an underwriter
reasonably satisfactory to the Company as the lead managing underwriter of such
underwritten offering.
(d) The Company shall have the right to cause the registration of
additional shares of Class A Common Stock for sale for the account of any person
(including the Company) in any registration of Registrable Securities requested
by any Holder pursuant to Section 2(a), but only to the extent the managing
underwriter or other independent marketing agent for such offering (if any), in
such case selected by the Holder which has tendered the registration request,
determines that, in its opinion, the additional shares of Class A Common Stock
proposed to be sold will not materially and adversely affect the offering and
sale of the Registrable Securities to be registered in accordance with the
intended method or methods of disposition then contemplated by such Holder. The
rights of a Holder to cause the registration of additional Registrable
Securities held by such Holder in any registration of Registrable Securities
requested by another Holder pursuant to Section 2(a) shall be governed by the
agreement of the Holders with respect thereto as provided in Section 11(a).
(e) The Company shall not be obligated to file a registration statement
relating to a registration request by a Holder pursuant to this Section 2 from
and after such time as such Holder first owns Registrable Securities
representing (assuming for this purpose the conversion, exchange or exercise of
all Registrable Securities then owned by such Holder that are convertible into
or exercisable or exchangeable for Voting Stock of the Company) less than 10% of
the then issued and outstanding Voting Stock of the Company.
3. Piggyback Registration. If the Company at any time proposes to register
any of its Common Stock or any other of its securities (collectively, "Other
Securities") under the Securities Act, whether or not for sale for its own
account, in a manner which would permit registration of Registrable Securities
for sale for cash to the public under the Securities Act, it will each such time
give prompt written notice to each Holder of its intention to do so at least 10
business days prior to the anticipated filing date of the registration statement
relating to such registration. Such notice shall offer each such Holder the
opportunity to include in such registration statement such number of Registrable
Securities as each such Holder may request. Upon the written request of any
such Holder made within 5 business days after the receipt of the
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<PAGE> 7
Company's notice (which request shall specify the number of Registrable
Securities intended to be disposed of and the intended method of disposition
thereof), the Company shall effect, in the manner set forth in Section 5, in
connection with the registration of the Other Securities, the registration under
the Securities Act of all Registrable Securities which the Company has been so
requested to register, to the extent required to permit the disposition (in
accordance with such intended methods thereof) of the Registrable Securities so
requested to be registered, provided that:
(a) if at any time after giving written notice of its intention to
register any securities and prior to the effective date of such registration,
the Company shall determine for any reason not to register or to delay
registration of such securities, the Company may, at its election, give written
notice of such determination to the Holders and, thereupon, (A) in the case of a
determination not to register, the Company shall be relieved of its obligation
to register any Registrable Securities in connection with such registration and
(B) in the case of a determination to delay such registration, the Company shall
be permitted to delay registration of any Registrable Securities requested to be
included in such registration for the same period as the delay in registering
such other securities, but, in either such case, without prejudice to the rights
of the Holders under Section 2;
(b) (i) if the registration referred to in the first sentence of
this Section 3 is to be a registration in connection with an underwritten
offering on behalf of either the Company or holders of securities (other
than Registrable Securities) of the Company ("Other Holders"), and the
managing underwriter for such offering advises the Company in writing that,
in such firm's opinion, such offering would be materially and adversely
affected by the inclusion therein of Registrable Securities requested to be
included therein because such Registrable Securities are not of the same
type, class or series as the securities to be offered and sold in such
offering on behalf of the Company and/or the Other Holders, the Company may
exclude all such Registrable Securities from such offering provided that
the Holder is permitted to substitute for the Registrable Securities so
excluded an equal number of Registrable Securities of the same type, class
or series as those being registered by the Company or the Other Holders, if
and to the extent such Holder owns Registrable Securities of such type,
class or series or can acquire Registrable Securities of such type, class
or series upon exercise or conversion of other Registrable Securities; and
(ii) if the registration referred to in the first sentence of this
Section 3 is to be a registration in connection with an underwritten
primary offering on behalf of the Company, and the managing underwriter for
such offering advises the Company in writing that, in such firm's opinion,
such offering would be materially and adversely affected by the inclusion
therein of the Registrable Securities requested to be included therein
because the number or principal amount of such Registrable Securities,
considered together with the number or principal amount of securities
proposed to be offered by the Company, exceeds the aggregate number or
principal amount of securities which, in such firm's opinion, can be sold
in such offering without materially and adversely affecting the offering,
the Company shall include in such registration: (1) first,
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<PAGE> 8
all securities the Company proposes to sell for its own account ("Company
Securities") and (2) second, the number or principal amount of Registrable
Securities and securities, if any, requested to be included therein by the
Holder and by Other Holders in excess of the number or principal amount of
Company Securities which, in the opinion of such underwriter, can be so
sold without materially and adversely affecting such offering (allocated
pro rata among the Holders and the Other Holders on the basis of the number
of securities (including Registrable Securities) requested to be included
therein by each Holder and each such Other Holder); and
(iii) if the registration referred to in the first sentence of this
Section 3 is to be a registration in connection with an underwritten
secondary offering on behalf of Other Holders made pursuant to demand
registration rights granted by the Company to such Other Holders (the
"Initiating Holders"), and the managing underwriter for such offering
advises the Company in writing that in such firm's opinion, such offering
would be materially and adversely affected by the inclusion therein of the
Registrable Securities requested to be included therein because the number
or principal amount of such Registrable Securities, considered together
with the number or principal amount of securities proposed to be offered by
the Initiating Holders, exceeds the aggregate number or principal amount of
securities which, in such firm's opinion, can be sold in such offering
without materially and adversely affecting the offering, the Company shall
include in such registration; (1) first, to the extent the registration
rights granted to an Initiating Holder permit it to exclude other
securities from its registration on substantially the same basis as that
set forth in the first sentence of Section 2(d) hereof, all securities any
such Initiating Holder proposes to sell for its own account, and (2)
second, the number or principal amount of additional securities (including
Registrable Securities) that such managing underwriter advises can be sold
without materially and adversely affecting such offering, allocated pro
rata among any Other Holders to which clause (1) does not apply and the
Holders on the basis of the number of securities (including Registrable
Securities) requested to be included therein by each Holder and each such
Other Holder;
(c) the Company shall not be required to effect any registration of
Registrable Securities under this Section 3 incidental to the registration of
any of its securities in connection with (i) stock option or other executive or
employee benefit or compensation plans of the Company, or (ii) acquisitions of
assets or businesses by the Company;
(d) no registration of Registrable Securities effected under this
Section 3 shall relieve the Company of its obligation to effect any registration
of Registrable Securities required of the Company pursuant to Section 2 hereof;
and
(e) the Company shall not be required to effect any registration of
Registrable Securities under this Section for any Holder from and after such
time as such Holder is able to dispose of all of its Registrable Securities
within a three-month period pursuant to Rule 144.
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<PAGE> 9
4. Expenses. The Holders, on the one hand, by accepting Registrable
Securities, and the Company, on the other hand, each agree to pay one-half of
all Registration Expenses with respect to a registration pursuant to Section 2
hereof, provided that to the extent a registration pursuant to Section 2
includes the registration of shares for the Company or another person in
connection therewith, the Company or such other person shall pay all incremental
expenses of including such additional shares in the registration. The Holders'
portion of any Registration Expenses shall be allocated among them pro rata
based on each Holder's number or principal amount of Registrable Securities
included in such offering. The Company agrees to pay all Registration Expenses
with respect to a registration pursuant to Section 3 hereof. All Registration
Expenses to be paid by the Holder shall be paid within 30 days of the delivery
of a statement from the Company, such statements to be delivered not more
frequently than once every 60 days. All internal expenses of the Company or a
Holder in connection with any offering pursuant to this Agreement, including,
without limitation, the salaries and expenses of officers and employees,
including in-house attorneys, shall be borne by the party incurring them. All
Selling Expenses of the Holders participating in any registration pursuant to
this Agreement shall be borne by such Holders pro rata based on each Holder's
number of Registrable Securities included in such registration.
5. Registration and Qualification. If and whenever the Company is
required to use its best efforts to effect the registration of any Registrable
Securities under the Securities Act as provided in Section 2 or 3 hereof, the
Company, subject to Section 4 hereof, shall:
(a) use its best efforts to prepare and file a registration statement
under the Securities Act relating to the Registrable Securities to be offered as
soon as practicable, but in no event later than 45 days (60 days if the
applicable registration form is other than Form S-3) after the date notice is
given, and use its best efforts to cause the same to become effective within 90
days after the date notice is given (120 days if the applicable registration
form is other than Form S-3);
(b) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective with respect to
the disposition of all Registrable Securities until the earlier of (i) such time
as all of such Registrable Securities have been disposed of in accordance with
the intended methods of disposition set forth in such registration statement and
(ii) the expiration of nine months after such registration statement becomes
effective; provided, that such nine-month period shall be extended for such
number of days that equals the number of days elapsing from (A) the date the
written notice contemplated by paragraph (f) below is given by the Company to
(B) the date on which the Company delivers to the Holders of Registrable
Securities the supplement or amendment contemplated by paragraph (f) below; and
provided further, that in the case of a registration to permit the exercise or
exchange of Exchangeable Securities for, or the conversion of Exchangeable
Securities into, Registrable Securities, the time limitation contained in clause
(ii) above shall be disregarded to the extent that, in the written opinion of
counsel to the Holder of such Registrable Securities, delivered to the Company,
such Registrable Securities are required to be covered by an effective
registration statement under the Securities Act at the time such Registrable
Securities are issued
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<PAGE> 10
upon exercise, exchange or conversion of Registrable Securities in order for
such Registrable Securities to be freely tradeable by any person who is not an
Affiliate of the Company or GLII;
(c) furnish to the Holders and to any underwriter of such Registrable
Securities such number of conformed copies of such registration statement and of
each such amendment and supplement thereto (in each case including all
exhibits), such number of copies of the prospectus included in such registration
statement (including each preliminary prospectus and any summary prospectus), in
conformity with the requirements of the Securities Act, and such other
documents, as the Holders or such underwriter may reasonably request in order to
facilitate the public sale of the Registrable Securities, and a copy of any and
all transmittal letters or other correspondence to, or received from, the SEC or
any other governmental agency or self-regulatory body or other body having
jurisdiction (including any domestic or foreign securities exchange) relating to
such offering;
(d) use its best efforts to register or qualify all Registrable
Securities covered by such registration statement under the securities or blue
sky laws of such jurisdictions (domestic or foreign) as the Holders or any
underwriter of such Registrable Securities shall request, and use its best
efforts to obtain all appropriate registrations, permits and consents required
in connection therewith, and do any and all other acts and things which may be
necessary or advisable to enable the Holders or any such underwriter to
consummate the disposition in such jurisdictions of its Registrable Securities
covered by such registration statement; provided that the Company shall not for
any such purpose be required to register or qualify generally to do business as
a foreign corporation in any jurisdiction wherein it is not so qualified, or to
subject itself to taxation in any such jurisdiction, or to consent to general
service of process in any such jurisdiction;
(e) (i) use its best efforts to furnish an opinion of counsel for
the Company addressed to the underwriters and each Holder of Registrable
Securities included in such registration (each a "Selling Holder") and dated the
date of the closing under the underwriting agreement (if any) (or if such
offering is not underwritten, dated the effective date of the registration
statement), and (ii) use its best efforts to furnish a "cold comfort" letter
addressed to each Selling Holder, if permissible under applicable accounting
practices, and signed by the independent public accountants who have audited the
Company's financial statements included in such registration statement, in each
such case covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) as are customarily
covered in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities and such other
matters as the Selling Holders may reasonably request and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements;
(f) immediately notify the Selling Holders in writing (i) at any time
when a prospectus relating to a registration pursuant to Section 2 or 3 hereof
is required to be delivered under the Securities Act of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make
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<PAGE> 11
the statements therein, in light of the circumstances under which they were
made, not misleading, and (ii) of any request by the SEC or any other regulatory
body or other body having jurisdiction for any amendment of or supplement to any
registration statement or other document relating to such offering, and in
either such case (i) or (ii) at the request of the Selling Holders, subject to
Section 4 hereof, prepare and furnish to the Selling Holders a reasonable number
of copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus shall not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
are made, not misleading;
(g) use its best efforts to list all such Registrable Securities
which consist of Class A Common Stock covered by such registration on each
securities exchange and inter-dealer quotation system on which the Class A
Common Stock is then listed, with expenses in connection therewith (not
including any future periodic assessments or fees for such additional listing,
which shall be paid by the Company) to be paid in accordance with Section 4
hereof;
(h) to the extent reasonably requested by the lead or managing
underwriters in connection with any underwritten offering, send appropriate
officers of the Company to attend any "road shows" or other customary marketing
efforts scheduled in connection with any such registration; and
(i) furnish for delivery in connection with the closing of any
offering of Registrable Securities unlegended certificates representing
ownership of the Registrable Securities being sold in such denominations as
shall be requested by the Selling Holders or the underwriters.
6. Exchangeable Securities. GLII shall be entitled, if it intends to
offer any options, rights, warrants or other securities issued or to be issued
by it or any other person that are exercisable or exchangeable for or
convertible into any Registrable Securities ("Exchangeable Securities"), to
register the Registrable Securities underlying such options, rights, warrants or
other securities pursuant to (and subject to the limitations contained in)
Section 2 of this Agreement.
7. Underwriting; Due Diligence.
(a) If requested by the underwriters for any underwritten offering of
Registrable Securities pursuant to a registration requested under this
Agreement, the Company shall enter into an underwriting agreement with such
underwriters for such offering, such agreement to contain such representations
and warranties by the Company and such other terms and provisions as are
customarily contained in underwriting agreements with respect to secondary
distributions, including, without limitation, indemnities and contribution
substantially to the effect and to the extent provided in Section 8 hereof and
the provision of opinions of counsel and accountants' letters to the effect and
to the extent provided in Section 5(e) hereof. The Selling Holders on whose
behalf the Registrable Securities are to be distributed by such underwriters
shall be parties to any such underwriting agreement and the representations and
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<PAGE> 12
warranties by, and the other agreements on the part of, the Company to and for
the benefit of such underwriters, shall also be made to and for the benefit of
such Selling Holders. Such underwriting agreement shall also contain such
representations and warranties by the Selling Holders on whose behalf the
Registrable Securities are to be distributed as are customarily contained in
underwriting agreements with respect to secondary distributions. The Selling
Holders may require that any additional securities included in an offering
proposed by a Holder be included on the same terms and conditions as the
Registrable Securities that are included therein.
(b) In the event that any registration pursuant to Section 3 shall
involve, in whole or in part, an underwritten offering, the Company may require
the Registrable Securities requested to be registered pursuant to Section 3 to
be included in such underwritten offering on the same terms and conditions as
shall be applicable to the other securities being sold through underwriters
under such registration. If requested by the underwriters for such underwritten
offering, the Selling Holders on whose behalf the Registrable Securities are to
be distributed shall enter into an underwriting agreement with such
underwriters, such agreement to contain such representations and warranties by
the Selling Holders and such other terms and provisions as are customarily
contained in underwriting agreements with respect to secondary distributions,
including, without limitation, indemnities and contribution substantially to the
effect and to the extent provided in Section 8 hereof. Such underwriting
agreement shall also contain such representations and warranties by the Company
and such other person or entity for whose account securities are being sold in
such offering as are customarily contained in underwriting agreements with
respect to secondary distributions.
(c) In connection with the preparation and filing of each
registration statement registering Registrable Securities under the Securities
Act, the Company shall give the Holders of such Registrable Securities and the
underwriters, if any, and their respective counsel and accountants, such
reasonable and customary access to its books and records and such opportunities
to discuss the business of the Company with its officers and the independent
public accountants who have certified the Company's financial statements as
shall be necessary, in the opinion of such Holders and such underwriters or
their respective counsel, to conduct a reasonable investigation within the
meaning of the Securities Act, subject to the execution by such Holders and such
underwriters of appropriate confidentiality agreements.
8. Indemnification and Contribution.
(a) In the case of each offering of Registrable Securities made
pursuant to this Agreement, the Company agrees to indemnify and hold harmless
each Holder, its officers and directors, each underwriter of Registrable
Securities so offered and each person, if any, who controls any of the foregoing
persons within the meaning of the Securities Act, from and against any and all
claims, liabilities, losses, damages, expenses and judgments, joint or several,
to which they or any of them may become subject, under the Securities Act or
otherwise, including any amount paid in settlement of any litigation commenced
or threatened, and shall promptly reimburse them, as and when incurred, for any
reasonable legal or other expenses incurred by them in connection with
investigating any claims and defending any actions, insofar as such
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<PAGE> 13
losses, claims, damages, liabilities or actions shall arise out of, or shall be
based upon, any untrue statement or alleged untrue statement of a material fact
contained in the registration statement (or in any preliminary or final
prospectus included therein) or any amendment thereof or supplement thereto, or
in any document incorporated by reference therein, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
the Company shall not be liable to a particular Holder or underwriter in any
such case to the extent that any such loss, claim, damage, liability or action
arises out of, or is based upon, any untrue statement or alleged untrue
statement, or any omission, if such statement or omission shall have been made
in reliance upon and in conformity with information (i) relating to such Holder
and furnished to the Company in writing by or on behalf of such Holder or (ii)
furnished to the Company in writing by or on behalf of an underwriter, in either
case specifically for use in the preparation of the registration statement (or
in any preliminary or final prospectus included therein) or any amendment
thereof or supplement thereto. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of a Holder and
shall survive the transfer of such securities. The foregoing indemnity
agreement is in addition to any liability which the Company may otherwise have
to each Holder, any of such Holder's directors or officers, underwriters of the
Registrable Securities or any controlling person of the foregoing; provided,
further, that this indemnity does not apply in favor of any underwriter or
person controlling an underwriter (or if a Selling Holder offers Registrable
Securities directly without an underwriter, the Selling Holder) with respect to
any loss, liability, claim, damage or expense arising out of or based upon any
untrue statement or alleged untrue statement or omission or alleged omission in
any preliminary prospectus if a copy of a final prospectus was not sent or given
by or on behalf of an underwriter (or the Selling Holder, if the Selling Holder
offered the Registrable Securities directly without an underwriter) to the
person asserting such loss, claim, damage, liability or action at or prior to
the written confirmation of the sale of the Registrable Securities as required
by the Securities Act and such untrue statement or omission had been corrected
in such final prospectus.
(b) In the case of each offering made pursuant to this Agreement,
each Holder of Registrable Securities included in such offering, by exercising
its registration rights hereunder, agrees to indemnify and hold harmless the
Company, its officers and directors and each person, if any, who controls any of
the foregoing within the meaning of the Securities Act (and if requested by the
underwriters, each underwriter who participates in the offering and each person,
if any, who controls any such underwriter within the meaning of the Securities
Act), from and against any and all claims, liabilities, losses, damages,
expenses and judgments, joint or several, to which they or any of them may
become subject, under the Securities Act or otherwise, including any amount paid
in settlement of any litigation commenced or threatened, and shall promptly
reimburse them, as and when incurred, for any legal or other expenses incurred
by them in connection with investigating any claims and defending any actions,
insofar as any such losses, claims, damages, liabilities or actions shall arise
out of, or shall be based upon, any untrue statement or alleged untrue statement
of a material fact contained in the registration statement (or in any
preliminary or final prospectus included therein) or any amendment thereof or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but in each case only to the extent that such untrue
statement of a material fact is contained in, or such material fact is
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<PAGE> 14
omitted from, information relating to such Holder furnished in writing to the
Company by or on behalf of such Holder specifically for use in the preparation
of such registration statement (or in any preliminary or final prospectus
included therein). The foregoing indemnity is in addition to any liability
which such Holder may otherwise have to the Company, any of its directors or
officers, underwriters of the Registrable Securities or any controlling person
of the foregoing; provided, however, that this indemnity does not apply in favor
of any underwriter or person controlling an underwriter (or if the Company
offers Registrable Securities directly without an underwriter, the Company) with
respect to any loss, liability, claim, damage or expense arising out of or based
upon any untrue statement or alleged untrue statement or omission or alleged
omission in any preliminary prospectus if a copy of a final prospectus was not
sent or given by or on behalf of an underwriter (or the Company, if the Company
offered the Registrable Securities directly without an underwriter) to the
person asserting such loss, claim, damage, liability or action at or prior to
the written confirmation of the sale of the Registrable Securities as required
by the Securities Act and such untrue statement or omission had been corrected
in such final prospectus.
(c) Each party indemnified under paragraph (a) or (b) of this Section
8 shall, promptly after receipt of notice of any claim or the commencement of
any action against such indemnified party in respect of which indemnity may be
sought, notify the indemnifying party in writing of the claim or the
commencement thereof; provided that the failure to notify the indemnifying party
shall not relieve it from any liability which it may have to an indemnified
party on account of the indemnity agreement contained in paragraph (a) or (b) of
this Section 8, except to the extent the indemnifying party was materially
prejudiced by such failure, and in no event shall relieve the indemnifying party
from any other liability which it may have to such indemnified party. If any
such claim or action shall be brought against an indemnified party, and it shall
notify the indemnifying party thereof, the indemnifying party shall be entitled
to participate therein, and, to the extent that it wishes, jointly with any
other similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided that each
indemnified party, its officers and directors, if any, and each person, if any,
who controls such indemnified party within the meaning of the Securities Act,
shall have the right to employ separate counsel reasonably approved by the
indemnifying party to represent them if the named parties to any action
(including any impleaded parties) include both such indemnified party and an
indemnifying party or an Affiliate of an indemnifying party, and such
indemnified party shall have been advised by counsel either (i) that there may
be one or more legal defenses available to such indemnifying party that are
different from or additional to those available to such indemnified party or
such Affiliate or (ii) a conflict may exist between such indemnified party and
such indemnifying party or such Affiliate, and in that event the fees and
expenses of one such separate counsel for all such indemnified parties shall be
paid by the indemnifying party. An indemnified party will not enter into any
settlement agreement which is not approved by the indemnifying party, such
approval not to be unreasonably withheld. The indemnifying party may not agree
to any settlement of any such
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<PAGE> 15
claim or action which provides for any remedy or relief other than monetary
damages for which the indemnifying party shall be responsible hereunder, without
the prior written consent of the indemnified party, which consent shall not be
unreasonably withheld. In any action hereunder as to which the indemnifying
party has assumed the defense thereof with counsel reasonably satisfactory to
the indemnified party, the indemnified party shall continue to be entitled to
participate in the defense thereof, with counsel of its own choice, but, except
as set forth above, the indemnifying party shall not be obligated hereunder to
reimburse the indemnified party for the costs thereof. In all instances, the
indemnified party shall cooperate fully with the indemnifying party or its
counsel in the defense of such claim or action.
(d) If the indemnification provided for in this Section 8 shall for
any reason be unavailable to or insufficient to hold harmless an indemnified
party in respect of any loss, claim, damage or liability, or any action in
respect thereof, referred to herein, then each indemnifying party shall, in lieu
of indemnifying such indemnified party, contribute to the amount paid or payable
by such indemnified party as a result of such loss, claim, damage or liability,
or action in respect thereof, in such proportion as shall be appropriate to
reflect the relative fault of the indemnifying party on the one hand and the
indemnified party on the other with respect to the statements or omissions which
resulted in such loss, claim, damage or liability, or action in respect thereof,
as well as any other relevant equitable considerations. The relative fault
shall be determined by reference to whether the untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact relates to information supplied by the indemnifying party on the one hand
or the indemnified party on the other, the intent of the parties and their
relative knowledge, access to information and opportunity to correct or prevent
such statement or omission, but not by reference to any indemnified party's
stock ownership in the Company. In no event, however, shall a Holder be
required to contribute in excess of the amount of the net proceeds received by
such Holder in connection with the sale of Registrable Securities in the
offering which is the subject of such loss, claim, damage or liability. The
amount paid or payable by an indemnified party as a result of the loss, claim,
damage or liability, or action in respect thereof, referred to above in this
paragraph shall be deemed to include, for purposes of this paragraph, any legal
or other expenses reasonably incurred by such indemnifying party in connection
with investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
9. Rule 144. The Company shall take such measures and file such
information, documents and reports as shall be required by the SEC as a
condition to the availability of Rule 144 (or any successor provision). The
Company shall use its best efforts to cause all conditions to the availability
of Form S-3 (or any successor form thereto) under the Securities Act for the
filing of registration statements under this Agreement to be met as soon as
possible after the completion of the Public Offering.
10. Holdback.
(a) GLII and each other Holder agrees by the acquisition of
Registrable Securities, if so required by the managing underwriter of any
offering of equity securities by the
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<PAGE> 16
Company, not to sell, make any short sale of, loan, grant any option for the
purchase of, effect any public sale or distribution of or otherwise dispose of
any Registrable Securities owned by such Holder, during the 30 days prior to and
the 90 days after the registration statement relating to such offering has
become effective (or such shorter period as may be required by the underwriter),
except as part of such underwritten offering. Notwithstanding the foregoing
sentence, each Holder subject to the foregoing sentence shall be entitled to
sell during the foregoing period any securities of the Company owned by it in a
private sale. The Company may legend and may impose stop transfer instructions
on any certificate evidencing Registrable Securities relating to the
restrictions provided for in this Section 10.
(b) The Company agrees, if so required by the managing underwriter of
any offering of Registrable Securities, not to sell, make any short sale of,
loan, grant any option for the purchase of (other than pursuant to employee
benefit plans), effect any public sale or distribution of or otherwise dispose
of any of its equity securities during the 30 days prior to and the 90 days
after any underwritten registration pursuant to Section 2 or 3 hereof has become
effective, except as part of such underwritten registration and except pursuant
to registrations on Form S-4, S-8 or any successor or similar forms thereto.
11. Transfer of Registration Rights.
(a) A Holder may transfer all or any portion of its rights under
this Agreement to any "Permitted Transferee," as defined in Section 4[__] of the
Company's Amended and Restated Certificate of Incorporation, or to any
transferee of Registrable Securities that represent (assuming, for purposes of
making such 20% calculation, the conversion, exchange or exercise of all
Registrable Securities so transferred that are convertible into or exercisable
or exchangeable for the Company's Voting Stock) at least 20% of the then issued
and outstanding Voting Stock of the Company (each, a "Qualifying Permitted
Transferee"); provided, however, that (i) with respect to any transferee of less
than a majority but more than 30% of the then issued and outstanding Voting
Stock, the Company shall not be obligated to file a registration statement
pursuant to a registration request made by such transferee pursuant to Section 2
hereof on more than two occasions, and (ii) with respect to any transferee of
30% or less of the then issued and outstanding Voting Stock, the Company shall
not be obligated to file a registration statement pursuant to a registration
request made by such transferee pursuant to Section 2 hereof on more than one
occasion. The Company shall receive a written notice stating the name and
address of any Permitted Transferee and identifying the number and/or aggregate
principal amount of Registrable Securities with respect to which the rights
under this Agreement are being transferred and the scope of the rights so
transferred, provided that the failure of the Company to receive any such notice
shall not affect the validity of the transfer of rights under this Agreement to
any Permitted Transferee. In connection with any such transfer, the term GLII
as used in this Agreement (other than in Section 2(a)(iv)) shall, where
appropriate to assign the rights and obligations hereunder to such Permitted
Transferee, be deemed to refer to the Permitted Transferee of such Registrable
Securities. GLII and any Permitted Transferees may exercise the registration
rights hereunder in such priority, as among themselves, as they shall agree
among themselves, and the Company shall observe any such agreements of which it
shall have notice as provided above.
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<PAGE> 17
(b) After any such transfer, the transferring Holder shall retain
its rights under this Agreement with respect to all other Registrable Securities
owned by such transferring Holder.
(c) Upon the request of the transferring Holder, the Company shall
execute an agreement with a Permitted Transferee substantially similar to this
Agreement.
12. Termination of Right to Use Griffith Name. The Company agrees that,
if at any time Griffith Laboratories, Inc., an Illinois corporation that owns
all of the capital stock of GLII ("GLI"), owns, directly or indirectly through
one or more subsidiaries, less than 50% of the voting power of all outstanding
capital stock of the Company, GLI may at any time thereafter demand by written
notice to the Company that within 12 months of the date such notice is received
(i) the Company (A) change its name to a name that does not include the word
"Griffith," (B) cease using any trademark or trade name that contains the word
"Griffith," and (C) cease using the word "Griffith" in any manner in connection
with the Company's business, and (ii) the Company cease using the "flask and
world" logo and trademark in any manner in connection with the Company's
business and assign to GLI all of the Company's right, title and interest in and
to that trademark. The limitations set forth above on the use of the word
"Griffith" shall also apply to any similar word or any abbreviation of such
word. In the event that any such written notice is given by GLI, the Company
agrees, within such 12-month period, to comply fully with any such demand
contained therein.
13. Miscellaneous.
(a) Injunctions. Each party acknowledges and agrees that
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specific terms or was
otherwise breached. Therefore, each party shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically the terms and provisions hereof in any court having
jurisdiction, such remedy being in addition to any other remedy to which such
party may be entitled at law or in equity.
(b) Severability. If any term or provision of this Agreement is
held by a court of competent jurisdiction to be invalid, void or unenforceable,
the remainder of the terms and provisions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and
each of the parties shall use its best efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term or provision.
(c) Further Assurances. Subject to the specific terms of this
Agreement, each of the parties hereto shall make, execute, acknowledge and
deliver such other instruments and documents, and take all such other actions,
as may be reasonably required in order to effectuate the purposes of this
Agreement and to consummate the transactions contemplated hereby.
(d) Waivers, etc. Except as otherwise expressly set forth in this
Agreement, no failure or delay on the part of either party in exercising any
power or right hereunder shall
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<PAGE> 18
operate as a waiver thereof, nor shall any single or partial exercise of any
such right or power, or any abandonment or discontinuance of steps to enforce
such a right or power, preclude any other or further exercise thereof or the
exercise of any other right or power. Except as otherwise expressly set forth
in this Agreement, no modification or waiver of any provision of this Agreement
nor consent to any departure therefrom shall in any event be effective unless
the same shall be in writing and signed by an authorized officer of each of the
parties, and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given.
(e) Entire Agreement. This Agreement contains the final and
complete understanding of the parties with respect to its subject matter. This
Agreement supersedes all prior agreements and understandings between the
parties, whether written or oral, with respect to the subject matter hereof. The
paragraph headings contained in this Agreement are for reference purposes only,
and shall not affect in any manner the meaning or interpretation of this
Agreement.
(f) Counterparts. For the convenience of the parties, this
Agreement may be executed in any number of counterparts, each of which shall be
deemed to be an original but all of which together shall be one and the same
instrument.
(g) Amendment. This Agreement may be amended only by a written
instrument duly executed by an authorized officer of each of the parties.
(h) Notices. Unless expressly provided herein, all notices, claims,
certificates, requests, demands and other communications hereunder shall be in
writing and shall be deemed to be duly given (i) when personally delivered or
(ii) if mailed registered or certified mail, postage prepaid, return receipt
requested, on the date the return receipt is executed or the letter refused by
the addressee or its agent or (iii) if sent by overnight courier which delivers
only upon the signed receipt of the addressee, on the date the receipt
acknowledgment is executed or refused by the addressee or its agent or (iv) if
sent by facsimile or other generally accepted means of electronic transmission,
on the date confirmation of transmission is received (provided that a copy of
any notice delivered pursuant to this clause (iv) shall also be sent pursuant to
clause (ii) or (iii)), addressed as follows or sent by facsimile to the
following number (or to such other address or facsimile number for a party as it
shall have specified by like notice):
(i) if to GLII, to:
Griffith Laboratories International, Inc.
1 Griffith Center
Alsip, Illinois 60803-3495
Attention: General Counsel
Facsimile: 708-371-4783
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<PAGE> 19
(ii) if to the Company, to
Griffith Micro Science International, Inc.
2001 Spring Road, Suite 500
Oak Brook, Illinois 60523-1887
Attention: President
Facsimile: 630-472-4543
(iii) if to a Holder of Registrable Securities, to the name
and address as the same appear in the security transfer
books of the Company,
or to such other address as either party (or other Holders of Registrable
Securities) may, from time to time, designate in a written notice in a like
manner.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO THE
CONFLICTS OF LAWS PRINCIPLES THEREOF.
(j) Assignment. Except as specifically provided herein, the parties
may not assign their rights under this Agreement. The Company may not delegate
its obligations under this Agreement.
(k) Conflicting Agreements. The Company shall not hereafter grant
any rights to any person to register securities of the Company, the exercise of
which would conflict with the rights granted to the Holders of the Registrable
Securities under this Agreement. The Company shall not hereafter grant to any
person demand registration rights permitting it to exclude the Holders from
including Registrable Securities in a registration on behalf of such person on a
basis more favorable than that set forth in Section 2(d) hereof with respect to
the Holders.
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<PAGE> 20
IN WITNESS WHEREOF, GLII and the Company have caused this Agreement
to be duly executed by their authorized representative as of the date first
above written.
GRIFFITH LABORATORIES
INTERNATIONAL, INC.
By:_____________________________
Name:
Title:
GRIFFITH MICRO SCIENCE
INTERNATIONAL, INC.
By:_____________________________
Name:
Title:
20
<PAGE> 1
EXHIBIT 5.1
October __, 1998
Griffith Micro Science International, Inc.
2001 Spring Road, Suite 500
Oak Brook, Illinois 60523-1887
RE: REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
We have acted as counsel for Griffith Micro Science International,
Inc., a Delaware corporation (the "Company"), in connection with: (i) the
preparation and filing with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Securities Act"), of a registration
statement on Form S-1 (Registration No. 333-60153) (the "Registration
Statement") relating to the registration of 2,875,000 shares of Class A Common
Stock, par value $.01 per share, of the Company (the "Shares"); and (ii) certain
related transactions, including a recapitalization of the Company which will
become effective upon the filing with the Secretary of State of Delaware of the
Restated Certificate of Incorporation of the Company and pursuant to which (A)
the total number of authorized shares of capital stock of the Company will be
increased to 100,000,000, consisting of 50,000,000 shares of Class A Common
Stock, 40,000,000 shares of Class B Common Stock and 10,000,000 shares of
Preferred Stock, and (B) each of the currently outstanding 950,000 shares of
common stock of the Company will be reclassified into 5.5 shares of Class B
Common Stock (collectively, the "Recapitalization"). The Shares are proposed to
be issued and sold by the Company to a group of underwriters (the
"Underwriters") for resale pursuant to an underwriting agreement (the
"Underwriting Agreement"), including a total of 375,000 of the Shares which may
be issued and sold by the Company pursuant to an over-allotment option to be
granted to the Underwriters.
We are familiar with the proceedings to date with respect to the
proposed issuance and sale of the Shares and have examined such corporate and
other records, documents, instruments, certificates and questions of law, and
satisfied ourselves as to such matters of fact, as we have considered relevant
and necessary as a basis for this opinion.
Based on the foregoing, we are of the opinion that:
1. The Company is a corporation duly incorporated in and
validly existing under the laws of the State of Delaware.
<PAGE> 2
Griffith Micro Science International, Inc.
October __, 1998
Page 2
2. When the Recapitalization becomes effective under Delaware
law, the Shares will be legally authorized and, upon their subsequent
issuance and delivery to the Underwriters in accordance with the terms
of the Underwriting Agreement and the receipt by the Company of the
purchase price therefor, will be legally issued, fully paid and
non-assessable.
Our opinion expressed herein is limited to the laws of the State of
Delaware and of the United States. We do not find it necessary for the purposes
of this opinion to cover, and accordingly we express no opinion as to, the
application of the securities or blue sky laws of the various states of the
United States or of any foreign jurisdiction to the sale of the Shares.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to all references to our firm included in or made a
part of the Registration Statement. In giving this consent, we do not admit that
we are within the category of persons whose consent is required by Section 7 of
the Securities Act.
Very truly yours,
<PAGE> 1
EXHIBIT 10.2
GRIFFITH MICRO SCIENCE INTERNATIONAL, INC.
1998 EMPLOYEE STOCK OPTION PLAN
1. STATEMENT OF PURPOSE. The purpose of this 1998 Employee Stock Option
Plan (the "Plan") is to benefit Griffith Micro Science International, Inc., a
Delaware corporation (the "Company"), by offering certain present and future
officers and employees of the Company and its Subsidiaries a favorable
opportunity to acquire capital stock of the Company over a period of years,
thereby giving them a long-term equity stake in the growth and prosperity of the
Company and encouraging the continuance of their services with the Company and
its Subsidiaries.
2. CERTAIN DEFINED TERMS. The terms hereinafter set forth when used in
the Plan or any certificate evidencing an Option granted pursuant to the Plan
shall have the following meanings (and the following definitions shall be
equally applicable to both the singular and plural forms of any of the terms
herein defined):
(a) "BOARD" means the Board of Directors of the Company as it is
duly constituted from time to time.
(b) "CAUSE" means either: (i) the willful failure by the Optionee to
substantially perform his or her employment duties with the Company or
any of its Subsidiaries; or (ii) the willful engaging by the Optionee
in conduct which is demonstrably and materially injurious, monetarily
or otherwise, to the Company or any of its Subsidiaries.
(c) "CHANGE IN CONTROL" is defined in Paragraph 8(d).
(d) "CLASS A COMMON STOCK" means the class of shares of Class A
common stock, $.01 par value per share, of the Company.
(e) "CODE" means the Internal Revenue Code of 1986, as amended, and
the rules and regulations thereunder.
(f) "COMMISSION" means the United States Securities and Exchange
Commission.
(g) "COMPANY" is defined in Paragraph 1.
(h) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated by the Commission
thereunder.
(i) "EXERCISE DATE" is defined in Paragraph 9(a).
(j) "EXERCISE PRICE" is defined in Paragraph 7.
<PAGE> 2
(k) "FAIR MARKET VALUE" means, with respect to a share of Class A
Common Stock on any specified date (the "Measuring Date"), as follows:
(i) if the Measuring Date is the Initial Public Offering Date,
the Fair Market Value of a share of Class A Common Stock on such
date shall be the initial public offering price of the shares of
Class A Common Stock offered to the public which is set forth on the
cover page of the final prospectus filed by the Company with the
Commission in accordance with Rule 424(b) under the Securities Act
and pursuant to which the Company's initial public offering of Class
A Common Stock is made; and
(ii) if the Measuring Date occurs after the Initial Public
Offering Date, the Fair Market Value of a share of Class A Common
Stock on such date shall be: (A) in the event that on such Measuring
Date the Class A Common Stock is listed on the Nasdaq National
Market or any other national securities exchange, the average of the
highest and lowest sale prices of the Class A Common Stock on the
Nasdaq National Market or on the principal national securities
exchange on which the Class A Common Stock is listed (as reported in
The Wall Street Journal, Midwest Edition) on such Measuring Date or,
if such date is not a trading date, on the first trading date
immediately preceding the Measuring Date; or (B) if clause (A) is
not applicable under the specific circumstances, then the Fair
Market Value of a share of Class A Common Stock on such Measuring
Date shall be as reasonably determined by the Stock Option
Committee.
(l) "GRANT DATE" means: (i) with respect to any Option granted on or
prior to the Initial Public Offering Date, such Initial Public Offering
Date; and (ii) with respect to any Option granted after the Initial
Public Offering Date, the date on which the Stock Option Committee
acted to grant such Option.
(m) "INITIAL PUBLIC OFFERING DATE" means the date on which shares of
Class A Common Stock are first offered to the public following
effectiveness of a registration statement filed by the Company with the
Commission under the Securities Act in connection with the initial
public offering of such shares of Class A Common Stock.
(n) "OPTION" means an option to purchase Shares granted pursuant to
the Plan.
(o) "OPTION CERTIFICATE" is defined in Paragraph 6(c).
(p) "OPTIONEE" means each individual who is granted an Option and
each other person entitled at any time by the Plan to exercise an
Option.
2
<PAGE> 3
(q) "PERMANENT DISABILITY" has the same meaning herein as its
definition in Section 22(e)(3) of the Code as in effect on the date of
adoption of the Plan.
(r) "PLAN" is defined in Paragraph 1.
(s) "PROMISSORY NOTE" is defined in Paragraph 9(c).
(t) "SECURITIES ACT" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated by the Commission thereunder.
(u) "SHARES" means the aggregate number of shares of Class A Common
Stock as to which the Stock Option Committee may grant Options. The
term includes shares of Class A Common Stock which at any given time
are (i) reserved for the possible grant of future Options, (ii) covered
by outstanding Options or (iii) issued and outstanding as a result of
the exercise of any Option.
(v) "STOCK OPTION COMMITTEE" means a committee of the Board which
shall be designated by the Board and consist of at least two members
appointed by the Board, neither of whom shall be eligible to be granted
an Option under the Plan and each of whom shall be, if and to the
extent any member or members of the Board so qualify, a "non-employee
director" of the Company as such term is defined in Rule 16b-3 of the
Commission under the Exchange Act and an "outside director" within the
meaning of Section 162(m) of the Code.
(w) "SUBSIDIARY" means any corporation, partnership, limited
liability company or other entity for which the Company, in conformity
with generally accepted accounting principles in the United States, is
required to report the results of operations on a consolidated basis or
in accordance with the equity method of accounting.
(x) "UNEXERCISED SHARES" means, at any specified point in time, the
Shares which then remain subject to an outstanding Option, whether or
not vested, and as to which such Option has not then been exercised.
3. ADMINISTRATION. The Plan shall be administered by the Stock Option
Committee of the Board as it is duly constituted from time to time. The Stock
Option Committee shall have exclusive authority to interpret the terms and
provisions of the Plan and to prescribe, amend and rescind rules and regulations
relating to the Plan and its administration. All interpretations by the Stock
Option Committee of the terms and provisions of the Plan and all determinations
by the Stock Option Committee of matters pertaining to Options shall be final
and conclusive.
4. SHARES SUBJECT TO THE PLAN. Initially, a total of 300,000 Shares
will be subject to the Plan and reserved for the grant of Options under the
Plan, subject to adjustment as provided in Paragraph 11. On October 1 of each of
the years 1999 through 2001, an additional 150,000 Shares will automatically
become subject to the Plan and reserved for the grant of Options under
3
<PAGE> 4
the Plan, subject to adjustment in each case as provided in Paragraph 11.
Accordingly, a total of 750,000 Shares will ultimately be subject to the Plan
and reserved for the grant of Options under the Plan, subject to such
adjustment. In addition, upon the normal or early expiration of any outstanding
Option, the Unexercised Shares then subject thereto shall thereupon be released
and may again be covered by an Option or Options thereafter granted (including,
without limitation, a grant in substitution for an outstanding Option which has
been cancelled by mutual agreement between the Company and the Optionee).
Options are intended not to be treated as "incentive stock options" as that term
is defined in Section 422 of the Code.
5. ELIGIBILITY. Options may be granted to officers and employees of the
Company and its Subsidiaries selected initially and from time to time thereafter
by the Stock Option Committee on the basis either of the special importance of
their services in the management, development or operation of the Company or any
Subsidiary or their ability to contribute to achieving the business strategy of
the Company or any Subsidiary; provided, however, notwithstanding the foregoing,
that the Chairman of the Board shall not be eligible to be granted an Option
under the Plan unless at the Grant Date for any such Option he or she is also a
full-time employee of the Company or a Subsidiary. No single Optionee shall be
granted, in any calendar year, Options which in the aggregate cover more than
125,000 Shares.
6. GRANTING OF OPTIONS. (a) Any Options granted under the Plan shall be
granted by the Stock Option Committee, as it is duly constituted from time to
time. No Options shall be granted subsequent to August 31, 2008; provided,
however, that the Board may at any time prior to that date terminate the right
of the Stock Option Committee to grant any further Options under the Plan.
Shares deliverable upon the exercise of Options may be furnished from the
Company's authorized but unissued shares of Class A Common Stock or from
reacquired shares of Class A Common Stock.
(b) Nothing contained in the Plan or in any Option shall confer
upon any Optionee any right to be continued in the employment of the Company or
any Subsidiary or interfere in any way with the right of the Company or any
Subsidiary to terminate such Optionee's employment at any time.
(c) Every Option granted by the Committee shall be evidenced by a
stock option certificate substantially in the form set forth as Exhibit A hereto
(the "Option Certificate"). Any member of the Stock Option Committee or any duly
authorized officer of the Company may execute and deliver an Option Certificate
for and on behalf of the Company. Every Option Certificate shall be dated the
Grant Date for the Option evidenced thereby, and such Option shall become
effective at and as of such Grant Date; provided, however, notwithstanding the
foregoing, that: (i) any Option granted by the Stock Option Committee prior to
the Initial Public Offering Date shall become effective at and as of such
Initial Public Offering Date and shall remain effective only if the Company
completes the sale of shares of Class A Common Stock pursuant to such initial
public offering thereof; and (ii) no Option shall continue in effect unless one
of the duplicate originals of the Option Certificate evidencing such Option
furnished to the Optionee by the Company has been executed by the Optionee to
signify his or her acceptance of the Option evidenced thereby and delivered by
such Optionee to the Company
4
<PAGE> 5
within 30 days after the Grant Date or such longer period as the Stock Option
Committee shall permit in any given case. Upon its execution and delivery by the
Optionee and the Company, the Option Certificate shall constitute an enforceable
agreement between the Company and the Optionee. Each Option granted under the
Plan shall be subject to all the terms and conditions of the Plan, and all such
terms and conditions shall be incorporated by this reference thereto into each
Option Certificate with respect to the Option evidenced thereby. In the event of
any conflict between the provisions of the Plan and the provisions of any Option
Certificate, the provisions of the Plan shall control.
7. EXERCISE PRICE OF OPTIONS. The price per Share at which the vested
portion of any Option may be exercised by an Optionee (the "Exercise Price")
shall be the Fair Market Value of a share of Class A Common Stock at and as of
the Grant Date.
8. DURATION AND VESTING OF RIGHT TO EXERCISE OPTIONS; ACCELERATION OF
EXERCISABILITY IN THE EVENT OF A CHANGE IN CONTROL; EARLY EXPIRATION. (a) Each
Option shall be for a term of ten years from the Grant Date and shall then
expire, unless it has been fully exercised or has expired prior to the end of
such term.
(b) Each Option shall vest and become exercisable with respect to
one-fourth of the total number of Shares subject to such Option on the first
anniversary of the Grant Date thereof and with respect to an additional
one-fourth of the total number of Shares subject to such Option upon each of the
second, third and fourth anniversaries of the Grant Date thereof; provided,
however, that if one-fourth of the total number of Shares subject to any Option
includes a fraction of a whole Share, the Option will not vest and be
exercisable with respect to any such fractional Share; in lieu thereof, each
such fractional Share will vest and be exercisable on the earliest anniversary
of the Grant Date when all such fractions which otherwise would have vested on
or prior to such anniversary equal a whole Share. All or any part of the Shares
with respect to which an Option has vested and become exercisable may be
purchased at any time or times thereafter by exercise of the Option prior to its
normal or any early expiration.
(c) Notwithstanding the foregoing subparagraphs (a) and (b) of this
Paragraph 8, the Stock Option Committee may in its discretion: (i) specifically
provide as of the Grant Date of any Option for a term thereof which is less than
ten years; (ii) specifically provide as of the Grant Date of any Option for
another time or times when it vests and becomes exercisable in whole or part;
(iii) at any time or times after any Option has been granted, accelerate the
exercisability thereof in whole or in part, subject to any terms and conditions
that the Stock Option Committee deems necessary and appropriate to effectuate
the purposes of the Plan; and (iv) at any time prior to the normal or early
expiration of any Option, extend the term thereof for an additional period or
periods. In no event, however, notwithstanding such authority of the Stock
Option Committee, shall (i) any Option vest and become exercisable with respect
to any Shares prior to six months after the Grant Date of such Option or (ii)
the aggregate term of any Option, including the original term of such Option and
any extensions thereof, exceed ten years.
5
<PAGE> 6
(d) Notwithstanding the foregoing subparagraphs (a), (b) and (c) of
this Paragraph 8, on the date when a "Change in Control" of the Company (as
hereinafter defined) occurs, each Option granted pursuant to the Plan which is
then outstanding shall become and thereafter at all times during the remainder
of its term be fully vested and immediately exercisable in full, without regard
to any vesting schedule for such Option set forth in subparagraph (b) of this
Paragraph 8 or otherwise specified by the Stock Option Committee pursuant to
subparagraph (c) of this Paragraph 8. The term "Change in Control," when used
with respect to the Company, means the occurrence at any time during the
specified term of an Option granted under the Plan, of any of the following
events:
(i) the Company is merged or consolidated or reorganized into or
with, or shares of stock of the Company are exchanged for stock or
securities of, another corporation or other legal person (an "Acquiror")
or an Acquiror is merged or consolidated or reorganized into or with the
Company, and immediately following such merger, consolidation,
reorganization or exchange, the stockholders of the Company immediately
prior to such merger, consolidation, reorganization or exchange (other
than the Acquiror or any corporation or other person controlling,
controlled by or under common control with the Acquiror) own, directly
or indirectly, in the aggregate, Voting Securities (as hereinafter
defined) of the surviving, resulting or acquiring corporation or other
legal person having less than a majority of the voting power of the
issued and outstanding Voting Securities of such surviving, resulting or
acquiring corporation or other legal person;
(ii) the Company sells all or substantially all of its business
and/or assets to an Acquiror, and immediately after such sale, the
stockholders of the Company immediately prior to such sale (other than
any corporation or other person controlling, controlled by or under
common control with the Acquiror) own, directly or indirectly, in the
aggregate, Voting Securities of the Acquiror having less than a majority
of the voting power of the issued and outstanding Voting Securities of
the Acquiror;
(iii) there is a report filed on Schedule 13D or Schedule 14D-1 (or
any successor schedule, form or report), as promulgated pursuant to the
Exchange Act, disclosing that any person or group (as the terms "person"
and "group" are used in Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act), other than (A) Griffith Laboratories International, Inc.
(a Delaware corporation), (B) Griffith Laboratories, Inc. (an Illinois
corporation) or any successor thereto by virtue of a change-of-domicile
merger, (C) Dean L. Griffith, his spouse, his descendants and trusts
established in whole or part for the benefit of any one or more of such
persons (collectively, the "Griffith Family") or (D) any other person or
group (as such terms are so defined) controlled directly or indirectly
by the Griffith Family, has become the beneficial owner (as the term
"beneficial owner" is defined under Rule 13d-3 or any successor rule or
regulation promulgated under the Exchange Act) of issued and outstanding
Voting Securities of the Company having more
6
<PAGE> 7
than 50% of the voting power of the issued and outstanding Voting
Securities of the Company; provided, however, that no such person or
group shall for this purpose be deemed to be the beneficial owner of any
Voting Securities held by the Company or any of its Subsidiaries or any
employee benefit plan (or any related trust) of the Company or any of
its Subsidiaries; or
(iv) during any period of not more than 24 consecutive months,
individuals who at the beginning of such period constitute the directors
of the Company (together with any new director whose election, or
nomination for election by the Company's stockholders, was approved by a
vote of at least two-thirds of the directors of the Company then still
in office who either were directors of the Company at the beginning of
any such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute at least a
majority of the directors then in office.
For purposes of this subparagraph (d), "Voting Securities," when used with
respect to any corporation or other legal person, shall mean voting securities
or other capital interests of such corporation or other legal person that have
the power under ordinary circumstances (and not merely upon the happening of a
contingency) to (in the case of a corporation) vote in the election of directors
of such corporation or to (in the case of other legal person) participate in the
management and control of such other legal person.
(e) In the event the employment of an Optionee with the Company or
any Subsidiary terminates for any reason other than (i) his or her death or
Permanent Disability, (ii) his or her discharge by the Company without Cause or
(iii) his or her retirement after reaching the age of 65, any Option held by him
or her, to the extent then unexercised, shall thereupon expire and all rights to
purchase any of the Unexercised Shares pursuant thereto shall terminate
immediately. Temporary absence from employment because of illness, vacations,
approved leaves of absence, and transfers of employment among the Company and
its Subsidiaries shall not be considered to terminate employment or to interrupt
continuous employment.
(f) In the event the employment of an Optionee with the Company or
any Subsidiary terminates because of his or her death or Permanent Disability or
his or her retirement after reaching the age of 65, any Option held by him or
her, to the extent then unexercised, may continue to be exercised by the
Optionee or the heirs, legatees or legal representative of the Optionee, as the
case may be, until the earlier of (i) the close of business on the normal
expiration date of such Option or (ii) the close of business on the first
anniversary of the date his or her employment was so terminated, but only to the
extent in either case that such Option was exercisable on the date his or her
employment is so terminated. Thereafter, any such Option shall expire and all
rights to purchase any of the Unexercised Shares pursuant thereto shall
terminate immediately.
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<PAGE> 8
(g) In the event the employment of an Optionee with the Company or
any Subsidiary terminates because of his or her discharge without Cause, any
Option held by him or her, to the extent then unexercised, may continue to be
exercised by the Optionee until the earlier of (i) the close of business on the
normal expiration date of such Option or (ii) the close of business on the 90th
day after the date his or her employment is so terminated, but only to the
extent in either case that such Option was exercisable on the date his or her
employment was so terminated. Thereafter, any such Option shall expire and all
rights to purchase any of the Unexercised Shares pursuant thereto shall
terminate immediately.
9. EXERCISE OF OPTIONS. (a) An Optionee may exercise the vested portion
of any Option at any time or from time to time prior to its normal or any early
expiration by giving written notice to the Company, attention of the Secretary,
specifying the number of Shares to be purchased pursuant to such exercise and
accompanied by payment of the aggregate Exercise Price for the Shares being
purchased. The date on which such written notice is received by the Company is
hereinafter referred to as the "Exercise Date." At the time of exercise of the
vested portion of any Option, the Optionee shall also be required, as a
condition of the exercise of such Option, to pay to the Company, at the same
time and by the same method as he or she pays the Exercise Price (or such other
method as the Stock Option Committee approves), the amount of all Federal,
state, local and foreign withholding taxes which the Company is required to
withhold as a result of the exercise of such Option or to comply with applicable
law. Except as otherwise hereinafter provided in this Paragraph 9, the aggregate
Exercise Price for the Shares being purchased (together with an amount equal to
any tax which the Company is required to withhold upon such exercise) shall be
paid by the delivery to the Company of a certified or cashier's check.
(b) With the approval of the Stock Option Committee, the Exercise
Price (and any related withholding tax) payable to the Company upon the exercise
of an Option may be paid by an Optionee, in lieu of a certified or cashier's
check, by any of the following methods: (i) delivery of a promissory note in
accordance with subparagraph (c) of this Paragraph 9; (ii) tender to the Company
of other shares of Class A Common Stock owned by him or her (evidenced by duly
issued certificate(s) therefor registered in his or her name) having an
aggregate Fair Market Value on the Exercise Date equal to the aggregate Exercise
Price of the shares being purchased (plus any related withholding taxes); (iii)
delivery of an irrevocable written notice instructing the Company to withhold
from the Shares otherwise issuable upon the exercise of the Option that number
of Shares having an aggregate Fair Market Value on the Exercise Date equal to
the aggregate Exercise Price of the Shares being purchased upon such exercise
(plus any related withholding taxes); or (iv) delivery of an irrevocable written
notice instructing the Company to deliver a sufficient number of the Shares
being purchased by the Optionee upon such exercise to a securities broker
selected by the Company for sale, subject to receipt by the Company of the
broker's written guarantee to deliver cash to the Company equal to the full
amount of the aggregate Exercise Price (plus any related withholding taxes) for
all of the Shares being purchased upon such exercise; provided, however, that
payment by the Optionee of the aggregate Exercise Price of any Option by means
of either of the methods specified in clauses (iii) or (iv) above may be
permitted by the Stock Option Committee only with respect to the exercise of an
Option during the period beginning on the third business day
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<PAGE> 9
following the date of public release of the Company's quarterly or annual
summary of its results of operations for the prior quarter or fiscal year, as
the case may be, and ending on the twelfth business day following such date.
(c) In connection with an Optionee's exercise of an Option granted
under the Plan, the Company may, in the Stock Option Committee's discretion,
lend to such Optionee all or a portion of the aggregate Exercise Price of the
Option so exercised (plus any related withholding taxes), provided the Optionee
delivers a promissory note substantially in the form set forth as Exhibit B
hereto (the "Promissory Note") for the principal amount of such loan and all
interest which shall accrue on such loan. Any such loan will be subject to the
following terms and conditions and such other terms and conditions as the Stock
Option Committee determines which are not inconsistent with the Plan: (i) it
will bear interest at the Federal short-term rate in effect on the date of the
Promissory Note, as determined pursuant to Section 1274(d) of the Code or any
successor provision thereto, or such other rate as the Stock Option Committee
determines from time to time; (ii) the maximum amount of such loan will not
exceed the aggregate Fair Market Value, at the Exercise Date, of the Shares
covered by the Option, or portion thereof, exercised by the Optionee; (iii)
Shares having an aggregate Fair Market Value at least equal to 150 percent of
the principal amount of the loan must at all times be pledged by the Optionee to
the Company as security for payment of the loan; and (iv) the loan will mature
and be payable (subject to prepayment at any time without penalty) on the
earlier of (A) the first anniversary of the date of the Promissory Note or (B)
the third business day following the date on which the Optionee's employment
with the Company or any Subsidiary terminates for any reason other than his or
her death, Permanent Disability or normal retirement at age 65, but may be
renewed for one additional such term at the discretion of the Stock Option
Committee provided the Optionee delivers a replacement Promissory Note
substantially in the form set forth as Exhibit B hereto and the Optionee
continues to pledge Shares having an aggregate Fair Market Value at least equal
at all times to 150 percent of the principal amount of the loan as security for
payment of the unpaid balance of the loan.
(d) At the time of exercise of any Option, the Company may, if it
shall determine it necessary or desirable for any reason, require the Optionee,
as a further condition upon exercise, to deliver to the Company: (i) a written
representation of present intention to purchase the Shares acquired pursuant to
such exercise for his or her own account for investment and not with a view to
their distribution; and (ii) a written agreement containing such additional
restrictions on the transferability of such Shares as the Company reasonably
determines are necessary or desirable to secure exemption from the registration
or qualification provisions of applicable Federal, state or foreign securities
laws or regulations in connection with the issuance of the Shares. In the event
such a representation or agreement is required to be delivered, an appropriate
legend may be placed upon each certificate evidencing such Shares delivered to
the Optionee upon his or her exercise of such Option and an appropriate stop
order may be placed with the transfer agent for the Class A Common Stock with
respect to the transfer of such Shares.
(e) Each Option granted shall also be subject to the requirement
that, if at any time the Company determines in its sole discretion that the
listing, registration or qualification of the Shares then subject to the Option
upon any securities exchange or under any state, Federal or
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<PAGE> 10
foreign law or regulation, or the consent or approval of any governmental
regulatory body is necessary or desirable as a condition of, or in connection
with, the issuance or purchase of the Shares thereunder, the Option may not be
exercised in whole or in part unless such listing, registration, qualification,
consent or approval shall have been effected or obtained free of any conditions
not acceptable to the Company; in such event, the Company shall use reasonable
efforts to effect or obtain such listing, registration, qualification, consent
or approval, as the case may be.
10. NON-TRANSFERABILITY OF OPTIONS. No Option will be assignable or
transferable by the Optionee to whom it was granted otherwise than by will or
the laws of descent and distribution or pursuant to a qualified domestic
relations order as defined by (i) the Code or (ii) Title I of the Employee
Retirement Income Security Act of 1974, as amended, or the rules and regulations
thereunder, and each Option will be exercisable during any Optionee's lifetime
only by the Optionee to whom it was granted or by such Optionee's legal
representative; provided, however, notwithstanding the foregoing, that the Stock
Option Committee, in its discretion, may permit the transfer of any Option on
such terms and subject to such conditions as the Stock Option Committee may deem
necessary or appropriate or as otherwise may be required by applicable law or
regulation.
11. ADJUSTMENTS. If after the Initial Public Offering Date the
outstanding shares of Class A Common Stock are increased, decreased, changed
into or exchanged for a different number or kind of shares or securities of the
Company through any reorganization, recapitalization, reclassification,
redesignation, stock dividend, stock split, reverse stock split or other similar
transaction, appropriate and proportionate adjustments shall be made (i) to the
number and kind of Shares then subject to the unexercised portion of every
outstanding Option, (ii) to the aggregate number of Shares as to which the Stock
Option Committee may grant Options and (iii) to the maximum number of Shares
which may be covered by Options granted to any single Optionee in any calendar
year. In the event of any merger, consolidation or reorganization of the Company
with any other corporation or corporations, there shall be substituted, on an
equitable basis, for each Share then subject to the unexercised portion of every
outstanding Option, the number and kind of shares of stock or other securities
to which the holder of an outstanding share of Class A Common Stock will be
entitled pursuant to the transaction. In the event of any other relevant change
in the capitalization of the Company, an equitable adjustment in the number of
Shares then subject to the unexercised portion of every outstanding Option shall
be made. In the event any adjustment is made to an Option pursuant to this
Paragraph 11, no adjustment shall be made in the aggregate Exercise Price
applicable to the unexercised portion of the Option but a corresponding
adjustment shall be made in the Exercise Price for each share or other unit of
any security subject to the unexercised portion of the Option. All adjustments
shall be made by the Stock Option Committee, whose determination as to what
adjustments shall be made and the extent thereof shall be final, binding and
conclusive. No fractional shares shall be issued upon the exercise of any Option
as a result of any such adjustment.
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<PAGE> 11
12. AMENDMENT OR DISCONTINUANCE OF THE PLAN. The Board may amend or
discontinue the Plan at any time without the consent or approval of the
Optionees or the stockholders of the Company, except that no such amendment or
discontinuance will:
(a) without the consent of each individual Optionee change or
impair any outstanding Option held by such Optionee in a manner which
is detrimental to the Optionee; or
(b) without approval by a majority of the votes cast by holders of
the Class A Common Stock and the Class B Common Stock of the Company,
voting together in person or by proxy at a duly held stockholders'
meeting, (i) materially increase the benefits accruing to Optionees
under the Plan, (ii) materially increase the number of Shares that may
be issued under the Plan (except pursuant to Paragraph 11) or (iii)
materially modify the requirements of eligibility for participation in
the Plan.
13. EFFECTIVE DATE OF THE PLAN. The Plan has been adopted and
authorized by the Board. The Board has also proposed, declared advisable and
approved a comprehensive amendment and restatement of the certificate of
incorporation of the Company which would, among other things, authorize the
Company to issue two classes of common stock, Class A Common Stock and Class B
Common Stock (the "Restated Certificate of Incorporation"). The Board has also
directed that the Plan and the Restated Certificate of Incorporation be
submitted to Griffith Laboratories International, Inc., the sole stockholder of
the Company, for their approval and adoption, and if so approved and adopted the
Board has authorized that the Restated Certificate of Incorporation be made
effective under Delaware law by its execution and filing in the Office of the
Secretary of State of Delaware. If the Plan and the Restated Certificate of
Incorporation are approved and adopted by the sole stockholder of the Company
and the Restated Certificate of Incorporation has become effective under
Delaware law, the Plan shall be deemed to have become effective on the date on
which the Restated Certificate of Incorporation becomes effective under Delaware
law. Options may be granted under the Plan before its approval by the Company's
sole stockholder and before the Restated Certificate of Incorporation becomes
effective under Delaware law, but subject to such approval and effectiveness.
14. MISCELLANEOUS PROVISIONS. (a) No employee or other person will have
any claim or right to be granted an Option under the Plan. Determinations made
by the Stock Option Committee under the Plan need not be uniform and may be made
selectively among eligible individuals under the Plan, whether or not such
eligible individuals are similarly situated.
(b) No Optionee or other person will have any right with respect to
the Plan, the Class A Common Stock reserved for issuance under the Plan or any
Option, contingent or otherwise, until all the terms, conditions and provisions
of the Plan and the Option applicable to such recipient (and each person
claiming under or through him or her) have been met.
(c) The expenses of the Plan will be borne by the Company.
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<PAGE> 12
(d) The Plan shall be governed by and construed in accordance with
the laws of the State of Delaware.
(e) Any notice required to be given under the Plan or any Option
granted pursuant to the Plan shall be given in writing. Unless otherwise
specifically provided to the contrary herein, any such notice shall be deemed to
be given on the fourth business day after it is sent by registered or certified
mail, postage prepaid, to the intended recipient, addressed as follows:
If to the Company, to:
Griffith Micro Science International, Inc.
2001 Spring Road
Oak Brook, Illinois 60521
Attn: John B. Sabalaskey
Senior Vice President
If to the Optionee, to his or her address set forth on the
Option Certificate evidencing the Option with respect to which
such notice is given
Any such notice may also be given using any other means (including personal
delivery, courier, messenger service, facsimile transmission, electronic
transmission or ordinary mail), but no such notice shall be deemed duly given
unless and until it is actually received by the intended recipient. Either the
Company or the Optionee may change the address to which any such notice is to be
sent to him, her or it by giving written notice of such change of address in the
manner herein provided for giving notice.
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<PAGE> 13
EXHIBIT A
GRIFFITH MICRO SCIENCE INTERNATIONAL, INC.
STOCK OPTION CERTIFICATE PURSUANT TO THE
1998 EMPLOYEE STOCK OPTION PLAN
This Stock Option Certificate (the "Option Certificate") is issued this
___ day of __________, 19__ by GRIFFITH MICRO SCIENCE INTERNATIONAL, INC., a
Delaware corporation (the "Company"), to _________________ (the "Optionee") for
the purpose of evidencing a stock option (the "Option") granted effective as of
the date hereof to the Optionee by the duly authorized Stock Option Committee of
the Board of Directors of the Company pursuant to the 1998 Employee Stock Option
Plan of the Company, a copy of which is attached hereto as Appendix I (the
"Plan"), subject to the following terms and conditions:
1. The Option and this Option Certificate are subject to all
of the terms and conditions of the Plan, which are incorporated herein
by this reference thereto. All capitalized terms hereinafter used in
this Option Certificate have the definitions given to them in the Plan.
2. The Company hereby grants to the Optionee an Option to
purchase up to _________ shares of Class A Common Stock of the Company
at an Exercise Price of $__________ per share, subject to adjustment as
provided in the Plan.
3. The Option shall be for a term of 10 years from the date
hereof and shall expire on the tenth anniversary of the date hereof,
unless it has been fully exercised or has expired prior to the end of
such term in accordance with the provisions of the Plan.
4. The Option shall vest and become exercisable with respect
to one-fourth of the total number of Shares covered by the Option on
each of the first, second, third and fourth anniversaries of the date
of this Option Certificate. The Option shall vest and become
exercisable only in whole share increments in accordance with Paragraph
8(b) of the Plan.
5. The Optionee may exercise the vested portion of this Option
at any time or from time to time prior to its expiration by giving
written notice to the Company specifying the number of Shares to be
purchased. Payment of the aggregate Exercise Price for the Shares being
purchased shall be made by the Optionee in the manner specified in or
pursuant to the Plan.
6. The Optionee is required to sign and return to the Company
(Attn: John P. Sabalaskey, Senior Vice President), within 30 days of
the date hereof, one of the duplicate originals of this Option
Certificate to signify his or her acceptance of this Option on the
terms and conditions specified herein and in the Plan.
Dated as of the date first above written.
Accepted and agreed as of the GRIFFITH MICRO SCIENCE
date first above written: INTERNATIONAL, INC.
___________________________ By:_____________________________
[name and home [member of the
address of the Optionee] Stock Option Committee]
<PAGE> 14
EXHIBIT B
PROMISSORY NOTE
$_____________________ _______________, 19__
Oak Brook, Illinois
FOR VALUE RECEIVED, the undersigned hereby promises to pay to the order
of GRIFFITH MICRO SCIENCE INTERNATIONAL, INC., a Delaware corporation (the
"Company"), the principal sum of $____________ on the earlier of (A) [here
insert the date which is the first anniversary of the date of the note] or (B)
the third business day following the date on which the undersigned's employment
with the Company or any of its Subsidiaries terminates for any reason other than
his or her death, Permanent Disability or normal retirement at age 65, with
interest (computed on the basis of the actual number of days elapsed over a
365-day year) on the unpaid balance thereof at the rate of [here insert interest
rate, which shall be equal to the Federal short-term rate in effect on the date
of the note, as determined pursuant to Section 1274(d) of the Internal Revenue
Code of 1986, as amended, or any successor provision thereto or other rate
established by the Stock Option Committee] per annum, from the date hereof until
the principal amount of this Note is paid in full, payable on the maturity date
of this Note.
The payment of principal and interest on this Note shall be made at the
offices of the Company, 2001 Spring Road, Suite 500, Oak Brook, Illinois 60621
or at such other place as the holder of this Note may from time to time
designate in writing.
This Note has been issued in connection with the purchase of __________
shares of Class A Common Stock of the Company, $.01 par value (the "Shares"),
pursuant to the exercise of an Option granted to the undersigned under the 1998
Employee Stock Option Plan of the Company (the "Plan"). All capitalized terms
used but not defined in this Note have the definitions given to them in the
Plan.
The Shares are represented by certificate no. __________ (the
"Certificate"). The undersigned hereby assigns, transfers and pledges to the
Company, to secure the performance by the undersigned of his or her obligations
under this Note, Shares having at all times an aggregate Fair Market Value at
least equal to 150% of the unpaid principal amount of this Note. To effect this
pledge, the undersigned, concurrent with the issuance of this Note, has
delivered to the Company the Certificate accompanied by a duly executed Stock
Power.
The principal of and interest on this Note shall be payable by the
undersigned either in cash or by instructing the Company to transfer to its
treasury or to cancel that whole number of Shares which have been pledged to
secure performance by the undersigned of his or her obligations under this Note
having an aggregate Fair Market Value on the repayment date which is at least
equal to the amount required to pay the principal of and all interest on this
Note in full.
The undersigned shall have the right to prepay this Note in whole or in
part, without premium or penalty.
The undersigned hereby waives presentment, notice of dishonor or
protest of dishonor of this Note.
This Note shall be governed by and construed in accordance with the
laws of the State of Delaware.
-----------------------------------
[here insert name and home
address of the Optionee]
<PAGE> 1
EXHIBIT 10.3
GRIFFITH MICRO SCIENCE INTERNATIONAL, INC.
1998 DIRECTOR STOCK OPTION PLAN
1. STATEMENT OF PURPOSE. The purpose of this 1998 Director Stock Option
Plan (the "Plan") is to benefit Griffith Micro Science International, Inc., a
Delaware corporation (the "Company"), by offering those present and future
directors of the Company who are not also employees of the Company or its
Subsidiaries a favorable opportunity to acquire capital stock of the Company,
thereby giving them a long-term equity stake in the growth and prosperity of the
Company and encouraging the continuance of their services as directors of the
Company.
2. CERTAIN DEFINED TERMS. The terms hereinafter set forth when used in
the Plan or any certificate evidencing an Option granted pursuant to the Plan
shall have the following meanings (and the following definitions shall be
equally applicable to both the singular and plural forms of any of the terms
herein defined):
(a) "BOARD" means the Board of Directors of the Company as it is
duly constituted from time to time.
(b) "CAUSE" means either: (i) the willful failure by the Optionee to
substantially perform his or her duties as a director of the Company;
or (ii) the willful engaging by the Optionee in conduct which is
demonstrably and materially injurious, monetarily or otherwise, to the
Company or any of its Subsidiaries.
(c) "CLASS A COMMON STOCK" means the class of shares of Class A
common stock, $.01 par value per share, of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as amended, and
the rules and regulations thereunder.
(e) "COMMISSION" means the United States Securities and Exchange
Commission.
(f) "COMPANY" is defined in Paragraph 1.
(g) "ELIGIBLE DIRECTOR" means every director of the Company who is
not also an employee of the Company or any of its Subsidiaries. An
Eligible Director may be an officer or employee of any corporation
which directly or indirectly controls the Company (as the term
"control" is defined by the Commission for purposes of the Exchange
Act).
(h) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated by the Commission
thereunder.
(i) "EXERCISE DATE" is defined in Paragraph 8(a).
<PAGE> 2
(j) "EXERCISE PRICE" is defined in Paragraph 6.
(k) "FAIR MARKET VALUE" means, with respect to a share of Class A
Common Stock on any specified date (the "Measuring Date"), as follows:
(i) if the Measuring Date is the Initial Public Offering Date,
the Fair Market Value of a share of Class A Common Stock on such
date shall be the initial public offering price of the shares of
Class A Common Stock offered to the public which is set forth on the
cover page of the final prospectus filed by the Company with the
Commission in accordance with Rule 424(b) under the Securities Act
and pursuant to which the Company's initial public offering of Class
A Common Stock is made; and
(ii) if the Measuring Date occurs after the Initial Public
Offering Date, the Fair Market Value of a share of Class A Common
Stock on such date shall be: (A) in the event that on such Measuring
Date the Class A Common Stock is listed on the Nasdaq National
Market or any other national securities exchange, the average of the
highest and lowest sale prices of the Class A Common Stock on the
Nasdaq National Market or on the principal national securities
exchange on which the Class A Common Stock is listed (as reported in
The Wall Street Journal, Midwest Edition) on such Measuring Date or,
if such date is not a trading date, on the first trading date
immediately preceding the Measuring Date; or (B) if clause (A) is
not applicable under the specific circumstances, then the Fair
Market Value of a share of Class A Common Stock on such Measuring
Date shall be as reasonably determined by the Board of Directors.
(l) "GRANT DATE" means, with respect to any Option, the date on
which such Option is automatically granted pursuant to Paragraph 5.
(m) "INITIAL PUBLIC OFFERING DATE" means the date on which shares of
Class A Common Stock are first offered to the public following
effectiveness of a registration statement filed by the Company with the
Commission under the Securities Act in connection with the initial
public offering of such shares of Class A Common Stock.
(n) "NEWLY ELECTED INDEPENDENT DIRECTOR" mean a person who is at the
time of his or her initial election or appointment to the Board neither
an employee of the Company or any of its Subsidiaries nor a director,
officer or employee of any corporation which directly or indirectly
controls the Company (as the term "control" is defined by the
Commission for purposes of the Exchange Act). Each such person who,
prior to the Initial Public Offering Date, has been nominated by the
Board to be a director of the Company and has accepted such
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<PAGE> 3
nomination, with such election to the Board to take place after the
Initial Public Offering Date, shall for purposes of the Plan be deemed
to become a Newly Elected Independent Director at and as of the Initial
Public Offering Date. No person who has previously served as a director
of the Company shall be deemed a Newly Elected Independent Director for
purposes of the Plan.
(o) "OPTION" means an option to purchase Shares granted pursuant to
the Plan.
(p) "OPTION CERTIFICATE" is defined in Paragraph 5(f).
(q) "OPTIONEE" means each director of the Company who is granted an
Option and each other person entitled at any time by the Plan to
exercise an Option.
(r) "PERMANENT DISABILITY" has the same meaning herein as its
definition in Section 22(e)(3) of the Code as in effect on the date of
adoption of the Plan.
(s) "PLAN" is defined in Paragraph 1.
(t) "PROMISSORY NOTE" is defined in Paragraph 8(c).
(u) "SECURITIES ACT" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated by the Commission thereunder.
(v) "SHARES" means the aggregate number of shares of Class A Common
Stock as to which Options may be automatically granted to directors of
the Company pursuant to the Plan. The term includes shares of Class A
Common Stock which at any given time are (i) reserved for the possible
grant of future Options, (ii) covered by outstanding Options or (iii)
issued and outstanding as a result of the exercise of any Option.
(w) "SUBSIDIARY" means any corporation, partnership, limited
liability company or other entity for which the Company, in conformity
with generally accepted accounting principles in the United States, is
required to report the results of operations on a consolidated basis or
in accordance with the equity method of accounting.
(x) "UNEXERCISED SHARES" means, at any specified point in time, the
Shares which then remain subject to an outstanding Option, whether or
not vested, and as to which such Option has not then been exercised.
3. ADMINISTRATION. The Plan shall be administered by the Board as it is
duly constituted from time to time. The Board shall have exclusive authority to
interpret the terms and provisions of the Plan and to prescribe, amend and
rescind rules and regulations relating to
3
<PAGE> 4
the Plan and its administration. All interpretations by the Board of the terms
and provisions of the Plan and all determinations by the Board of matters
pertaining to Options shall be final and conclusive.
4. SHARES SUBJECT TO THE PLAN. A total of 50,000 Shares will be subject
to the Plan and reserved for the grant of Options under the Plan, subject to
adjustment as provided in Paragraph 10. In addition, upon the normal or early
expiration of any outstanding Option, the Unexercised Shares then subject
thereto shall thereupon be released and may again be covered by an Option or
Options thereafter granted. Options are intended not to be treated as "incentive
stock options" as that term is defined in Section 422 of the Code.
5. GRANTING OF OPTIONS. (a) An Option under which a total of 3,000
Shares may be purchased from the Company will be automatically granted on the
Initial Public Offering Date to (i) each person who is deemed to become a Newly
Elected Independent Director on the Initial Public Offering Date and (ii) Joseph
R. Maslick if he is an Eligible Director on the Initial Public Offering Date.
(b) Beginning January 1, 1999, an Option under which a total of
1,000 Shares may be purchased from the Company (subject to adjustment as
provided in Paragraph 10) will be automatically granted on the date of such
reelection to each Eligible Director each time he or she is reelected a director
of the Company by the Company's stockholders.
(c) Beginning January 1, 1999, an Option under which a total of
3,000 Shares may be purchased from the Company (subject to adjustment as
provided in Paragraph 10) will be automatically granted to each Newly Elected
Independent Director on the date of his or her initial election or appointment
to the Board.
(d) No Options shall be granted under the Plan subsequent to August
31, 2008. Shares deliverable upon the exercise of Options may be furnished from
the Company's authorized but unissued shares of Class A Common Stock or from
reacquired shares of Class A Common Stock.
(e) Nothing contained in the Plan or in any Option shall confer upon
any Optionee any right to continue serving as a director of the Company or
interfere in any way with the right of the Board or the stockholders of the
Company to remove such Optionee from his or her position as a director of the
Company pursuant to applicable law.
(f) Every Option granted under the Plan shall be evidenced by a
stock option certificate substantially in the form set forth as Exhibit A hereto
(the "Option Certificate"). The President or any Senior Vice President of the
Company may execute and deliver a Stock Option Certificate for and on behalf of
the Company. Every Option Certificate shall be dated the Grant Date for the
Option evidenced thereby, and such Option shall become effective at and as of
such Grant Date. One of the duplicate originals of the Option Certificate
evidencing such Option furnished to the Optionee by the Company shall be
executed by the Optionee to signify his or her acceptance of the Option
evidenced thereby and delivered by such Optionee to the Company. Upon its
execution and delivery by the Optionee and the Company, the Option Certificate
shall
4
<PAGE> 5
constitute an enforceable agreement between the Company and the Optionee. Each
Option granted under the Plan shall be subject to all the terms and conditions
of the Plan, and all such terms and conditions shall be incorporated by this
reference thereto into each Option Certificate with respect to the Option
evidenced thereby. In the event of any conflict between the provisions of the
Plan and the provisions of any Option Certificate, the provisions of the Plan
shall control.
6. EXERCISE PRICE OF OPTIONS. The price per Share at which any Option
which has vested may be exercised by an Optionee (the "Exercise Price") shall be
the Fair Market Value of a share of Class A Common Stock at and as of the Grant
Date.
7. DURATION AND VESTING OF RIGHT TO EXERCISE OPTIONS; EARLY EXPIRATION.
(a) Each Option shall be for a term of ten years from the Grant Date and shall
then expire, unless it has been fully exercised or has expired prior to the end
of such term.
(b) Each Option shall vest and become exercisable with respect to
the total number of Shares subject to such Option on the first anniversary of
the Grant Date thereof. All or any part of the Shares with respect to which an
Option has vested and become exercisable may be purchased at any time or times
thereafter by exercise of the Option prior to its normal or any early
expiration.
(c) In the event the service of an Optionee as a director terminates
for any reason other than his or her removal as a director for Cause, any Option
held by him or her, to the extent then unexercised, may continue to be exercised
by the Optionee or the heirs, legatees or legal representative of the Optionee,
as the case may be, until the earlier of (i) the close of business on the normal
expiration date of such Option or (ii) the close of business on the first
anniversary of the date his or her service as a director was so terminated, but
only to the extent in either case that such Option was exercisable on the date
his or her service as a director of the Company so terminated. Thereafter, any
such Option shall expire and all rights to purchase any of the Unexercised
Shares pursuant thereto shall terminate immediately.
(d) In the event the service an Optionee as a director of the
Company terminates because of his or her removal for Cause, any Option held by
him or her shall thereupon expire and all rights to purchase any of the
Unexercised Shares pursuant thereto shall terminate immediately.
8. EXERCISE OF OPTIONS. (a) An Optionee may exercise any Option which
has vested and become exercisable at any time or from time to time prior to its
normal or any early expiration by giving written notice to the Company,
attention of the Secretary, specifying the number of Shares to be purchased
pursuant to such exercise and accompanied by payment of the aggregate Exercise
Price for the Shares being purchased. The date on which such written notice is
received by the Company is hereinafter referred to as the "Exercise Date." At
the time of exercise of any vested Option, the Optionee shall also be required,
as a condition of the exercise of such Option, to pay to the Company, at the
same time and by the same method as he or she pays the Exercise Price (or such
other method as the Board approves), the amount of all Federal, state, local and
foreign withholding taxes which the Company is required to withhold as a result
of the exercise of such Option or to comply with applicable law. Except as
otherwise hereinafter
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<PAGE> 6
provided in this Paragraph 8, the aggregate Exercise Price for the Shares being
purchased (together with an amount equal to any tax which the Company is
required to withhold upon such exercise) shall be paid by the delivery to the
Company of a certified or cashier's check.
(b) The Exercise Price (and any related withholding tax) payable to
the Company upon the exercise of an Option may be paid by an Optionee, in lieu
of a certified or cashier's check, by any of the following methods: (i) delivery
of a promissory note in accordance with subparagraph (c) of this Paragraph 8;
(ii) tender to the Company of other shares of Class A Common Stock owned by him
or her (evidenced by duly issued certificate(s) therefor registered in his or
her name) having an aggregate Fair Market Value on the Exercise Date equal to
the aggregate Exercise Price of the shares being purchased (plus any related
withholding taxes); (iii) delivery of an irrevocable written notice instructing
the Company to withhold from the Shares otherwise issuable upon the exercise of
the Option that number of Shares having an aggregate Fair Market Value on the
Exercise Date equal to the aggregate Exercise Price of the Shares being
purchased upon such exercise (plus any related withholding taxes); or (iv)
delivery of an irrevocable written notice instructing the Company to deliver a
sufficient number of the Shares being purchased by the Optionee upon such
exercise to a securities broker selected by the Company for sale, subject to
receipt by the Company of the broker's written guarantee to deliver cash to the
Company equal to the full amount of the aggregate Exercise Price (plus any
related withholding taxes) for all of the Shares being purchased upon such
exercise; provided, however, that payment by the Optionee of the aggregate
Exercise Price of any Option by means of either of the methods specified in
clauses (iii) or (iv) above may be utilized by an Optionee only with respect to
the exercise of an Option during the period beginning on the third business day
following the date of public release of the Company's quarterly or annual
summary of its results of operations for the prior quarter or fiscal year, as
the case may be, and ending on the twelfth business day following such date.
(c) In connection with an Optionee's exercise of an Option granted
under the Plan, the Company shall, if the Optionee elects to use this payment
method, lend to such Optionee all or a portion of the aggregate Exercise Price
of the Option so exercised (plus any related withholding taxes), provided the
Optionee delivers a promissory note substantially in the form set forth as
Exhibit B hereto (the "Promissory Note") for the principal amount of such loan
and all interest which shall accrue on such loan. Any such loan will be subject
to the following terms and conditions and such other terms and conditions as the
Board determines which are not inconsistent with the Plan: (i) it will bear
interest at the Federal short-term rate in effect on the date of the Promissory
Note, as determined pursuant to Section 1274(d) of the Code or any successor
provision thereto, or such other rate as the Stock Option Committee determines
from time to time; (ii) the maximum amount of such loan will not exceed the
aggregate Fair Market Value, at the Exercise Date, of the Shares covered by the
Option, or portion thereof, exercised by the Optionee; (iii) Shares having an
aggregate Fair Market Value at least equal to 150 percent of the principal
amount of the loan must at all times be pledged by the Optionee to the Company
as security for payment of the loan; and (iv) the loan will have an initial term
(subject to prepayment at any time without penalty) which will expire on the
earlier of (A) the first anniversary of the date of the Promissory Note or (B)
the third business day following the date on which the Optionee's service as a
director of the Company terminates for any reason other
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<PAGE> 7
than death, Permanent Disability or normal retirement at age 65, but may be
renewed for one additional such term at the discretion of the Board provided the
Optionee delivers a replacement Promissory Note substantially in the form set
forth as Exhibit B hereto and the Optionee continues to pledge Shares having an
aggregate Fair Market Value at least equal at all times to 150 percent of the
principal amount of the loan as security for payment of the unpaid balance of
the loan.
(d) At the time of exercise of any Option, the Company may, if it
shall determine it necessary or desirable for any reason, require the Optionee,
as a further condition upon exercise, to deliver to the Company: (i) a written
representation of present intention to purchase the Shares acquired pursuant to
such exercise for his or her own account for investment and not with a view to
their distribution; and (ii) a written agreement containing such additional
restrictions on the transferability of such Shares as the Company reasonably
determines are necessary or desirable to secure exemption from the registration
or qualification provisions of applicable Federal, state or foreign securities
laws or regulations in connection with the issuance of the Shares. In the event
such a representation or agreement is required to be delivered, an appropriate
legend may be placed upon each certificate evidencing such Shares delivered to
the Optionee upon his or her exercise of such Option and an appropriate stop
order may be placed with the transfer agent for the Class A Common Stock with
respect to the transfer of such Shares.
(e) Each Option granted shall also be subject to the requirement
that, if at any time the Company determines in its sole discretion that the
listing, registration or qualification of the Shares then subject to the Option
upon any securities exchange or under any state, Federal or foreign law or
regulation, or the consent or approval of any governmental regulatory body is
necessary or desirable as a condition of, or in connection with, the issuance or
purchase of the Shares thereunder, the Option may not be exercised in whole or
in part unless such listing, registration, qualification, consent or approval
shall have been effected or obtained free of any conditions not acceptable to
the Company; in such event, the Company shall use reasonable efforts to effect
or obtain such listing, registration, qualification, consent or approval, as the
case may be.
9. NON-TRANSFERABILITY OF OPTIONS. No Option will be assignable or
transferable by the Optionee to whom it was granted otherwise than by will or
the laws of descent and distribution or pursuant to a qualified domestic
relations order as defined by (i) the Code or (ii) Title I of the Employee
Retirement Income Security Act of 1974, as amended, or the rules and regulations
thereunder, and each Option will be exercisable during any Optionee's lifetime
only by the Optionee to whom it was granted or by such Optionee's legal
representative; provided, however, notwithstanding the foregoing, that the
Board, in its discretion, may permit the transfer of any Option on such terms
and subject to such conditions as the Board may deem necessary or appropriate or
as otherwise may be required by applicable law or regulation.
10. ADJUSTMENTS. If after the Initial Public Offering Date the
outstanding shares of Class A Common Stock are increased, decreased, changed
into or exchanged for a different number or kind of shares or securities of the
Company through any reorganization, recapitalization, reclassification,
redesignation, stock dividend, stock split, reverse stock split or
7
<PAGE> 8
other similar transaction, appropriate and proportionate adjustments shall be
made (i) to the number and kind of Shares then subject to the unexercised
portion of every outstanding Option, (ii) to the number and kind of Shares
subject to Options thereafter automatically granted pursuant to subparagraphs
(b) and (c) of Paragraph 5 and (iii) to the total number of Shares subject to
the Plan and reserved for the grant of Options thereunder. In the event of any
merger, consolidation or reorganization of the Company with any other
corporation or corporations, there shall be substituted, on an equitable basis,
for each Share then subject to the unexercised portion of every outstanding
Option, the number and kind of shares of stock or other securities to which the
holder of an outstanding share of Class A Common Stock will be entitled pursuant
to the transaction. In the event of any other relevant change in the
capitalization of the Company, an equitable adjustment in the number of Shares
then subject to the unexercised portion of every outstanding Option shall be
made. In the event any adjustment is made to an Option pursuant to this
Paragraph 10, no adjustment shall be made in the aggregate Exercise Price
applicable to the unexercised portion of the Option but a corresponding
adjustment shall be made in the Exercise Price for each share or other unit of
any security subject to the unexercised portion of the Option. All adjustments
shall be made by the Board, whose determination as to what adjustments shall be
made and the extent thereof shall be final, binding and conclusive. No
fractional shares shall be issued upon the exercise of any Option as a result of
any such adjustment.
11. AMENDMENT OR DISCONTINUANCE OF THE PLAN. The Board may amend or
discontinue the Plan at any time without the consent or approval of the
Optionees or the stockholders of the Company, except that no such amendment or
discontinuance will:
(a) without the consent of each individual Optionee change or
impair any outstanding Option held by such Optionee in a manner which
is detrimental to the Optionee; or
(b) without approval by a majority of the votes cast by holders of
the Class A Common Stock and the Class B Common Stock of the Company,
voting together in person or by proxy at a duly held stockholders'
meeting, (i) materially increase the benefits accruing to Optionees
under the Plan, (ii) materially increase the number of Shares that may
be issued under the Plan (except pursuant to Paragraph 11) or (iii)
materially modify the requirements of eligibility for participation in
the Plan.
12. EFFECTIVE DATE OF THE PLAN. The Plan has been adopted and
authorized by the Board. The Board has also proposed, declared advisable and
approved a comprehensive amendment and restatement of the certificate of
incorporation of the Company which would, among other things, authorize the
Company to issue two classes of common stock, Class A Common Stock and Class B
Common Stock (the "Restated Certificate of Incorporation"). The Board has also
directed that the Plan and the Restated Certificate of Incorporation be
submitted to Griffith Laboratories International, Inc., the sole stockholder of
the Company, for their approval and adoption, and if so approved and adopted the
Board has authorized that the Restated Certificate of Incorporation be made
effective under Delaware law by its execution and filing in the Office of the
Secretary of State of Delaware. If the Plan and the Restated Certificate
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<PAGE> 9
of Incorporation are approved and adopted by the sole stockholder of the Company
and the Restated Certificate of Incorporation has become effective under
Delaware law, the Plan shall be deemed to have become effective on the date on
which the Restated Certificate of Incorporation becomes effective under Delaware
law. Options may be granted under the Plan before the Restated Certificate of
Incorporation becomes effective under Delaware law, but subject to such
effectiveness.
13. MISCELLANEOUS PROVISIONS. (a) No Optionee or other person will have
any right with respect to the Plan, the Class A Common Stock reserved for
issuance under the Plan or any Option, contingent or otherwise, until all the
terms, conditions and provisions of the Plan and the Option applicable to such
recipient (and each person claiming under or through him or her) have been met.
(b) The expenses of the Plan will be borne by the Company.
(c) The Plan shall be governed by and construed in accordance with
the laws of the State of Delaware.
(d) Any notice required to be given under the Plan or any Option
granted pursuant to the Plan shall be given in writing. Unless otherwise
specifically provided to the contrary herein, any such notice shall be deemed to
be given on the fourth business day after it is sent by registered or certified
mail, postage prepaid, to the intended recipient, addressed as follows:
If to the Company, to:
Griffith Micro Science International, Inc.
2001 Spring Road
Oak Brook, Illinois 60521
Attn: John B. Sabalaskey
Senior Vice President
If to the Optionee, to his or her address set forth on the
Option Certificate evidencing the Option with respect to which
such notice is given
Any such notice may also be given using any other means (including personal
delivery, courier, messenger service, facsimile transmission, electronic
transmission or ordinary mail), but no such notice shall be deemed duly given
unless and until it is actually received by the intended recipient. Either the
Company or the Optionee may change the address to which any such notice is to be
sent to him, her or it by giving written notice of such change of address in the
manner herein provided for giving notice.
9
<PAGE> 10
EXHIBIT A
GRIFFITH MICRO SCIENCE INTERNATIONAL, INC.
STOCK OPTION CERTIFICATE PURSUANT TO THE
1998 DIRECTOR STOCK OPTION PLAN
This Stock Option Certificate (the "Option Certificate") is issued this
___ day of __________, 19__ by GRIFFITH MICRO SCIENCE INTERNATIONAL, INC., a
Delaware corporation (the "Company"), to _________________ (the "Optionee") for
the purpose of evidencing a stock option (the "Option") automatically granted
effective as of the date hereof to the Optionee pursuant to the 1998 Director
Stock Option Plan of the Company, a copy of which is attached hereto as Appendix
I (the "Plan"), subject to the following terms and conditions:
1. The Option and this Option Certificate are subject to all
of the terms and conditions of the Plan, which are incorporated herein
by this reference thereto. All capitalized terms hereinafter used in
this Option Certificate have the definitions given to them in the Plan.
2. The Company has granted to the Optionee an Option to
purchase up to _________ shares of Class A Common Stock of the Company
at an Exercise Price of $__________ per share, subject to adjustment as
provided in the Plan.
3. The Option shall be for a term of 10 years from the date
hereof and shall expire on the tenth anniversary of the date hereof,
unless it has been fully exercised or has expired prior to the end of
such term in accordance with the provisions of the Plan.
4. The Option shall vest and become exercisable with respect
to the total number of Shares covered by the Option on the first
anniversary of the date of this Option Certificate.
5. The Optionee may exercise this Option at any time or from
time to time after it has vested and prior to its expiration by giving
written notice to the Company specifying the number of Shares to be
purchased. Payment of the aggregate Exercise Price for the Shares being
purchased shall be made by the Optionee in the manner specified in or
pursuant to the Plan.
6. The Optionee is required to sign and return to the Company
(Attn: John P. Sabalaskey, Senior Vice President) one of the duplicate
originals of this Option Certificate to signify his or her acceptance
of this Option on the terms and conditions specified herein and in the
Plan.
Dated as of the date first above written.
Accepted and agreed as of the GRIFFITH MICRO SCIENCE
date first above written: INTERNATIONAL, INC.
___________________________ By:_____________________________
[name and home Authorized Officer
address of the Optionee]
<PAGE> 11
EXHIBIT B
PROMISSORY NOTE
$_____________________ _______________, 19__
Oak Brook, Illinois
FOR VALUE RECEIVED, the undersigned hereby promises to pay to the order
of GRIFFITH MICRO SCIENCE INTERNATIONAL, INC., a Delaware corporation (the
"Company"), the principal sum of $____________ on the earlier of (A) [here
insert the date which is the first anniversary of the date of the note] or (B)
the third business day following the date on which the undersigned's service as
a director of the Company terminates for any reason other than death, Permanent
Disability or normal retirement at age 65, with interest (computed on the basis
of the actual number of days elapsed over a 365-day year) on the unpaid balance
thereof at the rate of [here insert interest rate, which shall be equal to the
Federal short-term rate in effect on the date of the note, as determined
pursuant to Section 1274(d) of the Internal Revenue Code of 1986, as amended, or
any successor provision thereto or other rate established by the Stock Option
Committee] per annum, from the date hereof until the principal amount of this
Note is paid in full, payable on the maturity date of this Note.
The payment of principal and interest on this Note shall be made at the
offices of the Company, 2001 Spring Road, Suite 500, Oak Brook, Illinois 60621
or at such other place as the holder of this Note may from time to time
designate in writing.
This Note has been issued in connection with the purchase of __________
shares of Class A Common Stock of the Company, $.01 par value (the "Shares"),
pursuant to the exercise of an Option granted to the undersigned under the 1998
Employee Stock Option Plan of the Company (the "Plan"). All capitalized terms
used but not defined in this Note have the definitions given to them in the
Plan.
The Shares are represented by certificate no. __________ (the
"Certificate"). The undersigned hereby assigns, transfers and pledges to the
Company, to secure the performance by the undersigned of his or her obligations
under this Note, Shares having at all times an aggregate Fair Market Value at
least equal to 150% of the unpaid principal amount of this Note. To effect this
pledge, the undersigned, concurrent with the issuance of this Note, has
delivered to the Company the Certificate accompanied by a duly executed Stock
Power.
The principal of and interest on this Note shall be payable by the
undersigned either in cash or by instructing the Company to transfer to its
treasury or to cancel that whole number of Shares which have been pledged to
secure performance by the undersigned of his or her obligations under this Note
having an aggregate Fair Market Value on the repayment date which is at least
equal to the amount required to pay the principal of and all interest on this
Note in full.
The undersigned shall have the right to prepay this Note in whole or in
part, without premium or penalty.
The undersigned hereby waives presentment, notice of dishonor or
protest of dishonor of this Note.
This Note shall be governed by and construed in accordance with the
laws of the State of Delaware.
-----------------------------------
[here insert name and home
address of the Optionee]
<PAGE> 1
EXHIBIT 10.6
ADMINISTRATIVE SERVICES AGREEMENT
This Administrative Services Agreement (the "Agreement") is made and
entered into as of this ___ day of _________________ by and between Griffith
Laboratories International, Inc., including its subsidiaries and affiliates
(hereinafter collectively referred to as "GLI"), located at 1 Griffith Center,
Alsip, IL 60803-3495 and Griffith Micro Science International, Inc. (hereinafter
referred to as "GMS"), located at 2001 Spring Road, Oak Brook, IL 60523-1887.
WITNESSETH
WHEREAS, GLI possesses extensive expertise and resources in assisting
the provision, marketing and sale of sterilization services, including but not
limited to the areas of operations, information systems, finance, treasury,
legal, human resources, insurance and risk management, general and strategic
management and administration and other services as hereinafter described
(hereinafter referred to as the "Services"); and
WHEREAS, GMS, on behalf of itself and its subsidiaries and affiliates
(collectively, the "GMS Group"), desires to obtain from GLI its expertise with
respect to the Services in order to enhance its efficiency, productivity and
profitability; and
WHEREAS, GLI is willing to make the Services available to the GMS Group
on the terms and conditions stated herein.
NOW, THEREFORE, in consideration of the foregoing recitals, and of the
mutual covenants and agreements hereinafter set forth, the parties hereto agree
as follows:
1. Services
GMS shall consult with GLI in advance of engaging the performance of
any Services described hereunder which relate to finance and
accounting, legal, treasury and risk management so that the parties may
determine the most effective means of providing such Services, whether
by GLI or otherwise.
Subject to the terms and conditions of this Agreement, during the term
of this Agreement and upon the request of the GMS Group, GLI hereby
agrees to provide the following Services to the GMS Group:
a. Office of the Executive Vice President
GLI agrees that it has or will on behalf of the GMS Group:
i) Review and approve business deals, contracts and
transactions of the GMS Group which would normally
require such level of
<PAGE> 2
review and approval or if the GMS Group requests such
review; and
ii) Provide where necessary any other assistance normally
required of senior executive talent.
b. Systems and Procedures
GLI shall provide systems and procedures for the GMS Group
with respect to accounting, data processing, payroll, employee
benefits and human resources. GLI further agrees to provide
assistance in establishing, maintaining and explaining such
systems and procedures, if so requested by the GMS Group.
c. Information Systems
GLI shall provide the information and communication system
services to support the operating system software, hardware,
database management programs, application software and local
area network services required for the finance accounting
systems, human resource systems and any other applications
mutually agreed to by the parties.
d. Finance and Accounting
GLI shall provide services to the GMS Group with respect to
accounting, financial reporting, forecasting and analysis for
internal and external business needs. Such services shall
include, but not be limited to, processing accounting
transactions; preparing and distributing various accounting
reports to GMS; providing research and consulting assistance
regarding GMS's external and internal reporting matters;
making available to GMS personnel Hyperion
reporting/accounting systems; providing tax accounting
services, as described in the Tax Matters Agreement entered
into by GMS and Griffith Laboratories, Inc. as of ___________
_____ and assisting with the GMS quarterly reviews and
year-end audits performed by GMS's independent outside
accountants. GLI shall also provide assistance in establishing
credit management guidelines, accounts receivable management,
assisting in the formation of strategic plans and annual
budgets, review and approval of capital projects and lease
agreements, establishing finance related policies and
procedures, and other financial evaluations and services as
requested by the GMS Group in the conduct of its business.
e. Treasury
GLI shall provide coordination and assistance with respect to
cash
2
<PAGE> 3
management, currency exposure and risk analysis, banking
relationships and advisory services, both local and
centralized, and arrange for appropriate financing, including
without limitation the establishment of current and/or
long-term financing and, at the request of the GMS Group, will
assist the GMS Group in negotiations for other financial
services. If requested by GMS, GLI may also, at its sole
option and discretion, provide guaranties of certain of the
GMS Group's obligations to third parties, for which GLI may
charge a separate fee, as provided for in Section 2 hereof.
f. Legal
GLI shall arrange for legal advice on matters of special
concern to the GMS Group and/or of common concern to the GMS
Group and GLI including, but not limited to assistance in
litigation, acquisitions, joint venture formations, start-up
operations, stock offerings, financing, preparation and review
of contracts, real estate matters (including, but not limited
to negotiation of leases), patents, trademarks and other
intellectual property matters and other matters requiring
legal advice. GLI will also assist with the retention and
management of outside counsel for the GMS Group, and will
assist in the assessment of the applicability and subsequent
compliance with the laws, rules and regulations of the various
authorities which have jurisdiction over the GMS Group.
g. Insurance and Risk Management
GLI shall provide advice and assistance to the GMS Group in
evaluating and controlling risks and in obtaining and
administering liability, property, casualty and employee-based
insurance coverages. GLI shall also provide assistance to the
GMS Group in obtaining, where necessary, directors' and
officers', surety, business interruption, theft and general
corporate insurance coverage and any other types of insurance
coverage required or otherwise deemed necessary. GLI will also
make its risk management staff available for managing
relations with insurers, insurance brokers and claims
processing.
h. Taxation
In order to ensure compliance with tax laws, GLI shall provide
advice and assistance with regard to United States federal,
state, and local tax issues which may be encountered by GMS
and its subsidiaries, including, without limitation tax
planning and research, tax return preparation, financial
statement tax provision and related accounts calculations and
coordination with outside advisors. GLI shall also provide
representation services to the GMS Group with respect to tax
matters and issues raised by
3
<PAGE> 4
such United States tax authorities.
i. Traffic, Shipping and Receiving
GLI will provide the GMS Group with transportation support
services, including but not limited to the negotiation of
carrier rates and services, and advising on special routings,
claims handling, freight bill payment and dedicated contract
carriage.
j. Human Resources and Employee Benefits
GLI will provide advice and assistance to the GMS Group with
respect to human resource services relating to establishing
and maintaining employee health and welfare benefit plans,
including, but not limited to selection of plans and reporting
requirements; establishing and monitoring employment related
hiring and dismissal policies and procedures; establishing
employee performance appraisal and compensation policies and
procedures and monitoring employee training, education and
counseling programs and special events planning. GLI will also
provide advice and assistance in staff recruitment and
training for GMS Group employees, as reasonably requested by
GMS. In addition, GLI shall provide management assistance to
the GMS Group in connection with employee evaluations and
performance reviews and recommend compensation along with the
review of employee benefits. GLI will also provide payroll and
employee benefit processing and all related payroll and
employee benefit record keeping to GMS and its domestic,
Canadian and Mexican subsidiaries.
k. Strategic Planning
GLI shall provide management services to the GMS Group
concerning strategic planning related to organizational
structure, strategies and goals, human resources, technical
exchange, customer and product categories, investments and
financial evaluations and other related services.
2. Basic and Guaranty Fees
As compensation for the Services rendered under this Agreement, GLI
will charge, and GMS hereby agrees to pay, at the times and in the
manner described below, a service fee (hereinafter referred to as the
"Basic Fee").
The amount of the Basic Fee payable by GMS to GLI shall be based upon a
pro-rata share of the estimated cost of providing the Services which
shall include direct and indirect overhead costs, including, without
limitation salaries, benefits and other administrative costs incurred
by GLI in connection with the provision of
4
<PAGE> 5
the Services. The pro-rata share shall be determined by the percentage
of time spent by individuals in each cost center of GLI on the services
provided to the GMS Group applied to the total expenses associated with
such individuals (including but not limited to direct and indirect
overhead costs), plus any charges for additional costs directly
associated with such services, including but not limited to, charges
incurred by GLI for travel and other direct costs. Except as otherwise
specifically set forth in this Agreement, all third party costs
associated with the performance of the Services, including but not
limited to professional fees and registration and other filing or
administrative fees, shall be at the expense of and paid directly by
GMS.
The Basic Fee shall be invoiced to GMS by GLI on a quarterly basis. The
Basic Fee shall be payable in U.S. dollars at GLI's normal place of
business in Alsip, Illinois or at such other location that may be
specified by GLI.
For guaranties provided under Section 1.e. of this Agreement, GMS
agrees to pay GLI quarterly fees of (a) 0.25% (annual rate) of the (i)
daily average amount of the outstanding debt under any loan agreements
or other debt instruments guaranteed by GLI and (ii) annual average
amount remaining to be paid by GMS under any leases or other payment
obligations guaranteed by GLI; and (b) with respect to any other
indemnification and performance obligations guaranteed by GLI, 0.25%
(annual rate) of the daily average of the lesser of (i) the maximum
amount payable by GMS under such indemnity or performance obligation
and (ii) the amount of proceeds received by GMS in the related
transaction. Any fee payable under this Section ceases to be payable
when GMS is no longer legally required to make any such indemnification
or performance payment.
In addition to the Basic Fee and the guaranty fees described above, GMS
shall be responsible for all taxes, including without limitation any
sales, use and value-added taxes (but excluding any tax based upon the
net income of GLI) if imposed by any government or governmental
authority as a result of the services rendered or the fees paid
hereunder.
3. Term
The Initial Period of this Agreement will commence on the date first
above written and end on the fifth anniversary thereof. After the
Initial Period, this Agreement will be extended automatically for
annual periods, unless either of the parties terminates the
Agreement on written notice to the other party provided not less than
six months prior to the renewal date. Notwithstanding the foregoing,
this Agreement may be terminated: (i) at any time upon the mutual
agreement of both parties; or (ii) in GLI's sole discretion in the
event GLI's direct or indirect ownership of GMS stock is or becomes
less than 20.1% of the outstanding stock of the company. In the case of
5
<PAGE> 6
a termination, GMS will be liable for all charges for Services provided
through the effective date of termination.
4. Standard of Care: Waiver of Claims Against GLI
a. In performing the Services under this Agreement, GLI shall at
all times act in good faith and in a manner which it believes
to be in or not opposed to the best interest of GMS.
b. Any input or information needed by GLI to perform the
Services pursuant to the provisions of this Agreement shall
be provided by GMS or its subsidiaries or affiliates, as the
case may be, in a manner consistent with the practices
employed by the parties during the year prior to the
execution of this Agreement. Should the failure to provide
such input or information render the performance of the
Services impossible or unreasonably difficult, GLI may, upon
reasonable notice to GMS, refuse to provide such Services.
c. GMS acknowledges that GLI shall be obligated to provide
the Services only with respect to the business (including,
without limitation, joint ventures and partnerships) of the
GMS Group as such business exists as of the execution of this
Agreement or as otherwise mutually agreed by the parties. GLI
shall have no obligation to provide Services to or for the
benefit of any entity other than the GMS Group. The GMS Group
agrees that it will use the Services only in accordance with
all applicable federal, provincial, state and local laws,
regulations and tariffs, and in accordance with reasonable
conditions, rules, regulations and specifications which are
or may be set forth in any manuals, materials, documents or
instructions of GLI. The parties hereto each reserve the
right to take all actions, including, without limitation, the
termination of any Services, in order to assure that the
Services are provided in accordance with any applicable laws,
regulations and tariffs.
d. Notwithstanding anything to the contrary contained in this
Agreement or provided by law, to the maximum extent permitted
by law, the GMS Group hereby unconditionally and irrevocably
waives all claims and causes of action against GLI (and its
parents, affiliates and their shareholders, officers,
directors and employees), of every kind and character,
including without limitation claims and causes of action for
loss of or injury to business or property, caused by or
deriving from any act or omission of GLI (or its
shareholders, officers, directors or employees) under this
Agreement, including, but not limited to acts and omissions
constituting negligence or gross negligence, except for such
acts or omissions of GLI made or omitted in bad faith.
e. GMS shall indemnify and hold GLI (and its parents, affiliates
and their shareholders, officers, directors and employees)
harmless from and against
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<PAGE> 7
any losses, liabilities, claims, damages, obligations,
payments, costs and expenses which may be asserted against
GLI (and its parents, affiliates and their shareholders,
officers, directors and employees) by any third party by
reason or as a result of any acts or omissions of GLI in
connection with the Services provided under this Agreement,
except for claims arising out of the negligence of GLI in
connection with, or related to the Services provided under
this Agreement.
5. Confidentiality of Information
All Confidential Information (as hereinafter defined) disclosed by any
of the parties to any other party hereunder is confidential and
proprietary to such disclosing party. Confidential Information
furnished by any of the parties to any other in connection with this
Agreement (or previously disclosed prior to execution of this
Agreement) and the transactions contemplated hereby will be kept in
confidence by such other party, including its affiliates or
subsidiaries, in accordance with its policies for maintaining the
confidence of its own information of similar content. The term
"Confidential Information" shall mean and include: (i) all trade
secrets and other confidential business information learned in the
course of performance by any party of its obligations hereunder, and
(ii) any information, data, software or computer programs which are
disclosed by any party to the other party under or in contemplation of
this Agreement. Confidential Information may be either the property of
the disclosing party or information provided to the disclosing party by
a corporate affiliate of the disclosing party or by a third party.
Notwithstanding the foregoing, the term "Confidential Information"
shall not include information which: (i) is already known to such other
party when received (except for information previously disclosed which
the parties have identified as Confidential Information and subject to
the confidentiality requirements of this Agreement), (ii) thereafter
becomes generally obtainable by a party other than as a result of an
unauthorized disclosure by the party taking advantage of this clause,
(iii) is required by law, regulation or court order to be disclosed by
such party, provided that in the case of this clause, prior notice of
such disclosure has been given to the party which furnished such
information, when legally permissible, and that such other party which
is required to make the disclosure uses its best efforts to provide
sufficient notice to permit the party which furnished such information
to take legal action to prevent the disclosure, or (iv) is reasonably
necessary, in the opinion of counsel, to be disclosed in the context of
a legal proceeding or regulatory investigation provided that prior
notice shall be given to the party which furnished the information.
This Section 5 shall survive any termination of this Agreement for five
(5) years.
6. Conflict Resolution
Any dispute, controversy or claim relating to this Agreement (a
"Dispute") shall initially be referred to the officers of each of the
parties to the Dispute. In the event the officers cannot come to an
agreement on a particular Dispute, then the
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<PAGE> 8
matter shall be submitted to the respective Chief Executive Officers
and General Counsel ("Designated Officers") of the parties to the
Dispute. The Designated Officers of each party then shall investigate
and evaluate the Dispute. The parties agree to cooperate in this
process by exchanging relevant information unless such information is
privileged. The Designated Officers or their respective designees shall
meet as appropriate to, in good faith, resolve the Dispute. If the
Designated Officers are unable to resolve the Dispute within sixty (60)
days of submission, the Dispute will be submitted to arbitration. The
arbitrators shall be appointed as follows: GLI and GMS shall each
appoint one arbitrator; the two arbitrators thus appointed shall choose
the third arbitrator, who shall act as the presiding arbitrator of the
tribunal. The parties agree that all arbitrations shall be governed by
the Rules of Commercial Arbitration of the American Arbitration
Association; that such arbitrations shall take place in Chicago,
Illinois, or such other location as may be mutually agreed upon by the
parties; and that the result of such arbitration shall be binding upon
the parties, and may be entered as a judgment in any court or tribunal
with jurisdiction over any party with the same force and effect as a
judgment rendered by such court or tribunal.
7. Notices
All communications to any party hereunder shall be in writing and shall
be delivered in person or sent by facsimile, telegram, telex, by
registered or certified mail (postage prepaid, return receipt
requested) or by reputable overnight courier to the respective parties
at the following addresses (or at such other address for a party as
shall be specified in a notice given in accordance with this Section 7)
(and shall be deemed to have been given as of the date so delivered or
sent):
if to GLI, to:
Griffith Laboratories International, Inc.
1 Griffith Center
Alsip, Illinois 60803-3495
Attn.: Chief Financial Officer
if to the GMS Group, to:
Griffith Micro Science International, Inc.
2001 Spring Road, Suite 500
Oak Brook, Illinois 60523-1887
Attn.: Chief Financial Officer
8. Independent Contractors
The parties shall operate as, and have the status of, independent
contractors with respect to the Services described hereunder and shall
not act as or be an agent, partner, co-venturer or employee of the
other party. Neither party shall have any
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right or authority to assume or create any obligations or to make any
representations or warranties on behalf of any other party, whether
express or implied, or to bind the other party in any respect
whatsoever.
9. Additional Actions and Documents
Each of the parties hereto agrees to take or cause to be taken such
further actions, to execute, acknowledge, deliver and file or cause to
be executed, acknowledged, delivered and filed such further documents
and instruments, and to use all reasonable efforts to obtain such
consents, as may be necessary or as may be reasonably requested in
order to fully effectuate the purposes, terms and conditions of this
Agreement.
10. No Third Party Benefits
Nothing contained in this Agreement, express or implied, shall grant to
or confer upon any person or entity other than the parties hereto any
rights or remedies whatsoever.
11. Successors and Assigns
The rights and obligations of the parties hereto under this Agreement
shall be binding upon and shall inure to the benefit of the parties
hereto, their successors and assigns. GLI hereby expressly reserves the
right to assign or delegate to any third party its rights or
obligations hereunder, which assignment or delegation may be affected
without notice to GMS; provided, however, that if GLI assigns to a
third party its rights to receive payments of the Basic Fee, then GLI
shall notify GMS of such assignment sufficiently prior thereto to allow
GMS to make payments of the Basic Fee in a timely manner.
12. Entire Agreement
This Agreement contains the entire understanding of the parties hereto
with respect to the subject matter hereof.
13. Governing Law
The validity, construction, interpretation and enforcement of this
Agreement, or any breach thereof, shall be governed by the laws of the
State of Illinois.
14. Amendment
This Agreement may be modified or amended only upon the mutual written
agreement of the parties hereto.
9
<PAGE> 1
EXHIBIT 10.7
TAX MATTERS AGREEMENT
This Agreement is entered in to as of the ________ day of _________,
_____, between Griffith Laboratories, Inc., an Illinois corporation
(hereinafter, "GLI"), Griffith Micro Science International, Inc., a Delaware
corporation ("GMSI") and each of GMSI's direct or indirect subsidiaries.
RECITALS:
WHEREAS, for federal income tax and certain state franchise or income
tax purposes, GMSI and its domestic subsidiaries will cease to be members of the
Griffith Group (as hereinafter defined), as a result of the public offering of
shares of GMSI common stock; and
WHEREAS, the parties wish to address certain tax matters which may
arise as a result of the GMSI Group (as hereinafter defined) ceasing to be part
of the Griffith Group;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, and for other good and valuable consideration, the parties hereto
agree as follows:
1. The following terms shall have the following meanings as used in
this Agreement:
a) "CONSOLIDATION PERIOD(S)" shall mean, with respect to each
member of the GMSI Group, the taxable periods or portions thereof in which
such member was part of the Griffith Group.
b) "DECONSOLIDATION DATE" shall mean the date on which all members
of the GMSI Group cease to join in the filing of the Griffith Group's
consolidated federal income tax return.
c) "GMSI GROUP" shall mean the affiliated group for federal income
tax purposes of which GMSI is the common parent after GMSI ceases to be a member
of the Griffith Group as a result of the public offering of shares of GMSI's
common stock.
d) "GRIFFITH GROUP" shall mean the affiliated group for federal
income tax purposes of which GLI is the common parent.
e) "INCOME TAX" shall mean any tax levied or assessed upon income
or gross receipts, including without limitation any alternative minimum tax.
f) "INCOME TAX BENEFIT" and "INCOME TAX COST" shall mean the
decrease or the increase, respectively, in the amount of any income tax
liability (or the increase or decrease, respectively, in the amount of any
income tax refund) which the party in question would incur as a result of (i)
including or excluding, as the case may be, the item of income, gain, loss, or
deduction subject to adjustment pursuant to this Agreement in the computation of
taxable income
<PAGE> 2
or loss and (ii) including or excluding, as the case may be, the
credits subject to adjustment pursuant to this Agreement in the computation of
income tax liability or refund.
2. With respect to each of the Consolidation Period(s):
a) GMSI shall pay to GLI to the extent (if any) not already paid to
GLI an amount equal to the aggregate federal income taxes, if any, the GMSI
Group (or any of its members) would have been required to pay for such taxable
period if the GMSI Group (or any such members) had filed a separate return for
such period.
b) GMSI shall pay to GLI to the extent (if any) not already paid to
GLI an amount equal to the aggregate state income taxes, if any, the GMSI Group
or any of its members who are members of a unitary, combined or consolidated
group which includes GLI or any of its subsidiaries (other than members of the
GMSI Group) would have been required to pay for such taxable period if any such
member had filed a separate state income tax return for such period. Members of
the GMSI Group which file separate state income tax returns shall be responsible
for their own state income tax liabilities.
c) Except as set forth below, payments required pursuant to
subparagraphs 2(a) and 2(b) of this Agreement shall be made at such time as
payments are due, or would have been due, to the respective taxing authorities.
Notwithstanding the above, prior to the Deconsolidation Date, GLI shall estimate
(based on projections calculated using assumptions consistent with past
practices) the amounts due under subparagraphs 2(a) and 2(b) of this Agreement
for all Consolidation Periods ending on or before the anticipated
Deconsolidation Date and cause any net payments due thereunder to be made prior
to the Deconsolidation Date. GMSI and/or its representatives shall be given
thirty (30) days to review such estimate. If GMSI and GLI cannot agree upon the
estimate, then the Arbitration provisions of the Administrative Services
Agreement dated ___________, ______ between GMSI and Griffith Laboratories
International, Inc. ("Administrative Services Agreement") will be followed. If
the estimate is agreed upon, such payments may, in GLI's discretion, be
evidenced by a demand promissory note bearing interest at the interest rate or
rates then being charged by the Internal Revenue Service on federal income tax
deficiencies over the same period of time such overdue payment or advance
remains unpaid. The principal of such notes shall be appropriately adjusted as
soon as practicable to take into account any difference between the estimated
amount due and the actual amount due. The amounts due under subparagraphs 2(a)
and 2(b) of this Agreement for the period beginning October 1, 1997 and ending
on the Deconsolidation Date shall be recalculated by GLI upon filing of GLI's
tax return for its fiscal year ending September 30, 1998 in accordance with the
terms of such subparagraphs and appropriate adjustment to payments due under
those subparagraphs shall be made. If income tax deficiencies or tax refunds
relating to the GMSI Group result from a tax examination, amended return, claim,
final determination by any court or otherwise related to the income tax returns
for the Consolidation Period, the amounts due under subparagraphs 2(a) or 2(b)
of this Agreement shall be recalculated by GLI in accordance with the terms of
such subparagraphs and an appropriate adjustment to payments due under those
subparagraphs shall be made.
2
<PAGE> 3
d) Notwithstanding anything to the contrary contained herein, in
making any computations pursuant to this Agreement, the taxable income or loss
of the GMSI Group calculated on a stand alone basis shall be deemed to include
any increase or decrease in the taxable income or loss of the GMSI Group in the
year in question resulting from any or all members of the GMSI Group ceasing to
be members of the Griffith Group consolidated federal income tax return.
e) Notwithstanding anything to the contrary contained herein, GLI
shall maintain the express and exclusive right to file tax refund claims for any
reason whatsoever and review with GMSI the portion of any such claim relating to
GMS.
f) Items of income, gain, loss, deduction, credit or credit
carryforward of any member of the GMSI Group for the period beginning October 1,
1997 and ending September 30, 1998 will be allocated between the portion of the
period occurring through the Deconsolidation Date in accordance with the
principles set forth in Treasury Regulation Section 1.1502-76, as determined by
GLI in its reasonable discretion.
g) Until the applicable statute of limitations for such taxable
periods have expired, the Griffith Group, in accordance with the provisions of
the Administrative Services Agreement, shall have full authority for (i)
preparing any federal income tax returns (including without limitation, any
amended returns or claims for refund) of the GMSI Group, (ii) representing the
GMSI Group with respect to any federal or state tax examination or tax contest
(including, without limitation, any litigation regarding federal income taxes or
refunds), (iii) engaging outside counsel and accountants with respect to federal
or state tax matters regarding the GMSI Group, and (iv) performing such other
acts and duties with respect to the GMSI Group's federal or state tax matters as
it determines is appropriate.
3. With respect to each taxable period ending after the
Deconsolidation Date:
a) GLI will continue to prepare all applicable federal, state and
local income, franchise, ad valorem, capital stock (annual reports,) sales, use,
payroll and real and personal property tax returns for the GMSI Group and any
other tax returns filed on a consolidated, combined or unitary basis involving a
member of the GMSI Group and a member of the Griffith Group, as well as
preparing or reviewing the annual federal, state and foreign income tax
provisions in accordance with the provisions and for the term outlined in the
Administrative Services Agreement.
b) The GMSI Group shall be responsible for preparation and filing
of any required returns and reports for any other tax or governmental charge to
which it or any of its members is subject and which is not encompassed by
subparagraph (a) hereof, provided however, that GLI shall have the right to
review any and all such returns.
c) With GMSI's consent, which shall not be unreasonably withheld,
GLI shall have full authority and responsibility for (i) representing the GMSI
Group with respect to any federal or state tax examination or tax contest
(including, without limitation, any litigation
3
<PAGE> 4
regarding federal income taxes or refunds), (ii) engaging outside counsel and
accountants with respect to federal or state tax matters regarding the GMSI
Group, and (iii) performing such other acts and duties with respect to the GMSI
Group's federal or state tax matters as GLI determines is appropriate.
4. For purposes of this Agreement, the terms "income taxes," "income
tax refunds," "income tax liabilities", "income tax deficiencies", "income tax
costs" and "income tax benefits" shall be deemed to include applicable
penalties, interest and additions to tax, including any penalties paid pursuant
to Section 6662 of the Internal Revenue Code which are properly attributable to
a party. For purposes of this Agreement, the determination as to the
applicability of a particular penalty shall be made on a consolidated basis. If
a particular penalty, determined on a consolidated basis, is not clearly
attributable to any party, such penalty shall be allocated among the GMSI Group
and the Griffith Group (other than the members of the GMSI Group) in proportion
to the adjustments subject to such penalty attributable to each such Group.
5. Notwithstanding anything to the contrary herein, no party shall be
entitled to duplicate payments from the other party hereunder. GLI may, in its
discretion, net any payments due to GLI from GMSI pursuant to this Agreement
against any amount due from GLI to GMSI pursuant to this Agreement or otherwise.
GMSI may, in its discretion, net any amount due to GMSI from GLI pursuant to
this Agreement against any amount due from GMSI to GLI pursuant to this
Agreement or otherwise.
6. Interest shall accrue on payments due under this Agreement at the
interest rate or rates then being charged by the Internal Revenue Service on
federal income tax deficiencies over the same period of time such overdue
payment remains unpaid. Interest shall begin to accrue on the date payment is
due provided, however, that interest shall not accrue for any period during
which interest is being charged by or paid by the Internal Revenue Service and
such interest is included as part of the payment due under this Agreement.
Payments under this Agreement, may, in GLI's and GMSI's discretion, be evidenced
by a demand promissory note bearing interest as provided in this paragraph.
7. (a) GLI agrees that it will indemnify and hold all members of the
GMSI Group harmless from and against any federal or state unitary, combined or
consolidated income tax liabilities (including, without limitation interest,
penalties, additions to tax, legal fees, court costs, and any other reasonable
costs of defense) with respect to the portion of the Griffith Group consolidated
federal income tax liability or state unitary, combined or consolidated income
tax liability which is allocable to members of the Griffith Group, other than
members of the GMSI Group.
(b) Except as otherwise provided in this Agreement, GMSI agrees
that it will indemnify and hold all members of the Griffith Group, other than
the members of GMSI Group, harmless from and against any federal or state
unitary, combined or consolidated income tax liability (including, without
limitation interest, penalties, additions to tax, legal fees, court costs, and
any other reasonable costs of defense) with respect to the portion of the
Griffith Group
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<PAGE> 5
consolidated federal income tax liability or state unitary, combined or
consolidated income tax liability which is allocable to the members of the GMSI
Group.
8. GMSI covenants and agrees to, or to cause the members of the GMSI
Group to: (i) provide GLI access to the GMSI Group's books and records, (ii)
provide the Griffith Group with papers, schedules, and any other information or
assistance necessary to prepare tax returns or make computations pursuant to
this Agreement, (iii) maintain, preserve and furnish on a timely basis, when
requested, books, records and other information as may be needed by the Griffith
Group pursuant to this Agreement or pursuant to the preparation of any required
tax return or the conduct of any tax examination by any governmental authority
for at least such time as has been customary while the members of the GMSI Group
have been part of the Griffith Group, (iv) cooperate in any examination or
investigation of tax returns and execute appropriate powers of attorney in
connection therewith in favor of the appropriate member of the Griffith Group,
and (v) following GLI's review with GMSI the portion of any such claim relating
to GMSI, sign all documents, including settlement agreements, relating to the
tax returns for Consolidation Periods.
9. GMSI covenants and agrees to file the GMSI Group's consolidated
federal income tax returns for taxable periods made after the Deconsolidation
Date in a manner consistent with any elections made on the Griffith Group
consolidated federal income tax returns filed for the Consolidation Periods.
GMSI also covenants and agrees that the GMSI Group will not file any claim for
refunds with respect to federal or state income tax returns for Consolidation
Periods.
10. GMSI agrees that it will indemnify and hold the Griffith Group
(other than the members of the GMSI Group) harmless from and against any and all
costs, expenses, losses, damages and liabilities incurred or suffered directly
or indirectly (including reasonable attorneys' fees) attributable to the breach
of any of its covenants herein.
11. Any terms used in this Agreement in the singular shall be deemed to
be in the plural where appropriate and any terms used in the plural shall be
deemed to be in the singular where appropriate.
12. This Agreement is entered into by the parties hereto on their own
behalf as well as on behalf of any subsidiaries such parties may respectively
have after the Deconsolidation Date. This Agreement shall be deemed to have been
joined in and consented to by all such subsidiaries, without further action of
them or the parties hereto. The parties hereto hereby guarantee the performance
by such subsidiaries of the terms of this Agreement. This Agreement shall also
be binding upon, and inure to the benefit of, the successors and assigns of the
parties hereto.
13. This Agreement supersedes and terminates all prior tax matters
agreements that may exist among the parties on the Deconsolidation Date.
14. This Agreement shall have an initial term of five (5) years and
shall renew automatically for additional terms of one (1) year each unless
either party gives the other party not less than ninety (90) days written notice
of its intention to terminate.
5
<PAGE> 1
Exhibit 10.10
STERILIZATION PROCESSING SERVICES AGREEMENT
This agreement (the "Agreement") is made and entered into as
of the 1st day of January 1996, between the Convertors/Custom Sterile Division
of Baxter Healthcare Corporation, with its principal place of business at 1500
Waukegan Road, McGaw Park, Illinois, 60085-6782 ("Buyer"), and Griffith Micro
Science, Inc., with its principal place of business at 2001 Spring Road, Oak
Brook, Illinois, 60521 ("Seller"). This agreement may also apply to other Baxter
divisions, subsidiaries, suppliers or contract manufacturers as mutually agreed
upon by Buyer and Seller.
1.0 TERM OF AGREEMENT. This Agreement will commence as of the 1st
day of January 1996 and shall continue for five and one-half (5 1/2) years to
June 30, 2001. This Agreement may be extended for one additional three (3) year
term upon the written consent of both parties. At the end of the additional
three year term, this Agreement may be extended for additional one (1) year
terms upon the written consent of both parties. The initial five and one-half (5
1/2) year term of this Agreement may also be extended under the provisions of
Section 3.3(d) of this Agreement. This Agreement supersedes the Sterilization
Processing Services Agreement made and entered into as of January 1, 1993, by
Buyer and Seller, including any amendments or modifications thereto.
2.0 PURCHASE AND SALE OF PROCESSING SERVICES; LABORATORY SERVICES.
2.1 Purchase and Sale of Processing Services. On the terms and
subject to the conditions hereinafter set forth, Buyer agrees to purchase from
Seller, and Seller agrees to perform for Buyer, all of Buyer's requirements
during the term of this Agreement, including any extension thereof, for ethylene
oxide and ethylene oxide/nitrogen gas sterilization processing services for the
products identified on Schedule A (the "Products") produced at Buyer's
facilities identified on Schedule A and for which Buyer does not perform its own
sterilization processing services. Such processing services shall be provided at
Seller's validated processing facilities located in [ * ], or at such other
validated facility or facilities operated by Seller as may be mutually agreed
upon by both parties. The facilities and products identified on Schedule A
currently represent 100% of Buyer's requirements in the United States for
ethylene oxide or ethylene oxide/nitrogen gas sterilization processing not
performed by Buyer at its own sterilization facilities. If, during the term of
this Agreement, Buyer produces a Product at another of its facilities not listed
on Schedule A, Buyer agrees to purchase its requirements for ethylene oxide and
ethylene oxide/nitrogen gas sterilization processing from Seller for the
Product produced at the unlisted facility, provided, however, that if in doing
so Buyer's transportation costs for such Product increase more than thirty
percent (30%) over the transportation costs incurred by Buyer in purchasing
sterilization processing services from Seller for the Product produced at each
facility listed on Schedule A, Buyer and Seller shall negotiate in good faith
the pricing provisions of this Agreement with respect to the Product produced
at the unlisted facility and use their best efforts to retain the economic
benefits of this Agreement for both parties with respect to the Product
produced at the unlisted facility. In the event, Buyer develops or acquires
additional products during the term of this Agreement which require ethylene
oxide or ethylene
- ---------------
*Confidential Treatment requested; material filed separately with the
Commission.
<PAGE> 2
oxide/nitrogen gas sterilization, Buyer agrees to offer its requirements for
sterilization processing of such products to Seller under the terms and
conditions of this Agreement, to the extent Buyer does not perform its own
sterilization processing of such products. Each such additional product shall be
included within the term "Products" under this Agreement. Except as provided in
Section 4.8 of this Agreement, title to and risk of loss of the Products shall
remain with Buyer at all times.
2.2 Annual and Quarterly Forecasts. Buyer will furnish Seller
with a preliminary forecast of its requirements for sterilization processing
services for each of Buyer's manufacturing facilities for each calendar year
covered by this Agreement, including its forecasted requirements for each
calendar month and quarter within each year, no later than August 1 of the
preceding year. For purposes of this Agreement, "calendar year" shall mean each
year January 1 through December 31, 1996, 1997, 1998, 1999 and 2000 and the six
month period January 1, 2001 through June 30, 2001. Buyer and Seller shall meet
prior to the beginning of each calendar quarter to review and agree upon the
Buyer's forecasted requirements for sterilization processing services for the
upcoming quarter, which shall include a forecast for each week of the quarter,
and to exchange other information regarding their business relationship. Buyer
will use its best efforts to spread its requirements for sterilization
processing services during a quarter evenly throughout the quarter.
2.3 Minimum Processing Volume. (a) Seller will process all of
Buyer's ethylene oxide and ethylene oxide/nitrogen gas sterilization
requirements for the Products as provided in Section 2.1 of this Agreement,
regardless of Buyer's forecasted requirements.
2.3 (b) Buyer agrees that during each calendar year of the
initial term of this Agreement it will purchase, at a minimum, a dollar volume
of sterilization processing services from Seller equal to the dollar amount
shown for that calendar year in the "Total" row on Schedule B. If during any
calendar year, Buyer fails to purchase a dollar volume of sterilization
processing services from Seller in excess of [ * ] of the minimum dollar volume
for that calendar year, Seller shall have the right, at its option, to terminate
this Agreement or renegotiate its terms. If Buyer has fulfilled its obligations
under Sections 2.1 and 2.3(a) of this Agreement, termination of this Agreement,
renegotiation of its terms and the remedies provided in Section 3.2(c), shall be
Seller's sole remedies for Buyer's failure to purchase sterilization processing
services from Seller in excess of [ * ] of the minimum dollar volume for a
calendar year. If during any calendar year, Buyer purchases a dollar volume of
sterilization processing services from Seller in excess of [ * ] of the minimum
dollar volume for that calendar year, Buyer shall have the right, at its option,
to terminate this Agreement or renegotiate its terms.
2.3 (c) If this Agreement is extended beyond June 30, 2001,
Buyer and Seller shall agree upon the minimum dollar volume for each year, or
portion thereof, during the extension.
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*Confidential Treatment requested; material filed separately with the
Commission.
2
<PAGE> 3
2.3 (d) Buyer shall be free to purchase sterilization
processing services from persons other than Seller during a calendar month to
the extent that Buyer's requirements for outside sterilization processing
services for its facilities in that month are such that Seller cannot meet the
service level requirements set forth in Sections 2.4(a) and 2.4(b) of this
Agreement, provided, however, that, with respect to each such purchase of
processing services, Buyer shall first have offered to Seller the opportunity to
perform such processing services on the terms provided for in this Agreement.
2.4 Service Level Requirement. (a) Seller guarantees that it
shall complete processing within the time frame set forth in Section I of
Schedule E, as established and mutually agreed upon by both Buyer and Seller
during their quarterly review of Buyer's requirements, for Products delivered by
Buyer in accordance with the then current production schedule, including load
size and applicable high build mix for the week (as agreed to by Buyer's
shipping department and Seller's facility production scheduler) and not in
excess of the product delivery forecast agreed upon for the quarter pursuant to
Section 2.2 of this Agreement. In the event Buyer delivers to Seller during a
week Product in excess of the volume set forth in the forecast agreed upon
pursuant to Section 2.2, Seller agrees to use its best efforts to complete
processing within the time frame set forth in Section I of Schedule E. For
purposes of this Agreement, a working day is any day, including Saturday and
Sunday, during which the Seller's processing facility to which the Product is
shipped by Buyer is processing any product. The "turn around period" shall
commence on the working day and at the time product is received at Seller's
processing facility and shall end on the working day and at the time the product
is processed and removed from Seller's retort vessel.
2.4 (b) If Seller's facility fails to complete processing of
Product that is not in excess of the volume forecasted pursuant to Section 2.2
within the specified aeration period in Schedule E, Section II and Buyer has
complied with its obligations under Sections 2.2 and 2.3, Buyer may, at its
option, and upon prior written notice to Seller, ship that Product using the
dual driver concept for fastest delivery to another of Seller's processing
facilities selected by Seller, in which event Seller agrees to complete
processing of the Product at such other facility within the specified aeration
period in Schedule E, Section II. In the event Seller is unable to process such
Product at one of its facilities, Buyer may use another vendor of processing
services. Seller shall incur any additional processing or transportation
charges, including any incremental processing and transportation costs incurred
by Buyer, in connection with the shipment and use of another of Seller's or
another vendor's facility. In the event that Buyer uses another vendor's
facility pursuant to this Section 2.4(b), Seller shall be liable for any
validation costs, including Buyer's labor and transportation costs and the cost
of destructible samples, incurred by Buyer, which costs shall not exceed [ * ]
per vessel or [ * ] per facility. Product processed by another vendor under this
Section 2.4(b) shall be applied toward Buyer's minimum dollar volume requirement
set forth in Section 2.3(b).
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*Confidential Treatment requested; material filed separately with the
Commission.
3
<PAGE> 4
2.4 (c) Should Buyer experience a shutdown or other service
interruption at any of Buyer's in house ethylene oxide or ethylene
oxide/nitrogen gas sterilization facilities which requires Buyer to transfer
this product to any of Seller's facilities, Seller shall be obligated to process
this product with the fastest turnaround possible and on a mutually agreed upon
schedule, but Seller is not obligated to meet the requirements set forth in
Sections 2.4(a) and 2.4(b) for this overflow volume.
2.5 Conversion of Johnson City, Tennessee and Cleveland,
Mississippi. (a) Buyer agrees that no later than July 1, 1997, it will cease
providing internal sterilization processing services at its Johnson City,
Tennessee facility and will purchase all of the sterilization processing
services formerly provided at its Johnson City facility from Seller (at a rate
of at least [ * ] of sterilization processing services per year). Buyer agrees
not to provide internal sterilization processing services at any of its other
facilities for Products sterilized at its Johnson City facility. If Buyer
complies with the obligations of this Section 2.5(a), Seller agrees to install
in its Charlotte, North Carolina facility equipment necessary to permit Seller
to meet the requirements of Schedule E, Section II with respect to the
sterilization processing services transferred from Buyer's Johnson City facility
to Seller's Charlotte facility.
2.5 (b) Buyer agrees that no later than January 1, 1997, it
will cease providing internal sterilization processing services at its
Cleveland, Mississippi facility and will purchase all of the sterilization
processing services formerly provided at that facility from Seller (at a rate of
at least [ * ] of sterilization processing services per year). Buyer agrees not
to provide internal sterilization processing services at any of its other
facilities for Products sterilized at its Cleveland facility.
2.6 Laboratory Services. Commencing no later than June 1,
1996, Buyer shall purchase its requirements for laboratory services from Seller
for the Products receiving sterilization processing services at Seller's Ontario
and Los Angeles, California and Charlotte, North Carolina facilities, provided
that Seller's prices for laboratory services at the time Buyer commences
purchasing such services from Seller are competitive with the prices of other
providers of such laboratory services unaffiliated with Buyer. If Buyer believes
that other providers of laboratory services are offering lower prices than
Seller at the time Buyer is to commence purchasing such services from Seller,
Buyer shall provide proof of such lower prices to Seller and Seller shall have
an opportunity to meet such lower prices. Buyer agrees to use its best efforts
to purchase from Seller its requirements for laboratory services for the
Products receiving sterilization processing services at Seller's facilities in
Santa Teresa, New Mexico and Willowbrook, Illinois, commencing no later than
June 1, 1996. The parties agree that the provision of laboratory services by
Seller to Buyer will result in incremental internal and/or external cost
reductions for Buyer which shall be applied against the cost savings Seller has
agreed to provide Buyer for 1996 under Section 3.2 of this Agreement. The task
force established pursuant to Section 3.3 will determine the amount of internal
and external cost reductions that will be attributable to Seller's provision of
laboratory services.
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*Confidential Treatment requested; material filed separately with the
Commission.
4
<PAGE> 5
3.0 PRICES FOR PROCESSING SERVICES; PAYMENT TERMS; COST SAVINGS.
3.1 Prices, Payment Terms. (a) During the term of this
Agreement, Seller shall provide processing services to Buyer at the prices set
forth in Schedule B, provided, however, Seller shall be free to increase the
prices set forth in Schedule B at any time, upon thirty (30) days advance
written notice to Buyer, in an amount which permits Seller to fully recover any
increase in the costs of Seller due to (i) an increase in the price of the gas
used by Seller in providing sterilization processing services, (ii) an increase
in the amount of gas used by Seller in providing sterilization processing
services, or (iii) regulatory changes (including changes in taxes imposed on
Seller). Increases in the per pallet price in any calendar year due to
regulatory changes shall not exceed [ * ] of the average per pallet price during
that calendar year. Increases in the per pallet price in any calendar year due
to increases in the price of the gas used by Seller shall not exceed the greater
of (x) [ * ] of the average per pallet price under this Agreement on January 1
of that calendar year or (y) an amount equal to the difference between [ * ]
increased by [ * ] each year, compounded, for each complete or partial calendar
year since the date of this Agreement, including the calendar year in which the
price increase is occurring, and the sum of [ * ] and the prior increases in per
pallet prices due to increases in the price of the gas used by Sellers since the
date of this Agreement. (By way of example, if the average per pallet price on
January 1, 1998 is [ * ] and [ * ] of the increase from the average per pallet
price of [ * ] at the start of the Agreement was the result of increases in gas
prices during 1996 and 1997, price increases during 1998 due to increases in gas
prices shall be limited to the greater of [ * ]. If Seller incurs an increase in
the price of gas and is unable to raise its prices to Buyer under this Section
to fully recover such increase, Seller shall have the right to terminate this
Agreement on thirty (30) days written notice to Buyer. In the event of a
reduction in the price of the gas used by Seller in providing sterilization
processing services under this Agreement, Seller agrees to reduce its prices to
Buyer in an amount equal to the reduction in the price of gas, commencing on the
effective date of the gas price reduction. All notices of price changes to Buyer
under this Section shall include documentation showing the basis for the change.
3.1 (b) The prices set forth in Schedule B have been
determined based upon a pallet size of 40 x 48 inches or as mutually agreed upon
in writing by both parties and cycles times as set forth in Schedule A. In the
event of a cycle time increase of [ * ] or more from the times set forth in
Schedule A, Buyer and Seller shall negotiate an increase in the prices set forth
in Schedule B. Any change in pallet size must be agreed to by both parties in
writing prior to the use of such alternate pallet size.
3.1 (c) The prices provided for in this Section 3.1 do not
include taxes or the costs of shipping Products or samples to and from Seller's
facilities. Such costs shall be borne entirely by Buyer.
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*Confidential Treatment requested; material filed separately with the
Commission.
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3.1 (d) Seller will invoice Buyer for processing services
rendered by Seller under this Agreement. Payment of each invoice shall be made
by Buyer net thirty (30) days of the date of the invoice.
3.2 Cost Savings. (a) If Buyer complies with all of its
obligations under Sections 2.1, 2.2, 2.3, and 2.5(a) and (b) of this Agreement,
Seller agrees to provide Buyer with incremental internal and external cost
reductions and rebates ("cost savings") totaling [ * ] during the initial term
of this Agreement. The amount of the cost savings for each calendar year during
the initial term is set forth in the "Cost Savings" row on Schedule B.
3.2 (b) (i) If the incremental internal and external cost
reductions that Seller provides Buyer for a calendar year fall below the cost
savings Seller has agreed to provide Buyer for that calendar year, Seller shall
pay to Buyer a rebate in an amount equal to the difference between the agreed
upon cost savings and the incremental internal and external cost reductions
achieved during that calendar year. Such payments shall be made within sixty
(60) days after the end of the calendar year. (ii) If the incremental internal
and external cost reductions that Seller provides Buyer for a calendar year
equal or exceed the cost savings Seller has agreed to provide Buyer for that
calendar year, no rebate shall be paid by Seller to Buyer for that calendar year
and the amount of the excess for that calendar year shall be applied against the
agreed upon cost savings for the following calendar year. If at the end of the
initial term of this Agreement, Seller has provided Buyer with cost savings in
excess of the agreed upon cost savings for the initial term, Buyer shall pay to
seller one-half of the excess. Such payment shall be made within sixty (60) days
after June 30, 2001.
3.2 (c) (i) If Buyer's purchases of sterilization processing
services from Seller during a calendar year fall below [ * ] of the minimum
dollar volume for that calendar year, as provided in Section 2.3, the cost
savings that Seller has agreed to provide Buyer for that calendar year shall be
reduced to the amount shown on the applicable schedule B-1 through B-5. If
Seller has provided Buyer with incremental internal and external cost reductions
during the calendar year that exceed the reduced cost savings Seller has agreed
to provide Buyer for that calendar year, determined in accordance with this
Section, the excess cost savings for that calendar year shall be applied to the
agreed upon cost savings for the following calendar year or paid to Seller as
provided for in Section 3.2(b)(ii) of this Agreement. (ii) If Buyer's purchases
of sterilization processing services from Seller during a calendar year exceed [
* ] of the minimum dollar volume for that calendar year, the cost savings Seller
has agreed to provide Buyer for that calendar year shall be increased to the
amount shown on the applicable schedule B-1 through B-5 for that calendar year.
For purposes of determining the percentage of the minimum dollar volume of
sterilization processing services purchased by Buyer from Seller during a
calendar year under this Section 3.2(c), the percentage shall be rounded to the
nearest whole percentage such that .5% or more will be rounded up to the next
higher whole number and less than .5% will be rounded down to the next lower
whole number.
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*Confidential Treatment requested; material filed separately with the
Commission.
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3.2 (d) Buyer and Seller agree that prior to entering into
this Agreement Seller made certain investments that will result in incremental
internal and external cost reductions for Buyer during 1996 in the amount of [ *
]. This amount shall be applied against the cost savings Seller is obligated to
provide Buyer for 1996 and for the initial term of the Agreement as set forth on
Schedule B.
3.3 Cost Savings Task Force. (a) Seller and Buyer agree to
establish a cost savings task force that will be responsible for developing and
approving projects that will result in internal and/or external cost reductions
for Buyer in connection with the sterilization of the Products. Within 60 days
after the execution of this Agreement, each party will designate at least three
of its employees who are knowledgeable about laboratory, sterilization and
logistics to serve on the task force and will notify the other party of the
employees it designated. Each party may replace one or more of its
representatives on the task force with another of its employees knowledgeable in
laboratory, sterilization and logistics upon thirty (30) days prior written
notice to the other party. The task force shall meet at least once every
forty-five (45) days at an agreed upon location.
3.3 (b) Seller and Buyer agree to see to it that the task
force uses its best efforts to design, develop and implement projects that will
result in internal and/or external cost reductions for Buyer. The task force
shall maintain detailed minutes of its meetings which minutes shall record,
among other matters, the task force's decisions to approve, disapprove,
continue, discontinue or modify each project considered by the task force. In
addition, the task force shall prepare a detailed written report for each
project considered by it. The report shall provide a description of the project,
its scope and its expected results, identify the representatives of each party
that will be involved in the design, development and implementation of the
project, provide a schedule and budget for each phase of the project, and
estimate the internal and external cost reductions to Buyer that will result
from the project. At each meeting, the task force shall review each project then
being designed, developed and implemented and shall revise and update the report
for each project to reflect the progress of and any changes to the project since
the preceding meeting of the task force. Seller shall maintain records for each
project detailing the engineering and research and development hours and
expenses (direct and indirect) attributable to each project.
3.3 (c) Upon completion of the implementation of each project,
the task force shall prepare a final report on the project which shall include a
detailed description of the cost of the project and the hours required to
design, develop and implement the project and the final estimate of the internal
and external cost reduction that will result to Buyer as a result of the
project. This final estimate shall be applied against the cost savings Seller
has agreed to provide Buyer in the calendar year in which implementation of the
project is completed.
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*Confidential Treatment requested; material filed separately with the
Commission.
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3.3 (d) In the event the task force approves the
implementation of a project that requires a capital investment by Seller, Seller
and Buyer agree to negotiate an extension of the initial term of this Agreement,
an increase in the price of sterilization processing services provided for in
Section 3.1 to compensate Seller for the capital investment required by the
project, and/or having Buyer incur all or some portion of the capital investment
required.
4.0 PERFORMANCE OF PROCESSING SERVICES.
4.1 Processing Cycle Parameters. (a) Seller agrees that each
class of the Products processed hereunder shall be processed in accordance with
the cycle parameters for such class of Products set forth in Schedule A attached
hereto. The parties agree that no cycle parameters will provide for gas
concentration in excess of [ * ] mg/L unless the parties agree on the pricing
for such gas concentration. Buyer may modify the cycle parameters for any class
of Products from time to time and the parties may agree upon additional cycle
parameters for new classes of Products. No cycle parameters, modifications or
additions shall become effective and binding upon the parties until the cycle
parameters, modifications or additions and the pricing therefore have been
agreed upon in a writing signed by both parties.
(b) In the event Seller becomes aware that it has failed in
any respect to process any of the Products in accordance with the applicable
cycle parameters, Seller shall notify Buyer of such nonconformity no later than
the work day following Seller's discovery of such nonconformity. In the event a
facility of Seller fails to process in accordance with applicable cycle
parameters Products accounting for in excess of the percentage specified in
Schedule E, Section III, of Products processed by that facility, Buyer may
charge Seller an amount for each variation above the specified percentage to
reflect the actual additional cost Buyer incurs in labor and testing not to
exceed [ * ].
4.2 Validation of Processing Cycle Parameters. In accordance
with Food and Drug Administration requirements, Buyer shall have exclusive
responsibility for the validation of processing cycle parameters for each class
of the Products prior to the commencement of commercial processing of such
class.
4.3 Shipment of the Products by Buyer. Buyer will assemble the
Products on slip sheets or pallets and the Products shall be accompanied by
documents setting forth the facility from which the Products are shipped, the
number of shipping cartons in the shipment by product code and part number or
catalog number, the date of the shipment and the type of sterilization
processing required (100% ethylene oxide or EtO Nitrogen). Upon receipt of a
shipment, Seller will complete a Receiving Report on the shipment. If each batch
count received is not identical to that shown on shipping papers as having been
shipped by Buyer, Seller shall notify Buyer of any discrepancy and it shall be
Buyer's responsibility to locate the lost material and, if necessary, to notify
the appropriate government agencies. No material in any batch is to be
processed, and the provisions of Section 2.4 shall not apply, until both parties
are in agreement as to the exact count. Buyer agrees to supply Seller with five
(5) copies of a material
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*Confidential Treatment requested; material filed separately with the
Commission.
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safety data sheet ("MSDS") complying with 29 CFR 1900.1200(g) with the first
shipment of any hazardous chemical to Seller, and with the first shipment
following each and every revision to the MSDS. Upon Seller's signed receipt of
shipment, Seller will be responsible for the total count of the Products
including biological indicators (test packs) while said Products are in Seller's
possession.
4.4 Use of Biological Indicators or Product Samples. In the
event Buyer desires to use microbiological test packs, indicators or product
samples, it shall furnish to Seller comprehensive instructions regarding the
procedures of their placement and their removal, packaging and shipment to a
testing laboratory for analysis, and the procedure for the removal, handling,
marking and disposition of any shipment of the Products which includes
microbiological test packs, indicators or product samples and Seller agrees to
comply with such instructions. Such test packs, indicators or samples shall be
conspicuously marked by Buyer and shall be dispersed at selected locations
through each shipment during processing in accordance with Buyer's
specifications. Buyer will be responsible for all expenses of testing, including
shipment to and from any testing laboratory and any sterility audit of the
laboratory.
4.5 Records of Processing. (a) Seller shall provide Buyer on a
daily work day basis a log of Buyer's product at Seller's locations showing the
status of product within Seller's locations. Buyer will furnish an originating
document providing load number and catalog number. The log shall include, but
not be limited to, the following information in the format indicated below:
CYCLE TURN-
LOAD LOT DATE VACUGAS PRETEMP STOP B.I.*PULL AROUND
NUMBER RECEIVED NUMBER DATE DATE DATE TIME
- ------ -------- ------ ---- ---- ---- ----
*Where preferred by Buyer
The log shall be transmitted to Buyer via Seller's fax and may be changed or
added to as mutually agreed to by Buyer and Seller.
4.5 (b) Seller shall provide Buyer with weekly and monthly
turn time reports and monthly non-conformance reports for each of Seller's
facilities, and for all facilities combined, that provided sterilization
processing services to Buyer during the period covered by the report.
4.6 Shipment of the Products by Seller. Seller agrees that
upon completion of processing, Seller's facilities can be used as a shipping
point for processed Products to locations determined by Buyer. Seller shall
cause the Products to be shipped in accordance with Buyer's written instructions
and Buyer shall pay all shipping charges. On all shipments of Products to be
shipped to a location other than one of Buyer's facilities, in addition to
paying all shipping charges, Buyer shall reimburse Seller for all direct and
indirect expenses incurred by Seller in preparing the shipments, including labor
and material handling expenses. When shipping the Products, Seller shall include
documents specifying the number of units in the shipment by
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<PAGE> 10
product code and lot number. In the event that Buyer has notified Seller that
Buyer's Product is released for shipment from Seller, Seller is solely
responsible for notifying the common carrier within twenty-four (24) hours from
the time of notification of release by Buyer.
4.7 Storage of the Products by Seller. Buyer will remove
Product from Seller's processed product warehouse expeditiously after
processing, but Buyer may store Product in Seller's processed product warehouse
area for a maximum of [ * ] after sterile release without extra charges for
storage. Thereafter, Seller may charge Buyer for storage in Seller's warehouse
or in an outside warehouse selected by Seller at the prevailing rate for such
services and Seller shall have the option of returning such Product to Buyer at
Buyer's expense, provided Buyer has not previously given Seller shipping
instructions for such Product.
4.8 Product Damage Caused by Seller. If Product is damaged by
Seller as a result of Seller's failure to adhere to the parameters set forth in
Schedule A or by physical mishandling by Seller, Seller shall be responsible to
Buyer for the entire costs of the Product, billed to Seller at Buyer's
established manufacturing cost. Buyer will make every effort to keep cost to a
minimum by refurbishing and/or repackaging wherever feasible.
4.9 Buyer's Access to Seller's Facilities. During routine
ethylene oxide processing, Seller will allow authorized Buyer personnel to
observe the process, monitor procedures and have access to pertinent
sterilization process records. Buyer personnel may be present throughout the
qualification period. All visits to Seller's facilities by Buyer personnel will
be prearranged with Seller's Plant Manager.
4.10 Buyer's Access to Processing Records. Upon request,
Seller shall send Buyer duplicate copies of all sterilization processing records
deemed necessary by Buyer along with microbiological test packs (if required),
upon completion of sterilization process cycles, including degassing.
4.11 Non-sterile Markings. Buyer agrees that it will ship each
pallet, carton or other designated unit of the Products completely covered and
conspicuously marked to show its "non-sterile" nature. Such marking must be
sufficiently secure to prevent its accidental removal prior to release of the
Products from quarantine by Buyer. After the processing has been completed,
Seller will attach to each pallet, carton or other container of such Products a
label bearing the following works: "VACUGAS(R) Treated - Awaiting Sterility Test
Results." Buyer agrees that it will leave this label attached to each pallet,
carton or other container of the Products, and will keep each such pallet,
carton or other container in quarantine, until it has received a certificate of
specification compliance from its testing laboratory. As provided in Section
4.6, Seller agrees, upon authorization by Buyer, to release and ship product
after sterilization. Seller will develop a standard procedure to remove all of
Buyer's and Seller's labels showing "non-sterile" status and "Awaiting Sterility
Test Results". If non-compliance by Seller occurs, Seller shall audit the
respective facility within two (2) weeks and provide documentation of audit
results to Buyer.
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*Confidential Treatment requested; material filed separately with the
Commission.
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4.12 Compliance with Laws. (a) Each of the parties agrees at
all times to conduct its operations in compliance with the applicable
requirements of 21 Code of Federal Regulations Part 801.150 ("Medical devices;
processing, labeling, or repackaging") and 21 Code of Federal Regulations Part
820 ("Good Manufacturing Practice for Medical Devices: General") or any
successor regulations. Seller agrees to obtain and keep current all applicable
licenses and permits required by applicable laws and regulations for the
operation of its plants that engage in processing under this Agreement. Seller
will notify Buyer in January of each calendar year that all applicable licenses
and permits have been obtained and are current.
(b) Buyer acknowledges that the State of California has
determined that ethylene oxide is a carcinogen and a reproductive toxin, and
that it is so listed under California's Safe Drinking Water and Toxic
Enforcement Act of 1986 ("Proposition 65"). The presence of ethylene oxide or
other gas residues in the Products following sterilization processing may
require warning labels under Proposition 65 or similar "right to know" laws in
other states. Buyer agrees to comply with any and all federal state and local
labeling requirements.
4.13 FDA Visits to Seller's Facilities. Seller shall notify
Buyer in writing within twenty-four (24) hours of an FDA investigation or audit
of any of Seller's facilities where Seller is processing Buyer's Products.
Seller shall notify Buyer of an FDA request to review any documents, Products or
practices pertaining to Buyer. Seller agrees to provide copies of all documents
reviewed by the FDA pertaining to Buyer or Buyer's Products. Seller will
provide, within two (2) weeks from the date of exit interviews, copies of FDA
investigation/audit reports and Seller's response to FDA for facilities at which
Seller is processing Buyer's Products.
5.0 CONFIDENTIAL INFORMATION. Buyer and Seller each acknowledges
that, in the course of performing its obligations pursuant to this Agreement, it
may obtain certain confidential and/or proprietary information belonging to the
other party, its affiliates or customers. Subject to the exceptions set forth in
this Section, each party agrees that information provided to it in writing or
reduced to writing within thirty (30) days after its communication to the
receiving party and which has been marked "confidential" shall be received in
strict confidence, shall be used only for the purpose of this Agreement and
shall not be disclosed by the receiving party, its agents or employees without
the prior written consent of the disclosing party, except as may be necessary by
reason of legal and regulatory requirements beyond the receiving party's
reasonable control. This obligation of confidentiality shall survive termination
of this Agreement but shall not apply to information which is (i) publicly known
or becomes publicly known through no act of the receiving party; (ii) rightfully
received from a third party; (iii) independently developed; or (iv) already
known to the receiving party. Each party agrees that any information disclosed
to it prior to the execution and delivery of this Agreement shall be subject to
and governed by the terms of this Section.
6.0 LIMITATION OF LIABILITY; INDEMNIFICATION
6.1 Obligation of Seller. (a) The parties agree that Seller's
obligation under this Agreement is limited to processing the Products in
accordance with the cycle parameters referred to in Section 4.1 hereof. Buyer
acknowledges that many factors beyond Seller's control can
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affect the ultimate microbiological condition of the Products. Among these are
the quality, type and original bioburden of the Products and their packaging,
the atmospheric humidity in the packaging room, the configuration of the
Products, the material of construction of the Products, the adequacy of the
testing laboratory atmosphere and equipment, the competence of testing
laboratory personnel, the competence and adequacy of sampling techniques, and
the care and handling of the Products during warehousing and distribution. BUYER
ACKNOWLEDGES AND AGREES THAT BUYER IS SOLELY AND EXCLUSIVELY RESPONSIBLE FOR THE
VALIDATION OF STERILIZATION PROCESSING AND PRODUCT STERILITY ASSURANCE, THE
INTEGRITY OF PRODUCT PACKAGING AND THE ADEQUACY OF PRODUCT LABELING. SELLER
MAKES NO REPRESENTATION, GUARANTEE, OR WARRANTY, EXPRESSED OR IMPLIED, WITH
RESPECT TO THE STERILITY OF THE PRODUCTS WHICH ARE PROCESSED HEREUNDER.
(b) The parties agree that Buyer's sole and exclusive remedy
in the event of Seller's failure to process the Products in accordance with the
cycle parameters referred to in Section 4.1 shall be the remedies provided in
Section 4.1(b) and 4.8. In no event shall Seller be liable for special,
indirect, incidental, or consequential damages, including but not limited to
damages arising from death, bodily injury, property damage other than damage to
the Products, loss of profits or revenue or loss of use of the Products.
6.2 Indemnification. (a) Buyer agrees to indemnify and save
Seller harmless from and against all expenses, losses, costs, deficiencies,
liabilities and damages, including reasonable attorneys' fees and expenses
(collectively, "damages") incurred or suffered by Seller arising out of or in
connection with (i) any breach by Buyer of any of its covenants or agreements
made in this Agreement, (ii) the processing of the Products, except to the
extent such damages are caused by negligent acts or omissions of Seller, or
Seller's failure to comply with the provisions of this Agreement, or (iii) any
claim that the Products are not sterile.
(b) Seller agrees to indemnify and save Buyer harmless from
and against all damages incurred or suffered by Buyer arising out of or in
connection with (i) any breach by Seller of any of its covenants or agreements
made in this Agreement and (ii) any negligent acts or omissions of Seller in the
processing of the Products.
7.0 TERMINATION
7.1 Termination for Material Breach. Upon the material breach
of any obligation under this Agreement by either party, the aggrieved party may
give to the defaulting party notice of such breach, which notice shall specify
the exact nature of the breach and shall expressly state the aggrieved party's
intention to terminate this Agreement in the event the breach is not remedied
within ninety (90) days after the receipt of such notice. If after the
expiration of such period, the defaulting party has failed or refuses to remedy
such breach, this Agreement may be terminated forthwith, effective upon notice
given by the aggrieved party to the defaulting party. The right of either party
to terminate this Agreement in the event of a breach hereof by the other party
is not an exclusive remedy for such breach, and, except as provided in Sections
2.3(b) and 6.1(b), either party shall also be entitled to any other remedy
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available under the laws of any applicable jurisdiction. This Agreement may also
be terminated by Seller or Buyer pursuant to Section 2.3(b).
7.2 No Waiver of Termination Rights. Any delay by either party
in sending any of the notices specified in Section 7.1 shall not constitute any
waiver of the sending party's right to terminate this Agreement.
7.3 Termination Not Unfair or Abusive. The parties agree that
any termination hereof according to the formalities specified herein, and based
on the conditions required by the provision under which such termination is
effected, shall not constitute an unfair or abusive termination or create any
liability not set forth in this Agreement of the terminating party to the other
party.
7.4 Survival of Certain Rights and Obligations. Neither the
expiration nor any termination of this Agreement for whatever cause shall affect
any rights or obligations of either party which have accrued as of the effective
date of such expiration or termination, nor shall it affect any rights or
obligations of either party which are intended by the parties to survive such
expiration or termination, including without limitation the rights and
obligations of the parties under Sections 5.0, 6.1, and 6.2 hereof.
8.0 GENERAL PROVISIONS
8.1 Notices. Any notice, request, information or other
document to be given hereunder to any of the parties by any other party shall be
in writing and delivered personally or sent by registered or certified mail,
postage prepaid, as follows:
If to Buyer, addressed as follows:
Baxter Healthcare Corporation
Baxter Convertors/Custom Sterile
1500 Waukegan Road, Bldg. K
McGaw Park, Illinois 60085
Attn.: Director of Distribution Logistics
Custom Sterile
If to Seller, addressed as follows:
Griffith Micro Science, Inc.
2001 Spring Road, Suite 500
Oak Brook, Illinois 60521
Attn.: Peter Gortz, Vice President Sales and Marketing
Any party may change the address to which notices hereunder are to be sent to it
by giving written notice of such change of address in the manner herein provided
for giving notice. Any notice delivered personally shall be deemed to have been
given on the date it is so delivered, and
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any notice delivered by registered or certified mail shall be deemed to have
been given on the date it is received.
8.2 No Waiver. The failure of either party hereto at any time
to require performance by the other party of any provision of this Agreement
shall in no way affect the right of such party to require performance of that
provision, and any waiver by either party of any breach of any provision of this
Agreement shall not be construed as a waiver of any continuing or succeeding
breach of such provision, a waiver of the provision itself or a waiver of any
right under this Agreement.
8.3 Governing Law. The validity, construction, interpretation
and enforcement of this Agreement, or any breach thereof, shall be governed by
the laws of the State of Illinois applicable to contracts made and to be
performed in that State.
8.4 Entire Agreement. This Agreement constitutes the final
written expression of the terms of agreement between the parties relating to the
subject matter contained herein and is the complete and exclusive statement of
these terms. This Agreement supersedes all prior agreements with respect to such
subject matter and merges all prior discussions between the parties. All
references to this Agreement shall be deemed to include the schedules hereto. No
provision in any purchase order or purchase order confirmation, whether entered
into prior to, concurrently with or after the execution and delivery of this
Agreement, shall be effective to the extent that such provision is inconsistent
with any provision of this Agreement
8.5 Amendments. This Agreement may be amended only by a
writing signed by a duly authorized representative of each party.
8.6 Severability. The provisions of this Agreement shall be
deemed severable, and the invalidity, unenforceability or illegality of any
provision of this Agreement shall not in any way affect or impair the validity,
enforceability or legality of the other provisions hereof.
8.7 Force Majeure. Neither party shall be liable to the other
for any delay or default in performance of any obligation under this Agreement
rising from causes beyond its control, including without limitation fire, storm,
flood, earthquake, explosion, accident, acts of public enemies, war, rebellion,
insurrection, sabotage, epidemic, quarantine restrictions, labor disputes or
shortages, transportation embargo, or failure or delays in transportation,
inability to secure gas, acts of Good, or acts of any governmental authority or
agency thereof. If one of Seller's facilities is shut down for a period of time
pursuant to the Occupational Safety and Health Administration ("OSHA")
Regulation 29 CFR Part 1910 or the environmental regulations of any state and
the facility cannot continue processing for Buyer, Seller shall utilize any of
its other processing facilities and shall be solely responsible for any
additional processing and transportation costs resulting therefrom during the
period of the shut down.
8.8 Assignment. (a) Except as provided in subsection (b) of
this Section, this Agreement is not assignable by either party without the prior
written consent of the other party hereto, which consent shall not be
unreasonably withheld, provided, however, either party may assign its rights and
delegate its obligations hereunder to an affiliate of the party. For purposes
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of this Agreement the term "affiliate" means, with respect to a specified
person, any other person which directly, or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with,
the person specified.
8.8 (b) Baxter International Inc. ("Baxter") has publicly
announced its intention to spin off certain of its businesses as a separate
corporation (referred to until such time as a definitive name is announced as
"NewCo"). It is anticipated that NewCo will own the facilities listed on
Schedule A, which use or will use Seller's sterilization processing services.
Buyer agrees to assign this Agreement to NewCo and to cause NewCo to accept the
assignment and to comply with the terms and conditions of this Agreement. If
some of the business units that use Seller's sterilization processing services
are retained by Baxter, Baxter may, at its option, execute a separate unrelated
agreement with Seller.
8.9 Binding Agreement. Subject to the provisions of Section
8.8 hereof, this Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and assigns.
8.10 Relationship. This Agreement does not create an agency
relationship or partnership between the parties, each party is an independent
contractor.
8.11 EEO Information. Seller is aware of and will comply with
applicable State and Federal laws and regulations that pertain to small business
and equal employment opportunity as attached hereto as Schedule D.
8.12 Schedules. The following schedules are attached to this
Agreement and are incorporated herein:
1. Schedule A: Process Control Standards (listed separately for each of
Buyer's manufacturing facilities).
2. Schedule B: [ * ]
3. Schedules B-1 through B-5: [ * ]
4. Schedule C: Continuing Guaranty, dated 9/28/87 (page 1 of 1).
5. Schedule D: EEO Information
6. Schedule E: Performance Criteria Schedule
In the event of any conflict between the express provisions of
the Schedule C and of this Agreement, the provisions of this Agreement shall
control.
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*Confidential Treatment requested; material filed separately with the
Commission.
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IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed by their respective duly authorized officers as of the date first
above written.
BAXTER HEALTHCARE CORPORATION GRIFFITH MICRO SCIENCE, INC.
By: /s/ Roger Sisterman By: /s/ Kevin M. Swan
------------------------------------- -------------------------
Title: Vice President of Manufacturing Title: President and C.E.O.
--------------------------------- ------------------------
Its duly authorized officer Its duly authorized officer
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SCHEDULE A
PROCESS CYCLE SPECIFICATIONS
GMS LOCATION BAXTER DIVISION BAXTER LOCATION PRODUCTS
- ------------ --------------- --------------- --------
[ * ] Baxter Custom Sterile [ * ]
[ * ] Baxter Healthcare [ * ]
[ * ] Baxter Convertors [ * ]
[ * ] Baxter Custom Sterile [ * ] Kits
[ * ] Baxter Custom Sterile [ * ] Kits
[ * ] Baxter Custom Sterile [ * ] Kits
[ * ] Baxter Custom Sterile [ * ] Kits
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*Confidential Treatment requested; material filed separately with the
Commission.
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[ * ]+
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*Confidential Treatment requested; material filed
separately with the Commission.
+34 pages omitted.
<PAGE> 19
SCHEDULE C
CONTINUING GUARANTEE
Seller guarantees that it will process Buyer's product according to Buyer's
specifications set forth in Schedule A and the terms and conditions of this
Agreement.
Seller will furnish to Baxter Healthcare Corporation a Certificate of Insurance
evidencing the following insurance:
- Comprehensive general liability with contractual liability
coverage in the amounts of not less than $3,000,000 per
occurrence, combined single limit.
- Statutory only workers compensation coverage.
- Employer liability in the amount of $500,000.
- Auto liability coverage in the amount of $1,000,000.
Evidence of insurance should be forwarded to Director of Logistics/Distribution,
Baxter Custom Sterile, 1500 Waukegan Road - Building K, McGaw Park, Illinois
60085.
<PAGE> 20
BAXTER SCHEDULE D
================================================================================
As a federal government contractor, Baxter Healthcare Corporation, and its
affiliates are required to include in their subcontracts, vendor agreements and
supply contracts certain additional clauses and provisions imposed by federal
regulations. Contractor hereby agrees to the following terms and conditions
applicable to its agreements with Baxter Healthcare Corporation or its
affiliates.
I. EQUAL EMPLOYMENT OPPORTUNITY CLAUSE (Applies To Contracts Of $10,000 Or
More)
During the performance of this contract, the Contractor agrees to the
provisions of the Equal Employment Opportunity Clause contained in
Executive Order 11246 of September 24, 1965 and incorporated in 41 CFR
60-1.4(a).
II. EMPLOYMENT OF VETERANS (Applies To Contracts Of $10,000 or More)
During the performance of this contact, the Contractor agrees to comply
with the federal Vietnam Era Veterans Readjustment Act and provisions
of 41 CFR 60-250.4 regarding equal employment opportunity for veterans.
III. EMPLOYMENT OF HANDICAPPED PERSONS (Applies To Contracts Of $25,000 Or
More)
During the performance of this contract, the Contractor agrees to
comply with the provisions of the Rehabilitation Act of 1973 and with
the provisions of 41 CFR 60.741.4 regarding equal employment
opportunities for handicapped persons.
IV. UTILIZATION OF SMALL BUSINESS AND SMALL DISADVANTAGED BUSINESS CONCERNS
(Applies To Contracts Over $10,000)
(a) It is the policy of the United States that small business concerns
owned and controlled by socially and economically disadvantaged
individuals shall have the maximum practicable opportunity to
participate in the performance of contracts let by any Federal Agency.
(b) The contractor hereby agrees to carry out this policy in the
awarding of subcontracts to the fullest extent consistent with the
efficient performance of this
<PAGE> 21
contract. The contractor further agrees to cooperate in any studies or
surveys as may be conducted by the Small Business Administration or the
contracting agency which may be necessary to determine the extent of the
contractor's compliance with the clause. (c) (1) As used in this contact,
the term "small business concern" shall mean a small business as defined
pursuant to section 3 of the Small Business Act and relevant regulations
promulgated pursuant thereto. (2) The term "small business concern owned
and operated by socially and economically disadvantaged individuals" shall
mean a small business concern - (i) which is at least 51 per centum owned
by one or more socially and economically disadvantaged individuals; or in
the case of any public owned business, at least 51 per centum of the stock
of which is owned by one or more socially and economically disadvantaged
individuals; and (ii) whose management and daily business operations are
controlled by one or more of such individuals. The contractor shall presume
that socially and economically disadvantaged individuals include Black
Americans, Hispanic Americans, Native Americans, Asian-Pacific Americans,
and other minorities, or any other individual found to be disadvantaged by
the Small Business Administration pursuant to section 8 (a) of the Small
Business Act. (d) Contractors acting in good faith may rely on written
representations by their subcontractors regarding their status as a small
business concern owned and controlled by socially and economically
disadvantaged individuals.
All solicitations for negotiated for formally advertised contracts or amendments
or modifications (including contracts, amendments, and modifications placed on a
sole source basis), except those for procurement and setasides pursuant to
section 8 (a) and section 15 of the Small Business Act as amended which
individually are expected to exceed $5,000,000, or in the case of contracts for
the construction of any public facility, $1,000,000, and are required to include
the clause entitled Utilization of Small Business Concerns and Small Business
Concerns Owned and Controlled by Socially and Economically Disadvantaged
Individuals, shall include a provision which requires the apparent successful
offeror, provided the offeror is not a small business concern, to negotiate a
detailed subcontracting plan. The provision is as follows:
1. This provision does not apply to small business concerns.
2. The term "subcontract" means any agreement (other than one
involving an employer/employee relationship) entered into by a
Federal Government prime contractor or subcontractor calling
for supplies or services required for the performance of the
original contract or subcontract.
3. The offeror acknowledges that it is aware of the
subcontracting plan requirements in this provision, and if it
is the apparent successful offeror, and if the contract offers
subcontracting possibilities, agrees to negotiate or offer a
plan which includes:
a. Percentage goals (expressed in terms of percentage of total
planned subcontracting dollars) for the utilization as
subcontractors of small business
2
<PAGE> 22
concerns owned and controlled by socially and economically
disadvantaged individuals; (for the purposes of the
subcontracting plan, the contractor may include all purchases
which contribute to the performance of the contract, including
a proportionate share of products, services, etc., whose costs
are normally allocated as indirect or overhead costs.)
As part of its establishment of percentage goals, the apparent
successful offeror shall also include in its subcontracting
plan:
(1) A statement of: (a) total dollars planned to be
subcontracted; (b) total dollars planned to be subcontracted
to small business; and (c) total dollars planned to be
subcontracted to small disadvantaged business.
(2) A description of the principal product and service areas
to be subcontracted and an identification of those areas where
it is planned to use (i) small business subcontractors, and
(ii) small disadvantaged business subcontractors.
(3) A statement of the method used in developing proposed
subcontracting goals for (i) small business, (ii) small
disadvantaged business concerns.
(4) If the offerer includes indirect and overhead costs as an
element in establishing the goals in the subcontracting plan,
the method used in determining the proportionate share of
indirect and overhead costs incurred with (i) small business,
and (ii) small disadvantaged business subcontractors shall be
explained.
b. The name of an individual within the employ of the offeror
who will administer the subcontracting program of the offeror
and a description of the duties of such individuals;
c. A description of the efforts of the offeror will take to
assure that small business concerns and small business
concerns owned and controlled by socially and economically
disadvantaged individuals will have an equitable opportunity
to compete for subcontracts;
d. Assurances that the offeror will include the clause
entitled Utilization of Small Business Concerns and Small
Business Concerns Owned and Controlled by Socially and
Economically Disadvantaged Individuals in all subcontracts
which offer further subcontracting opportunities and to
require all subcontractors (except small business concerns)
which receive subcontracts in excess of $5,000,000, or in the
case of a contract for the construction of any public
facility, $1,000,000, to adopt and comply with a plan similar
to the plan agreed to by the offeror. Such assurances shall
describe the offeror's procedures for the review, approval,
and monitoring for compliance with such plans;
3
<PAGE> 23
e. Assurances that the offeror will submit such periodic
reports and cooperate in any studies or surveys as may be
required by the contracting agency or the Small Business
Administration in order to determine the extent of compliance
by the offeror with subcontracting plan; and
f. A recitation of the types of records the offeror will
maintain to demonstrate procedures which have been adopted to
comply with the requirements and goals set forth in the plan,
including the establishment of source lists of small business
concerns and small business concerns owned and controlled by
socially and economically disadvantaged individuals; and
efforts to identify and award subcontracts to such small
business concerns. The record shall include at least the
following (these records may be maintained on a plantwide of
companywide basis unless otherwise indicated):
(1) Small and disadvantaged business source list, guides and
other data identifying small and small disadvantaged business
vendors.
(2) Organizations contacted for small and disadvantaged
business sources.
(3) On a contract-by-contract basis, records on all
subcontract solicitations over $1,000,000, indicating on each
solicitation (a) whether small business was solicited, and if
not, why not; (b) whether small disadvantaged business was
solicited, and if not, why not; and (c) reasons for the
failure of solicited small business or small disadvantaged
business to receive the subcontract award.
(4) Records to support other outreach efforts:
- Contacts with minority and small business associations;
- Contacts with business development organizations;
- Attendance at small and minority business procurement
conferences and trade fairs.
(5) Records to support internal activities to guide and
encourage buyers:
- Workshops, seminars, training programs, etc.
- Monitoring activities to evaluate compliance.
(6) On a contract basis, records to support award data
submitted to the Government to include name and address of
subcontractor.
4. The offeror understands that:
4
<PAGE> 24
a. No contract will be awarded unless and until an acceptable
plan is negotiated with the contracting officer which plan
will be incorporated into the contract, as a material pert
thereof.
b. An acceptable plan must, in the determination of the
contracting officer, provide the maximum practicable
opportunity for small business concerns and small business
concerns owned and controlled by socially and economically
disadvantaged persons to participate in the performance of the
contract.
c. If a subcontracting plan acceptable to the contract officer
is not negotiated within the time limits prescribed by the
contracting activity and such failure arises out of causes
within the control and with the fault or negligence of the
offeror, the offeror shall be ineligible for an award. The
contracting officer shall notify the contractor in writing of
his reasons for determining a subcontracting plan to be
unacceptable. Such notice shall be given early enough in the
negotiation process to allow the contractor to modify the plan
within the time limits prescribed.
d. Prior compliance of the offeror with other such
subcontracting plans under previous contracts will be
considered by the contracting officer in determining the
responsibility of the offeror for award of the contract.
e. It is the offeror's responsibility to develop a
satisfactory subcontracting plan with respect to both small
business concerns and small business concerns owned and
controlled by socially and economically disadvantaged
individuals and that each such aspect of the offeror's plan
will be judged independent of the other.
f. The offeror will submit, as required by the contracting
officer, subcontracting reports in accordance with the
instructions thereon, and as further directed by the
contracting officer. Subcontractors will also submit these
reports to the government's contracting officer or as
otherwise directed, with a copy to the prime contractor's
designated small and disadvantaged business liaison.
5. The failure of any contractor or subcontractor to comply in
good faith with (a) the clause entitled Utilization of Small
Business Concerns and Small Business Concerns Owned and
Controlled by Socially and Economically Disadvantaged
Individuals or (b) an approved plan required by this Small
Business and Small Disadvantaged Business Subcontracting Plan
(Negotiated) provision, will be a material breach of such
contract or subcontract.
V. UTILIZATION OF WOMEN-OWNED BUSINESS CONCERNS (Applies To Contracts Over
$10,000)
(a) It is the policy of the United States Government that women-owned
businesses shall have the maximum practicable opportunity to
participate in the performance of contracts awarded by any Federal
agency.
5
<PAGE> 25
(b) The Contractor agrees to use his best efforts to carry out this
policy in the award of subcontracts to the fullest extent consistent
with the efficient performance of this contract. As used in this
contract, a "women-owned business" concern means a business that is at
least 51% owned by a woman or women who also control and operate it.
"Control" in this context means exercising the power to make policy
decisions. "Operate" in this context means being actively involved in
the day to day management. "Women" mean all women business owners.
The following clause shall be included in all contracts, amendments or
modifications expected to exceed $5,000,000 or in the case of contracts for the
construction of any public facility, $1,000,000 which require the Utilization
Clause in (1) above:
(A) The Contractor agrees to establish and conduct a program which
will enable women-owned business concerns to be considered
fairly as subcontractors and suppliers under this contract. In
this connection, the contractor shall:
(1) Designate a liaison officer who will administer the
Contractor's "Women-Owned Business Concerns Program."
(2) Provide adequate and timely consideration of the
potentialities of know women-owned business concerns
in all "make-or-buy" decisions.
(3) Develop a list of qualified bidders that are
women-owned businesses and assure that known
women-owned business concerns have an equitable
opportunity to compete for subcontracts, particularly
by making information on forthcoming opportunities
available by arranging solicitations, time for the
preparation of bids, quantities, specifications, and
delivery schedules so as to facilitate the
participation of women-owned concerns.
(4) Maintain records showing (i) procedures which have
been adopted to comply with the policies set forth in
this clause, including the establishment of a source
list of women-owned business concerns; (ii) awards to
women-owned businesses on the source list by minority
and nonminority women-owned business concerns; and
(iii) specific efforts to identify and award
contracts to women-owned business concerns.
(5) Include the "Utilization of Women-Owned Business
Concerns" clause in subcontracts which offer
substantial subcontracting opportunities.
(6) Cooperate in any studies and surveys of the
Contractor's women-owned business concerns procedures
and practices that the Contracting Officer may from
time-to-time conduct.
(7) Submit periodic reports of subcontracting to
women-owned business concerns with respect to the
records referred to in subparagraph (4) above,
6
<PAGE> 26
in such form and manner and at such time (not more
often than quarterly) as the Contracting Officer may
prescribe.
(B) The Contractor further agrees to insert, in any subcontract
hereunder which may exceed $5,000,000 or $1,000,000 in the
case of contracts for the construction of any public facility
and which offers substantial subcontracting possibilities,
provisions which shall conform substantially to the language
of this clause, including this paragraph (B), and to notify
the Contracting Officer of the Names of such subcontractors.
(C) The contractor further agrees to require written certification
by its subcontractors that they are bona fide women-owned and
controlled business concerns in accordance with the definition
of women-owned business concern as set forth in the
Utilization Clause 1(b) above at the time of submission of
bids or proposals.
VI. UTILIZATION OF LABOR SURPLUS AREA CONCERNS (Applies To Contracts Over
$10,000)
(A) It is the policy of the Government to award contracts to labor
surplus area concerns that (1) have been certified by the
Secretary of Labor (hereafter referred to respectively as
certified concerns with a first or second preference)
regarding the employment of proportionate number of
disadvantaged individuals and have agreed to perform
substantially (i) in or near sections of concentrated
unemployment or underemployment or in persistent or
substantial labor surplus areas or (ii) in other areas of the
United States; or (2) are noncertified concerns which have
agreed to perform substantially in persistent or substantial
labor surplus areas, where this can be done consistent with
the efficient performance of the contract and at prices no
higher than are obtainable elsewhere. The Contractor agrees to
use its best efforts to place its subcontracts in accordance
with this policy.
(B) In complying with paragraph (A) of this clause, the Contractor
in placing its subcontracts shall observe the following order
of preference: (1) certified concerns with a first preference
which are also small business concerns, (2) other certified
concerns with a first concerns, (3) certified concerns with a
second preference which are also small business concerns, (4)
other certified concerns with a second preference, (5)
persistent or substantial labor surplus area concerns which
are also small business concerns, (6) other persistent or
substantial area concerns, and (7) small business concerns
which are not labor surplus area concerns.
The Contractor further agrees that the following clause shall be
included in all contracts which may exceed $500,000 which contain the
clause required above and which, in the opinion of the procuring
activity, offer substantial subcontracting possibilities. Furthermore,
prime contractors who are to be awarded contracts which may not exceed
7
<PAGE> 27
$500,000 but which, in the opinion of the procuring activity, offer
substantial subcontracting possibilities, shall be urged to accept this
clause.
(A) The Contractor agrees to establish and conduct a program which
will encourage labor surplus area concerns to compete for
subcontracts within their capabilities. In this connection,
the Contractor shall -
(1) Designate a liaison with duly authorized
representatives of the Government on labor surplus
area matters, (ii) supervise compliance with the
Utilization of Concerns in Labor Surplus Areas
clause, and (iii) administer the Contractor's "Labor
Surplus Area Subcontracting Program";
(2) Provide adequate and timely consideration of the
potentialities of labor surplus area concerns in all
"make-or-buy" decisions;
(3) Assure that labor surplus area concerns will have an
equitable opportunity to compete for subcontracts,
particularly by arranging solicitations, time for the
preparation of bids, quantities, specifications, and
delivery schedules so as to facilitate the
participation of labor surplus area concerns;
(4) Maintain records showing procedures which have been
adopted to comply with the polices set forth in this
clause. Records maintained pursuant to this clause
will be kept available for review by the Government
until the expiration of one year after the award of
this contract, or for such longer periods as may be
required by any other clause of this contract or by
applicable law or regulations; and
(5) Include the Utilization of Concerns in Labor Surplus
Areas clause in subcontracts which offer substantial
labor surplus area subcontracting opportunities.
(B) A "labor surplus area concern" is a concern that (1) has been
certified by the Secretary of Labor (hereafter referred to as
a certified-eligible concern) regarding the employment of a
proportionate number of disadvantaged individuals and has
agreed to perform substantially in or near sections of
concentrated unemployment or underemployment, in persistent or
substantial labor surplus areas, or in other areas of the
United States, or (2) is a noncertified concern which has
agreed to perform a substantial proportion of a contract in
persistent or substantial labor surplus areas. A
certified-eligible concern shall be deemed to have performed a
substantial proportion of a contract in or near sections of
concentrated underemployment, in persistent or substantial
labor surplus areas, or in other areas if the costs that
concern will incur on account of manufacturing or production
in or near such sections or in such areas (by itself, if a
certified concern, or by certified concerns action as
fist-tier subcontractors) amount to more than 25
8
<PAGE> 28
percent of the contract price. A concern shall be deemed to
have performed a substantial proportion of a contract in
persistent or substantial labor surplus areas (by itself or
its first-tier subcontractors) if the costs that the concern
will incur on account of production or manufacturing in such
areas amount to more than 50 percent of the contract price.
(C) The Contractor further agrees to insert, in any subcontract
hereunder which may exceed $5,000,000 and which contains the
Utilization of Concerns in Labor Surplus Areas clause,
provisions which shall conform to the language of this clause,
including this paragraph, and to notify the Contracting
Officer of the names of such subcontractors.
VII. CLEAN AIR AND WATER
(Applicable only if the contract exceeds $1,000,000, or the contracting
officer has determined that orders under an indefinite quantity
contract in any one year will exceed $1,000,000, or a facility to be
used has been the subject of a conviction under the Clean Air Act (42
U.S.C. 1957c8(cX1) or the Federal Water Pollution Control Act (33
U.S.C. 1319(c) and is listed by EPA, or the contract is not otherwise
exempt.)
The contractor agrees as follows:
(A) To comply with all requirements of section 114 of the Clean
Air Act, as amended (42 U.S.C. 1857, et seq. as amended by
Pub. L. 91-604 and section 306 of the Federal Water Pollution
Control Act (33 U.S.C. 1251 et seq., as amended by Publ.
92-500), respectively, relating to inspection, monitoring,
entry, reports, and information, as well as other requirements
specified in section 114 and section 308 of the Air Act and
the Water Act, respectively, and all regulations and
guidelines issued thereunder before the award of this
contract.
(B) That no portion of the work required by this prime contract
will be performed in a facility listed on the Environmental
Protection Agency List of Violating Facilities on the date
when this contract was awarded unless and until the EPA
eliminates the name of such facility or facilities from such
listing.
(C) To insert the substance of the provisions of this clause into
any nonexempt subcontract, including paragraph (D).
The Contractor also agrees that it has or will provide Baxter
Healthcare Corporation with a copy of all available material safety data sheets
for products furnished under this contract. The material safety data sheets will
include such information as product ingredients; physical characteristics;
storage, transportation and disposal requirements; firefighting methods; human
exposure limitations; and other environmental and safety hazards and
precautionary measures.
9
<PAGE> 29
SCHEDULE E
PERFORMANCE CRITERIA SCHEDULE - 1996
FOR BAXTER CONVERTORS/CUSTOM STERILE DIVISION
(To be reviewed quarterly)
Section
I. Turnaround period 2.4(a): Average of [ * ] working days in any
processing facility in any given month.
II. Aeration Period over which Seller agrees to meet its obligations
under Section 2.4 (b): Average of [ * ] working days in any processing
facility (including any backup facility used pursuant to Section
2.4(b)) in any given [ * ] consecutive day period.
III. Percent of loads processed with variations over which Seller agrees to
the provisions under Section 4.1(b): [ * ] of total loads in any
calendar month. Seller will make a continuing good faith effort to
reduce the percentage of total loads on which it fails to process in
accordance with cycle parameters.
- ---------------
*Confidential Treatment requested; material
filed separately with the Commission.
<PAGE> 30
ACKNOWLEDGEMENT OF AND AMENDMENT TO
STERILIZATION PROCESSING SERVICES AGREEMENT
This acknowledgement of and amendment to ("Acknowledgement")
the Sterilization Processing Services Agreement between Griffith Micro Science,
Inc. ("Seller") and the Convertors/Custom Sterile Division of Baxter Healthcare
Corporation, made and entered into as of the 1st day of January 1996
("Sterilization Agreement"), is made and entered into as of September 30, 1996
by and between Seller and Allegiance Healthcare Corporation.
RECITALS
On September 30, 1996, Baxter Healthcare Corporation
("Baxter") completed a spin-off of some of its business units and facilities to
a new corporation named Allegiance Healthcare Corporation ("Allegiance"). Among
the business units and facilities included in the spin-off were those for which
Seller performs sterilization services under the Sterilization Agreement.
Pursuant to Section 8.8(b) of the Sterilization Agreement, Baxter, referred to
as "Buyer" in the Sterilization Agreement, assigned to Allegiance and Allegiance
accepted the assignment of Baxter's rights and obligations under the
Sterilization Agreement. Since September 30, 1996, Allegiance has performed all
of Buyer's obligations and accepted all of Buyer's benefits under the
Sterilization Agreement. By this Acknowledgement, the parties hereto wish to
formally document that Allegiance has succeeded to Baxter's rights and
obligations under the Sterilization Agreement and Allegiance is bound by and
agrees to be bound by the terms and conditions of the Sterilization Agreement.
Allegiance and Seller also wish to amend the Sterilization Agreement as set
forth herein.
COVENANTS
Now, therefore, in consideration of the mutual covenants and
agreements hereinafter set forth and for other good and valuable consideration
the receipt and sufficiency of which is hereby acknowledged, the parties agree
as follows:
1. Seller and Allegiance acknowledge and agree that (a) Baxter
has assigned to Allegiance, and Allegiance has accepted the assignment of, all
of Baxter's rights and obligations under the Sterilization Agreement, (b) all
references to Baxter or Buyer in the Sterilization Agreement shall refer to
Allegiance and (c) Allegiance is bound by the terms and conditions of the
Sterilization Agreement.
2. The address specified in Section 8.1 of the Sterilization
Agreement for the sending of notices, requests, information or other documents
by Seller to Buyer shall be changed to:
Allegiance Healthcare Corporation
1500 Waukegan Road, Bldg. K
McGaw Park, Illinois 60085
Attn.: Corporate Vice President of Manufacturing
<PAGE> 31
3. Seller and Allegiance ratify and affirm the Sterilization
Agreement as amended hereby. The Sterilization Agreement and this
Acknowledgement shall be read as one document.
IN WITNESS WHEREOF, the parties have caused this
Acknowledgement to be executed by their respective duly authorized officers.
ALLEGIANCE HEALTHCARE GRIFFITH MICRO SCIENCE, INC.
CORPORATION
By: /s/ Robert Sisterman By: /s/ John P. Sabalaskey
-------------------------------------- -------------------------
Title: Vice President of Manufacturing Title: Senior Vice President and
----------------------------------- Chief Financial Officer
Its duly authorized officer ---------------------------
Its duly authorized officer
2
<PAGE> 1
Exhibit 10.11
ARC CHEMICAL DIVISION
BALCHEM CORPORATION CONTRACT NO. 100197
SUPPLY/SERVICE AGREEMENT
THIS AGREEMENT IS ENTERED INTO THIS 29TH DAY OF SEPTEMBER, 1997, BY AND
BETWEEN ARC CHEMICAL DIVISION, BALCHEM CORPORATION, P.O. BOX 180, SLATE HILL,
NEW YORK, 10973, (HEREINAFTER REFERRED TO AS "SELLER"), AND GRIFFITH MICRO
SCIENCE, INC., (HEREINAFTER REFERRED TO AS "BUYER").
IN CONSIDERATION OF THE PROVISIONS SET FORTH HEREIN, SELLER AND BUYER AGREE
AS FOLLOWS:
1. Definitions. For the purposes of this Agreement the terms "Product",
"Current Requirements", "Container", "Buyer's Location", "Specification",
"Delivery and Shipment", "Price of Product", "Transportation Costs", and "Terms
of Payment" will have the respective meanings now or hereafter set forth in
Attachment A as incorporated herein and appropriately signed or initialed and
dated by the Buyer and Seller.
2. Sale and Purchase/Location(s). Seller shall sell and Buyer shall
purchase, on the terms and conditions set forth herein, Buyer's total present
and future requirements of Product during the term of this Agreement for use at
Buyer's location(s), and if any of the operations at Buyer's location(s) are
hereafter conducted at new or expanded location(s), the then current
requirements and the future requirements of Product at such location(s) will be
supplied by Seller to Buyer and purchased by Buyer pursuant hereto. Buyer's
Current Requirements of Product are as set forth in Attachment A. Buyer shall
keep Seller informed of any estimated changes in its Current Requirements.
3. Price and Payment. Seller will invoice Buyer and Buyer will pay
Seller for Product in accordance with the price of Product and Terms of Payment
set forth in Attachment A hereto. If Buyer fails to make timely payment in
accordance with the terms of this Agreement, or Buyer's credit becomes impaired,
as set forth in paragraph 11 hereof, Seller reserves the right to:
(a) Refuse to supply Product to Buyer under any order unless Buyer pays
cash in advance with order and/or makes payment in full of all
outstanding charges; and/or
(b) At the discretion of the Seller, assess and collect from Buyer a late
charge on any delinquent balance, computed as follows: 1.5% per month
on balances over 45 days; and/or
(c) Terminate or suspend this Agreement upon thirty (30) days written
notice to Buyer, if Buyer does not rectify within a thirty (30) day
period.
Buyer shall receive no credit or refund for Product which meets the
specifications set forth in Attachment B which is delivered to Buyer but not
used.
<PAGE> 2
4. Delivery of Product: Title. Product shall be delivered by Seller in
accordance with the Delivery and Shipment provisions of Attachment A. Title and
risk of loss shall pass to Buyer F.O.B. Buyer's facility. Seller's quantity
measurements taken at Seller's facility shall govern. Except as otherwise
provided for hereunder, all drums, cylinders and other containers in which
Product is delivered are and shall remain the property of Seller and are
returnable in good condition promptly after being emptied. Buyer shall pay
demurrage charges for any such items not promptly returned within a reasonable
amount of time. (Seller's policy is demurrage after 60 days.)
Seller will:
- Endeavor, upon receipt of reasonable advance notice, to deliver to
Buyer's location(s) such quantities of Product as are necessary to
supply Buyer's requirements at such location(s). If Seller is unable
to supply gas when required, Buyer has the right to obtain Product
from another source.
Buyer will:
- Monitor the inventory of Product at Buyer's location and regularly
advise Seller of the level thereof at each such location.
- Reimburse Seller upon Seller's request, additional costs incurred if,
during Product deliveries, Seller experiences frequent delays within
Buyer's control.
- Allow deliveries to be made twenty-four (24) hours per day, seven (7)
days per week. Buyer may request that delivery be made at specified
times, and if Seller is able to do so, Buyer shall then pay all
additional expenses incurred by Seller as a result.
Deliveries which may be made during a strike or other labor disturbance
affecting Buyer shall be at Buyer's sole risk, and Buyer hereby indemnifies and
holds Seller harmless from and against all of the costs, damages, liabilities or
claims arising out of or associated with any such delivery which are not
regularly incurred by Seller in the ordinary course of normal deliveries
hereunder.
5. Specifications. All Product delivered by Seller under this Agreement
shall conform to the specification set forth in Attachment A hereto.
6. Price Adjustment. See Attachment A.
7. Taxes. Taxes imposed upon the storage, sale, transportation,
delivery, use or consumption of Product, or any other tax, howsoever denominated
and measured involving Product, shall be paid directly by Buyer, or if paid by
Seller, shall be invoiced to Buyer as a separate item and paid by Buyer to
Seller.
8. Seller's Warranty. Seller warrants that the Product delivered to
Buyer shall conform to the specification set forth on Attachment A hereto and
that at the time of delivery Seller shall have good title to and the right to
transfer such Product and that the same shall be delivered free of encumbrances
and that the drums in which the Product will be delivered will be
2
<PAGE> 3
appropriate for containing the Product and will be free from defects and leaks.
THE FOREGOING WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESSED OR
IMPLIED, INCLUDING WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, ANY
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
9. Limitation of Liability. Buyer acknowledges that there are hazards
associated with the use of the Product, that it has received Seller's current
Material Safety Data Sheet, that it understands such hazards, and that it is the
Buyer's responsibility to warn and protect its employees, independent
contractors, invitees, and others exposed to such hazards through Buyer's
storage and use of the Product. Buyer assumes all risk and liability for loss,
damage or injury to persons or to property of Buyer or the other persons arising
out of the presence of or use of the product provided such loss is not due to
Seller's negligence.
Seller's sole liability and Buyer's exclusive remedy for the non-delivery
of Product, or for the delivery of Product not conforming to the specification
(and which Seller does not elect to replace with conforming Product) shall be
limited to the purchase price of the quantity of Product. In no circumstances
shall Seller be liable, whether in contract or tort or otherwise, for any
incidental or consequential damages, including loss of use, loss of work in
process, down time or loss of profits.
In the case of non-delivery of Product, Seller is liable for [ * ] of
difference between the purchase price of the Product, if the Seller had
supplied, and the price actually paid by the Buyer for the Product from another
source.
Buyer will receive documents from Seller, including Seller's Material
Safety Data Sheet and any revision thereof, containing safety and health
information pertaining to Product, and Buyer will incorporate such information
into Buyer's safety program.
Each party hereby agrees to indemnify and hold the other party, its
affiliates and their respective employees, officers and directors harmless from
any actions, lawsuits, demands, claims, losses, expenses, costs, including but
not limited to legal fees, and damages, arising from the injury, illness or
death of the indemnifying party's employees while engaged in any activities
related to the Product(s) supplied by Seller under this Agreement, unless such
claims are incurred by any of them arising out of the other party's negligence
or its breach of its obligations hereunder.
10. Force Majeure. Neither party hereto shall be considered in default
in the performance of its obligations hereunder (other than its obligation to
make any payment of money hereunder), or be liable in damages or otherwise for
any failure or delay in performance which is due to strike, lockout, concerted
act of worker's or other industrial disturbance, fire, explosion, flood or other
natural catastrophe, civil disturbance, riot or armed conflict, whether
- ---------------
*Confidential Treatment requested; material filed separately with Commission.
3
<PAGE> 4
declared or undeclared, curtailment, shortage, rationing or allocation of normal
sources of supply of labor, materials, transportation, energy, or utilities,
machinery or equipment breakdown, abnormal transportation, energy, or utilities,
machinery or equipment breakdown, abnormal demand, lack of transportation or
distribution equipment, accident, Act of God, delay of Seller's suppliers,
subcontractors, or vendors, sufferance of or voluntary compliance with acts of
government and government regulations (whether or not valid), embargoes or any
other similar or dissimilar cause which is beyond the reasonable control of the
party affected.
Neither party hereto shall be required to make any concession or grant any
demand or request to bring to an end any strike or other concerted act of
worker's.
Either party affected by an event described in this paragraph shall,
promptly upon learning of such event and ascertaining that it has or will affect
its performance hereunder, give notice to the other party, stating the nature of
the event, its anticipated duration and any action being taken to avoid or
minimize its effect.
Seller may during any period of shortages prorate the Product among its
various customers.
11. Impairment of Credit. The following activities make an impairment of
credit: any action that is brought by or against Buyer under any present or
future bankruptcy or insolvency laws seeking any reorganization, arrangement,
readjustment, liquidation, dissolution or similar relief with respect to Buyer,
or Buyer makes any assignment for the benefit of creditors, or a receiver is
appointed for Buyer, or Buyer shall fail to make payments in accordance with the
terms of this Agreement, or, Buyer's credit has been impaired.
12. Claims. Buyer shall inspect Product immediately after Product
arrives at Buyer's location(s). Buyer's failure to give notice of any claim
within thirty (30) days after the arrival of Product at Buyer's location(s)
shall constitute an unqualified acceptance by Buyer of such Product and a waiver
of Seller's claims in respect thereof.
13. Assignment. This Agreement shall be binding upon the parties and
their heirs, administrators, executors, acquirers, successors, and assignees of
either party.
14. Notice. Any notices, unless otherwise provided herein, will be in
writing. Any notice by letter under this Agreement will be deemed given on the
date such correspondence is posted.
15. Applicable Law. This Agreement is to be interpreted in accordance
with the laws of the State of New York as in effect for agreements made and
performed in New York.
16. Term. This Agreement will be in effect October 1, 1997 and will
continue in effect for a period of seven (7) years.
17. Prior Agreement. This Agreement supersedes any prior agreement or
agreements between Buyer and Seller for delivery of Product to Buyer's
Location(s), but this Agreement shall not be construed as a renunciation or
discharge of any claim in damages for an antecedent breach.
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<PAGE> 5
18. Entire Agreement. This Agreement supersedes any prior agreement
between the parties relating to the delivery of Product. No modification or
waiver of, or addendum to this Agreement shall bind Seller unless expressly set
forth in writing and signed and accepted by an authorized representative of
Seller.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the dates above.
Submitted by: Ron Ahnell
TITLE: Sales & Marketing Mgr., Arc Chemical
DATE: September 25, 1997
BUYER'S ACCEPTANCE: SELLER'S ACCEPTANCE:
GRIFFITH MICRO SCIENCE, INC. ARC CHEMICAL DIVISION
BALCHEM CORPORATION
BY: /s/ Kevin M. Swan BY: /s/ Dino A. Rossi
------------------------------- -------------------
TITLE President TITLE: President
---------------------------- ----------------
DATE: 10-30-97 DATE: 10-29-97
----------------------------- -----------------
5
<PAGE> 6
ATTACHMENT A
ARC CHEMICAL DIVISION BALCHEM CORPORATION
INDUSTRIAL GAS SUPPLY AGREEMENT
IN THE AGREEMENT, CONTRACT NO. 1000197 AND DATED THE 29TH DAY OF SEPTEMBER, 1997
PRODUCT MEANS: Drummed 100% Ethylene Oxide
BUYERS LOCATION(S) MEANS: Total requirements for Customer location(s) in US and
Canada
SPECIFICATION MEANS: See attached Specification sheet (Attachment B)
CURRENT REQUIREMENTS MEANS: As required by Customer for location(s)
CONTAINER MEANS: 400 pound DOT Spec Packaging 5P drums
DELIVERY AND SHIPMENT MEANS: as required
PRICE OF SHIPMENT IS: [ * ]
TRANSPORTATION COSTS ARE: Included in the price of the product, FOB Buyer
TERMS OF PAYMENT MEANS: Net 30 days
REMARKS:
===============================================================================
BUYER SELLER
- -------------------------------- -----------------------------------
GRIFFITH MICRO SCIENCE, INC. ARC CHEMICAL DIV. BALCHEM CORP.
ACCEPTED ACCEPTED
BY: /S KEVIN M. SWAN BY: /S/ DINO A. ROSSI
---------------- -----------------
TITLE: PRESIDENT TITLE: PRESIDENT
---------------- -----------------
DATE: 10-30-97 DATE: 10-29-97
---------------- -----------------
- ----------------------------------
* Confidential Treatment requested; material filed separately with the
Commission.
<PAGE> 7
ATTACHMENT "B"
ARC CHEMICAL DIVISION BALCHEM CORPORATION
P.O. BOX 180, SLATE HILL, NY 10973 - TEL. 914-355-5311; FAX 914-355-7619
PURCHASE SPECIFICATIONS
ETHYLENE OXIDE
Specification Limits
1. Acidity 20 PPM by weight, maximum, calculated as ascetic
acid. This is equivalent to 0.019 mg KOH per mg.
sample.
2. Aldehydes 30 PPM by weight, maximum, calculated as acetaldehyde.
3. Carbon Dioxide 50 PPM by weight, maximum.
4. Water 25 PPM by weight, maximum.
5. Residue 0.005 gm. Per 100 ml., maximum.
6. Color 10 maximum.
platinum-cobalt, Sunoco
APHA, BASF
7. Suspended Matter Substantially free.
8. Ethylene Oxide 99.9%, minimum.
(Purity by difference)
<PAGE> 8
[ * ]+
_______________________
* Confidential Treatment requested; material filed separately with the
Commission.
+ One page omitted.
8
<PAGE> 1
EXHIBIT 10.17(a)
LEASE
1. THIS LEASE is made on August 27, 1998, by George A. Rediehs and
Georgetta R. Rediehs (hereinafter referred to as "Landlord") and Griffith
Micro Science, Inc.(hereinafter referred to as "Tenant").
2. THE PREMISES. Landlord leases the following described
premises to Tenant, and Tenant leases the premises from Landlord, according
to this Lease. The Premises are the land and building commonly known as 830
Midway Drive Willowbrook, IL. 60521. The land consists of approximately two
(2) acres. The building consists of approximately 45,000 square feet and
includes without limitation all heating, ventilating, air conditioning,
mechanical, electrical, plumbing systems, roof, walls and foundations and
fixtures within it. The Premises shall be delivered by Landlord and
accepted by Tenant, in their "as-is" condition; Landlord is not obligated
to make any improvements or repairs to the Premises, except for those
stated in paragraph 39, Landlord's Work. Tenant has had an opportunity to
inspect the Premises and to have its architects, engineers, or other
consultants inspect the Premises; Tenant has found the Premises fit for
Tenant's use; and Tenant accepts the Premises with all systems (roof,
walls, foundation, heating, air conditioning, sewer, electrical,
mechanical, utility and plumbing) in good working order and repair.
Landlord represents and warrants that the Premises are in compliance with
all federal, state and municipal statutes that are applicable to the
Premises. The Premises include all appurtenances, easements and rights of
way related to it. A legal description of the Premises is attached hereto
as Exhibit "A". Landlord represents and warrants that the Premises (as of
the Lease Commencement Date) are in full compliance with all laws including
without limitation, the Americans with Disabilities Act.
3. LEASE TERM. The term of this Lease will be ten (10) years and
four (4) months beginning on August 1, 1998 and expiring on November 30,
2008. However, if Tenant is not able to procure the permits required for
Tenant to operate it's business at the Premises (environmental, zoning and
construction) within the first six (6) months of this Lease, then Tenant
may terminate this Lease by written notice to Landlord within said six
month period, however Tenant shall pay Landlord for three months of free
rent given by Landlord to Tenant, which is $45,000.00, and Landlord shall
return Tenant's security deposit in full, and then this Lease will be null
and void.
3A. CATASTROPHE OUT CLAUSE. Tenant may terminate this Lease after
the end of the fifth (5th) year of the Lease by giving Landlord twelve (12)
months prior written notice of its intent to terminate and provided that
Tenant does the following: 1.) Tenant will continue to pay the then current
monthly rental to Landlord during the twelve month notification period, and
2.) at the end of the twelve month notification period Tenant will pay to
Landlord, in one lump sum, twelve months of net rent at the then current
monthly rental rate and real estate taxes for one year. Upon completion of
all of the above then this Lease will be terminated.
3B. OPTIONS. TENANT'S FIRST OPTION PERIOD. So long as Tenant
has not terminated this Lease under the Catastrophe Out Clause and is not
in default under this Lease, either at the time of exercise or at the time
the first option period commences, Tenant will have the option to extend
the initial ten year four month lease term for an additional five (5) years
(the "first option period") beginning December 1, 2008 and expiring on
November 30, 2013, on the same terms, covenants and conditions of this
Lease, except that the monthly rent during the First Option Period will be
determined according to a Consumer's Price Index (CPI) adjustment as
described below. Tenant will exercise its First Option Period by giving
Landlord written notice ("first option notice") at least six (6) months
prior to the expiration of the initial lease term of this Lease, which
would be by May 31, 2008.
TENANT'S SECOND OPTION PERIOD. So long as Tenant exercises its
First Option Period and is not in default under this Lease, either at the
time of exercise or at the time the second option period commences, Tenant
will have the option to extend the lease term for an additional period of
five (5) years (the "second option period") beginning December 1, 2013 and
expiring on November 30, 2018, on the same terms,
<PAGE> 2
covenants and conditions of this Lease, except that the monthly rent during
the Second Option Period will be determined according to a CPI adjustment
as described below. Tenant will exercise its Second Option Period by giving
Landlord written notice ("second option notice") at lease six (6) months
prior to the expiration of the First Option Period, which would be by May
31, 2013.
4. RENT. Tenant will pay Landlord fifteen thousand dollars
($15,000.00) (the "monthly rent") in equal consecutive monthly installments
on or before the first day of each month beginning December 1, 1998 and
continuing thereafter until the rental adjustment date of December 1, 2003
at which time the monthly rent shall be adjusted as stated below. The
monthly rental shall also be adjusted on the beginning date of each option
period, as stated below.
The adjustment shall be made as follows: if the CPI for all urban
consumers (CPI-U) for Chicago-Gary-Lake County, IL-IN-WI issued by the
United States Bureau of Labor Statistics (based on all items for the period
1982 -84 =100) for the month preceding the adjustment date, (which is
November 2003) is higher than the index figure for the month in which this
Lease began, (which is August 1998) for the first adjustment date of
December 1, 2003, and is higher than the index figure for the months as
described below for the First and Second Option Periods, then the
adjustment shall be made and the annual rental for the next rental period,
until the next adjustment date or until the expiration or termination of
this Lease, whichever shall occur first, shall be arrived at as follows; to
determine the percentage increase between two months you take the CPI
figure for the most recent month less the CPI figure for the earlier month,
divide the resulting figure by the CPI figure for the earlier month,
multiply the resulting figure by 100, then multiply that figure by 90%,
since the increase is being calculated at 90% of the full CPI increase.
However, the rent for each new rental adjustment period shall under no
circumstances be less than the last preceding rental rate. To make the
adjustment for the First Option Period, the most recent CPI figure would be
the one for the month preceding the First Option Period, (which would be
November 2008) and the earlier CPI figure would be the month preceding the
first adjustment date of December 1, 2003 (which would be November 2003).
Likewise, to make the adjustment for the Second Option Period, the most
recent CPI figure would be the one for the month preceding the Second
Option Period (which would be November 2013) and the earlier CPI figure
would be the month preceding the First Option Period (which would be
November 2008). An example of how the CPI rental adjustment would be
calculated for the first adjustment date is as follows: assume that the CPI
for August 1998 is 164.8 and the CPI for November 2003 is 171.3, 171.3 -
164.8 = 6.50, 6.50/164.8 = .04 x .90 (90%) = .036 or 3.6%. The annual
rental rate would increase by 3.6%, which would be $6,480.00 per year, or
$540.00 per month.
The monthly rent and adjusted monthly rent will be paid in advance at
the address specified for Landlord in the basic lease information, or such
other place as Landlord designates in writing, without prior demand and
without any abatement, deduction or setoff. If Tenant fails to pay any
monthly rent or adjusted monthly rent or items of additional rent within
ten days of the date they are due and payable, such unpaid amounts will be
subject to a late payment charge equal to five percent (5%) of such unpaid
amounts. This late payment charge is intended to compensate Landlord for
its additional administrative costs resulting from Tenant's failure, and
has been agreed upon by Landlord and Tenant, after negotiation, as a
reasonable estimate of the additional administrative costs which will be
incurred by Landlord as a result of Tenant's failure. The actual cost in
each instance is extremely difficult to determine. This late payment charge
will be paid to Landlord together with such unpaid amounts.
If the lease commencement date occurs on a day other than the first
day of a calendar month, or if the expiration date occurs on a day other
than the last day of a calendar month, then the monthly rent or adjusted
monthly rent for the fractional month will be prorated on a daily basis.
5. TAXES. Tenant will pay as additional rental for the Premises
all taxes (collectively the "tax") including without limitation every tax,
assessment, excise, levy or other charge by any public authority on the
Premises, space, building or land whether general or special, ordinary or
extraordinary, foreseen or unforeseen or of any kind or nature whatsoever
that is assessed, levied, confirmed or imposed on the
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<PAGE> 3
Premises during the term of this Lease, whether or not now customary or
within the contemplation of Landlord and Tenant, including without
limitation the following taxes:
1.) taxes upon, measured by, or reasonably attributed to the cost
or value of Tenant's equipment, furniture, fixtures, and other personal
property located in the Premises, or by the cost or value of any leasehold
improvements made in or to the Premises by or for Tenant, regardless of
whether title to the improvements is in Tenant or Landlord;
2.) taxes upon or measured by the monthly rent, including without
limitation any gross receipts tax or excise tax levied by the federal
government or any other governmental body with respect to the receipt of
monthly rent;
3.) taxes upon or with respect to the possession, leasing,
operation, management, maintenance, alteration, repair, use, or occupancy
by Tenant of the Premises or any portion of the Premises;
4.) taxes upon this transaction or any document to which Tenant is
a party creating or transferring an interest or an estate in the Premises;
5.) taxes upon the Premises and all personal property, furniture,
fixtures and equipment, and all replacements, improvements, or additions to
them, whether owned by Landlord or Tenant;
6.) taxes based in whole or in part on a monthly rent, whether made
in addition to or in substitution for any other tax; and
7.) all general real estate taxes.
Taxes shall not include any inheritance, estate, succession,
transfer, gift or capital stock tax or franchise or net income tax
applicable to businesses generally.
All of which taxes, assessments, charges and other impositions shall
be paid by Tenant to Landlord in equal monthly installments, in amounts
reasonably estimated by Landlord. All the taxes listed above, if they
should become due during the term of this Lease, shall be handled in the
same manner as the general real estate taxes are handled, as described
below.
Any tax, including without limitation special assessments and taxes
that have been converted into installment payments, relating to a fiscal
period of a taxing authority, a part of which period is included in the
lease term and a part of which is included in a period of time prior to the
commencement or after the end of the lease term, whether or not such tax or
installments are assessed, levied, confirmed, imposed upon or in respect
of, or become a lien upon the Premises, or become payable, during the lease
term, will be adjusted between Landlord and Tenant so that Tenant will pay
that portion of the tax or installment that is applicable to Tenant's lease
term or which accrue during Tenant's lease term, and Landlord will pay that
portion which is not applicable to Tenant's lease term or which do not
accrue during Tenant's lease term.
General real estate taxes shall be paid in monthly installments by
Tenant to Landlord and payment shall be based upon the previous years's tax
bill. All tax escrow payments shall be deposited in an interest bearing
account at Bank One N.A. or such other institution as Landlord shall direct
and all interest accrued thereon shall be for Tenant's benefit, under
Tenant's tax identification number, and applied toward payment of the next
tax bill. The real estate tax bill for the Premises for 1997 was
$25,068.20. Tenant's monthly tax installment for 1998 shall be $2,100.00
per month beginning at the Lese Commencement Date. All real estate tax
installments shall be paid monthly, in advance and shall accompany the
monthly rental payment, but shall be issued under a separate check for
deposit in the tax escrow account. Upon receipt of the tax bill each year
Tenant shall pay any deficiency to Landlord prior to the tax bill due date
and if there is a surplus, the surplus will be applied to the next tax
bill, and the monthly tax installment shall be adjusted so that the sum of
the next twelve consecutive monthly tax installments will equal the
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<PAGE> 4
most recent tax bill. The general real estate taxes shall be prorated to
reflect the actual term of the lease during the first and last lease years.
Upon receipt of each tax bill Landlord will send a copy of the tax bill to
Tenant. General real estate taxes for the last year of this Lease, which
are levied and payable in the following year, shall be paid in the manner
stated above based upon the most recent tax bill.
RIGHT TO CONTEST TAXES. Tenant will have the right to contest the
amount or validity, in whole or in part, of any tax by appropriate
proceedings diligently conducted in good faith, only after paying such tax
or posting such security as Landlord may reasonably require in order to
protect the Premises from loss or forfeiture. Upon termination of any such
proceedings, Tenant will pay the amount of such tax or part of such tax as
finally determined, the payment of which may have been deferred during the
prosecution of such proceedings, together with any costs, fees, interest,
penalties, or other related liabilities. Landlord will not be required to
join in any such contest or proceedings unless the provisions of any law or
regulations then in effect will require that such proceedings be brought by
or in the name of the Landlord. In that event Landlord will join in such
proceedings or permit them to be brought in its name; however, Landlord
will not be subjected to any liability for the payment of any costs or
expenses in connection with any such contest or proceedings, and Tenant
will indemnify Landlord against and save Landlord harmless from any such
costs and expenses.
6. UTILITIES. Tenant will pay the appropriate suppliers for all
water, gas, electricity, light, heat, telephone, power and other utilities
and communications services used by Tenant on the Premises during the term
of this Lease, and Tenant shall cause such services to be billed directly
to Tenant. Tenant will also procure, or cause to be procured, without cost
to Landlord, any and all necessary permits, licenses, or other
authorizations required for the lawful and proper installation and
maintenance upon the Premises of wires, pipes, conduits, tubes and other
equipment and appliances for use in supplying any such service to and upon
the Premises. Landlord, upon request from Tenant, and at the sole expense
and liability of Tenant, will join with Tenant in any application required
for obtaining or continuing any such services.
7. INSURANCE. (A) "ALL-RISK" COVERAGE. Tenant will, at its
sole expense, obtain and maintain in force, during the term of this Lease,
"all-risk" insurance coverage including without limitation fire, wind,
earthquake, flood and extended coverage on the Premises in form and amounts
satisfactory to Landlord, which amount shall be reasonable, however the
insurance coverage shall at all times be in the amount of not less than
100% of the full replacement cost of the building, improvements, and
betterments located on the Premises, with all proceeds of insurance payable
to Landlord and any mortgagees of the fee as their respective interests may
appear. For the first year of this Lease the full replacement cost of the
building, improvements and betterments located on the Premises is
established as $2,200,000.00.
(B) GENERAL LIABILITY. Tenant will, at its sole expense, obtain and
maintain in force, during the term of this Lease comprehensive general
liability insurance for the benefit of Landlord against any and all
liability of Landlord and Tenant including, without limitation, claims for
personal injury, sickness or disease, death and property damage,
contractual liability, broad form property damage, host liquor liability,
non-owned automobile liability, in, on or about the Premises. Such
insurance shall afford protection in such amounts as Landlord may, from
time to time, reasonably require, however, at the commencement of this
Lease Tenant shall provide the above stated insurance with a combined
single limit of not less than three million dollars ($3,000,000.) in
respect to any one occurrence and not less than five million dollars
($5,000,000) in the aggregate and shall cover the entire Premises and all
claims arising out of the maintenance, use or occupancy of the Premises.
Said liability insurance shall be written on an "occurrence" basis and not
on a "claims made" basis. Tenant may satisfy the insurance requirements
stated herein through a combination of primary and umbrella liability
policies.
(C) TENANT'S CONTENTS. Tenant will, at its sole expense, obtain and
maintain in force, during the term of this Lease a policy of insurance
insuring Tenant's contents, trade fixtures, machinery, equipment, furniture
and furnishings in the Premises to the extent of at least ninety percent
(90%) of their replacement cost under standard fire and extended coverage
insurance, including without limitation, vandalism and malicious mischief
and sprinkler leakage endorsements.
4
<PAGE> 5
(D) OTHER MATTERS. Tenant shall deposit with Landlord certificates
of insurance with respect to all insurance required to be maintained by
Tenant hereunder. All insurance policies will be subject to approval by
Landlord and any lender as to form and substance, and will expressly
provide that such policies will not be canceled or altered without thirty
(30) days' prior written notice to Landlord and any lender, and will, to
the extent obtainable, provide that no act or omission of Tenant which
would otherwise result in forfeiture or reduction of the insurance will
affect or limit the obligation of the insurance company to pay the amount
of any loss sustained. The policies of insurance to be maintained by Tenant
hereunder shall be written by a company or companies with a policy holder
rating ("Best Rating") of at least A and be assigned a financial size
category of at least Class XII as rated in the most recent edition of
"Best's Key Rating Guide" for insurance companies, authorized to do
business in Illinois, and shall name Tenant, Landlord and any mortgagees of
the fee as insureds thereunder, as their respective interest may appear.
Any insurance required of Tenant under this Lease may be furnished by
Tenant under a blanket policy carried by Tenant. Such blanket policy shall
contain an endorsement that names Landlord as an additional insured,
references the Premises and guarantees a minimum limit available for the
Premises equal to the insurance amounts required in this Lease.
(E) ADDITIONAL INSUREDS. All policies of liability insurance that
Tenant is obligated to maintain according to this Lease will name Landlord
as additional insureds. Certificates of insurance naming Landlord as an
additional insured will be delivered to Landlord prior to Tenant's
occupancy of the Premises and from time to time at least thirty (30) days
prior to the expiration of the term of each policy. All public liability,
property damage liability, and casualty policies maintained by Tenant will
be written as primary policies, not contributing with and not in excess of
coverage that Landlord may carry.
(F) WAIVER OF CLAIMS AND SUBROGATION. Landlord and Tenant hereby
waive all rights of action against the other for any loss, cost, damage or
expense resulting from fire, explosion or other casualty or occurrence
incurred by either, which loss, cost, damage or expense is then covered in
whole or in part by insurance maintained, or required to be maintained
pursuant to this Lease and each party waives any right of subrogation that
might otherwise exist in or accrue to any person on account thereof.
Landlord and Tenant will cause their respective insurers to issue
appropriate waiver of subrogation rights endorsements to all policies of
insurance carried in connection with the building or the Premises or the
contents of either of them. Tenant will cause all other occupants of the
Premises claiming by, under or through Tenant to execute and deliver to
Landlord a waiver of claims similar to the waiver in this paragraph and to
obtain such waiver of subrogation rights endorsements.
8. DAMAGE OR DESTRUCTION. PARTIAL DAMAGE. In the event the
Premises are partially damaged by fire, explosion or other casualty such
that Tenant can continue to operate its business at the Premises, Landlord
shall commence repair, restoration or rebuilding thereof within sixty (60)
days after such damage, or promptly after issuance of all necessary
building permits, if building permits are not received within said sixty
(60) day period, and shall complete such repair, restoration or rebuilding
with all due diligence, and rent shall be apportioned to the part of the
Premises which is usable by Tenant.
WHOLE DAMAGE. If the Premises are made untenantable by fire or other
casualty, Tenant may elect: (a) to terminate this Lease as of the date of
the fire or casualty by notice to Landlord within sixty (60) days after the
date, or (b) to direct Landlord to proceed with all due diligence to
repair, restore and rehabilitate the Premises at Landlord's expense in
which latter event this Lease shall not terminate. In the event the Lease
is not terminated pursuant to this provision, rent shall abate on a per
diem basis during the period of untenantability. In the event of the
termination of this Lease pursuant to this Section, rent shall be
apportioned on a per diem basis and paid to the date of the fire or other
casualty.
9. USE. The Premises shall be used by Tenant in the same manner
and for the same purposes as Tenant is currently using the premises
commonly known as 7775 Quincy Street Willowbrook, Illinois that Tenant
leases from Landlord and for general warehousing and distributing of
Tenant's and Tenant's customers products and general office usage
associated therewith and for no other purpose.
5
<PAGE> 6
10. COMPLIANCE WITH LAWS. (A) TENANT'S OBLIGATIONS. Tenant will
not use or occupy, or permit any portion of the Premises to be used or
occupied:
(1) in violation of any law, ordinance, order, rule, regulation,
certificate of occupancy, or other governmental requirement; or
(2) for any disreputable business or purpose; or
(3) in any manner or for any business or purpose that would in any
way violate, suspend, void, or increase the rate of fire or liability or
any other insurance of any kind at any time carried by Landlord or Tenant
upon the Premises or its contents.
(B) Tenant will comply with all laws, ordinances, orders, rules,
regulations, restrictive covenants and any other governmental requirements
relating to the use, condition, or occupancy of the Premises, and all
rules, orders, regulations, and requirements of the board of fire
underwriters or insurance service office, or any other similar body, having
jurisdiction over the Premises.
11. ALTERATIONS AND IMPROVEMENTS. (A). Tenant will not make any
alterations, additions, or improvements to the Premises without the prior
written consent of Landlord. Landlord will not unreasonably withhold its
consent to minor, non-structural alterations and improvements, provided the
costs of such alterations or improvements shall not exceed $10,000.00 and
all such improvements and alterations shall be at the sole expense of
Tenant and at no expense to Landlord. Prior to the commencement of any
alteration, addition or improvement Tenant shall deposit with Landlord
certificates from an insurance company acceptable to Landlord, evidencing
workmen's compensation coverage, and insurance coverage in amounts
satisfactory to Landlord and protecting Landlord against public liability
and property damage to any person or property, on or off the Premises,
arising out of and during the making of any alterations, additions or
improvements. Any alteration or improvement by Tenant shall be done in a
good and workmanlike manner in compliance with any applicable governmental
law, statute, ordinance or regulation.
(B) Tenant shall promptly pay all costs and expenses of any
alteration, addition or improvement and shall promptly attain a waiver of
lien from all persons receiving any payment and their subcontractors,
employees and suppliers of materials and Tenant shall provide proof of such
waiver to Landlord. Tenant shall discharge all liens filed against the
Premises arising out of any alteration, addition or improvement or in the
alternative Tenant shall bond over or insure over any lien. In the event of
Tenant's failure to pay or bond or insure over a lien and Landlord
discharges the lien then Landlord is entitled to receive from Tenant all
reasonable costs and expenses incurred in discharging the lien including
reasonable attorney fees, all of which shall be additional rental due under
this Lease, or in the event of Tenant's failure to pay or bond or insure
over a lien Landlord may hold Tenant in default of this Lease and proceed
as per the terms of the default paragraph below. Tenant shall procure and
pay for all permits and licenses required in connection with any
alteration, addition or improvement.
(C) LANDLORD'S REVIEW AND INSPECTION COSTS. Tenant shall reimburse
Landlord for all reasonable costs and expenses incurred by Landlord in
connection with review and inspection of Tenant's work, including but not
limited to, architect's and engineer's fees and costs incurred by Landlord
in connection with 1) Landlord's review of the plans and specifications
for Tenant's work and all changes and amendments thereto, and 2)
Landlord's inspection of Tenant's work. Any such reasonable costs and
expenses incurred by Landlord pursuant to this paragraph shall be paid by
Tenant to Landlord, as additional rent, within ten (10) days of Tenant's
receipt of a bill therefor.
(D) Tenant may without Landlord's consent, at its expense, install,
assemble or place upon the Premises any items of machinery, equipment or
racking used or useful in Tenant's business. Such machinery, equipment and
racking shall be and remain the property of Tenant. Tenant may remove the
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machinery, equipment and racking from the Premises at any time during this
Lease, provided that Tenant shall be required to repair any damage to the
Premises resulting from such removal.
12. CONDEMNATION. (A) WHOLE TAKING. If the whole of the
Premises shall be taken or condemned for a public or quasipublic use or
purpose by any competent authority or if such a portion of the Premises,
including any portion of the improvements, shall be so taken that as a
result thereof the balance is not suitable for Tenant's continued use or
occupancy, then in either of such events, the Lease term shall terminate
the day before Landlord makes delivery of possession to the condemning
authority and any award, compensation or damages (hereinafter sometimes
called "award") shall be paid to and be the sole property of Landlord
whether such award shall be made as compensation for diminution of the
value of the leasehold or the fee of the Premises or otherwise and Tenant
hereby assigns to Landlord all of Tenant's right, title and interest in and
to any and all such award. However, if Tenant receives compensation or
award for moving expenses, Tenant shall be entitled to the full amount of
such moving compensation award. Likewise, if Tenant receives compensation
for any leasehold improvements, alterations or enhancements, not of a
permanent nature and paid for by Tenant during the term of this Lease then
Tenant shall be entitled to the full amount of such compensation. Tenant
shall continue to perform all of the covenants and provisions of this
Lease, including the payment of rent, tax installments and all items of
additional rent which shall become due and payable until Tenant is required
to vacate the Premises as stated above, which is the day before Landlord
makes delivery of possession to the condemning authority.
(B) PARTIAL TAKING. If only a part of the Premises shall so be
taken or condemned, and as a result thereof the balance is suitable for
Tenant's continued use or occupancy, this Lease shall not terminate and
Landlord at its sole cost and expense, shall repair and restore the
Premises. Landlord shall promptly and diligently proceed to make a complete
architectural unit of the remainder of the improvements following such
taking or condemnation.
(C) Tenant may at its own expense take independent action against
the public authority exercising the power of eminent domain for any moving
expenses, for the taking of any of Tenant's trade fixtures and such other
elements of damage as may be awardable to Tenant in an independent action.
13. DEFAULT BY TENANT. (A) The following occurrences are "events
of default":
(1) Tenant defaults in the payment of rent, tax installment or any
item of additional rent, or part thereof and such default continues for
five (5) days after written notice from Landlord; however, Tenant will not
be entitled to more than one (1) notice for default in payment of rent, tax
installment or other item of additional rent during any twelve-month
period, and if, within twelve (12) months after any notice, any rent, tax
installment or item of additional rent is not paid when due, an event of
default will have occurred without further notice;
(2) Tenant vacates or abandons more than 80% of the Premises during
the term of this Lease;
(3) Default be made in the performance of any of the terms, covenants
and conditions in this Lease contained on the part of Tenant to be kept or
performed and if any default specified in this subparagraph (3) shall
continue for a period of thirty (30) days after written notice and demand,
unless Tenant in good faith commenced the curing of such default within
said thirty (30) days, in which event Tenant shall have reasonable time to
do so;
(4) If Tenant fails to take possession of the Premises within thirty
(30) days of the Lease Commencement Date;
(5) Tenant fails to pay or bond or insure over any lien on the
Premises which is caused by work performed for Tenant;
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(6) Tenant suffers an "Event of Bankruptcy", which means the filing
of a voluntary petition by Tenant, or the entry of an order for relief
against Tenant, under Chapter 7, 11 or 13 of the Bankruptcy Code (or the
conversion of a Chapter 11 or 13 proceeding to a proceeding that is filed
by or against Tenant under any other chapter of the Bankruptcy Code).
(B) Upon the occurrence of any one or more of such events of
default, (with the exception of #6, "Event of Bankruptcy", which shall be
handled as stated below in paragraph D) Landlord may, if Landlord so
elects, at any time thereafter, terminate this Lease and the term hereof by
giving Tenant notice in writing of Landlord's intention to do so, and
Tenant's right to possession of the Premises will cease and the Lease will
be terminated; or Landlord may terminate Tenant's right to possession only,
without terminating this Lease. Upon termination of this Lease or upon
termination of Tenant's right to possession, Tenant shall immediately
vacate and surrender and deliver possession of the Premises to Landlord.
Landlord or Landlord's employees or agents may immediately or at any time
thereafter without notice to Tenant, re-enter the Premises and remove all
persons and property from the Premises, either by any action or proceeding
at law or in equity or by force or otherwise, without being liable in
indictment, prosecution or damages and repossess the Premises with the
alterations, additions and improvements thereon, together with the right to
receive all income from the Premises.
(C) If Landlord takes possession of the Premises without terminating
this Lease, Landlord may re-let the Premises or any part of the Premises,
on such terms and conditions (which may include concessions of free rent,
and the alteration and repair of the Premises) as Landlord, in its
uncontrolled discretion, may determine. Landlord may collect and receive
the rents for the Premises. Landlord will not be responsible or liable for
any failure to collect any rent due upon such re-letting. No such re-entry
or taking possession of the Premises by Landlord will be construed as an
election on Landlord's part to terminate this Lease unless written notice
of such intention is given to Tenant. No notice from Landlord under this
Lease or under a forcible entry and detainer statute or similar law will
constitute an election by Landlord to terminate this Lease unless such
notice specifically says so. If Landlord elects to take possession of the
Premises according to this paragraph without terminating this Lease, Tenant
will pay Landlord (I) the rent and all other sums which would be payable
under the terms of this Lease if such repossession had not occurred, less
(II) the net proceeds, if any, of any re-letting of the Premises after
deducting all of Landlord's reasonable expenses incurred in connection with
such re-letting, including without limitation, all repossession costs,
brokerage commissions, legal expenses, attorney's fees, alteration,
remodeling, repair costs, environmental clean up, and expenses of
preparation for such re-letting. Tenant will pay such amounts to Landlord
monthly on the days on which the rent and all other amounts owing under
this Lease would have been payable if possession had not been retaken and
Landlord will be entitled to receive the rent and other amounts from Tenant
on each such day. Landlord will make reasonable efforts to mitigate damages
by finding a suitable tenant.
(D) In the case of an "Event of Bankruptcy" as defined in paragraph
(A)(6) above Landlord and Tenant agree as follows:
(1) ASSUMPTION OF LEASE. The Trustee of Tenant's bankruptcy
estate or Tenant as debtor-in-possession may assume this Lease, and may
subsequently assign it, only if it does the following within 60 days after
the date of the filing of the voluntary petition, the entry of the order
for relief or the date of conversion or such additional time as a court of
competent jurisdiction may grant, for cause, upon a motion made within the
original 60 day period:
(a) file a motion to assume this Lease with the appropriate court;
and,
(b) satisfy all of the following conditions, which Landlord and
Tenant acknowledge to be commercially reasonable:
(I) cure all defaults under this Lease or provide Landlord with
Adequate Assurance (see section (2)(a) below) that:
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(A) it will cure all monetary defaults under the Lease within 10
days from the date of the assumption; and
(B) it will cure all nonmonetary defaults under the Lease within
30 days from the date of the assumption; and,
(c) compensate Landlord and any other person or entity, or provide
Landlord with Adequate Assurance (see section (2)(a) below) that within 10
days after the date of the assumption, it will compensate Landlord and such
other person or entity, for any pecuniary loss that Landlord and such other
person or entity incurred as a result of the default of Tenant, the trustee
or the debtor-in-possession; and,
(d) provide Landlord with Adequate Assurance of Future Performance
(see section (2)(b) below) of all of Tenant's obligations under the Lease;
and,
(e) deliver to Landlord a written statement that the conditions in
this section 1 have been satisfied.
(2) ADEQUATE ASSURANCE, ADEQUATE ASSURANCE OF FUTURE PERFORMANCE.
(a) ADEQUATE ASSURANCE. For purposes of section 1 above, and
in addition to any other requirements under the Bankruptcy Code, any future
federal bankruptcy law and applicable case law, "Adequate Assurance" means
at least:
(i) entering an order segregating sufficient cash to pay
Landlord and any other person or entity under section 1
above.
(B) ADEQUATE ASSURANCE OF FUTURE PERFORMANCE. For purposes of
section 1 above, and in addition to any other requirements under the
Bankruptcy Code, any future federal bankruptcy law and applicable case law,
Adequate Assurance of Future Performance means at least:
(i) the trustee or debtor-in-possession depositing with
Landlord, as security for the timely payment of rent and
other monetary obligations, an amount equal to the sum of
two (2) months rent; and,
(ii) the trustee or debtor-in-possession providing adequate
assurance of the source of the rent and other consideration
due under the Lease; and
(iii)Tenant's bankruptcy estate and the trustee or
debtor-in-possession providing adequate assurance that the
bankruptcy estate (and any successor after the conclusion of
the Tenant's bankruptcy proceedings) will continue to have
sufficient unencumbered assets after the payment of all
secured obligations and administrative expenses to assure
Landlord that the bankruptcy estate (and any successor after
the conclusion of the Tenant's bankruptcy proceedings) will
have sufficient funds to fulfill Tenant's obligations under
the Lease and to keep the Premises stocked with product and
properly staffed with sufficient employees to conduct a
fully-operational and active business on the Premises.
(3) ASSIGNMENT OF LEASE.
(A) GENERAL. If the Trustee or the debtor-in-possession assumes
this Lease as stated above and under applicable bankruptcy law, it may
assign its interest in this Lease only if the proposed assignee first
provides Landlord with Adequate Assurance of Future Performance of all of
Tenant's obligations under this Lease and if Landlord determines, in the
exercise of its reasonable business judgment, that the assignment of this
Lease will not:
(i)breach any other lease, mortgage, financing agreement, or
other agreement relating to the Premises, by which Landlord is
bound and Landlord is not required to obtain consents or waivers
from any third party required under any lease, mortgage,
financing agreement, or other agreement by which Landlord is
bound.
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(B) ADEQUATE ASSURANCE OF FUTURE PERFORMANCE. For purposes only
of Section (3)(a) above, and in addition to any other requirements under
the Bankruptcy Code, any future federal bankruptcy law and applicable case
law, "Adequate Assurance of Future Performance" means at least the
satisfaction of the following conditions, which Landlord and Tenant
acknowledge to be commercially reasonable:
(i) the proposed assignee submitting a current financial statement,
audited by a certified public accountant, that shows a net worth
and working capital in amounts determined in the reasonable
business judgment of Landlord to be sufficient to assure the
future performance by the assignee of Tenant's obligations under
the Lease;
(ii) If requested by Landlord in the exercise of its reasonable
business judgment, the proposed assignee obtaining a guarantee,
in form and substance satisfactory to Landlord, from one or more
persons who satisfy Landlord's standards of creditworthiness.
(E) CUMULATIVE REMEDIES. Suit or suits for the recovery of rents,
items or additional rent and damages may be brought by Landlord, from time
to time, at Landlord's election, and nothing in this Lease will be deemed
to require Landlord to await the date on which the term of this Lease
expires. Each right and remedy in this Lease will be cumulative and will be
in addition to every other right or remedy in this Lease or existing at law
or in equity or by statute or otherwise, including, without limitation,
suits for injunctive relief and specific performance. The exercise or
beginning of the exercise by Landlord of any such rights or remedies will
not preclude the simultaneous or later exercise by Landlord of any other
such rights or remedies. All such rights and remedies are cumulative and
nonexclusive.
14. REPAIRS BY TENANT. Tenant will, at its sole cost and expense,
maintain the Premises and make repairs, restorations, and replacements to
the Premises, including without limitation the heating, ventilating, air
conditioning, mechanical, electrical, plumbing systems and the fixtures and
appurtenances to the Premises as and when needed to preserve them in good
working order and condition regardless of whether the repairs,
restorations, and replacements are ordinary or extraordinary, foreseeable
or unforeseeable, capital or noncapital, or the fault or not the fault of
Tenant, its agents, employees, invitees, visitors and contractors,
excepting such repairs required due to the negligence of Landlord or its
agents. Tenant shall be solely responsible for all penetrations, changes
and alterations that Tenant makes to the roof and all roof repairs within a
ten (10) foot diameter of Tenant's roof penetrations, changes and
alterations. Landlord shall be responsible for the remainder of the roof.
All such repairs, restorations and replacements will be in quality and
class equal to the original work or installations. If Tenant fails to make
such repairs, restorations or replacements, within the time provided for in
paragraph 13(3) of the Lease, Landlord may, at Landlord's option, make them
at the expense of Tenant and such expense will be collectible as additional
rent and will be paid by Tenant within fifteen (15) days after delivery of
a statement for such expense.
15. DELAYS. Whenever a period of time is provided in this Lease for
Landlord or Tenant to do or perform any act or thing, Landlord and Tenant
shall not be liable or responsible for any delays due to strikes, lockouts,
casualties, acts of God, war, governmental regulation or control or other
causes beyond the reasonable control of Landlord or Tenant and the time for
performance specified herein shall be extended for the amount of time
Landlord or Tenant is so delayed.
16. NOTICES. Any notice or demand from Landlord to Tenant or from
Tenant to Landlord shall be in writing and shall be mailed by prepaid
United States registered or certified mail, or personal delivery addressed
to Tenant as follows: 830 Midway Drive Willowbrook, IL. 60521 and 2001
Spring Road, Suite 500 Oakbrook, IL. 60521-1887 or such other address as
Tenant shall have last designated by notice in writing to Landlord, and if
to Landlord, as follows: Attn: George A. Rediehs 8101 S. County Line Road
Burr Ridge, IL. 60521 or such other address as Landlord shall have last
designated by notice in writing to Tenant. The customary return receipt
shall be conclusive evidence of such service.
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17. SUBORDINATION OF LEASE. At the option of Landlord's mortgagee,
this Lease shall be subject and subordinate to any first mortgage or deed
of trust now or hereafter placed upon the Premises provided the mortgagee
or beneficiary under the deed of trust agrees in writing with Tenant that
regardless of any default or breach under such mortgage or deed of trust
this Lease and Tenant's possession shall not be disturbed by the mortgagee
or beneficiary or any other party claiming through or under such mortgage
or deed of trust; provided, however, that Tenant shall observe and perform
Tenant's obligations under this Lease and shall attorn to the mortgagee or
beneficiary of the deed or trust or whomsoever may be lawfully entitled to
the rental payments. Tenant shall execute and deliver whatever documents
may be required for such purposes, so long as the mortgagee or trustee
executes a nondisturbance agreement for Tenant's benefit.
18. QUIET ENJOYMENT. Landlord covenants and agrees with Tenant
that so long as Tenant pays the rent, tax installment and all items of
additional rent and observes and performs all the terms, covenants, and
conditions of this Lease on Tenant's part to be observed and performed,
Tenant may peaceable and quietly enjoy the Premises subject, nevertheless,
to the terms and conditions of this Lease, and Tenant's possession will not
be disturbed by anyone claiming by, through or under Landlord.
19. ESTOPPEL CERTIFICATES. At any time and from time to time,
Tenant agrees, upon request in writing from Landlord, to execute,
acknowledge and deliver to Landlord a statement in writing certifying the
following: 1.) that this Lease is in full force and effect, 2.) the
Lease's commencement and expiration dates, 3.) the amount of rent and
other charges payable under the Lease, and the date to which the rent and
other charges have been paid, 4.) whether the Lease has been modified and
if so under what terms, 5.) whether all the work the Landlord must
perform (if any) has been completed, 6.) whether Tenant believes Landlord
is in default, and if so, how, 7.) whether Tenant has any claims against
Landlord, or any reason Tenant believes it may pay less than the full rent
and all other charges due, and 8.) any other factual data relating to
this Lease or the Premises, which Landlord may reasonably request. If
requested by the Tenant, Landlord will execute and deliver to Tenant, a
written statement indicating Tenant's right to continued and undisturbed
possession and use of the Premises; provided, however, that Landlord shall
not be required to execute such statement if Tenant is in default of any of
the terms and conditions of this Lease.
20. ASSIGNMENT AND SUBLETTING. Without Landlord's prior written
consent, which Landlord agrees will not be unreasonably withheld or
delayed, Tenant will neither assign this Lease in whole or in part nor
sublease all or part of the Premises. If Tenant believes that Landlord has
unreasonably withheld its consent, Tenant's sole remedy will be to seek a
declaratory judgment that Landlord has unreasonably withheld its consent or
an order of specific performance or mandatory injunction of the Landlord's
agreement to give its consent. Tenant will not have any right to damages.
Notwithstanding anything to the contrary contained herein, Tenant may
sublet or assign to any entity affiliated with or related to Tenant without
Landlord's consent.
SUBMISSION OF INFORMATION. If Tenant requests Landlord's consent to
a specific assignment or sublease, Tenant will give Landlord the following:
(I) the name and address of the proposed assignee or subtenant, (II) a
copy of the proposed assignment or sublease, (III) information about the
nature, business and business history of the proposed assignee or
subtenant, and its proposed use of the Premises, and (IV) banking,
financial and other credit information, and references about the proposed
assignee or subtenant sufficient to enable Landlord to determine the
financial responsibility and character of the proposed assignee or
subtenant.
ASSIGNMENT AND SUBLEASE - ADDITIONAL DOCUMENTS TO BE PROVIDED.
Landlord's consent to an assignment or sublease will not be effective
until: a fully executed copy of the instrument of assignment or sublease
has been delivered to Landlord; in the case of an assignment, Landlord has
received a written instrument in which the assignee has assumed and agreed
to perform all of Tenant's obligations in the Lease; and Landlord has
received reimbursement for its reasonable attorneys'
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fees and costs incurred in connection with both determining whether to give
its consent and giving its consent.
NO RELEASE OF TENANT. Landlord's consent to an assignment or
sublease or Tenant's assignment or sublease to any entity affiliated with
or related to Tenant without Landlord's consent will not release Tenant
from the payment and performance of its obligations in the Lease, but
rather Tenant and its assignee will be jointly and severally primarily
liable for such payment and performance. An assignment or sublease without
Landlord's prior written consent will be void at Landlord's option.
ADDITIONAL RENTS. If Tenant enters into an approved sublease or
assignment and said sublease or assignment provides or permits any rent or
other consideration, whether in a lump sum or in periodic installments, in
excess of Tenant's rent then such excess rent or other consideration shall
be paid to Landlord.
Tenant shall not allow or permit any transfer of this Lease, or any
interest under this Lease, by operation of law or convey, mortgage, pledge
or encumber this Lease or any interest in this Lease.
PROHIBITION OF FURTHER ASSIGNMENT OR SUBLEASING. Landlord's consent
to one assignment or sublease will not waive the requirement of its consent
to any subsequent assignment or sublease.
21. RELATIONSHIP OF THE PARTIES. Nothing contained herein shall be
deemed or construed by the parties hereto nor by any third party as
creating the relationship of principal and agent or of partnership or of
joint venture between the parties hereto, it being understood and agreed
that neither the method of computation of rent nor any other provision
contained herein, nor any acts of the parties hereto, shall be deemed to
create any relationship between the parties hereto other than the
relationship of landlord and tenant.
22. APPLICABLE LAW AND CONSTRUCTION. The laws of the state of
Illinois shall govern the validity, performance and enforcement of this
Lease. The invalidity or unenforceability of any provision of this Lease
shall not affect, impair or serve to invalidate any other provisions of
this Lease. Headings contained within the Lease are for convenience only
and do not define, limit or construe the contents of such paragraphs.
23. NO RECORDATION. Tenant's recordation of this Lease or any
memorandum or short form of it will be void and a default under this Lease.
24. FIRE ALARM. Tenant shall maintain and pay for the fire alarm
system which is installed in the Premises and shall keep the same in good
working condition during the term of this Lease. Tenant is responsible for
all repair, upkeep and updating of the fire alarm system to meet all
federal, state, local and municipal laws, rules and regulations which are
currently in effect or hereinafter enacted.
25. ENVIRONMENTAL HAZARDS. Tenant shall not cause or permit the
Premises to be used to generate, manufacture, refine or process Hazardous
Materials (as defined hereinafter), however Tenant may use those Hazardous
Materials that it is allowed to use under any Environmental Law or permit.
Except in accordance with Environmental Laws, Tenant shall not cause or
permit, as a result of any intentional or unintentional act or omission on
the part of Tenant, a material release of Hazardous Materials onto the
Premises or onto any other property or ambient air or waters. For purposes
of this Lease "Hazardous Materials" includes, without limitation, any
flammable explosives, radioactive materials, hazardous materials, hazardous
wastes, hazardous and toxic substances, as those terms are defined in the
Comprehensive Environmental Response Compensation and Liability Act of
1980, as amended (42 U.S.C. Sections 9601, et seq.), The Hazardous
Materials Transportation Act, as amended (49 U.S.C. Sections 1801, et
seq.), The Resource Conservation and Recovery Act, as amended (42 U.S.C.
Sections 9601 et seq.) and in the regulations adopted and publications
promulgated pursuant thereto, and any other
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Environmental Laws. "Release" shall mean that term as it is defined under
CERCLA, 42 U.S.C. Section 9601. "Environmental Laws" shall mean all laws,
regulations, rules or ordinances pertaining to the protection of human
health, safety and the environment.
TENANT'S ENVIRONMENTAL CONDITION NOTIFICATION REQUIREMENTS.
A. NOTIFICATION OF ANY RELEASE OR DISCHARGE. Tenant shall
promptly notify Landlord in writing of any release or discharge of any
Hazardous Materials except where the release or discharge is allowed under
any law, order, regulation or permit.
B. NOTIFICATION OF ANY NOTICE, INVESTIGATION OR CLAIM. Upon
receipt of any written notice or claim, Tenant shall also promptly notify
Landlord in writing of, and contemporaneously provide Landlord with a copy
of any written notice or claim received by Tenant related to any
enforcement, cleanup, removal or other action that is instituted or
threatened by a governmental or regulatory agency against Tenant or any
subtenant or other occupant of the Premises; and that relates to the
release or discharge of Hazardous Materials on or from the Premises;
(i) Any claim that is instituted or threatened by any third party
against Tenant or any subtenant or other occupant of the Premises and that
relates to any Release of Hazardous Materials on or from the Premises; and
(ii) Any notice of the loss of any material environmental
operating permit by Tenant.
C. FAILURE TO COMPLY. Failure to comply with this paragraph shall
constitute a default under this Lease. In the event of such default,
Landlord shall have all rights available under paragraph 13 of this Lease
and all rights at law or equity including, without limitation, the right to
either:
(i) Terminate this Lease and collect damages Landlord incurs as a
result of such default, including, without limitation, cleanup costs of any
Hazardous Materials released into the Premises, soil or groundwater during
Tenant's occupancy of the Premises; or
(ii) Require the cleanup of such Hazardous Materials to levels
applicable to commercial/industrial properties at Tenant's sole expense
while still enforcing all of the other terms and obligations of this Lease.
D. SURVIVAL. The remediation and indemnification obligations of
this paragraph shall survive the expiration or earlier termination of this
Lease.
ENVIRONMENTAL REPRESENTATIONS AND WARRANTIES. Landlord, to the best
of its knowledge, warrants to Tenant that the Premises are free from the
presence of Hazardous Materials and that the handling, use, generation,
treatment, storage, disposal or Release of Hazardous Materials has not
occurred on the Premises. Landlord further warrants, to the best of
Landlord's knowledge, that the Premises are, and at all times have been, in
full compliance with all Environmental Laws and that there are no
conditions or occurrences at the Property which could form the basis of any
Environmental Claim against the Landlord or Tenant or the Property. For the
purposes of this Lease, "Environmental Claim" shall mean any investigation,
notice, violation, demand, lawsuit, injunction, fine, lien, or other claim
based on liability for the presence of a Hazardous Material on the Premises
or a violation of any Environmental Law. Landlord further warrants that it
has not received notice of any pending or threatened action, claim or
proceeding under Environmental Laws or otherwise arising out of the
condition of the Premises. Landlord warrants that the Premises do not
contain and has not contained any (a) underground storage tank; (b)
asbestos-containing material; (c) any environmental contamination; or (d)
any Hazardous Material. All warranties of Landlord in this paragraph shall
be "Landlord's Environmental Warranties".
Tenant warrants, to the best of its knowledge, that it is currently in
material compliance with all applicable Environmental Laws and that there
are no pending Environmental Claims involving alleged violations by Tenant
of any Environmental Laws and relating to or affecting any of Tenant's
existing
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facilities or the Premises. All warranties of Tenant in this paragraph
shall be "Tenant's Environmental Warranties".
ENVIRONMENTAL INDEMNITY. Landlord agrees to indemnify, save and hold
harmless Tenant, from and against any and all costs, losses, liabilities,
damages, lawsuits, expenses, interest, and penalties incurred in connection
with, arising out of, resulting from or incident to a breach of any
environmental warranty contained herein. The provisions of this paragraph
shall survive the term of this Lease.
Tenant shall and hereby does indemnify Landlord and hold and defend
Landlord harmless from and against any and all reasonable and actual
expense, loss and liability suffered by Landlord by reason of Tenant's
breach of any of the provisions of this Section 25 and any breach of
Tenant's Environmental Warranties and any breach of Environmental Laws.
Such expenses, losses and liabilities shall include, without limitation,
(i) any and all expenses that Landlord may incur to comply with any
Environmental Laws as a result of Tenant's failure to comply therewith and
with this Lease; (ii) any and all costs that Landlord may incur in studying
and remedying any contamination at or arising from the Premises as a result
of a failure by Tenant to comply with this Section 25 or Environmental
Laws; (iii) any and all costs that Landlord may incur in studying,
removing, remediating, disposing or otherwise addressing any Hazardous
Materials which are present at the Premises as a result of a failure of
Tenant to comply with this Section 25 or Environmental Laws; (iv) any and
all fines, penalties or other sanctions assessed upon the Premises, the
Real Estate of which the Premises are a part thereof, or Landlord by reason
of Tenant's failure to comply with this Section 25 and Environmental Laws;
and (v) all claims for personal injury (including wrongful death) or
property damage (real and personal) as a result of a failure of Tenant to
comply with this Section 25 or Environmental Laws, and (vi) any and all
reasonable legal and professional fees and costs incurred by Landlord in
connection with the foregoing. The indemnity contained herein shall survive
the expiration or earlier termination of this Lease.
ENVIRONMENTAL AUDIT. Within the first thirty (30) days of this
Lease, Landlord shall provide Tenant with a Phase I environmental study
performed by a properly licensed consultant and done in compliance with
ASTM Standard E1527-97 stating that the Premises are clean and free of any
Recognized Environmental Condition. If the Phase I reveals any Recognized
Environmental Condition is present on the Premises, Tenant may terminate
this Lease and Landlord will return Tenant's security deposit and this
Lease will be null and void. Within thirty (30) days of the expiration or
earlier termination of this Lease Tenant will provide Landlord with a Phase
I environmental study performed by a properly licensed consultant and done
in compliance with ASTM Standard E1527-97 stating that the Premises are
clean and free of any Recognized Environmental Conditions caused by any act
or omission of Tenant. For purpose of this Lease "Recognized Environmental
Condition" shall mean that term as it is defined in ASTM Standard E
1527-97. If the Phase I reveals any Recognized Environmental Condition
resulting from a breach of this Lease, then Tenant shall conduct a Phase II
environmental audit and shall remain liable for any environmental
contamination and shall cleanup any Hazardous Material Contamination to
standards applicable to industrial/commercial properties in Illinois. The
obligations set forth in this paragraph shall survive the expiration or
earlier termination of the Lease.
26. RULE OF CONSTRUCTION. Landlord and Tenant understand, agree
and acknowledge that; (a) this Lease has been freely negotiated by both
parties; and (b) that, in any controversy, dispute, or contest over the
meaning, interpretation, validity, or enforceability of this Lease or any
of its terms or conditions, there shall be no inference, presumption or
conclusion drawn whatsoever against either party by virtue of that party
having drafted this Lease or any portion thereof.
27. INDEMNITY FOR LITIGATION. The losing party shall pay to the
prevailing party all costs and expenses, including reasonable attorney's
fees, which are incurred or imposed upon the prevailing party, either in
enforcing the terms of this Lease or in any litigation to which the
prevailing party, becomes a party to due to this Lease.
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28. INDEMNITY AND WAIVER. Tenant will indemnify and save Landlord
harmless (if Landlord is a trustee, the term "Landlord" for purposes of
this paragraph, shall include the trustee, its agents, its beneficiaries
and their agents) from and against all damages, losses, costs, expenses,
liabilities, obligations, including reasonable attorneys' fees and
expenses, claims and causes of action of any and every kind and nature
arising or growing out of or in any way connected with Tenant's use,
occupancy, management or control of the Premises, including without
limitation, (A) any accident, injury to or death of persons or loss of or
damage to property occurring on the Premises, resulting from an act or
omission of Tenant or anyone claiming by, through or under Tenant; (B) any
failure on the part of Tenant to perform or comply with any of the terms of
this Lease; and (C) performance of any labor or services or the furnishing
of any materials or other property in respect to the Premises. However,
Tenant shall not be responsible for any acts or negligence caused by
Landlord or its agents, unless Landlord or its agents are under the
direction of Tenant.
29. ACCESS TO PREMISES. Tenant agrees that Landlord and Landlord's
agents and employees may enter the Premises during normal business hours
and upon prior notice for the purpose of inspecting the Premises or to
exhibit the Premises for the purpose of sale, mortgage or lease. During the
last year of the term of this Lease, Landlord may display on the Premises
"For Sale" or "For Lease" signs.
30. SURRENDER. Tenant shall, upon the expiration of the term of
this Lease, or any earlier termination of this Lease for any cause: (A)
Surrender to Landlord the Premises, including without limitation, all
building apparatus and equipment, all alterations, improvements and
additions on the Premises. Tenant may remove its trade fixtures, signs and
other personal property and inventory; (B) The Premises shall be
surrendered to Landlord by Tenant without any damage, injury or disturbance
thereto, reasonable wear and tear excepted. Tenant, at its expense, shall
immediately repair any damage to the Premises caused by Tenant vacating the
Premises and by Tenant's removal of trade fixtures and personal property
and shall leave the Premises in a neat and clean condition, free of debris.
Any property not so removed shall be deemed to have been abandoned by
Tenant and may be retained or disposed of by Landlord, at Tenant's cost
which shall be additional rental due hereunder, as Landlord shall desire,
without any obligation to account therefor to Tenant. Tenant's obligation
to observe and perform any of the provisions of this paragraph shall
survive the expiration or earlier termination of this Lease.
HOLDING OVER. If Tenant remains in possession of the Premises after
the expiration or other termination of this Lease, then such event shall be
deemed to be a month to month tenancy at a rental equal to two (2) times
the then current rental rate. Nothing contained in this paragraph shall be
construed to give Tenant the right to hold over at any time, and Landlord
may exercise any and all rights and remedies at law or in equity to recover
possession of the Premises. Tenant shall be responsible for all
consequential damages to Landlord as a result of Tenant's failure to
surrender the Premises in accordance with this Lease and this clause shall
survive the expiration or earlier termination of this Lease.
31. SECURITY DEPOSIT. Tenant has deposited $15,000.00 with
Landlord as security for Tenant's payment of rent, all items of additional
rent and performance of its obligations under this Lease. If Tenant
defaults in its payment of rent, items of additional rent or performance of
its other obligations under this Lease, Landlord may use all or part of the
security deposit for the payment of rent or any other amount in default, or
for the payment of any other amount that Landlord may spend or become
obligated to spend by reason of Tenant's default. If Landlord so uses any
portion of the security deposit, Tenant will restore the security deposit
to its original amount within five (5) days after written demand from
Landlord. Landlord will not be required to keep the security deposit
separate from its own funds and Tenant will not be entitled to interest on
the security deposit. The security deposit will not be a limitation on
Landlord's damages or other rights under this Lease, or a payment of
liquidated damages, or an advance payment of rent. If Tenant pays the rent,
all items of additional rent and performs all of its other obligations
under this Lease, Landlord will return the unused portion of the security
deposit to Tenant within sixty (60) days after the expiration of this
Lease.
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32. AMENDMENT. This Lease can be amended only by a written
document signed by Landlord and Tenant.
33. SEVERABILITY. If any provision of this Lease is found by a
court of competent jurisdiction to be illegal, invalid, or unenforceable,
the remainder of this Lease will not be affected, and in lieu of each
provision which is found to be illegal, invalid, or unenforceable, there
will be added as a part of this Lease a provision as similar to such
illegal, invalid or unenforceable provision as may be possible and be
legal, valid and enforceable.
34. BINDING EFFECT. This Lease will inure to the benefit of, and
will be binding upon, Landlord's successors and assigns. This Lease will
inure to the benefit of, and will be binding upon, Tenant's successors and
assigns so long as the succession or assignment is permitted and approved
according to the assignment and subletting paragraph above.
35. CAPTIONS AND TITLES. The captions and titles used in this
Lease are for convenience only and do not define, limit or describe the
scope or intent of any provision of this Lease. Unless the context clearly
requires otherwise, the singular includes the plural, and vice versa, and
the masculine, feminine, and neuter adjectives include one another.
36. ENTIRE AGREEMENT. This Lease contains the entire agreement
between Landlord and Tenant with respect to its subject matter and may be
amended only by subsequent written agreement between Landlord and Tenant.
Except for those which are set forth in this Lease, no representations,
warranties, or agreements have been made by Landlord or Tenant to one
another with respect to this Lease.
37. AUTHORITY. If Tenant signs this Lease as a corporation, each
of the persons executing this Lease on behalf of Tenant warrants to
Landlord that Tenant is a duly authorized and existing corporation, that
Tenant is qualified to do business in the state of Illinois, that Tenant
has full right and authority to enter into this Lease and that each and
every person signing on behalf of Tenant is authorized to do so. Upon
Landlord's request, Tenant will provide evidence satisfactory to Landlord
confirming these representations.
If Landlord is a corporation, then Landlord warrants to Tenant that
Landlord is a duly authorized and existing corporation, qualified to do
business in the state of Illinois and Landlord has full right and authority
to enter into this Lease and each person signing on behalf of Landlord is
authorized to do so. Landlord is the sole owner of the Premises.
38. SIGNAGE. No sign, advertisement or notice shall be inscribed,
painted, affixed, or displayed on the windows or exterior walls of the
Premises, except in such places, numbers, sizes, colors and styles as are
approved in advance in writing by Landlord, such approval shall not be
unreasonably withheld, delayed or conditioned, subject always to the
condition that all signs must conform to all applicable laws and ordinances
affecting the Premises. Any and all permitted signs shall be installed,
maintained and removed by Tenant at Tenant's sole expense.
39. LANDLORD'S WORK AND TENANT'S WORK. Landlord will patch and
repair the warehouse floor where needed and will have all of the lights in
working order. Tenant will have the entire warehouse floor professionally
cleaned and sealed. Tenant will have the walls and ceiling in the warehouse
power washed. Landlord will remove the current tenant's name from the
building, replace all discolored ceiling tiles in the office, repair the
roof leak in the office area and relocate the two north gas-fired units to
their original position.
THIS LEASE IS SIGNED THIS 7TH DAY OF AUGUST 1998.
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/S/ GEORGE A. REDIEHS /S/ GEORGETTA R. REDIEHS
- --------------------------------- -------------------------------
LANDLORD, GEORGE A. REDIEHS LANDLORD,GEORGETTA R. REDIEHS
BERNADETTA KAMINSKI BERNADETTA KAMINSKI
- --------------------------------- -------------------------------
ATTEST ATTEST
/S/ JON L. GIACOMIN
- ---------------------------------
TENANT, GRIFFITH MICRO SCIENCE, INC.
BY: JON L. GIACOMIN, DIRECTOR OF U.S. OPERATIONS
/S/ FRANK LANGE
- ---------------------------------
ATTEST
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EXHIBIT "A"
Lot 13 in Willowbrook Executive Plaza, being a Subdivision of part of the
Southeast Quarter of Section 26, Township 38 North, Range 11, East of the Third
Principal Meridian, according to the Plat thereof recorded July 8, 1975 as
Document Number R75-33298, in DuPage County, Illinois.
<PAGE> 1
EXHIBIT 10.20
MEMORANDUM OF AGREEMENT OF LEASE ENTERED INTO THE ____ DAY OF _________________.
BETWEEN GRIFFITH LABORATORIES LIMITED
an Ontario corporation with its head
office and principal place of business at
757 Pharmacy Avenue, Scarborough, Ontario
M1L 3J8
(hereinafter called the "Lessor")
AND: GRIFFITH MICRO SCIENCE LIMITED
an Ontario corporation with its head
office and principal place of business at
757 Pharmacy Avenue, Scarborough, Ontario
M1L 3J8
(hereinafter called the "Lessee")
1. DESCRIPTION AND LEASE OF PREMISES
Lessor, in consideration of the rent, covenants and agreements
hereinafter contained on the part of Lessee to be paid, kept and performed,
hereby leases to Lessee and Lessee does hereby hire and take from Lessor that
designated portion containing approximately TWENTY-THREE THOUSAND TWO HUNDRED
SQUARE FEET (23,200 sq. ft.) and representing _________________ percent (____ %)
of total occupiable area of the building of which the Leased Premises form part,
bearing civic number 757 Pharmacy Avenue, Scarborough, Ontario M1L 3J8 (the
"Building") and being part of the Building erected upon that certain parcel of
land (hereinafter referred to as the "Leased Premises")
The area is measured from the exterior face of all exterior walls mid
from the centre line of all interior walls separating the Leased Premises from
the adjacent Premises.
2. TERM OF LEASE
The Term of this Lease shall be for TEN (10) YEARS and shall commence
on the 1st day of October 1998 and terminate on the 30th day of September 2008
unless sooner terminated under the provisions hereof.
Should the Lessee continue to occupy the Leased Premises after the
expiry of the Term without a written agreement, there shall be no tacit renewal
and the Lessee shall pay the Lessor rent and other charges for the period of
occupancy as set out in this Lease or renewal thereof, plus fifty percent (50%)
thereof, without prejudice to such further damage claims as may be available to
the Lessor against the Lessee. However, the Lessee is not to have the right to
such occupancy beyond the expiry of the Term.
<PAGE> 2
3. USE OF THE PREMISES
Lessee covenants that the premises shall be used solely for the purpose
of: OFFICES, STORAGE AND STERILIZATION PROCESSING OF HEALTH CARE AND OTHER
PRODUCTS.
4. NET RENT
Lessee covenants and agrees to pay the Lessor in lawful money of Canada
a net annual rental calculated on the basis of $____ per square foot, payable in
equal consecutive monthly installments of _______ THOUSAND _________ HUNDRED AND
______________ DOLLARS ($________) each payment due in advance on the first day
of each month during the Term hereof.
The rent as herein provided shall be paid to Lessor and/or its nominee
at the head office of the Lessor, at 757 Pharmacy Avenue, Scarborough, Ontario
M1L 3J8 or at such other place as shall be designated by Lessor in writing to
Lessee.
5. PROPORTIONATE EXPENSE RENTAL
Without limiting the obligations of the Lessee, the Lessee shall pay
during the Term of this Lease as additional rental to the Lessor, in the
proportion that the area of the Leased Premises bears to the total rentable area
of the Building of which the Leased Premises form part the aggregate of
(adjusted in the first and last year of the Term):
5.1.1 TAXES
The Lessee shall pay, whether they be special or general, its
proportionate share of all taxes, property taxes, municipal taxes, school taxes,
water and business taxes, rates including local improvement rates, duties and
assessments and any tax on capital that may be levied, rated, charged or
assessed against or related to the Building and/or all equipment and facilities
thereon or therein, and/or the land and appurtenant land on which the Building
is situated, and/or any property on or in the Building owned or brought thereon
or therein by Lessor or Lessee and/or against Lessor or Lessee in respect
thereof, whether such taxes, rates, duties or assessments are charged by a
municipal, parliamentary school, or any other body of competent jurisdiction as
well as all reasonable expenses related to the contesting of any part of said
charges, all of which may be referred to as Taxes.
5.1.2 CHANGE IN TAXING SYSTEM
If during the term of the Lease, any fiscal authority makes any change,
either by statute, regulation, or otherwise, in the method of taxation, such
that any of the said Taxes are replaced or changed, or if a new tax or form of
tax or assessment or the like is charged or imposed, and whether such new tax is
imposed on the Lessor or on the rents or revenues of the realty of which the
Leased Premises form part, or the rents or revenues of leasing the realty, or
any part thereof, the word "Taxes" will include such new tax, assessment or the
like. If any fiscal authority eliminates any tax, assessment or the like,
presently forming part of the Taxes, the Lessor will eliminate such tax,
assessment or the like from the Taxes.
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<PAGE> 3
5.2 INSURANCE
The Lessee shall pay its actual share of all premiums as determined by
the underwriters with respect to insurance to be placed by Lessor or its parents
for so long as Lessor and Lessee are insured parties under the policies and
described as follows:
(i) Insurance covering the building, equipment and improvements
against all risks of loss, including boiler and machinery risks and business
interruption insurance;
(ii) General liability insurance;
(iii) Such other insurance as institutional lenders, the Lessor or its
parents may reasonably require with respect to loss of or damage to the Leased
Premises or liability arising therefrom. In the event of a loss, the parties
shall each be responsible for paying the deductible in the same proportion as
their respective losses bear to the total loss. Lessee will pay the amount of
any increase in insurance premiums on the whole of the Building of which the
Leased Premises form part if such increase is caused by Lessee's operations in
the Leased Premises.
5.3 OTHER EXPENSES
Without limiting the generality of the foregoing, the Lessee shall pay
its proportionate share of all costs related to the maintenance and repair of
the washrooms, corridors, driveways and parking, heating and air-conditioning
equipment and services, and all other equipment, areas, and all facilities and
services available at the commencement of the Term or added or provided at any
time thereafter (should such services, etc. be reasonably required and requested
by Lessee and to the extent that they are available), including but not limited
to the costs of the utilities, heating, services and equipment described in
Clause 8.
The Lessee shall furthermore pay its proportionate cost of the expense
incurred to keep the exterior of the Leased Premises in good order and condition
and to provide winter and summer exterior ground maintenance.
6. LESSEE'S CONTRIBUTION
Notwithstanding anything to the contrary hereinabove contained, the
Lessor may, instead of billing individually for taxes and other items to be paid
by the Lessee, as herein stipulated, estimate the amounts payable by the Lessee
under the provisions of this Lease for such periods as the Lessor may determine
(but not exceeding twelve months) , the Lessee hereby agreeing to pay to the
Lessor such amounts in [MONTHLY] installments in advance. Within thirty (30)
days following the expiration of the period for which such estimated payments
have been made, the Lessor shall deliver to the Lessee a statement of the actual
costs payable pursuant to clause 5. If the amounts actually due by the Lessee
for such period exceed the amount so collected by the Lessor, the Lessee shall
pay same forthwith upon receipt of said statement, and if the amounts due by the
Lessee for the said period are less than the amount actually collected by the
Lessor, then the Lessor may remit same forthwith or credit same to the next
ensuing payments becoming due by the Lessee to the Lessor.
3
<PAGE> 4
All sums due by the Lessee to the Lessor in virtue of this Lease,
whether under this clause or otherwise, will be considered as rent for all legal
purposes.
Late Payments: The acceptance by the Lessor of any postdated cheque or
money due for rent after its due date is to be considered as a mode of
collection only, without novation of, nor derogation from, any of the Lessor s
rights, recourses and actions in virtue of this Lease which demands punctual
payment of all obligations.
7. TAXES, ASSESSMENTS, ETC.
7.1 Lessee will in each and every year during the Term of this Lease
pay and discharge or cause to be paid and discharged, all business taxes,
license fees, public utility charges, water rates, sewer rates and other like
fees, charges, rates and assessments, that may be levied, charged, rated or
assessed against the Leased Premises and/or all equipment and facilities thereon
or therein and/or any property on the Leased Premises owned or brought thereon
by Lessee, and every tax and license fee, all arising out and in respect of
Lessee's business carried on therein, or in respect of the occupancy of the
Leased premises by Lessee (and any and every of its assignees or sublessees)
whether such license fees, charges, rates, assessments and taxes are charged by
a municipal, parliamentary, school or any other body of competent jurisdiction,
and all charges for public utilities including electric current, gas, water,
steam or hot water used upon or in respect of the Leased Premises and for
fitting, machines, apparatus, meters or other things Leased in respect thereof,
and for all work or services performed by any corporation or commission in
connection with such utilities; and will indemnify, and keep indemnified Lessor
from and against payment of all losses, costs, charges and expenses occasioned
by, or arising from any and every such license fee, charge, rate, assessment and
tax. Lessee will furnish to Lessor within ten (10) days after the date on which
the same become due and payable, receipts or other appropriate evidence as to
the payment of each such tax rate, charge, assessment duty and license fee.
7.2 The Lessee undertakes to pay, or cause to be paid, during the
term of this Lease, all goods and services taxes, value added taxes, and all
similar taxes, assessed presently or in the future on or with respect to the
Rent and/or any other sum payable to the Lessor or for the benefit of the
Lessor, and regardless of the party on whom all such taxes may be imposed by any
fiscal authority.
7.3 If pursuant to any law or regulation or the like, any said taxes
or assessment is or becomes payable by the Lessor or by owners of property, or
if the method of collection of such taxes or assessments is changed such that
the Lessor is subject to them rather than the Lessee, the Lessee undertakes to
reimburse the Lessor within seven (7) days of a request made to the Lessee to do
so, the Lessee's share of all sums so charged or assessed against the Lessor,
which shall be the proportion that the area of the Leased premises bears to the
total leased area of the Building, and the Lessee shall indemnify the Lessor and
hold the Lessor harmless from all the costs and expenses related thereto.
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<PAGE> 5
8. UTILITIES, HEATING, SERVICES AND EQUIPMENT
The Lessor shall provide electricity, water, heat, telephone, natural
gas, pest control, [garbage removal], all public utilities, janitorial service,
general building maintenance, boilers and lift trucks as agreed by the parties
with respect to the Leased Premises. The Lessee shall pay Lessor an annual
agreed-upon charge as additional rent for the above-mentioned items, pursuant to
CLAUSE 5.
9. IMPROVEMENTS AND ALTERATIONS
Lessee shall have the right to make at its own expense, additions,
alterations and changes in and to the Leased Premises provided however, that no
such work with a cost in excess of $50,000 shall be commenced except with the
prior written consent of Lessor, whose consent may not be unreasonably withheld
and on compliance with the following conditions.
a) Lessee shall furnish to Lessor plans and specifications showing in
reasonable complete detail the work proposed to be carried out and the estimated
cost thereof and Lessor shall approve or reject such plans and specifications
within thirty (30) days after receipt of the same. If such plans and
specifications are approved, all work shall be carried out in compliance with
the same;
b) The value of the Leased Premises shall not, as a result of any work
proposed to be carried out by Lessee, be less than the value of the Leased
Premises before the commencement of such work and Lessor shall be the sole judge
of such value;
c) All work shall be carried out with reasonable dispatch and in a good
workmanlike manner and in compliance with all applicable permits, authorizations
and building and zoning by-laws and with all regulations and requirements of all
competent authorities having jurisdiction over the Leased Premises;
d) The Leased Premises shall at all times be free of all conditional
bills of sale, pledges, registered privileges, workmen's and suppliers' liens
and other similar liens and charges. Lessor may require Lessee to furnish
security satisfactory to Lessor guaranteeing the completion of the work and the
payment of the cost thereof free and clear of all conditional bills of sale,
pledges, privileges, workman's and suppliers' liens and other similar liens and
charges, as well as for the replacement of the Leased Premises to their former
state, as specified in CLAUSE 16 below;
f) Lessee or its contractors or subcontractors shall maintain Worker's
Compensation insurance covering all persons employed in connection with the work
and shall produce evidence of such insurance to Lessor and shall also maintain
such general liability insurance for the protection of Lessor and Lessee as
Lessor may require.
g) All work, when completed, shall be comprised in, and form part of
the Leased Premises and shall be subject to all the provisions of this Lease and
Lessee shall not have any right to claim compensation therefor and the same
shall not be removed by Lessee on termination of this Lease, unless the Lessor
requests that part or all of it be removed, in which case the Lessee shall
comply and shall repair any damage related thereto or caused thereby.
h) Should the Lessee, after having obtained written consent from the
Lessor, effect changes in the partitions or otherwise modify the Leased
Premises, and accordingly had to
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<PAGE> 6
relocate or modify the heating and, if applicable, the air conditioning
equipment, such changes and/or modifications would have to be effected at the
sole cost and risk of the Lessee.
10. INSPECTION AND REPAIR
Lessor and its agents shall have the right, at all reasonable times
during the Term of this Lease to enter the Leased Premises to examine the
condition thereof and to ascertain whether Lessee is performing its obligations
hereunder, and Lessee shall make any repairs or commence to make such repairs
which Lessor reasonably deems necessary as a result of such examination. If
Lessee fails to commence to make any such repairs within thirty (30) days after
notice from Lessor requesting Lessee so to do, Lessor may, without prejudice to
any other rights or remedies it may have, make such repairs and charge the cost
thereof to Lessee. Nothing in this clause shall be construed to obligate or
require Lessor to make any repairs but Lessor shall have the right at any time
to make any emergency repairs without notice to Lessee and charge the cost
thereof to Lessee. Any costs chargeable to Lessee hereunder shall be payable
forthwith on demand as additional rent.
11. FAILURE OF LESSEE TO PERFORM
If Lessee fails to pay any amounts due hereunder, Lessor may pay or
contract the same and shall be entitled to charge the sums so paid or contracted
to Lessee who shall pay them forthwith on demand together with an administration
fee of 15%, as additional rent and Lessor, in addition to any other rights,
shall have the same remedies and may take the same steps for the recovery of
rent in arrears under the terms of this Lease; all arrears of rent and any
monies paid by Lessor or due by Lessee to Lessor under this Lease, shall bear
interest at the rate of eighteen percent (18%) per annum or one and one-half
(1.5%) percent per month or the maximum interest permitted under law, whichever
is less, from the time such arrears become due until paid to Lessor.
12. DEFAULT
Without prejudice to all of the rights and recourses available to the
Lessor, the following shall be considered special defaults under the terms of
this Lease;
a) in the event that Lessee shall be in default under any provision of
this Lease providing for the payment of rent or additional rent and such default
shall continue for twenty (20) days after the due date;
b) in the event that Lessee shall be adjudicated a bankrupt or make any
general assignment for the benefit of creditors, or take, or attempt to take,
the benefit of any insolvency or bankruptcy Act, or if a petition in bankruptcy
shall be granted against Lessee, or if a receiver or trustee be appointed for
the property of Lessee, or any part thereof, or any execution be issued pursuant
to a judgment, rendered against Lessee or pursuant to this Lease, or if the
estate of Lessee hereunder be transferred or pass to or devolve upon any other
person or corporation by operation of law; or if the Lessee abandons the Leased
Premises or if they are vacant or
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<PAGE> 7
unattended for more than ten (10) days, or occupied by persons other than the
Lessee without Lessor's written consent; or
c) in the event that Lessee shall be in default in observing any
covenant herein contained and/or performing any of its obligations contained in
the Lease (other than a default in the payment of rent or additional rent) and
such default shall continue for thirty (30) days after written notice specifying
such default shall have been given to Lessee by Lessor.
In the event of any special default under the terms of this Lease, the
Lessor without prejudice to any rights or remedies it may have hereunder or by
law shall have the right to terminate this Lease forthwith upon written notice
given to Lessee by Lessor. Lessee upon such a termination of this Lease shall
thereupon quit and surrender the Leased Premises to Lessor and Lessor, its
agents and servants, may immediately or at any time thereafter, re-enter the
Leased Premises and dispossess Lessee, and remove any and all persons and any or
all property therefrom whether by summary disposition proceedings or by any
suitable action of proceeding at law, or otherwise without being liable to
prosecution or damages therefor.
In case of any termination, or in case Lessee, in the absence of such
termination, shall be dispossessed by or at the instance of Lessor in any lawful
manner, whether by force or otherwise, rent for the balance of the original Term
of the Lease shall immediately become due and payable and this Lease shall
immediately, at the option of the Lessor become forfeited and terminated and the
Lessor may, without notice or any form of legal process, forthwith re-enter upon
and take possession of the Leased Premises and remove the Lessee's effects
therefrom, the whole without prejudice to and under reserve of all of the rights
and recourse of the Lessor to claim any and all losses and damages sustained by
the Lessor by reason of and arising from any default of the Lessee.
13. EXPIRATION OF LEASE
The Lessee shall at the expiration or sooner termination of the Term of
this Lease peaceably surrender and yield up unto Lessor the Leased Premises
together with all buildings, alterations, replacements, additions, erections,
and improvements (leasehold or otherwise), including, but not limited to
electrical installations, electric or other fixtures, offices, partitions,
divisions, showrooms, air-conditioning and heating equipment, paneling, built-in
furniture, wall-to-wall carpets, attached carpets or other floor coverings,
attached cabinets, attached conveyor systems, attached racks, or other attached
equipment, wiring, switches, meters, meter boxes and transformers, which at any
time during the Term hereof shall be placed, made, installed, fixed or attached
therein or thereon by the Lessee, in good repair and condition, subject to
reasonable wear and tear only, and without any compensation whatsoever being
allowed to the Lessee for same. Lessee shall not remove or alter any of the
foregoing during the Term of the Lease or Renewal or Extension thereof, without
the written consent of the Lessor. However, the Lessor shall have the right to
require the Lessee, prior to or after the termination of the Lease or any
renewal or extension thereof, to remove any or all of the foregoing items, in
which case the Lessee shall remove the items requested to be removed, repairing
any damage related thereto or caused thereby, and to the extent required by the
Lessor, the Lessee shall leave the Leased Premises in their original good and
clean state and condition, subject to reasonable wear and tear.
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14. SIGNS
Lessor shall have the right at all times during the Term of this Lease
to place upon the Leased Premises a notice of reasonable dimensions and
reasonably placed, so as not to interfere with the business of the Lessee,
stating that the Leased Premises are for sale and for nine (9) months prior to
the termination of this Lease, Lessor shall have the right to place upon the
Leased Premises a similar notice that the Leased Premises are for rent and
Lessee will not remove such notice or knowingly permit same to be removed.
Lessor shall have the right to exhibit the Leased Premises from time to
time to any insurer, prospective mortgagee, purchaser or Lessee at all
reasonable hours.
Any exterior signs or any signs visible from the exterior will be
subject to the Lessor's prior approval in writing and installation if approved
will be at the sole expense of the Lessee. All such signs shall comply with the
lawful requirements of municipal and governmental authorities.
15. SUBLETTING BY LESSEE
Subject to the provisions hereinafter defined, the Lessee shall have
the right to sublet the Leased Premises or any portion thereof or assign its
rights in the present Lease with the consent of the Lessor which consent may be
withheld in Lessor's sole discretion, provided however, that in the event Lessor
withholds such consent, this Lessee may terminate this Lease immediately upon
vacating the Leased Premises. Notwithstanding such subletting and assignment,
the Lessee shall remain jointly and severally liable with such sublessee or
assignee for the performance of all the terms and conditions of the present
Lease.
If the Lessee wishes to so sublet or assign, it must submit to the
Lessor a copy of the offer to sublet or assign, together with a request for
consent of the Lessor, and the Lessor shall have thirty (30) days from receipt
thereof to take the Leased Premises or portion in question as subleases at the
same rental rate and other terms and conditions of this Lease or, at the
Lessor's option, to cancel this Lease as of the effective commencement date of
such offer to sublet or assign.
However, should the Lessor not exercise its right to take the Leased
Premises as sublessee, or to cancel this Lease, the Lessor shall not thereby be
precluded from withholding its consent to the said sublet or assignment,
provided said consent shall not be unreasonably withheld.
16. DESTRUCTION OF PREMISES
Provided, and it is hereby expressly agreed that if and whenever during
the Term hereby leased, the Building or the portion of the Building hereby
leased shall be destroyed or damaged by fire, lightning or otherwise, or any of
the other perils insured against under the provisions of Clause 6, then and in
every such event:
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<PAGE> 9
A) if the damage or destruction is such that the portion of the
Building hereby leased, or the Building is rendered wholly or
partially unfit for occupancy or it is impossible or unsafe to
use and occupy it and if in either event the damage, in the
opinion of Lessor to be given to Lessee within thirty (30)
business days of the happening of such damage or destruction,
cannot be repaired with reasonable diligence within one hundred
and eighty (180) days from the happening of such damage or
destruction, then either Lessor or Lessee may within five (5)
days next succeeding the giving of the Lessor's opinion as
aforesaid, terminate this Lease by giving to the other notice in
writing of such termination, in which event this Lease and the
term hereby leased shall cease and be at an end as of the date of
such destruction or damage and the rent and all other payments
for which Lessee is liable under the terms of this Lease shall be
apportioned and paid in full to the date of such destruction or
damage; in the event that neither Lessor nor Lessee so terminate
this Lease, the Lessor shall repair the said Building (excluding
the Lessee's Leasehold Improvements) with all reasonable speed
and the rent hereby reserved shall abate from the date of the
happening of the damage until the damage shall be made good to
the extent of enabling Lessee to use and occupy the Leased
Premises;
B) if the damage be such that the portion of the Building hereby
leased is wholly unfit for occupancy, or if it is impossible or
unsafe to use or occupy it but if in either event the damage, in
the opinion of Lessor, to be given to Lessee within thirty (30)
business days from the happening of such damage, can be repaired
with reasonable diligence within one hundred and eighty (180)
days of the happening of such damage, then the rent hereby
reserved shall abate from the date of the happening of such
damage until the damage shall be made good to the extent of
enabling Lessee to use and occupy the Leased Premises and Lessor
shall repair the damage (excluding the Lessee's Leasehold
Improvements) with all reasonable speed;
C) if, in the opinion of the Lessor, the damage can be made good, as
aforesaid, within one hundred eighty (180) days of the happening
of such destruction or damage and the damage is such that the
portion of the Building leased is capable of being partially used
for the purposes for which it is hereby leased, then until such
damage has been repaired the rent shall abate in the proportion
that the part of the portion of the Building leased is rendered
unfit for occupancy bears to the whole of the said portion of the
Building leased and Lessor shall repair the damage (excluding the
Lessee's Leasehold Improvements) with all reasonable speed.
Should any mortgage creditor who may have an interest in any insurance
proceeds refuse to permit the use of such proceeds for the repair, replacement,
rebuilding and/or restoration as hereinabove provided and for the payment of
amounts expended for such purposes, then the Lessor's obligation to repair or
rebuild as provided for hereinabove shall cease and shall be null and void and
the Lease shall be canceled effective as of the date of the damage, unless, the
Lessor, at the Lessor's sole option, chooses to repair or rebuild.
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17. COMPLIANCE WITH LAWS AND REGULATIONS
The Lessee shall, at its own expense, promptly comply with the
requirements of every applicable statute, law and ordinance and with every
applicable lawful regulation or order with respect to the removal of any
encroachment placed by the Lessee, or to the condition, equipment, maintenance,
or use or occupation of the Leased Premises, including the making of any
alteration, addition in or to any structure upon, connected with or appurtenant
to the Leased Premises, whether or not such alterations be structural or be
required on account of any particular use to which the Leased Premises or part
thereof may be put and whether or not such requirement, regulation or order be
of a kind now existing or within the contemplation of the parties hereto; and
shall comply with any applicable regulation, recommendation or order of the
Insurer's Advisory Organization, or any body having similar functions or of any
liability or fire insurance company by which the Lessor and/or the Lessee may be
insured.
18. INDEMNIFICATIONS.
Except if caused directly by the gross negligence of the Lessor, the
Lessor shall not be liable nor responsible in any way for any injury of any
nature whatsoever that may be suffered or sustained by the Lessee or any
employee, agent or customer of the Lessee or any other person who may be upon
the Leased Premises or for any loss of or damages to any property belonging to
the Lessee or to its employees or to any other person while such property is on
the Leased Premises and in particular (but without limiting the generality of
the foregoing) the Lessor shall not be liable for any damage or damages of any
nature whatsoever to any such property caused by the failure by reason of a
breakdown or other cause, to supply adequate drainage, snow or ice removal, or
by reason of the interruption of any public utility or services or in the event
of steam, water, rain or snow which drainage pipes or plumbing works of the
same, or from any other place or quarter or for any damage caused by anything
done or omitted by any lessee, but the Lessor shall use all reasonable diligence
to remedy such condition, failure or interruption of service when not directly
or indirectly attributable to the Lessee, after notice of same, when it is
within its power and obligation so to do. Nor shall the Lessee be entitled to
any abatement of rental in respect of any such condition, failure or
interruption of service.
The Lessee will indemnify and save harmless the Lessor from and against
all fines, liability, damages, suits, claims, demands and actions of any kind or
nature which the Lessor shall or may become liable for or suffer by reason of
any breach, violation or non-performance by the Lessee of any covenant, term or
provision hereof or by reason of any injury (including death resulting at any
time therefrom) or damage to property occasioned to or suffered by any person or
persons including the Lessor by reason of any such breach, violation or
non-performance or of any wrongful act, neglect or default on the part of the
Lessee or any of its employees, officers, agents, suppliers, or invitees.
19. ASSIGNMENT BY LESSOR
Lessee hereby covenants and agrees that it will, if and whenever
reasonably required by Lessor at Lessor's expense, consent to and become a party
to any instrument or instruments permitting a mortgage or other encumbrance to
be placed on the Leased Premises hereinabove described or any part thereof of
which the leased Premises are a part as security for any
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indebtedness covered by the said mortgage or other encumbrance and subordinating
this Lease to the said mortgage or encumbrance. Such consent by Lessee will not
diminish the rights of Lessee under this Lease provided the Lessee is not in
default under the terms and conditions of this Lease.
20. FLOOR LOADING
Lessee shall not bring upon the Leased Premises or any part thereof any
machinery, equipment, article or thing that by reason of its weight or size
might damage the Leased Premises and will not at any time overload the floors of
the Leased Premises and if any damage is caused to the Leased Premises by any
machinery, equipment, article or thing or by overloading or by any act, neglect
or misuse on the part of Lessee or any of its invitees, agents or employees or
any person having business with Lessee, Lessee will forthwith pay to Lessor the
cost of making good the same.
21. CONDITION OF LEASED PREMISES
The Lessee acknowledges having examined the Leased Premises and accepts
same in their present state, without any expressed or implied representation or
warranties form the Lessor and without any warranties against apparent or latent
defects and without any recourse against Lessor based on the nature, state or
use of the Leased Premises or based on its utilization or the utilization's of
the Leased Premises or part of same which could be affected.
22. PERMITS, ETC.
The Lessee shall obtain and maintain all necessary permits and licenses
required for the occupancy and carrying on of its business, the Lessor making no
warranties whatsoever regarding zoning, permits and licenses which may be
required by the Lessee. Should the Lessee fail to obtain any required permit
and/or license, it shall remain bound to perform its obligations under the
present Lease.
23. RULES AND REGULATIONS
The Lessor shall have the right to make reasonable rules and
regulations as in its discretion may from time to time be needful for the
safety, care, cleanliness and proper administration of the Building including
the Leased Premises, and for the preservation of good order therein, and the
same shall be observed and performed by the Lessee and by the clerks, servants,
employees, agents, invitees and customers, of the Lessee, and all such rules and
regulations now or hereafter to be established by the Lessor as herein provided
shall form part of this Lease as if now set forth at length herein.
24. ACCESS TO LEASED PREMISES
A) The Lessee, its employees, agents and customers will have access to
the Leased Premises at all times; should the Lessee, its employees,
agents and customers wish to use any land of the Lessor adjacent to the
Leased Premises to enter or leave the Leased Premises, they undertake
to use at their risk the way specifically designated for such
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purpose by the Lessor, and they may also use at their risk and in
common with others, the roadways, parking and shipping areas designated
by the Lessor, if provided;
B) The Lessor reserves the right to change or relocate the said
roadways, parking or shipping areas, at its convenience and in its sole
discretion;
C) The Lessee will not use the said roadways, parking or shipping areas
for any other purpose except for parking in the spaces designated or as
access to the Leased Premises or shipping areas as designated by the
Lessor;
D) The Lessee, its employees, agents and customers may at their risk
use, in common with others who will have obtained the permission of the
Lessor, all common corridors, stairways, or vestibules of the Building
providing access to the Leased Premises, if available, as well as
common parking and access roads to the Building;
E) The Lessor will with reasonable diligence maintain all such common
access roads, parking areas, shipping areas, corridors, stairways,
vestibules, or other common areas giving access to the Leased Premises
and the Lessee will pay to the Lessor all such maintenance costs as
provided for in Article 6(c) hereof.
25. INCONVENIENCE
The Lessee will not hold the Lessor in any way responsible for any damages or
annoyance which the Lessee may sustain through the fault of any third parties
who occupy any premises adjacent to, near or above the Leased Premises, and not
use the Leased Premises for any purpose, notwithstanding anything stated herein,
which may cause noise, disturbance or noxious odor, to the discomfort of the
Lessor and neighbours.
26. EXPROPRIATION
In the event that all or part of the Leased Premises are expropriated, which
would prevent the use or occupation of the inside floor space of the building
(which forms the major part of the Leased Premises), in whole or in part, then
the Lessee shall be entitled to a diminution of the rental payable hereunder
during the period and for the area of eviction only. Such diminution of rent
shall be reckoned from the date the Lessee is forced to vacate the said inside
floor space and shall be calculated on a pro-rata basis, the whole without any
other claims by the Lessee against the Lessor for any loss or damages occasioned
by said eviction and/or loss of use.
27. EXTENSIONS & LOCATION
The Lessor shall have the right at its option and from time to time during the
Lease terms to make extensions and/or additions and/or to add one or more
additional floors onto all or part of the building comprising the Leased
Premises.
In the event the Lessee exercises said option, the Lessee agrees to permit the
Lessor to install and/or to extent and/or to add the required improvements
including supports, beams, wiring, piping, stairways, elevators, ramps, vents,
ducts, shafts and openings for view or light and the like and to close all
borrowed lights and the windows and openings which may be required to be closed
as a consequence of such construction, the whole without any claims for
disturbance and/or inconveniences and the like which may be caused to the
Lessee, provided always that the
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<PAGE> 13
required work is carried out within a reasonable delay and that this clause
shall not absolve or release the Lessor from liability in respect for damages or
any loss caused to the Lessee as a consequence of any act of the Lessor, its
employees or representatives as a consequence of said additions and/or
extensions and provided that the Lessee shall be granted a proportionate
reduction in rent as compensation for loss of use of its inside floor space
(during the period and for the area of loss only). All the foregoing without any
other claims by the Lessee against the Lessor for damages and loss of use.
In the event any such change results in additional land being utilized to
service the Building, as such additional land shall be deemed included in the
land appurtenant to the Building for all purposes. In the event any change
contemplated herein results in a change in the rentable area of the Building,
the Lessee's Proportionate Share shall be modified accordingly.
Lessor shall furthermore have the right at any time or from time to time, either
during the term of the Lease or prior to the date of coming into force thereof,
to change the location of the Leased Premises, containing approximately the same
area, by giving Lessee a thirty (30) days written notice. Should the Lessor
desire to move Lessee, the cost of moving Lessee's equipment, furniture and the
like shall be made at Lessor's expense, the Lessee to have no claims against
Lessor for business interruption, inconvenience and the like.
Should the Lessee's remaining Term in the new location be less than six (6)
months and Lessee and Lessor have not agreed on an extension then Lessee shall
have the right to cancel this Lease at its sole discretion.
28. SECURITY DEPOSIT
Any prepaid rent or security deposit or other security given to the Lessor shall
be security for the performance of all of the obligations of the Lessee under
this Lease or any renewal or extension thereof.
In the event of the termination or cancellation of this Lease or of any
extension or renewal thereof prior to the contractual termination date by the
fault of the Lessee, then any prepaid rent or sums remitted to the Lessor as
security shall vest with the Lessor without prejudice to the Lessor's claim for
accelerated rent or damages or other sums due.
29. COLLECTION
Should any rental payments an/or any sums due under this Lease be unpaid for
more than ten (10) days, or cheques covering same be returned by the bank,
Lessee agrees to remit a further amount equivalent to fifteen percent (15.0%) of
that late or returned payment to cover Lessor's administrative costs. Such
additional sums shall be payable in addition to any costs which the Lessee is
obliged by law to pay to its attorneys and in addition to any damage for which
the Lessee may be liable to the Lessor. Such additional sums shall be deemed to
be additional rent and may be collected as such.
30. WAIVER
The failure of Lessor to insist upon a strict performance of any of the
agreements, terms, covenants and conditions hereof shall not be deemed a waiver
of any rights or remedies that
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Lessor may have and shall not be deemed a waiver of any subsequent breach or
default in any such agreements, terms, covenants and conditions.
31. NOTICES
Any notice or demand given by Lessor to Lessee shall be deemed to be duly given
when served upon Lessee personally, or when left upon the Leased Premises, or
when sent by telecopier, or when mailed to Lessee at the address of the Leased
Premises.
Lessee elects domicile at the Leased Premises for the purpose of service of all
notices, writ of summons or other legal documents in any suit at law, action or
proceeding which Lessor may take under this Lease.
Any notice of demand given by Lessee to Lessor shall be deemed to be duly given
when served upon Lessor personally or when mailed to Lessor at the address
designated by Lessor for purposes of payment of the rent hereunder.
32. DESCRIPTIVE HEADINGS
The descriptive headings of this Lease are inserted for convenience in reference
only and do not constitute a part of this Lease.
33. INTERPRETATION
This Lease shall be construed and governed by the laws of the Province of
Ontario. Should any of the provisions of this Lease and/or its conditions be
illegal or not enforceable under the Laws of the Province of Ontario, it or they
shall be considered severable and the Lease and its conditions shall remain in
force and be binding upon the parties as though the said provision or provisions
had never been included.
Words importing the singular number only shall include the plural and vice-versa
and words importing the masculine gender shall include the feminine gender and
words importing persons shall include firms and unless the contrary intention
appears, the words "Lessor" and "Lessee" wherever they appear in this Lease
shall mean respectively "Lessor, its executors, administrators, successors
and/or assigns", and "Lessee, its executors, administrators, successors and/or
assigns".
34. LANGUAGE
The parties hereby confirm that they have requested that the present document be
drafted in the English language.
Les parties confirment par les presentes qu ils ont demande que le present
document soit redige dans la langue anglaise.
35. PRIOR AGREEMENTS
The present Lease cancels and supersedes any and all prior leases and
agreements, written or otherwise, entered into between the Lessor and the Lessee
regarding the premises leased
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hereunder. This Lease and such rules and regulations as may be adopted and
promulgated by the Lessor from time to time constitute the entire agreement
between the parties.
36. OPTION TO RENEW
Provided the Lessee is not in default and on the condition that the Lessee has
fully complied with all of its obligations under its present Lease, the Lessee
shall have the right to renew its lease for a further periods of one (1) year
each, commencing October 1, 2008 under the same terms and conditions, save for
the rental which shall be increased either (i) three percent (3%), or (ii) in
proportion to the Index (as defined below) that has occurred between the current
year and the immediately preceding year; whichever is higher, but in no event
shall the increase exceed five percent (5%) in any give year. The term "Index"
means the Consumer price index, 1996 classification, monthly indexes, for the
province of Ontario, as prepared by Statistics Canada . If the format or
components of the index are materially changed after the execution of this
Lease, Lessor shall substitute an index which is published by the bureau of
Labor Statistics or similar agency which in the Lessor's judgment is equivalent
to the Index in effect on the date of this Lease. Lessor shall notify Lessee of
the substituted index that shall be used to calculate the increase in the Base
Rent. In order to exercise this Option to Renew, the Lessee must provide the
Lessor written notice of Lessee's intention to renew its Lease, no later than
six (6) months prior to the expiration of said Lease, failing which this Option
to Renew shall be considered null and void and of no further effect.
IN WITNESS WHEREOF THE PARTIES HERETO HAVE SIGNED THE FOREGOING DEED OF LEASE ON
THE _________ DAY OF _____________________________, 1998.
GRIFFITH LABORATORIES LIMITED GRIFFITH MICRO SCIENCE LIMITED
By: ______________________________ By: ______________________________
Title: _____________________________ Title: _____________________________
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<PAGE> 1
EXHIBIT 10.23(a)
Zadelvast Beheer
Griffith Micro Science B.V.
Toekomstlaan
2200 Herentals
Belgium
Our reference: DB/CF/141.534/956865
Utrecht, August 23rd, 1995
Concerns: Storkstraat 8, Zoetermeer
Dear Sir, Dear Madam,
As you have not made any use of the contractual possibility of ending the
tenancy agreement timely as per June 30th, 1996, we assume you intend to prolong
the agreement for a period of five years, meaning until June 30th, 2001.
We are looking forward to continuing the pleasant relationship with your company
during the following years.
Sincerely,
ZADELVAST BEHEER BV
D.J. Bouwhuis MOG
Portfolio Manager
<PAGE> 1
EXHIBIT 10.23(b)
The undersigned,
Stichting Pensioenfonds de Eendragt
registered in Krommenie / Wormerveer
hereafter called "the lessor"
declares to have leased to the co-undersigned:
Griffith Laboratories Europe B.V.,
registered in Zoetermeer, hereby legally represented by its director, Mr. C.W.
Van Poppel,
hereafter called "the tenant"
who declares to have leased from the first-mentioned party:
the industrial premises, consisting of an industrial hall of approx. 1,480 m(2)
and an office space of 180 m(2), Storkstraat 10, Zoetermeer, known in the land
register as such: commune of Zegwaard, section E, number 565
under the following
TERMS AND CONDITIONS
Article 1 - General conditions
1.1 This agreement is indivisible and binds all parties to comply with the
legislation and the local practices relating to letting and renting of
real estate, in as far as this agreement does not deviate explicitly from
such legislation and local practises.
1.2 In general, the tenant is bound, following the directions of the lessor,
to the same use of the leased premises as that to which the lessor himself
is bound, for example due to existing easements and/or perpetual clauses.
1.3 The risks related to obtaining the necessary permits for the pursuance of
the tenant's business as well as the risks relating to the suitability of
the leased premises for any present or future requirements for such
business are fully the tenant's responsibility.
1.4 If the leased premises does not comply with the above-mentioned
description, none of the parties will derive any rights from this
non-compliance.
1.5 The lessor is not responsible for the consequences of any visible or
hidden faults of the leased premises. The tenant safeguards the lessor
against all third party claims relating to damages to goods an/or capital
assets which might be present in the leased premises at any time and which
damage is due to the above-mentioned faults. Moreover the lessor is not
responsible for any damage caused by storm, snow, frost and rain, efflux
of gas, water and electricity, disturbances in the delivery and/or supply
of water, gas and electricity and faults or disturbances in installations
for hot-water, central heating and/or any other installations.
1.6 As a surety for the tenant's correct compliance with his obligations as
per this tenancy agreement, the tenant needs to submit to the lessor a
bank guaranty supplied by a
<PAGE> 2
certified bank for an amount of 39,716.25 DFL prior to the coming into
force of this tenancy agreement. This bank guaranty shall be drawn up as
such that the lessor can claim the guarantied amount directly from the
bank involved. This guaranty shall be given for a period of time including
the three months after the end of the full tenancy term. Non-compliance
with this obligation results in default.
Article 2 - Tenancy term
2.1 This agreement is entered into for a period of five years and takes effect
on the first day of the calendar month following the date on which the
building is surrendered to the tenant by the lessor. If the works
mentioned in article 6, paragraph 2 points a) through g) are being carried
out by the tenant, the completion date is the date on which the key is
handed over officially plus three weeks.
2.2 The tenant has a right of option for a contiguous period of 5 years.
2.3 If the tenant chooses not to use his right of option he needs to inform
the lessor or the lessor's proxy thereof no later than six months before
the end of the current tenancy term by registered letter or writ. In the
absence of such notification, the tenant is assumed to be making use of
his right of option.
Article 3 - Rent and payment
3.1 The rent amounts to 133,500.- DFL per year, excluding turnover tax, to be
paid in advance by . Payments shall be made in valid Dutch
currency without any discount or compensation. The first payment shall be
made on (see 2.1) for an amount of 11,125.- DFL for the period
from to and the following payments shall always be made no
later than on the first day of the following month.
All amounts mentioned are increased with the turnover tax which has become
due in accordance with the request stated in article 3.2.
3.2. The tenant gives the lessor an irrevocable proxy to make a request to the
competent inspection on the turnover tax in the tenant's name in order to
get the permission to charge the amounts that are due as per this tenancy
agreement with the turnover tax. Repeal of the proxy does not discharge
the tenant form the obligation to pay the on-charged turnover tax without
any prejudice to the lessor's rights to enforce his rights due to the
tenant's non-compliance with this agreement.
3.3 In case of late payment by the tenant of the rents or any other amounts
which he is due now or in future following this agreement, he is due to
the lessor an interest of 1% per month on the overdue amount, always
rounded up to a full month, without prejudice to the other rights and
powers of the lessor or his manager.
3.4 Payments shall be made by transfer to the lessor's account with the A.B.N.
in Amsterdam, account number 54.20.49.880.
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Article 4 - Readjustment of the rent
4.1 After each tenancy period of one year the last rent that was paid will be
readjusted in accordance with the changes to the family consumption index.
Such readjustment will take place for the first time on January 1st, 1987.
4.2. The following formula will be used for calculating the new rent:
a
---- x last rent = new rent
b
In this formula:
a: stands for the index of the month of October immediately preceding the
readjustment date;
b: stands for the index of the month of October of the preceding year. In
no circumstances the rent will be lower than the last rent that was in
vigour. The readjustment of the rent is valid even if the lessor has not
advised the tenant of such new rent or if he has done so too late.
4.3 The family consumption index means the family consumption index relating
to families of employees having a family income below the maximum wage
level for entitlement to national health insurance in 1980 (1980 = 100) as
published by the Central Bureau of Statistics ("Centraal Bureau voor de
Statistiek" (CBS)).
4.4 Should CBS publish the above-mentioned index figure based on a new basic
year, the new figures will be used for the readjustment of the rent, if
necessary subject to the application of a coupling ratio with regard to
the old figures. The coupling will be made in consultation with CBS.
4.5 In case the above-mentioned data of the Central Bureau of Statistics are
missing, either totally or partially, the readjustment of the rent will be
calculated according to similar criteria.
Article 5 - Other charges and expenses
5.1 All professional charges and taxes relating to the leased premises which
are due now or in future, are at the tenant's expense.
5.2 All real estate taxes relating to the factual usage and to the
improvements and/or extensions made by the tenant are at the tenant's
expense, even if they are assessed to the lessor.
5.3 All other charges and taxes relating to the type of usage and all charges
and taxes relating to objects that have been installed by the tenant, are
at the tenant's expense, even if they are assessed in the lessor's name.
5.4 The costs relating to the consumption of water, gas, electricity and any
other energy, as well as the rent of the meter, are at the tenant's
expense. The tenant shall enter into all necessary agreements relating to
the supply of such energy with the relevant suppliers.
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<PAGE> 4
The tenant shall comply with the terms and conditions of such suppliers
and shall agree that the meters will be placed and read at his expense.
5.5 The lessor is not responsible for any stagnation in the supply of gas,
water, electricity and/or any other energy. Fines, expenses or damages
caused by or due because of the tenant's actions that were in breach of
the above-mentioned terms and conditions, are at the tenant's expense. The
tenant safeguards the lessor if necessary against any claims that said
suppliers could hold against the lessor in this respect.
5.6 If the premium of the fire insurance which the lessor has taken out for
the leased premises and/or for the complex which the leased premises is
part of needs to be increased due to more dangerous circumstances
resulting from the type of business being executed in the leased premises,
the tenant shall reimburse this higher premium to the lessor.
5.7 All costs whatsoever which are at the tenant's expense and which relate to
matters in which several tenants of the complex the leased premises is
part of are involved and for which the tenants have not reached any other
agreement, will be borne jointly by the tenants involved as per a
reasonable division criterion as defined by the lessor for each specific
case.
Article 6 - Manner of completion
6.1 The leased premises, including everything belonging to it, is assumed to
have been surrendered to the tenant in good condition if the tenant does
not notify the lessor by registered letter within one week after the
acceptance of the leased premises of any faults the tenant might have
noticed. The repairs of faults that were reported justly and on time are
entirely at the lessor's expense in this case.
6.2 The lessor shall have the following works performed at his expense:
a) The floor of the industrial hall will be restored to a good
condition, i.e. the existing carpet will be removed, the floor contact
points will be removed, the floor will be levelled with Stabaphalt with
a layer thickness of approx. 1.5 - 2 cm.
b) The inner cavity wall in sand-lime brick will be raised by 1.5 meter
such that it reaches the bottom of the construction beams.
c) The ceilings and the suspension construction in the industrial hall
will be removed, as well as the wall covering in the industrial hall.
d) Broken windows will be replaced.
e) The plants around the building will be cultivated (one-off operation).
f) The weeds between the paving bricks will be removed.
g) The industrial hall and the office will be swept with a broom.
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<PAGE> 5
h) The steel slabs covering the facade will be cleaned at the outside.
Article 7 - Maintenance
7.1 During the full tenancy term the tenant is bound to have the following
works carried out properly and at his expense: all so-called minor and
daily repairs, restorations and renovations that are at the tenant's
expense as per article 1619 of Book 4 of the Code of Civil Law and/or the
local practices. The following works in particular are at the tenant's
expense: interior paintwork, maintenance and regular cleaning and
unclogging of drains, toilets, sinks and washbasins, repairs to the
internal piping, supply pipes and outlet pipes for water, daily
maintenance and repairs to sun blinds, maintenance of and repairs to water
pipes and electrical wiring, valves, hinges and locks, sockets, switches,
doorbells, toilets, water tanks of toilets, washbasins and other sanitary
fittings, sweeping of flues, cleaning of central heating equipment,
maintenance of and repairs to internal telephone installations;
irrespective of the causes making such maintenance or repairs necessary.
Furthermore the tenant is bound to replace all windows, including
plate-glass windows and shop-windows that might crack or break during the
tenancy term for whatever reason at his own expense as soon as possible by
completely similar new windows. The lessor reserves the right to enter
into one or more maintenance contracts for those works at the tenant's
expense.
7.2 The tenant is bound to take all necessary measures in order to prevent
damages to the leased premises and/or the adjacent premises, including
damages due to various weather conditions. He shall inform the lessor or
the lessor's manager immediately of any damage or faults that exist or
threaten to arise in the leased premises.
The above-mentioned notification shall be made in writing or anyway
confirmed in writing immediately after any verbal notification or
notification over the phone by the tenant to the lessor or to the lessor's
manager. The damages that arose, both to the leased premises and to the
property of the lessor or of third parties, are at the tenant's expense,
unless if those damages are not caused by the fault and/or negligence of
the tenant himself, of his staff, or of third parties who are present in
the leased premises with his obvious permission.
7.3 If the tenant does not perform the works mentioned in the previous
paragraphs of this article or does not perform them in due time, the
lessor has the right to have the works performed at the tenant's expense
after summons have been given in this respect. In this case the tenant is
bound to reimburse the expenses that were made to the lessor without any
compensations or discounts at the latter's first request.
7.4 All other maintenance works are at the lessor's expense, unless if the
need for such maintenance arises from the tenant's fault.
7.5 If during the term of this tenancy agreement it is necessary for the
lessor to have any repairs or any other works performed in the leased
premises, in the complex the leased premises is part of or in the adjacent
premises, the tenant shall admit the necessary labourers to the leased
premises and shall allow the repairs and works without being allowed to
claim any damages whatsoever therefor.
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<PAGE> 6
The lessor, his manager and all persons designated by the lessor will have
access to the leased premises for inspection purposes. The lessor shall
consult with the tenant on the timing on which the works and/or the
inspection will take place.
Article 8 - Prohibitory and usage clauses
8.1 The tenant shall not hand over the leased premises, either partly or
totally, in rent or usage, nor shall he sublet it or transfer the usufruct
of the leased premises in any way to other parties without the lessor's
written permission.
8.2 Without the lessor's written permission, the tenant is not entitled to:
a) organise any sales in or near the leased premises other than such sales
that fit in with the scope of the leased premises.
b) install any publicity in any form whatsoever in or at the leased
premises.
c) in general, make any changes, removals or additions whatsoever in, at
or on the leased premises, including the installation of nameplates, other
than for the purpose of designating the tenant's name, flagpoles and/or
holders for flagpoles, aerials, fuel tanks, gas heaters mounted against
the outside wall, sun blinds, roll-down shutters, etc.
The lessor reserves the right to refuse the requested permission or to
grant such permission only after the conditions he has stipulated are or
will be met. If the lessor grants the permission to make any changes,
removals or additions to the leased premises, this does not relieve the
tenant of his obligation to restore the leased premises to the state in
which he has accepted it when the tenancy agreement comes to an end,
unless if agreed otherwise in writing.
8.3 The maximal permissible load on the floors amounts to 2,500.- kg per
square meter of floor area, and to 250 kg/m(2) for the office space. The
tenant shall not exceed the above-mentioned load on the floors. All
expenses for the repairs resulting from any subsidence of the floor that
has been caused by an excessive load on the floors, are at the tenant's
expense.
8.4 In case of an intended sale of the leased premises, the tenant shall
consent with visits of the leased premises, without any compensation
whatsoever. He shall also agree with the fact that notice boards
mentioning a sale are being put up. It goes without saying that the
above-mentioned measures will be taken in consultation with the tenant.
8.5 The tenant shall use the leased premises for the same dispositions and
purposes in compliance with the existing professional rights and any
current or future government demands.
8.6 If the leased property is part of a complex that also consists of spaces
and premises of which the tenant does not have the exclusive right to use
them, he shall make a contribution such that those spaces and premises are
not polluted and are not used for any other purposes than those which they
are destined for, either obviously or following the lessor's instructions.
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<PAGE> 7
Article 9 - End of the lease
9.1 When the tenancy agreement is terminated or ends for any other reason, the
tenant shall allow visits of the leased premises on account of the lessor
during a period of six months. Moreover, the lessor shall have the right
to put up "For rent" notice boards in, on or at the leased premises.
9.2 The tenant commits himself to return the leased premises well-maintained
and properly cleaned, to the lessor's satisfaction at the end of the
tenancy term and to hand over the keys to the lessor or his manager
without delay. This obligation also lies with the tenant if he leaves the
leased premises without this agreement being terminated in any way. In
this case, all necessary repairs to the leased premises which are at the
tenant's expense as per this agreement, will be performed at the tenant's
expense by order of the lessor. The tenant shall pay the costs relating to
those repairs to the lessor within one month after receipt of the
specification thereof from the lessor.
9.3 The tenant is deemed to have given up the goods he has left in the leased
premises after the termination of the lease. Even in case any goods are
left behind or in case of late restitution of the keys, the lessor is
entitled to take possession of the leased premises and/or to dispose of it
or manage it as he deems fit, without the tenant being able to claim any
damages whatsoever in this respect. At this very moment the tenant agrees
that, in the above-mentioned case, the lessor can have the abandoned goods
removed at the tenant's expense and that all alterations, additions or
removals the tenant has made to the leased premises will be removed,
changed or added at the tenant's expense, to the extent that the leased
premises is returned to the state it was in at the beginning of this
tenancy agreement.
9.4 The lessor is willing to give the tenant the opportunity of negotiating
with the next tenant about the taking-over of the facilities the tenant
has installed, such as dividing walls, floor coverings, etc.
in as far as this does not hinder the new lease in any way.
Article 10 - Special conditions
10.1 It is explicitly forbidden for the tenant to place goods or objects on the
premises.
10.2 Following the stipulations of article 8.2, the tenant has the right to
make publicity for himself on or at the leased premises in as far as this
does not cause any inconvenience and/or any risks for such damage.
Nevertheless, he may only do so after consultation with the lessor.
10.3 This agreement will be terminated if the tenant does not obtain any verbal
permission from the city council of Zoetermeer for the execution of his
business in the leased premises prior to August 1st, 1985.
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<PAGE> 8
10.4 The lessor allows the tenant to use the leased premises as from the
signing of the tenancy agreement until the date on which the lease takes
effect without owing any compensation therefore.
10.5 The tenant shall allow the lessor or third parties to enter the leased
premises at all times for maintenance or inspection of the central heating
installation in the leased premises. The tenant must be present during all
of those visits.
Article 11 - Final conditions
11.1 If the tenant fails to pay the rent or any other amounts he needs to pay
or fails to comply adequately or timely in any other way with his
obligations imposed by this tenancy agreement, by law or by the local
practices, two weeks after having been summoned to do so by registered
letter or by writ, the present tenancy agreement will be terminated
legally and without any judicial intervention whatsoever, one month after
the lessor has informed the tenant thereof by registered letter or by
writ. This is without any prejudice to the lessor's right to claim
compliance with the tenant's obligations and/or, if any terms exist in
this respect, to claim compensation of damages, costs and interests and to
force the tenant to vacate the premises by reason of the termination of
the lease.
11.2 In as far as the preceding articles of this tenancy agreement do not
require any explicit summons, the very fact of default or negligence by
the tenant constitutes injunction on his part, without any summons by
registered letter, writ or any similar deed being necessary.
11.3 Upon late payment of the rent, the lessor is entitled to charge the tenant
with an interest of 1% of the overdue amount as from the due date until
the day on which the payment is made, however with a minimum of 25.- DFL
per month, without prejudice to his other rights. Every month that has
started is counted as a full month. All costs, both judicial and
extrajudicial, calculated in accordance with the rates of the Bar ("Orde
van Advocaten"), which the lessor needs to make in order to assert his
rights, are at the tenant's expense.
For the execution of this tenancy agreement and all its outcomes, the tenant
elects domicile in the rented premises For the execution of this tenancy
agreement and all its outcomes, the lessor elects domicile in Wormerveer.
Drawn up in three copies and signed by
The lessor The tenant
S.D. Brink Marc van Moerbeke
Stichting Pensioenfonds Griffith Laboratories Europe B.V.
DE EENDRAGT Fokkerstraat 40
Produktieweg 133 Zoetermeer - Holland
1521 NJ Wormerveer
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<PAGE> 9
AGREEMENT CONCERNING
TRANSFER OF TENANCY AGREEMENT
The undersigned:
1. GRIFFITH LABORATORIES B.V./GRIFFITH LABORATORIES (EUROPE) B.V., registered
in Zoetermeer, hereafter called "tenant 1";
2. GRIFFITH MICRO SCIENCE B.V.
registered in Zoetermeer, hereafter called "tenant 2";
3. STICHTING PENSIOENFONDS DE EENDRAGT or its legal successors, registered in
Wormerveer, hereafter called "the lessor"
TAKING INTO ACCOUNT:
- - that tenant 1 has rented from the lessor the business accommodation located
Storkstraat 8 and 10 in Zoetermeer, as appears from a private deed dated
November 12th, 1992, respectively undated, which deed is sufficiently known
to the parties, such that only short reference is made to it;
- - that tenant 1 wants to transfer to tenant 2 all claims, rights and
obligations of tenant 1 resulting from the agreement contained in the
above-mentioned private deed, hereafter called "the agreement";
- - that the lessor has declared to agree with the transfer by tenant 1 to
tenant 2 of all claims, rights and obligations tenant 1 has towards the
lessor by virtue of the agreement, provided that the following conditions
are met;
THE FOLLOWING HAS BEEN AGREED BETWEEN THE PARTIES:
1. Tenant 1 hereby transfers all claims, rights and obligations he has by
virtue of the agreement to tenant 2 and the latter declares to accept this
transfer by the former.
2. Both parties claim that the transfer as stipulated in article 1 is to take
effect on July 1st, 1992, such that as of that date, tenant 1 will be
substituted by tenant 2 as tenant of the above-mentioned office space.
Consequently, as of July 1st, 1992 tenant 2 can assert all claims and rights
resulting from the agreement and tenant 2 claims to faithfully and
punctually comply with all obligations that are imposed on the tenant by the
agreement and which remain unchanged and in full force.
In as far as those obligations relate to the service expenses for the
current year in which the transfer takes place which can be passed on to the
tenant by the lessor, tenant 2 commits himself to pay to the lessor all
amounts the latter will invoice to the former after the transfer date,
irrespective of whether any part of the invoiced expenses applies or could
apply to the part of the operating year prior to the transfer date.
3. Tenant 2 agrees with the fact that the lessor will make a request in his
name with the inspector for the turnover tax for exemption of the
dispensation due to lease of real estate as stipulated in article 11,
paragraph 1, part b, sub 5 of the Law on the Turnover Tax of 1968, such that
turnover tax will be charged on the rent and the additional costs.
<PAGE> 10
4. No later than on September 1st, 1992 tenant 2 shall pay to the lessor or to
the manager designated by the lessor a bank guaranty of the attached type
for an amount of 78,635.- DFL (seventy-eight thousand six hundred and
thirty-five guilders).
5. No later than on the transfer date, tenant 1 will have complied with all
obligations imposed on him by the tenancy agreement. In case tenant 1 still
owes any amount to the lessor on the transfer date, the balance will be
settled with the bank guaranty that was given at the beginning of the lease,
without prejudice to the obligation of tenant 1 to settle all amounts he
owes to the lessor. If tenant 1 has complied with all obligations imposed by
the tenancy agreement on the transfer date, any bank guaranty that was given
will be returned immediately by the lessor or its representative.
6. Tenant 2 accepts the leased premises in the state in which it was
surrendered to tenant 1 and as has been recorded in the inventory of
fixtures as between lessor and tenant, without prejudice to the
responsibility of tenant 2 to return the leased premises to its original
state at the end of the agreement.
7. Tenant 2 continues to elect domicile in the leased premises.
8. The conditions stipulated in articles 4 and 5 apply as dilatory conditions
for the coming into effect of this agreement.
9. Mr. M.E. van Moerbeke, hereby legally representing Griffith Laboratories
B.V. registered in Zoetermeer in his capacity of director, hereby stands
surety for Griffith Micro Science, B.V., registered in Zoetermeer, for the
correct compliance with all obligations of Griffith Micro Science B.V.
resulting now or later from the tenancy agreement between the latter and
Stichting Pensioenfonds De Eendragt, which comes into force on July 1st,
1992 and relates to the industrial building of approx. 3.000 m(2),
Storkstraat 8 and 10 in Zoetermeer, even after any written or tacit
extension of the term or after the alteration of the conditions of the
above-mentioned agreement.
By co-signing this agreement, Griffith Laboratories B.V. declares to be
familiar with the contents of this tenancy agreement and to relinquish all
present and future privileges and exceptions granted by law to sureties,
especially those which can be derived from the stipulations of articles
1466, 1885, 1886 and 1887 of the Code of Civil Law for the release of
sureties.
Drawn up as such and signed at the respective registered offices on
Signature lessor Signature tenant 1 Signature tenant 2
I hereby stand surety for all obligations as per the present tenancy agreement,
for an indefinite period of time, increased with the benefits and expenses.
Signature surety
2
<PAGE> 1
EXHIBIT 10.26(a)
Complement to the tenancy agreement dated July 13th, 1995
for warehouse (central hall), Dreieichstra(beta)e 7a, 64546 Morfelden
Between:
real estate company Helmut von Heesen GmbH & Co. KG, represented by
Wolfgang Steinweg, management, Gro(beta)e Eschenheimer Stra(beta)e
41a, 60313 Frankfurt/Main, hereafter called "the lessor";
and
Griffith Laboratories GmbH,
represented by the manager
Dreieichstra(beta)e 7-9, 64546 Morfelden,
hereafter called "the tenant".
the following complements to the above-mentioned tenancy agreement have been
agreed upon:
1. The tenancy agreement is prolonged as from September 1st, 1998 until August
31st, 1999, i.e. for a period of twelve months.
2. The monthly advance payment for attendant expenses now amounts to 450,00 DM,
excluding the legal V.A.T. as per the settlement dated July 1st, 1998 for
the calendar year 1997.
3. All other stipulations of the tenancy agreement dated July 13th, 1995 remain
unchanged.
Frankfurt/Main, August 6th, 1998
Real estate company Griffith Laboratories GmbH
Helmut von Heesen GmbH & Co. KG Manager
Management Griffith Micro Science GmbH
Dreieichstra(beta)e 7,
D-64546 Morfelden
<PAGE> 1
EXHIBIT 10.26(b)
TENANCY AGREEMENT FOR BUSINESS ACCOMMODATIONS
AND PROPERTIES
Between:
real estate company Helmut von Heesen GmbH & Co. KG,
represented by Wolfgang Steinweg Hausverwaltung
registered in Gro(beta)e Eschenheimer Stra(beta)e 41a, 6000 Frankfurt/Main 1
hereafter called "the lessor";
and
Fa. Griffith Laboratories GmbH,
represented by the manager
registered in Dreieichstra(beta)e 7 9, 6082 Morfelden
hereafter called "the tenant".
ARTICLE 1: LEASED PROPERTY
1. The tenancy agreement relates to the plot of land located in
Dreieichstra(beta)e 7 9, 6082
Morfelden Walldorf.
for the exploitation of : _____________________
in the following premises: ________________________
corresponding housing accommodation : not applicable
2. Garage : _____, shed : ______.
3. The lessor has delivered following keys to the tenant for the term of the
tenancy : not applicable.
ARTICLE 2: TENANCY TERM - NOTICE
1. The tenancy agreement comes into force on August 1st, 1990 (see attachment).
a) The tenancy agreement is closed for a period of 5 years and expires on
July 31, 1995.
2. Termination shall be notified in writing no later than on the third working
day of the first month of the term of notice. In case of termination due to
overdue payments of the rent, the rent also includes the additional expenses
(working expenses and extra fares).
3. In case the premises are not free on time or cannot be occupied on time, the
lessor is not responsible for the consequences resulting therefrom, except
if they are due to the lessor's gross negligence or intent.
ARTICLE 3: RENT
1a) The monthly rent amounts to DM (see Section 23).
b) The following working expenses (mentioned in appendix 3 to article 27 II
of the BVO in the current version) are to be paid separately:
<PAGE> 2
<TABLE>
<S> <C>
Distribution formula based on the number of
persons, the leased surface area, the splits or
the meters
1. Water as per own hours
2. Drains (water) as per own hours
3. Lighting, electricity (in as far as this does own meters
not belong to heating)
4. Garbage collection in accordance with dispositions
5. Land tax in accordance with dispositions
6. Cleaning of the streets in accordance with dispositions
7. Chimney sweeping (in as far as this does not as per invoice
belong to heating)
8. Public liability insurance as per insurance policy
9. Janitor not applicable
10. Maintenance of the garden not applicable
11. Clearing of snow and spreading salt in case of tenant's responsibility
glaze ice
12. Lifting of people and loads not applicable
13. Shared aerial and connection to band widths not applicable
14. Cleaning of the building not applicable
15. Cleaning and maintenance of heating equipment tenant's responsibility
16. Hot water supply not applicable
17. Heating own heating equipment
18. Maintenance costs for fire extinguishers, tenant's responsibility
tanks and safety equipment to prevent leakages
19. Cleaning of pavements tenant's responsibility
</TABLE>
c) The lessor has the right to apportion the management expenses
proportionately to the tenant.
d) During the tenancy term the lessor is entitled to develop an appropriate,
adequate, uniform or diverse distribution formula at the beginning of each
calculation period. If the consumption of the working expenses is reported
by a company's customer service by means of meters, the calculation is made
in accordance with the usual notification of the consumption and invoicing
methods of the company involved.
2. In case the lessor has to pay higher taxes due to the increase of the
working expenses or the creation of any new working expenses, the tenant
shall pay the corresponding increase as from the moment on which it comes
into being.
ARTICLE 4: READJUSTMENT OF THE RENT
In case the monthly index for the cost-of-living for families of employees
consisting of four persons with an average income, as published by the
"Statistischen Bundesamt", goes up or down by more than five points in
comparison with the index figure that was in vigour at the moment the agreement
was entered into or at the moment of a new agreement, both parties have the
right to request a readjustment of the rent.
August 1st 1990 = 100
2
<PAGE> 3
In case the parties fail to agree on the amount of the rent, the Chamber of
Commerce will appoint an expert at the request of one or both parties. This
expert will act as a referee in accordance with article 317 of the Code of Civil
law and will decide, to the best of his judgement, if any readjustment of the
rent will be made and if so, for what amount. The new rent will then be binding
for both parties as from the first day of the month following the request for a
readjustment of the rent to the contracting party.
The costs of such procedures will be borne by both parties in accordance with
the winning and losing positions in the discussions prior to the appeal to the
Chamber of Commerce.
ARTICLE 5 - PAYMENT OF THE RENT
1. The rent is to be paid to the lessor or to his proxy who is entitled to
accept the payment, at the Frankfurter Sparkasse, Ffm, account number 62091,
BLZ 500 501 02, in advance, without any expenses whatsoever and no later
than on the third working day of each month. All attendant expenses are to
be paid together with the rent, except if it has been agreed otherwise. In
case additional expenses are charged, they are to be paid within one week.
In case of increase or decrease of the working expenses, the lessor has the
right to adjust the advances accordingly.
The monthly advances amounts to:
a) for heating expenses: //// DM
b) for other working expenses: //// DM.
2. In case of late payment of the rent by the tenant, the payments shall be
charged to the expenses, interests and any other debts if there is any
danger of prescription, except if the tenant takes any other measures.
ARTICLE 6 - COMPENSATION, RETENTION
1. The tenant can only exert any rights to a decrease of the rent if he has
informed the lessor thereof in writing at least one month before the rent
becomes due. The tenant has visited the leased property before occupying it;
consequently he can not make any claims for any faults that existed in the
leased property at the moment of completion. The tenant is only entitled to
compensation and retaining against any claims for rent and additional
expenses in case of claims that are uncontested or on which final and
conclusive judgement has been given.
2. Any compensations or retentions due to any claims resulting from any other
debts are ruled out, except in case of uncontested claims and of claims
which have been assessed finally and conclusively. Any claims for
compensation in accordance with article 538 of the Code of Civil law are
ruled, except in case of intent and gross negligence of the lessor. The same
applies to the tenant's right to claim damages in case of late clearance or
completion of the leased property.
ARTICLE 7 - CENTRAL HEATING
1. The leased premises shall be adequately heated on working days during the
heating period (October 1st through April 30th) during the working hours in
as far as no other heating times are necessary for the professional
activities. In case of failure, force
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<PAGE> 4
majeure, government regulations or any other circumstances in which the
service cannot be ensured (fuel shortage), no claims whatsoever can be made
regarding heating. In those cases the lessor is not bound to arrange for any
other heating and the lessor is not entitled to claim any damages, except if
the lack of heating is due to the lessor's gross negligence or intent. The
lessor shall make sure the failure is resolved as soon as possible.
2. The working expenses for the central heating equipment consist of the
expenses for the use and delivery of fuel, the expenses for the necessary
current, the expenses for the operation, surveillance and maintenance of the
equipment, the regular checks on the functioning and the safety of the
equipment and its tuning by a specialist, the cleaning of the equipment,
including the cleaning of the oil tank and the professional premises,
including the cleaning of the premises after the delivery of fuel, the
expenses for measurements in accordance with the German law on emissions and
the taxes for chimney sweeping, in as far as they are not settled in any
other way, and the expenses for rent, use, etc. of equipment destined for
the registration of the consumption, as well as the expenses for dividing
and calculating the costs.
The expenses for the supply of district heating include the expenses for the
supply of heating (standing charges, working expenses and settlements) and
the expenses for the exploitation of the relevant equipment in the premises
as mentioned above.
3. In case one of the tenants does not use the heating equipment, this does not
release him from his obligations to pay his share of the heating expenses.
4. Before the beginning of a heating period the lessor is always entitled to
define the due date of the advanced payments of heating expenses (payment
upon delivery of payment in advance).
5. The expenses of any necessary intermediate meters are borne by the tenant
for whom this meter is destined.
6. In case the premises of the tenant have their own heating equipment, the
tenant shall use this equipment, maintain it and have it cleaned at least
once a year at his own expense. Moreover he shall fulfil the obligations
mentioned in article 7, paragraph 2.
ARTICLE 8 - HOT WATER SUPPLY
1. Hot water is supplied - during the full year - during the heating period -
continuously - .........days per week. Constant temperatures cannot be
guaranteed.
2. The working expenses relating to the central equipment for hot-water supply
include the expenses for water supply, in as far as they are not settled
separately, and the expenses for the heating of the water in accordance with
article 7, paragraph 2. The expenses for the water supply include the
expenses for the water consumption, the standing charges and the rent of the
meters, the expenses for the use of intermediate meters, the expenses for
the exploitation of the own installation for water supply and the own
installation for water treatment, including the base materials for the water
treatment. The expenses for the district supply of hot water include the
expenses for the supply of hot water (standing charges, working expenses and
settlement) and the expenses for the exploitation of the corresponding
installation at the premises in accordance with article 7, paragraph 2.
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<PAGE> 5
ARTICLE 9 - USE OF ELEVATORS
When and as long as no elevator operator is present on the premises, the lessor
has the right to put the elevator out of working order. Otherwise article 7,
paragraphs 1-3 apply.
ARTICLE 10 - USE OF THE LEASED PROPERTY, TRANSFER OF USE
1. The tenant can only use the leased property for other purposes and for any
other businesses than those stipulated in article 1 with the written
permission of the lessor. He can not cease the business either partly or
totally. It is forbidden to keep animals in the leased property.
2. Without written permission of the lessor the tenant is not entitled to
sublet or to transfer the use to third parties. For companies any change of
ownership or any changes relating to the legal form, concern a transfer of
use. A permission is only given for each particular case; it can be
withdrawn at all times.
3. In case of transfer of use, the tenant already at this moment transfers to
the lessor any claims he has against his subtenants and users and the right
of distraint for an amount equal to the rent due to the lessor.
4. The tenant shall not sell or offer for sale any products for which another
tenant already has the permission to sell them at the premises.
5. The lessor is not compelled to put the joint technical equipment of the
premises at the tenant's disposal or to keep it into action outside the
usual working and office hours.
ARTICLE 11 - SIGNS AND ADVERTISING BOARDS
1. The tenant is entitled to put up one company sign. The lessor indicates the
place where this sign shall be put up and decides how it shall be
implemented. The lease and use of the exterior walls and the styling of the
windows is settled in a separate agreement.
2. In case advertising boards need to be removed because of works to the
premises, the tenant bears the costs for such removal, storage and any
reapplication if necessary, including the costs for any repairs to the
installation that are necessary as a result hereof. The tenant shall take an
insurance against traffic accidents on the leased property, on the access
roads to the land and on the public roads in front of the land. Upon
termination of the tenancy agreement, the tenant shall remove all signs and
advertising boards and shall have all damage resulting from putting up,
using and removing those signs and advertising boards repaired.
ARTICLE 12 - OFFICIAL PERMITS, DANGERS RESULTING FROM THE USE OF EQUIPMENTS AND
INSTALLATIONS BY THE TENANT
1. The lessor is not responsible for the issue of permits for the intended
business and its installations, nor for maintaining such permits. This
especially applies to concessions. The tenant shall make sure at his own
expense that all requirements for his business are met and that this will
remain as such in future. This also applies to advertising boards, etc. The
tenant shall comply with the regulations of the labour inspection or any
other instances at his own expense.
5
<PAGE> 6
2. However, article 12 paragraph 1 does not apply in case the nature and the
location of the leased property are not fit for the agreed purpose of the
agreement.
3. Before installing any machinery, heavy objects, other equipments or
installations in the leased property, the tenant shall ask the lessor about
the permitted load on the floors and he shall ask the written permission of
the lessor. The tenant is responsible for all damages resulting from the
non-observance of those stipulations. In case of any negative effects on the
building, vibrations, cracks, etc. resulting from the equipments and
installations, the lessor can withdraw the permission he has granted before.
The tenant is responsible for all installations and equipments he has
installed and uses. If the placement or the use of the tenant's
installations and equipments results in any unreasonable disadvantages or
damages, the tenant shall remove those installations and equipments or
refrain from using them if he can not solve those problems in any other way.
ARTICLE 13 - MAINTENANCE OF AND REPAIRS TO THE LEASED PROPERTY
1. The tenant shall insure sufficient cleaning, ventilation, and heating in the
leased property and he shall treat the equipments and installations in said
property cautiously and safeguard them against any vermin.
2. The tenant shall pay compensations for damages to the leased property and to
the building, to all installations belonging to the leased property or the
building, in as far as they were inflicted by him, his officers or his
subtenants. This also applies to damages inflicted by visitors, suppliers
and craftsmen in as far as they were acting on the tenant's behalf. The
tenant shall prove that he was not responsible for the damages.
3. The tenant is responsible for having all aesthetic repairs to the leased
property carried out within a reasonable period of time. Such aesthetic
repairs consist of: wallpapering, painting or whitewashing of walls and
ceilings, painting of floors and radiators, including heating pipes, inside
doors, windows and the inside of outside doors. Moreover, the tenant shall
replace the following objects, in as far as he has a direct influence on
them, except if he can prove that any damages were not inflicted by him:
especially locks of windows and doors, locks of shutters, blinds, lighting
equipment and gongs, thermometers, locks, water taps, flushing equipment for
toilets, washbasins and outlet pipes, supply pipes and drains, fires,
stoves, gas equipment and electrical equipment, similar equipment and
installations for the water supply, including the equipment to maintain it
or repair it, damaged glass and display windows.
Naturally treated wood shall not be treated with paint.
The tenant shall have all heating, ventilation and similar equipment, water
heaters, equipment for hot-water supply, fires and stoves cleaned at least
once a year by a specialist.
If the tenant does not comply with his obligations despite summons and
deadlines, the lessor is entitled to have the necessary works carried out at
the tenant's expense.
4. Upon termination of the tenancy agreement, the tenant shall have the leased
property renovated professionally as designated by the lessor, before
returning the leased property to the lessor. Furthermore he shall remove all
plugs, close all locks unrecognisable and as prescribed and replace all
perforated tiles by similar ones.
6
<PAGE> 7
5. Upon termination of the tenancy agreement, the lessor can also exert his
rights to enforcement and compensations as stipulated in paragraphs 1
through 4 in case a successive tenant has had those works carried out.
6. The tenant shall immediately inform the lessor of all damages in or to the
leased property. The tenant shall pay compensations for any consequent
damages resulting from the late reporting of the initial damage, in as far
as he has concealed the faults on purpose or has not noticed them due to
gross negligence.
7. The lessor is not responsible for any damages to the objects and
installations of the tenant, irrespective of the nature, source, duration
and range of the damages, except if they were due to the intent or the gross
negligence of the lessor. Otherwise the lessor's liability is basically
limited to the amount of the public liability insurance.
ARTICLE 14 - CHANGES TO THE LEASED PROPERTY MADE BY THE TENANT
1. Changes to the leased property, especially installations and renovations and
the like, can only be carried out with the written permission of the lessor.
At the lessor's request, the tenant shall remove such installations and
renovations, either partly or totally, when he moves out of the premises and
shall return the leased property to it's original state, without any
reservation whatsoever as to the lessor's permission.
2. If, at the end of the tenancy agreement, the tenant wants to remove any
equipment he has added to the leased property, he shall first give the
lessor the possibility to purchase this equipment. For this purpose, the
tenant shall inform the lessor of he price, of the production expenses and
of the moment on which the equipment was produced. If the lessor wants to
pay the said equipment, he shall pay to the tenant a suitable compensation.
3. Any gas equipment and electrical equipment shall only be connected to the
existing mains in as far as they do not exceed the permitted load. Any
further equipment can only be connected subject to the written approval of
the lessor. Said approval can be denied if the mains can not cope with any
additional load and if the tenant refuses to pay the expenses for the
necessary changes to the mains.
ARTICLE 15 - STRUCTURAL CHANGES AND IMPROVEMENTS BY THE LESSOR
1. The lessor is entitled to have any improvements and structural changes which
are necessary for the maintenance or for a more economical use of the
property, for the expansion of the building or the leased property, for
averting impending dangers or for repairing damages, carried out without the
tenant's permission. This also applies to all works and structural measures
which, even though they are not absolutely necessary, are useful, especially
those relating to the modernisation of the building. The tenant shall make
sure the relevant premises are accessible and shall not hinder nor slow down
the execution of the works. If the tenant does not comply with this
obligation, the damages resulting therefrom will be at his expense. The
professional interests of the tenant have to be taken into account.
2. In case any measures are taken to increase the utility value of the leased
premises, such as expansion of a main road, construction of sewers,
connection of the premises to public utilities, expansion or improvement of
piping systems, conversion from coal heating to gas or oil heating, district
heating or other heating and energy systems
7
<PAGE> 8
(including conversion to electrical heating and electrical equipment), the
lessor has the right to increase the rent with an amount of 14% p.a. to
compensate for the expenses of the above-mentioned measures.
3. In case certain installations that were put at the tenant's disposal by the
lessor, need to be converted due to a conversion to another type of energy,
the tenant shall bear the expenses for such conversion of the installations.
If the installations cannot be converted or if the costs of such conversion
of the installations are too high in comparison with the costs of new
equipment, the lessor is not bound to buy any equipment to replace the old
equipment. The tenant cannot claim any damages.
ARTICLE 16 - ACCESS TO THE LEASED PROPERTY
During the usual working hours the tenant shall give the lessor, agents, experts
and interested parties, subject to prior notice, the opportunity to inspect the
leased property in view of assessing its structural status, in view of a new
lease, a sale, etc. In case of any danger the leased property shall be
accessible at any time during day and night.
ARTICLE 17 - TERMINATION OF THE TENANCY AGREEMENT
1. Irrespective of the obligation to carry out any aesthetic repairs, the
tenant shall return the leased property in a clean state. In case the tenant
does not comply with this obligation or does not comply with it in due time,
the lessor can have the leased property cleaned at the tenant's expense.
The tenant's obligation to keep the leased property clean extends to all
objects within the leased property, in as far as they do not belong to the
lessor. In case the tenant does not comply with this obligation, the lessor
is entitled to have those objects removed at the tenant's expense. The
lessor is under no obligation to store any objects.
2. In case of immediate termination of the tenancy agreement by the lessor, the
tenant is responsible until the end of the agreed tenancy term for the loss
of rent resulting from the lack of occupancy of the leased property or
resulting from the fact that the former rent can no longer be charged in
case of a new lease.
3. In case the parties have agreed that the tenant shall pay advances to
working expenses which are settled once a year, this arrangement remains in
force. For all working expenses for which the amount is only established
once a year, the amount is split between the old and the new tenant,
respectively lessor, proportionately to the term of the rent, in as far as
no special payments have been agreed.
4. At the expiry of the tenancy term, the tenant shall return all keys, even
those he has had made himself, to the lessor.
ARTICLE 18 - PARTIES CONSISTING OF MORE THAN ONE PERSON
1. The lessor and the tenant are always considered as being as the contracting
parties of this tenancy agreement, even if they consist of more than one
person. If the tenant consists of more than one person, they are jointly and
severally liable for all their obligations resulting from this tenancy
agreement.
8
<PAGE> 9
2. If the tenant consists of more than one person, they hereby give each other
proxy for giving and receiving declarations having an effect on each of the
persons; this also applies to notices.
3. Facts that lead to a reduction or an extension of the tenancy agreement for
one tenant or justify damages or any other claims for or against one tenant,
have the same effect on the other tenants.
ARTICLE 19 - CHANGES TO THE AGREEMENT
Side agreements, changes, supplements and termination of the agreement shall be
agreed upon in writing. This also applies to all commitments, permissions,
waivers and agreements whatsoever.
ARTICLE 20 - PLACE OF IMPLEMENTATION
The place of implementation for all obligations resulting from this agreement is
Frankfurt/Main.
ARTICLE 21 - DEPOSIT
1. For the compliance with the obligations he has under this agreement, the
tenant gives the lessor a deposit in money for an amount of --- DM (no
amount specified).
2. The deposit is payable upon the signing of the contract.
ARTICLE 22 - VALIDITY OF THE TERMS AND CONDITIONS OF THE AGREEMENT
1. The nullity of one or more stipulations of this agreement does not have any
influence on the validity of the other stipulations. In case of nullity of
individual stipulations, the parties are bound to replace those stipulations
by stipulations that approach the original stipulations with retroactive
effect.
2. This tenancy agreement replaces all previous agreements.
ARTICLE 23 - OTHER CLAUSES
The appendix to the tenancy agreement dated August 1, 1990 is an essential part
of the agreement.
The same applies to the complement to the tenancy agreement of September 27,
1990.
ARTICLE 24 - CODE OF ORDER
1. All halls and landings, corridors and stairways shall be thoroughly cleaned
at least once a week and shall be treated with a suitable cleansing agent.
Yards, sheds, parking lots and the like shall be swept clean every week.
9
<PAGE> 10
The tenant is always responsible for the above activities, as well as for
clearing all snow and ice from the footpaths and access roads to the
building and for spreading salt in case of glaze ice. Otherwise all local
police regulations shall be observed. Snow and ice shall be removed from all
balconies. In case of any problems whatsoever as to the cleaning of the
premises or the removal of snow and ice, the lessor is entitled to have
those activities performed by a third party. The expenses are apportioned
following the appropriate criteria, at the parties' best judgement.
Objects, machinery, installations and utilities can only be cleaned within
the leased property.
The tenant shall have all outlets of toilets and sinks of which he has the
exclusive use, cleaned at his own expense and shall have all obstructions to
such outlets removed immediately. The tenant is liable for his officers and
customers.
2. In case the land is polluted in any way, the tenant shall have this
pollution remedied immediately.
3. Placement and storage of any objects (boxes, goods, etc.) outside the leased
property is not allowed. Motorcycles, mopeds and similar vehicles can only
be stored in the premises destined for that use with permission of the
lessor and in accordance with the police regulations. Vehicles can only be
stored and parked in the yards upon written permission of the lessor.
4. All windows shall be closed when it rains, snows or storms. Whenever any
damage to the roof or any entry of water is noticed, the lessor shall be
informed immediately.
5. The domestic waste shall be made smaller prior to being deposited in the
appropriate garbage cans. Due care shall be taken in order to ensure that
the stairways, the entry to the building and the place where the garbage
cans are stored will not be polluted. In case such pollution does occur
nevertheless, the tenant shall immediately arrange for the necessary
cleaning. Ashes shall only be deposited in the appropriate containers after
they have cooled down.
Packaging material resulting from professional activities or similar waste
material shall never be deposited in the garbage cans destined for domestic
waste.
6. All entrances that are equipped with doors (cellar, attic, storage room,
etc.) shall always be kept closed. In case arrangements have been made
relating to the closing times for the front door, they need to be observed
at all times.
7. If changes and appendices to this code of order prove to be necessary in
order to maintain the peace and order in the leased property, the lessor is
allowed to take the necessary actions.
Frankfurt/Main, August 1, 1990
The lessor The tenant
Wolfgang Steinweg Dirk Barrie
Hausverwaltung
Gro(beta)e Eschenheimerstra(beta)e 41a
6000 Frankfurt 1
10
<PAGE> 11
Appendix to the tenancy agreement of August 1st, 1990
for business accommodation, Dreieichstra(beta)e 7-9, 6082 Morfelden-Walldorf
1. The first term of the agreement is set at a fixed period of five years as
from August 1st, 1990 until July 31st, 1995. Thereafter the contracting
parties agree upon a right of option for a new period of five years as from
August 1st, 1995 until July 31st, 2000.
2. The leased property is defined as follows:
<TABLE>
<S> <C>
a) Present hall
2,176.- m(2)x DM 8.50 18,496.- DM
b) New hall
Surface area approx. 910 m(2)x DM 7.50 6,825.- DM
as per the attached specifications
Completion and payment of rent as from approx. May 1st,
1991 onwards
</TABLE>
3. Special building measures following the tenant's instructions:
<TABLE>
<S> <C>
- Extension and reconstruction of gates,
loading platforms, etc. 40,000.- DM
- Electrical low tension connection 42,500.- DM
- Natural gas connection 39,000.- DM
- Renovation entrance area 6,000.- DM
- Renovation rooms for social activities and canteen 4,000.- DM
- Renovation bathroom and shower facilities 5,000.- DM
- Widening of loading platforms 40,000.- DM
- Expansion entrance area 8,000.- DM
--------------------
./. lessor's fixed contribution 40,000.- DM
--------------------
144,500.- DM
resulting in a new monthly net rent 1,204.- DM
plus V.A.T. 26,525.- DM
</TABLE>
Payment: 18,496.- DM as up till now
6,825.- DM as from the completion of the hall
1,204.- DM as from October 1st, 1990
Frankfurt/Main, August 1st, 1990
The lessor The tenant
Wolfgang Steinweg Griffith Laboratories GmbH
Management Dreieichstra(beta)e 7,
Gro(beta)e Eschenheimer Stra(beta)e 41a D-64546 Morfelden
6000 Frankfurt 1
<PAGE> 12
Complement to tenancy agreement
1. There are no management costs. The relevant article 1c on page 2 is
cancelled.
2. In front of the adjacent building parking spaces are being planned and
built. Those parking spaces can be used by Griffith staff.
3. The part of the extension to the house which runs into the yard will be
demolished during the expansion works, such that the tenant has the full
width of the yard at his disposal. As a consequence the yard can be reached
from the backside.
4. Within the scope of the special building measures listed in article 3 of the
appendix, it is agreed with the lessor's representative that a fixed
contribution for measures that increase the value of the leased property
(e.g. natural gas connection, extended entrance area, wider loading
platforms) of 40,000.- DM is deducted. As a result, the monthly additional
rent is decreased with this amount.
5. The above-mentioned estimated expenses for the special building measures are
only partly realised by the tenant or arise in the course of the following
months. The tenant will pass on all already existing and future expenses to
the lessor. Through the payment of the existing expenses by the latter they
end up in the additional net rent as per article 3 of the appendix to the
tenancy agreement.
6. Supplementary to article 2 of the tenancy agreement (notice) it is
stipulated that the tenant can always terminate the agreement 6 months
before the end of the tenancy term. In case of termination of the tenancy
agreement by the lessor in accordance with other stipulations, a notice of
twelve months shall be observed.
7. The parties contracting the tenancy agreement agree upon an exceptional
right to terminate the agreement (notice of 6 months) in case the tenant is
not granted a permission to operate the installation for
ethyleneoxide-sterilization on the premises due to new legal provisions.
Morfelden, September 27th, 1990
The lessor The tenant
Wolfgang Steinweg Griffith Laboratories GmbH
Management Dreieichstra(beta)e 7,
Gro(beta)e Eschenheimer Stra(beta)e 41a D-64546 Morfelden
6000 Frankfurt 1
<PAGE> 13
Appendix to the tenancy agreement of October 15th, 1990
for the industrial building, Dreieichstra(beta)e 9, 64546 Morfelden
Between:
real estate company Helmut von Heesen GmbH & Co. KG, represented by
Wolfgang Steinweg, management, Gro(beta)e Eschenheimer Stra(beta)e
41a, 60313 Frankfurt/Main, hereafter called "the lessor";
and
Griffith Laboratories GmbH,
represented by the manager
Dreieichstra(beta)e 7-9, 64546 Morfelden
hereafter called "the tenant".
The following complements to the above-mentioned tenancy agreement have been
agreed upon:
1. The tenant is entitled to build an installation for the catalytic treatment
of combustion gasses on the premises as per the attached ground plan. The
installation can have the following dimensions: 4.25 meter wide and 9 meter
long (linked immediately to the existing building).
2. The tenant shall make all applications for all official permits that are
necessary for the construction and shall comply with all official
regulations.
3. The construction is erected on condition that the catalytic converter does
not have any negative effects on the premises, the tenants residing on this
premises and the neighbours.
By negative effects the parties especially mean the effects relating to the
health of the other inhabitants of the premises and their neighbours.
In case such effects do occur, the tenant is bound to shut the installation
down immediately and to have it pulled down.
4. The tenant commits himself to obtain all official permits prior to the
commencement of the construction. The tenant bears the sole responsibility
for those obligations.
5. Furthermore the tenant commits himself to indemnify the lessor for all
damages that could occur due to the existence or the functioning of the
installation to the buildings on the premises, to any other installations
and to the ground and the soil, especially those damages relating to any
soil pollution whatsoever. The lessor must provide proof that such damages
or pollution are caused by the installation for catalytic treatment of
combustion gasses.
Morfelden, July 13th, 1995
The lessor The tenant
Dirk Barrie
Wolfgang Steinweg Griffith Micro Science GmbH
Management Dreieichstra(beta)e 7,
Gro(beta)e Eschenheimer Stra(beta)e 41a D-64546 Morfelden
60313 Frankfurt/Main
<PAGE> 1
EXHIBIT 23.3
September 23, 1998
Board of Directors
Griffith Micro Science International, Inc. (the "Company")
Reference is made to the Company's registration statement on Form S-1
(No. 333-60153). The undersigned consents to being named in such registration
statement as a nominee for election as a member of the Board of Directors of the
Company and for appointment to the committees of the Board identified therein,
such election and appointments to occur immediately following completion of the
public offering of the shares of the Company covered by such registration
statement. The undersigned also consents to the filing by the Company of this
consent with such registration statement.
/s/ John G. Kringel
------------------------------
John G. Kringel
<PAGE> 1
EXHIBIT 23.4
September 23, 1998
Board of Directors
Griffith Micro Science International, Inc. (the "Company")
Reference is made to the Company's registration statement on Form S-1
(No. 333-60153). The undersigned consents to being named in such registration
statement as a nominee for election as a member of the Board of Directors of the
Company and for appointment to the committees of the Board identified therein,
such election and appointments to occur immediately following completion of the
public offering of the shares of the Company covered by such registration
statement. The undersigned also consents to the filing by the Company of this
consent with such registration statement.
/s/ L. Peter Smith
----------------------------
L. Peter Smith
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 3,069
<SECURITIES> 0
<RECEIVABLES> 10,016
<ALLOWANCES> 221
<INVENTORY> 776
<CURRENT-ASSETS> 17,214
<PP&E> 100,650
<DEPRECIATION> 46,287
<TOTAL-ASSETS> 81,476
<CURRENT-LIABILITIES> 42,804
<BONDS> 17,015
0
0
<COMMON> 10
<OTHER-SE> 19,798
<TOTAL-LIABILITY-AND-EQUITY> 81,476
<SALES> 54,953
<TOTAL-REVENUES> 54,953
<CGS> 37,325
<TOTAL-COSTS> 37,325
<OTHER-EXPENSES> 12,678
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 914
<INCOME-PRETAX> 3,797
<INCOME-TAX> 1,503
<INCOME-CONTINUING> 2,294
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,294
<EPS-PRIMARY> 2.41
<EPS-DILUTED> 2.38
</TABLE>
