<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report: January 14, 1994
EVEREST & JENNINGS INTERNATIONAL LTD.
(Exact name of registrant as specified in its charter)
DELAWARE 0-3585 95-2536185
(State of Organization) (Commission Number) (IRS Employer I.D. #)
1100 Corporate Square Drive, St. Louis, Missouri 63132
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (314) 995-7000
NOT APPLICABLE
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Everest & Jennings International Ltd. (the "Company") and BIL (Far East
Holdings) Limited ("BIL") entered into an Exchange Agreement and Plan of
Merger, dated as of October 23, 1993 (the "Merger Agreement"), with Medical
Composite Technology, Inc. ("MCT") and certain stockholders of MCT. The Merger
Agreement set forth the terms and conditions under which MCT would be merged
(the "Merger") with and into a wholly-owned subsidiary of the Company. The
Merger occurred on January 14, 1994, pursuant to a plan of merger (the "Plan of
Merger") between MCT and MCT Acquisition Corp. A copy of each of the Merger
Agreement and the Plan of Merger is attached as an exhibit hereto and is
incorporated herein by this reference. The outstanding shares of common stock
and preferred stock of MCT were converted into 8,000,000 Common shares of the
Company. Purchase accounting will be used to record the Merger, which is
structured to constitute a reorganization within Section 368(a) of the Internal
Revenue Code of 1986, as amended. The Company intends to value the Merger at
$1 per share or $8,000,000. The closing market price of the Company's Common
shares on October 23, 1993, the date of the Merger Agreement, was $1.56.
However, the Company's Common stock is thinly traded and is not the best
indicator of its value. As of September 30, 1993, the Company and BIL had
entered into a debt conversion agreement ("Debt Conversion Agreement") which
provided for the conversion ("Debt Conversion Transaction") of $75,000,000 debt
owing to BIL into equity. The conversion price negotiated by the Company with
BIL is $1.00 per share. In management's opinion, $1 is more appropriate to
record the Merger than the market price on October 23, 1993, as the valuation
of the Debt Conversion Transaction more closely reflects the value of the
Company's Common stock.
Pursuant to the terms of the Merger Agreement, the Company had advanced
$2,700,000 to MCT, $500,000 of which was a nonrefundable cash payment to be
used by MCT in the ordinary course of its business, $500,000 was a term loan
maturing on September 30, 1994 and bearing interest at the rate of 10% per
annum and the balance was repayable only if the Merger Agreement is terminated
by E&J under certain defined circumstances. The Company obtained this
$2,700,000 from BIL through advances under a loan agreement between BIL and the
Company.
Two representatives from MCT, Bevil J. Hogg and Charles D. Yie, were
elected to the Company's Board of Directors on January 21, 1994. Mr. Hogg was
also appointed as the Company's President and Chief Executive Officer.
MCT develops, designs, manufactures and markets state-of-the-art durable
medical equipment, including wheelchairs and other medical mobility products
and assistive devices. MCT has developed proprietary products with significant
competitive advantages in the areas of performance, aesthetics, durability and
cost. MCT's products
-2-
<PAGE> 3
utilize advanced composite materials to achieve differentiated, aesthetically
pleasing shapes while providing mechanical properties that are superior to
those of most current mobility and assistive products, almost all of which are
constructed of metal. The Company intends to utilize the MCT assets in
substantially the same business as conducted by MCT prior to the Merger. The
Company believes that the acquisition of MCT will enable it to expand its
product line into the ultra-lightweight wheelchair and related products
markets.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Medical Composite Technology, Inc.
<TABLE>
<CAPTION>
Financial Statements: Page(s)
-------
<S> <C>
Report of Certified Public Accountants 6
Audited Balance Sheets for Fiscal Years
ended December 31, 1991 and December 31, 1992 7
Audited Statements of Operations for the Fiscal
Years ended December 31, 1991 and December 31,
1992 and the Cumulative Period from April 7,
1989 (date of inception) to December 31, 1992 8
Audited Statements of Shareholders' Equity for
the Cumulative Period from April 7, 1989
(date of inception) to December 31, 1992 9
Audited Statements of Cash Flows for the Fiscal
Years ended December 31, 1991 and December 31,
1992 and the Cumulative Period from April 7,
1989 (date of inception) to December 31, 1992 10
Notes to Financial Statements 11
Unaudited Statement of Operations for the Nine-
Month Period ended September 30, 1993 21
Unaudited Balance Sheet as of September 30, 1993 22
Unaudited Statement of Cash Flows for the Nine-
Month Period ended September 30, 1993 23
Notes to Financial Statements 24
</TABLE>
(b) Everest & Jennings International Ltd./Medical Composite Technology, Inc.
Pro Forma Financial Information:
<TABLE>
<S> <C>
Notes to Condensed Pro Forma Financial Statements 28
Pro Forma Unaudited Consolidated Statement of
Operations for the Fiscal Year Ended December 31,
1992 29
Pro Forma Unaudited Consolidated Statement of
Operations for the Nine Month Period Ended
September 30, 1993 30
Pro Forma Unaudited Consolidated Balance Sheet
as of September 30, 1993 31
Management's Discussion and Analysis of Financial
Condition and Results of Operations at December 31,
1992 33
Management's Discussion and Analysis of Financial
Condition and Results of Operations at September 30,
1993 41
</TABLE>
-3-
<PAGE> 4
<TABLE>
<CAPTION>
(c) Exhibits: Page(s)
-------
<S> <C>
2 (a) Exchange Agreement and Plan of Merger,
dated as of October 23, 1993, by and
among Medical Composite Technology, Inc.
("MCT"), certain stockholders of MCT,
Everest & Jennings International Ltd.,
BIL (Far East Holdings) Limited, and
MCT Acquisition Corp. 47
(b) Plan of Merger, dated as of January 14,
1994, by and between MCT Acquisition Corp.
and Medical Composite Technology, Inc. 91
</TABLE>
-4-
<PAGE> 5
SIGNATURES
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 hereunto duly authorized.
EVEREST & JENNINGS INTERNATIONAL LTD.,
a Delaware corporation
Date: January 28, 1994 By: /s/ Ralph E. Wolf
Name: Ralph E. Wolf
Title: Executive Vice President,
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial
Officer of the Registrant)
-5-
<PAGE> 6
[LOGO]
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Medical Composite Technology, Inc.:
We have audited the accompanying balance sheets of Medical Composite
Technology, Inc. (a company in the development stage) as of December 31, 1992
and 1991, and the related statements of operations, shareholders' equity and
cash flows for the years then ended, and the cumulative period from April 7,
1989 (date of inception) to December 31, 1992. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Medical Composite Technology,
Inc. (a company in the development stage) as of December 31, 1992 and 1991, and
the results of its operations and its cash flows for the years then ended, and
the cumulative period from April 7, 1989 (date of inception) to December 31,
1992, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2, the Company
has a material accumulated deficit as of December 31, 1992, and has incurred
significant losses during the development stage. The Company must obtain
additional financing to fund expected operating losses. These matters raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are described in Note 2. The
financial statements do not include adjustments that might result from the
outcome of this uncertainty.
/s/ Coopers & Lybrand
San Jose, California
February 18, 1993, except for Note 10,
as to which the date is March 31, 1993
-6-
<PAGE> 7
MEDICAL COMPOSITE TECHNOLOGY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
BALANCE SHEETS, DECEMBER 31, 1992 AND 1991
---------
<TABLE>
<CAPTION>
ASSETS 1992 1991
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 44,353 $ 561,811
Accounts receivable 17,157 6,120
Accounts receivable from related party 56,756 58,229
Inventories, net of reserve of $100,000 in 1992 610,671 324,232
Prepaid and other current assets 41,944 20,133
---------- ----------
Total current assets 770,881 970,525
Property and equipment, net 877,151 634,813
Patents 234,766 124,225
Other assets 18,909 20,417
---------- ----------
Total assets $1,901,707 $1,749,980
---------- ----------
---------- ----------
LIABILITIES
Current liabilities:
Current portion of capital lease obligations $ 41,742 $ 45,294
Current portion of note payable 16,668
Accounts payable and accrued expenses 337,915 198,846
---------- ----------
Total current liabilities 396,325 244,140
Deferred revenue 206,250 262,500
Capital lease obligations, less current portion 75,915 77,690
Note payable, less current portion 21,403
---------- ----------
Total liabilities 699,893 584,330
---------- ----------
Commitments (Note 6).
SHAREHOLDERS' EQUITY
Convertible preferred stock, no par value:
Authorized: 5,000,000 shares:
Series A:
Issued and outstanding: 340,000 shares
(Liquidation value of $272,000) 270,491 270,491
Series B:
Issued and outstanding: 1,520,674 shares 3,074,525 3,074,525
(Liquidation value of $3,550,290)
Series C:
Issued and outstanding: 769,229 shares 2,477,756
(Liquidation value of $2,598,958)
Common stock, no par value:
Authorized: 10,000,000 shares:
Issued and outstanding: 474,723 shares in 1992
and 473,910 shares in 1991 21,798 21,642
Less note receivable from shareholder (10,000) (10,000)
Deficit accumulated during the development stage (4,632,756) (2,191,008)
---------- ----------
Total shareholders' equity 1,201,814 1,165,650
---------- ----------
Total liabilities and shareholders' equity $1,901,707 $1,749,980
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
-7-
<PAGE> 8
MEDICAL COMPOSITE TECHNOLOGY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF OPERATIONS
--------
<TABLE>
<CAPTION>
Cumulative
Period from
April 7, 1989
(date of
Years Ended inception)
December 31, to
------------------- December 31,
1992 1991 1992
---- ---- ------------
<S> <C> <C> <C>
Sales $ 504,366 $ 85,288 $ 589,654
Cost of sales (876,764) (115,693) (992,457)
----------- ----------- -----------
(372,398) (30,405) (402,803)
----------- ----------- -----------
Operating expenses:
Engineering, research and development (1,177,312) (1,014,577) (2,762,889)
Marketing, general and administrative (871,719) (566,151) (1,529,975)
----------- ----------- -----------
(2,049,031) (1,580,728) (4,292,864)
----------- ----------- -----------
Loss from operations (2,421,429) (1,611,133) (4,695,667)
Interest and other income (expense) (20,319) 64,388 62,911
----------- ----------- -----------
Net loss $(2,441,748) $(1,546,745) $(4,632,756)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
-8-
<PAGE> 9
MEDICAL COMPOSITE TECHNOLOGY, INC.
(a company in the development stage)
STATEMENTS OF SHAREHOLDERS' EQUITY
for the cumulative period from April 7, 1989
(date of inception) to December 31, 1992
<TABLE>
<CAPTION>
Preferred Stock
---------------------------------------------------------------
Series A Series B Series C Common Stock
---------------- ------------------ ---------------- ----------------
Shares Amount Shares Amount Shares Amount Shares Amount
---------------- ------------------ ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Series A preferred
stock at $0.80 per share in
July 1989, net of issuance
costs of $1,509 340,000 $270,491
Issuance of common stock at
$.05 per share in July 1989,
net of issuance costs of $1,509 260,000 $11,491
Net loss
------- -------- ------- -------
Balance, December 31, 1989 340,000 $270,491 260,000 $11,491
Payment of shareholder notes
receivable
Issuance of common stock at
$.05 per share in June 1990 12,660 633
Issuance of Series B preferred
stock at $1.50 per share in
September 1990, net of
issuance costs of $25,561 920,674 $1,355,450
Issuance of Series B preferred
stock at $2.25 per share in
November 1990 100,000 225,000
Net loss
------- -------- --------- ---------- ------- -------
Balance, December 31, 1990 340,000 270,491 1,020,674 1,580,450 272,660 12,124
Issuance of Series B preferred
stock at $3.00 per share in
June 1991, net of issuance
costs of $4,225 300,000 895,775
Exercise of options at $0.05
per share in August 1991, net
of issuance costs of $607 200,000 9,393
Exercise of options at $0.10
per share in October 1991 1,250 125
Issuance of Series B preferred
stock at $3.00 per share in
November 1991, net of issuance
costs of $1,700 200,000 598,300
Net loss
------- -------- --------- ---------- ------- -------
Balance, December 31, 1991 340,000 270,491 1,520,674 3,074,525 473,910 21,642
Issuance of Series C preferred
stock at $3.25 per share in
March 1992, net of issuance
costs of $22,244 769,229 $2,477,756
Exercise of options at $0.25
per share in May 1992 500 125
Exercise of options at $0.10
per share in May 1992 313 31
Net loss
------- -------- --------- ---------- ------- ---------- ------- -------
Balance, December 31, 1992 340,000 $270,491 1,520,674 $3,074,525 769,229 $2,477,756 474,723 $21,798
------- -------- --------- ---------- ------- ---------- ------- -------
------- -------- --------- ---------- ------- ---------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
Deficit
Notes Accumulated
Receivable During the
From Development
Shareholders Stage Total
------------ ------------ ------
<S> <C> <C> <C>
Issuance of Series A preferred
stock at $0.80 per share in
July 1989, net of issuance
costs of $1,509 $(100,000) $ 170,491
Issuance of common stock at
$.05 per share in July 1989,
net of issuance costs of $1,509 (10,000) 1,491
Net loss $ (89,302) (89,302)
--------- ---------- ----------
Balance, December 31, 1989 $(110,000) $ (89,302) $ 82,680
Payment of shareholder notes
receivable 100,000 100,000
Issuance of common stock at
$.05 per share in June 1990 633
Issuance of Series B preferred
stock at $1.50 per share in
September 1990, net of
issuance costs of $25,561 1,355,450
Issuance of Series B preferred
stock at $2.25 per share in
November 1990 225,000
Net loss (554,961) (554,961)
---------- ----------- ----------
Balance, December 31, 1990 (10,000) (644,263) 1,208,802
Issuance of Series B preferred
stock at $3.00 per share in
June 1991, net of issuance
costs of $4,225 895,775
Exercise of options at $0.05
per share in August 1991, net
of issuance costs of $607 9,393
Exercise of options at $0.10
per share in October 1991 125
Issuance of Series B preferred
stock at $3.00 per share in
November 1991, net of issuance
costs of $1,700 598,300
Net loss (1,546,745) (1,546,745)
---------- ----------- ----------
Balance, December 31, 1991 (10,000) (2,191,008) 1,165,650
Issuance of Series C preferred
stock at $3,25 per share in
March 1992, net of issuance
costs of $22,244 2,477,756
Exercise of options at $0.25
per share in May 1992 125
Exercise of options at $0.10
per share in May 1992 31
Net loss (2,441,748) (2,441,748)
---------- ----------- ----------
Balance, December 31, 1992 $ (10,000) $(4,632,756) $1,201,814
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
-9-
<PAGE> 10
MEDICAL COMPOSITE TECHNOLOGY, INC.
(a company in the development stage)
STATEMENTS OF CASH FLOWS
---------
<TABLE>
<CAPTION>
Cumulative
Period from
April 7, 1989
(date of
Years Ended inception)
December 31, to
------------------ December 31,
1992 1991 1992
---- ---- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net Loss $(2,441,748) $(1,546,745) $(4,632,756)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 187,062 77,314 274,577
Provision for inventories 100,000 100,000
Change in work capital:
Accounts receivable (9,564) (47,229) (73,913)
Inventories (386,439) (324,232) (710,671)
Prepaid and other current assets (21,811) (6,625) (41,944)
Accounts payable and accrued expenses 139,069 67,439 337,915
----------- ----------- -----------
Net cash used in operating activities (2,433,431) (1,780,078) (4,746,792)
----------- ----------- -----------
Cash flows from investing activities:
Net short-term investment activity 186,817
Acquisition of property and equipment (381,626) (429,588) (941,232)
Acquisition of patents (110,541) (69,973) (237,625)
Acquisition of other assets (196) (15,750) (25,065)
----------- ----------- -----------
Net Cash used in investing activities (492,363) (328,494) (1,203,922)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of preferred stock,
net of issuance costs and shareholder
note receivable 2,477,756 1,494,075 5,722,772
Proceeds from issuance of common stock,
net of issuance costs and shareholder
note receivable 156 9,518 11,798
Proceeds from issuance of long-term note 50,000 50,000
Repayments on long-term note (11,929) (11,929)
Repayment of shareholder note 100,000
Repayment of lease obligations (51,397) (30,393) (83,824)
Increase (decrease) in deferred revenue (56,250) 162,500 206,250
----------- ----------- -----------
Net cash provided by financing activities 2,408,336 1,635,700 5,995,067
----------- ----------- -----------
Increase (decrease) in cash and cash
equivalents (517,458) (472,872) 44,353
Cash and cash equivalents at beginning of period 561,811 1,034,683
----------- ----------- -----------
Cash and cash equivalents at end of period $ 44,353 $ 561,811 $ 44,353
----------- ----------- -----------
----------- ----------- -----------
Supplemental disclosure of noncash investing
and financing activities:
Additions to capital lease obligations $46,070 $127,506 $205,066
-------- -------- --------
-------- -------- --------
Supplemental disclosure of cash flow information:
Cash paid for interest $4,630 $13,766 $21,682
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
-10-
<PAGE> 11
MEDICAL COMPOSITE TECHNOLOGY, INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS
--------
1. BUSINESS OF THE COMPANY:
Medical Composite Technology, Inc. (the Company) was incorporated on
April 7, 1989 to engage in the development, manufacturing and marketing of
advanced composite medical equipment. Since inception, the Company has
devoted sustantally all its efforts to raising capital, recruiting personnel
and developing products.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION:
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The Company has a material
accumulated deficit as of December 31, 1992, and has incurred significant
losses during the development stage. These matters raise substantial
doubt about the Company's ability to continue as a going concern. The
Company's operating losses to date have been funded from equity-financing
transactions. The Company has continued to incur high levels of research
and development spending, primarily in the development of its advanced
composite wheelchair products. While sales of these new products are
projected to increase substantially, there can be no assurance that
projected sales levels can be achieved. The Company projects it will
incur an operating loss in 1993 and will require additional financing to
fund this deficit. The Company's management has arranged for certain
bridge loan financing (see Note 10), and intends to seek additional debt
or equity-financing needed to fund the Company's operating losses. The
Company has not received firm commitments for the balance of the
financing projected to be required, and there can be no assurance that
such commitments will be obtained. The financial statements do not
include any adjustments that might result if the Company is unable to
obtain the requisite financing.
CASH AND CASH EQUIVALENTS:
Investments purchased with initial maturities of three months or less
are included in cash and cash equivalents. The Company's cash and cash
equivalents, which consist of demand deposits or money market accounts
are on deposit primarily with two U.S. Banks.
Continued
-11-
<PAGE> 12
MEDICAL COMPOSITE TECHNOLOGY, INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS, Continued
--------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
INVENTORIES:
Inventories are stated at the lower of cost (first-in, first-out
method) or market.
PATENTS:
Patents are valued at cost and amortized on a stright-line basis over
the lesser of their statutory life (17 years) or their estimated useful
life (generally 7 years).
ORGANIZATION COSTS:
Included in other assets are organization costs which are valued at
cost and amortized on a straight-line basis over five years.
RECLASSIFICATIONS:
Certain reclassifications have been made to the 1991 fiscal financial
statements to conform to the fiscal 1992 presentation. These
reclassifications have no impact on the previously reported net income
or total assets of the Company.
PROPERTY AND EQUIPMENT:
Property and equipment is stated at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over the
estimated useful lives of the respective assets, generally five to
seven years. When assets are sold or retired, the cost and related
accumulated depreciation is removed from the accounts and the
resulting gains or losses are included in other income. Tooling costs
are included in machinery and equipment and are depreciated over an
estimated useful life of five years.
RESEARCH AND DEVELOPMENT:
Research and development costs are expensed as incurred.
Continued
-12-
<PAGE> 13
MEDICAL COMPOSITE TECHNOLOGY, INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS, Continued
--------
3. INVENTORY:
Components of inventory are as follows:
<TABLE>
<CAPTION>
December 31,
----------------
1992 1991
---- ----
<S> <C> <C>
Raw materials $279,642 $227,981
Work in process 199,001 96,251
Finished goods 132,028
-------- --------
$610,671 $324,232
-------- --------
-------- --------
</TABLE>
4. PROPERTY AND EQUIPMENT:
Detail of property and equipment is as follows:
<TABLE>
<CAPTION>
December 31,
----------------
1992 1991
---- ----
<S> <C> <C>
Machinery and equipment $ 876,327 $524,706
Computer equipment 176,226 126,011
Furniture and fixtures 80,798 64,300
---------- --------
1,133,351 715,017
Less accumulated depreciation
and amortization (256,200) (80,204)
---------- --------
$ 877,151 $634,813
---------- --------
---------- --------
</TABLE>
Included in property and equipment are items acquired under capital
leases totaling $108,440 and $122,867, respectively, at Decebmer 31, 1992
and 1991, net of accumulated amortization of $87,792 and $32,544.
Continued
-13-
<PAGE> 14
MEDICAL COMPOSITE TECHNOLOGY, INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS, Continued
--------
5. Line of Credit and Note Payable:
The Company has a line of credit with a bank under which it
may borrow up to the lesser of $200,000 or 60% of eligible accounts
receivable, as defined, increasing to 70% following two quarters of
profitable operations. Borrowings bear interest at the bank's prime rate
plus 2% and will be collateralized by substantially all of the assets of
the Company. As of December 31, 1992, there have been no borrowings under
this agreement.
The Company also has a note payable to this bank. The note bears
interest at 11% per annum and is due in monthly installments of $1,389
through April 1995. During fiscal year 1992, the Company incurred
approximately $4,630 of interest expense related to this note.
Both the line of credit and note payable are subject to various
financial covenants including a minimum tangible net worth of $1,250,000
and a minimum quick ratio of 1.5 to 1. At December 31, 1992, the Company
was not in compliance with covenants regarding minimum tangible net worth
and certain ratios; however, the Company has obtained waivers on these
covenants through December 31, 1993.
6. Commitments:
The Company has certain noncancelable operating leases for its office and
manufacturing facilities, which expire in March and October 1994.
Under the terms of the lease agreements, the Company is responsible for
common area maintenance expenses which include insurance, taxes, repairs
and other operating costs.
At December 31, 1992 future minimum rental commitments under these
operating lease agreements were as follows:
<TABLE>
<CAPTION>
Year Ending
-----------
<S> <C>
1993 $ 80,304
1994 26,397
--------
$106,701
--------
--------
</TABLE>
Continued
-14-
<PAGE> 15
MEDICAL COMPOSITE TECHNOLOGY, INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS, Continued
--------
6. Commitments, continued:
Rent expense for the years ended December 31, 1992 and 1991 was
approximately $136,210 and $81,300, respectively. Rent expense from April
7, 1989 (date of inception) to December 31, 1992 was approximately
$230,150.
Future minimum lease payments remaining under capitalized lease
obligations incurred in connection with property and equipment
acquisitions are as follows:
<TABLE>
<CAPTION>
Year Ending
-----------
<S> <C>
1993 $ 56,406
1994 48,123
1995 29,823
1996 9,390
--------
143,742
Less amounts representing interest (26,085)
--------
Present value of minimum lease payments 117,657
Less current portion (41,742)
--------
$ 75,915
--------
--------
</TABLE>
7. Capital Stock:
Convertible Preferred Stock:
Each share of Series A, B and C preferred stock is convertible into
common stock on a one-for-one basis. The conversion rate is subject to
adjustment to reflect certain dilutive issuances. Conversion of preferred
stock into common stock is at the option of the holder at any time or
automatic upon the closing of an underwritten public offering of the
Company's common stock at a price of not less than $7.50 per share and an
aggregate offering of not less than $7,500,000. The Company has reserved
340,000, 1,520,674 and 769,229 shares of common stock for conversion of
Series A, B and C preferred stock, respectively. The remaining authorized
shares of preferred stock may be issued from time to time in one or more
series, as designated by a majority vote of the Board of Directors.
Continued
-15-
<PAGE> 16
MEDICAL COMPOSITE TECHNOLOGY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
________
7. Capital Stock, continued:
Convertible Preferred Stock, continued:
The Series C preferred stock has preference over Series A and B
preferred stock and common stock to the extent of its original
issuance price of $3.25 per share. The Series B preferred stock has
preference over Series A preferred stock and common stock in
liquidation to the extent of its original issuance prices, ranging from
$1.50 to $3.00 per share. The Series A preferred stock has preference
over common stock in liquidation to the extent of $.80 per share.
All declared and unpaid dividends are to be paid upon liquidation.
The holders of preferred stock may receive dividends of $.07, $.15 and
$.1625 per share per annum for Series A, B and C, respectively, when
and if declared by the Board of Directors. Dividends on the Series C
preferred stock accrue annually and are to be paid prior to and in
preference to any other dividend. As a result, $98,958 has been added
to Series C liquidation value as of December 31, 1992. Dividends on
the Series B preferred stock accrue annually, are cumulative whether
or not earned or declared, and are payable upon liquidation or upon
declaration of the Board of Directors. As a result, $444,279 has been
added to Series B liquidation value as of December 31, 1992. Series A
preferred stock dividends are noncumulative.
Preferred shareholders vote with common shareholders on an "as if
converted" basis.
Continued
-16-
<PAGE> 17
MEDICAL COMPOSITE TECHNOLOGY, INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS, continued
_______
7. Capital Stock, continued:
COMMON STOCK:
In July 1989, the Company sold 200,000 shares of common stock
to a founder under a restricted stock purchase agreement at $.05 per
share. The Company has the option to repurchase unvested shares at the
original purchase price in the event of termination of the shareholder's
employment. The shares are released from this restriction ratably
through July 1993. At December 31, 1992, 25,000 shares were subject to
repurchase.
In September 1989, the Board granted options to certain founders of the
Company to acquire up to 400,000 shares of common stock of the Company
at an exercise price of $.05 per share. The options vest ratably over a
four-year period. During 1991, vested options for 200,000 shares were
exercised. The Company has reserved 200,000 shares of common stock for
issuance in connection with the remaining unexercised options. At
December 31, 1991, options for an additional 133,334 shares had vested.
These founders are also consultants of the Company pursuant to
consulting agreements whereby the Company incurred $94,833 and $58,000 in
consulting fees for the years ended December 31, 1992 and 1991,
respectively.
STOCK OPTION PLAN:
The Company has reserved 398,437 shares of common stock for issuance to
employees of the Company, including officers, directors, employees and
consultants, pursuant to its amended 1989 Stock Option Plan. Under the
plan, options are granted by the Board of Directors at prices not less
than the fair market value at the date of grant for qualified incentive
stock options, or not less than 85% of the fair market value for all
other nonqualified options. Options vest ratably over periods determined
by the Board, generally four to five years.
Continued
-17-
<PAGE> 18
MEDICAL COMPOSITE TECHNOLOGY, INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS, continued
_____
7. Capital Stock, continued:
STOCK OPTION PLAN, continued:
Information with respect to activity under the Plan from inception is
set forth below:
<TABLE>
<CAPTION>
Outstanding Options
----------------------------------------
Available Number Price
for Options of Per Aggregate
Grant Exercised Shares Share Price
--------- ---------- ------ ----- ---------
<S> <C> <C> <C> <C> <C>
Shares reserved 234,224
Options granted (12,000) 12,000 $.05 $ 600
------- ------ -------
Balance, December 31,1989 222,224 12,000 $.05 600
Options granted (151,999) 151,999 $.05-$.11 14,683
--------- -------- -------
Balance, December 31, 1990 70,225 163,999 $.05-$.11 15,283
Options granted (63,000) 63,000 $.25 15,750
Options exercised 1,250 (1,250) $.10 (125)
Options terminated 7,000 (7,000) $.25 (1,750)
------- ------ ------- ------
Balance, December 31, 1991 14,225 1,250 218,749 $.05-$.25 29,158
Additional authorization 165,776
Options granted (86,400) 86,400 $.25 21,600
Options exercised 313 (313) $.10 (31)
Options terminated 46,437 (46,437) $.05-$.25 (7,050)
------ ------ -------- -------
Balance, December 31, 1992 140,038 1,563 258,399 $.05-$.25 $43,677
-------- ------ ------- -------
-------- ------ ------- -------
</TABLE>
At December 31, 1992, options to purchase 108,698 shares had
vested and were exercisable.
8. DISTRIBUTIONS AGREEMENT:
In October 1990, the Company executed a distribution agreement
with a certain shareholder of the Company whereby the shareholder has
the exclusive right to market and distribute the Company's Model 1A
rigid frame wheelchair product, and related accessories, to all
countries of North America and Europe. The agreement expires in April
1994 and contains automatic renewals for additional three-year periods,
unless either party elects not to renew the agreement.
Continued
-18-
<PAGE> 19
MEDICAL COMPOSITE TECHNOLOGY, INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS, continued
________
8. DISTRIBUTION AGREEMENT:
The agreement also provided for the distributor to fund certain costs
incurred for tooling, molds and dies related to the development of
manufacturing equipment. The $300,000 of aggregate funding received is
being recognized in results of operations on a straight-line basis
beginning September 1991. By the end of 1991, the Company completed all of
the milestones and received a total of $300,000 for such costs. During
1991 and 1990, the Company granted stock options to purchase up to 300,000
and 100,000 shares, respectively, of Series B preferred stock at $3.00 per
share to the distributor. During 1991, the distributor exercised all
options and purchased 400,000 shares.
The majority of sales during 1992 and the majority of outstanding
accounts receivable at December 31, 1992 and 1991 were with the
distributor.
9. INCOME TAXES:
As of December 31, 1992 the Company has federal net operating loss
carryforwards of approximately $4,500,000 for financial reporting purposes
which expire in years 2004 through 2007. A net operating loss carryforward
for regular federal income tax purposes of approximately $2,200,000 expires
in 2007. For federal and state purposes, the Company's net operating
losses may be subject to certain limitations due to changes in ownership.
For tax purposes, the Company has elected to capitalize certain
start-up costs and research and development expenses to be amortized over a
five-year period.
During 1991, the State of California, in which the Company resides,
suspended the usage of net operating loss carryforwards to reduce taxable
income for the fiscal years 1991 and 1992. These suspended loss
carryforwards receive an extension of the carryover period of two
additional years. Net operating loss carryforwards for state income tax
purposes of approximately $900,000 expire in 2009.
Continued
-19-
<PAGE> 20
MEDICAL COMPOSITE TECHNOLOGY, INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS, continued
________
9. Income Taxes, continued:
In February 1992, the Financial Accounting Standards Board
issued Statement No. 109, "Accounting for Income Taxes." The Company is
required to adopt the new standard for its fiscal year ending December
31, 1993. The effect of complying with this standard is not expected to be
significant.
10. Subsequent Events:
During January 1993, the Company executed another distribution
agreement with its shareholder whereby the shareholder has exclusive right
to market and distribute the Company's Model FX rigid frame wheelchair
product, and related accessories, to all countries of North America and
Europe (except Russia). The agreement expires in January 1996 and contains
automatic renewals for additional three-year periods, unless either party
elects not to renew the agreement. Under this agreement, the Company
received another $200,000 for reimbursement of tooling costs related to the
Model FX product.
During February 1993, the Company received a $500,000 loan from
certain of its preferred shareholders to finance operations during the
first quarter 1993. This loan, plus any additional loans which may be
received, are expected to be converted to preferred stock during 1993.
On March 31, 1993, the Company received a commitment from certain of
its preferred shareholders for an additional $1,500,000 bridge loan to
finance operations in 1993. As with the prior bridge loan, this loan is
expected to be converted to preferred stock during 1993.
-20-
<PAGE> 21
MEDICAL COMPOSITE TECHNOLOGY, INC.
(a company in the development stage)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1993 1992
---- ----
(Unaudited)
<S> <C> <C>
Sales $ 754,552 $ 422,260
Cost of sales 945,341 832,123
----------- -----------
(190,789) (409,863)
Engineering Research & Development 831,823 694,492
Marketing, General & Administrative 1,013,832 587,269
----------- ------------
1,845,655 1,281,761
Loss from Operations (2,036,444) (1,691,624)
Interest and Other Income (Expense) (2,013) (24,728)
------------ --------------
Net Loss $(2,038,457) $(1,716,352)
------------- -------------
------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINACIAL STATEMENTS
-21-
<PAGE> 22
MEDICAL COMPOSITE TECHNOLOGY, INC.
(a company in the development stage)
BALANCE SHEET
<TABLE>
<CAPTION>
September 30,
-------------
1993 1992
---- ----
(Unaudited)
<S> <C> <C>
Cash and Cash Equivalents $ (12,266) $ 758,544
Accounts Receivable from Related Party 103,625 91,935
Accounts Receivable, Other 7,901 9,408
Inventory 491,630 519,033
Prepaid Expenses and Other Current Assets 268,204 67,305
----------- ------------
Total Current Assets 859,094 1,446,225
Patents, Net 289,441 172,786
Property & Equipment, Net 936,247 852,538
Other Non-Current Assets 17,053 23,279
----------- ------------
Total Assets $ 2,101,835 $ 2,494,828
----------- ------------
----------- ------------
Accounts Payable Trade $ 280,902 $ 104,777
Accrued Liabilities 112,741 65,000
Bank Credit Line (Note 4) 87,750 --
Convertible Debt (Note 5) 1,450,000 --
Other Current Liabilities 26,387 49,100
----------- ------------
Total Current Liabilities 1,957,780 218,877
Advances from Everest & Jennings (Note 7) 500,000 --
Capital Lease Obligation 217,127 128,429
Deferred Revenue 249,062 220,312
----------- ------------
Total Long-Term Liabilities 966,189 348,741
Capital Stock 5,865,746 5,844,570
Shareholder Note Receivable (16,667) (10,000)
Retained Earnings - Prior Years (4,632,756) (2,191,008)
Retained Earnings - Current Year Loss (2,038,457) (1,716,352)
----------- ------------
Total Stockholder's Equity (822,134) 1,927,210
----------- ------------
Total Liabilities and Stockholder's Equity $ 2,101,835 $ 2,494,828
----------- ------------
----------- ------------
</TABLE>
See Accompanying Notes to Financial Statements
-22-
<PAGE> 23
MEDICAL COMPOSITE TECHNOLOGY, INC.
(a company in the development stage)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1993 1992
---- ----
(Unaudited)
<S> <C> <C>
Cash Flows From Operating Activities:
Net Loss $(2,038,457) $(1,716,352)
Adjustment to Reconcile Operating Cash:
Depreciation 169,008 129,165
Amortization 7,089 1,278
Increase (Decrease) in Deferred Revenue 42,812 (42,187)
Change in Working Capital:
Accounts Receivable, Related Party (47,375) (33,706)
Accounts Receivable, Other 9,762 (3,283)
Inventories 119,040 (194,806)
Prepaid & Other Current Assets (226,259) (47,171)
Accounts Payable 13,981 (2,599)
Accrued Expenses 41,746 (20,003)
----------- -----------
Net Cash Used in Operating Activities (1,908,653) (1,929,664)
Cash Flows From Investing Activities:
Acquisition of Property & Equipment (228,105) (346,888)
Acquisition of Patents (60,486) (48,561)
Acquisition of Other Assets 578 (4,141)
----------- -----------
Net Cash Used in Investing Activities (288,013) (399,590)
Cash Flows From Financing:
Issuance of Common Stock, Net of Notes Receivable 14,511 156
Issuance of Preferred Stock -- 2,477,756
Convertible Debt Issuance 1,450,000 --
Advances From Everest & Jennings 500,000 --
Bank Credit Line Debt 87,750 --
Issuance of Long-Term Note -- 50,000
Repayment of Long-Term Note (11,685) (7,367)
Increase in Lease Obligation 144,842 46,786
Repayment of Lease Obligation (45,371) (41,342)
----------- -----------
Net Cash Provided by Financing Activities 2,140,047 2,525,989
----------- -----------
Increase (Decrease) in Cash & Cash Equivalents (56,619) 196,735
Cash and Cash Equivalents at Beginning of Period 44,353 561,810
----------- -----------
Cash and Cash Equivalents at End of Period $ (12,266) $ 758,545
----------- -----------
----------- -----------
</TABLE>
See Accompanying Notes to Financial Statements
-23-
<PAGE> 24
MEDICAL COMPOSITE TECHNOLOGY, INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- BUSINESS OF THE COMPANY
Medical Composite Technology, Inc. ("MCT") was incorporated on April 7,
1989 to engage in the development, manufacturing and marketing of advanced
composite medical equipment. Since inception, MCT has devoted substantially
all its efforts to raising capital, recruiting personnel and developing
products.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared assuming MCT will
continue as a going concern. MCT has a material accumulated deficit as of
September 30, 1993, and has incurred significant losses during the development
stage. These matters raise substantial doubt about MCT's ability to continue as
a going concern. MCT's operating losses to date have been funded from
equity-financing transactions. MCT has continued to incur high levels of
research and development spending, primarily in the development of its advanced
composite wheelchair products. While sales of these new products are projected
to increase substantially, there can be no assurance that projected sales
levels can be achieved. MCT projects it will incur additional operating
losses throughout the remainder of 1993 and will require additional financing
to fund this deficit.
Accounts Receivable
The majority of accounts receivable are with the distributor; the
relationship with MCT is described in Note 3. A reserve for doubtful accounts
is not considered necessary for the Company.
Inventories
Inventories are stated at the lower of cost (first in, first out method)
or market. Components of inventory at September 30, 1993 were as follows:
Raw materials $443,309
Work in process 93,878
Finished goods 33,905
Obsolescence reserve (79,461)
--------
$491,631
Other Current Assets
Other Current Assets includes deposits for tooling not yet completed or
placed in service. Tooling deposits total $191,180 at September 30, 1993.
-24-
<PAGE> 25
MEDICAL COMPOSITE TECHNOLOGY, INC.
(a company in the development stage)
Patents
Patents are valued at cost and amortized on a straight-line basis over the
lesser of their statutory life (17 years) or their estimated useful life
(generally 10 years). Original cost of patents at September 30, 1993 is as
follows:
Acquisition cost $295,252
Accumulated amortization 5,811
--------
$289,441
Deferred Revenue
A total of $400,000 to partially defray the cost of tooling development
was received from the distributor, who is also a significant shareholder in
MCT. This income was classified as deferred revenue and is being amortized
over the expected life of the products, generally three years. The balance at
September 30, 1993 was $249,062.
Research and Development
Research and development costs are expenses as incurred.
Organization Costs
Included in other assets are organization costs which are valued at cost
and amortized on a straight-line basis over five years.
Property and Equipment
Propety and Equipment is stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, generally ranging from five to seven years.
Components of fixed assets at September 30, 1993 are as follows:
Machinery & Equipment $ 961,651
Computer Equipment 299,767
Furniture & Fixtures 100,037
----------
$1,361,455
Accumulated Depreciation 425,208
----------
$ 936,247
Accrued Liabilities
Accrued liabilities includes various accruals for vacation, workers
compensation, payroll taxes and anticipated legal expenses. The highest single
item at September 30, 1993 is a $30,000 reserve regarding a dispute with a
computer software supplier.
-25-
<PAGE> 26
MEDICAL COMPOSITE TECHNOLOGY, INC.
(a company in the development stage)
NOTE 3 -- RELATED PARTY TRANSACTIONS
Invacare Corporation, a manufacturer and distributor of durable medical
equipment, is a significant shareholder in MCT.
MCT entered into distribution agreements with Invacare Corporation on
October 9, 1990 (to distribute MCTs model AC wheelchair) and on January 1, 1993
(to distribute MCT's model FX wheelchair). MCT, in accordance with the terms
of those agreements, terminated them on April 6, 1993 and September 21, 1993,
respectively.
MCT entered into a new distribution agreement for the AC and FX
wheelchairs with Invacare on October 14, 1993. This agreement grants Invacare
exclusive North American distribution rights to these model wheelchairs for a
term of two years or, if MCT is acquired by an existing wheelchair provider,
until 30 days following the closing of the acquisition.
It is expected, therefore, that MCTs exclusive distribution agreement with
Invacare will terminate 30 days after the closing of MCTs acquisition by
Everest & Jennings. MCT will have no further contractual relationship with
Invacare beyond that date.
NOTE 4 -- BANK CREDIT LINE
MCT has a line of credit which expires January 5, 1999, under which it may
borrow the lesser of $100,000 or 60% of eligible accounts receivable. No
additional funds were available to MCT as of September 30, 1993 pursuant to
this line. The line is collateralized by substantially all the assets of MCT.
MCT also has a promissory note payable with the same bank. The balance as
of September 30, 1993 was $26,387; it is payable in monthly installments of
$1,389 through April 1995.
Both the line of credit and note payable are subject to various financial
convenants including a minimum tangible net worth of $1,250,000 and a minimum
quick ratio of 1.5 to 1. At December 31, 1992, MCT was not in compliance with
covenants regarding minimum tangible net worth and certain ratios; however, MCT
has obtained waivers on these covenants through December 31, 1993.
NOTE 5 -- CONVERTIBLE DEBT
Through September 1993, MCT has received loans totalling $1,450,000 from
certain of its prefered shareholders. This debt is expected to be converted to
equity concurrently with the Company's acquisition by Everest & Jennings.
NOTE 6 -- COMMITMENTS
The Company has certain non-cancelable operating leases for its office and
manufacturing facilities, which expire in March and October, 1994. Under the
terms of the lease agreements, the Company is responsible for common area
maintenance expenses which include insurance, taxes, repairs and other
operating costs.
-26-
<PAGE> 27
MEDICAL COMPOSITE TECHNOLOGY, INC.
(a company in the development stage)
Future minimum rental commitments under these operating lease agreements are as
follows:
Year ending 1993 (Oct - Dec) 26,557
Year ending 1994 26,397
------
52,954
The balance of capital lease obligations incurred in connection with
property and equipment acquisitions was $217,127 as of September 30, 1993.
NOTE 7 -- SUBSEQUENT EVENTS
MCT signed a merger agreement with Everest & Jennings on October 22, 1993,
under which MCT would be acquired in a stock for stock transaction. It is
anticipated this merger will close in late December 1993 or early January 1994.
Since October 1, 1993, MCT has been funding operations through advances
from Everest & Jennings. These advances total $1,500,000 as of the end of
November 1993.
-27-
<PAGE> 28
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
Notes to Condensed Pro Forma Financial Statements
(Unaudited)
NOTE A -- BASIS OF PRESENTATION
On October 23, 1993, Everest & Jennings International Ltd. (the 'Company') and
Brierley Investments Limited ('BIL') entered into an Exchange Agreement and
Plan of Merger (the 'Merger Agreement') with Medical Composite Technology,
Inc. ('MCT') The Merger Agreement sets forth the terms and conditions under
which MCT will merge with and into a wholly-owned subsidiary of the Company.
The Merger Agreement provides for a tax-free stock for stock exchange between
the stockholders of MCT and the Company, which will be accounted for using the
purchase method. The outstanding shares of common stock and preferred stock of
MCT will be converted into 8 million Common shares of the Company, provided
certain anti-dilution provisions are maintained. The Merger Agreement is
subject to numerous conditions, including but not limited to, the approval by
the Company's stockholders of the Debt Conversion Transaction described below.
As of September 30, 1993, the Company and BIL entered into a Debt Conversion
Agreement to provide for the conversion (the 'Debt Conversion Transaction') of
approximately $75 million in principal and accrued, unpaid interest (the
'Converted BIL Debt') into a $55 million convertible Common Stock Note and a
$20 million convertible Preferred Stock Note. The Common Stock Note is
convertible into a number of shares of Common Stock equal to the principal
balance of that Note divided by a stated conversion price ($1.00 per
share). Similarly, the Preferred Stock Note is convertible into a number of
shares of Series C Preferred Stock equal to the principal balance of that Note
divided by a stated conversion price ($1.00 per share). The Preferred Stock
and Common Stock Note will convert in full upon satisfaction of a number of
conditions, including but not limited to, ratification of the Debt Conversion
Transaction by the stockholders of the Company. On December 31, 1993, the
Debt Conversion Transaction was ratified by the stockholders of the Company.
The unaudited pro forma financial statements present a combination of the
historical financial statements for the Company and MCT as adjusted to reflect
the purchase transactions in accordance with the purchase method of accounting
and the Debt Conversion Transaction. Pro forma income statements are presented
for the fiscal year ended December 31, 1992, and the three quarters ended
September 30, 1993. A pro forma balance sheet is presented as of September 30,
1993.
The unaudited pro forma results are not necessarily indicative of the combined
results that would have occured had the acquisition and debt conversion
actually taken place on October 1, 1993, nor are they necessarily indicative of
the results that may occur in the future. The pro forma financial statements
should be read in conjunction with the related historical financial statements.
-28-
<PAGE> 29
EVEREST & JENNINGS INTERNATIONAL LTD AND SUBSIDIARIES
Pro Forma Consolidated Statement of Operations
(Dollars in thousands except per share data and number of shares outstanding)
<TABLE>
<CAPTION>
Year Ended December 31, 1992
---------------------------------------------------------------------------
(Unaudited)
Pro Forma
Consolidated MCT Acquis Debt Conv Combined
E & J Int'l MCT Dr/(Cr) Adj Dr/(Cr) Adj E&J/MCT
----------- --- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues $107,115 $504 $ - $ - $107,619
Cost of Sales 80,923 877 81,800
-------- ------ -------- ----------- --------
Gross Profit 26,192 (373) 0 0 25,819
Selling Expenses 27,195 1,177 28,372
General & Administrative Expenses 9,275 872 a) 480 10,627
Restructuring Expenses 5,150 0 5,150
-------- ------ -------- ----------- --------
Total Operating Expenses 41,620 2,049 480 0 44,149
-------- ------ -------- ----------- --------
Operating Loss from Continuing Operations (15,428) (2,422) (480) 0 (18,330)
Interest Expense, BIL 2,272 0 b) (2,272) 0
Interest Expense, Other 2,709 20 2,729
Other Expense 240 0 240
-------- ------ -------- ----------- --------
Other (Income)/Expense 5,221 20 0 (2,272) 2,969
-------- ------ -------- ----------- --------
Loss from Continuing Operations before Taxes (20,649) (2,442) (480) 2,272 (21,299)
Income Tax Provision (1,737) 0 (1,737)
-------- ------ -------- ----------- --------
Net Loss ($18,912) ($2,442) ($480) $2,272 ($ 19,562)
-------- ------ -------- ----------- --------
-------- ------- -------- ----------- --------
Proforma Loss Per Share ($0.31) ($0.27)
------- --------
------- --------
Proforma Weighted Average Number of Shares Outstanding 8,000,000 72,146,000
--------- ----------
--------- ----------
</TABLE>
a) To reflect goodwill amortization pursuant to E & J's acquisition of MCT as
of 1/01/92. A 10-year useful life has been assigned to the MCT goodwill.
b) To reflect reduced interest expense pursuant to the BIL/E & J debt
conversion as of 1/01/92.
c) The above amounts do not include the anticipated charge to earnings of the
Company which will result from expensing research & development items in
process at the acquisition date.
d) Management of the Company is in the process of reviewing the recoverability
and useful life of the goodwill recorded pursuant to the Smith & Davis
acquisition. Such goodwill is valued at approximately $6.5 million at
September 30, 1993. This review may result in a partial or full impairment
of this asset.
-29-
<PAGE> 30
EVEREST & JENNINGS INTERNATIONAL LTD AND SUBSIDIARIES
Pro Forma Consolidated Statement of Operations
(Dollars in thousands except per share data and number of shares outstanding)
<TABLE>
<CAPTION>
Nine Months Ended Spetember 30, 1993
------------------------------------------------------------------
(Unaudited)
Pro Forma
Consolidated MCT Acquis Debt Conv Combined
E & J Int'l MCT Dr/(Cr) Adj Dr/(Cr) Adj E&J/MCT
----------- --- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues $71,734 $755 $ - $ - $72,489
Cost of Sales 53,826 944 54,770
------ --- --- --- ---------
Gross Profit 17,908 (189) 0 0 17,719
Selling Expenses 19,317 1,214 20,531
General & Administrative Expenses 9,917 632 a) 360 10,909
------ ----- --- --- ---------
Total Operating Expenses 29,234 1,846 360 0 31,440
------ ----- --- --- ---------
Operating Loss from Continuing Operations (11,326) (2,035) (360) 0 (13,721)
Interest Expense, BIL 2,175 0 b) (2,175) 0
Interest Expense, Other 2,341 3 2,344
Other Expense 0 0 0
----- ----- --- ----- --------
Other (Income)/Expense 4,516 3 0 (2,175) 2,344
----- ----- --- ----- --------
Loss from Continuing Operations before Taxes (15,842) (2,038) (360) 2,175 (16,065)
Income Tax Provision 208 0 208
------ ----- --- ------ ---------
Net Loss ($16,050) ($2,038) ($360) $2,175 ($16,273)
------ ----- --- ----- ---------
------ ----- --- ----- ---------
Proforma Loss Per Share ($0.25) ($0.23)
----- ----------
----- ----------
Proforma Weighted Average Number of Shares Outstanding 8,000,000 72,162,000
--------- ----------
--------- ----------
</TABLE>
a) To reflect goodwill amortization pursuant to E & J's acquisition of MCT as
of 1/01/93. A 10-year useful life has been assigned to the MCT goodwill.
b) To reflect reduced interest expense pursuant to the BIL/E & J debt
conversion as of 1/01/93.
c) The above amounts do not include the anticipated charge to earnings of the
Company which will result from expensing research & development items in
process at the acquisition date.
d) Management of the Company is in the process of reviewing the recoverability
and useful life of the goodwill recorded pursuant to the Smith & Davis
acquisition. Such goodwill is valued at approximately $6.5 million at
September 30, 1993. This review may result in a partial or full impairment
of this asset.
-30-
<PAGE> 31
EVEREST & JENNINGS INTERNATIONAL LTD AND SUBSIDIARIES
Pro Forma Consolidated Balance Sheet
(Dollars in Thousands)
ASSETS
<TABLE>
<CAPTION>
September 30, 1993
---------------------------------------------------------------------------
(Unaudited)
Pro Forma
Consolidated MCT Acquis Debt Conv Combined
E & J Int'l MCT Dr/(Cr) Adj Dr/(Cr) Adj E & J/MCT
------------ ----- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Current Assets:
- ---------------
Cash $ 180 $ (13) $ - $ - $ 167
Accounts Receivable 21,471 112 21,583
Inventories 26,948 492 c) (300) 27,140
Other Current Assets 5,436 268 5,704
------- ------- ------- -------- ------
Total Current Assets 54,035 859 (300) 0 54,594
Property, Plant & Equipment
- ---------------------------
Land 470 0 470
Buildings and Improvements 6,765 0 6,765
Machine & Equipment 19,014 1,361 b) (902) 19,473
------- ------- ------- -------- ------
26,249 1,361 (902) 0 26,708
Less Accumulated Depreciation (13,007) (425) b) 425 (13,007)
------- ------- ------- -------- ------
Property, Plant & Equipment, Net 13,242 936 (477) 0 13,701
Intangible Assets, Net 6,522 289 a) 4,800 11,611
Other Assets 1,638 17 1,655
------- ------- ------- -------- ------
Total Assets $ 75,437 $ 2,101 $4,023 $0 $81,561
------- ------- ------- -------- ------
------- ------- ------- -------- ------
</TABLE>
a) To reflect goodwill pursuant to E & J's acquisition of MCT as of 9/30/93.
Such amount was computed as follows:
<TABLE>
<CAPTION>
<S> <C>
Value of 8 Million shares of E & J Common Stock $8,000
E & J advances to MCT at 9/30/93 500
MCT negative net worth at 9/30/93 324
Valuation adjustment to inventory & machinery 777
------
9,601
Amount allocated to R & D (4,801)
------
Goodwill $4,800
------
------
</TABLE>
The trading price for the Company's common stock to be issued pursuant to the
MCT transaction would indicate the value of the MCT acquisition would
approximate $12 million. However, the stock is thinly traded and is not the
best indicator of value. Therefore, in the opinion of management of the
Company, a valuation consistent with the debt conversion price of the Company's
stock would be more appropriate for recording this transaction. A final
determination of valuation will be made upon the closing of the transaction.
b) To eliminate accumulated depreciation and to adjust valuation of machinery &
equipment in comformity with E & J's accounting policy on asset
capitalization pursuant to E & J's acquisition of MCT as of 9/30/93.
c) To adjust inventory to reflect a discontinued product line pursuant to
E & J's acquisition of MCT as of 9/30/93.
d) Management of the Company is in the process of reviewing the recoverability
and useful life of the goodwill recorded pursuant to the Smith & Davis
acquisition. Such goodwill is valued at approximately $6.5 million at
September 30, 1993. This review may result in a partial or full
impairment of this asset.
-31-
<PAGE> 32
EVEREST & JENNINGS INTERNATIONAL LTD AND SUBSIDIARIES
Pro Forma Consolidated Balance Sheet
(Dollars in thousands except per share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, 1993
----------------------------------------------------------------------------------------
(Unaudited)
Pro Forma
Consolidated MCT Acquis Debt Conv Combined
E & J Int'l MCT Dr/(Cr) Adj Dr/(Cr) Adj E & J / MCT
--------------- ------------- ------------- ------------- ---------------
Liabilities
- -----------
<S> <C> <C> <C> <C> <C>
Short Term Borrowings From BIL $ 67,300 $ 0 $ - b) ($60,547) $ 6,753
Short Term Borrowings and current 18,381 1,538 b) (10,000) 9,919
installments of long term debt
Accounts Payable 7,260 282 7,542
Accrued Payroll Costs 8,143 0 8,143
Accrued Interest, BIL 4,453 0 b) (4,453) 0
Accrued Expenses and Income Taxes 7,568 139 7,707
Accrued Restructuring Expenses 1,656 0 1,656
-------- ------ ------- ------------ ---------
Total Current Liabilities 114,761 1,959 0 (75,000) 41,720
Advances from E & J to MCT 0 500 a) (500)
Long-Term Debt, Net of Current Portion 7,808 0 7,808
Other Long-Term Liabilities 552 466 1,018
-------- ------ ------- ------------ ---------
Total Liabilities 123,121 2,925 (500) (75,000) 50,546
Stockholders' Equity:
- ---------------------
Preferred Stock 11,725 5,823 a)(5,823) b) 20,000 31,725
Common Stock 92 35 a) 45 b) 550 722
Additional Paid-In Capital 43,708 (10) a) 8,430 b) 54,450 106,578
Accumulated Deficit (102,550) (6,672) a) 1,871 (107,351)
Cummulative translation adjustments (659) 0 (659)
-------- ------ ------- ------------ ---------
Total Stockholders' Equity (47,684) (824) 4,523 75,000 31,015
-------- ------ ------- ------------ ---------
Total Liabilities & Stockholders' Equity $ 75,437 $2,101 $4,023 $ 0 $81,561
-------- ------ ------- ------------ ---------
-------- ------ ------- ------------ ---------
Proforma Book Value ($0.10) $0.43
------ ---------
------ ---------
</TABLE>
a) To reflect reclassification of MCT's advance from E & J and adjustment in
combined equity accounts pursuant to E & J's acquisition of MCT as of
9/30/93.
b) To reflect adjustments in E & J's equity, short term debt and accrued
interest accounts pursuant to the BIL/E & J debt conversion as of 9/30/93.
c) Management of the Company is in the process of reviewing the recoverability
and useful life of the goodwill recorded pursuant to the Smith & Davis
acquisition. Such goodwill is valued at approximately $6.5 million at
September 30, 1993. This review may result in a partial or full
impairment of this asset.
-32-
<PAGE> 33
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
Commencing in 1989, the Company has undergone an extensive restructuring
of its operations with the objective of becoming a stronger long-term competitor
in the durable medical equipment industry. The restructuring was designed to
improve overall financial performance through cost reduction and the
elimination of excess manufacturing capacity. Extensive asset sales were also
undertaken to generate the cash necessary to partially finance restructuring
activites and reduce debt levels. Credit facilities were modified or expanded
as needed to partially fund the overall restructuring, in addition to
contributing to the funding of the Company's operations.
A major element of the restructuring was the sale in October, 1991 of
the Company's former European subsidiary, Ortopedia GmbH. At the time, the
Company retained a 15% interest in Ortopedia Holding GmbH, the new parent of
Ortopedia GmbH. During the period from December 31, 1990 to December 31, 1992,
total assets were reduced approximately $84 million due primarily to $63
million from the sale of Ortopedia as well as sales and writedown of certain
fixed assets and reductions in other current assets including planned
reductions of inventory in the United States. In December 1992, the Company
sold its remaining 15% interest in Ortopedia Holding GmgH.
On February 28, 1992, the Company announced its intention to
consolidate its domestic wheelchair manufacturing operations and corporate
headquarters by relocating its California-based manufacturing and corporate
offices to Missouri by the end of the year. This decision was made in light of
the higher cost of manufacturing in Southern California and based on the
opportunity to further reduce costs through the consolidation of administrative
and support functions with existing operations in Missouri. The relocation from
California was begun in the second quarter of 1992, and was largely completed
by the end of 1992.
As a result of the relocation, the Company experienced major start-up
problems in wheelchair production due primarily to computer system failures and
related parts shortages, and to manufacturing delays and inefficiencies
attributable generally to the commencement of relocated manufacturing operations
and specifically to the need to train a large number of new employees. These
start-up problems have most severely impacted the Company's high margin power
and rehab wheelcair products, and the resulting reduction in sales and cash
flow has hindered the Company's ability to keep vendors current and otherwise
to implement corrective measures quickly and effectively.
Shipment delays have caused a substantial build-up in back-ordered power
and rehab wheelchair products, which the Company is working to reduce.
However, customer confidence and frustration resulting from such delays have
combined to increase the order cancellation rate and to decrease the incoming
order rate, particularly for the affected wheelchairs. As a result, orders and
market share generally have decreased, and manufacturing activity generally has
shifted disproportionately to lower margin manual and commodity wheelchairs.
The foregoing problems adversely affected third and fourth quarter 1992
shipments and financial results, and will continue to do so at least through
the second quarter of 1993. Management has developed and implemented a plan it
believes will correct the Company's problems with manufacturing and shipment
delays. However, order rates, margins and market share must increase and
customer confidence must be restored in the very near term, if the Company is to
generate the cash flow necessary to fund its operations on a continuing basis
and to achieve profitability. Assuming the Company can achieve these
objectives, management expects the relocation to improve the Company's overall
cost structure and, therefore, its competitive position.
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<PAGE> 34
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
Production and delivery of all of the Company's non-wheelchair products
were unaffected by the production problems that occurred in the relocation of
the wheelchair manufacturing facility to St. Louis. The Company has continued
to deliver non-wheelchair products in a timely manner and management believes
that additional market share can be obtained in these product lines.
On October 9, 1992 the Company completed the sale of its California
property. The Company is in arbitration with the environmental engineering
firm which was retained by the Company to manage certain aspects of the work
required to sell the California property. See Part I, Item 3, Legal
Proceedings.
In the domestic market, the Company's durable medical equipment products
are sold primarily through homecare and medical equipment dealers, as well as
national accounts. Consumers and dealers are reimbursed through federal, state
and private insurer reimbursement programs. The Company estimates that
Medicare reimbursement presently represents approximately 33% of the Company's
total domestic revenues. The Company anticipates being able to counteract the
impact of cutbacks in Medicare, state budget and private insurer programs on
its results of operations and cash flow through the benefits of a reduced cost
structure.
In the institutional bed market, while the Company has a small market
share of hospital beds, it has been in the position of being the only
competitor of Hill-Rom with respect to retractable hospital beds. Early in
1993, Stryker introduced a retractable hospital bed into the market which
management believes could put pressure on sales volume and current margins on
its retractable hospital bed products.
RESULTS OF OPERATIONS
REVENUES
The following table sets forth the amounts and percentages of revenues
geographically by area where products were manufactured (dollars in millions):
<TABLE>
<CAPTION>
1992 1991 1990
------------ ----------- ------------
Amount % Amount % Amount %
------ --- ------ --- ------ ---
<S> <C> <C> <C> <C> <C> <C>
North America $107 100 $119 100 $133 63
Europe - - - - 77 37
---- --- ---- --- ---- ---
$107 100 $119 100 $210 100
---- --- ---- --- ---- ---
---- --- ---- --- ---- ---
</TABLE>
North American revenues in 1992 decreased $12 million, or 10%, from the
prior year, primarily due to shipment delays and the loss of market share in
the U.S. wheelchair business as a result of disruptions to production
capabilities related to the relocation of the primary manufacturing facility
from California to Missouri. Revenues in the bed product line increased 8% in
1992, largely due to improved market penetration for institutional products.
North American revenues in 1991 decreased $14 million, or 11%, versus
1990, primarily due to increased price competition, reduced sales of lower
margin manual wheelchairs, and lower homecare bed and scooter revenues. The
reduced sales of lower margin manual wheelchairs resulted from the elimination
of certain unfavorable sales contracts in late 1990 while lower scooter
revenues reflected a deemphasis of the product line in 1991. Lower homecare
bed revenues reflected the impact of increased price competition.
-34-
<PAGE> 35
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
European revenues were $77 million in 1990 but were reflected on the
equity method in 1991, reflecting the deconsolidation of Ortopedia GmbH in 1991
due to the decision in 1990 to sell the subsidiary.
For the periods indicated, the following table summarizes operating results of
the Company (dollars in millions):
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------------
1992 1991 1990
----------- ----------- -----------
Amount % Amount % Amount %
------ -- ------ -- ------ --
<S> <C> <C> <C> <C> <C> <C>
Revenue $107.1 100 $118.9 100 $209.7 100
Cost of sales 80.9 75 80.3 68 154.4 74
------ --- ------ --- ------ ---
Gross profit 26.2 25 38.6 32 55.3 26
Operating expenses 36.4 34 40.7 34 64.5 31
------ --- ------ --- ------ ---
Operating loss before
restructuring expense (10.2) (9) (2.1) (2) (9.2) (5)
Restructuring expense 5.2 5 18.5 15 34.0 16
------ --- ------ --- ------ ---
Operating loss $(15.4) (14) $(20.6) (17) $(43.2) (21)
Interest expense (5.0) (5) (3.9) (3) (8.9) (4)
Earnings from European
operations -- -- 1.2 -- -- --
Gain (loss) on sale of
European operations (0.2) -- 6.6 6 -- --
Loss on sale of discontinued
operations -- -- -- -- (1.4) --
------ --- ------ --- ------ ---
Loss before income taxes $(20.6) (19) $(16.7) (14) $(53.5) (25)
Income tax provisions (benefits) (1.7) (1) 0.4 -- (0.4) --
------ --- ------ --- ------ ---
Net loss $(18.9) (18) $(17.1) (14) $(53.1) (25)
------ --- ------ --- ------ ---
------ --- ------ --- ------ ---
</TABLE>
1992 VERSUS 1991
1992 revenues of $107.1 million decreased $11.8 million or 10% from 1991,
largely as a result of wheelchair operations, which were negatively impacted by
the relocation of the Company's primary domestic manufacturing facility from
Camarillo, California to St. Louis, Missouri. The impact was focused almost
exclusively on the third and fourth quarter revenues after the commencement of
the physical relocation. The process of moving complex manufacturing operations
across the country and restarting with a largely new workforce resulted in
disruptions to normal manufacturing throughput with corresponding delays in
customer shipments and revenue recognition. Relocation-related inventory
imbalances caused by computer system failures and inadequate training of new
employees have also contributed to manufacturing shortfalls. At the same time,
1992 incoming orders for wheelchair products were largely equivalent to 1991,
resulting in increasing order backlogs. As a result of the shipment delays,
however, the Company experienced an increasing rate of order cancellations in
the third and fourth quarters of 1992 and the first quarter of 1993, and more
cancellations may occur in the second quarter of 1993. Such cancellations have
had and, if the cancellations continue, will have a material adverse impact on
the Company's financial performance. Also, the incoming power and rehab
-35-
<PAGE> 36
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
wheelchair order rate has declined in 1993 to date, and if such order rate is
not improved, the Company's financial performance will be adversely affected
for as long as the order rate remains depressed. In the first quarter of 1993,
wheelchair shipments increased over the fourth quarter, 1992 levels as the
startup and relocation problems are gradually being resolved; however, the
products shipped were skewed in favor of the low margin manual wheelchairs, as
production of the high margin power and rehab wheelchairs is still lagging.
Backlogs of past due orders are beginning to decline due to increases in
production and cancellation of orders.
Sales of Smith & Davis bed products in 1992 improved 8% over the prior
year due to improved penetration in the institutional market. Homecare product
sales were largely flat year to year due to intense price competition. 1992
revenues in the Everest & Jennings' Canadian and Mexican subsidiaries were down
6% from 1991 due to a 5% unfavorable Canadian exchange rate change and the
non-recurrence of $.9 million of export orders in Canadian operations.
Total Company gross profit decreased $12.4 million from $38.6 million in
1991 to $26.2 million in 1992. As a percentage of sales, gross profit decreased
from 32% last year to 25% in 1992. The decrease in gross profit reflects the
decrease in sales plus continued price competition in the markets for the
Company's wheelchair, homecare bed and oxygen concentrator products. Wheelchair
profitability has also been impacted by what management believes to be a
temporary shift of the Company's product mix to lower margin wheelchair
products as a result of the relocation; however, the Company must recover
market share for the higher margin wheelchairs, otherwise the shift of product
mix to lower margin products may be permanent. Shipment delays have occurred
largely in custom and rehabilitation wheelchair products due to their greater
complexity, larger number of components which have been subject to inventory
imbalances, and longer training time for new employees before normal production
levels are reestablished. Gross profit in Smith & Davis was also adversely
affected by a $0.7 million charge to writeoff surplus and obsolete inventory.
Operating expenses decreased $4.3 million or 11% from $40.7 million in
1991 to $36.4 million in 1992 due to lower depreciation, staffing expenses,
taxes, insurance, professional fees and contracted services in general and
administrative expenses resulting from the Company's consolidation of
corporate, Everest & Jennings Inc. and Smith & Davis functions in St. Louis.
1991 operating expenses also included a $1.5 million charge to write down the
Camarillo facility to its estimated net realizable value.
In the third and fourth quarters of 1992, the Company recorded
restructuring changes of $2.5 million and $2.7 million, respectively, to
reflect increased costs for startup inefficiencies, facilities and staff
duplication and additional provision for physical inventory losses associated
with the relocation of the wheelchair manufacturing facility and corporate
headquarters to Missouri. $1.5 million of the restructuring charge recorded in
1992 relates to expenses expected to be incurred during the first four months
of 1993. An initial restructuring charge of $18.5 million was recorded in 1991
in connection with the relocation to Missouri.
Interest expense of $5.0 million in 1992 increased 28% from 1991 as a
result of the accrual of $1.3 million of interest recorded in anticipation of
not being able to reduce the balance of a certain bank loan below $13 million
by March 31, 1993, as subsequently extended to June 30, 1993 (see Note 6 to the
Consolidated Financial Statements in Item 8).
Net other income and expenses declined from $7.8 million income in 1991
which included a $6.6 million gain from the sale of 85% of Ortopedia and $1.2
income from European operations sold in October, 1991 to a $0.2 million expense
in 1992 which reflected a loss on the disposition of the remaining 15%
shareholding in Ortopedia.
The 1992 income tax benefit of $1.8 million reflects the settlement of
certain disputed items for the years 1975 - 1983 with the California Franchise
Tax Board.
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<PAGE> 37
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
1991 versus 1990
Revenues in 1991 declined $90.8 million, or 43%, to $118.9 million versus
$209.7 million in 1990. The decline in revenues reflects the deconsolidation
of Ortopedia in 1991 ($76.9 million of the reduction) and reduced sales of
lower margin wheelchairs, lower scooter revenues and lower homecare bed
revenues. The Company also believes that uncertainties surrounding the
viability of the Company due to successive years of large losses resulting from
excess costs and restructuring charges may have adversely impacted operations
in 1991.
Gross profit decreased $16.7 million or 30% to $38.6 million in 1991, from
$55.3 million in 1990. The decreased gross profit reflects the deconsolidation
of Ortopedia which contributed $22.3 million to the reduction partially offset
by increased gross profit resulting from concerted efforts since January 1990
to reduce costs through significant reduction in personnel, increased
operational efficiency, control over raw material costs and an improved product
mix. As a percent of revenues, gross profit increased to 32% in 1991 from 26%
in 1990.
Operating expenses, before restructuring expenses in 1991, decreased $23.8
million or 37% to $40.7 million in 1991, from $64.5 million in 1990. The
decrease in operating expenses reflects the deconsolidation of Ortopedia which
reduced operating expenses $18.1 million, and lower salary and fringe costs
resulting from the significant reduction in headcount between periods,
partially offset by a $1.5 million charge in 1991 to write-down its Camarillo
facility to estimated net realizable value. Operating loss before restructuring
expenses narrowed to $2.1 million in 1991 versus $9.2 million in 1990 due to
success in reducing operating expenses between periods and in improving gross
profit.
As a result of its anticipated relocation from California to Missouri, the
Company recorded a fourth quarter, 1991 charge of $18.5 million to provide for
costs associated with the relocation including personnel related costs such as
severance and relocation expenses and costs associated with the sale and
relocation of certain machinery and equipment.
Inclusive of the restructuring expense associated with the consolidation
in St. Louis, the operating loss totaled $20.6 million in 1991 versus $43.2
million in 1990. Prior to its sale, Ortopedia was recorded on the equity
method. Accordingly, income before income taxes in 1991 includes $1.2 million
in equity income.
Interest expense of $3.9 million in 1991 declined $5.0 million from $8.9
million in 1990. The reduction in interest expense reflects no accrual in 1991
on borrowing from the Company's primary domestic lender and lower debt levels
due to the deconsolidation of Ortopedia in 1991 reducing interest expense $2.7
million. In accordance with the Company's bank restructuring agreement upon the
sale of Ortopedia GmbH and the repayment to the Bank of $8.3 million in October
1991, the Company's primary domestic lender waived any interest accrual in 1991
on amounts borrowed.
Other income in 1991 of $7.8 million is comprised of the $6.6 million gain
on the sale of Ortopedia in October 1991 and $1.2 million in equity income from
Ortopedia.
Loss on sale of discontinued operations of $1.4 million in 1990 is mainly
comprised of additional contingency reserves related to the sale of one of the
divisions of the Metal Products Group in 1987.
-37-
<PAGE> 38
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash provided from
operations and cash on hand. At December 31, 1992, the Company had $0.1
million in cash or $1.0 million less than the $1.1 million in cash at December
31, 1991. At December 31, 1992, total debt of $58.6 million was $4.4 million
higher than the $54.2 million in debt at December 31, 1991. The increase was
primarily due to advances from BIL (Far East Holdings) Limited ("BIL") and
borrowings from The Hongkong and Shanghai Banking Corporation ("HSBC") of $14
million and $15.1 million, respectively, during the year to finance the
restructuring and relocation, offset by the conversion of the Amended 9% Note
plus accrued interest totalling $9.8 million to 9% Series A Voting Convertible
Preferred Stock effective with the approval of the restructuring plan by the
stockholders at the annual meeting held on March 17, 1992, and the retirement
of $11.1 million in debt from the proceeds from the sale of the Camarillo,
California facility (see Note 6 to the Consolidated Financial Statements in
Item 8). Positive cash flow from operations of $3.2 million at Smith & Davis
and Everest & Jennings Canada also mitigated the overall increase in debt.
On October 2, 1992 the Company finalized a new one year $20 million
revolving credit facility with HSBC. Proceeds from this credit line were used
to repay $11 million of existing BIL advances, to fund restructuring expenses,
to replace existing letters of credit and for working capital purposes. The
repayment of this facility was guaranteed by Brierley Investments Limited, an
affiliate of BIL. The facility would not have been made available to the
Company without such guaranty. As of December 31, 1992, the Company had
borrowed close to the maximum available under the HSBC credit facility.
According to its original terms, the total amount available under the facility
was to reduce from $20 million to $15 million on March 31, 1993. Pursuant to
an amendment dated as of March 30, 1993, HSBC agreed to maintain the total
amount available under the facility at $20 million through the expiration date
of the facility.
Under the debt agreements with BIL and HSBC, at December 31, 1991 and 1992
the Company was obligated to repay approximately $29.3 million and $15.1
million, respectively, at various dates as described below.
<TABLE>
<CAPTION>
12/31/91 12/31/92
Balance Balance
Debt Agreement $ millions $ millions Repayment Date
- -------------- ---------- ---------- --------------
<S> <C> <C> <C>
Bank Loan (1) $22.7 $14.6 June 30, 1993
FASB 15 Adjustment (1.0) (0.2)
------ -----
Subtotal 21.7 14.4
Amended 10.5% Note 3.9 0.9 June 30, 1993
Amended 9% Note 9.7 -0-
BIL Promissory Notes (1992 Advances
through 9/11/92) - 4.0 June 30, 1993
BIL Promissory Notes (1992 Advances - 10.0 Various dates in the fourth quarter, 1993;
9/12/92 through 12/31/92) generally one year maturities
------ -----
Subtotal Due BIL 35.3 29.3
HSBC Credit Facility (2) - 15.1 September 30, 1993
------ -----
TOTAL $35.3 $44.4
------ -----
------ -----
</TABLE>
(1) Pursuant to a First Amended and Restated Credit Agreement, dated
August 30, 1991 (the "Agreement"), between the Company and Security Pacific
National Bank (the "Bank"). On February 21, 1992 BIL acquired all of the
Bank's interest in the Agreement.
(2) Excludes approximately $4.9 million committed with respect to outstanding
letters of credit at December 31, 1992.
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<PAGE> 39
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
On October 9, 1992, the Company repaid $11.1 million of the Bank Loan
indebtedness with the proceeds from the sale of the Camarillo property.
Additionally, on October 14, 1992, the Company repaid $11 million of the 1992
BIL Promissory Notes with a portion of the proceeds from the $20 million HSBC
credit facility. However, the Company was unable to repay $4.0 million of the
BIL 1992 Promissory Notes. Such Promissory Notes were due and payable on the
date that the company closed the HSBC credit facility. Also, the Company was
unable to repay the remaining $14.6 million balance on the Bank Loan as
required by March 31, 1993 or reduce the balance below $13 million to obtain
interest forgiveness. Accordingly, during 1992, the Company accrued interest
in the aggregate amount of approximately $13 million on the Bank Loan.
As of March 29, 1993, BIL agreed to extend the due dates of the Bank
Loan, the $4.0 million of the 1992 BIL Promissory Notes and the Amended 10.5%
Note to June 30, 1993. The Company has made a proposal to BIL to restructure
the indebtedness described in the preceeding sentence. In general, the
restructuring proposal under consideration, which would be subject to applicable
corporate approvals, contemplates converting the $14.6 million Bank Loan
balance, the remaining $0.9 million of the Amended 10.5% Note and the $4 million
of 1992 BIL Promissory Notes plus accrued interest into Class A Common Stock (or
Single Class Common Stock) at a price yet to be determined. Negotiations
between the Company and BIL also contemplate providing the Company additional
borrowing capacity to complete the restructuring. In order to properly evaluate
this proposal as well as explore other financing alternatives, the Company and
BIL have jointly retained a major investment banking firm. Upon review of such
firm's recommendations by the Board of Directors, the Company and BIL may enter
into negotiations to finalize a restructuring of the BIL indebtedness. While
management believes that mutually satisfactory arrangements can be negotiated
with BIL, no assurances can be made that the Company will be successful in such
negotiations.
Through the end of the first quarter of 1993, the Company has required
additional financing to fund the restructuring and fund operating needs. These
borrowings have been provided by BIL in their entirety and total an additional
$14 million. The Company expects to need additional financing through the end
of the second quarter 1993 before a cash neutral situation from operations is
anticipated to be attained.
On March 17, 1992 the stockholders of the Company approved the conversion
of the Amended 9% Note plus accrued interest into 5.9 million shares of 9%
Series A Voting Convertible Preferred Stock. Assuming the conversion of such
Preferred Stock to Common Stock and inclusive of the Series B Voting
Convertible Preferred Stock representing nearly 5% of total shares outstanding
(previously due to be received by the Bank and issued to BIL as a result of
BIL's purchase of the Company's debt with the Bank - see Note 6 to the
Consolidated Financial Statements in Item 8), BIL's ownership in the Company
now approximates 60% of total shares outstanding.
In July, 1991 the Company obtained a new three-year $13 million credit
line for its Smith & Davis subsidiary. At December 31, 1992, Smith & Davis
had borrowed $5.4 million under this line. In February, 1993 this credit line
was amended to increase the availability of funding to the Company and reduce
the borrowing cost. The Company's Canadian operation has existing credit
facilities in the aggregate of $5.1 million, on which $3.3 million was
borrowed as of December 31, 1992.
Accordingly, at December 31, 1992 the Company owed $27.7 million to banks
and other commercial lenders, $1.6 million under capitalized lease obligations,
and $29.3 million to BIL (net of $0.2 million FASB 15 adjustment).
The Company's 1992 revenues and operating results have been adversely
impacted by increased price competition, liquidity constraints and the
relocation of the Company's primary domestic wheelchair manufacturing facility
from California to Missouri. The third and fourth quarters were particularly
impacted by delayed shipments of customer orders for higher margin
rehabilitation wheelchair products and spare parts. These delays have resulted
in additional cash needs beyond those originally anticipated to finance the
relocation. From time to time, the Company has not been able to make timely
payments to some of the suppliers of materials for its wheelchair products. In
such circumstances, past due payment terms have been negotiated with most of
such suppliers. However, certain suppliers have temporarily suspended parts
deliveries to the Company until payment
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<PAGE> 40
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
has been received. As a result, the Company has not been able to make all
wheelchair production commitments on time, resulting in some order
cancellations and a reluctance by some customers to place future orders.
Startup inefficiencies and inventory imbalances in St. Louis manufacturing
operations will continue to adversely impact revenues, operating income and
cash flow. As a result, a first quarter 1993 loss from operations is expected
and additional financing must be secured. Assuming a successful restructuring
of the BIL debt as described earlier, the Company will attempt to fulfill its
cash needs through seeking additional financing from BIL or other external
sources. Although no assurances can be given that the Company can restructure
or reschedule the debt, if such debt is restructured or rescheduled,
management believes that the Company will be able to meet its cash operating
requirements at its existing Missouri, Canadian and Mexican operations.
To retain dealer loyalty during the period when wheelchair production
problems were occurring, the Company allowed certain dealers to delay payments
for purchases beyond the normal credit terms. The Company plans to begin
stricter enforcement of credit terms once production problems are rectified and
deliveries are made on an on-time basis.
Management believes that the Company's domestic and international
manufacturing capacity is sufficient to meet anticipated demand for the
foreseeable future. Capital expenditures of approximately $3.5 million are
projected for 1993 versus actual expenditures of $3.4 million in 1992.
NET OPERATING LOSS CARRY-FORWARDS
At December 31, 1992, for U.S. tax reporting purposes, the Company had
net operating loss ("NOL") carry-forwards of approximately $101 million
expiring between 1997 and 2008, which should be available to offset U.S.
taxable income generated in future years. For financial reporting purposes,
the Company had NOL carry-forwards of approximately $113 million expiring
between 1997 and 2008. The difference between tax and financial reporting of
NOL carry-forwards relates primarily to amounts written off for financial
reporting purposes not yet deductible for tax purposes. The Company does not
believe that any restructuring proposals under consideration with BIL will
limit the Company's ability to utilize its NOL carry-forwards. However such
restructuring could serve to increase the likelihood that limitations could
apply as a result of future changes in equity ownership in the Company.
FUTURE ACCOUNTING REQUIREMENTS
In Feberuary, 1992, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes" (SFAS 109). The Company is required to and
intends to adopt SFAS 109 in 1993. The Company has not yet determined the
impact of the adoption of SFAS 109, although it is not anticipated to be
material to the Company's consolidated financial statements.
-40-
<PAGE> 41
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1993
The following table summarizes operating results of the Company for the
three months ended Septmeber 30, 1993 and 1992 (dollars in millions):
<TABLE>
<CAPTION>
Three Months Ended September 30
-----------------------------------------
1993 1992
---------------- --------------------
Amount % Amount %
------ ---- ------ ----
<S> <C> <C> <C> <C>
Revenues $23.4 100 $22.7 100
Cost of sales 17.7 76 17.4 77
----- --- ----- ---
Gross profit 5.7 24 5.3 23
Operating expenses 9.3 40 11.3 50
----- --- ----- ---
Operating loss (3.6) (16) (6.0) (27)
Interest expense 1.6 6 0.7 3
----- --- ----- ---
Loss before income taxes (5.2) (22) (6.7) (30)
Income tax provisions (benefits) - - (1.2) (5)
----- --- ----- ---
Net loss $(5.2) (22) $(5.5) (25)
----- --- ----- ---
----- --- ----- ---
</TABLE>
Third quarter, 1993 revenues of $23.4 million increased $0.7 million or 3%
from 1992. Wheelchair sales of $16.8 million in the thrid quarter, 1993
increased $2.0 million or 14% from the third quarter, 1992. Domestic delivery
problems related to the relocation of the Company's primary domestic
manufacturing facility from Camarillo, California to St. Louis, Missouri had a
negative impact on third quarter, 1992 sales.
Sales of Smith & Davis homecare beds in the thrid quarter of 1993 decreased
$0.6 million of 17% from the third quarter of 1992; sales of institutional beds
in the third quarter of 1993 decreased $0.4 million or 10% from the third
quarter of 1992, for an aggregate decrease in bed sales for the third quarter of
1993 of 15% from the comparable period in the prior year. This decrease is a
result of competitive pressures and uncertainty in the durable medical equipment
market related to the potential impact of health care reform programs to be
enacted by the Clinton administration. In management's opinion, the decrease
in Smith & Davis' institutional bed sales in the third quarater of 1993 was
representative of conditions in the institutional durable medical equipment
market as a whole. Sales of Smith & Davis oxygen concentrator products in the
third quarter of 1993 decreased $0.3 million or 34% from the comparable period
of the prior year due to a reduction in purchases by the largest oxygen
concentrator customer.
Total Company gross profit increased $0.4 million from $5.3 million in the
thrid quarter of 1992 to $5.7 million in the third quarter of 1993. As a
percentage of sales, gross profit increased from 23% in the third quarter of
1992 to 24% in the third quarter of 1993. The increase in gross profit and in
gross profit as a percentage of sales reflects improvement in the Company's
manufacturing efficiency, offset by continued price competition in the markets
for the Company's wheelchair, bed and oxygen concentrator products.
Operating expenses decreased $2.0 million or 18% from $11.3 million in the
third quarter of 1992 to $9.3 million in the third quarter of 1993. The
decrease is due primarily to $2.5 million of restructuring expense which was
recorded in the third quarter of 1992. Third quarter, 1993 operating expenses
also reflect a one time $0.3 million charge for writing off the Company's
investment in a foreign joint venture.
-41-
<PAGE> 42
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
Interest expense of $1.6 million in the third quarter of 1993 increased
from the comparable period in the prior year due to increased debt levels and
as a result of the accrual of interest recorded in anticipation of not being
able to reduce the balance of the Bank Loan below $13 million by September 30,
1993, as extended (see Note 5 to the Unaudited Consolidated Financial
Statements in Item 1).
In January 1993, the Company adopted the provisions of SFAS No. 109,
'Accounting for Income Taxes' ('SFAS 109'). The adoption of SFAS 109 did not
have an impact on the consolidated financial statements (see Note 7 to the
Unaudited Consolidated Financial Statements in Item 1).
The income tax benefits of $1.2 million in the third quarter of 1992
reflect the settlement of certain disputed items with the California Franchise
Tax Board.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1993
The following table summarizes operating results of the Company for the
nine months ended September 30, 1993 and 1992 (dollars in millions):
<TABLE>
<CAPTION>
Nine Months Ended September 30
----------------------------------------
1993 1992
--------------- --------------------
Amount % Amount %
------ --- ------ ---
<S> <C> <C> <C> <C>
Revenues $ 71.7 100 $ 82.9 100
Cost of sales 53.8 75 60.0 72
----- --- ---- --
Gross profit 17.9 25 22.9 28
Operating expenses 29.2 41 30.4 37
---- -- ---- --
Operating loss (11.3) (16) (7.5) (9)
Interest expense 4.5 6 2.5 3
--- -- ---- --
Loss before income taxes (15.8) (22) (10.0) (12)
Income tax provisions (benefits) 0.2 -- (1.8) (2)
--- ---- ---- ---
Net loss $(16.0) (22) $ (8.2) (10)
------ ---- ------ -----
------ ---- ------ -----
</TABLE>
Revenues for the nine months ended September 30, 1993 decreased $11.2
million or 14% to $71.7 million from the comparable period in the prior year.
Wheelchair sales of $50.6 million in the first nine months of 1993 decreased
$5.2 million or 9% from the comparable period in the prior year. The relocation
of the Company's primary domestic manufacturing facility from Camarillo,
California to St. Louis, Missouri and the related production and delivery
problems and declining orders negatively impacted sales in the first and second
quarters of 1993. However, the domestic wheelchair order rate has gradually
increased throughout the first three quarters of 1993, and on-time deliveries
have improved throughout 1993 to the point where the Company had fewer than a
dozen past due wheelchair orders at the end of October, 1993.
Sales of Smith & Davis homecare beds in the first nine months of 1993
decreased $1.5 million or 14% from the first nine months of 1992; sales of
institutional beds in the first nine months of 1993 decreased $2.6 million or
21% from the first nine months of 1992, for an aggregate decrease in bed
sales for the first nine months of 1993 of 18% from the comparable period in
the prior year. This decrease is primarily a result of ongoing price
competition and uncertainty in the durable medical equipment market related to
the potential impact of health care reform programs to be enacted by the
Clinton administration. In management's opinion, the decrease in Smith &
Davis' institutional bed sales through the third quarter of 1993 was
representative of conditions in the institutional durable medical equipment
market as a whole. Sales of Smith & Davis oxygen concentrator products
through the third quarter of 1993 decreased $1.9 million or 51% through the
comparable period of the prior year due to a reduction in purchases by the
largest oxygen concentrator customer.
-42-
<PAGE> 43
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
Total Company gross profit decreased $5.0 million or 22% from $22.9
million in the first nine months of 1992 to $17.9 million in the first nine
months of 1993. The decrease in gross profit reflects the decrease in sales,
manufacturing inefficiency experienced in the wheelchair operations, and
continued price competition in the markets for the Company's wheelchairs, bed
and oxygen concentrator products. Gross profit was also adversely affected by
a $1.0 million charge to reserve for excess and obsolete inventory, which arose
due to the Company discontinuing certain wheelchair models.
As a percentage of sales, gross profit decreased from 28% for the first
nine months of 1992 to 25% in the first nine months of 1993. This decrease
reflects increased price competition and production problems experienced during
1992.
Operating expenses decreased $1.2 million from $30.4 million in the first
nine months of 1992 to $29.2 million in the first nine months of 1993. This
decrease is primarily due to $2.5 million of restructuring expense which was
recorded in the third quarter of 1992, offset by a $0.3 million charge for
writing off a foreign joint venture during the third quarter of 1993 and an
additional $0.7 million charge for the closure of the Camarillo facility
recorded in the second quarter of 1993. The closure of this facility was
delayed by the slower-than-anticipated implementation of the computer system in
St. Louis.
Interest expense of $4.5 million in the first nine months of 1993
increased from the comparable period in the prior year due to increased debt
levels and as a result of the accrual of interest recorded in anticipation of
not being able to reduce the balance of the Bank Loan below $13 million by
September 30, 1993, as extended (see Note 5 to the Unaudited Consolidated
Financial Statements in Item 1).
In January 1993, the Company adopted the provisions of SFAS No. 109,
'Accounting for Income Taxes' ('SFAS 109'). The adoption of SFAS 109 did not
have an impact on the consolidated financial statements (see Note 7 to the
Unaudited Consolidated Financial Statements in Item 1).
The income tax benefits of $1.8 million in the first nine months of 1992
reflect the settlement of certain disputed items with the California Franchise
Tax Board.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash provided from
operations, borrowings and cash on hand. At September 30, 1993 and December
31, 1992, the Company had $0.2 million and $0.1 million in cash,
respectively. At September 30, 1993, total debt of $93.5 million was
$34.9 million higher than the $58.6 million in debt at December 31, 1992.
The increase was primarily due to Interim Loans from BIL during the
first nine months of 1993 to fund the restructuring and relocation expenses
accrued in prior periods and for operating needs.
On September 30, 1992 the Company entered into the $20 million Revolving
Credit Agreement with HSBC. Proceeds from this credit facility were used to
repay $11 million of existing Interim Loans, to fund restructuring expenses, to
replace existing letters of credit and for working capital purposes. The
repayment of this facility was guaranteed by Brierley Investments Limited, an
affiliate of BIL. The facility would not have been made available to the
Company without such guaranty. Prior to September 30, 1993, the Company had
borrowed close to the maximum available under the HSBC credit facility.
According to its original terms, the total amount available under the facility
was to reduce from $20 million to $15 million on March 31, 1993. Pursuant to
an amendment dated as of March 30, 1993, HSBC agreed to maintain the total
amount available under the facility at $20 million through the expiration date
of the facility, September 30, 1993. In September, 1993, the outstanding HSBC
loan balance of $5.7 million was paid off utilizing a cash advance provided
by BIL under the Revolving Promissory Note. Furthermore, as of September 30,
1993, HSBC and E&J Inc. agreed to amend the Revolving Credit Agreement and
extend its term for approximately one year. The HSBC facility, as amended,
provides to E&J Inc. up to $6 million letter of credit availability and up to
$10 million of cash advances. On
-43-
<PAGE> 44
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
October 8, 1993, E&J Inc. repaid the $10 million loan from Mercantile Bank by
utilizing $10 million of cash advances from the SBC facility.
On October 9, 1992, the Company repaid $8.1 million of the Bank Loan and
$3.0 million of the Amended 10.5% Note indebtedness with the proceeds from the
sale of the Camarillo property. Additionally, on October 14, 1992, the Company
repaid $11 million of the 1992 Interim Loans with a portion of the proceeds
from the $20 million HSBC credit facility. However, the Company was unable to
repay $4.0 million of the 1992 Interim Loans. Such Promissory Notes were due
and payable on the date that the Company closed the HSBC credit facility.
Also, the Company was unable to repay the remaining $14.6 million balance on
the Bank Loan as required by March 31, 1993 or reduce the balance below $13
million to obtain interest forgiveness. Accordingly, during 1992 and the first
nine months of 1993, the Company accrued interest in the aggregate amount of
approximately $1.3 million and $0.8 million, respectively, on the Bank Loan.
As of September 30, 1993, under the debt agreements with BIL and HSBC, the
Company was obligated to repay approximately $67.3 million and $10.0 million,
respectively, at various dates as described below.
<TABLE>
<CAPTION>
As of 9/30/93 As of 12/31/92
Balance Balance
Debt Agreement $ millions $ millions Repayment Date
- -------------- ----------- ---------- --------------
<S> <C> <C> <C>
Bank Loan $14.6 $14.6 September 30, 1993
FASB 15 Adjustment - (0.2)
------- ------
Subtotal 14.6 14.4
Amended 10.5% Note 0.9 0.9 September 30, 1993
Interim Loans (1992 Advances 4.0 4.0 September 30, 1993
through 9/11/92)
Interim Loans (1992 Advances 10.0 10.0 Various dates in the fourth quarter, 1993;
9/12/92 through 12/31/92) generally one year maturities
Interim Loans (1993 Advances 37.8 - Various dates in the first, second and third
through 9/30/93) quarters, 1994; generally one year maturities
------- ------
Subtotal Due BIL 67.3 (1) 29.3
HSBC Revolving Credit Agreement (2) - 5.1 September 30, 1994
Mercantile Bank 10.0 10.0 October 8, 1993
Accrued, unpaid interest due BIL 4.5(1) 2.3 Same date as the corresponding debt
agreement
------- ------
TOTAL $81.8 $46.7
------- ------
------- ------
</TABLE>
(1) Effective September 30, 1993, the date of the Debt Conversion Transaction,
the debt to BIL was restructured by the Company issuing the following:
<TABLE>
<CAPTION>
9/30/93 Balance
$ millions
---------------
<S> <C>
Common Stock Note 45.0
Preferred Stock Note 20.0
Revolving Promissory Note 6.8
----
TOTAL $ 71.8
--------
--------
</TABLE>
(2) Excludes approximately $3.7 million and $4.9 million committed with
respect to outstanding letters of credit at September 30, 1993 and
December 31, 1992, respectively.
-44-
<PAGE> 45
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
As of September 30, 1993, the Company entered into the Debt Conversion
Agreement with BIL whereby $65 million of the indebtedness represented by the
Converted BIL Debt (i.e., the Bank Loan, the Amended 10.5% Note and the Interim
Loans) was restructured by the issuance of the Common Stock Note and the
Preferred Stock Note. The balance of the BIL indebtedness ($6.8 million) which
was not converted into the Common Stock Note and the Preferred Stock Note was
treated as advances under the Revolving Promissory Note. See Note 4 to the
Unaudited Consolidated Financial Statements in Item 1 for a detailed discussion
of the Debt Conversion Transaction.
As part of the Debt Conversion Transaction, BIL agreed to provide to the
Company and E&J Inc. a revolving credit facility of up to $12.5 million, as
evidenced by the Revolving Promissory Note. As of September 30, 1993, $6.8
million had been advanced to the Company and E&J Inc. by BIL under such Note.
BIL has agreed, upon stockholder approval of the Debt Conversion
Transaction and the Recapitalization Proposals, to advance to E&J Inc. $10
million to pay HSBC the cash advances made by it to E&J Inc. under the
Revolving Credit Agreement. Such advance by BIL to E&J Inc. would result in an
increase in the principal amount of the Common Stock Note from $45 million to
$55 million.
In July, 1991, the Company obtained a three-year $13 million secured credit
line for its Smith & Davis subsidiary which is secured by substantially all of
the subsidiary's assets. In February, 1993 this credit line was amended to
increase the availability of funding to the Company and reduce the borrowing
costs thereunder. At September 30, 1993 Smith & Davis had borrowed $4.4
million under this line. The Company's Canadian operation has existing credit
facilities in the aggregate of $4.9 million, on which $4.1 million was borrowed
as of September 30, 1993.
Accordingly, at September 30, 1993 the Company owed $22.4 million to banks
and other commercial lenders, $3.8 million under capitalized lease obligations,
and $67.3 million to BIL.
During November, 1993, the Company required $2.0 million of additional
financing to fund its operating requirements, advances to MCT, and previously
accrued restructuring expenses. This additional funding has been provided to
the Company by BIL, bringing the total advances under the Revolving Promissory
Note to $8.8 million as of November 8, 1993, out of an available line of credit
of $12.5 million. The Company expects to need additional financing at least
through the end of the fourth quarter 1993.
The proposed acquisition of MCT (see Note 3 to the Unaudited Consolidated
Financial Statements in Item 1) is reflective of the Company's commitment to
new product development. MCT develops, designs, manufactures and markets
state-of-the-art durable medical equipment, including wheelchairs and other
medical mobility products and assistive devices. MCT has developed proprietary
products with significant competitive advantages in the areas of performance,
aesthetics, durability and cost. MCT's products utilize advanced composite
materials to achieve differentiated, aesthetically pleasing shapes while
providing mechanical properties that are superior to those of most current
mobility and assistive products, almost all of which are constructed of metal.
The Company believes that the acquisition of MCT will enable it to expand its
product line into the ultra-lightweight wheelchair and related products
markets.
As of September 30, 1993, the Company has advanced $1.0 million to MCT
for use in the ordinary course of its business in two installments of $500,000
each, the first of which is nonrefundable and the second of which is evidenced
by a term loan maturing on September 30, 1994. The Company has also committed
in the Merger Agreement to advance additional funds for working capital needs as
necessary to MCT, which amounts shall not exceed $2.5 million for the period
commencing October 22, 1993 and ending March 31, 1994. $500,000 was advanced
in November, 1993, pursuant to the foregoing sentence. If the Merger does not
occur, the Merger Agreement sets out the circumstances and the terms under
which the advances described in the preceding two sentences are to be repaid.
To meet its obligations to MCT as described herein, the Company will be relying
on cash provided from operations, borrowings and cash on hand.
-45-
<PAGE> 46
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
The Company's 1993 year to date revenues and operating results have been
adversely impacted by ongoing price competition, liquidity constraints and the
relocation in 1992 of the Company's primary domestic wheelchair manufacturing
facility from California to Missouri. The loss of customer confidence stemming
from long lead times and shipping delays due to start-up inefficiencies and
inventory imbalances in St. Louis manufacturing operations is expected to
adversely impact revenues, operating income and cash flow at least through the
end of 1993. Management has developed and implemented a plan it believes will
correct the Company's problems with manufacturing and shipment delays.
However, order rates, margins and market share must increase, production and
operating costs must be reduced and customer confidence must be restored in the
very near term if the Company is to generate the cash flow necessary to fund
its operations on a continuing basis and to achieve profitability. With
respect to its bed products, the Company anticipates, for the remainder of the
year, severe price and product competition; however, the market demand for
these products may improve once a national health care reform plan is enacted.
The Company will attempt to fulfill its cash requirements through
additional financing from BIL or other external sources. Although no
assurances can be given that the Company will be able to obtain additional
financing, if additional funding is obtained, management believes that the
Company will be able to meet its cash operating requirements at its existing
Missouri, Canadian and Mexican operations.
Management believes that the Company's domestic and international
manufacturing capacity is sufficient to meet anticipated demand for the
forseeable future.
-46-
<PAGE> 1
EXHIBIT 2(a)
EXCHANGE AGREEMENT AND PLAN OF MERGER
MEDICAL COMPOSITE TECHNOLOGY, INC.
CERTAIN STOCKHOLDERS OF MEDICAL COMPOSITE TECHNOLOGY, INC.
EVEREST & JENNINGS INTERNATIONAL LTD.
BIL (FAR EAST HOLDINGS) LIMITED
AND
MCT ACQUISITION CORP.
OCTOBER 23, 1993
-47-
<PAGE> 2
TABLE OF CONTENTS
Page
----
1. MERGER...........................................................1
1.1 Merger......................................................1
1.2 Submission to MCT Stockholders...............................1
1.3 Closing.....................................................2
1.4 Effective Date..............................................2
1.5 Articles of Incorporation; Bylaws...........................2
1.6 Directors...................................................2
1.7 Officers....................................................2
1.8 Tax Consequences............................................2
2. CONVERSION OF OUTSTANDING SHARES.................................2
2.1 Recapitalization............................................2
2.2 Conversion of MCT Capital Stock and Vested Options..........2
2.3 Options.....................................................3
2.4 Anti-Dilution Protection....................................3
2.5 Issuance of Additional Shares...............................4
2.6 Exchange Procedures.........................................4
2.7 Dissenting Shares...........................................4
2.8 Treasury Shares.............................................5
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF MCT................5
3.1 Organization and Good Standing..............................5
3.2 Subsidiaries................................................5
3.3 Capitalization of MCT ......................................5
3.4 Authority Relative to Agreements............................6
3.5 Financial Statements........................................6
3.6 Conduct of Business.........................................7
3.7 Taxes.......................................................8
3.8 Litigation..................................................8
3.9 Compliance with Law.........................................8
3.10 Compliance with Environmental Laws..........................9
3.11 No Conflicts................................................9
3.12 Governmental Consents......................................10
3.13 Title of Properties; Absence of Liens and
Encumbrances; Condition of Equipment.......................10
3.14 Intellectual Property......................................11
3.15 Material Agreements........................................11
3.16 Model LX Wheelchair........................................12
3.17 Insurance..................................................12
3.18 Employees..................................................12
3.19 Employee Plans.............................................12
3.20 Broker's Fees..............................................13
3.21 Accounts Receivable........................................13
-48-
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
Page
----
3.22 Product Warranty Matters.................................13
3.23 Full Disclosure..........................................13
4. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF E&J AND SUB.....13
4.1 Organization and Good Standing...........................14
4.2 Capitalization...........................................14
4.3 SEC Filings..............................................14
4.4 Absence of Material Adverse Changes......................15
4.5 Authority Relative to Agreements.........................15
4.6 No Conflicts.............................................15
4.7 Compliance with Law......................................15
4.8 Broker's Fees............................................16
4.9 Full Disclosure..........................................16
5. COVENANTS.....................................................16
5.1 Affirmative Covenants of MCT.............................16
5.2 Negative Covenants of MCT................................17
5.3 No Solicitation..........................................17
5.4 Exhibits and Schedules...................................17
5.5 Filings; Consents; Removal of Objections.................18
5.6 Further Assurances; Cooperation; Notification............18
5.7 Public Announcements.....................................18
5.8 Working Capital..........................................18
5.9 Securities Filings.......................................19
5.10 Assumption of Options....................................19
5.11 California Securities Law................................19
5.12 Recapitalization.........................................19
5.13 Registration Rights......................................19
5.14 Listing of Exchange Shares...............................19
5.15 Assumption of Liabilities................................20
6. CONDITIONS PRECEDENT..........................................20
6.1 Conditions to Each Party's Obligations to Effect
the Merger ..............................................20
6.2 Conditions to E&J's and Sub's Obligation to Effect
the Merger...............................................20
6.3 Conditions to MCT's and the MCT Management Stockholders
Obligation to Effect the Merger..........................22
7. TERMINATION, AMENDMENT AND WAIVER.............................23
7.1 Termination and Abandonment..............................23
-49-
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
Page
----
7.2 Prompt Notice..........................................23
7.4 Amendment..............................................24
7.5 Extension; Waiver......................................24
8. SURVIVAL; INDEMNIFICATION...................................25
8.1 Survival of Representations and Warranties.............25
8.2 Indemnity..............................................25
8.3 Limitation or Indemnification..........................26
8.4 BIL Guaranty...........................................26
8.5 Third Party Claims.....................................26
9. GENERAL PROVISIONS..........................................27
9.1 Notices................................................27
9.2 Interpretation.........................................28
9.3 Counterparts...........................................28
9.4 Miscellaneous..........................................28
9.5 Governing Law..........................................29
9.6 Expenses...............................................29
9.7 Attorneys' Fees........................................29
9.8 Assignability..........................................29
EXHIBITS
A List of MCT Management Stockholders
B Agreement of Merger
1.6 Board of Directors of the Surviving Corporation
1.7 Officers of the Surviving Corporation
2.1 Plan of Recapitalization
2.2 Plan of Distribution to MCT Stockholders and Bridge Loan Holders
2.3 List of MCT Options
3 MCT Disclosure Schedule
4 E&J Disclosure Schedule
6.2(c) Opinion of Cooley Godward Castro Huddleson & Tatum
6.2(d)A List of Employees
6.2(d)B Form of Employment Agreement
6.3(e) Stockholders' Agreement
6.3(f) Opinion of Joseph A. Newcomb, Esq.
-50-
<PAGE> 5
EXCHANGE AGREEMENT AND PLAN OF MERGER
This Exchange Agreement and Plan of Merger ('Exchange Agreement') is
made and entered into as of the 23rd day of October, 1993 by and among MEDICAL
COMPOSITE TECHNOLOGY, INC., a California corporation ('MCT'), those certain
stockholders of MCT whose names are set forth on Exhibit A attached hereto
(collectively, the 'MCT Management Stockholders'), EVEREST & JENNINGS
INTERNATIONAL LTD., a Delaware corporation ('E&J'), BIL (FAR EAST HOLDINGS)
LIMITED, a Hong Kong corporation ('BIL') and MCT ACQUISITION CORP., a
Missouri corporation and a wholly-owned subsidiary of E&J ('Sub');
WHEREAS, the Board of Directors of MCT, E&J and Sub have approved the
proposed statutory merger (the 'Merger') of MCT with and into Sub in
accordance with the California General Corporation Law (the 'California
Corporation Law') and Missouri General and Business Corporation Law (the
'Missouri Corporation Law') and the Agreement of Merger in the form attached
hereto as Exhibit B (the 'Merger Agreement'); and
WHEREAS, MCT, the MCT Management Stockholders, E&J and Sub desire to
make certain representations, warranties and agreements in connection with the
Merger, and also desire to prescribe various conditions precedent to the
Merger;
NOW, THEREFORE, in consideration of the promises and the
representations, warranties and agreements herein contained, the parties agree
as follows:
1. MERGER
1.1 MERGER. On the Effective Date (as hereinafter defined), MCT shall
be merged with and into Sub in a statutory merger pursuant to the terms and
conditions of this Exchange Agreement and the Merger Agreement, in accordance
with the California Corporation Law and Missouri Corporation Law. On and after
the Effective Date, the separate existence and corporate organization of MCT
shall cease. Sub shall be the corporation surviving the Merger and wholly-owned
subsidiary of E&J (the 'Surviving Corporation') and shall succeed to and
possess all the properties, rights, privileges, powers, franchises, immunities
and purposes, and be subject to all the debts (except as set forth herein),
liabilities, obligations, restrictions, disabilities, penalties and duties of
MCT and Sub, all without further act or deed.
1.2 SUBMISSION TO MCT STOCKHOLDERS. MCT shall duly call, give notice
of, convene and hold a meeting of stockholders to consider and vote upon the
approval of this Exchange Agreement, the Merger Agreement and the Merger, all
in accordance with the provisions of the California Corporation Law, as soon as
practicable after E&J receives a permit from the California Commissioner of
Corporations (the 'Commissioner') after a fairness hearing pursuant to
Sections 25121 and 25142 of the California Corporate Securities Law of 1968, as
amended (the 'California Securities Law'), allowing MCT to solicit
stockholder approval of the Exchange Agreement, the Merger Agreement and the
Merger.
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1.3 CLOSING. The transactions contemplated by this Exchange Agreement
shall be consummated at a closing (the 'Closing') which will take place at
the offices of Cooley Godward Castro Huddleson & Tatum, Five Palo Alto Square,
Fourth Floor, Palo Alto, California five days after the date on which the
conditions to the Closing specified in Section 6 hereof have been satisfied.
Notwithstanding the foregoing, the Closing may take place at such other place,
time or date as may be agreed upon in writing by MCT, E&J and Sub. The date of
the Closing is referred to herein as the 'Closing Date.'
1.4 EFFECTIVE DATE. If (a) this Exchange Agreement is duly approved by
the stockholders of MCT and (b) all of the conditions precedent to the Merger
set forth herein have either been fulfilled or waived by the appropriate party
in writing, then the Merger Agreement shall be executed and filed in the
offices of the California Secretary of State and Missouri Secretary of State.
The Merger shall become effective when the Merger Agreement is filed with the
California Secretary of State and Missouri Secretary of State. The time and
date on which the Merger shall become effective is referred to herein as the
'Effective Date.'
1.5 ARTICLES OF INCORPORATION; BYLAWS. The Articles of Incorporation and
Bylaws of Sub at the Effective Date shall become the Articles of Incorporation
and Bylaws of the Surviving Corporation.
1.6 DIRECTORS. Upon the Effective Date, the Board of Directors of the
Surviving Corporation shall consist of the persons identified in Exhibit 1.6
hereto.
1.7 OFFICERS. Upon the Effective Date, the officers of the Surviving
Corporation shall be the persons identified in Exhibit 1.7 hereto.
1.8 TAX CONSEQUENCES. For federal income tax purposes, the parties intend
that the Merger shall be treated as a tax-free reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
'Code').
2. CONVERSION OF OUTSTANDING SHARES.
2.1 RECAPITALIZATION. E&J will submit for approval of its stockholders a
recapitalization plan (the 'Recapitalization') of its outstanding debt and
capital stock as more fully described in Exhibit 2.1 hereto. The date of the
consummation of the Recapitalization is referred to herein as the
'Recapitalization Date.'
2.2 CONVERSION OF MCT CAPITAL STOCK AND VESTED OPTIONS. As of the
Effective Date, the outstanding shares of Common Stock and Preferred Stock of
MCT and the shares of Common Stock of MCT issuable upon the exercise of each
outstanding option to purchase shares of Common Stock of MCT to the extent that
each such option is vested (collectively, the 'MCT Shares') (other than those
shares of MCT Shares held by stockholders who properly exercise any dissenters'
rights available under the California Corporation Law (the 'Dissenting
Shares'), shall be converted, by virtue of the Merger and without any action
on the part of the holders thereof, into and represent the right to receive
8,000,000 shares of Common Stock of E&J (less that number of shares of Common
Stock of E&J into which the Dissenting Shares would have
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been converted into) (the 'Exchange Shares'), assuming that E&J shall have
not more than 104,000,000 shares of Common Stock outstanding, after the
consummation of the Recapitalization, the issuance of the Exchange Shares, the
granting of options to the new Chief Executive Officer and other E&J and MCT
employees and assuming the exercise of all outstanding rights, options and
warrants to purchase securities of E&J and the conversion of all convertible
securities of E&J (the 'Outstanding E&J Shares'). If the number of
Outstanding E&J Shares is greater than 104,000,000, E&J shall issue to the
holders of MCT Shares that number of additional shares of Common Stock of E&J
such that the holders of MCT Shares shall own 7.7% (or, if there are
Dissenting Shares, such lower percentage which the number of Exchange Shares
represents out of 104,000,000 less the number of shares of Common Stock of E&J
not issued in exchange for Dissenting Shares) of the Outstanding E&J Shares
(such additional shares shall be included in the definition of 'Exchange
Shares' for all purposes herein). Each holder of MCT Shares (an 'MCT
Stockholder' and collectively, the 'MCT Stockholders') shall be entitled to
receive such number of Exchange Shares as is determined pursuant to Exhibit
2.2.
2.3 OPTIONS. On the Effective Date, each outstanding option to
purchase shares of Common Stock of MCT will be assumed by E&J (the 'Assumed
Options'); provided that (i) to the extent that Assumed Options are vested on
the Effective Date, the shares of E&J capital stock issuable upon exercise of
the Assumed Options will be Exchange Shares and (ii) to the extent that the
Assumed Options are unvested on the Effective Date, the shares of E&J capital
stock issuable upon exercise of the Assumed Options will be issued by E&J in
addition to the Exchange Shares. Exhibit 2.3 sets forth a list of outstanding
options to purchase shares of Common Stock of MCT as of the date hereof. Each
Assumed Option will be deemed to constitute an option to acquire, on the same
terms and conditions as were applicable under such option at the Effective
Date, such number of shares of Common Stock of MCT subject to such Assumed
Option multiplied by the Exchange Ratio, as set forth in Exhibit 2.2 (with any
fractions rounded down to the whole number). The exercise price per share of
each such Assumed Option shall be equal to the exercise price of such Assumed
Option immediately prior to the Effective Date, divided by the applicable
Exchange Ratio.
2.4 ANTI-DILUTION PROTECTION. For a period of two years following the
Effective Date, if E&J issues additional shares of capital stock of E&J, any
securities convertible into shares of capital stock of E&J or any rights,
options or warrants to purchase capital stock of E&J (each a 'Dilutive
Issuance'), except for the issuance of additional shares of capital stock of
E&J issued in an Acquisition Transaction (as defined herein) or pursuant to a
dividend to holders of Common Stock of E&J, then E&J shall, on the date of the
Dilutive Issuance, issue to the MCT Stockholders, without payment of any
additional consideration by the MCT Stockholders, that number of shares of
Common Stock of E&J (the 'Additional Shares') such that the percentage of the
outstanding shares of capital stock of E&J held by the MCT Stockholders
(assuming the exercise of all issued and outstanding rights, options and
warrants to purchase capital stock or convertible securities of E&J and the
conversion of all outstanding securities of E&J) immediately after such
issuance will be equal to the percentage of the outstanding shares of capital
stock of E&J held by the MCT Stockholders immediately prior to such Dilutive
Issuance (assuming the exercise of all outstanding rights, options and warrants
to
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purchase capital stock or convertible securities of E&J and the conversion
of all convertible securities of E&J). Each MCT Stockholder shall be entitled
to receive such number of Additional Shares as is determined pursuant to
Exhibit 2.2. As used herein, the term 'Acquisition Transaction' shall mean the
acquisition by E&J of the business or all or substantially all of the assets of
another entity, in exchange for shares of capital stock of E&J representing the
fair market value of such business or assets acquired, pursuant to a bona fide
merger, consolidation, acquisition or similar transaction.
2.5 ISSUANCE OF ADDITIONAL SHARES. On the date of each Dilutive Issuance,
E&J shall issue the Additional Shares to the MCT Stockholders pro rata based
upon the number of Exchange Shares received by each MCT Stockholder pursuant to
Exhibit 2.2.
2.6 EXCHANGE PROCEDURES. As soon a practicable after the Effective Date,
the Exchange Agent will send to each MCT Stockholder a letter of transmittal
with instructions on how to exchange such MCT Stockholder's stock
certificate(s) for a certificate representing such MCT Stockholder's Exchange
Shares. In case of lost certificates, the exchange will be made upon delivery
of a lost certificate indemnity agreement or such other security or undertaking
as may be reasonably acceptable to E&J. If the Exchange Agent is request to
issue Exchange Shares to a person other than the person in whose name the MCT
stock certificate is registered, a condition of issuance will be that the
certificate be properly endorsed in blank or otherwise in proper form for
transfer and the holder shall pay, or give proof of payment, of any transfer
fee or tax which may be applicable. Six months after the Exchange Shares are
delivered to the Exchange Agent, the Exchange Agent will return to E&J any
Exchange Shares it continues to hold; provided, however, that E&J shall
continue to be obligated to exchange the Exchange Shares for MCT Shares in
accordance with the terms of this Exchange Agreement and the Trust Agreement to
any unpaid MCT Stockholder except to the extent prohibited by applicable law.
2.7 DISSENTING SHARES.
(a) Holders of Dissenting Shares who have complied with all
requirements for perfecting the rights of dissenting stockholders as set forth
in Section 1300 et. seq. of the California Corporation Law (the 'Dissenting
Stockholders'), shall be entitled to their rights under the California
Corporation Law, as may be agreed to by such Dissenting Stockholder and E&J or
as finally determined by a court of competent jurisdiction.
(b) Notwithstanding any other provision of this Exchange Agreement,
any Dissenting Share shall not be converted pursuant to Section 2.2 into a right
to receive Exchange Shares. Dissenting Stockholders shall no longer be
entitled to any rights of a stockholder of MCT, including but not limited to,
the right to receive notice of meetings, to vote at any stockholders' meetings,
or to receive dividends, and shall only be entitled to such rights of appraisal
and payment as are provided by California law.
(c) MCT shall give E&J prompt notice of any demands it receives from
Dissenting Stockholders. MCT shall not, unless otherwise required by law,
without the prior written consent of E&J, voluntarily make any offer of
settlement or payment to any Dissenting Stockholder.
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(d) To the extent permitted by law, should any Dissenting Stockholder
withdraw or lose his or her rights to appraisal prior to the Effective Date,
then such holder's shares shall automatically be converted into the right to
receive Exchange Shares as set forth in Section 2.2.
2.8 TREASURY SHARES. Any MCT Shares owned or held as of the Closing Date
by MCT as treasury stock shall be canceled as of the Closing Date and shall not
be exchanged for Exchange Shares.
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF MCT AND THE MCT
MANAGEMENT STOCKHOLDERS.
In order to induce E&J and Sub to enter into this Exchange Agreement,
MCT represents, warrants and agrees and the MCT Management Stockholders, each
of his, her or its knowledge, represent, warrant and agree that except as and
to the extent expressly disclosed herein or in the disclosure schedule attached
hereto as Exhibit 3 (the 'MCT Disclosure Schedule'), as of the date hereof:
3.1 ORGANIZATION AND GOOD STANDING.
(a) MCT is a corporation duly organized, validly existing and in good
standing under the laws of the State of California, has corporate power to
carry on its business as it is now being conducted and is not required to
qualify as a foreign corporation to do business in any jurisdiction in the
United States.
(b) MCT has delivered or made available to E&J or its counsel true
and complete copies of its Articles of Incorporation and Bylaws, as in effect
on the date hereof, minutes of all its directors' and stockholders' meetings,
and stock books correctly setting forth the record ownership of all
outstanding shares of the capital stock of MCT.
3.2 SUBSIDIARIES. MCT does not now have and has never had any
subsidiaries or affiliated companies and does not otherwise own and has never
otherwise owned any shares of stock or any interest in, or control, directly or
indirectly, any other corporation, partnership, association, joint venture or
business entity.
3.3 CAPITALIZATION OF MCT. The authorized capital stock of MCT consists
of 10,000,000 shares of Common Stock, no par value, and 5,000,000 shares of
Preferred Stock, no par value, of which 340,000 shares have been designated as
Series A Preferred Stock, 1,520,674 have been designated as Series B Preferred
Stock, and 1,076,923 shares have been designated as Series C Preferred Stock.
As of the date of this Exchange Agreement, 786,097 shares of Common Stock,
340,000 shares of Series A Preferred Stock, 1,520,674 shares of Series B
Preferred Stock, and 769,229 shares of Series C Preferred Stock were issued and
outstanding. Each share of Preferred Stock of MCT is currently convertible into
one share of Common Stock of MCT. All of such outstanding shares of Common
Stock and Preferred Stock of MCT have been duly authorized, are validly issued,
fully paid and nonassessable and free of all preemptive rights. MCT has
delivered to E&J a true and complete list of the record holders
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of its outstanding shares. As of the date hereof, MCT has issued
outstanding options to purchase 458,525 shares of Common Stock of MCT, of which
128,906 will be unvested as of October 31, 1993. Except as contemplated by this
Exchange Agreement and except for the above listed shares issuable upon
conversion of the Preferred Stock of MCT, for the shares of Common Stock of MCT
issuable upon exercise of the above listed options, for the 10,000 shares of
Series B Preferred Stock and 111,527 shares of Series C Preferred Stock of MCT
issuable upon exercise of outstanding warrants and for shares of Series C
Preferred Stock issuable upon the conversion of outstanding secured convertible
promissory notes of MCT in the aggregate principal amount of $1,450,000, there
are no options, warrants, calls, rights, commitments or agreements of any
character to which MCT is a party or by which it is bound obligating MCT to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of the capital stock of MCT or obligating MCT to grant, extend or enter
into any such option, warrant, call, right, commitment or agreement. As of the
Closing Date, all of the MCT Shares will be free and clear of all pledges,
security interests, liens, charges or encumbrances or any nature whatsoever.
3.4 AUTHORITY RELATIVE TO AGREEMENTS. MCT has the corporate power and
authority and the MCT Management Stockholders have the requisite power and
authority to enter into and deliver this Exchange Agreement and the Merger
Agreement and, subject to approval of this Exchange Agreement and the Merger
Agreement by the stockholders of MCT, to carry out its and their obligations
hereunder and under the Merger Agreement. The execution and delivery of this
Exchange Agreement and the Merger Agreement and the consummation of the
transactions contemplated hereby and by the Merger Agreement have been duly
authorized by its Board of Directors and, except for the approval of its
stockholders, no other corporate proceeding on the part of MCT is necessary to
authorize this Exchange Agreement, the Merger Agreement and the transactions
contemplated hereby and by the Merger Agreement. This Exchange Agreement is,
and the Merger Agreement will be, when executed and delivered, valid and
binding obligations of MCT and the MCT Management Stockholders enforceable
against MCT and the MCT Management Stockholders in accordance with their
respective terms, except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditor's rights and by rules of law governing
specific performance, injunctive relief or other equitable remedies.
3.5 FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES.
(a) MCT has delivered copies of the following financial statements to
E&J: (i) the audited balance sheet of MCT at December 31, 1992 and 1991 and the
statements of income, stockholders' equity and changes in cash flows for the
years then ended, in each case including the notes thereto and the related
audit report of Coopers & Lybrand, independent certified public accountants,
and (ii) the unaudited balance sheets of MCT at August 31, 1993 and the
unaudited statement of operations for the eight months then ended (the
financial statements referred to in this Section 3.5(a) are hereinafter
collectively referred to as the 'MCT Financial Statements').
(b) The MCT Financial Statements are complete and correct in all
material respects and have been prepared in accordance with generally accepted
accounting principles
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consistently applied throughout the periods indicated, except as otherwise set
forth in such financial statements and the notes thereto (except that the
unaudited financial statements for the eight months ended August 31, 1993 do
not contain the notes necessary to be in accordance with generally accepted
accounting principles). The MCT Financial Statements present fairly the
financial condition and operating results of MCT as of the dates and during the
periods indicated therein, subject, in the case of the unaudited financial
statements, to normal year-end adjustments.
(c) MCT has no liability or obligation, secured or unsecured (whether
absolute, accrued, contingent or otherwise, and whether due or to become due),
except such liabilities and obligations (i) which are accrued or reserved
against on the MCT Financial Statements or disclosed in the notes thereto or
(ii) which were incurred after August 31, 1993 in the ordinary course of
business consistent with past practice.
3.6 CONDUCT OF BUSINESS. Since August 31, 1993, the business of MCT has
been conducted only in the normal and ordinary course and there has been no
material adverse change in the financial position, results of operations,
general affairs, properties, prospects or business of MCT. Since August 31,
1993, MCT has not:
(a) Suffered any material adverse change in the business or
experienced the occurrence of any event which reasonably could be expected to
result in such a material adverse change;
(b) Suffered any loss, damage, destruction or other casualty which,
individually or in the aggregate, materially and adversely affected its
business (whether or not covered by insurance) or suffered any loss of
employees, independent contractors, customers or other favorable business
relationships which, individually or in the aggregate, materially and adversely
affected its business;
(c) Borrowed or agreed to borrow any funds except in the ordinary
course of business pursuant to existing line of credit agreements;
(d) Incurred, assumed or became subject to, whether directly or by way
of guarantee or otherwise, any claims, obligations or liabilities which,
individually or in the aggregate, are material to the conduct of the business,
other than in the ordinary course of business and consistent with past
practices;
(e) Paid, discharged or satisfied any claims, liabilities or
obligations, other than to discharge accounts payable reflected in the MCT
Financial Statements or the payment, discharge or satisfaction of such claims,
liabilities and obligations in the ordinary course of business and consistent
with past practices;
(f) Permitted or allowed any of its property or assets (real,
personal or mixed, tangible or intangible) to be subjected to any mortgage,
pledge, lien, security interest, encumbrance, restriction or charge of any
kind;
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(g) Written down the value of any inventory or written off as
uncollectible any notes or accounts receivable except in the ordinary course of
business and consistent with past practices;
(h) Canceled or amended any debts, waived any claims or rights or
sold, transferred or otherwise disposed of any properties or assets, other than
dispositions of inventory in the ordinary course of business and consistent
with past practices;
(i) Licensed, sold, transferred, pledged, modified, disclosed,
disposed of or permitted to lapse any right to the use of any industrial and
intellectual property rights, except in the ordinary course of business and
consistent with past practices;
(j) Increased direct compensation payable to or become payable by MCT
to any officer, employee, agent or consultant, other than routine increases
made in the ordinary course of business, or paid any bonus, percentage
compensation, service award or other like benefit, granted, made or agreed to
for any such officer, employee, agent or consultant, or any welfare, pension,
retirement or similar payment or arrangement made or agreed to except in the
ordinary course of business and consistent with past practices; or
(k) Accrued, paid or declared any dividend or made or declared any
other distribution with respect to its capital stock or redeemed purchased or
otherwise acquired any of its capital stock or paid any interest on the Bridge
Loans as defined in Section 5.1(g).
3.7 TAXES. MCT has duly and timely filed all federal, state and foreign
tax returns required to be filed, and has paid, or has made adequate provision
to set up and adequate accrual or reserve for the payment of, all taxes,
interest and/or penalties required to be paid in respect of the periods for
which returns are due, and has established an adequate accrual or reserve for
the payment of all income, franchise, property, sales and use, employment or
other taxes payable in respect of the period subsequent to the last of said
periods required to be so accrued or reserved, and has no liability for taxes,
interest and/or penalties in excess of the amount so paid or accruals or
reserves so established. MCT is not delinquent in the payment of any tax,
assessment or governmental charge and is not delinquent in the filing of any
tax returns, and no deficiencies for any tax, assessment or governmental charge
have been threatened, claimed, proposed or assessed. No audit or other
examination of any tax return of MCT is presently in progress or scheduled.
3.8 LITIGATION. There is no private or governmental litigation or
proceeding or, to the knowledge of MCT or any of the MCT Management
Stockholders, any investigation or claim against MCT pending or, to the
knowledge of MCT or any of the MCT Management Stockholders, threatened against
or affecting MCT or its business, properties or assets. There are no judgments,
decrees or orders enjoining MCT in respect of, or the effect of which is to
prohibit, any business practice or the acquisition of any property or the
conduct of business in any area which is material to its business.
3.9 COMPLIANCE WITH LAW. To the knowledge of MCT or any of the MCT
Management Stockholders, MCT has complied and is in compliance in all material
respects with
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all laws and regulations applicable to its operations or with respect to which
compliance is a condition of engaging in the business thereof, except for
failures to comply which in the aggregate would not have a material adverse
effect on the conduct of, or the ability to conduct operations of, or the
financial or other condition of, the business or the prospects of MCT.
3.10 COMPLIANCE WITH ENVIRONMENTAL LAWS.
(a) There is not now, nor to the knowledge of MCT or any of the MCT
Management Stockholders, has there ever been, any disposals, releases or
threatened releases of Hazardous Materials (as defined below) on, from or under
properties now or ever leased by or to MCT. There has not been generated by or
on behalf of MCT any Hazardous Material. No Hazardous Material has been
disposed of or allowed to be disposed of by MCT or its agents or employees on
or off any of such properties of MCT which may give rise to a cleanup
responsibility, personal injury liability or property damage claim against MCT
or MCT being named a potentially responsible party for any such cleanup costs,
personal injuries or property damage or create any cause of action by any third
party against MCT. For purposes of this Section, the terms 'disposal,'
'release,' and 'threatened release' shall have the definitions assigned thereto
by the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ('CERCLA'), and the term 'Hazardous Material' means any
hazardous or toxic substance, material or waste or pollutants, contaminants or
asbestos containing material which is or becomes regulated by any authority in
any jurisdiction in which MCT leases or has owned or leased real property. The
term 'Hazardous Material'includes, without limitation, any material or
substance which is (i) defined as a 'hazardous waste' or a 'hazardous
substance' under applicable law, (ii) designated as a 'hazardous substance'
pursuant to Section 311 of the Federal Water Pollution Control Act, (iii)
defined as a 'hazardous waste' pursuant to Section 1004 of the Federal Resource
Conservation and Recovery Act, or (iv) defined as a 'hazardous substance'
pursuant to Section 101 of CERCLA.
(b) To the knowledge of MCT or any of the MCT Management
Stockholders, none of MCT's present or past properties is in violation of any
law relating to industrial hygiene or to the environmental conditions on, under
or about such properties, including, without limitation, soil and ground water
condition, and to the knowledge of MCT or any of the MCT Management
Stockholders there are no underground tanks or related piping, conduits or
related structures on such properties. During the period that MCT has leased
its properties, neither MCT nor to its knowledge or to the knowledge of any of
the MCT Management Stockholders any third party has used, generated,
manufactured or stored on, under or about such properties or transported to or
from such properties any Hazardous Materials.
(c) During the period of MCT's lease of its properties, there has
been no litigation brought or threatened against MCT or any settlements reached
by MCT with any third party or third parties alleging the presence, disposal,
release or threatened release of any Hazardous Materials on, from or under any
of such properties.
3.11 NO CONFLICTS. Neither the execution, delivery or performance of
this Exchange Agreement or the Merger Agreement by MCT and the MCT Management
Stockholders, nor the consummation of the transactions contemplated hereby and
thereby, nor compliance by MCT and
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the MCT Management Stockholders with any of the provisions hereof or thereof
will (a) violate, conflict with, or result in a breach of any provisions of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration, or result in the creation of any lien, security interest, charge
or encumbrance upon any of the properties or assets of MCT, under any of the
terms, conditions or provisions of (i) the Articles of Incorporation or Bylaws
of MCT or (ii) any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which MCT or any of the
MCT Management Stockholders is a party or by which any of them may be bound, or
to which any of them or any of their respective properties or assets may be
subject, except for such violations, conflicts, breaches, defaults, etc. which
would not, in the aggregate, have a material adverse effect on the business,
results of operations, prospects or financial condition of MCT, or (b) subject
to compliance with the statutes and regulations referred to in Section 3.12
below, violate any judgment, ruling, order, writ, injunction, decree, statute,
rule or regulation applicable to MCT or any of the MCT Management Stockholders
or any of their respective properties or assets.
3.12 GOVERNMENTAL CONSENTS. No consent, approval, order or authorization
of, or registration, declaration or filing with, any court, administrative
agency or commission or other governmental authority or instrumentality (a
'Governmental Equity'), is required by or with respect to MCT or the MCT
Management Stockholders in connection with the execution and delivery of this
Exchange Agreement or the Merger Agreement by MCT and the MCT Management
Stockholders or the consummation by MCT or the MCT Management Stockholders of
the transactions contemplated hereby and thereby, except for (a) the issuance
of a permit qualifying the issuance of the Exchange Shares pursuant to the
terms of the Exchange Agreement and the Merger Agreement by the Commissioner in
accordance with Section 25121 of the California Securities Law, (b) the holding
of a hearing before the Commissioner pursuant to Section 25142 of the
California Securities Law in order to qualify for the exception from
registration the issuance of the Exchange Shares under Section 3(a)(10) of the
Securities Act of 1933, as amended (the 'Securities Act'), (c) the filing of
the Merger Agreement with the California Secretary of State, (d) the issuance
of a tax clearance certificate with respect to MCT by the Franchise Tax Board of
the State of California, (e) such consents, approvals, orders, authorization,
registrations, declarations and filings as may be required under applicable
state securities laws and the laws of any foreign country, and (f) such other
consents, authorization, filings, approvals and registrations which if not
obtained or made would not have a material adverse effect on MCT.
3.13 TITLE OF PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES; CONDITION
OF EQUIPMENT.
(a) MCT owns no real property. Section 3.13 of the MCT Disclosure
Schedule sets forth a list of all real property leased by MCT, the name of the
lessor, the date of the lease and each amendment thereto and the aggregate
annual rental or other fee payable under any such lease. All rentals and other
monetary obligations currently due under such leases have been paid. To the
knowledge of MCT or any of the MCT Management Stockholders, all such leases are
in good standing, valid and effective in accordance with their respective
terms,
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and there is not, under any of such leases, any existing material default or
event of default (or event which with notice or lapse of time, or both, would
constitute a material default and in respect of which MCT has not taken
adequate steps to prevent such default from occurring), except where the lack
of such default or event of default would not have a material adverse effect on
MCT.
(b) MCT has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its tangible
properties and assets (real, personal and mixed) used in its business, free and
clear of any liens, charges, pledges, security interests, or other
encumbrances, except as reflected in the MCT Financial Statements or in the MCT
Disclosure Schedule.
(c) Section 3.13 of the MCT Disclosure Schedule sets forth a list of
all equipment (the 'Equipment') owned or leased by MCT except equipment with an
aggregate value of less than $150,000. The Equipment is, taken as a whole (i)
adequate for the conduct of the business of MCT consistent with its past
practice and as currently contemplated to be conducted in the future, (ii)
suitable for the uses to which it is currently employed, (iii) in good
operating condition, (iv) regularly and properly maintained, and (v) not
obsolete, dangerous or in need of renewal or replacement, except for renewal or
replacement in the ordinary course of business.
(d) MCT's inventories reflected on the MCT Financial Statements
consist of items of a quality and quantity usable and salable in the ordinary
course of business as heretofore conducted by MCT, and are not obsolete,
damaged or slow-moving. The inventory is valued on MCT's Financial Statements
at reasonable amounts based on the ordinary course of MCT's business during the
preceding year and is not subject to any write-down or write-off.
3.14 INTELLECTUAL PROPERTY. Listed on Section 3.14 of the MCT
Disclosure Schedule is all of the patents, trademarks, service marks, trade
names, brand names, trade secrets and copyrights used by MCT, including any
registrations thereof or applications therefor (the 'Intellectual Property
Rights'). To the knowledge of MCT or any of the MCT Management Stockholders,
the Intellectual Property Rights are valid and subsisting and are not
unenforceable in whole or in part. MCT owns all right, title and interest in
and to the Intellectual Property Rights, free of all claims, liens,
encumbrances or licenses, including claims or rights of employees, agents,
consultants or other parties involved in the creation or development thereof
and, to the knowledge of MCT or any of the MCT Management Stockholders, no
person or party, other than MCT, has any valid claim of ownership with respect
to any of the Intellectual Property Rights. No person or entity has made or, to
the knowledge of MCT or any of the MCT Management Stockholders, threatened to
make, any claim that the operation of MCT's business is in violation of or
infringes upon any rights of any third party, and there is no reason to believe
any such claim exists. To the knowledge of MCT or any of the MCT Management
Stockholders, no third party is infringing upon or violating any of the
Intellectual Property Rights.
3.15 MATERIAL AGREEMENTS. Section 3.15 of the MCT Disclosure Schedule
sets forth a full and complete listing of all material contracts and agreement
of every kind or nature by
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which MCT or any of its assets is bound and which are necessary to the
business, including, without limitation, government contracts, loan agreements,
servicing agreements, license agreements, employment agreements, contracts with
independent agents or contractors, supplier agreements, distributor agreements,
banking agreements, joint venture agreements and purchase agreements. All such
agreements, contracts, plans, leases, instruments, arrangements, licenses and
commitments, to the knowledge of MCT or any of the MCT Management Stockholders,
are valid and in full force and effect. Since August 31, 1993, MCT has not
materially amended, modified or terminated the terms of the contracts or
agreements referred to in the preceding sentence and to the knowledge of MCT or
any of the MCT Management Stockholders, MCT is not in default in any material
respect nor has any event occurred which would, with the passage of time or the
giving of notice or both, constitute a material default by MCT, nor to the
knowledge of MCT or any of the MCT Management Stockholders, by any other party
to the contracts and agreements referred to in the preceding sentence.
3.16 MODEL LX WHEELCHAIR. MCT has taken all reasonable and necessary
steps to ensure that the Model LX wheelchair will be available for shipment in
commercial quantities by April 30, 1994, and to MCT's knowledge, MCT's
subcontractors have the ability to and will perform their duties as
subcontractors in connection with the tooling and sourcing of parts for its
Model LX wheelchair and MCT acknowledges that E&J may rely on the foregoing in
connection with the development of its marketing plans.
3.17 INSURANCE. Section 3.17 of the MCT Disclosure Schedule sets forth
a listing of all insurance policies in force with respect to the business,
assets, or operations of MCT, with no premium payments past due and no notice
of cancellation having been received. To the knowledge of MCT or any of the MCT
Management Stockholders, it has been continuously insured against third party
liability and loss or damage to property, assets and business since its
corporate inception in types and amounts customarily carried by like
businesses.
3.18 EMPLOYEES. Section 3.18 of the MCT Disclosure Schedule sets forth
a list of all officers and employees of MCT, along with their annual rate of
compensation. To the knowledge of MCT or any of the MCT Management
Stockholders, no employee or group of employees has any plans to terminate
employment with MCT. MCT is not bound by any collective bargaining agreement,
nor has it experienced any strikes, grievances, claims of unfair labor
practices or other collective bargaining disputes or labor controversy. MCT or
any of the MCT Management Stockholders have no knowledge of any organizational
effort presently being made or threatened by or on behalf of any labor union
with respect to employees of MCT. MCT is in compliance in all material respects
with all applicable laws and regulations relating to employment or labor
matters including, without limitation, any provisions relating to wages, hours,
payment of social security or unemployment taxes, discrimination in employment
or employment practices, or occupational health and safety standards.
3.19 EMPLOYEE PLANS. Except as set forth in Section 3.19 of the MCT
Disclosure Schedule, MCT is not a party to, does not contribute to nor is
obligated to contribute to any pension, retirement, profit sharing, savings,
bonus, incentive (other than nonmaterial monetary incentives granted to
employees related to work conducted with respect to specific projects),
deferred compensation, restricted stock, stock purchase, stock appreciation,
phantom stock,
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group health insurance or group life insurance plan or arrangement, employee
welfare benefit plan, severance or termination plan or agreement, retiree
medical plan, educational reimbursement or tuition reduction plan, or any other
plan or arrangement or obligation related to employee benefits, or any
collective bargaining agreement or other agreement, written or oral, with any
trade or labor union, employees' association or similar organization. With
respect to each plan, if any, which is subject to the Employee Retirement
Income Security Act of 1974, as amended ('ERISA'), and any regulations
thereunder, MCT has in all material respects prepared in good faith and timely
filed all governmental reports and has properly and timely posted or
distributed all summaries, notices or reports to employees required to be
filed, posted or distributed with respect to such plan and is otherwise in
compliance with the applicable provisions of ERISA in all material respects.
With respect to any plan subject to ERISA, there has occurred no prohibited
transaction, funding deficiency, reportable event, liability to the Pension
Benefit Guaranty Corporation, withdrawal liability or breach of any fiduciary
duty.
3.20 BROKER'S FEES. MCT has no liability or obligation to pay any fees
or commissions to any broker, finder or agent with respect to the transactions
contemplated by the Exchange Agreement, provided, however, that MCT shall pay a
financial advisory fee to Vector Securities International, which payment shall
occur at or immediately prior to the Closing.
3.21 ACCOUNTS RECEIVABLE. Section 3.21 of the MCT Disclosure Schedule
contains a current aging of accounts receivable, as reflected on the MCT
Financial Statements. Except as disclosed in the MCT Disclosure Schedule, all
of the accounts receivable constitute bona fide claims and indebtedness owing
to MCT, arising in the ordinary course of business, and are not subject to any
known defenses, setoffs and counterclaims. The accounts receivable are
collectible in the amount set forth on the MCT Financial Statements, less
applicable reserves established in accordance with past practice.
3.22 PRODUCT WARRANTY MATTERS. MCT has complied with the Magnuson-Moss
Warranty Act, and all applicable state consumer protection laws, in connection
with the sale of its products and the product warranties arising out of such
sales. Section 3.22 of the MCT Disclosure Schedule sets forth a summary of
historical claims asserted against MCT with respect to such product warranties.
MCT has honored or otherwise satisfied all such claims having a reasonable
basis, in the good faith judgment of MCT or any of the MCT Management
Stockholders.
3.23 FULL DISCLOSURE. No statement contained by MCT in this Exchange
Agreement or the Exhibits attached hereto or any written statement or
certificate furnished or to be furnished to E&J and Sub pursuant hereto or in
connection with the transactions contemplated hereby contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained therein not misleading in light of the
circumstances under which they were made.
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4. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF E&J AND SUB.
E&J and Sub represent and warrant that except as and to the extent
expressly disclosed herein or in the disclosure schedule attached hereto as
Exhibit 4 (the 'E&J Disclosure Schedule') as of the date hereof:
4.1 ORGANIZATION AND GOOD STANDING. Each of E&J and Sub is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and the State of Missouri, respectively. Each of E&J and Sub
has corporate power to carry on its businesses as it is now being conducted and
it is duly qualified to do business, and is in good standing, in all
jurisdictions and countries in which the character of its business or
properties owned or leased makes such qualification necessary and where the
failure to so qualify would have a material adverse effect on E&J or Sub, as
the case may be.
4.2 CAPITALIZATION. The authorized capital stock of E&J consists of
20,000,000 shares of Common Stock, $0.01 par value, and 11,000,000 shares of
Preferred Stock, $0.01 par value, of which 10,000,000 shares have been
designated Class A Common Stock, 10,000,000 shares have been designated Class B
Common Stock. As of the date of this Exchange Agreement, 6,846,185 shares of
Class A Common Stock, 2,353,427 shares of Class B Common Stock, 6,075,419
shares of Series A Preferred Stock and 786,357 shares of Series B Preferred
Stock were issued and outstanding. On the Closing Date, there will be no more
than 104,000,000 million shares of capital stock of E&J outstanding, or
issuable upon the exercise of all outstanding rights, options and warrants to
purchase capital stock or convertible securities of E&J or upon the conversion
of all convertible securities of E&J or reserved for issuance. All of such
outstanding shares of Common Stock and Preferred Stock of E&J have been duly
authorized, are validly issued, fully paid and nonassessable and free of all
preemptive rights. The Exchange Shares will be, when issued in accordance
with the Exchange Agreement, duly authorized, validly issued, fully paid
and nonassessable and free of all preemptive rights.
4.3 SEC FILINGS. Since January 1, 1990, E&J has filed with the
Securities and Exchange Commission all reports, statements registration
statements and other filings (including all notes, exhibits and schedules
thereto and documents incorporated by reference therein) ('E&J SEC Filings')
that E&J was and is required to file under the Securities Act and the
Securities Exchange Act of 1934, as amended (the 'Exchange Act') and E&J is
current in all such filings. The E&J SEC Filings did not contain, at the time
of filing thereof, any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and, to the extent required such filings have been appropriately
updated to keep the information therein current. Each of the audited and
unaudited consolidated financial statements (including related notes and
schedules) included in the E&J SEC Filings was prepared in accordance with
generally accepted accounting principles applied on a consistent basis (except
as may be indicated therein or in the notes or schedules thereto and except
that unaudited statements do not include notes and may be subject to year-end
adjustments) and fairly presents the financial position of E&J as at the date
thereof and the results of operations and changes in financial position for the
periods then ended. E&J upon the specific request of MCT has delivered to MCT
copies of all of the E&J SEC Filings.
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4.4 ABSENCE OF MATERIAL ADVERSE CHANGES. Since June 30, 1993, there has
not been any material adverse change in the assets, business, financial
condition or results of operations of E&J, nor has there occurred any event or
development which could reasonably be foreseen to result in such a material
adverse change in the future.
4.5 AUTHORITY RELATIVE TO AGREEMENTS. E&J and Sub have the corporate
power and authority to enter into and deliver this Exchange Agreement, the
Merger Agreement and the Stockholders' Agreement (described in Section 6.3(e))
and to carry out their respective obligations hereunder and under the Merger
Agreement and the Stockholders' Agreement. The execution and delivery of this
Exchange Agreement, the Merger Agreement and the Stockholders' Agreement and
the consummation of the transactions contemplated hereby and by the Merger
Agreement and the Stockholders' Agreement have been duly authorized by E&J's
and Sub's Boards of Directors and no other corporate proceedings on the part of
E&J or Sub is necessary to authorize this Exchange Agreement, the Merger
Agreement and the Stockholders' Agreement and the transactions contemplated
hereby and by the Merger Agreement and the Stockholders' Agreement. This
Exchange Agreement is, and the Merger Agreement and the Stockholders' Agreement
will be, when executed and delivered, valid and binding obligations of E&J and
Sub enforceable against E&J and Sub in accordance with their respective terms,
except as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application relating to or affecting
enforcement of creditor's rights and by rules of law governing specific
performance, injunctive relief or other equitable remedies.
4.6 NO CONFLICTS. Neither the execution, delivery or performance of
this Exchange Agreement, Merger Agreement and the Stockholders' Agreement by
E&J and Sub, nor the consummation of the transactions contemplated hereby and
thereby, nor compliance by E&J or Sub with any of the provisions hereof or
thereof will (a) violate, conflict with, or result in a breach of any
provisions of, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in a right
of termination or acceleration, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of E&J or
Sub, under any of the terms, conditions or provisions of (i) the Certificate of
Incorporation or Bylaws of E&J and Sub or (ii) any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument or
obligation to which E&J or Sub is a party or by which E&J or Sub may be bound,
or to which E&J or Sub or any of their properties or assets may be subject,
except for such violations, conflicts, breaches, defaults, etc. which would
not, in the aggregate, have a material adverse effect on the business, results
of operations, prospects or financial condition of E&J or Sub, or (b) violate
any judgment, ruling, order, writ, injunction, decree, statute, rule or
regulation applicable to E&J or Sub or any of their properties or assets.
4.7 COMPLIANCE WITH LAW. To the knowledge of E&J and Sub, each of E&J
and Sub has complied and is in compliance in all material respects with all
laws and regulations applicable to its operations or with respect to which
compliance is a condition of engaging in the business thereof, except for
failures to comply which in the aggregate would not have a material adverse
effect on the conduct of, or the ability to conduct operations of, or the
financial or other condition of, the business or the prospects of E&J and Sub,
respectively.
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4.8 BROKER'S FEES. Except as contemplated herein, E&J and Sub have
no liability or obligation to pay any fees or commissions to any broker, finder
or agent with respect to the transactions contemplated by the Exchange
Agreement.
4.9 FULL DISCLOSURE. No statement contained by E&J and Sub in this
Exchange Agreement or the Exhibits attached hereto or any written statement or
certificate furnished or to be furnished to MCT pursuant hereto or in
connection with the transactions contemplated hereby contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained therein not misleading in light of the
circumstances under which they were made.
5. COVENANTS.
5.1 AFFIRMATIVE COVENANTS OF MCT. Subject to the payment to MCT by
E&J of the funds for working capital purposes pursuant to Section 5.8 herein,
MCT shall from the date hereof until the Closing Date:
(a) maintain its corporate existence in good standing;
(b) maintain the general character of its business and
conduct its business in the ordinary and usual course as described in Section
3.6;
(c) maintain and keep its property in normal working order
and condition, reasonable wear and tear excepted;
(d) maintain insurance on all of its insurable properties
to the extent and in the manner heretofore maintained by it;
(e) except as otherwise requested by E&J, use its best
efforts to preserve, until the Closing Date, its business organizations intact,
keep available the services of its present officers, employees and sales agents
and maintain and preserve the goodwill of customers and others having business
relations with it;
(f) allow E&J and its counsel, accountants, and other
representatives to have full access during normal business hours and upon
reasonable notice after the date hereof until the Closing Date to conduct a
review of all of its properties, books, contracts, commitments and records and
furnish to E&J during such period all such documents, copies of documents
(certified if required), and information concerning its affairs as E&J may
reasonably request including documents listed on the exhibits, provided that
E&J will use its best efforts to minimize the interference with MCT's business
caused by such review; and
(g) ensure that the outstanding bridge loans in the
principal amount of $1,450,000 and any interest thereon (the "Bridge Loans")
will be fully satisfied in exchange for a specified number of Exchange Shares
upon the Effective Date as more fully set forth in Exhibit 2.2.
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5.2 NEGATIVE COVENANTS OF MCT. Except as permitted or contemplated
by this Exchange Agreement, or as specifically authorized by E&J, MCT agrees to
act and proceed from the date hereof until the Closing Date as follows:
(a) not to amend or otherwise change its Articles of
Incorporation except as contemplated by Exhibit 2.2;
(b) not to issue or sell, or authorize for issuance or
sale, any shares of capital stock of any class or grant or make any option,
warrant, conversion privilege, contract to sell or purchase right with respect
to any shares of its capital stock of any class, except that MCT may issue
shares of its capital stock pursuant to the exercise of currently outstanding
stock options, warrants and convertible promissory notes;
(c) not to accrue, pay or declare any dividend or make or
declare any other distribution with respect to its capital stock or redeem,
purchase or otherwise acquire any of its capital stock;
(d) not to increase the compensation of or grant any
bonuses to any of its officers, directors or employees, except if previously
planned or in the ordinary and customary course of business;
(e) not to sell or otherwise dispose of any of its assets
or properties except in the ordinary course of business and not to amend,
extend or terminate any material contract or agreement; or
(f) not incur, create, assume or guarantee any indebtedness
for money borrowed, including capital leases, or make any loans, advances or
capital contributions to, or investments in, any person or entity.
5.3 NO SOLICITATION. MCT shall not, and will use its best efforts
to ensure that MCT's employees, Stockholders, independent contractors,
consultants, counsel, accountants, investment advisors and other
representatives and agents shall not, from the date hereof until the Closing or
the earlier termination of this Exchange Agreement, directly or indirectly,
solicits, initiate or encourage discussions or negotiations with, provide any
non-public information to, or enter into any agreement with, any third party
concerning any tender offer, exchange offer, merger, consolidation, sale of a
significant amount of assets, sale of securities, liquidation, dissolution or
similar transactions involving MCT.
5.4 EXHIBITS AND SCHEDULES. Prior to the Closing, MCT and E&J will
supplement or amend the MCT Disclosure Schedule or E&J Disclosure Schedule,
respectively, and Exhibits with respect to any matter thereafter arising which,
if existing or occurring at or prior to the date hereof would have been
required to be set forth or described in the MCT Disclosure Schedule or E&J
Disclosure Schedule, respectively, or Exhibits or which is necessary to correct
any information therein or in any representation and warranty of MCT or E&J,
respectively, which has been rendered inaccurate thereby.
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5.5 FILINGS; CONSENTS; REMOVAL OF OBJECTIONS. MCT, the MCT
Management Stockholders, E&J and Sub shall each use their best efforts to take
or cause to be taken all actions and do or cause to be done all things
necessary, proper or advisable under applicable laws to consummate and make
effective, as soon as reasonably practicable, the transaction contemplated
hereby, including, without limitation, obtaining all consents of any persons,
whether private or governmental, required in connection with the consummation
of the transaction contemplated hereby.
5.6 FURTHER ASSURANCES; COOPERATION; NOTIFICATION.
(a) MCT, the MCT Management Stockholders, E&J and Sub shall
each execute and deliver such instruments and take such other actions as the
other party or parties, as the case may be, may reasonably require in order to
carry out the intent of this Exchange Agreement.
(b) MCT and the MCT Management Stockholders shall cooperate
with E&J and Sub to promptly develop plans for the management of the business of
the Surviving Corporation after the Effective Date, including, without
limitation, plans relating to sales, marketing, operations and productivity,
and MCT shall further cooperate with E&J to provide for the implementation of
such plans as soon as practicable following the Effective Date. Subject to
applicable law, MCT shall confer on a regular and reasonable basis with one or
more representatives of E&J to report on material operations matters and the
general status of ongoing business activities.
(c) At all times from the date hereof until the Closing
Date, each party shall promptly notify the other party in writing of the
occurrence of any event which it reasonably believes will or may result in the
failure to satisfy the conditions specified in this Exchange Agreement or
otherwise frustrate the purposes hereof.
5.7 PUBLIC ANNOUNCEMENTS. None of the parties hereto shall make
any public announcement with respect to the transactions contemplated hereby
without the prior written consent of the other parties, which consent shall not
be unreasonably withheld or delayed; provided however, that any party may make
any announcements which are required by applicable law so long as it provides
prior written notice to the other parties of such requirement.
5.8 WORKING CAPITAL. From the date hereof, until the Closing Date
or earlier termination date of this Exchange Agreement, E&J shall provide MCT
with funds necessary to operate its business in the normal and ordinary course
which amount shall not exceed $500,000 per month and $2,500,000 in the
aggregate for the period ending March 31, 1994. Not more than ten business
days prior to the first day of each month, MCT shall supply monthly budgets to
E&J reasonably prepared and consistent with past practices and with the budgets
dated September 30, 1993 which have been provided to E&J and shall also furnish
monthly unaudited financial statements within 15 days of the end of each
calendar month. After receiving and approving, which approval shall not be
unreasonably withheld, such monthly budgets, E&J shall wire transfer the
requisite funds to MCT in no event later than eight business days after receipt
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by E&J of the monthly budget. Within three business days from the date hereof,
MCT shall provide E&J with a budget for the month of November 1993 and upon
approval thereof, E&J shall wire transfer the requisite funds to MCT. The
payment of any amounts from E&J to MCT pursuant to this Section 5.8 shall not
be deemed to constitute a waiver of E&J of any breach by MCT or any of the MCT
Management Stockholders of any representation, warranty, covenant or agreement
contained in this Exchange Agreement or in any certificate or document
delivered pursuant hereto. MCT and the MCT Management Stockholders covenant and
agree to apply any funds advanced by E&J hereunder only substantially in
accordance with the budgets submitted by MCT and approved by E&J. MCT shall
grant E&J a security interest in the assets of MCT securing MCT's obligations
to pay back the amounts advanced to MCT by E&J pursuant to this Section 5.8
which shall be senior in priority to the security interest granted to the
holders of the Bridge Loans and shall execute and deliver to E&J a Uniform
Commercial Code Financing Statement for filing in each state as E&J deems
necessary; provided, however, that E&J shall concurrently execute and deliver
to Cooley Godward Castro Huddleson & Tatum corresponding Uniform Commercial
Code Financing Statement Changes (the 'Form UCC-2s') to be held in escrow for
delivery to MCT upon the earlier of the repayment in full of all amounts
advanced to MCT by E&J pursuant to this Section 5.8 and any interest due
thereon or the termination of this Exchange Agreement except as set forth in
Sections 7.3(a) and 7.3(b), in which case, the Form UCC-2s will be delivered
only upon the repayment in full of all amounts advanced to MCT by E&J pursuant
to this Section 5.8 and any interest due thereon as set forth therein.
5.9 SECURITIES FILINGS. E&J shall also take any action necessary or
required to be taken by it under the securities laws of any state or any other
applicable securities laws in connection with the issuance of the Exchange
Shares, prior to Closing.
5.10 ASSUMPTION OF OPTIONS. E&J shall assume the Assumed Options pursuant
to Section 2.3 herein. E&J agrees to duly and validly reserve a sufficient
number of Shares of its capital stock for issuance upon exercise of the options
assumed by E&J herein. E&J agrees that all issuances of stock upon exercise of
assumed options shall be made pursuant to an offering registered under the
Securities Act on Form S-8. Issuances of capital stock upon exercise of the
Assumed Options shall not constitute a Dilutive Issuance under Section 2.4.
5.11 CALIFORNIA SECURITIES LAW. E&J shall use its best efforts to prepare
and file with the Commissioner all documentation required to be filed by it in
order to obtain a permit qualifying the issuance of the Exchange Shares
pursuant to Section 25121 of the California Securities Law as soon as
practicable after the date of this Exchange Agreement.
5.12 RECAPITALIZATION. E&J will use its best efforts to consummate the
Recapitalization as soon as possible.
5.13 REGISTRATION RIGHTS. If, prior to March 31, 1994, holders of a
majority of the Exchange Shares shall so request, E&J shall effect a
registration of the Exchange Shares pursuant to the Securities Act of 1933, as
amended, as soon as practicable after such request.
5.14 LISTING OF EXCHANGE SHARES. E&J shall use its best efforts to list
the Exchange Shares on the American Stock Exchange or other applicable stock
exchange.
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5.15 ASSUMPTION OF LIABILITIES. As of the Closing Date, E&J shall assume
all of the debts, liabilities, obligations, restrictions, disabilities,
penalties and duties of MCT, including, without limitation, all fees and
expenses incurred by MCT in connection with the transactions contemplated
herein, except for any fees and expenses incurred by MCT in connection with the
transactions contemplated hereunder which exceed an aggregate amount of
$500,000 and outstanding promissory notes of MCT in the aggregate principal
amount of $1,450,000 and interest thereon.
6. CONDITIONS PRECEDENT.
6.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGER. The
respective obligation of each party to consummate the transactions contemplated
by this Exchange Agreement and the Merger Agreement shall be subject to
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) GOVERNMENT APPROVALS. All authorizations, consents, orders and
approvals of, or declarations or filings with, or expiration of waiting periods
imposed by, any Governmental Entity necessary for the consummation of the
transactions contemplated by this Exchange Agreement including, but not
limited to, such requirements under applicable state securities laws, shall
have been filed, occurred or been obtained.
(b) STATUTES. No statute, rule or regulation shall have been enacted
by the government of the United States or any state or agency that would make
the consummation of the Merger illegal.
(c) LEGAL ACTION. No temporary restraining order, preliminary
injunction or permanent injunction or other order preventing the consummation
of the Merger shall have been issued by any federal or state court and remain
in effect, and no litigation seeking the issuance of such an order or
injunction, or seeking the imposition of such an order or injunction, shall be
pending that, in the good faith judgment of MCT's, E&J's or Sub's Boards of
Directors (acting on the advice of their respective counsel) has a reasonable
probability of resulting in such order, injunction or damages. In the event
any such order or injunction shall have been issued, each of MCT, E&J and Sub
agree to use its reasonable best efforts to have any such injunction lifted.
(d) PERMIT. A permit qualifying the issuance of the Exchange Shares
shall have been issued by the Commissioner in accordance with the California
Securities Law and such permit shall have been obtained after and as a result
of a fairness hearing held before the Commissioner under the authority granted
by Sections 25121 and 25142 of the California Securities Law.
6.2 CONDITIONS TO E&J'S AND SUB'S OBLIGATION TO EFFECT THE MERGER. The
obligations of E&J and Sub to consummate the transactions contemplated by this
Exchange Agreement and the Merger Agreement shall be, at E&J's and Sub's
election, subject to satisfaction or waiver on or prior to the Closing Date, of
the following conditions:
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(a) REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF MCT. All
representations and warranties made herein by MCT and the MCT Management
Stockholders shall be true as of the date of this Exchange Agreement and as of
the date of the Closing Date as though made on and as of the Closing Date; MCT
and the MCT Management Stockholders shall have performed all obligations and
agreements undertaken by it herein or in the Merger Agreement to be performed
at or prior to the Closing; and E&J and Sub shall have received a certificate
signed by the Chief Executive Officer of MCT and each of the MCT Management
Stockholders evidencing compliance with the conditions set forth in this
Section 6.2(a).
(b) GOOD STANDING. On or prior to the Effective Date, MCT shall have
delivered to E&J and Sub certificates issued by the Secretary of State of the
State of California evidencing the corporate good standing of MCT in California
as of a date not more than ten days prior to the Effective Date.
(c) LEGAL OPINION OF COUNSEL. E&J and Sub shall have received at the
Closing the opinion of Cooley Godward Castro Huddleson & Tatum, counsel to MCT,
in form and substance satisfactory to E&J, Sub and their legal counsel,
substantially in the form of Exhibit 6.2(c) hereto.
(d) EMPLOYEE AGREEMENTS. The employees of MCT listed on Exhibit
6.2(d)A shall have entered into Employment Agreements in the form attached as
Exhibit 6.2(d)B hereto.
(e) DISSENTING SHARES. The number of Dissenting Shares shall not
exceed 1,360,000 shares.
(f) BRIDGE LOANS. The holders of the Bridge Loans and MCT shall have
agreed to fully satisfy the Bridge Loans as set forth in 5.1(g) above.
(g) PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in
connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be in form and substance
satisfactory to E&J, Sub and their counsel, and E&J and Sub shall have received
all such counterpart originals and certified or other copies of such documents
as it may reasonably request.
(h) ABSENCE OF MATERIAL ADVERSE CHANGES. During the period from the
date hereof to the Closing Date, there shall not have been any material adverse
change in the assets, business, financial condition or results of operations of
MCT, nor shall there have occurred any event of development which could
reasonably be foreseen to result in such a material adverse change in the
future.
(i) NO ACTIONS. Consummation of the transactions contemplated by this
Agreement shall not violate any order, decree or judgment of any court or
governmental body having competent jurisdiction and no action or proceeding
shall have been instituted by any person or entity or threatened by any
governmental agency which, in either such case, in the good faith judgment of
E&J's and Sub's Boards of Directors (acting upon advice of its outside legal
counsel) has a reasonable probability of resulting in an order, judgment or
decree
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restraining, prohibiting or rendering unlawful the consummation of the
transactions contemplated by this Exchange Agreement.
(j) STOCKHOLDERS' AGREEMENT. The MCT Management Stockholders
shall have entered into the Stockholders' Agreement in the form attached
hereto as Exhibit 6.3(e).
6.3 CONDITIONS TO MCT'S AND THE MCT MANAGEMENT STOCKHOLDERS OBLIGATION
TO EFFECT THE MERGER. The obligation of MCT and the MCT Management
Stockholders to consummate the transactions contemplated this Exchange
Agreement and the Merger Agreement are, at MCT's and the MCT Management
Stockholders' election, subject to the satisfaction or waiver, on or prior to
the Closing Date, of the following conditions:
(a) REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF E&J AND SUB.
All representations and warranties made herein by E&J and Sub shall be
true as of the date of this Exchange Agreement and as of the date of the
Closing Date as though made on and as of the Closing Date; E&J and Sub shall
have performed all obligations and agreements undertaken by it herein or in the
Merger Agreement to be performed at or prior to the Closing; and MCT shall have
received a certificate signed by the Chief Executive Officers of E&J and Sub
evidencing compliance with the conditions set forth in this Section 6.3(a).
(b) BOARD OF DIRECTORS. The Board of Directors of E&J will consist of
Bevil J. Hogg, Charles D. Yie, to the extent such individuals are willing to so
serve and not more than 13 additional person and E&J shall at each
stockholders' meeting through July 1995 at which members of the Board of
Directors of E&J are elected continue to nominate the two nominees of MCT
designated by the holders of at least a majority of the Exchange Shares.
(c) RECAPITALIZATION. The Recapitalization shall have been
consummated. The shareholders of MCT may waive this condition to closing if
they are fully satisfied that all of the remaining conditions to the Merger
have been satisfied or waived and that any risks related to the
Recapitialization have been eliminated or adequately protected against or
suitable guarantees have been provided relating thereto and if the shareholders
of MCT will own at least that number of Exchange Shares provided for in Section
2.2 herein following the consummation of the Recapitialization.
(d) STOCKHOLDERS' AGREEMENT. BIL and its affiliates and E&J shall
have entered into the Stockholders' Agreement in the form attached hereto as
Exhibit 6.3(e).
(e) OPINION OF COUNSEL. MCT shall have received at the Closing the
opinion of Joseph A. Newcomb, Esq., counsel to E&J and Sub, in form and
substance satisfactory to MCT and its legal counsel, in the form of Exhibit
6.3(f) hereto.
(f) PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in
connection with the transactions contemplated hereby and all documents
and instruments incident to such transactions shall be in form and substance
satisfactory to MCT and its counsel, and MCT shall have received all such
counterpart originals or certified or other copies of such documents as it may
reasonably request.
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(g) NO ACTIONS. Consummation of the transactions contemplated
by this Exchange Agreement shall not violate any order, decree or
judgment of any court or governmental body having competent jurisdiction and no
action or proceeding shall have been instituted by any person or entity or
threatened by any governmental agency which, in either such case, in the good
faith judgment of MCT's Board of Directors (acting upon advice of its outside
legal counsel) has a reasonable probability of resulting in an order, judgment
or decree restraining, prohibiting or rendering unlawful the consummation of
the transactions contemplated by this Exchange Agreement.
(h) ABSENCE OF MATERIAL ADVERSE CHANGES. During the period
from the date hereof to the Closing Date, there shall not have been any
material adverse change in the assets, business, financial condition or results
of operations of E&J or Sub, nor shall there have occurred any event or
development which could reasonably be foreseen to result in such a material
adverse change in the future.
7. TERMINATION, AMENDMENT AND WAIVER.
7.1 TERMINATION AND ABANDONMENT. This Exchange Agreement may be
terminated and abandoned before the Effective Date, notwithstanding
authorization and adoption of this Exchange Agreement by the Boards of
Directors of MCT, E&J and Sub and the stockholders of MCT, without liability or
restriction on the future activities of any party hereto except as set forth in
Section 7.3 herein:
(a) by the mutual written consent of MCT, all of the MCT
Management Stockholders, E&J and Sub;
(b) by either MCT, the MCT Management Stockholders or E&J if
there has been a material breach of any representation, warranty,
covenant or agreement contained in this Exchange Agreement on the part of any
other party set forth in this Exchange Agreement and such breach of a covenant
or agreement has not been promptly cured;
(c) by either MCT, the MCT Management Stockholders or E&J if
the Merger shall not have been consummated before the earlier of 15
business days after the consummation of the Recapitalization or March 31, 1994;
(d) by either MCT, the MCT Management Stockholders
or E&J if (i) there shall be a final nonappealable order of a federal
or state court in effect preventing consummation of the Merger, or (ii) there
shall be any action taken, or any statute, rule, regulation or order enacted,
promulgated or issued or deemed applicable to the Merger by any Governmental
Entity which would make consummation of the Merger illegal; and
(e) by either MCT, the MCT Management Stockholders or E&J if
any required approval of the stockholders of MCT shall not have been
obtained.
7.2 PROMPT NOTICE. In the event of termination and abandonment by any
party as above provided in Section 7.1, prompt written notice shall be given to
the other party.
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7.3 EFFECT OF TERMINATION. If this Exchange Agreement is terminated
pursuant to Section 7.1 hereof, no party shall have any further liability to
any other party hereunder; provided, however, that:
(a) if such termination is by E&J pursuant to Section 7.1(b) herein as
a result of a material breach by either MCT or the MCT Management Stockholders
of its or their representations, warranties, covenants or agreements
hereunder, or the material failure of MCT or the MCT Management Stockholders to
use its or their best efforts to satisfy the conditions set forth in Section 6
herein, or pursuant to Section 7.1(c) herein as a result of a failure to
satisfy the conditions set forth in Sections 6.1(c), 6.2(i) or 6.3(g), inasmuch
as such Sections apply to MCT, or pursuant to Section 7.1(e) herein as a result
of a failure to obtain the required approval of the MCT stockholders, then MCT
shall be obligated to return the aggregate amount received by MCT from E&J
pursuant to Section 5.8 herein (the "Working Capital Amount") plus interest on
the Working Capital Amount at a rate of 10% per annum from the date MCT
receives written notice of such termination by E&J (the "Termination Date") (i)
if the Working Capital Amount is an amount less than $500,000, within the
period six months from the Termination Date, (ii) if the Working Capital Amount
is an amount greater than or equal to $500,000 but less than $1,000,000, within
the period nine months from the Termination Date, and (iii) if the Working
Capital Amount is an amount greater than or equal to $1,000,000, within the
period of twelve months from the Termination Date;
(b) if such termination is by E&J pursuant to Section 7.1(d) herein,
then MCT shall be obligated to return the Working Capital Amount (i) if the
Working Capital Amount is an amount less than $500,000, within the period
twelve months from the Termination Date, (ii) if the Working Capital Amount is
an amount greater than or equal to $500,000 but less than $1,000,000, within
the period 18 months from the Termination Date, and (iii) if the Working
Capital Amount is an amount greater than or equal to $1,000,000, within the
period 24 months from the Termination Date; and
(c) notwithstanding anything herein to the contrary, MCT hereby
acknowledges and affirms its obligation to repay the principal amount of
$500,000 to E&J on September 30, 1994 pursuant to that certain promissory note
dated October 1, 1993.
7.4 AMENDMENT. This Exchange Agreement may be amended by the parties
hereto, by action taken by their respective Board of Directors, at any time
before or after approval of matters presented in connection with the Merger by
the stockholders of MCT, but, after any such stockholder approval, no amendment
shall be made which by law requires the further approval of stockholders
without obtaining such further approval. This Exchange Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
7.5 EXTENSION; WAIVER. At any time prior to the Effective Date, any
party hereto, by action taken by its Board of Directors, may, to the extent
legally allowed, (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements
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or conditions for the benefit of such party contained herein. Any agreement on
the part of a party hereto to any such extension or waiver shall be valid if
set forth in an instrument in writing signed on behalf of such party.
8. SURVIVAL; INDEMNIFICATION.
8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Each and every
representation and warranty contained in this Exchange Agreement or in any
certificate or document delivered pursuant hereto shall survive the Closing
Date; provided that the representations and warranties of the MCT Management
Stockholders, MCT and E&J contained in this Exchange Agreement or in any
certificate or document delivered pursuant hereto shall survive the Closing
Date only for a period ending on March 31, 1995.
8.2 INDEMNITY.
(a) After the Closing Date, each of the MCT Management
Stockholders, separately, shall indemnify and hold E&J and Sub harmless to the
extent provided in this Article 8, from and against any and all losses,
damages, liabilities, claims, demands, judgments, settlements, costs and
expenses of any nature whatsoever (including reasonable attorneys' fees)
resulting from or arising out of (a) any breach of any representation or
warranty of the MCT Management Stockholders contained in this Exchange
Agreement or in any certificate or document delivered pursuant hereto, (b) the
non-performance, partial or total, of any covenant or agreement of the MCT
Management Stockholders contained in or contemplated by this Exchange Agreement
and (c) any written claim made prior to March 31, 1995 arising from or related
to any products manufactured by MCT prior to the Closing Date (collectively
the "E&J Losses"). Any indemnification due pursuant to this Section 8 shall
be payable by cash or shares of Common Stock of E&J at the option of the MCT
Management Stockholders. Any share of Common Stock of E&J delivered by the
MCT Management Stockholders in satisfaction of an indemnification made
pursuant to this Section 8.2 shall be deemed to have the value of one
Exchange Share as valued pursuant to Exhibit 2.2.
(b) After the Closing Date, E&J and Sub shall indemnify and
hold the MCT Stockholders harmless to the extent provided in this Article 8,
from and against any and all losses, damages, liabilities, claims, demands,
judgments, settlements, costs and expenses of any nature whatsoever (including
reasonable attorneys' fees) resulting form or arising out of (a) any breach of
any representation or warranty of BIL contained in this Agreement or in any
certificate or document delivered pursuant hereto, (b) the non-performance,
partial or total, of any covenant or agreement of the BIL contained in or
contemplated by this Exchange Agreement and (c) any written claim made prior to
March 31, 1995 arising from or related to any products manufactured by E&J
prior to the Closing Date (collecively the "MCT Losses"). Any indemnification
due pursuant to this Section 8 shall be payable by cash or shares of Common
Stock of E&J at the option of E&J. Any share of Common Stock of E&J delivered
by E&J in satisfaction of an indemnification made pursuant to this Section 8.2
shall be deemed to have the value of the closing price on the date of delivery
as reported on the American Stock Exchange.
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8.3 LIMITATION OR INDEMNIFICATION.
(a) No party shall be entitled to make any claim for
indemnification under this Article 8, with respect to any breach of any
particular representation or warranty contained herein, after the date on which
such representation or warranty ceases to survive pursuant to Section 8.1
herein; provided, however, that, if prior to the close of business on the date
any representation or warranty ceases to survive, the indemnifying party shall
have received written notification of a claim for indemnity hereunder
specifying in reasonable detail the basis of any claim, and such claim shall
not have been finally resolved or disposed of at such date, such claim shall
continue as a basis for indemnity until it is finally resolved or disposed of,
subject to applicable statutes of limitation.
(b) The aggregate liability of each of the MCT Management
Stockholders to E&J and Sub shall be limited to their pro rata portion, based
upon the number of Exchange Shares received by each such MCT Management
Stockholder, of $750,000.
(c) The aggregate liability of E&J and Sub to the MCT
Stockholders shall be limited to $750,000.
(d) None of the MCT Management Stockholders shall be obligated
to indemnify E&J and Sub until the amount of all E&J Losses incurred by E&J and
Sub exceeds $100,000 at which time the MCT Management Stockholders shall
indemnify E&J and Sub with respect to all E&J Losses theretofore or thereafter
incurred by E&J and Sub, subject to the limitations set forth in this
Section 8.
(e) E&J and Sub shall not be obligated to indemnify the MCT
Stockholders until the amount of all MCT Losses incurred by the MCT
Stockholders exceeds $100,000, at which time E&J and Sub shall indemnify the
MCT Stockholders with respect to all MCT Losses theretofore or thereafter
incurred by the MCT Stockholders, subject to the limitations set forth in this
Section 8.
8.4 BIL GUARANTY. BIL hereby unconditionally, absolutely and
irrevocably guarantees to the MCT Stockholders the prompt and complete payment
of any indemnification due to the MCT Stockholders from E&J and Sub for any MCT
Losses.
8.5 THIRD PARTY CLAIMS. If a claim by a third party is made against
an indemnified party, and if such party intends to seek indemnity with respect
thereto under this Section 8, the indemnified party shall promptly (and in any
case within 30 days of such claim being made and within the period provided in
Section 8.3, if applicable) notify the indemnifying party of such claim. The
indemnifying party shall have 30 days after receipt of such notice to undertake,
conduct and control, through counsel of its own choosing and added expense, the
settlement or defense thereof, and the indemnified party shall cooperate with
it in connection therewith; provided that (a) the indemnifying party shall
permit the indemnified party to participate in such settlement or defense
through counsel chosen by the indemnified party, provided the fees and expenses
of such counsel shall be borne by the indemnified party and (b) the
indemnifying party shall promptly reimburse the indemnified party for the full
amount of any loss resulting from
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such claim and all related expenses incurred by the indemnified party except
for the fees and expenses of counsel pursuant to clause (a) above and subject
to Section 8.2 above. So long as the indemnifying party is reasonably
contesting any such claim in good faith, the indemnified party shall not pay or
settle any such claim. If the indemnifying party does not notify the
indemnified party within thirty (30) days after the receipt of the indemnified
party's notice of claim of indemnity hereunder that it elects to undertake the
defense thereof, the indemnified party shall have the right to contest, settle
or compromise the claim in the exercise of its reasonable judgment at the
expense of the indemnifying party.
9. GENERAL PROVISIONS.
9.1 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given upon personal delivery or delivery by an
express courier service (such as Federal Express or Network Courier Service),
or on the third day following deposit in the United States mail (if sent by
registered or certified mail, return receipt requested, postage prepaid),
addressed to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(a) if to E&J or Sub to:
Everest & Jennings International Ltd.
1100 Corporate Square Drive
St. Louis, MO 63132
Attn: President and Chief Executive Officer
with a copy to:
Ziercher & Hocker, P.C.
231 South Bemiston Avenue, 8th Floor
St. Louis, MO 63105
Attn: Steven W. Koslovsky, Esq.
(b) if to MCT to:
Medical Composite Technology, Inc.
2880 Research Park Drive
Suite 100
Soquel, CA 95073
Attn: Bevil J. Hogg
with a copy to:
Cooley Godward Castro Huddleson & Tatum
Five Palo Alto Square, Fourth Floor
Palo Alto, CA 94306
Attn: Andrei M. Manoliu, Esq.
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<PAGE> 32
(c) if to BIL to:
BIL (Far East Holdings) Limited
c/o BIL (U.S.A.) Inc.
7825 Fay Avenue, Suite 380
La Jolla, CA 92037
Attn: Robert G. Sutherland
(d) if to the MCT Management Stockholders, to:
MCT Management Stockholders
c/o Ampersand Ventures
55 William Street, Suite 240
Wellesley, MA 02181
Attn: Charles D. Yie
(the 'Stockholder Representative'); provided that, the Stockholder
Representative shall only be obligated to deliver such notices to the MCT
Management Stockholders and any of their successors or assigns to the addresses
set forth in Exhibit A.
9.2 INTERPRETATION. When a reference is made in this Exchange
Agreement to Sections or Exhibits, such reference shall be to a Section or
Exhibit to this Agreement unless otherwise indicated. The words 'include'
'includes,' and 'including' when used herein shall be deemed in each case to be
followed by the words 'without limitation.' The table of contents and headings
contained in this Exchange Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Exchange Agreement.
Unless otherwise provided, any reference in this Exchange Agreement to an
event, change or effect being 'material' with respect to any corporate entity
means an event, change or effect material to the financial condition, results
of operations, assets or business of such corporate entity.
9.3 COUNTERPARTS. This Exchange Agreement may be executed in one or more
counterparts, both of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.4 MISCELLANEOUS. This Exchange Agreement and the documents and
instruments and other agreements among the parties hereto (a) constitute the
entire agreement among the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof; except for the
Mutual Nondisclosure Agreement dated May 12, 1993 between MCT and E&J which
shall continue in full force and effect until the Closing and shall survive
any termination of this Exchange Agreement; (b) are not intended to confer
upon any other person any rights or remedies hereunder; and (c) shall not
be assigned by operation of law or otherwise except as otherwise
specifically provided.
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<PAGE> 33
9.5 GOVERNING LAW. This Exchange Agreement shall be governed in all
respects, including validity, interpretation and effect, by the laws of the
State of California.
9.6 EXPENSES. Each of the parties shall bear its own costs and expenses
related to this Exchange Agreement and the transactions contemplated hereunder,
including without limitation fees and expenses of legal counsel, accountants,
consultants, or other representatives, except that any fees and expenses
incurred by MCT in connection with the transactions contemplated hereunder
which exceed an aggregate amount of $500,000 shall be paid by the shareholders
of MCT.
9.7 ATTORNEY'S FEES. In any action at law or suit in equity to enforce
this Exchange Agreement or the rights of the parties hereunder, the prevailing
party in such action or suit shall be entitled to receive a reasonable sum for
its attorney's fees and all other reasonable costs and expenses incurred in
such action or suit.
9.8 ASSIGNABILITY. This Exchange Agreement shall be binding upon, and
shall be enforceable by and inure to the benefit of, the parties named herein
and their respective successors; provided, however, that this Exchange
Agreement may not be assigned by any party without the prior written consent of
the other party, and any attempted assignment without such consent shall be
void and of no effect.
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<PAGE> 34
IN WITNESS WHEREOF, the parties hereto have caused this Exchange Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
EVEREST & JENNINGS INTERNATIONAL LTD.
By: /s/ C. Richard Piazza
Title: President & CEO
MEDICAL COMPOSITE TECHNOLOGY, INC.
By:
Title:
MCT ACQUISITION CORP.
By: /s/ Joseph A. Newcomb
Title: Vice President
BIL (FAR EAST HOLDINGS) LIMITED
By: /s/ Robert G. Sutherland
Title: Director
MCT MANAGEMENT STOCKHOLDERS
(Name)
By:
Title:
Address:
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<PAGE> 35
IN WITNESS WHEREOF, the parties hereto have caused this Exchange Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
EVEREST & JENNINGS INTERNATIONAL LTD.
By:
Title:
MEDICAL COMPOSITE TECHNOLOGY, INC.
By: /s/ Bevil J. Hogg
Title: CEO
MCT ACQUISITION CORP.
By:
Title:
BIL (FAR EAST HOLDINGS) LIMITED
By:
Title:
MCT MANAGEMENT STOCKHOLDERS
(Name)
By: /s/ Bevil J. Hogg
Title: CEO
Address: 215 Ross St
Santa Cruz
CA 95000
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<PAGE> 36
IN WITNESS WHEREOF, the parties hereto have caused this Exchange Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
EVEREST & JENNINGS INTERNATIONAL LTD.
By:
Title:
MEDICAL COMPOSITE TECHNOLOGY, INC.
By: /s/ Bevil J. Hogg
Title: CEO
MCT ACQUISITION CORP.
By:
Title:
BIL (FAR EAST HOLDINGS) LIMITED
By:
Title:
MCT MANAGEMENT STOCKHOLDERS
Robert W. Lishman
(Name)
By: /s/ Robert W. Lishman
Title:
Address: c/o Medical Composite
Technology, Inc.
2880 Research Park Drive,
Ste 100
Soquel, California 95073
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<PAGE> 37
IN WITNESS WHEREOF, the parties hereto have caused this Exchange Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
EVEREST & JENNINGS INTERNATIONAL LTD.
By:
Title:
MEDICAL COMPOSITE TECHNOLOGY, INC.
By: /s/ Bevil J. Hogg
Title: CEO
MCT ACQUISITION CORP.
By:
Title:
BIL (FAR EAST HOLDINGS) LIMITED
By:
Title:
MCT MANAGEMENT STOCKHOLDERS
Thomas E. French
(Name)
By: /s/ Thomas E. French
Title:
Address: 716 Walnut Ave.
Santa Cruz, CA 95060
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<PAGE> 38
IN WITNESS WHEREOF, the parties hereto have caused this Exchange Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
EVEREST & JENNINGS INTERNATIONAL LTD.
By:
Title:
MEDICAL COMPOSITE TECHNOLOGY, INC.
By:
Title:
MCT ACQUISITION CORP.
By:
Title:
BIL (FAR EAST HOLDINGS) LIMITED
By:
Title:
MCT MANAGEMENT STOCKHOLDERS
For: AMPERSAND SPECIALTY MATERIALS
VENTURES LIMITED PARTNERSHIP
By: ASMV Management Company Limited
Partnership
By: /s/ Charles D. Yie
Title: General Partner
Address: Ampersand Ventures
55 William Street, Suite 240
Wellesley, MA 02181
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<PAGE> 39
IN WITNESS WHEREOF, the parties hereto have caused this Exchange Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
EVEREST & JENNINGS INTERNATIONAL LTD.
By:
Title:
MEDICAL COMPOSITE TECHNOLOGY, INC.
By:
Title:
MCT ACQUISITION CORP.
By:
Title:
BIL (FAR EAST HOLDINGS) LIMITED
By:
Title:
MCT MANAGEMENT STOCKHOLDERS
TECHNOLOGY FUNDING PARTNERS III, L.P.
a Delaware limited partnership
By: Technology Funding Inc.
Managing General Partner
By: /s/ Peter F. Bernardoni
Title: Vice President
Address: 2000 Alameda de las Pulgas
San Mateo, California 94403
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<PAGE> 40
IN WITNESS WHEREOF, the parties hereto have caused this Exchange Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
EVEREST & JENNINGS INTERNATIONAL LTD.
By:
Title:
MEDICAL COMPOSITE TECHNOLOGY, INC.
By:
Title:
MCT ACQUISITION CORP.
By:
Title:
BIL (FAR EAST HOLDINGS) LIMITED
By:
Title:
MCT MANAGEMENT STOCKHOLDERS
TECHNOLOGY FUNDING VENTURE PARTNERS IV,
AN AGGRESSIVE GROWTH FUND, L.P.,
a Delaware limited partnership
By: Technology Funding Inc.
Managing General Partner
By: /s/ Peter F. Bernardoni
Title: Vice President
Address: 2000 Alameda de las Pulgas
San Mateo, California 94403
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<PAGE> 41
IN WITNESS WHEREOF, the parties hereto have caused this Exchange Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
EVEREST & JENNINGS INTERNATIONAL LTD.
By:
Title:
MEDICAL COMPOSITE TECHNOLOGY, INC.
By:
Title:
MCT ACQUISITION CORP.
By:
Title:
BIL (FAR EAST HOLDINGS) LIMITED
By:
Title:
MCT MANAGEMENT STOCKHOLDERS
TECHNOLOGY FUNDING VENTURE PARTNERS V,
AN AGGRESSIVE GROWTH FUND, L.P.,
a Delaware limited partnership
By: Technology Funding Inc.
Managing General Partner
By: /s/ Peter F. Bernardoni
Title: Vice President
Address: 2000 Alameda de las Pulgas
San Mateo, California 94403
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<PAGE> 42
IN WITNESS WHEREOF, the parties hereto have caused this Exchange Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
EVEREST & JENNINGS INTERNATIONAL LTD.
By:
Title:
MEDICAL COMPOSITE TECHNOLOGY, INC.
By:
Title:
MCT ACQUISITION CORP.
By:
Title:
BIL (FAR EAST HOLDINGS) LIMITED
By:
Title:
MCT MANAGEMENT STOCKHOLDERS
SANDERLING BIOMEDICAL,L.P.
By: /s/ Frederick A. Middleton
Title: General Partner
Address: 2730 Sand Hill Road, Suite 200
Menlo Park, California 94025
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<PAGE> 43
IN WITNESS WHEREOF, the parties hereto have caused this Exchange Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
EVEREST & JENNINGS INTERNATIONAL LTD.
By:
Title:
MEDICAL COMPOSITE TECHNOLOGY, INC.
By:
Title:
MCT ACQUISITION CORP.
By:
Title:
BIL (FAR EAST HOLDINGS) LIMITED
By:
Title:
MCT MANAGEMENT STOCKHOLDERS
SANDERLING VENTURES LIMITED,L.P.
By: /s/ Frederick A. Middleton
Title: General Partner
Address: 2730 Sand Hill Road, Suite 200
Menlo Park, California 94025
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<PAGE> 44
IN WITNESS WHEREOF, the parties hereto have caused this Exchange Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
EVEREST & JENNINGS INTERNATIONAL LTD.
By:
Title:
MEDICAL COMPOSITE TECHNOLOGY, INC.
By:
Title:
MCT ACQUISITION CORP.
By:
Title:
BIL (FAR EAST HOLDINGS) LIMITED
By:
Title:
MCT MANAGEMENT STOCKHOLDERS
SANDERLING VENTURE PARTNERS II, L.P.
By: /s/ Frederick A. Middleton
Title: General Partner
Address: 2730 Sand Hill Road, Suite 200
Menlo Park, California 94025
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EXHIBIT 2(b)
PLAN OF MERGER
THIS PLAN OF MERGER, dated as of January 14, 1994 (the "Merger
Agreement"), is made and entered into by MCT Acquisition Corp., a Missouri
corporation ("Acquiror Sub" or "Surviving Corporation"), and Medical Composite
Technology, Inc., a California corporation ("Target")(Target and Acquiror Sub
being hereinafter collectively referred to as the "Constituent Corporations").
RECITALS
A. Everest & Jennings International Ltd., a Delaware corporation
("Acquiror"), Target and Acquiror Sub have entered into an Exchange Agreement
and Plan of Merger dated October 23, 1993 (the "Exchange Agreement"),
providing, among other things, for the execution and filing of this Merger
Agreement and the merger of Target with and into Acquiror Sub upon the terms
set forth in the Exchange Agreement and this Merger Agreement (the "Merger").
B. The respective Boards of Directors of each of the Constituent
Corporations deem it advisable and in the best interests of each of such
corporations and their respective stockholders that Target be merged with and
into Acquiror Sub.
AGREEMENT
NOW, THEREFORE, in consideration of the promises and mutual agreements
contained in this Merger Agreement, the Constituent Corporations hereby agree
that Target shall be merged with and into Acquiror in accordance with the
provisions of the laws of the State of California and the State of Missouri,
upon the terms and subject to the conditions set forth as follows:
ARTICLE 1
THE MERGER
1.1 Filing. This Merger Agreement, together with any additional
changes or documents required, shall be filed with the Secretaries of State of
the State of California and the State of Missouri at the time specified in the
Exchange Agreement. This Merger Agreement may be executed in one or more
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
1.2 Effectiveness. The Merger shall become effective upon the filing
of this Merger Agreement with the Secretaries of State of the State of
California and the State of Missouri (the "Effective Date").
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1.3 Merger. On the Effective Date, Target shall be merged into
Acquiror Sub and the separate corporate existence of Target shall thereupon
cease. Acquiror Sub shall be the Surviving Corporation in the Merger and the
separate corporate existence of Acquiror Sub, with all of its purposes,
objects, rights, privileges, powers, immunities and franchises, shall continue
unaffected and unimpaired by the Merger.
1.4 Further Action. If at any time after the Effective Date any
further action is necessary or desirable to carry out the purposes of this
Merger Agreement or to vest the Surviving Corporation with the full right,
title and possession to all assets, property, rights, privileges, immunities,
powers and franchises of either or both of the Constituent Corporations, the
officers and directors of the Surviving Corporation are fully authorized in the
name of either or both of the Constituent Corporations or otherwise to take all
such action.
ARTICLE 2
CORPORATE GOVERNANCE MATTERS
2.1 Articles. The Articles of Incorporation of Acquiror Sub in
effect immediately prior to the Effective Date shall be the Articles of
Incorporation of the Surviving Corporation unless and until amended as provided
by law.
2.2 Bylaws. The Bylaws of Acquiror Sub in effect immediately prior
to the Effective Date shall be the Bylaws of the Surviving Corporation unless
and until amended as provided by law.
2.3 Directors. From and after the Effective Date, the directors of
Acquiror Sub shall be the directors of the Surviving Corporation and they shall
hold office as provided in the Bylaws of the Surviving Corporation.
2.4 Officers. The officers of the Surviving Corporation shall be the
officers of the Surviving Corporation on the Effective Date and they shall
continue to hold office from and after the Effective Date as provided in the
Bylaws of the Surviving Corporation.
ARTICLE 3
MANNER OF CONVERTING SHARES OF THE CONSTITUENT CORPORATIONS
3.1 Conversion of Target Capital Stock.
(a) On the Effective Date, each then outstanding shares of
Common Stock, no par value, of Target (the "Target Common Stock") (other than
Dissenting Shares (as defined in Section 3.6)) shall cease to be an existing
and issued shares and shall become and be converted into, by virtue of the
Merger and without any action on the part of Acquiror, Acquiror Sub, Target or
the holder thereof, .889928 shares (the "Common Exchange Ratio") of Common
Stock, $0.01 par value, of Acquiror (the "Acquiror Exchange Stock").
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(b) On the Effective Date, each then outstanding share of
Series A Preferred Stock, no par value, of Target (the "Target Series A
Stock") (other than Dissenting Shares) shall cease to be an existing and issued
share and shall become and be converted into, by virtue of the Merger and
without any action on the part of Acquiror, Acquiror Sub, Target or the holder
thereof, 1.126677 shares (the "Series A Exchange Ratio") of Acquiror Exchange
Stock.
(c) On the Effective Date, each then outstanding share of
Series B Preferred Stock, no par value, of Target (the "Target Series B
Stock") (other than Dissenting Shares) shall cease to be an existing and issued
share and shall become and be converted into, by virtue of the Merger and
without any action on the part of Acquiror, Acquiror Sub, Target or the holder
thereof, 1.827191 shares (the "Series B Exchange Ratio") of Acquiror Exchange
Stock.
(d) On the Effective Date, each then outstanding share of
Series C Preferred Stock, no par value, of Target (the "Target Series C
Stock") (other than Dissenting Shares) shall cease to be an existing and issued
share and shall become and be converted into, by virtue of the Merger and
without any action on the part of Acquiror, Acquiror Sub, Target or the holder
thereof, 2.958808 shares (the "Series C Exchange Ratio") of Acquiror Exchange
Stock.
(e) The Series A Exchange Ratio, Series B Exchange Ratio,
Series C Exchange Ratio and the Common Exchange Ratio are hereafter
collectively referred to as the "Exchange Ratios." The Target Common Stock and
the Target Series A Preferred Stock, Target Series B Preferred Stock and Target
Series C Preferred Stock are hereafter collectively referred to as the "Target
Capital Stock."
3.2 Acquiror Sub Common Stock. On the Effective Date, each then
outstanding share of Common Stock, no par value, of Acquiror Sub remain
outstanding and the aggregate of such shares shall constitute the only
outstanding shares of capital stock of the Surviving Corporation.
3.3 Closing of Target Transfer Book. On and after the Effective
Date, holders of certificates representing shares of Target Capital Stock shall
cease to have any rights as stockholders of Target and the stock transfer books
of Target shall be closed with respect to shares of Target Capital Stock issued
and outstanding immediately prior to the Effective Date and no further transfer
of such shares shall thereafter be made on such stock transfer books. If,
after the Effective Date, valid certificates previously representing such
shares are presented to Acquiror or Target, they shall be exchanged as provided
in Section 3.4.
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3.4 Exchange of Certificates. On the closing date of the Merger,
Acquiror shall cause to be deposited with American Stock Transfer (the
"Exchange Agent") for issuance to the former Target stockholders. Promptly
following such delivery, the Exchange Agent shall transmit to the former Target
stockholders in accordance with instructions from the Trustee appropriate
documents to be used by them to surrender their Target Capital Stock
certificates in exchange for Acquiror Exchange Stock certificates and cash in
lieu of any fractional shares of Target Capital Stock. Until so surrendered
and exchanged, each certificate for Target Capital Stock shall represent solely
the right to receive shares of Acquiror Exchange Stock into which the shares of
Target Capital Stock it theretofore represented shall have been converted
pursuant to Section 3.1 (or to perfect the holder thereof's right to receive
payment for such shares pursuant to Chapter 13 of the General Corporation Law
of the State of California and Section 3.6 hereof); provided, however, that
customary and appropriate certificates and indemnities allowing exchange
against lost or destroyed certificates shall be provided.
3.5 No Fractional Shares. No fractional shares of Acquiror Exchange
Stock will be issued in connection with the Merger and no certificate therefor
will be issued. In lieu of such fractional shares, any holder of Target
Capital Stock who would otherwise receive a fractional share shall, upon
surrender of his certificate or certificates representing Target Capital Stock,
be paid an amount in cash (without interest) determined by multiplying the
applicable Exchange Ratio by the value of a share of Acquiror Exchange Stock,
based on the average of the closing price of the Common Stock, $0.01 par value
for the 30 trading days prior to the Effective Date. Acquiror will, subject to
any applicable statute of limitation or abandoned property or similar law, pay
to such holders, upon surrender of their certificates representing Target
Capital Stock outstanding immediately prior to the Effective Date, the cash
value of such fractions so determined, without interest.
3.6 Dissenting Shares. Notwithstanding anything in this Agreement to
the contrary, shares of Target Capital Stock that are issued and outstanding
immediately prior to the Effective Date and that are held by stockholders who
have not voted such shares in favor of the Merger and who have delivered a
written demand for purchase of such shares in the manner provided in Chapter 13
of the California Law ("Dissenting Shares") shall not be canceled and converted
into shares of Acquiror Exchange Stock in accordance with the Exchange Ratios
unless and until such holder shall have failed to perfect, or shall have
effectively withdrawn or lost, such holder's right to demand purchase and
payment under the California Law. If such holder shall have so failed to
perfect, or shall have effectively withdrawn or lost such right, such holder's
shares of Target Capital Stock shall thereupon be deemed to have been canceled
and converted as described in Section 3.1 on the Effective Date, and each such
share shall represent solely the right to receive shares of Acquiror Exchange
Stock in accordance with the applicable Exchange Ratio. From and
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after the Effective Date, no stockholder who has demanded the purchase of
shares as provided in Chapter 13 of the California Law shall be entitled to
vote such holder's shares for any purpose or to receive payment of dividends or
other distributions with respect to such holder's shares (except dividends and
other distributions payable to stockholders of record at a date which is prior
to the Effective Date).
ARTICLE 4
TERMINATION AND AMENDMENT
4.1 Termination. Notwithstanding the approval of this Merger
Agreement by the stockholders of Acquiror Sub and Target, this Merger Agreement
shall terminate forthwith in the event that the Exchange Agreement shall be
terminated as therein provided.
4.2 Amendment. This Merger Agreement may be amended by the parties
hereto at any time before or after approval hereof by the stockholders of
either Acquiror Sub or Target, but, after any such approval, no amendment shall
be made which without the further approval of such stockholders would (i) have
a material adverse effect on the stockholders of either Acquiror Sub or Target,
(ii) change any of the principal terms of the Merger Agreement, or (iii) change
any term of the Articles of Incorporation of the Surviving Corporation. This
Merger Agreement may not be amended except by an instrument in writing signed
on behalf of each of the parties hereto.
IN WITNESS WHEREOF, the parties have duly executed this Merger Agreement
as of the date first written above.
MEDICAL COMPOSITE
MCT ACQUISITION CORP. TECHNOLOGY, INC.
a Missouri corporation a California corporation
By: /s/ Joseph A. Newcomb By: /s/ Frederick A. Middleton
Its Vice President Its Chairman of the Board
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