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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
or
( ) TRANSITION REPORT PURSUANT TO SECTION 12 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-13606
SOLA INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3189941
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
2420 SAND HILL ROAD, SUITE 200, MENLO PARK, CA 94025
(Address of principal executive offices)
(zip code)
(650) 324-6868
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___
As of November 6, 1998, 24,779,280 shares of the registrant's common
stock, par value $0.01 per share, which is the only class of common stock of the
registrant, were outstanding.
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<PAGE>
SOLA INTERNATIONAL INC.
Table of Contents
Form 10-Q for the Quarterly Period
Ended September 30, 1998
PART I FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Consolidated Condensed Balance Sheet as of September 30, 1998 3
Consolidated Condensed Balance Sheet as of March 31, 1998
(derived from audited financial statements) 3
Consolidated Condensed Statements of Income for the three
and six month periods ended September 30, 1998 and
September 30, 1997 4
Consolidated Condensed Statements of Cash Flows for
the six month periods ended September 30, 1998 and
September 30, 1997 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
2
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
SOLA INTERNATIONAL INC.
Consolidated Condensed Balance Sheets
(in thousands, except per share data)
<CAPTION>
March 31, 1998
September 30, (derived from
1998 audited financial
(unaudited) statements)
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ......................................................... $ 34,725 $ 34,444
Trade accounts receivable, less allowance for doubtful
accounts of $6,017 and $4,956 at September 30,
1998 and March 31, 1998, respectively ........................................... 123,415 120,590
Inventories ....................................................................... 189,451 169,756
Other current assets .............................................................. 15,929 16,798
--------- ---------
Total current assets ........................................................... 363,520 341,588
Property, plant and equipment, at cost, less accumulated
depreciation and amortization ...................................................... 147,554 132,778
Goodwill and other intangibles, net .................................................. 198,168 198,341
Other long-term assets ............................................................... 14,027 11,351
--------- ---------
Total assets ................................................................... $ 723,269 $ 684,058
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to banks and current portion of
long-term debt ................................................................. $ 22,474 $ 12,600
Accounts payable .................................................................. 50,061 60,254
Accrued liabilities ............................................................... 28,182 35,462
Accrued payroll and related compensation .......................................... 23,790 30,758
Other current liabilities ......................................................... 8,856 2,536
--------- ---------
Total current liabilities ...................................................... 133,363 141,610
Long-term debt, less current portion ................................................. 6,048 1,790
Bank debt, less current portion ...................................................... 120,000 95,000
Senior notes ......................................................................... 99,614 99,596
Other long-term liabilities .......................................................... 20,243 19,040
--------- ---------
Total liabilities .............................................................. 379,268 357,036
--------- ---------
Commitments and Contingencies
Shareholders' equity:
Preferred stock, $0.01 par value; 5,000 shares
authorized; no shares issued ................................................... -- --
Common stock, $0.01 par value; 50,000 shares
authorized; 24,779 shares (24,723 shares as
of March 31, 1998) issued and outstanding ..................................... 248 247
Additional paid-in capital ........................................................ 279,376 278,688
Equity participation loans ........................................................ (190) (230)
Retained earnings ................................................................. 78,157 58,057
Cumulative other comprehensive income ............................................. (13,590) (9,740)
--------- ---------
Total shareholders' equity ..................................................... 344,001 327,022
--------- ---------
Total liabilities and shareholders' equity ..................................... $ 723,269 $ 684,058
========= =========
<FN>
The accompanying notes are an integral part of these condensed financial statements
</FN>
</TABLE>
3
<PAGE>
<TABLE>
SOLA INTERNATIONAL INC.
Unaudited Consolidated Condensed Statements of Income
(in thousands, except per share data)
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales .............................................. $ 132,668 $ 135,731 $ 262,194 $ 273,352
Cost of sales .......................................... 72,937 71,892 142,032 144,686
--------- --------- --------- ---------
Gross profit ........................................ 59,731 63,839 120,162 128,666
--------- --------- --------- ---------
Research and development expenses ...................... 4,664 4,599 9,394 9,354
Selling and marketing expenses ......................... 23,631 24,584 48,102 49,530
General and administrative expenses .................... 14,216 12,773 24,511 26,642
--------- --------- --------- ---------
Operating expenses .................................. 42,511 41,956 82,007 85,526
--------- --------- --------- ---------
Operating income .................................... 17,220 21,883 38,155 43,140
Interest expense, net .................................. 4,316 4,644 8,338 9,099
--------- --------- --------- ---------
Income before provision for income
taxes and minority interest .................... 12,904 17,239 29,817 34,041
Provision for income taxes ............................. (4,384) (5,661) (10,135) (11,374)
Minority interest ...................................... 283 200 418 200
--------- --------- --------- ---------
Net income .......................................... $ 8,803 $ 11,778 $ 20,100 $ 22,867
========= ========= ========= =========
Earnings per share - basic ............................. $ 0.36 $ 0.48 $ 0.81 $ 0.94
========= ========= ========= =========
Weighted average common shares
outstanding ....................................... 24,778 24,319 24,759 24,294
========= ========= ========= =========
Earnings per share - diluted ........................... $ 0.35 $ 0.46 $ 0.78 $ 0.90
========= ========= ========= =========
Weighted average common and dilutive
securities outstanding ............................. 25,481 25,539 25,696 25,480
========= ========= ========= =========
<FN>
The accompanying notes are an integral part of these condensed financial statements
</FN>
</TABLE>
4
<PAGE>
<TABLE>
SOLA INTERNATIONAL INC.
Unaudited Consolidated Condensed Statements of Cash Flows
(in thousands)
<CAPTION>
Six Months Ended
September 30,
1998 1997
-------- --------
<S> <C> <C>
Net cash used in operating activities .............................................. $ (8,865) $ (9,865)
-------- --------
Cash flows from investing activities:
Purchases of businesses ......................................................... (8,598) (2,511)
Capital expenditures ............................................................ (17,110) (13,963)
Proceeds from sale of fixed assets .............................................. 61 261
-------- --------
Net cash used in investing activities .............................................. (25,647) (16,213)
-------- --------
Cash flows from financing activities:
Payments on equity participation loans/exercise of
stock options ................................................................ 729 1,162
Net receipts/payments under notes payable to banks,
and long term debt ........................................................... 11,099 627
Borrowings on long term debt .................................................... 2,287 234
Payments on long term debt ...................................................... (1,330) (326)
Proceeds from bank debt ......................................................... 21,427 18,624
-------- --------
Net cash provided by financing activities .......................................... 34,212 20,321
-------- --------
Effect of exchange rate changes on cash and cash
equivalents ..................................................................... 581 (720)
-------- --------
Net increase (decrease) in cash and cash equivalents ............................... 281 (6,477)
Cash and cash equivalents at beginning of period ................................... 34,444 24,401
-------- --------
Cash and cash equivalents at end of period ......................................... $ 34,725 $ 17,924
======== ========
<FN>
The accompanying notes are an integral part of these condensed financial statements
</FN>
</TABLE>
5
<PAGE>
SOLA INTERNATIONAL INC.
Notes to Consolidated Condensed Financial Statements
(unaudited)
1. Basis of Presentation
The accompanying consolidated condensed financial statements of the Company
have been prepared without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. The consolidated condensed balance sheet as of March 31,
1998 was derived from audited financial statements. The accompanying
consolidated condensed financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto included in the
Company's annual report on Form 10-K for the fiscal year ended March 31, 1998.
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share. Statement 128
replaced the previously reported primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants, and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented, and where necessary, restated to
conform to the Statement 128 requirements.
<TABLE>
The following table sets forth the computation of basic and diluted
earnings per share for the three and six months ended September 30, 1998 and
1997, respectively (in thousands except per share data):
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Numerator:
Net income $ 8,803 $11,778 $20,100 $22,867
Denominator:
Denominator for basic earnings per share -
Weighted average common share
outstanding 24,778 24,319 24,759 24,294
Effect of dilutive securities:
Employee stock options 703 1,220 937 1,186
------- ------- ------- -------
Denominator for diluted earnings per share -
Weighted average common shares and
dilutive securities outstanding 25,481 25,539 25,696 25,480
Basic earnings per share $ 0.36 $ 0.48 $ 0.81 $ 0.94
Diluted earnings per share $ 0.35 $ 0.46 $ 0.78 $ 0.90
</TABLE>
As of April 1998, the Company adopted Statement 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
this Statement had no impact on the Company's net income or shareholders'
equity. Statement 130 requires unrealized gains or losses on the Company's net
foreign currency translation adjustments, which prior to adoption were reported
separately in shareholders' equity, to be included in other comprehensive
income.
6
<PAGE>
During the three months ended September 30, 1998 and 1997, total
comprehensive income amounted to $8,353 and $9,291, respectively. During the six
months ended September 30, 1998 and 1997 total comprehensive income amounted to
$16,250 and $16,591, respectively.
<TABLE>
The components of comprehensive income, net of related tax are as follows
(in thousands):
<CAPTION>
Three Months Six Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 8,803 $ 11,778 $ 20,100 $ 22,867
Foreign currency translation adjustments (450) (2,487) (3,850) (6,276)
-------- -------- -------- --------
Comprehensive income $ 8,353 $ 9,291 $ 16,250 $ 16,591
======== ======== ======== ========
</TABLE>
Cumulative other comprehensive income, net of related tax at September 30,
1998 and March 31, 1998 consists solely of foreign currency translation
adjustments.
In June 1997, the FASB released Statement of Financial Accounting Standards
No. 131, Disclosures about Segments of an Enterprise and Related Information
("FAS 131"). FAS 131 will change the way companies report selected segment
information in annual financial statements and also requires those companies to
report selected segment information in interim financial reports to
shareholders. FAS 131 is effective for fiscal years beginning after December 15,
1997. Segment information is not required to be reported in interim financial
statements in the first year of application. The Company is currently evaluating
the impact of the application of the new rules on the Company's consolidated
financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, which is
required to be adopted in years beginning after June 15, 1999. The Company is
currently evaluating the impact of the application of the new rules on the
Company's consolidated financial statement.
The financial information included herein reflects all adjustments
(consisting of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the results for the interim
period. The results of operations for the three and six months ended September
30, 1998 are not necessarily indicative of the results to be expected for the
full year.
2. Inventories
September 30, 1998 March 31, 1998
(in thousands) (in thousands)
-------------- --------------
Raw Materials $ 17,545 $ 16,714
Work In Progress 5,653 6,872
Finished Goods 121,180 104,966
Molds 45,073 41,204
-------- --------
$189,451 $169,756
======== ========
Molds comprise mainly finished goods for use by manufacturing affiliates in
the manufacture of spectacle lenses.
3. Contingencies
The Company is subject to environmental laws and regulations concerning
emissions to the air, discharges to surface and subsurface waters and the
generation, handling, storage, transportation, treatment and disposal of waste
materials.
7
<PAGE>
The Company is currently participating in a remediation program of one of
its manufacturing facilities under the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") and the Superfund Amendments and
Reauthorization Act of 1986. In March 1997 the U.S. Environmental Protection
Agency ("EPA") consented to the Company curtailing clean-up activities for a six
month period which ended in September 1997. The Company continued to monitor
contamination levels during the curtailment period. During the quarter ended
December 31, 1997 a report on contamination levels, and the impact of curtailed
activities, was submitted to the EPA, and such report is currently under review.
The report indicates no significant impact on the site from the curtailed
activities, and the EPA has consented to continued curtailment of activities
until such time as they have concluded their review of the report. The Company
expects continued reduction of clean-up activities due to relatively low levels
of contamination existing at the site.
The Company is also involved in other investigations of environmental
contamination at several U.S. sites. Some clean-up activities have been
conducted and investigations are continuing to determine future remedial
requirements, if any.
Under the terms of the sale agreement with Pilkington plc ("Pilkington"),
for the purchase of the Sola business in December 1993 ("Acquisition"),
Pilkington has indemnified the Company with regard to expenditures subsequent to
the Acquisition for certain environmental matters relating to circumstances
existing at the time of the Acquisition. Under the terms of the indemnification,
the Company is responsible for the first $1 million spent on such environmental
matters, Pilkington and the Company share equally the cost of any further
expenditures between $1 million and $5 million, and Pilkington retains full
liability for any expenditures in excess of $5 million.
The Company has evaluated its total environmental exposure based on
currently available data and believes that its liability for environmental
remediation costs is immaterial.
In the ordinary course of business, various legal actions and claims
pending have been filed against the Company. While it is reasonably possible
that such contingencies may result in a cost greater than that provided for in
the financial statements, it is the opinion of management that the ultimate
liability, if any, with respect to these matters, will not materially affect the
consolidated operations or financial position of the Company.
4. Shareholder Rights Plan
On August 26, 1998 the Company's Board of Directors adopted a Shareholder
Rights Plan and declared a dividend distribution to be made to shareholders of
record on September 9, 1998 of one Right for each share of the Company's
outstanding common stock. The rights contain provisions which are intended to
protect the Company's stockholders in the event of an unsolicited and unfair
attempt to acquire the Company. The Company is entitled to redeem the Rights at
$.01 per Right at any time before a buyer acquires a 15 percent position in the
Company. The Rights will expire on August 27, 2008, unless previously redeemed
or exercised.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The following discussion of the Company's financial condition and results
of operations should be read in conjunction with the Company's consolidated
condensed financial statements and notes thereto included elsewhere herein.
Results of Operations
Three months ended September 30, 1998 compared to three months ended September
30, 1997
Net Sales
Net sales totaled $132.7 million in the three months ended September 30,
1998, reflecting a decrease of 2.3% from net sales of $135.7 million for the
same period in the prior year. Using constant exchange rates, the percentage
decrease was 0.8%, and excluding Brazilian frame and equipment business sales
(see below), constant exchange rates net sales would have been an increase of
0.4%. The decline in net sales is primarily attributable to the North American
region. The sales decline in the United States resulted from softness in the
U.S. retail optical market following strong sales in the prior year resulting
from the launch of Percepta progressive lens products and reduced net sales to
laboratory customers that were acquired by Essilor Laboratories of America. Also
contributing to the net sales shortfall is a continuing softness of the Asian
economies, although Asia only accounts for approximately 5% of net sales, and
underperformance in the Company's Australian operations primarily caused by
softness of the Australian dollar against the U.S. dollar. In addition, during
April 1998 the Company sold its Brazilian frame and equipment business, which
had contributed approximately $1.7 million of net sales in the three months
ended September 30, 1997. The foregoing decreases were offset, in part, by
growth in plastic photocromic lens sales and growth in net sales of the
Company's new Matrix lens product. Higher priced products accounted for
approximately 68% of net lens sales in the three months ended September 30, 1998
compared to approximately 66% for the three months ended September 30, 1997.
Progressive lens net sales for the three months ended September 30, 1998 were
slightly up, at 0.1%, from the same period in the prior year, whereas in the
first quarter of fiscal 1999 they had been down by 9.8%. Net sales performances
by region, were as follows: North America declined by 5.9%, Europe increased by
13.6% and Rest of World declined by 13.9%. Using constant exchange rates the
regional performances were as follows: North America declined by 6.2%, Europe
increased by 12.1% and Rest of World decreased by 5.1%.
Gross Profit and Gross Margin
Gross profit totaled $59.7 million for the three months ended September 30,
1998, reflecting a decrease of 6.4% from gross profit of $63.8 million for the
same period in the prior year. Gross profit as a percentage of net sales ("gross
margin") decreased from 47.0% for the three months ended September 30, 1997 to
45.0% for the three months ended September 30, 1998. The margin decrease was
principally due to product mix changes and underabsoption of overhead due to a
slow-down in production levels to reduce inventory balances.
9
<PAGE>
Operating Expenses
Operating expenses in the three months ended September 30, 1998 totaled
$42.5 million, an increase of $0.6 million over operating expenses of $41.9
million for the same period in the prior year. Operating expenses as a
percentage of net sales were 32.0%, compared to 30.9% for the same period of the
prior year. Research and development expenses for the three months ended
September 30, 1998 and 1997 were $4.6 million, which represent 3.5% and 3.4% of
net sales, respectively. Selling and marketing expenses for the three months
ended September 30, 1998 reduced $0.9 million to $23.6 million, compared to
$24.5 million for the three months ended September 30, 1997 which represent
17.8% and 18.1%, of net sales, respectively. General and administrative expenses
were $14.2 million, or 10.7% of net sales, for the three months ended September
30, 1998, compared to $12.8 million, or 9.4% of net sales for the three months
ended September 30, 1997. The growth in general and administrative expenses is
primarily as a result of the impact of currency rates and higher information
technology related spending.
Operating Income
Operating income, for the three months ended September 30, 1998 totaled
$17.2 million, a decrease of $4.7 million, or 21.3%, from the three months ended
September 30, 1997 of $21.9 million.
Net Interest Expense
Net interest expense totaled $4.3 million for the three months ended
September 30, 1998 compared to $4.6 million for the three months ended September
30, 1997, a decrease of $0.3 million. During the third quarter of fiscal 1998
the Company repurchased its 9 5/8% Senior Subordinated Notes, and during the
fourth quarter of fiscal 1998 the Company issued 6 7/8% Senior Notes. The net
effect of the above two changes has been to reduce current interest expense,
offset in part by an increase in interest expense due to increased borrowing
levels.
Provision for Income Taxes
The Company's combined state, federal and foreign tax rate represents an
effective tax rate projected for the full fiscal 1999 year of 34%. For the three
months ended September 30, 1997 the Company recorded an effective income tax
rate of 33.4%. The Company has deferred tax assets on its balance sheet as of
September 30, 1998 amounting to approximately $14.8 million. The ultimate
utilization of these deferred tax assets is dependent on the Company's ability
to generate taxable income in the future.
Six months ended September 30, 1998 compared to six months ended September 30,
1997
Net Sales
Net sales totaled $262.2 million in the six months ended September 30,
1998, reflecting a decrease of 4.1% from net sales of $273.4 million for the
same period in the prior year. Using constant exchange rates, the percentage
decrease was 1.8%, and excluding Brazilian frame and equipment business sales
(see below), constant exchange rates net sales would have been a decrease of
0.9%. The decline in net sales is primarily attributable to the North American
region. The sales decline in the United States resulted from softness in the
U.S. retail optical market following strong sales in the prior year resulting
from the launch of Percepta and Durathins progressive lens products, product
returns of older plastic photocromic products due to the introduction of new
generation Transitions product, and reduced net sales to laboratory customers
that were acquired by Essilor Laboratories of America. Also contributing to the
net sales shortfall is a continuing softness of the Asian economies, although
Asia only accounts for approximately 5% of net sales, and underperformance in
the Company's Australian operations primarily caused by softness of the
Australian dollar against the U.S. dollar. In addition, during April 1998 the
Company sold its Brazilian frame and equipment business, which had contributed
10
<PAGE>
approximately $2.6 million of net sales in the six months ended September 30,
1997. The foregoing decreases were offset, in part, by growth in plastic
photocromic lens sales and growth in net sales of the Company's new Matrix lens
product. Higher priced products accounted for approximately 67% of net lens
sales in the six months ended September 30, 1998 compared to approximately 66%
for the six months ended September 30, 1997. However, progressive lens net sales
for the six months ended September 30, 1998 declined 4.9% from the same period
in the prior year. Net sales performances by region, were as follows: North
America declined by 7.0%, Europe increased by 9.3% and Rest of World declined by
15.5%. Using constant exchange rates the regional performances were as follows:
North America declined by 7.0%, Europe increased by 10.3% and Rest of World
decreased by 6.3%.
Gross Profit and Gross Margin
Gross profit totaled $120.2 million for the six months ended September 30,
1998, reflecting a decrease of 6.6% from gross profit of $128.7 million for the
same period in the prior year. Gross profit as a percentage of net sales ("gross
margin") decreased to 45.6% for the six months ended September 30, 1998 from
47.1% for the six months ended September 30, 1997. The margin decrease was
principally due to lower progressive product sales, product mix changes and
underabsoption of overhead due to slow down in production levels during the
second quarter to reduce inventory balances.
Operating Expenses
Operating expenses in the six months ended September 30, 1998 totaled $82.0
million, a decrease of $3.5 million, compared to operating expenses of $85.5
million for the same period in the prior year. Operating expenses for the six
months ended September 30, 1998 and 1997 as a percentage of net sales were
31.3%. Research and development expenses for the six months ended September 30,
1998 remained flat at $9.4 million, compared to the six months ended September
30, 1997, which represent 3.6% and 3.4% of net sales, respectively. Selling and
marketing expenses for the six months ended September 30, 1998 decreased $1.4
million to $48.1 million, compared to $49.5 million for the six months ended
September 30, 1997 which represent 18.3% and 18.1%, of net sales, respectively.
As a percentage of net sales, general and administrative expenses declined to
9.3% for the six months ended September 30, 1998 compared to 9.7% for the six
months ended September 30, 1997. The change in general and administrative
expenses relates to improvements due to lower accruals for performance based
management bonuses and favorable changes in estimates related to certain
reserves and accruals in the first quarter of fiscal 1999, offset by increased
information technology related expenses and impact of currency rates in the
second quarter.
Operating Income
Operating income for the six months ended September 30, 1998 was $38.2
million, a decrease of $5.0 million, or 11.6%, from the six months ended
September 30, 1997 operating income of $43.1 million.
Net Interest Expense
Net interest expense totaled $8.3 million for the six months ended
September 30, 1998 compared to $9.1 million for the six months ended September
30, 1997, a decrease of $0.8 million. During the third quarter of fiscal 1998
the Company repurchased its 9 5/8% Senior Subordinated Notes, and during the
fourth quarter of fiscal 1998 the Company issued 6 7/8% Senior Notes. The net
effect of the above two changes has been to reduce current interest expense,
offset in part by an increase in interest expense due to increased borrowing
levels.
Liquidity and Capital Resources
Net cash used in operating activities for the six months ended September
30, 1998 amounted to $8.9 million, compared to net cash used in operating
activities of $9.9 million for
11
<PAGE>
the six months ended September 30, 1997. The primary cause of the decrease was a
reduced investment in working capital in the current year period.
During the six months ended September 30, 1998, using a three month net
sales annualized convention, inventories as a percentage of net sales were 35.7%
compared to 28.4% for the six months ended September 30, 1997. Accounts
receivable as a percentage of net sales for the six months ended September 30,
1998 was 23.3% compared to 21.4% for the same period a year ago. Lower than
anticipated net sales is the primary contributor to the increase in these
ratios.
Cash flows from investing activities in the six months ended September 30,
1998 amounted to an outflow of $25.6 million. Of this amount $17.1 million
represented capital expenditures and $8.6 million represented investment in
acquisitions. The $8.6 million spent on acquisitions represents the acquisition
of the assets of an anti-reflection coating laboratory in Oregon, USA, acquired
by the Company in June 1998. Capital expenditures for the six months ended
September 30, 1997 amounted to $14.0 million and acquisitions amounted to $2.5
million in the comparable quarter in the prior year. Management anticipates
capital expenditures of approximately $35 million to $40 million annually over
the next several years, of which approximately $5 million annually is viewed as
discretionary.
Net cash provided by financing activities in the six months ended September
30, 1998 amounted to $34.2 million. The most significant source was the increase
in bank borrowings and borrowings on long term debt to fund the growth in
working capital and to fund the lab acquisition. Net cash provided by financing
activities in the six months ended September 30, 1997 amounted to $20.3 million.
In the third quarter of fiscal 1998 the Company repurchased all of its remaining
9 5/8% Senior Subordinated Notes due 2003. The notes repurchase was funded by
borrowings under the Amended Agreement (as defined below). In conjunction with
the repurchase of its Senior Subordinated Notes the Company amended its bank
credit agreement with The Bank of America National Trust and Savings
Association, for itself and as agent for a syndicate of other financial
institutions ("Amended Agreement"). The Amended Agreement increased the
Company's multicurrency revolving facility from $180 million to $300 million.
Borrowings are divided into two tranches. Tranche A permits borrowings up to $30
million in either U.S. dollars or foreign currencies, to be used for working
capital and consummating certain permitted acquisitions. Tranche B permits
borrowings of up to $270 million and can be used for working capital purposes,
refinancing the term loans under the existing bank credit agreement,
repurchasing the Company's Senior Subordinated Notes, and consummating certain
permitted acquisitions. The Tranche A Facility matures on October 31, 2000 and
the Tranche B Facility matures on May 31, 2001. Among other things the Amended
Agreement changed certain financial covenants, removed the requirement for
foreign subsidiary guarantees under the Tranche A facility, increased the basket
for incurring other unsecured indebtedness to $150 million, and deleted the term
facility portion.
Borrowings under the Tranche A and Tranche B revolvers (other than swing
line loans, which may only be Base Rate loans) may be made as Base Rate Loans or
LIBO Rate Loans. Base Rate Loans bear interest at rates per annum equal to the
higher of (a) 0.50% per annum above the latest Federal Funds Rate, or (b) the
Bank of America Reference Rate. LIBO Rate Loans bear interest at a rate per
annum equal to the sum of the LIBO Rate and a margin varying from 0.450% to
0.750% based on the Company's leverage ratio. Fixed rate borrowings in foreign
currencies bear interest at rates per annum equal to the referenced currency's
local IBOR plus a margin varying from 0.450% to 0.750% based on the Company's
leverage ratio. Local currency Base Rate Loans are also available at a spread
similar to US Base Rate Loans described above.
During the fourth quarter of fiscal 1998 the Company issued 6 7/8% Senior
Notes ("Notes") due 2008, for which the Company received approximately $98.5
million net proceeds, after discounts and issuance expenses. Net proceeds were
used to pay down borrowings under the Amended Agreement. The Notes are unsecured
senior obligations of the Company, limited to $100 million aggregate principal
amount at maturity, and will mature on March 15, 2008. The Notes are redeemable,
as a whole or from time to time in part, at the option of the Company on
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<PAGE>
any date at a redemption price equal to the aggregate principal amount plus a
make whole premium.
The Company's foreign subsidiaries maintain local credit facilities to
provide credit for overdraft, working capital and some fixed asset investment
purposes. As of September 30, 1998 the Company's total credit available under
such facilities was approximately $29.9 million, of which $14.5 million had been
utilized.
The Company continues to have significant liquidity requirements. In
addition to working capital needs and capital expenditures, the Company has
substantial cash requirements for debt service. The Company expects that the
Amended Agreement and other overseas credit facilities, together with cash on
hand and internally generated funds, if available as anticipated, will provide
sufficient capital resources to finance the Company's operations, fund
anticipated capital expenditures, and meet interest requirements on its debt,
including the Notes, for the foreseeable future. As the Company's debt matures,
the Company may need to refinance such debt. There can be no assurance that such
debt can be refinanced on terms acceptable to the Company.
Currency Exchange Rates
As a result of the Company's worldwide operations, currency exchange rate
fluctuations tend to affect the Company's results of operations and financial
position. The two principal effects of currency exchange rates on the Company's
results of operations and financial position are (i) translation adjustments for
subsidiaries where the local currency is the functional currency and (ii)
translation adjustments for subsidiaries in hyper-inflationary countries.
Translation adjustments for functional local currencies have been made to
shareholders' equity. For the six months ended September 30, 1998 and 1997 such
translation adjustments were approximately $(3.9) million and $(6.3) million,
respectively.
Seasonality
The Company's business is somewhat seasonal, with third quarter results
generally weaker than the other three quarters as a result of lower sales during
the holiday season, and fourth quarter results generally the strongest.
Inflation
Inflation continues to affect the cost of the goods and services used by
the Company. The competitive environment in many markets limits the Company's
ability to recover higher costs through increased selling prices, and the
Company is subject to price erosion in many of its standard product lines. The
Company seeks to mitigate the adverse effects of inflation through cost
containment and productivity and manufacturing process improvements. For a
description of the effects of inflation on the Company's reported revenues and
profits and the measures taken by the Company in response to inflationary
conditions, see--"Currency Exchange Rates" above.
Year 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
The Company has completed its Year 2000 assessment of critical business
systems. Based on these assessments, the Company determined that it will be
required to modify or replace certain portions of its software so that those
systems will properly utilize dates beyond December
13
<PAGE>
31, 1999. The Company presently believes that with modifications or replacements
of existing software, the Year 2000 issue can be mitigated. Year 2000
expenditures to-date have not been material, and the overall cost to the Company
of making its Information Technology ("IT") systems Year 2000 compliant is also
estimated to not be material to the Company's results of operations (less than
$2 million over a three fiscal year period).
The Company has also performed extensive testing of operating equipment
("embedded chips") to ensure that they are Year 2000 compliant. To date no
material exposures have been detected.
For those IT systems that are requiring upgrade to make them Year 2000
compliant, the Company believes it has commenced upgrade programs in a timely
manner so that the systems will be available for extensive testing prior to
implementation. The Company does not have detailed contingency plans, if
upgrades do not function properly when implemented, but given the Company's
status on upgrade programs it believes it has allowed sufficient time to correct
material malfunctions.
The cost of the Company's Year 2000 program and its beliefs regarding its
compliance program are based on the Company's best estimates, which were derived
utilizing a number of assumptions about future events, such as the availability
and cost of personnel trained in this area, the ability to locate and correct
all relevant computer codes, the performance of key software and hardware
vendors and other similar uncertainties. However, we are not sure that our
estimates will be achieved and actual results could differ materially from those
anticipated.
As part of its overall assessment package, the Company is also in the
process of assessing the possible effects on the Company's operations of the
Year 2000 readiness of key suppliers and customers. The Company has developed a
worksheet for all sites to utilize as an aid in collecting information about
Year 2000 compliance including that of business partners. Initial emphasis has
been on partners with Electronic Data Interfaces ("EDI"), with the second stage
being communication with key suppliers and customers on their readiness. The
Company's largest customer accounts for approximately 5% of net sales and the
ten largest customers account for approximately 22% of net sales.
Due to the Company's decentralized operations, and lack of reliance on one
Companywide IT system, the Company believes that the risk of isolated Year 2000
failures should not be material to the Company's consolidated operations.
However, difficulties in making the Company's IT systems Year 2000 compliant in
a number of its significant geographic regions or the failure of a number of the
Company's major vendors, customers or other material service providers to
adequately address their Year 2000 issues would have a material adverse effect
on the Company.
Certain of the Company's North American operations are implementing a
significant upgrade of their computer operating systems (unrelated to the Year
2000 issues), which entail the installation of certain modules of an enterprise
wide IT system. This system is scheduled for extensive testing in the month of
November 1998, and based on the results of these tests the system is intended to
be fully operational by the end of the current fiscal year.
European Union Conversion to the "Euro"
The Company has instituted a "Euro" conversion team and begun preliminary
preparation for the conversion by eleven member states of the European Union to
a common currency, the "Euro". Conversion to the Euro by these member states of
the union will take place on a "no compulsion, no prohibition" basis between
January 1, 1999 and January 1, 2002. By January 1, 2002 all companies operating
in the eleven member states will be required to be fully operational using the
new currency. The Euro conversion team has primarily addressed the accounting
and information systems changes that are necessary to facilitate trading in the
Euro, the possible market place implications of a common currency and the
currency exchange rate risks, with the
14
<PAGE>
initial emphasis placed on the system modifications. The Company has not
completed the evaluation of the possible effect of the changes to the Euro on
foreign currency loans, or the impact if any, on the market place implications
of a common currency. Preliminary assessments indicate that the financial impact
of conversion to a Euro based currency will not be material to the Company's
consolidated financial position, results of operations or cash flows.
Information Relating to Forward-Looking Statements
This quarterly report includes forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, including
statements regarding among other items, (i) the Company's interest expense, (ii)
the impact of inflation and seasonality, (iii) future income tax rates and
capital expenditures, and (iv) the costs and other consequences related to the
Year 2000 and conversion to the Euro. These forward-looking statements reflect
the Company's current views with respect to future events and financial
performance. The words "believe", "expect", "anticipate" and similar expressions
identify forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of their
dates. The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. Actual results could differ materially from the
forward-looking statements as a result of "Factors Affecting Future Operating
Results" included in Exhibit 99.1 of the Company's Form 10-K for the fiscal year
ended March 31, 1998, and the factors described in "Business-Environmental
Matters", also included in the Company's Form 10-K for the fiscal year ended
March 31, 1998.
15
<PAGE>
PART ll OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities and Use of Proceeds
On August 26, 1998, the Board of Directors of the Company adopted a
Shareholder Rights Plan and authorized and declared a dividend of one
preferred stock purchase right (a "Right") with respect to each
outstanding share of common stock, par value $.01 per share, of the
Company. Each Right, when it becomes exercisable, entitles the
registered holder to purchase from the Company one one-thousandth of a
share of Series A Junior Participating Preferred Stock, par value $.01
per share (the "Preferred Stock") at a price of $150 per one
one-thousandth of a share of Preferred Stock, subject to adjustment. On
August 27, 1998, the Company filed a registration statement of Form 8-A
with the Securities and Exchange Commission to register the Rights
under the Securities Exchange Act of 1934, as amended.
A description and terms of the Rights are set forth in the Rights
Agreement, dated as of August 27, 1998 between the Company and
BankBoston, N.A., which was filed as an exhibit to the Form 8-A. For
additional information, reference is made to the Form 8-A, including
all the exhibits thereto.
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
The following matters were submitted to a vote of the security holders
at the Company's Annual Meeting of Stockholders held on August 14, 1998:
Proposal I Election of Directors. Votes as follows:
Total Vote
Total Vote For Withheld From
Each Director Each Director
------------- -------------
Maurice J. Cunniffe 20,608,396 51,278
Douglas D. Danforth 20,606,240 53,434
A. William Hamill 20,536,890 122,784
John E. Heine 20,537,638 122,036
Hamish Maxwell 20,605,560 54,114
Irving S. Shapiro 20,607,094 52,580
Jackson L. Schultz 20,534,890 124,784
Proposal II Amendment of the Sola International Inc. Stock Option Plan to,
among other things, increase the number of shares reserved for issuance
pursuant to the exercise of stock options. Votes as follows:
16
<PAGE>
For Against Abstain Broker Non-Vote
--- ------- ------- ---------------
15,781,454 1,538,118 168,273 3,171,828
Proposal III Ratification of Ernst & Young LLP as independent public
accountants for fiscal 1999. Votes as follows:
For Against Abstain
--- ------- -------
20,619,618 30,716 9,340
Item 5. Other Information
Any shareholder proposal submitted with respect to Sola's 1999 annual
meeting of shareholders, which proposal is submitted outside the
requirements of Rule 14a-8 under the Securities Exchange Act of 1934, will
be considered timely for purposes of Rules 14a-4 and 14a-5 if notice
thereof is received by Sola not less than ninety days prior to the date of
the anniversary of the previous year's annual meeting; provided, however,
that in the event that the annual meeting is scheduled to be held on a date
more than thirty (30) days prior to or delayed by more than sixty (60) days
after such anniversary date, notice by the stockholder in order to be
timely must be so received not later than the later of the close of
business ninety (90) days prior to such annual meeting or the tenth day
following the day on which such notice of the date of the annual meeting
was mailed or such public disclosure of the date of the annual meeting was
made.
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
(a) Exhibits
<CAPTION>
Exhibit Number Description Page Number
-------------- ----------- -----------
<S> <C> <C>
3 Amended and Restated By-Laws of 20
the Company
4 Rights Agreement dated as of August Filed as Exhibit 1 to the
27, 1998 between Sola International Form 8-A of the Company,
Inc. and BankBoston N.A. dated August 27, 1998, and
incorporated herein by
reference
10 Employment Agreement between 37
Sola Optical USA, Inc. and Stephen
J. Lee, dated as of February 26, 1993
27 Financial Data Schedule 54
</TABLE>
(a) Reports on Form 8-K
Not applicable
17
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Sola International Inc.
(Registrant)
Dated: November 9, 1998 By: /s/ Steven M. Neil
---------------- -----------------------------
Steven M. Neil
Executive Vice President,
Chief Financial Officer,
Secretary and Treasurer
18
<PAGE>
EXHIBIT INDEX
Exhibit Number Description Page Number
-------------- ----------- -----------
3 Amended and Restated By-Laws of the 20
Company
10 Employment Agreement between Sola Optical 37
USA, Inc. and Stephen J. Lee, dated as of
February 26, 1993
27 Financial Data Schedule 54
19
AMENDED AND RESTATED
BY-LAWS
OF
SOLA INTERNATIONAL INC.
August 26, 1998
ARTICLE I
Stockholders
SECTION 1. Annual Meeting. The annual meeting of the stockholders of the
Corporation shall be held on such date, at such time and at such place within or
without the State of Delaware as may be designated by the Board of Directors,
for the purpose of electing Directors and for the transaction of such other
business as may be properly brought before the meeting.
SECTION 2. Special Meetings. Except as otherwise provided in the
Certificate of Incorporation, a special meeting of the stockholders of the
Corporation may be called at any time by the Board of Directors, the Chairman of
the Board or the President. Any special meeting of the stockholders shall be
held on such date, at such time and at such place within or without the State of
Delaware as the Board of Directors or the officer calling the meeting may
designate. At a special meeting of the stockholders, no business shall be
transacted and no corporate action shall be taken other than that stated in the
notice of the meeting unless all of the stockholders are present in person or by
proxy, in which case any and all business may be transacted at the meeting even
though the meeting is held without notice.
SECTION 3. Notice of Meetings. Except as otherwise provided in these
By-Laws or by law, a written notice of each meeting of the stockholders shall be
given not less than ten (10) nor more than sixty (60) days before the date of
the meeting to each stockholder of the Corporation entitled to vote at such
meeting at his address as it appears on the records of the Corporation. The
notice shall state the place, date and hour of the meeting and, in the case of a
special meeting, the purpose or purposes for which the meeting is called.
SECTION 4. Quorum. At any meeting of the stockholders, the holders of a
majority in number of the total outstanding shares of stock of the Corporation
entitled to vote at such meeting, present in person or represented by proxy,
shall constitute a quorum of the stockholders for all purposes, unless the
representation of a larger number of shares shall be required by law, by the
Certificate of Incorporation
20
<PAGE>
or by these By-Laws, in which case the representation of the number of shares so
required shall constitute a quorum; provided that at any meeting of the
stockholders at which the holders of any class of stock of the Corporation shall
be entitled to vote separately as a class, the holders of a majority in number
of the total outstanding shares of such class, present in person or represented
by proxy, shall constitute a quorum for purposes of such class vote unless the
representation of a larger number of shares of such class shall be required by
law, by the Certificate of Incorporation or by these By-Laws.
SECTION 5. Adjourned Meetings. Whether or not a quorum shall be present in
person or represented at any meeting of the stockholders, the holders of a
majority in number of the shares of stock of the Corporation present in person
or represented by proxy and entitled to vote at such meeting may adjourn from
time to time; provided, however, that if the holders of any class of stock of
the Corporation are entitled to vote separately as a class upon any matter at
such meeting, any adjournment of the meeting in respect of action by such class
upon such matter shall be determined by the holders of a majority of the shares
of such class present in person or represented by proxy and entitled to vote at
such meeting. When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting the stockholders, or the holders of any class of stock entitled to vote
separately as a class, as the case may be, may transact any business which might
have been transacted by them at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the adjourned meeting.
SECTION 6. Organization. The Chairman of the Board or, in his absence, the
President shall call all meetings of the stockholders to order, and shall act as
Chairman of such meetings. In the absence of the Chairman of the Board and the
President, the holders of a majority in number of the shares of stock of the
Corporation present in person or represented by proxy and entitled to vote at
such meeting shall elect a Chairman.
The Secretary of the Corporation shall act as Secretary of all meetings of
the stockholders; but in the absence of the Secretary, the Chairman may appoint
any person to act as Secretary of the meeting. It shall be the duty of the
Secretary to prepare and make, at least ten days before every meeting of
stockholders, a complete list of stockholders entitled to vote at such 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, 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, for the ten days next
preceding the meeting, to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, and shall be produced
and kept at the time and place of the meeting during the whole time thereof and
subject to the inspection of any stockholder who may be present.
SECTION 7. Voting. Except as otherwise provided in the Certificate of
Incorporation or by these By-Laws, each stockholder shall be entitled to one
vote for each share of the capital stock of the Corporation registered in the
name of such stockholder upon the books of the Corporation. Each stockholder
entitled to vote at a meeting of stockholders or to express consent or dissent
to corporate action in writing without a meeting may authorize another person or
persons to act for him by proxy, but no such proxy shall be voted or acted upon
after three years from its date, unless the
21
<PAGE>
proxy provides for a longer period. When directed by the presiding officer or
upon the demand of any stockholder, the vote upon any matter before a meeting of
stockholders shall be by ballot. Except as otherwise provided by law or by the
Certificate of Incorporation, Directors shall be elected by a plurality of the
votes cast at a meeting of stockholders by the stockholders entitled to vote in
the election and, whenever any corporate action, other than the election of
Directors is to be taken, it shall be authorized by a majority of the votes cast
at a meeting of stockholders by the stockholders entitled to vote thereon.
Shares of the capital stock of the Corporation 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.
SECTION 8. Inspectors. When required by law or directed by the presiding
officer or upon the demand of any stockholder entitled to vote, but not
otherwise, the polls shall be opened and closed, the proxies and ballots shall
be received and taken in charge, and all questions touching the qualification of
voters, the validity of proxies and the acceptance or rejection of votes shall
be decided at any meeting of the stockholders by two or more Inspectors who may
be appointed by the Board of Directors before the meeting, or if not so
appointed, shall be appointed by the presiding officer at the meeting. If any
person so appointed fails to appear or act, the vacancy may be filled by
appointment in like manner.
SECTION 9. Consent of Stockholders in Lieu of Meeting. Unless otherwise
provided in the Certificate of Incorporation, any action required to be taken or
which may be taken at any annual or special meeting of the stockholders of the
Corporation, may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of any such corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
SECTION 10. Advance Notice Provisions for Election of Directors. Only
persons who are nominated in accordance with the following procedures shall be
eligible for election as directors of the Corporation. Nominations of persons
for election to the Board of Directors may be made at any annual meeting of
stockholders, or at any special meeting of stockholders called for the purpose
of electing directors, (a) by or at the direction of the Board of Directors (or
any duly authorized committee thereof) or (b) by any stockholder of the
Corporation (i) who is a stockholder of record on the date of the giving of the
notice provided for in this Section 10 and on the record date for the
determination of stockholders entitled to vote at such meeting and (ii) who
complies with the notice procedures set forth in this Section 10.
In addition to any other applicable requirements, for a nomination to be
made by a stockholder such stockholder must have given timely notice thereof in
proper written form to the Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered to
or mailed and received at the principal executive offices of the Corporation (a)
in the case of an annual meeting, not less than ninety (90) days prior to the
date of the anniversary of the previous year's annual meeting; provided,
however, that in the event the annual meeting is scheduled to be held on a date
more than thirty (30) days prior to or delayed by more than sixty (60) days
after such anniverary date, notice by the stockholder in order to be timely must
be so received not later
22
<PAGE>
than the later of the close of business ninety (90) days prior to such annual
meeting or the tenth (10th) day following the day on which such notice of the
date of the annual meeting was mailed or such public disclosure of the date of
the annual meeting was made and (b) in the case of a special meeting of
stockholders called for the purpose of electing directors, not later than the
close of business on the tenth (10th) day following the day on which notice of
the date of the special meeting was mailed or public disclosure of the date of
the special meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary must
set forth (a) as to each person whom the stockholder proposes to nominate for
election as a director (i) the name, age, business address and residence address
of the person, (ii) the principal occupation or employment of the person, (iii)
the class or series and number of shares of capital stock of the Corporation
which are owned beneficially or of record by the person and (iv) any other
information relating to the person that would be required to be disclosed in a
proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder; and (b) as to the stockholder giving the
notice (i) the name and record address of such stockholder, (ii) the class or
series and number of shares of capital stock of the Corporation which are owned
beneficially or of record by such stockholder, (iii) a description of all
arrangements or understandings between such stockholder and each proposed
nominee and any other person or persons (including their names) pursuant to
which the nomination(s) are to be made by such stockholder, (iv) a
representation that such stockholder intends to appear in person or by proxy at
the meeting to nominate the persons named in its notice and (v) any other
information relating to such stockholder that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Exchange Act and the rules and regulations promulgated thereunder. Such notice
must be accompanied by a written consent of each proposed nominee to being named
as a nominee and to serve as a director if elected.
No person shall be eligible for election as a director of the Corporation
unless nominated in accordance with the procedures set forth in this Section 10.
If the Chairman of the meeting determines that a nomination was not made in
accordance with the foregoing procedures, the Chairman shall declare to the
meeting that the nomination was defective and such defective nomination shall be
disregarded.
SECTION 11. Advance Notice Provisions for Business to be Transacted at
Annual Meeting. No business may be transacted at an annual meeting of
stockholders, other than business that is either (a) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors (or any duly authorized committee thereof), (b) otherwise properly
brought before the annual meeting by or at the direction of the Board of
Directors (or any duly authorized committee thereof) or (c) otherwise properly
brought before the annual meeting by any stockholder of the Corporation (i) who
is a stockholder of record on the date of the giving of the notice provided for
in this Section 11 and on the record date for the determination of stockholders
entitled to vote at such annual meeting and (ii) who complies with the notice
procedures set forth in this Section 11.
In addition to any other applicable requirements, for business to be
properly brought before an annual meeting by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the Secretary of
the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered to
or mailed and received at the principal executive offices of the Corporation not
less than ninety (90) days prior to the date of the anniversary of the previous
year's annual meeting; provided, however, that in the event the annual meeting
is scheduled to be held on a date more than thirty (30) days prior to or delayed
by more than sixty (60) days after such anniverary date, notice by the
23
<PAGE>
stockholder in order to be timely must be so received not later than the later
of the close of business ninety (90) days prior to such annual meeting or the
tenth (10th) day following the day on which such notice of the date of the
annual meeting was mailed or such public disclosure of the date of the annual
meeting was made.
To be in proper written form, a stockholder's notice to the Secretary must
set forth as to each matter such stockholder proposes to bring before the annual
meeting (i) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and record address of such stockholder, (iii) the class
or series and number of shares of capital stock of the Corporation which are
owned beneficially or of record by such stockholder, (iv) a description of all
arrangements or understandings between such stockholder and any other person or
persons (including their names) in connection with the proposal of such business
by such stockholder and any material interest of such stockholder in such
business and (v) a representation that such stockholder intends to appear in
person or by proxy at the annual meting to bring such business before the
meeting.
No business shall be conducted at the annual meeting of stockholders except
business brought before the annual meeting in accordance with the procedures set
forth in this Section 11, provided, however, that, once business has been
properly brought before the annual meeting in accordance with such procedures,
nothing in this Section 11 shall be deemed to preclude discussion by any
stockholder of any such business. If the Chairman of an annual meeting
determines that business was not properly brought before the annual meeting in
accordance with the foregoing procedures, the Chairman shall declare to the
meeting that the business was not properly brought before the meeting and such
business shall not be transacted.
SECTION 12. Order of Business. The order of business at all meetings of the
stockholders shall be as determined by the Chairman of the meeting.
ARTICLE II
Board of Directors
SECTION 1. Number and Term of Office. The business and affairs of the
Corporation shall be managed by or under the direction of not less than one (1)
nor more than nine (9) Directors, the exact number of which shall be fixed from
time to time by the affirmative vote of a majority of the entire Board of
Directors, who need not be stockholders of the Corporation. The Directors shall,
except as hereinafter otherwise provided for filling vacancies, be elected at
the annual meeting of stockholders, and shall hold office until their respective
successors are elected and qualified or until their earlier resignation or
removal. The number of Directors may be altered from time to time by amendment
of these By-Laws.
SECTION 2. Removal, Vacancies and Additional Directors. The stockholders
may, at any special meeting the notice of which shall state that it is called
for that purpose, remove, with or without cause, any Director and fill the
vacancy; provided that whenever any Director shall have been elected by the
holders of any class of stock of the Corporation voting separately as a class
under the provisions of the Certificate of Incorporation, such Director may be
removed and the vacancy filled only by the holders of that class of stock voting
separately as a class. Vacancies caused by any such removal and not filled by
the stockholders at the meeting at which such removal shall have been made, or
any vacancy caused by the death or resignation of any Director or for any other
reason, and any newly created directorship resulting from any increase in the
authorized number of Directors, may be filled by the affirmative vote of a
majority of the Directors then in office, although less than a
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quorum, and any Director so elected to fill any such vacancy or newly created
directorship shall hold office until his successor is elected and qualified or
until his earlier resignation or removal.
When one or more Directors shall resign effective at a future date, a
majority of the Directors then in office, including those who have so resigned,
shall have power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation or resignations shall become effective, and each
Director so chosen shall hold office as herein provided in connection with the
filling of other vacancies.
SECTION 3. Place of Meeting. The Board of Directors may hold its meetings
in such place or places in the State of Delaware or outside the State of
Delaware as the Board from time to time shall determine.
SECTION 4. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such times and places as the Board from time to time by
resolution shall determine. No notice shall be required for any regular meeting
of the Board of Directors; but a copy of every resolution fixing or changing the
time or place of regular meetings shall be mailed to every Director at least
five days before the first meeting held in pursuance thereof.
SECTION 5. Special Meetings. Special meetings of the Board of Directors
shall be held whenever called by direction of the Chairman of the Board, the
President or by any two of the Directors then in office.
Notice of the day, hour and place of holding of each special meeting shall
be given by telephone, telegraph, facsimile or telex at least two hours before
the meeting or by causing the same to be delivered personally or sent by
certified, registered or overnight mail at least one day before the meeting to
each Director. Unless otherwise indicated in the notice thereof, any and all
business other than an amendment of these By-Laws may be transacted at any
special meeting, and an amendment of these By-Laws may be acted upon if the
notice of the meeting shall have stated that the amendment of these By-Laws is
one of the purposes of the meeting. At any meeting at which every Director shall
be present, even though without any notice, any business may be transacted,
including the amendment of these By-Laws.
SECTION 6. Quorum. Subject to the provisions of Section 2 of this Article
II, a majority of the members of the Board of Directors in office (but in no
case less than one-third of the total number of Directors nor less than two
Directors) shall constitute a quorum for the transaction of business and the
vote of the majority of the Directors present at any meeting of the Board of
Directors at which a quorum is present shall be the act of the Board of
Directors. If at any meeting of the Board there is less than a quorum present, a
majority of those present may adjourn the meeting from time to time.
SECTION 7. Organization. The Chairman of the Board or, in his absence, the
President shall preside at all meetings of the Board of Directors. In the
absence of the Chairman of the Board and the President, a Chairman shall be
elected from the Directors present. The Secretary of the Corporation shall act
as Secretary of all meetings of the Directors; but in the absence of the
Secretary, the Chairman may appoint any person to act as Secretary of the
meeting.
SECTION 8. Committees. The Board of Directors may, by resolution passed by
a majority of the whole Board, designate one or more committees,
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each committee to consist of one or more of the Directors of the Corporation.
The Board may designate one or more Directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided by resolution passed by a majority of the whole Board, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and the affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all papers which may require it;
but no such committee shall have the power or authority in reference to amending
the Certificate of Incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets, recommending
to the stockholders a dissolution of the Corporation or a revocation of a
dissolution, or amending these By-Laws; and unless such resolution, these
By-Laws, or the Certificate of Incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock.
SECTION 9. Conference Telephone Meetings. Unless otherwise restricted by
the Certificate of Incorporation or by these By-Laws, the members of the Board
of Directors or any committee designated by the Board, may participate in a
meeting of the Board or such committee, as the case may be, by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and such participation
shall constitute presence in person at such meeting.
SECTION 10. Consent of Directors or Committee in Lieu of Meeting. Unless
otherwise restricted by the Certificate of Incorporation or by these By-Laws,
any action required or permitted to be taken at any meeting of the Board of
Directors, or of any committee thereof, may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the Board or committee, as the case may be.
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ARTICLE III
Officers
SECTION 1. Officers. The officers of the Corporation shall be a Chairman of
the Board, a President, one or more Vice Presidents, a Secretary and a
Treasurer, and such additional officers, if any, as shall be elected by the
Board of Directors pursuant to the provisions of Section 7 of this Article III.
The Chairman of the Board, the President, one or more Vice Presidents, the
Secretary and the Treasurer shall be elected by the Board of Directors at its
first meeting after each annual meeting of the stockholders. The failure to hold
such election shall not of itself terminate the term of office of any officer.
All officers shall hold office at the pleasure of the Board of Directors. Any
officer may resign at any time upon written notice to the Corporation. Officers
may, but need not, be Directors. Any number of offices may be held by the same
person.
All officers, agents and employees shall be subject to removal, with or
without cause, at any time by the Board of Directors. The removal of an officer
without cause shall be without prejudice to his contract rights, if any. The
election or appointment of an officer shall not of itself create contract
rights. All agents and employees other than officers elected by the Board of
Directors shall also be subject to removal, with or without cause, at any time
by the officers appointing them.
Any vacancy caused by the death of any officer, his resignation, his
removal, or otherwise, may be filled by the Board of Directors, and any officer
so elected shall hold office at the pleasure of the Board of Directors.
In addition to the powers and duties of the officers of the Corporation as
set forth in these By-Laws, the officers shall have such authority and shall
perform such duties as from time to time may be determined by the Board of
Directors.
SECTION 2. Powers and duties of the Chairman of the Board. The Chairman of
the Board shall preside at all meetings of the stockholders and at all meetings
of the Board of Directors and shall have such other powers and perform such
other duties as may from time to time be assigned to him by these By-Laws or by
the Board of Directors.
SECTION 3. Powers and Duties of the President. The President shall be the
chief executive officer of the Corporation and, subject to the control of the
Board of Directors, shall have general charge and control of all its operations
and shall perform all duties incident to the office of President. In the absence
of the Chairman of the Board, he shall preside at all meetings of the
stockholders and at all meetings of the Board of Directors and shall have such
other powers and perform such other duties as may from time to time be assigned
to him by these By-Laws or by the Board of Directors.
SECTION 4. Powers and Duties of the Vice Presidents. Each Vice President
shall perform all duties incident to the office of Vice President and shall have
such other powers and perform such other duties as may from time to time be
assigned to him by these By-Laws or by the Board of Directors or the President.
SECTION 5. Powers and Duties of the Secretary. The Secretary shall keep the
minutes of all meetings of the Board of Directors and the minutes of all
meetings of the stockholders in books provided for that purpose; he shall attend
to the giving or serving of all notices of the Corporation; he shall have
custody of the
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corporate seal of the Corporation and shall affix the same to such documents and
other papers as the Board of Directors or the President shall authorize and
direct; he shall have charge of the stock certificate books, transfer books and
stock ledgers and such other books and papers as the Board of Directors or the
President shall direct, all of which shall at all reasonable times be open to
the examination of any Director, upon application, at the office of the
Corporation during business hours; and he shall perform all duties incident to
the office of Secretary and shall also have such other powers and shall perform
such other duties as may from time to time be assigned to him by these By-Laws
or by the Board of Directors or the President.
SECTION 6. Powers and Duties of the Treasurer. The Treasurer shall have
custody of, and when proper shall pay out, disburse or otherwise dispose of, all
funds and securities of the Corporation which may have come into his hands; he
may endorse on behalf of the Corporation for collection checks, notes and other
obligations and shall deposit the same to the credit of the Corporation in such
bank or banks or depositary or depositaries as the Board of Directors may
designate; he shall sign all receipts and vouchers for payments made to the
Corporation; he shall enter or cause to be entered regularly in the books of the
Corporation kept for the purpose full and accurate accounts of all moneys
received or paid or otherwise disposed of by him and whenever required by the
Board of Directors or the President shall render statements of such accounts; he
shall, at all reasonable times, exhibit his books and accounts to any Director
of the Corporation upon application at the office of the Corporation during
business hours; and he shall perform all duties incident to the office of
Treasurer and shall also have such other powers and shall perform such other
duties as may from time to time be assigned to him by these By-Laws or by the
Board of Directors or the President.
SECTION 7. Additional Officers. The Board of Directors may from time to
time elect such other officers (who may but need not be Directors), including a
Controller, Assistant Treasurers, Assistant Secretaries and Assistant
Controllers, as the Board may deem advisable and such officers shall have such
authority and shall perform such duties as may from time to time be assigned to
them by the Board of Directors or the President.
The Board of Directors may from time to time by resolution delegate to any
Assistant Treasurer or Assistant Treasurers any of the powers or duties herein
assigned to the Treasurer; and may similarly delegate to any Assistant Secretary
or Assistant Secretaries any of the powers or duties herein assigned to the
Secretary.
SECTION 8. Giving of Bond by Officers. All officers of the Corporation, if
required to do so by the Board of Directors, shall furnish bonds to the
Corporation for the faithful performance of their duties, in such penalties and
with such conditions and security as the Board shall require.
SECTION 9. Voting Upon Stocks. Unless otherwise ordered by the Board of
Directors, the Chairman of the Board, the President or any Vice President shall
have full power and authority on behalf of the Corporation to attend and to act
and to vote, or in the name of the Corporation to execute proxies to vote, at
any meetings of stockholders of any corporation in which the Corporation may
hold stock, and at any such meetings shall possess and may exercise, in person
or by proxy, any and all rights, powers and privileges incident to the ownership
of such stock. The Board of Directors may from time to time, by resolution,
confer like powers upon any other person or persons.
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SECTION 10. Compensation of Officers. The officers of the Corporation shall
be entitled to receive such compensation for their services as shall from time
to time be determined by the Board of Directors.
ARTICLE IV
Stock-Seal-Fiscal Year
SECTION 1. Certificates For Shares of Stock. The certificates for shares of
stock of the Corporation shall be in such form, not inconsistent with the
Certificate of Incorporation, as shall be approved by the Board of Directors.
All certificates shall be signed by the Chairman of the Board, the President or
a Vice President and by the Secretary or an Assistant Secretary or the Treasurer
or an Assistant Treasurer, and shall not be valid unless so signed.
In case any officer or officers who shall have signed any such certificate
or certificates shall cease to be such officer or officers of the Corporation,
whether because of death, resignation or otherwise, before such certificate or
certificates shall have been delivered by the Corporation, such certificate or
certificates may nevertheless be issued and delivered as though the person or
persons who signed such certificate or certificates had not ceased to be such
officer or officers of the Corporation.
All certificates for shares of stock shall be consecutively numbered as the
same are issued. The name of the person owning the shares represented thereby
with the number of such shares and the date of issue thereof shall be entered on
the books of the Corporation.
Except as hereinafter provided, all certificates surrendered to the
Corporation for transfer shall be canceled, and no new certificates shall be
issued until former certificates for the same number of shares have been
surrendered and canceled.
SECTION 2. Lost, Stolen or Destroyed Certificates. Whenever a person owning
a certificate for shares of stock of the Corporation alleges that it has been
lost, stolen or destroyed, he shall file in the office of the Corporation an
affidavit setting forth, to the best of his knowledge and belief, the time,
place and circumstances of the loss, theft or destruction, and, if required by
the Board of Directors, a bond of indemnity or other indemnification sufficient
in the opinion of the Board of Directors to indemnify the Corporation and its
agents against any claim that may be made against it or them on account of the
alleged loss, theft or destruction of any such certificate or the issuance of a
new certificate in replacement therefor. Thereupon the Corporation may cause to
be issued to such person a new certificate in replacement for the certificate
alleged to have been lost, stolen or destroyed. Upon the stub of every new
certificate so issued shall be noted the fact of such issue and the number, date
and the name of the registered owner of the lost, stolen or destroyed
certificate in lieu of which the new certificate is issued.
SECTION 3. Transfer of Shares. Shares of stock of the Corporation shall be
transferred on the books of the Corporation by the holder thereof, in person or
by his attorney duly authorized in writing, upon surrender and cancellation of
certificates for the number of shares of stock to be transferred, except as
provided in the preceding section; provided, however, that the Corporation shall
be entitled to recognize and enforce any lawful restriction on transfer.
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SECTION 4. Regulations. The Board of Directors shall have power and
authority to make such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of certificates for shares of stock of the
Corporation.
SECTION 5. Record Date. 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, as the case may be, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting, nor more than sixty (60) days
prior to any other action.
If no record date is fixed, 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; the record date for determining stockholders
entitled to express consent to corporate action in writing without a meeting,
when no prior action by the Board of Directors is necessary, shall be the day on
which the first written consent is expressed; and the record date for
determining stockholders for any other purpose shall be at 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 6. Dividends. Subject to the provisions of the Certificate of
Incorporation, the Board of Directors shall have power to declare and pay
dividends upon shares of stock of the Corporation, but only out of funds
available for the payment of dividends as provided by law.
Subject to the provisions of the Certificate of Incorporation, any
dividends declared upon the stock of the Corporation shall be payable on such
date or dates as the Board of Directors shall determine. If the date fixed for
the payment of any dividend shall in any year fall upon a legal holiday, then
the dividend payable on such date shall be paid on the next day not a legal
holiday.
SECTION 7. Corporate Seal. The Board of Directors shall provide a suitable
seal, containing the name of the Corporation, which seal shall be kept in the
custody of the Secretary. A duplicate of the seal may be kept and be used by any
officer of the Corporation designated by the Board of Directors, the Chairman of
the Board or the President.
SECTION 8. Fiscal Year. The fiscal year of the Corporation shall be such
fiscal year as the Board of Directors from time to time by resolution shall
determine.
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ARTICLE V
Miscellaneous Provisions
SECTION 1. Checks, Notes, Etc. All checks, drafts, bills of exchange,
acceptances, notes or other obligations or orders for the payment of money shall
be signed and, if so required by the Board of Directors, countersigned by such
officers of the Corporation and/or other persons as the Board of Directors from
time to time shall designate.
Checks, drafts, bills of exchange, acceptances, notes, obligations and
orders for the payment of money made payable to the Corporation may be endorsed
for deposit to the credit of the Corporation with a duly authorized depositary
by the Treasurer, or otherwise as the Board of Directors may from time to time,
by resolution, determine.
SECTION 2. Loans. No loans and no renewals of any loans shall be contracted
on behalf of the Corporation except as authorized by the Board of Directors.
When authorized so to do, any officer or agent of the Corporation may effect
loans and advances for the Corporation from any bank, trust company or other
institution or from any firm, corporation or individual, and for such loans and
advances may make, execute and deliver promissory notes, bonds or other
evidences of indebtedness of the Corporation. When authorized so to do, any
officer or agent of the Corporation may pledge, hypothecate or transfer, as
security for the payment of any and all loans, advances, indebtedness and
liabilities of the Corporation, any and all stocks, securities and other
personal property at any time held by the Corporation, and to that end may
endorse, assign and deliver the same. Such authority may be general or confined
to specific instances.
SECTION 3. Waivers of Notice. Whenever any notice whatever is required to
be given by law, by the Certificate of Incorporation or by these By-Laws to any
person or persons, a waiver thereof in writing, signed by the person or persons
entitled to the notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
SECTION 4. Offices Outside of Delaware. Except as otherwise required by the
laws of the State of Delaware, the Corporation may have an office or offices and
keep its books, documents and papers outside of the State of Delaware at such
place or places as from time to time may be determined by the Board of
Directors, the Chairman of the Board or the President.
ARTICLE VI
Amendments
These By-Laws and any amendment thereof may be altered, amended or
repealed, or new By-Laws may be adopted, by the Board of Directors at any
regular or special meeting by the affirmative vote of a majority of all of the
members of the Board, provided in the case of any special meeting at which all
of the members of the Board are not present, that the notice of such meeting
shall have stated that the amendment of these By-Laws was one of the purposes of
the meeting; but these By-Laws and any amendment thereof, including the By-Laws
adopted by the Board of Directors, may be altered, amended or repealed and other
By-Laws may be adopted by the holders of a majority of the total outstanding
stock of the Corporation entitled to
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vote at any annual meeting or at any special meeting, provided, in the case of
any special meeting, that notice of such proposed alteration, amendment, repeal
or adoption is included in the notice of the meeting.
ARTICLE VII
Indemnification of Officers and Directors
SECTION 1. General. The Corporation shall indemnify any person who was or
is a party or is threatened to be made a party to any contemplated, pending or
completed action, suit, arbitration, alternate dispute resolution mechanism,
investigation, administrative hearing or any other proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Corporation) ("Proceeding") in whole or in part attributable to (a)
the fact that he is or was a director or officer of the Corporation, or is or
was serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, employee benefit
plan, trust or other enterprise ("Indemnitee"), or (b) anything done or not done
by such Indemnitee in any such capacity, against expenses (including attorneys'
fees) and losses, claims, liabilities, judgments, fines and amounts paid in
settlement incurred by him or on his behalf in connection with such Proceeding
("Losses") if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with respect
to any criminal Proceeding, had no reasonable cause to believe his conduct was
unlawful; provided, however, that except as provided in Section 6 of this
Article VII, the Corporation shall indemnify any such Indemnitee in connection
with a Proceeding initiated by such Indemnitee only if such Proceeding was
authorized by the Board of Directors.
SECTION 2. Actions by or in the Right of the Corporation. The Corporation
shall indemnify any person who was or is made a party or is threatened to be
made a party to any pending, completed or threatened Proceeding brought by or in
the right of the Corporation to procure a judgment in its favor in whole or in
part attributable to (a) the fact that he is or was a director or officer of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise (also an "Indemnitee") or (b) anything done
or not done by such Indemnitee in any such capacity against expenses (including
attorneys' fees) and Losses actually incurred by him or on his behalf in
connection with such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, provided that no indemnification shall be made in respect of any
claim, issue or matter as to which Delaware law expressly prohibits such
indemnification by reason of an adjudication of liability of such person to the
Corporation unless and only to the extent that the Court of Chancery of the
State of Delaware or the court in which such action or suit was brought shall
determine equitable under the circumstances.
SECTION 3. Indemnification in Certain Cases. Notwithstanding any other
provision of this Article VII, to the extent that an Indemnitee has been wholly
successful on the merits or otherwise absolved in any Proceeding referred to in
Sections 1 or 2 of this Article VII on any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees) and Losses
incurred by him or on his behalf in connection therewith. If Indemnitee is not
wholly successful in such Proceeding but is successful, on the merits or
otherwise, as to one or more but less than all claims, issues or matters in such
Proceeding, the Corporation shall indemnify Indemnitee, to the maximum extent
permitted by law, against expenses (including attorneys' fees) and Losses
actually incurred by Indemnitee in connection with each
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successfully resolved claim, issue or matter. For purposes of this Section 3 and
without limitation, the termination of any such claim, issue or matter by
dismissal with or without prejudice shall be deemed to be a successful
resolution as to such claim, issue or matter.
SECTION 4. Procedure. (a) Any indemnification under Sections 1 and 2 of
this Article VII (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 Indemnitee is proper (except that the right of Indemnitee
to receive payments pursuant to Section 5 of this Article VII shall not be
subject to this Section 4) in the circumstances because he has met the
applicable standard of conduct set forth in such Sections 1 and 2. When seeking
indemnification, Indemnitee shall submit a written request for indemnification
to the Corporation. Such requests shall include documentation or information
which is necessary for the Corporation to make a determination of Indemnitee's
entitlement to indemnification and what is reasonably available to Indemnitee.
Such determination shall be made promptly, but in no event later than 30 days
after receipt by the Corporation of Indemnitee's written request for
indemnification. The Secretary of the Corporation shall, promptly upon receipt
of Indemnitee's request for indemnification, advise the Board of Directors that
Indemnitee has made such request for indemnification.
(b) The entitlement of Indemnitee to indemnification shall be determined in
the specific case by a majority vote of a quorum of the Board of Directors
consisting of Disinterested Directors, except that such determination shall be
made by Independent Legal Counsel, if either such a quorum is not obtainable or
the Board of Directors, by the majority vote of Disinterested Directors, so
directs.
(c) In the event the determination of entitlement is to be made by
Independent Legal Counsel, such Independent Legal Counsel shall be selected by
the Board of Directors and approved by Indemnitee. Upon failure of the Board of
Directors to so select such Independent Legal Counsel or upon failure of
Indemnitee to so approve, such Independent Legal Counsel shall be selected by
the Chancellor of the State of Delaware or such other person as such Chancellor
shall designate to make such selection.
(d) If the Board of Directors or Independent Legal Counsel shall have
determined that Indemnitee is not entitled to indemnification to the full extent
of Indemnitee's request, Indemnitee shall have the right to seek entitlement to
indemnification in accordance with the procedures set forth in Section 6 of this
Article VII.
(e) If the person or persons empowered pursuant to Section 4(b) of this
Article VII to make a determination with respect to entitlement to
indemnification shall have failed to make the requested determination within 90
days after receipt by the Corporation of such request, the requisite
determination of entitlement to indemnification shall be deemed to have been
made and Indemnitee shall be absolutely entitled to such indemnification, absent
(i) misrepresentation by Indemnitee of a material fact in the request for
indemnification or (ii) a final judicial determination that all or any part of
such indemnification is expressly prohibited by law.
(f) The termination of any Proceeding by judgment, order, settlement or
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, adversely affect the rights of Indemnitee to indemnification hereunder
except as may be specifically provided herein, or create a presumption that
Indemnitee did not act in good faith and in a manner which Indemnitee reasonably
believed to be in or not
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opposed to the best interests of the Corporation or create a presumption that
(with respect to any criminal action or proceeding) Indemnitee had reasonable
cause to believe that Indemnitee's conduct was unlawful.
(g) For purposes of any determination of good faith hereunder, Indemnitee
shall be deemed to have acted in good faith if Indemnitee's action is based on
the records or books of account of the Corporation or an Affiliate, including
financial statements, or on information supplied to Indemnitee by the officers
of the Corporation or an Affiliate in the course of their duties, or on the
advice of legal counsel for the Corporation or an Affiliate or on information or
records given or reports made to the Corporation or an Affiliate by an
independent certified public accountant or by an appraiser or other expert
selected with reasonable care by the Corporation or an Affiliate. The provisions
of this Section 4(g) of this Article VII shall not be deemed to be exclusive or
to limit in any way the other circumstances in which the Indemnitee may be
deemed to have met the applicable standard of conduct set forth in these Amended
and Restated By-Laws.
(h) The knowledge and/or actions, or failure to act, of any director,
officer, agent or employee of the Corporation or an Affiliate shall not be
imputed to Indemnitee for purposes of determining the right to indemnification
under these Amended and Restated By-Laws.
SECTION 5. Advances for Expenses and Costs. All expenses (including
attorneys' fees) incurred by or on behalf of Indemnitee (or reasonably expected
by Indemnitee to be incurred by Indemnitee within three months) in connection
with any Proceeding shall be paid by the Corporation in advance of the final
disposition of such Proceeding within twenty (20) days after the receipt by the
Corporation of a statement or statements from Indemnitee requesting from time to
time such advance or advances whether or not a determination to indemnify has
been made under Section 4 of this Article VII (and even if the Board of
Directors or Independent Legal Counsel has determined, pursuant to Section 4,
that Indemnitee is not entitled to indemnification by reason of their
conclusions that Indemnitee (a) did not act in good faith or in a manner
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Corporation or (b) had reasonable cause to believe his conduct was unlawful,
but not after the conclusion of judicial proceedings under Section 6).
Indemnitee's entitlement to such advancement of expenses shall include those
incurred in connection with any Proceeding by Indemnitee seeking an adjudication
or award in arbitration pursuant to these Amended and Restated By-Laws. Such
statement or statements shall evidence such expenses incurred (or reasonably
expected to be incurred) by Indemnitee in connection therewith and shall include
or be accompanied by a written undertaking by or on behalf of Indemnitee to
repay such amount if it shall ultimately be determined that Indemnitee is not
entitled to be indemnified therefor pursuant to the terms of this Article VII.
The financial ability of an Indemnitee to repay an advance shall not be a
prerequisite to the making of such an advance.
SECTION 6. Remedies in Cases of Determination not to Indemnify or to
Advance Expenses. (a) In the event that (i) a determination is made that
Indemnitee is not entitled to indemnification hereunder, (ii) advances are not
made pursuant to Section 5 of this Article VII or (iii) payment has not been
timely made following a determination of entitlement to indemnification pursuant
to Section 4 of this Article VII, Indemnitee shall be entitled to seek a final
adjudication in an appropriate court of the State of Delaware or any other court
of competent jurisdiction of Indemnitee's entitlement to such indemnification or
advance.
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(b) In the event a determination has been made in accordance with the
procedures set forth in Section 4 of this Article VII, in whole or in part, that
Indemnitee is not entitled to indemnification, any judicial proceeding referred
to in paragraph (a) of this Section 6 shall be de novo and Indemnitee shall not
be prejudiced by reason of any such prior determination that Indemnitee is not
entitled to indemnification.
(c) If a determination is made or deemed to have been made pursuant to the
terms of Sections 4 or 6 of this Article VII that Indemnitee is entitled to
indemnification, the Corporation shall be bound by such determination in any
judicial proceeding in the absence of (i) a misrepresentation of a material fact
by Indemnitee or (ii) a final judicial determination that all or any part of
such indemnification is expressly prohibited by law.
(d) To the extent deemed appropriate by the court, interest shall be paid
by the Corporation to Indemnitee at a reasonable interest rate for amounts which
the Corporation indemnifies or is obliged to indemnify Indemnitee for the period
commencing with the date on which Indemnitee requested indemnification (or
reimbursement or advancement of expenses) and ending with the date on which such
payment is made to Indemnitee by the Corporation.
SECTION 7. Rights Non-Exclusive. The rights of indemnification and
advancement of expenses provided by, or granted pursuant to, this Article VII
shall not be deemed exclusive of any other rights to which any person seeking
indemnification or advancement of expenses may be entitled under any law,
certificate of incorporation, by-law, agreement, vote of stockholders or
resolution of directors of otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office. No amendment,
alteration, rescission or replacement of these Amended and Restated By-Laws or
any provision hereof shall be effective as to Indemnitee with respect to any
action taken or omitted by such Indemnitee in Indemnitee's position with the
Corporation or an Affiliate or any other entity which Indemnitee is or was
serving at the request of the Corporation prior to such amendment, alteration,
rescission or replacement.
SECTION 8. Insurance. 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 corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Article VII.
SECTION 9. Survival of Rights. The indemnification and advancement of
expenses provided by, or granted pursuant to this Article VII shall continue as
to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
SECTION 10. Indemnification of Employees and Agents of the Corporation. The
Corporation may, by action of the Board of Directors from time to time, grant
rights to indemnification and advancement of expenses to employees and agents of
the Corporation with the same scope and effect as the provisions of this Article
VII with respect to the indemnification of directors and officers of the
Corporation.
35
<PAGE>
SECTION 11. Definitions. For purposes of this Article VII:
(a) "Affiliate" includes any corporation, partnership, joint venture,
employee benefit plan, trust or other enterprise directly or indirectly owned by
the Corporation.
(b) "Corporation" includes all constituent corporations absorbed in a
consolidation or merger as well as the resulting or surviving corporation so
that any person who is or was a director, officer, employee or agent of such a
constituent corporation or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise shall stand in the same
position under the provisions of this Article VII with respect to the resulting
or surviving corporation as he would if he had served the resulting or surviving
corporation in the same capacity.
(c) "Disinterested Director" shall mean a director of the Corporation who
is not or was not a party to the Proceeding in respect of which indemnification
is being sought by Indemnitee.
(d) "Independent Legal Counsel" shall mean a law firm or lawyer that
neither is presently nor in the past five years has been retained to represent:
(i) the Corporation or Indemnitee in any matter material to either such party or
(ii) any other party to the Proceeding giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the term "Independent
Counsel" shall not include any firm or person who, under the applicable
standards of professional conduct then prevailing, would have a conflict of
interest in representing either the Corporation or Indemnitee in an action to
determine Indemnitee's right to indemnification under these Amended and Restated
By-Laws. All fees and expenses of the Independent Counsel incurred in connection
with acting pursuant to these By-Laws shall be borne by the Corporation.
ARTICLE VIII
Offices
SECTION 1. Registered Office. The registered office of the Corporation
within the State of Delaware shall be in the City of Wilmington, County of New
Castle.
SECTION 2. Other Offices. The Corporation may also have an office or
offices other than said registered office at such place or places, either within
or without the State of Delaware, as the Board of Directors shall from time to
time determine or the business of the Corporation may require.
36
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 26th day of February, 1993, by and between
SOLA Optical USA, Inc. (the "Company") and Stephen J. Lee (the "Executive").
WITNESSETH:
WHEREAS, the Executive is currently employed by the Company; and
WHEREAS, the Company and the Executive wish to provide for the continued
employment of the Executive with the Company on the terms and conditions set
forth herein.
NOW THEREFORE, in consideration of the foregoing premises and the mutual
agreements herein contained, the parties hereto agree as follows:
1. Term of Employment.
(a) The Company hereby agrees to continue the employment of the Executive
and the Executive hereby accepts continued employment with the Company, in the
positions and with the duties and responsibilities as set forth in Section 2
hereof for the term of employment under this Agreement (the "Term"), subject to
the terms and conditions of this Agreement.
(b) The Term shall commence as of the date hereof and shall continue until
(but not including) the third anniversary of that date or such later date to
which the
<PAGE>
Term may be extended in accordance with the provisions of Section 7 hereof.
2. Position; Duties and Responsibilities. During the Term, the Executive
shall be employed by the Company as Vice President Human Resources and Secretary
of the SOLA Group. The duties and responsibilities of the Executive shall be
those currently assigned to the Executive and such other duties and
responsibilities as the Company, in its sole discretion, shall assign to
Executive, including duties and responsibilities which relate to the operations
of, or are for the benefit of, subsidiaries and affiliates of the Company.
During the Term, the Executive shall serve the Company faithfully and diligently
and shall devote full working time and attention exclusively to the Executive's
duties and responsibilities hereunder. During the period of the Executive's
employment under this Agreement, the Executive shall be assigned to such of the
Company's works or offices or the works or offices of any subsidiary or
affiliate of the Company as may reasonably be determined (bearing in mind the
personal circumstances of, and following discussion with, the Executive) from
time to time by the Board of Directors of the Company.
3. Compensation. During the Term, the Executive shall receive a salary at a
rate that is not less than the rate in effect on the date hereof, payable in
accordance with the Company's standard payroll practices and subject to
2
<PAGE>
discretionary increases in accordance with the Company's normal review
procedures and policies.
4. Benefits.
(a) During the Term, the Executive shall be eligible to participate in the
pension, life insurance, medical, hospitalization, disability and other employee
benefit plans of the Company specified on the attached Schedule. In addition,
the Executive shall be entitled to the other benefits specified on the attached
Schedule.
(b) During the Term, the Company shall reimburse the Executive for
reasonable and necessary expenses related to the Executive's performance of the
Executive's duties under the Agreement, upon submission of detailed vouchers
therefor in accordance with the Company's standard practices as in effect from
time to time.
5. Termination of Employment.
(a) A termination by the Company of the Executive's employment
automatically terminates the Term as of the date of such termination of
employment. If a termination of the Term by the Company is for Cause (as defined
in Section 6 hereof), then the Company shall provide the Executive (or the
Executive's estate) with written notice to that effect within 30 days of such
termination.
(b) A termination by the Executive of the Executive's employment will
automatically terminate the Term as of the date of such termination of
employment; provided,
3
<PAGE>
however, that the Executive must give the Company written notice at least three
months prior to such termination (or such shorter period as may be consented to
by the Company). The Company shall not unreasonably withhold its consent to a
notice period of less than three months. A termination of the Term by the
Executive for Good Reason (as defined in Section 6 hereof) shall be treated as
such only if the Executive, in the written notice referred to above, makes a
statement to that effect and describes the circumstances constituting Good
Reason.
(c) The Term will automatically terminate upon the death or Disability (as
defined in Section 6 hereof) of the Executive.
(d) In the event that the Term is terminated (i) by the Company for Cause
(ii) by the Executive other than for Good Reason, or (iii) as a result of the
Executive's death or Disability, then, as of the date of such termination, the
Company shall have no further obligations to the Executive hereunder, other than
for salary through the date of the termination.
(e) In the event that the Term is terminated (i) by the Company other than
for Cause or (ii) by the Executive for Good Reason, then the Company shall
continue to pay the Executive, in accordance with the Company's standard payroll
practices, the Executive's salary, at the rate in effect pursuant to Section 3
hereof as of the date of such
4
<PAGE>
termination, through the date on which the Term would expire pursuant to
Sections 1 and 7 hereof (without regard to the operation of this Section 5) were
the Company to have given written notice pursuant to Section 7 on the date of
such termination.
(f) Upon any termination of the Term described in Subsection 5(e) hereof,
the Executive's employment with the Company shall be deemed to continue through
the date on which the Term would expire pursuant to Sections 1 and 7 hereof
(without regard to the operation of this Section 5) were the Company to have
given written notice pursuant to Section 7 on the date of such termination for
purposes of determining (i) the Executive's coverage under the pension, life
insurance, medical, hospitalization, disability and other employee benefit plans
of the Company specified on the attached Schedule and (ii) the Executive's
entitlement to the other benefits specified on the attached Schedule; provided,
however, that the Executive will not be entitled to any benefit (other than a
reimbursement for repatriation costs) under any plan designed to provide for the
payment of expatriation expenses after the date on which such Executive ceases
to reside in the United States.
6. Definitions.
"Cause" means (i) a material breach by the Executive of the terms of this
Agreement, including, but not limited to, a disclosure of Company Confidential
Information
5
<PAGE>
or Affiliate Confidential Information in violation of Section 8 hereof, (ii) the
commission by the Executive of a felony or an act which is materially
detrimental to the Company's reputation, (iii) the commission by the Executive
of acts of fraud, material dishonesty or gross misconduct in connection with the
business of the Company, or (iv) repeated and willful failure by the Executive
to perform the Executive's duties hereunder after a demand for such performance
is delivered to the Executive by the Company.
"Disability" means an inability on the part of the Executive to perform in
accordance herewith by reason of a mental or physical disorder or injury
constituting "long-term disability" as defined under the Company's medical plans
as in effect from time to time.
"Good Reason" means a termination on account of a substantial diminution of
the Executive's responsibilities within the Company, unless such diminution
results from a sustained inability on the part of the Executive to
satisfactorily perform the Executive's duties under this Agreement or any reason
constituting Cause.
7. Extension. The Term shall continue in effect following the third
anniversary of the date hereof unless and until either (i) the Executive gives
written notice to the Company of the termination thereof at least three months
in advance or (ii) the Company gives written notice to the
6
<PAGE>
Executive of the termination thereof at least twelve months in advance.
8. Covenant Not to Compete; Confidentiality. The Executive recognizes that
the services to be performed hereunder are special, unique, and extraordinary
and that by reason of the Executive's prior employment with the Company and the
employment contemplated by this Agreement the Executive has acquired and will
acquire confidential information and trade secrets concerning the Company's
operations ("Company Confidential Information") and the operations of its parent
and affiliates ("Affiliate Confidential Information"). Accordingly, it is agreed
that:
(a) During the Term, and for the greater of one year following the Term or
any period following the Term covered by payments provided for in Section 5
hereof, the Executive will not, directly or indirectly, as an officer, director,
stockholder, partner, associate, owner, employee, consultant or otherwise,
become or be interested in or associated with any other corporation, firm or
business engaged in the same or a similar or competitive business with the
Company or any of its affiliates in any geographical area in which the Company
or any of its affiliates are then engaged in business, provided that the
Executive's ownership, directly or indirectly, of not more than one percent of
the issued and outstanding stock of a corporation the shares of which are
regularly traded on a
7
<PAGE>
national securities exchange or in the over-the-counter market shall not, in any
event, be deemed to be a violation of this subsection.
(b) The Executive shall not divulge to any entity or person, other than the
Company or its affiliates, or, in the event of an assignment of this Agreement
pursuant to Section 13 hereof, the assignee and its affiliates, if any, whether
during the Term or after the expiration or termination thereof, any Company
Confidential Information concerning the Company's customer lists, research or
development programs or plans, processes, methods or any other of its trade
secrets, except information that is then available to the public in published
literature and became publicly available through no fault of the Executive.
(c) The Executive shall not divulge to any person or entity, including an
assignee of this Agreement and its affiliates, but excepting the Company and its
affiliates, whether during the Term or after the expiration or termination
thereof, any Affiliate Confidential Information acquired by the Executive
concerning the customer lists, research or development programs or plans,
processes, methods or any other trade secrets of the parent or any affiliate,
except information which is then available to the public in published literature
and became publicly available through no fault of the Executive.
8
<PAGE>
(d) The Executive acknowledges that all information the disclosure of which
is prohibited hereby is of a confidential and proprietary character and of great
value to the Company and its affiliates. Upon the expiration or termination of
the Term, the Executive shall forthwith deliver up to the Company all records,
memoranda, data and documents of any description which refer or relate in any
way to Company Confidential Information or Affiliate Confidential Information
and return to the Company any of its equipment and property which may then be in
the Executive's possession or under the Executive's personal control. Upon the
assignment of this Agreement, pursuant to Section 13, the Executive shall
forthwith deliver up to the Company all records, memoranda, data and documents
of any description which refer or relate in any way to Affiliate Confidential
Information and return to the Company any of its equipment and property which
may then be in the Executive's possession or under the Executive's personal
control.
(e) The Executive agrees during the Term and for a two year period after
the expiration or termination thereof not to disclose the terms of this
Agreement to any person other than the Executive's immediate family, the
Executive's attorneys, accountants and other professional advisors or a
prospective employer permitted hereby, except as otherwise required by law.
9
<PAGE>
(f) The Company shall be entitled, in addition to any other right or remedy
that it may have at law or in equity with respect to a breach of this Agreement
by the Executive (including the right to terminate payments pursuant to
Subsection 5(d) hereof), to an injunction, without the posting of a bond or
other security, enjoining or restraining the Executive from any violation or
threatened violation of this section, and the Executive hereby consents to the
issuance of such an injunction.
9. Mitigation. The Executive shall not be required to mitigate the amount
of any payments or benefits provided for in Subsection 5(e) or Subsection 5(f)
hereof by seeking other employment or a consultancy with any other entity or
otherwise, but the Executive shall notify the Company of any employment or
consultancy engaged in by the Executive during the period covered by any
payments or benefits provided in Subsection 5(e) or Subsection 5(f) hereof and
(i) the amounts payable pursuant to Subsection 5(e) shall be reduced by the
amount of any salary, discretionary bonus, fees, stock, stock options, stock
dividends or any non-cash consideration so paid or payable with respect to such
period and (ii) the benefits to be provided pursuant to Subsection 5(f) shall be
reduced by any comparable benefits available with respect to such period. The
amounts payable pursuant to Subsection 5(e) and the benefits provided pursuant
to Subsection 5(f) shall not be
10
<PAGE>
reduced by any payment due under the Pilkington plc Special Incentive Plan for
Key Sola Management Executives.
10. Non-Alienation. The Executive shall not have any right to pledge,
hypothecate, anticipate or in any way create a lien upon any payment or benefits
provided under this Agreement, and no such payment or benefits shall be
assignable in anticipation of payment either by voluntary or involuntary acts,
or by operation of law.
11. Notices. All notices given hereunder will be deemed sufficient if given
in writing and delivered either personally or sent by certified mail to the
Executive at the Executive's address set forth in the records of the Company or
to the Company at its principal offices for the attention of the President of
the Company, or, in either case, to such other persons or addresses as either
party may request by notice.
12. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of California without
reference to principles of conflicts of laws.
13. Assignment. This Agreement may be assigned by the Company to any
non-affiliate of the Company that shall succeed to all or a substantial portion
of the business and assets of the Company. In addition, this Agreement may be
assigned by the Company to any subsidiary or affiliate of the Company. In the
event of any assignment of this
11
<PAGE>
Agreement, the Company shall, concurrently with such assignment, cause the
assignee to assume the obligations of the Company hereunder by a written
agreement addressed to the Executive with the same effect as if such assignee
were the "Company" hereunder. The Executive acknowledges and agrees that in
consideration for entering into this Agreement, the Executive's obligations to
the Company set forth in Section 8 hereof shall survive assignment and remain an
obligation owed by the Executive to the Company. The Executive further
acknowledges that the Company shall retain its rights under Subsection 8(f)
hereof with respect to the enforcement of the Executive's obligations to the
Company under Section 8. This Agreement is personal to the Executive and the
Executive may not assign any rights or delegate any responsibilities hereunder
without the prior approval of the Company.
14. Arbitration. With respect to any controversy arising out of or with
respect to this Agreement, or the subject matter hereof, such controversy shall
be settled by final and binding arbitration in California in accordance with the
then-existing rules (the "Rules") of the American Arbitration Association
("AAA") and judgement upon the award rendered by the arbitrators may be entered
in any court having jurisdiction thereof; provided, however, that the law
applicable to any controversy shall be the law of the State of California,
regardless of its or any jurisdiction's
12
<PAGE>
choice of law principles. In any such arbitration, the award or decision shall
be rendered by a majority of the members of a Board of Arbitrators consisting of
three members, one of whom shall be appointed by each party and the third of
whom shall be the chairman of the panel and be appointed by mutual agreement of
the two party-appointed arbitrators. In the event of a failure of the two
party-appointed arbitrators to agree within sixty days of the commencement of
the arbitration proceeding upon the appointment of the third arbitrator, the
third arbitrator shall be appointed by the AAA in accordance with the Rules. In
the event that either party shall fail to appoint an arbitrator within thirty
days after the commencement of the arbitration proceeding, such arbitrator and
the third arbitrator shall be appointed by the AAA in accordance with the Rules.
Any award made in favor of the Executive shall be limited to a recovery of
contract damages limited to foreseeable damages which are a direct consequence
of a breach of this Agreement. In further limitation of any award made to the
Executive, the arbitrators are not empowered to award any other damages or order
any other remedy including, but not limited to, compensatory and punitive
damages.
15. Sale of the Company. In the event of a transfer, pursuant to privately
negotiated transaction, of substantially all of the stock or assets of the
Company, the
13
<PAGE>
Company shall either (i) assign this Agreement, pursuant to Section 13 hereof,
to an affiliate (of the Company prior to the transfer) or (ii) cause the
transferee, or an affiliate of the transferee to assume the obligations of the
Company hereunder by a written agreement addressed to the Executive with the
same effect as if such transferee or affiliate of the transferee, as the case
may be, were the "Company" hereunder. For purposes of this section, a sale of
stock as part of a public offering shall not be treated as pursuant to a
privately negotiated transaction.
16. Entire Agreement. This Agreement contains the entire agreement between
the Company and the Executive concerning the subject matter hereof and
supersedes all prior agreements, understandings, discussions, negotiations, and
undertakings, whether written or oral, between them with respect thereto.
17. Amendment or Waiver. This Agreement cannot be changed, modified or
amended without the consent in writing of both the Executive and the Company. No
waiver by either the Company or the Executive at any time of a breach by the
other party of any condition or provision of this Agreement shall be deemed a
waiver of a similar or dissimilar condition or provision at the same or at any
prior or subsequent time. Any waiver must be in writing and signed by the
Executive or an authorized representative of the Company, as the case may be.
14
<PAGE>
18. Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, in
whole or in part, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect to the fullest extent
permitted by law.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
SOLA Optical USA, Inc.
/s/ Philip R. Hyde, Esq.
-------------------------
By: Philip R. Hyde, Esq.
Assistant Secretary
/s/ Stephen J. Lee
-------------------------
Stephen J. Lee
15
<PAGE>
Schedule of Continuing Benefits Entitlement Pursuant to Paragraph 4(a) of the
Attached Agreement between SOLA Optical USA Inc. and Stephen J. Lee.
Copies of the rules and details of the following benefits are available from
Stephen J. Lee, Vice President Human Resources, The SOLA Group.
1. Participation in the SOLA Group Management Incentive Plan.
2. Participation in the Pilkington Visioncare Long Term Bonus plan or its
successor.
3. Participation in the SOLA Group Healthcare and Insurance Plans in
accordance with Company Policy.
4. Payment of an Executive Healthcare Supplement.
5. Reimbursement of the cost of a Company Car under the terms of the SOLA
Group Company Automobile Policy for US Executives.
6. Payment of an Expatriate Accommodation Allowance.
7. Provision of Tax Return Preparation and Advice.
8. Participation in a retirement plan(s) providing equivalent benefits to the
Pilkington Superannuation Scheme and the Pilkington Senior Managers'
Pension Scheme.
9. Reimbursement of Family Home Leave Travel whilst resident in the United
States
10. Payment of Family Education Support under the Company's Overseas Relocation
Policy.
11. Reimbursement of Telephone Expenses under the Company's Policy for Senior
Executives.
12. Reimbursement of one-time costs of repatriation, ie:
Transportation of the executive and family to the United Kingdom under the
Company's customary travel policy.
Relocation of family pets.
<PAGE>
Relocation and insurance in transit of household goods and personal
effects.
The selling and closing costs of the exective's California residence.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
second quarter 10-Q and is qualified in its entirety by reference to such
10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> MAR-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 34,704
<SECURITIES> 21
<RECEIVABLES> 129,432
<ALLOWANCES> 6,017
<INVENTORY> 189,451
<CURRENT-ASSETS> 363,520
<PP&E> 198,287
<DEPRECIATION> 50,733
<TOTAL-ASSETS> 723,269
<CURRENT-LIABILITIES> 133,362
<BONDS> 237,705
0
0
<COMMON> 248
<OTHER-SE> 343,753
<TOTAL-LIABILITY-AND-EQUITY> 723,269
<SALES> 262,194
<TOTAL-REVENUES> 262,194
<CGS> 142,032
<TOTAL-COSTS> 142,032
<OTHER-EXPENSES> 82,007
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,338
<INCOME-PRETAX> 29,817
<INCOME-TAX> 10,135
<INCOME-CONTINUING> 20,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,100
<EPS-PRIMARY> 0.81
<EPS-DILUTED> 0.78
</TABLE>
