<PAGE>
UNITED STATES
Securities and Exchange Commission
Washington, DC 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended April 30, 1998
Or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Transition period from ___________ to _____________
Commission File Number 0-3255
JAYARK CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-1864519
(State or jurisdiction of incorporation or organization)(IRS Employer ID No.)
PO Box 741528, Houston, Texas 77274
(Address of principal executive office) (Zip Code)
Telephone number, including area code: (713) 783-9184
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.30 per share
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant is $314,483 as of June 30, 1998.
<PAGE>
The number of shares outstanding of Registrant's Common Stock is 9,221,199 as of
June 30, 1998.
PART I
Item 1. Business
General
Jayark Corporation ("Jayark" or "the Company") conducts its operations through
AVES Audiovisual Systems, Inc. ("AVES"), a wholly owned subsidiary.
AVES distributes for resale, as well as rents, a broad range of audiovisual,
video and communications equipment and supplies. Its customer base includes
schools, industry and hotels. The warehousing, sales and administrative
operations of AVES are located in Houston, Texas.
The Company was originally incorporated in New York in 1958. In 1991, the
Company changed its state of incorporation to Delaware.
Recent Events
Discontinued Operations
As a result of continued losses due to a soft retail market, low margins,
competitive pressures, and price reductions, the Company had been looking for
methods to sell or otherwise dispose of the operations of Rosalco Inc.,
("Rosalco") a wholly owned subsidiary of Jayark. Rosalco had been in the
business of the distribution of more than 300 different products, including
occasional furniture, brass beds, custom jewelry cases and accessories, most
of which were imported from outside the continental United States. Rosalco
also developed special designs for several customers. Rosalco was
headquartered in Jeffersonville, Indiana. All efforts to sell Rosalco were
unsuccessful, and it was officially closed on October 22, 1997. The assets of
Rosalco were secured as part of its borrowing agreement. Shortly after the
closing, a receiver was assigned to liquidate the secured assets of Rosalco
to satisfy the loan principal. The financial statements have been restated
to reflect Rosalco's operations for all periods as discontinued operations.
In fiscal 1997, Jayark incurred a $5,795,000 loss on Discontinued Operations,
which included $3,294,000 loss from operations for the year ended April 30,
1997, the establishment of accruals in the amount of $300,000 for expenses
and guarantees related to the closing, the write off of an intercompany
receivable and other assets of $476,000, and the write off of the remaining
net assets of Rosalco of $1,725,000.
Subsequent Events
In July 1998, the Company amended its Certificate of Incorporation increasing
its authorized Common Stock from 10,000,000 to 30,000,000 shares and
decreasing the par value of its Common Stock from $.30 to $.01 per share.
<PAGE>
In August 1998, the Company intends to offer to each stockholder, the right to
purchase, pro rata, two shares of Common Stock at a price of $.10 per share.
The Company expects to file a Registration Statement on Form S-1 with the
Securities and Exchange Commission as soon as practicable in order to register
such rights to purchase Common Stock, under the Securities Act of 1933, as
amended. Upon the Registration Statement becoming effective, stockholders will
receive notification of the Rights Offering and instructions on how to exercise
the rights. The net proceeds of $1,790,000 to the Company from the sale of the
Common Stock will be used to retire $1,790,000 of notes payable and subordinated
notes, including accrued interest with related parties.
In June 1998 Jayark Corporation, through a newly formed, wholly owned
subsidiary, MED Services Corp. ("Med"), entered into a Purchase and Sale
Agreement with Vivax Medical Corporation ("Vivax"), a company that manufactures,
sells and rents durable medical equipment to hospitals, nursing homes and
individuals. Under the terms of the agreement, Med purchased certain medical
equipment from Vivax for cash of $579,700 and a $144,925 unsecured promissory
note due in five years. Med then entered into a Consignment Agreement with
Vivax whereby this medical equipment was consigned to Vivax to rent through its
distribution network. In consideration of Vivax renting and maintaining the Med
equipment, Vivax is entitled to a range of forty-eight to sixty-seven percent of
the rental proceeds, based upon the equipment rented. Vivax has an option to
purchase the medical equipment from Med after the twenty-fourth, thirty-six and
forty-eight month of the consignment period. Med, under the Purchase and Sale
Agreement has an option, through October 31, 1999 to purchase an additional
$2,475,000 of medical equipment from Vivax. Upon the expiration of the
consignment period, which is five years from the purchase of the equipment, Med
has the option to sell the equipment back to Vivax.
Med negotiated a $1,000,000 revolving line of credit with Atlantic Bank of New
York and invested approximately $130,000 of the Company's presently available
working capital to purchase the medical equipment. The $1,000,000 line of
credit is due one year from signing and bears interest at prime plus 2%. The
line of credit is secured by the inventories and accounts receivable of Med.
There are no financial covenants associated with the line of credit. As of July
31, 1998 Med has $450,000 outstanding on the line.
If the medical equipment is successfully rented, the rental income and cash flow
could have a material affect on the operating results of Jayark Corporation.
There can be no assurances that the Company will be successful in renting the
medical equipment.
Description of AVES' Business
Products
AVES distributes and rents a broad range of audio video and communications
equipment and supplies. Among the items distributed are movie, filmstrip and
slide projectors; projection screens and lamps; video cameras and systems; laser
videodisk, video projection, TV monitors and receivers; video systems; public
address systems, microphones and headsets; tape recorders, record players,
cassette recorders, and related accessories and supplies. Some of the items
sold (such as blank audio cassettes, headsets and cassette recorders,
duplicating equipment and supplies, laminating film and equipment for document
protection) are either assembled by AVES itself or purchased from private label
<PAGE>
and other sole source suppliers and distributed under the "AVES" and "LAMCO"
names. AVES also distributes the products of brand name manufacturers such as
RCAT, GET, Mitsubishi, Elmo, Panasonic, Ikegami, Videotek, Hitachi, Pioneer,
Leitch, Quasar, Telex Corporation, Kodak, Dukane, Sharp, Sony, 3M Brand, Luxor
and miscellaneous other brand names. Brand name and "house" brand products
account for approximately 97% and 3% of AVES sales, respectively. The Company
also offers repair services, audio visual consulting & design, engineering,
installation and servicing of audiovisual systems to businesses, hospitals and
hotels.
Raw Materials
The sources and availability of raw materials are not significant for an
understanding of AVES' business since competitive products are obtainable from
alternative suppliers. AVES carries an inventory of merchandise for resale and
for rental operations that is adequate to meet the rapid delivery requirements
(frequently same day shipments) of its distribution business.
Patents
There are no patents, trademarks, licenses, franchises or concessions that are
material to AVES business.
Sales
AVES currently distributes and rents its products in the United States,
primarily by means of catalogs, telephone orders and a field sales force. Sales
of AVES are not seasonal, except that sales to schools typically are higher from
April through July than at other times during the year.
Customers
In fiscal 1998, 72% of AVES revenues were to schools and other educational
institutions. The remaining 28% came from sales to business and industry (25%)
and rental of AVES equipment, primarily to hotels, (3%). Approximately 70% of
the AVES revenues in fiscal 1997 were from sales to schools and other
educational institutions. The remaining 30% came from the rental of AVES
systems primarily to hotels (approximately 3%) and sales to business and
industry (approximately 27%). In fiscal 1996, 70.2% of AVES revenues were from
sales to schools and other educational institutions. The remaining 29.8% came
from the rental of AVES systems primarily to hotels (approximately 3.8%), and
sales to business and industry (approximately 26%). In fiscal 1995, 69.5% of
AVES revenues were from sales to schools and other educational institutions.
The remaining 30.5% came from the rental of AVES systems primarily to hotels
(approximately 6.3%), and sales to business and industry (approximately 24.2%).
Backlog
The amount of unfilled sales orders of AVES at April 30, 1998, was $904,000 as
compared to $758,320 at April 30, 1997, and $443,000 at April 30, 1996. The
amount of unfilled sales orders is not a material measure of AVES' operations.
<PAGE>
Competition
The Company believes that AVES is one of the most diversified national audio
visual purveyors in the United States, given the different types of services and
products offered by the subsidiary. AVES' principal means of competition are
its aggressive pricing, technical expertise, quick delivery and the broad range
of product lines available through its distribution channels.
Employees
At April 30, 1998, AVES had 20 employees.
Item 2. Properties
The Company's Corporate office is located in Houston, Texas in a modern, two
story, stone and glass building which includes adjoining parking for up to 50
cars. The Corporate office and the business of AVES are conducted from
approximately 13,000 square feet; 5,500 of which are used for office, sales and
demonstration purposes and 7,500 for warehouse purposes. The current lease term
expires on April 30, 2001. The current rental is $5,200 per month.
Item 3. Legal Proceedings
The Company is subject to certain pending legal proceedings, most of which are
ordinary and routine litigation incidentals to its business. None of such legal
proceedings, in the opinion of the Company, is
material to its business or financial condition.
Item 4. Submission Of Matters To A Vote Of Security Holders
No matters were submitted to a vote of the Company's stockholders, through the
solicitation of proxies or otherwise, during the fourth quarter of the Company's
fiscal year ended April 30, 1998.
PART II
Item 5. Market For Registrant's Common Stock And Related Stockholder Matters
Effective July 10, 1997, the Company's Common Stock was delisted due to the
Company's non-compliance with the NASDAQ's minimum capital and surplus
requirement. Bid quotations for the Company's Common Stock may be obtained from
the "pink sheets" published by the National Quotation Bureau, and the Common
Stock is traded in the over-the-counter market.
The following table presents the quarterly high and low trade prices of the
Company's common stock for the periods indicated, in each fiscal year as
reported by NASDAQ. As of April 30, 1998, there were approximately 826
stockholders of record of common stock.
The Company has not paid any dividends on its common stock during the last five
years and does not plan to do so in the foreseeable future.
<PAGE>
<TABLE>
<CAPTION>
1998 Common Stock Trade Price 1997 Common Stock Trade Price
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
High Low High Low
---- ---- ---- ----
First Qtr .31 .19 .56 .19
Second Qtr .19 .19 .41 .13
Third Qtr .19 .19 .50 .19
Fourth Qtr .17 .09 .50 .25
</TABLE>
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Year Ended April 30, 1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Results of Operations:
Net Revenues $13,604,558 12,638,072 11,856,148 11,631,370 9,594,000
Earnings (Losses) from
Cont Oper $75,992 ($264,372) ($284,390) $814 ($154,000)
Earnings (Losses) from
Disc Operations $0 ($5,794,839)($6,900,857 $772,479 $1,206,000
Net Earnings (Losses) $75,992 ($6,059,211)($7,185,247) $773,293 $1,052,000
Primary Earnings
(loss) per Share from
Cont Oper $.01 ($.03) ($.04) $.00 ($.02)
Primary Earnings
(loss) Per Share from
Disc Operations $.00 ($.66) ($.88) $.11 $.18
Avg Shares Oustanding 9,221,199 8,802,528 7,833,990 6,867,083 6,682,344
At April 30,
Balance Sheet Information:
Total Assets $2,634,964 $2,754,072 $8,327,357 $18,084,616 $10,419,000
Long Term Obligations $3,446,021 $3,407,207 $1,972,020 $1,542,628 $1,811,820
Working Capital $157,067 ($7,003) ($233,256) $2,066,560 $1,331,000
(Deficit)
Stockholders' Equity ($2,925,566)($3,001,558) $2,585,541 $8,614,426 $11,543,000
(Deficit)
</TABLE>
Item 7. Management's Discussion and Analysis Of Financial Condition And Results
Of Operations
General Comments
For the fiscal year ended April 30, 1998, the Company recognized consolidated
net income after tax of $75,992. AVES recognized net income of $669,355 as a
result of its operations. AVES incurred an increase in Revenues and experienced
a slight increase in SG&A spending for fiscal 1998. Jayark Corporate recognized
a net loss of $593,363. Jayark Corporate realized lower SG&A spending for
fiscal 1998.
<PAGE>
Comparison of Fiscal Year Ended April 30, 1998 With Fiscal Year Ended April 30,
1997
Revenues
Consolidated Revenues of $13,604,000 increased $966,000, or 7.6%, from fiscal
1997. The increase is the result of a $1,130,000 increase in direct sales due
to volume increases. However, these increases were primarily offset by
decreases in rental sales ($206,000).
Cost of Revenues
Consolidated Cost of Revenues of $11,446,000 increased $854,000, or 8.1%, from
the prior fiscal year primarily due to increased revenues. The total gross
margin decreased .3% from the prior fiscal year due to a change in product mix.
Selling, General and Administrative Expense
Consolidated Selling, General and Administrative Expenses of $1,717,000
decreased $331,000 or 16.2% as compared to the prior reporting year. Jayark
Corporate recognized cost reductions in legal and professional fees of $119,000
due to reduced legal representation in the current year and higher than normal
audit and accounting fees incurred in Fiscal 1997, an $88,000 decrease in taxes
due to a reduction in Franchise Tax expenses and refunds received from prior
year returns, and, decreases in other miscellaneous expense accounts of $86,000
as a result of the Company's overall cost reduction plan. AVES decreased
spending $38,000, primarily a result of an increase in miscellaneous income.
Interest Expense
Consolidated Interest Expense of $366,000 increased $26,000 or 7.5%. Corporate
interest increased due to an increase in borrowing.
Other Income
Consolidated Other Income of $200 decreased $78,349 or 99.7%. This decrease is
a result of 1997 gains on the disposal of fixed assets and other miscellaneous
income.
Pre Tax Income from Continuing Operations
Consolidated Pre Tax Income from Continuing Operations is $76,000 as compared to
a prior year's net loss of $264,000. This is a result of higher revenues
combined with lower Selling, General, and Administrative expenses.
<PAGE>
Comparison of Fiscal Year Ended April 30, 1997 With Fiscal Year Ended April 30,
1996
Revenues
Consolidated Revenues of $12,638,000 increased $782,000 or 6.6% from fiscal
1996. The increase was the result of a $1,105,000 increase in direct sales and
a slight increase in rental sales from 1996. However, these increases were
offset primarily by decreases in contract sales ($323,000). The increased sales
were primarily a result of the increased emphasis on direct sales rather than
contract sales.
Cost of Revenues
Consolidated Cost of Revenues of $10,592,000 increased $822,000 or 8.4% from the
prior fiscal year. The increase reflected the higher costs associated with
direct sales rather than those incurred on contract sales. Total gross margin
decreased an aggregate of 1.9% from the prior fiscal year due to decreases in
margin related to the transition to direct sales, which had a lower margin with
higher volume.
Selling, General and Administrative Expense
Consolidated Selling, General and Administrative Expenses of $2,000,000
decreased $110,000 or 5.2% as compared to the prior reporting year. AVES
decreased depreciation expense by $38,000 due to the disposal of assets at the
end of fiscal 1996. The Corporate office decreased insurance expenses $50,000
due to savings on premiums and $22,000 in payroll expense.
Interest Expense
Consolidated Interest Expense of $340,000 increased $11,000 or 3.3%. The
increase was due to increased borrowing levels during fiscal 1997.
Other Income
The Company incurred consolidated Other Income of $79,000 as a result of gains
on the disposal of fixed assets and other miscellaneous income.
Pre tax loss from Continuing Operations
Consolidated Pre tax Loss from Continuing Operations was $264,000 as compared to
a prior year's net loss of $116,000. This was primarily a result of lower
spending associated with Selling, General, and Administrative expenses and other
miscellaneous income.
Net Loss on Discontinued Operations
Consolidated Net Loss from Discontinued Operations was $5,795,000, which
represented losses from the discontinued Rosalco operation of $3,294,000, the
establishment of accruals in the amount of $300,000 for expenses and guarantees
related to the closing, the write off of an intercompany receivable and other
assets of $476,000, and the write off of the remaining net assets of Rosalco of
$1,725,000.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At April 30, 1998, consolidated open lines of credit available to the Company
for borrowing, were $950,000 as compared to $750,000 at April 30, 1997. It is
the opinion of the Company's management that operating expenses, as well as
obligations coming due during the next fiscal year, will be met primarily by
cash flow generated from operations and from available borrowing levels.
Working Capital
Working capital was $157,067 at April 30, 1998, compared to a working capital
deficit of $7,003 at April 30, 1997. The increase in working capital is largely
due to cash flows from operations.
Net cash provided by operating activities was $384,540 in 1998 resulting from a
decrease in accounts receivable and inventory as well as an increase in accrued
salaries. This was partially offset by a decrease in the accrued losses related
to the discontinued operations of Rosalco.
Cash flows used for investing activities during the year ended April 30, 1998
were $51,636 as a result of capital expenditures by the continuing AVES
division.
Cash used by financing activities of $161,186 arose from payment on AVES' line
of credit.
In March 1997, AVES established a line of credit with BSB Bank & Trust,
Binghamton, New York, in the amount of $1,250,000. The interest rate is 8.75%
annually and the line is due and payable on March 1, 2000. There are no
financial covenants associated with the line of credit. As of April 30, 1998,
AVES has $300,000 outstanding.
In July 1998, the Company amended its Certificate of Incorporation increasing
its authorized Common Stock from 10,000,000 to 30,000,000 shares and decreasing
the par value of its Common Stock from $.30 to $.01 per share.
In August 1998, the Company intends to offer to each stockholder, the right to
purchase, pro rata, two shares of Common Stock at a price of $.10 per share.
The Company expects to file a Registration Statement on Form S-1 with the
Securities and Exchange Commission as soon as practicable in order to register
such rights to purchase Common Stock, under the Securities Act of 1933, as
amended. Upon the Registration Statement becoming effective, stockholders will
receive notification of the Rights Offering and instructions on how to exercise
the rights.
The Rights Offering is an integral part of the recapitalization of the Company.
The immediate effect of the Rights Offering, and the participation of the
Koffman Group, will be to reduce the debt on the Company's balance sheet with a
view to enhancing the equity value of the Company. The completion of the Rights
Offering will not only reduce even further the amount of debt on the company's
balance sheet (since debt will either be repaid from cash proceeds, or retired
as it is tendered from Common Stock), but will also enable stockholders of the
Company to participate in any potential enhanced equity value of the Company by
permitting them to purchase additional shares of Common Stock at $.10 per share.
<PAGE>
In June 1998 Jayark Corporation, through a newly formed, wholly owned
subsidiary, MED Services Corp. ("Med"), entered into a Purchase and Sale
Agreement with Vivax Medical Corporation ("Vivax"), a company that manufactures,
sells and rents durable medical equipment to hospitals, nursing homes and
individuals. Under the terms of the agreement, Med purchased certain medical
equipment from Vivax for cash of $579,700 and a $144,925 unsecured promissory
note due in five years. Med then entered into a Consignment Agreement with
Vivax whereby this medical equipment was consigned to Vivax to rent through its
distribution network. In consideration of Vivax renting and maintaining the Med
equipment, Vivax is entitled to a range of forty-eight to sixty-seven percent of
the rental proceeds, based upon the equipment rented. Vivax has an option to
purchase the medical equipment from Med after the twenty-fourth, thirty-six and
forty-eight month of the consignment period. Med, under the Purchase and Sale
Agreement has an option, through October 31, 1999 to purchase an additional
$2,475,000 of medical equipment from Vivax. Upon the expiration of the
consignment period, which is five years from the purchase of the equipment, Med
has the option to sell the equipment back to Vivax.
Med negotiated a $1,000,000 revolving line of credit with Atlantic Bank of New
York and invested approximately $130,000 of the Company's presently available
working capital to purchase the medical equipment. The $1,000,000 line of
credit is due one year from signing and bears interest at prime plus 2%. The
line of credit is secured by the inventories and accounts receivable of Med.
The are no financial covenants associated with the line of credit. As of July
31, 1998 Med has $450,000 outstanding on the line of credit.
If the medical equipment is successfully rented, the rental income and cash flow
could have a material affect on the operating results of Jayark Corporation.
There can be no assurances that the Company will be successful in renting the
medical equipment.
The Company had no material commitments for capital expenditures as of April 30,
1998.
Impact of Inflation
Management of the Company believes that inflation has not significantly impacted
either net sales or net earnings during the year ended April 30, 1998. The
Company has generally been able to pass along price increases from its
manufacturers.
Effect of New Accounting Pronouncements
In June 1997, the FASB issued two new disclosure standards. Results of
operations and financial position will be unaffected by implementation of these
new standards.
SFAS No. 130, "Reporting Comprehensive Income," establishes standards for
reporting and display of comprehensive income, its components and accumulated
balances. Comprehensive income is defined to include all changes in equity
except those resulting from investments by owners and distributions to owners.
<PAGE>
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which supersedes SFAS No. 14, "Financial Reporting for Segments
of a Business Enterprise," establishes standards for the way that public
enterprises report information about operating segments in financial statements.
It also establishes standards for disclosures regarding products and services,
geographic areas and major customers.
Both of these new standards are effective for financial statements for Fiscal
1999, and require comparative information for earlier years to be restated.
Management does not expect these two standards to have a significant impact on
future financial statement disclosures.
Year 2000
Management is in the process of determining whether all of the Company's
accounting and operational systems are year 2000 compliant. Management does not
expect the costs associated with any required conversions of systems to ensure
year 2000 compliance to be significant.
Item 8. Financial Statements And Supplementary Data
The Report of Independent Certified Public Accountants, Financial Statements and
Notes to Consolidated Financial Statements filed as a part of this report are
listed in the accompanying Index to Financial Statements and Schedules.
Item 9. Change In and Disagreement With Accountants on Accounting And Financial
Disclosure
None
PART III
Item 10. Directors And Executive Officers Of The Registrant
Set forth below is a list of the directors, executive officers and key employees
of the Company and their respective ages as of June 30, 1998, and, as to
directors, the expiration date of their current term of office:
<TABLE>
<CAPTION>
CURRENT DIRECTORS
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Name Age Term Director
Expires Position Presently Held Since
----- ---- ------- ----------------------- --------
David Koffman 39 2000 Chairman,President, Chief 1983
Executive Officer and Director
Frank Rabinovitz 55 2000 Executive Vice President, Chief 1989
Operating Officer, Director and
President of AVES
Robert C. Nolt 50 2001 Chief Financial Officer and Director 1998
Arthur G. Cohen 69 1999 Director 1990
</TABLE>
<PAGE>
David L. Koffman was elected President and Chief Executive Officer of the
Company in December 1988. Prior to that time, he served as Director and Vice
President of the Company for over seven years.
Frank Rabinovitz was elected Executive Vice President, Chief Operating Officer
and Director of the Company in 1989. In addition, he is the President of the
Company's audiovisual subsidiary and has served in this capacity for more than
eight years, as well as in various other executive and management capacities
since 1980.
Robert C. Nolt is Chief Financial Officer and Director of the Company. In
addition, Mr. Nolt is Chief Financial Officer of Binghamton Industries, Inc., a
company controlled by the principal shareholders of the Company. Prior to
joining the Company, Mr. Nolt was Vice President of Finance of RRT-Recycle
America, Inc. Mr. Nolt is a Certified Public Accountant with over 25 years of
experience in the Accounting field and has served in a number of executive
positions. Before joining RRT in 1993, Mr. Nolt was Chief Financial Officer for
the Vestal, NY based Ozalid Corporation.
Arthur G. Cohen has been a real estate developer and investor for more than
seven years. Mr. Cohen is a Director of Apparel America, Inc., Baldwin, and
Arlen, Inc. Burton I. Koffman and Richard E. Koffman are parties to an
agreement with Arthur G. Cohen pursuant to which they have agreed to vote their
shares in favor of the election of Mr. Cohen to the Board of Directors of the
Company.
Information Concerning Operations of the Board of Directors
The Executive Committee of the Board of Directors consists of Mr. David L.
Koffman (Chair) and Mr. Frank Rabinovitz. The function of the Executive
Committee is to exercise the powers of the Board of Directors to the extent
permitted by Delaware law. As a rule, the Executive Committee meets to take
action with respect to matters requiring Board of Directors approval and which
cannot await a regular meeting of the Board or the calling of a special meeting.
Under Delaware law and the Company's By-laws, both the Board and Executive
Committee can act by unanimous written consent to all members.
The Stock Option Committee of the Board of Directors was created to administer
the Company's 1981 Incentive Stock Option Plan, as amended, pursuant to
resolution adopted November 24, 1981, giving it authority to exercise powers of
the Board with respect to the Plan. The Stock Option Committee consists of Mr.
Frank Rabinovitz and Mr. Robert Nolt.
The Audit Committee of the Board of Directors was created in 1991 to administer
and coordinate the activities and results of the annual audit of the Company by
independent accountants and to comply with NASDAQ listing requirements. The
Audit Committee is comprised of Mr. Frank Rabinovitz and Mr. Robert Nolt.
The Compensation Committee of the Board of Directors was created in 1993 to
administer and review compensation structure, policy and levels of the Company.
The Compensation Committee is composed of Mr. Frank Rabinovitz and Mr. David
Koffman.
<PAGE>
Item 11. Executive Compensation
Set forth in the following table is certain information relating to the
approximate remuneration paid by the Company during the last three fiscal years
to each of the most highly compensated executive officers whose total
compensation exceeded $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE (1,2,3)
Annual Compensation
---------------------
<S> <C> <C> <C>
Year Salary Bonus
---- ------- -----
David L. Koffman 1998 $162,000 0
Chairman, President and Chief 1997 162,000 0
Executive Officer 1996 162,000 0
Frank Rabinovitz 1998 $162,000 $50,000
Director, Executive Vice President, 1997 162,000 50,000
Chief Operating Officer, President 1996 162,000 50,000
Of AVES
</TABLE>
(1) Does not include the value of non-cash compensation to the named
individuals, which did not exceed the lesser of $50,000 or, 10% of such
individuals' total annual salary and bonus. The Company provides a vehicle
to each of the named executives for use in connection with Company business
but does not believe the value of said vehicles and other non-cash
compensation, if any, exceeds the lesser of $50,000 or 10% of the
individual's total annual salary and bonus.
(2) The Company has entered into Split Dollar Insurance Agreements with
Messrs. David L. Koffman and Frank Rabinovitz, pursuant to which the
Company has obtained insurance policies on their lives in the approximate
amount of $1,054,000 and $497,700, respectively. The premium is paid by
the Company. Upon the death of the individual, the beneficiary named by
the individual is entitled to receive the benefits under the policy. The
approximate amounts paid by the Company during the fiscal year ended April
30, 1998 for this insurance coverage were $36,540, $25,373, respectively.
Such amounts are not included in the above table.
(3) The Company has accrued Mr. Koffman's 1998 salary, however, he has
deferred payment until such time as the Company's working capital position
improves.
The following table sets forth-certain information relating to the value of
stock options at April 30, 1998:
<TABLE>
<S> <C> <C> <C> <C>
Number of Unexercised Value of Unexercised In-
Options at Fiscal Year End The-Money Options at
Fiscal Year End
-------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ----- ----------- ------------- ---------- --------------
Frank Rabinovitz 100,000 0 $9,000 0
</TABLE>
<PAGE>
Based on the $0.09 per share closing bid price of the common stock on
the NASDAQ Stock Exchange on April 30, 1998
Effective November 24, 1981 and approved at the annual stockholders meeting in
1982, the 1981 Incentive Stock Option Plan (ISOP) was adopted. An amendment to
the ISOP was adopted on December 11, 1989. This amendment increased the number
of incentive stock options that can be granted from 150,000 shares to 600,000
shares. The ISOP provides for the granting to key employees and officers of
incentive stock options, as defined under current tax laws. The stock options
are exercisable at a price equal to or greater than the market value on the date
of the grant. No stock options were granted during the fiscal year ended April
30, 1998.
Effective September 15, 1994 and approved at the annual stockholders meeting in
1994, the 1994 NonEmployee Director Stock Option Plan (the "Director Plan" was
adopted and 200,000 shares of the Company's common stock reserved for issuance
under the Director Plan. The Director Plan provides for the automatic grant of
nontransferable options to purchase common stock to nonemployee directors of the
Company; on the date immediately preceding the date of each annual meeting of
stockholders in which an election of directors is concluded, each nonemployee
then in office will receive options exercisable for 5,000 shares (or a pro rata
share of the total number of shares still available under the Director Plan).
No option may be granted under the Director Plan after the date of the 1998
Annual Meeting of Stockholders.
Options issued pursuant to the Director Plan are exercisable at an exercise
price equal to not less than 100% of the fair market value (as defined in the
Director Plan) of shares of common stock on the day immediately preceding the
date of the grant. Options are vested and fully exercisable as of the date of
the grant. Unexercised options expire on the earlier of (i) the date that is
ten years from the date on which they were granted, (ii) the date which is three
calendar months from the date of the termination of the optionee's directorship
for any reason other than death or disability (as defined in the Director Plan),
or (iii) one year from the date of the optionee's disability or death while
serving as a director.
The Director Plan became effective immediately following the 1994 Annual Meeting
of Shareholders. Each nonemployee director in office on the date immediately
preceding the date of each year's annual meeting will receive options
exercisable for 5,000 shares of common stock.
During fiscal year ended April 30, 1998, no director options were granted to
nonemployee directors.
Report of the Compensation Committee of the Board of Directors on Executive
Compensation
Except pursuant to its ISOP and the Director Plan, the Company does not have any
formal annual incentive program, cash or otherwise, nor does it make annual
grants of stock options. Cash bonuses and stock options, including bonuses and
options paid to executive officers, have generally been awarded based upon
individual performance, business unit performance and corporate performance, in
terms of cash flow, growth and net income as well as meeting budgetary,
strategic and business plan goals.
<PAGE>
The Company is committed to providing a compensation program that helps attract
and retain the best people for the business. The Company endeavors to achieve
symmetry of compensation paid to a particular employee or executive and the
compensation paid to other employees or executives both inside the Company and
at comparable companies.
The remuneration package of the Chief Executive Officer includes a percentage
bonus based on the Company's profitable performance.
Compensation Committee
Frank Rabinovitz
David L. Koffman
Item 12. Security Ownership Of Certain Beneficial Owners And Management
The following table sets forth as of April 30, 1998, the holdings of the
Company's Common Stock by those persons owning of record, or known by the
Company to own beneficially, more than 5% of the Common Stock, the holdings by
each director or nominee, the holdings by certain executive officers and by all
of the executive officers and directors of the Company as a group.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PRINCIPAL STOCKHOLDERS
Amount and % of
Name and Address of Beneficial Owner Nature of Note Class
Beneficial (1)
Ownership
- ------------------------------------ --------- ------ ------
David L. Koffman
300 Plaza Drive, Vestal, NY 13850 1,446,727 2 15.7%
Commerzbank AG
31 Charter Road, Hong Kong 1,000,000 10.8%
Ben Arnold Company
700 Gervais Street, Columbia, SC 795,189 8.6%
29201
Burton I. Koffman
300 Plaza Drive, Vestal, NY 13850 703,500 3,4,5 7.6%
Joel Margolin
6116 Skyline Drive, Houston, TX 77057 517,600 5.6%
Richard E. Koffman
300 Plaza Drive, Vestal, NY 13850 278,500 4,6 3.0%
Frank Rabinovitz
6116 Skyline Drive, Houston, TX 77057 46,000 7 .4%
All Directors & Executive Officers as 1,492,727 2,3,4, 16.2%
a Group 5,6,7
</TABLE>
1. All shares are owned directly by the individual named, except as set
forth herein. Includes actual shares beneficially owned and Employee and
Director Stock Options exercisable within 60 days. Burton I. Koffman and
Richard E. Koffman are brothers. David L. Koffman is the son of Burton I.
Koffman.
<PAGE>
2. Excludes $720,587.79 principal amount of the Company's 12% Convertible
Subordinated Debentures, due December 1999, which are convertible into
480,392 shares of Common Stock at a price of $1.50 per share. Excludes
4,166,667 shares of Common Stock subject to a warrant further described
under Item 13, Certain Relationships and Certain Transactions. David
Koffman may be said to have a beneficial interest in these warrants.
3. Excludes 37,000 shares owned by a charitable foundation of which
Burton I. Koffman is President and Trustee.
4. Includes 537,000 shares owned as tenants in common by brothers Richard
E. Koffman and Burton I. Koffman.
5. Excludes 665,962 shares owned by the spouse of Burton I. Koffman.
6. Excludes 180,000 shares owned by the spouse of Richard E. Koffman.
7. Excludes $49,096.99 principal amount of the Company's 12% Convertible
Subordinated Debentures, due December 1999, which are convertible into
32,731 shares of Common Stock at a price of $1.50 per share.
Item 13. Certain Relationships And Related Transactions
During August 1995, the Company, and Rosalco, Inc, entered into a Reimbursement
Agreement with:
i) Ben Arnold Company, a corporation beneficially owned by several members of
the Burton I. Koffman and Richard E. Koffman families (including David L.
Koffman, who is the president and a director of the Company, and Joseph B.
Koffman, a nominee for director) and Karen Cohen, the wife of Arthur C. Cohen, a
director of the Company, who disclaims any beneficial interest in Ben Arnold
Company, ii) Ruthanne Koffman (the mother of David L. Koffman and the wife of
Burton I. Koffman), iii)Whitehorn Associates, a New York Corporation, and iv)
Joel Margolin (the Vice President of LCL) pursuant to which each of Rosalco, Ben
Arnold Company, Ruthanne Koffman, Whitehorn Associates, and Joel Margolin agreed
to provide to the CIT Group/Commercial Services, Inc. ("CIT"), the primary
lender to LCL, irrevocable standby letters of credit and cash in the aggregate
amount of $1,700,000 to serve as additional collateral against which CIT would
lend additional working capital to LCL pursuant to CIT's lending arrangements
with LCL. Each of Rosalco and Joel Margolin provided $500,000 in cash and
letters of credit, each of Ruthanne Koffman and the Ben Arnold Company provided
$250,000 in irrevocable standby letters of credit, and Whitehorn Associates
provided a $200,000 irrevocable standby letter of credit.
In consideration for providing the additional collateral, the parties were to
receive a total of 282,400 shares of Common Stock of the Company in proportion
to the amount of additional collateral initially provided by them, as follows:
Joel Margolin was issued 117,600 shares; each of Ruthanne Koffman and the Ben
Arnold Company were issued 58,800 shares; and Whitehorn Associates was issued
47,200 shares. All the above shares were issued in fiscal 1997.
On March 12, 1997, in connection with the State Street Bank financing and the
<PAGE>
establishing of the BSB Bank & Trust line of credit described under the working
capital section above, the Company issued stock warrants totaling 4,166,667 to A
- -V Texas Holding, LLC, an affiliate of the Company of which David Koffman is a
principal shareholder. The warrants allows the holder to purchase 4,166,667
shares of the Companies common stock at a par value of $.30. The effectiveness
of the warrants is subject to an increase in the available authorized shares of
the Company. The warrants expire on February 1, 2007.
The arrangement with CIT for the additional financing secured by the additional
collateral expired on February 28, 1996. In terms of the agreement, subsequent
to that date, to the extent that CIT applied additional collateral to LCL's
obligations to CIT, LCL would reimburse the parties for the collateral so
applied by CIT, such reimbursement to be made in the ordinary course of
business. Alternatively, the parties could at any time after February 28, 1996
receive shares of the Company's Common Stock as reimbursement for the collateral
applied by CIT to LCL's obligations to CIT. Each party would receive that
number of shares that had a value equal to the amount of such party's collateral
that was applied by CIT; for purposes of the agreement, the Company's Common
Stock were deemed to have a value of $1.25 per share.
In July 1996, CIT notified the parties that CIT was applying the additional
collateral to LCL's obligations. As a result of the application of the
collateral by CIT in October 1996, the parties received the following shares of
the Company's Common Stock: Joel Margolin was issued 400,000 shares; each of
Ruthanne Koffman and the Ben Arnold Company were issued 200,000 shares; and
Whitehorn Associates was issued 160,000 shares.
In September 1996, certain related parties advanced an additional $500,000 to
the Company , which was applied to Rosalco's outstanding line of credit. The
related party advances now totaling $1,000,000 are payable on demand and
interest is paid monthly at prime plus 2 1/2%.
PART IV
Item 14. Exhibits, Financial Statement Schedules And Reports On Form 8-K
(a) Documents filed as part of this report:
1. And 2. Financial Statements.
The Report of Independent Certified Public Accountants, Financial
Statements and Notes to Consolidated Financial
Statements which are filed as a part of this report are listed in the
Index to Financial Statements.
Note - no financial statement schedules were required to be filed.
3. Exhibits, which are filed as part of this report, are listed in
the accompanying Exhibit Index.
(b) Reports on Form 8-K - None
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
JAYARK CORPORATION
By:
/s/ David L. Koffman Chairman of the Board and Director August 7, 1998
DAVID L. KOFFMAN
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
/s/ David L. Koffman Chairman of the Board, President, August 7, 1998
DAVID L. KOFFMAN Chief Executive Officer and Director
/s/ Frank Rabinovitz Executive Vice President, Chief August 7, 1998
FRANK RABINOVITZ Operating Officer and Director
/s/ Robert C. Nolt Chief Financial Officer and Director August 7, 1998
ROBERT C. NOLT
/s/ Arthur G. Cohen Director August 7, 1998
ARTHUR G. COHEN
<PAGE>
JAYARK CORPORATION AND SUBSIDIARIES
Index Page
_______________________________________________________________________________
Consolidated Financial Statements:
Report of Independent Certified Public Accountants 20
Balance Sheets - April 30,1998 and 1997 21
Statements of Operations - For the years ended April 30, 1998, 1997 and 1996 22
Statements of Stkhldr Eq - For the years ended April 30, 1998, 1997 and 1996 23
Statements of Cash flows - For the years ended April 30, 1998, 1997 and 1996 24
Notes to Consolidated Financial Statements 25-37
Exhibits 42-105
<PAGE>
Report of Independent Certified Public Accountants
To the Shareholders and Directors
Jayark Corporation
We have audited the accompanying consolidated balance sheets of Jayark
Corporation and Subsidiaries as of April 30, 1998 and 1997 and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for each of the three years in the period ended April 30, 1998. 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 audit to obtain
reasonable assurance about whether the consolidated 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 presentation of
the financial statements. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Jayark Corporation
and Subsidiaries as of April 30, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
April 30, 1998 in conformity with generally accepted accounting principles.
BDO Seidman, LLP
New York, New York
July 15, 1998, except for Note 15 for which the date is August 7, 1998
<PAGE>
Jayark Corporation And Subsidiaries
Consolidated Balance Sheets
April 30,1998 and 1997
<TABLE>
<CAPTION>
<S> <C> <C>
Assets 1998 1997
- ------ ---- -----
Current Assets
Cash and Cash Equivalents $238,858 $67,140
Accounts Receivable-Trade,Less Allowance 1,723,833 1,838,585
For Doubtful Accounts of $38,000 in 1998
and $42,000 in 1997
Other Accounts Receivable 2,277 2,277
Inventories 271,564 412,846
Other Current Assets 35,046 20,572
--------- ---------
Total Current Assets 2,271,578 2,341,420
Non Current Assets
Property & Equipment, Less Accumulated 94,644 122,550
Depreciation and Amortization
Excess of Cost Over Net Assets of Businesses 268,742 290,102
Acquired, Less Accumulated Amortization of $463,695
in 1998 and $442,335 in 1997
------- -------
Total Non Current Assets 363,386 412,652
Total Assets $2,634,964 $2,754,072
========== ===========
Liabilities
- -----------
Current Liabilities
Notes Payable & Line of Credit $300,000 $500,000
Current Maturities of Long Term Debt 5,899 7,394
Accounts Payable 881,266 905,407
Accrued Salaries and Deferred Compensation 298,734 106,531
Accrual Related to Loss on Discontinued 84,124 305,000
Operations - Rosalco
Accrual Related to LCL Investment 113,068 164,579
Other Current Liabilities 431,418 359,512
--------- ---------
Total Current Liabilities 2,114,511 2,348,423
Non Current Liabilities
Long Term Debt,Excluding Current Maturities 0 7,207
Notes Payable to Related Parties 2,046,021 2,000,000
Subordinated Debentures 1,400,000 1,400,000
--------- ---------
Total Non Current Liabilities 3,446,021 3,407,207
Total Liabilities $5,560,530 $5,755,630
Commitments
Stockholders' Equity (Deficit)
Common Stock of $.30 Par Value. 2,766,359 2,766,359
Authorized 10,000,000 Shares;
Issued 9,221,199 Shares in 1998 and 1997
Additional Paid-In Capital 8,066,122 8,066,122
Deficit (13,758,047) (13,834,039)
------------ -----------
Total Stockholders' Equity (Deficit) $(2,925,566) $(3,001,558)
------------ -----------
Total Liabilities & Stockholders' Equity (Deficit) $2,634,964 $2,754,072
============ ===========
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
Jayark Corporation And Subsidiaries
Consolidated Statements of Operations
For the Years Ended April 30,1998, 1997 and 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Continuing Operations: 1998 1997 1996
----------- ----------- -----------
Net Revenues $13,604,558 $12,638,072 $11,856,148
Costs & Expenses
Cost of Revenues 11,445,669 10,591,857 9,769,969
Selling, General and Administrative 1,717,442 2,049,274 2,109,182
Interest 365,655 339,862 328,687
Other Income (200) (78,549) (5,300)
---------- ----------- ----------
Total Costs & Expenses 13,528,567 12,902,444 12,202,538
Pre-Tax Earnings (Losses) From
Continuing Operations 75,992 (264,372) (346,390)
Provision for Income Taxes (Benefit From) - - (118,000)
---------- ----------- -----------
Income (loss) from Continuing Operations 75,992 (264,372) (228,390)
Income (loss) On Abadonment of Investment
net of tax benefit of $365,173 in 1996 - - (4,363,263)
Income (loss) from Discontinued Operations
net of Taxes of $0, $350,000, ($100,503)
respectively - (3,294,109) (2,593,594)
Loss on disposition of subsidiary - (2,500,730)
---------- ------------ -----------
Net Income (Loss) $75,992 ($6,059,211) ($7,185,247)
========== ============ ===========
Basic and Diluted Earnings (Loss) per Common Share:
Continuing Operations $0.01 ($0.03) ($0.03)
Discontinued Operations $0.00 ($0.66) ($0.89)
------ ------- -------
Net Income (loss) $0.01 ($0.69) ($0.92)
====== ======= =======
Weighted Average Common Shares:
Basic and Diluted 9,221,199 8,802,528 7,833,990
========= ========= =========
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
Jayark Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity (Deficit)
For The Years Ended April 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Common Paid-In Total
Stock Capital Deficit Equity
---------- ---------- ------------- ----------
Balance at April 30, 1995 $2,093,639 $7,110,480 $(589,581) $8,614,538
Issue of 1,000,000 shares of stock 300,000 856,250 - 1,156,250
Net loss - - (7,185,247) (7,185,247)
---------- ---------- ------------- ----------
Balance at April 30, 1996 2,393,639 7,966,730 (7,774,828) 2,585,541
Issue of 1,242,400 shares of stock 372,720 99,392 - 472,112
Net loss - - (6,059,211) (6,059,211)
---------- ---------- ------------- -----------
Balance at April 30, 1997 2,766,359 8,066,122 (13,834,039) (3,001,558)
Net Income - - 75,992 75,992
---------- ---------- ------------- -----------
Balance at April 30, 1998 $2,766,359 $8,066,122 ($13,758,047) ($2,925,566)
========== ========== ============= ============
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
Jayark Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For The Years Ended April 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 1997 1996
--------- ----------- -----------
Cash Flows From Operating Activities:
Net Income (loss) $75,992 ($6,059,211) ($7,185,247)
Adjustments to Reconcile Earnings (Loss) to Cash From Operating Activities:
Stock Issued in Connection with - - 1,156,250
Abandoned Investment
Depreciation and Amortization of 79,542 40,089 273,378
Property and Equipment
Amortization of Excess of Cost Over 21,360 21,360 21,360
Net Assets of Businesses Acquired
Net Assets of Discontinued - 4,268,849 -
Operations - written off
(Gain) Loss on Disposition of Assets - 21,516 -
Change In Assets and Liabilities Net of Effects From Acquisition of Subs:
(Increase) Decrease in Deferred Federal - 350,000 -
Income Tax Expense/(Benefit)
(Increase) Decrease in Accounts 114,752 (105,667) (787,431)
Receivable Net
(Increase) Decrease in Federal & - 695,501 (645,951)
State Income Taxes Refundable
(Increase) Decrease in Inventories 141,282 91,709 (121,087)
(Increase) Decrease in Other (14,474) (12,685) 74,440
Current Assets
Increase (Decrease) in Accts Payable (24,141) 320,349 831,184
Increase (Decrease) in Accrued 192,202 (77,374) (15,142)
Salaries and Deferred Compensation
Increase (Decrease) in Commissions Payable - - 85,572
Increase (Decrease) in Accrual for (220,876) 305,000 -
Discontinued Operations - Rosalco
Increase (Decrease) in Other
Liabilities 18,901 (931,198) 1,784,881
---------- ------------ -----------
Net Cash Provided By (Used In)
Operating Activities 384,540 (1,071,762) (4,527,793)
Cash Flows from Investing Activities:
Capital Expenditures for Property (51,636) (83,556) (66,042)
and Equipment
---------- ----------- -----------
Net Cash Provided By (Used In) (51,636) (83,556) (66,042)
Investing Activities
Cash Flows from Financing Activities
Payments of Long Term Debt (7,207) (27,555) (33,188)
Proceeds From Issuance of
Notes Payable 46,021 2,001,084 4,084,000
Principal Payments on Notes Payable (200,000) (1,101,997) -
Purchase (Repayment) of
Subordinated Debentures - - (100,000)
Purchase of Treasury Stock - - -
---------- ----------- ----------
Net Cash Provided By (Used In)
Financing Activities (161,186) 871,532 3,950,812
Net Increase (Decrease) in Cash 171,718 (283,786) (643,023)
and Cash Equivalents
Cash and Cash Equivalents at Beginning
of year 67,140 350,926 1,176,700
Cash and Cash Equivalents relative to
dicontinued operations - - (182,751)
----------- ----------- ----------
Cash & Cash Equivalents at End of Year $238,858 $67,140 $350,926
=========== =========== ==========
Supplemental Disclosures of Cash Flow Information:
Cash Paid For:
Interest $87,626 $171,862 $965,197
=========== =========== ==========
Income Taxes - - 167,000
=========== =========== ==========
Non-Cash Transactions:
Common Stock Issued in Connection With - 472,112 1,156,250
LCL Investment
=========== =========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
April 30, 1998, 1997 and 1996
(1) Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Jayark Corporation
and its wholly owned subsidiaries (the "Company"). All material intercompany
profits, transactions and balances have been eliminated.
Prior to April 30, 1997, a decision was made to discontinue the operations of
Rosalco, Inc. ("Rosalco"), a wholly owned subsidiary of the Company. Rosalco
was officially closed on October 22, 1997 and shortly thereafter a receiver was
assigned to liquidate its secured assets. The accompanying financial statements
have been adjusted retroactively to segregate and report separately the net
assets and results of operations of Rosalco as a discontinued operation.
Inventories
Inventories comprise finished goods and are stated at the lower of cost (first
in, first out method) or market.
Property and Equipment, Depreciation and Amortization
Property and equipment are recorded at cost. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the
assets, ranging from approximately 3 to 20 years. On sale or retirement, the
cost of assets sold or retired and related accumulated depreciation or
amortization is eliminated from the accounts and any resulting gain or loss is
included in operations. Maintenance and repairs are expensed as incurred;
expenditures for major renewals and betterments are capitalized and amortized by
charges to operations.
Intangibles
The accounts of purchased companies are included in the consolidated financial
statements from the dates of acquisition. The excess of cost over the fair
value of net assets of businesses acquired is being amortized using the straight
- -line method over a 40-year period commencing with the dates of acquisition.
Revenue Recognition
Revenues are recorded when products are shipped. Allowances are recorded for
estimated returns and losses.
Income Taxes
<PAGE>
The Company follows the asset and liability method required by Financial
Accounting Standards Board Statement of Financial Accounting Standards No. 109
in accounting for income taxes. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect of deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Earnings per Share
In the third quarter of fiscal 1998, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share", which requires the
presentation of both basic and diluted earning per share on the face of the
Statements of Operations and the restatement of all prior periods earnings per
share amounts. Conversion of the subordinated debentures and assumed exercise
of options are not included in the calculation of diluted earnings per share for
the fiscal years ended April 30, 1998, 1997 and 1996 since the effect would be
antidilutive. Accordingly, basic and diluted net loss per share do not differ
for any period presented.
The following table summarizes securities that were outstanding as of April
30, 1998, 1997 and 1996 but not included in the calculation of diluted net loss
per share because such shares are antidilutive.
Stock Options 242,500
Convertible Subordinated Debentures 933,333
Warrants 4,166,667
Changes in Financial Presentation
Certain reclassifications have been made in the 1996 and 1997 financial
statements to conform to the presentation used in 1998.
Statements of Cash Flows
For purposes of the statements of cash flows, the Company considers all highly
liquid investments with original maturities of three months or less to be cash
equivalents.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
<PAGE>
Long-Lived Assets
Long-lived assets, such as property, equipment, and goodwill are evaluated for
impairment when events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable through the estimated undiscounted
future cash flows from the use of these assets. When any such impairment
exists, the related assets will be written down to their fair value. This
policy is in accordance with Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of",
which was adopted on May 1, 1996. No write-downs have been necessary through
April 30, 1998, except for assets of the discontinued operation (Note 16).
Stock-Based Compensation
The Company uses the intrinsic value method for accounting for stock
compensation plans, as permitted by Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation", which was adopted on May 1,
1996. Accordingly, compensation cost for stock options is measured as the
excess, if any, of the quoted market price of the Company's stock at the date of
the grant over the amount the employee must pay to acquire the stock.
Effect of new accounting pronouncements
In June 1997, the FASB issued two new disclosure standards. Results of
operations and financial position will be unaffected by implementation of these
new standards.
SFAS No. 130, "Reporting Comprehensive Income," establishes standards for
reporting and display of comprehensive income, its components and accumulated
balances. Comprehensive income is defined to include all changes in equity
except those resulting from investments by owners and distributions to owners.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which supersedes SFAS No. 14, "Financial Reporting for Segments of
a Business Enterprise," establishes standards for the way that public
enterprises report information about operating segments in financial statements.
It also establishes standards for disclosures regarding products and services,
geographic areas and major customers.
Both of these new standards are effective for financial statements for fiscal
1999, and require comparative information for earlier years to be restated.
Management does not expect these two standards to have a significant impact on
future financial statement disclosures.
(2) Business
The Company's continuing operation, AVES Audio Visual Systems, Inc. ("AVES") is
in the business of resale and renting of a broad range of audio visual, video
and communication equipment and supplies to schools, industry, and hotels.
(3) Related Party Transactions
<PAGE>
The Company has subordinated notes (Note 7) with related parties amounting to
$795,712, with an annual interest rate of 12%. Interest expense relating to
subordinated notes payable to related parties was $95,485 in 1998, 1997 and
1996, respectively.
The Company had long term notes payable to related parties amounting to
$2,046,021 and $2,000,000 at April 30, 1998 and 1997, respectively. The
interest rate is Libor plus .95% on $1,000,000 and prime plus 2.5% on the
remaining $1,000,000. The maturity date of the notes has been extended to
December 31, 1999. Interest expense relating to these notes for the years ended
April 30, 1998 and 1997 was $172,139 and $154,650.
(4) Property and Equipment
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
April 30, 1998 April 30, 1997
-------------- --------------
Machinery and equipment $59,144 $59,144
Furniture and fixtures 80,329 80,329
Leasehold improvements 37,290 37,290
Automobiles and trucks 200,580 200,580
Rental and demonstration equipment 74,073 22,437
-------------- --------------
Total property and equipment 451,416 399,780
Less accumulated depreciation and amortization 356,772 277,230
-------------- --------------
Net property and equipment $94,644 $122,550
============== ==============
</TABLE>
(5) Lines of Credit
On April 30, 1996, the Company had $1,100,915 outstanding on its Line of Credit
with State Street Bank. During the year ended April 30, 1997, the Company
renegotiated the terms of the agreement to provide for monthly interest at prime
rate plus 1% to 1 _%. Subsequently, the line was paid off with proceeds from a
$1,000,000 note to related parties and the remaining amount paid. In March
1997, AVES negotiated a line of credit with BSB Bank & Trust, Binghamton, New
York. The line of credit permits AVES to borrow up to an aggregate amount of
$1,250,000. The interest rate is 8.75% annually and the line is due and payable
on March 1, 2000. The line of credit is secured by the AVES' accounts
receivable and inventories. There are no financial covenants associated with
the line of credit. At April 30, 1998 and 1997, $300,000 and $500,000,
respectively, was outstanding on the above line of credit.
In connection with the guarantee for the AVES line of credit described above and
the interim financing of the Rosalco discontinued operations by State Street
Bank, the Company issued stock warrants totaling 4,166,667 to A-V Texas Holding,
LLC, an affiliate of the Company. The warrants allow the holder to purchase
4,166,667 shares of the Company's common stock at $.30 per share. The warrants
were deemed to have a minimal fair value and no amount was recorded for them.
The warrants expire on February 1, 2007.
(6) Long Term Debt
<PAGE>
Long term debt is summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Description April 30, April 30,
1998 1997
- ----------------------------------------------- --------- ----------
Notes payable to a bank with interest rate of $5,899 $14,601
9% per annum and a maturity date of March 1999,
collateralized by vehicles.
--------- -----------
Total long term debt 5,899 14,601
Less: Current maturities of long term debt 5,899 7,394
--------- -----------
Long term debt, excluding current maturities $0 $7,207
========= ===========
</TABLE>
(7) Subordinated Debentures
On December 19, 1989, the Company issued $2,000,000 of 12% convertible
subordinated debentures to affiliates of the Company due December 1995. The
maturity date on these debentures has been extended until December 1999.
Interest on the outstanding balance is paid semiannually on April 30 and October
31. The debentures may be converted into shares of the Company's stock at a
price of $1.50 per share at any time prior to maturity. Prior to April 30,
1996, the Company had retired $600,000 of debentures. At April 30, 1998 and
1997, no additional debentures had been retired. At April 30, 1998 and 1997,
933,333 shares of the Company's common stock are reserved for this conversion.
The debentures will automatically convert into shares of the Company's stock at
the conversion price in effect at such time in the event that the average
closing sale price of the Company stock for any period of thirty consecutive
trading days was equal to or exceeded $2.25 per share.
(8) Income Taxes
Income tax expense (benefit) attributable to income before income taxes consists
of:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year ended April 30, Current Deferred Total
-------------------- ------- -------- --------
1998 $0 $0 $0
1997 $0 $350,000 $350,000
1996 ($583,676) $0 ($583,676)
</TABLE>
The tax benefit recorded in 1996 represents the taxes refundable due to the
carryback of that year's loss.
At April 30, 1998, the Company had, for federal tax reporting purposes, net
operating loss carryforwards of approximately $10,000,000, expiring in years
through 2012.
The actual tax expense (benefit) differs from the "expected" tax expense
(computed by applying the U.S. Corporate rate of 34%) in each of the 3 years
ended April 30, 1998 primarily as a result of valuation allowances against
potential deferred tax assets.
Deferred tax assets were approximately $4,300,000 as of April 30, 1998 and 1997,
arising primarily as a result of net operating losses. Valuation allowances of
$4,300,000 as of April 30, 1998 and 1997 offset the deferred tax assets,
resulting in net deferred tax assets of $0 as of April 30, 1998 and 1997.
<PAGE>
(9) Leases
The Company has several operating leases that expire at various dates ranging
through April 2001. Future minimum lease payments related to operating leases
are detailed as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending April 30, Operating leases
- --------------------- ----------------
1999 86,856
2000 86,856
2001 86,856
Thereafter 0
----------------
Total minimum lease payments $260,568
================
</TABLE>
Total rental expense for operating leases was $97,015, $96,671 and $95,959 for
the years ended April 30, 1998, 1997, and 1996, respectively.
(10) Stock Options
At April 30, 1998, the Company had two stock options plans which are described
below. The Company applies APB Opinion 25 - "Accounting for Stock Issued to
Employees", and related Interpretations in accounting for the plans. In terms
of APB Opinion 25, when the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the date of the
grant, no compensation cost is recognized.
The Company's Incentive Stock Option Plan ("ISOP"), as amended, allows for the
granting of 600,000 shares of the Company's common stock. The ISOP provides for
the granting to key employees and officers of incentive stock options, as
defined, under current tax laws. The stock options are exercisable at a price
equal to or greater than the market value on the date of the grant.
Option activity under the ISOP is as follows:
<TABLE>
<CAPTION>
Stock Option - ISOP
<S> <C> <C> <C>
Exercise Weighted
Options Price Range Average
------- ----------- ----------
Outstanding April 30, 1995 392,500 $.44 - $1.05 $0.48
Granted -
Exercised -
Terminated/Expired (150,000) $0.44
--------- ------------ -----------
Outstanding April 30, 1996 242,500 $.44 - $1.05 $0.50
Granted -
Exercised -
Terminated/Expired -
--------- ------------ -----------
Outstanding April 30, 1997 242,500 $.44 - $1.05 $0.50
Granted -
Exercised -
Terminated/Expired -
--------- ------------ -----------
Outstanding April 30, 1998 242,500 $.44 - $1.05 $0.50
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Exercise Weighted
Exercisable at year end: Options Price Range Average
- ------------------------------- ------- ----------- ----------
April 30, 1996 242,500 $.44 - $1.05 $0.50
April 30, 1997 242,500 $.44 - $1.05 $0.50
April 30, 1998 242,500 $.44 - $1.05 $0.50
- -------------------------------------------------------------------
Available for future grants:
April 30, 1996 357,500
April 30, 1997 357,500
April 30, 1998 357,500
- -------------------------------------------------------------------
</TABLE>
The following summarizes information regarding stock
options outstanding at April 30, 1998.
<TABLE>
<CAPTION>
<S> <C> <C>
Range of Exercise prices:
Outstanding Options: $0.44 $1.05
Number outstanding at April 30, 1998 217,500 25,000
Weighted average remaining Conntractual
life (years) 1.6 1.6
Weighted average exercise price $0.44 $1.05
</TABLE>
Effective September 17, 1994 and approved at the annual stockholders' meeting in
1994, the 1994 Non-Employee Director Stock Option Plan (the "Director's Plan")
was adopted and 200,000 shares of the Company's Common Stock reserved for
issuance under the Director's Plan. The Director's Plan provides for the
automatic grant of nontransferable options to purchase common stock to
nonemployee directors of the Company, on the date immediately preceding the date
of each annual meeting of stockholders in which an election of directors is
concluded. Each nonemployee director then in office will receive options
exercisable for 5,000 shares (or a pro rata share of the total number of shares
still available under the Director's Plan). No option may be granted under the
Director's Plan after the date of the 1998 annual meeting of stockholders.
<PAGE>
Options issued pursuant to the Director's Plan are exercisable at an exercise
price equal to not less than 100% of the fair market value (as defined in the
Director's Plan) of shares of Common Stock on the day immediately preceding the
date of the grant. Options are vested and fully exercisable as of the date of
the grant. Unexercised options expire on the earlier of (i) the date that is
ten years from the date on which they were granted, (ii) the date which is three
calendar months from the date of the termination of the optionee's directorship
for any reason other than death or disability (as defined in the Director's
Plan), or (iii) one year from the date of the optionee's disability or death
while serving as a director.
Option activity under the Plan is as follows:
<TABLE>
<CAPTION>
Stock Option - ISOP
<S> <C> <C> <C> <C>
Exercise Weighted Options
Options Price Range Average Exercisable
- -------------------------------------------------------------------------------
Outstanding April 30, 1995 35,000 $0.49 $0.49 35,000
Granted -
Terminated/Expired (10,000)
Outstanding April 30, 1996 25,000 $0.49 $0.49 25,000
Granted -
Terminated/Expired -
Outstanding April 30, 1997 25,000 $0.49 $0.49 25,000
Granted -
Terminated/Expired -
Outstanding April 30, 1998 25,000 $0.49 $0.49 25,000
- -------------------------------------------------------------------------------
</TABLE>
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock - Based Compensation", requires the Company to provide pro forma
disclosure of net income (loss) and earnings (loss) per as if the optional fair
value method had been applied to determine compensation costs for the Company's
Stock option plans. Since no options were granted in the years ended April 30,
1998, 1997 and 1996, no pro forma disclosures are applicable.
(11) Loss on Abandonment of Investment
On June 27, 1995, LCL International Traders, Inc. ("LCL"), a wholly-owned
subsidiary of Jayark, completed the acquisition of substantially all the assets
and business of a group of affiliated companies engaged in the import and
distribution of seasonal and promotional merchandise (the "Acquisition"). The
sellers, located in Hong Kong and Central Islip, New York, operated under the
trade names "Liberty Bell Christmas", "Ivy Mar", "Creative Home Products" and
"Award Manufacturing". LCL acquired these trade names as part of the
transaction.
The purchase price for the Acquisition comprised the following: issue of
1,000,000 common shares of Jayark to the sellers, cash paid by LCL of
$3,000,000, a note payable by LCL to the sellers for $3,000,000 and the
assumption of certain liabilities of the sellers. The Company advanced
$1,000,000 to LCL in connection with the cash portion of the purchase price.
LCL obtained a credit facility for the balance of the cash portion of the
purchase price.
<PAGE>
During August 1995, Jayark, LCL and Rosalco entered into a Reimbursement
Agreement with certain related third parties to provide to The CIT
Group/Commercial Services, Inc. ("CIT"), the primary lender to LCL, irrevocable
standby letters of credit and cash in the aggregate amount of $1,700,000 to
serve as additional collateral against which CIT would lend additional working
capital to LCL pursuant to CIT's lending arrangements with LCL.
In consideration for providing the additional collateral, the guarantors were to
receive shares of common stock of the Company in proportion to the amount of
additional collateral initially provided by them. Excluding the shares
attributable to Rosalco, the Company was obligated to issue a total of 282,400
shares of its common stock to the guarantors.
The arrangement with CIT for the additional financing secured by the additional
collateral expired on February 28, 1996. The arrangement indicated that on that
date, in the event that CIT had applied any of the additional collateral to
LCL's obligations to CIT, LCL would reimburse the parties for the collateral so
applied by CIT. Alternatively, the parties could at any time after February 28,
1996 receive shares of the Company's common stock as reimbursement for the
collateral applied by CIT to LCL's obligations to CIT. Each party would receive
that number of shares that had a value equal to the amount of such party's
collateral that is applied by CIT. Excluding the shares attributable to
Rosalco, the Company is obligated to issue a total of 960,000 shares of its
common stock to the guarantors.
In July 1996, CIT notified the parties that CIT was applying the additional
collateral to LCL's obligations. As a result of the application of the
collateral by CIT, the parties received the following shares of the Company's
Common Stock: Joel Margolin received 400,000 shares; each of Ruthanne Koffman
and the Ben Arnold Company received 200,000 shares; and Whitehorn Associates
received 160,000 shares.
In fiscal 1997, the Company issued 1,242,400 shares of its common stock in
connection with the above transactions, which were valued at $472,112.
During fiscal 1996, the Company abandoned the investment in LCL, which in turn
filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code. Due to
the nature of the investment and the short period of operation of LCL, the
operations of LCL were not consolidated with the Company's operations. The
Company provided for all realized and expected losses on the abandonment,
summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Value of shares issued $1,156,250
Cash paid 1,000,000
Provision for issuance of shares to guarantors
(using the most recent quoted stock price) 500,000
Rosalco obligation under the reimbursement agreement 500,000
Anticipated costs of abandonment 1,572,186
----------
Total loss on abandonment $4,728,436
----------
</TABLE>
(12) Financial Instruments
<PAGE>
The carrying amounts of financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable and notes payable
approximated fair value as of April 30, 1998 due to the short maturity of these
items. The fair value of the convertible debentures is not reasonably
determinable.
(13) Fourth Quarter Adjustments
During the fourth quarter of fiscal 1996, the Company made the following
significant adjustments to reported earnings:
Increase in accounts receivable reserves $550,000
Increase in inventory reserves 1,195,534
During the fourth quarter of fiscal 1997, the Company recorded the effects of
the discontinuance of Rosalco. See note 14.
(14) Discontinued Operations
As a result of continued losses due to a soft retail market, low margins,
competitive pressures, and price reductions, the Company had been looking to
sell or otherwise dispose of the operations of Rosalco. Rosalco had been in the
business of the distribution of more than 300 different products, including
occasional furniture, brass beds, custom jewelry cases and accessories, most of
which are imported from outside the continental United States. Rosalco also
developed special designs for several customers. Rosalco was headquartered in
Jeffersonville, Indiana. All efforts to sell Rosalco were unsuccessful, and the
company was officially closed on Wednesday, October 22, 1997. The assets of the
company were secured as part of the borrowing agreement. Shortly after the
closing, a receiver was assigned to liquidate the secured assets of the company
to satisfy the loan principal. As a result, Jayark incurred a $5,794,000 loss
on Discontinued operations, which includes $3,294,000 loss from operations for
the year ended April 30, 1997, the establishment of accruals in the amount of
$300,000 for expenses and guarantees related to the closing, the write off of an
intercompany receivable and other assets of $476,000, and the remaining net
asset of Rosalco of $1,725,000.
The Rosalco business has been presented as a discontinued operation, and the
consolidated balance sheets and statements of operations have been restated to
conform with this presentation. Financial results of the Rosalco operation are
as follows:
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Years Ended April 30,
Operating Data 1997 1996
---------------------------------------------------
Net Revenues $37,505,589 $32,149,279
Costs and Expenses 40,449,698 34,843,376
Income before Tax (2,994,109) (2,694,097)
Provision for (Benefit From)
Income Tax 350,000 (156,503)
Net Income (Loss) (3,294,109) (2,537,594)
----------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Balance Sheet Data:
April 30,
1997
---------
Assets
Current Assets
Cash $107,540
Accounts Receivable 3,859,808
Other Receivables 294,713
Inventory 4,703,319
Deferred Tax -
Other Current 272,702
---------
Total Current Assets 9,238,082
Non-Current Assets
PP&E, Net of Accum. Depr 541,248
Intercompany (414,435)
---------
Total Non Current Assets 126,813
---------
Total Assets 9,364,895
=========
Liabilities
Notes Payable & L.O.C. 5,685,407
Accounts Payable 1,576,777
Accrued Liabilities 117,040
Other Current 260,291
---------
Total Current Liabilities 7,639,515
Net Assets $1,725,380*
</TABLE>
Note - these net assets were written off at April 30, 1997
(15) Subsequent Events
In July 1998, the Company amended its Certificate of Incorporation increasing
its authorized Common Stock from 10,000,000 to 30,000,000 shares and decreasing
the par value of its Common Stock from $.30 to $.01 per share.
<PAGE>
In August 1998, the Company intends to offer to each stockholder, the right to
purchase, pro rata, two shares of Common Stock at a price of $.10 per share.
The Company expects to file a Registration Statement on Form S-1 with the
Securities and Exchange Commission as soon as practicable in order to register
such rights to purchase Common Stock, under the Securities Act of 1933, as
amended. Upon the Registration Statement becoming effective, stockholders will
receive notification of the Rights Offering and instructions on how to exercise
the rights. The net proceeds of $1,790,000 to the Company from the sale of the
Common Stock will be used to retire $1,790,000 of notes payable and subordinated
notes, including accrued interest with related parties.
In June 1998, Jayark Corporation, through a newly formed, wholly owned
subsidiary, MED Services Corp. ("Med"), entered into a Purchase and Sale
Agreement with Vivax Medical Corporation ("Vivax"), a company that manufactures,
sells and rents durable medical equipment to hospitals, nursing homes and
individuals. Under the terms of the agreement, Med purchased certain medical
equipment from Vivax for cash of $579,700 and a $144,925 unsecured promissory
note due in five years. Med then entered into a Consignment Agreement with
Vivax whereby this medical equipment was consigned to Vivax to rent through its
distribution network. In consideration of Vivax renting and maintaining the Med
equipment, Vivax is entitled to a range of forty-eight to sixty-seven percent of
the rental proceeds, based upon the equipment rented. Vivax has an option to
purchase the medical equipment from Med after the twenty-fourth, thirty-six and
forty-eight month of the consignment period. Med, under the Purchase and Sale
Agreement has an option, through October 31, 1999 to purchase an additional
$2,475,000 of medical equipment from Vivax. Upon the expiration of the
consignment period, which is five years from the purchase of the equipment, Med
has the option to sell the equipment back to Vivax.
Med negotiated a $1,000,000 revolving line of credit with Atlantic Bank of New
York and invested approximately $130,000 of the Company's presently available
working capital to purchase the medical equipment. The $1,000,000 line of
credit is due one year from signing and bears interest at prime plus 2%. The
line of credit is secured by the inventories and accounts receivable of Med.
The are no financial covenants associated with the line of credit. As of July
31, 1998 Med has $450,000 outstanding on the line.
If the equipment is successfully rented, the rental income and cash flow could
have a material affect on the operating results of Jayark Corporation. There
can be no assurances that the Company will be successful in renting the medical
equipment.
<PAGE>
Exhibit Index
3(1) Certificate of Incorporation of the Company. Incorporated herein by
reference to the Company's Proxy Statement for its 1991 Annual Meeting of
Shareholders, Exhibit B thereto.
3(2) Bylaws of the Company. Incorporated herein by reference to the
Company's Proxy Statement for its 1991 Annual Meeting of Shareholders,
Exhibit C thereto.
4(1) Specimen Certificate of Common Stock, par value $0.30 per share,
incorporated herein by reference from Registration Statement on Form S-1, File
Number 2-18743, Exhibit 4 thereto.
4(2) 12% Convertible Subordinated Debenture due 1994, incorporated herein
by reference to the Report on Form 8-K filed January 4, 1990, Exhibit 28(a)
thereto.
4(3) Registration rights agreement dated as of December 20, 1989, by and
between the Company and Rosalco, Inc., incorporated herein by reference to
the Report on Form 8-K filed January 4, 1990, Exhibit 28(c) thereto.
10(1)* 1981 Incentive Stock Option Plan, as amended as of December 15, 1989,
incorporated herein by reference to the Annual Report on Form 10-K for the year
ended April 30, 1990, Exhibit 10(1) thereto.
10(2) Notes and Loan and Security Agreements (Inventory & Accounts
Receivable) each dated as of January 20, 1992, between Jayark Corporation, AVES
Audio Visual Systems, Inc., Rosalco, Inc.,Rosalco Woodworking, Inc., Diamond
Press Company, and State Street Bank & Trust Company of Boston, Massachusetts,
incorporated herein by reference from the Annual Report on Form 10-K for the
year ended April 30, 1992, Exhibit 10(3) thereto.
10(3) Letter Agreement dated December 6, 1989, among Arthur Cohen, Burton I.
Koffman, and Richard E. Koffman. Incorporated herein by reference to the Annual
Report on Form 10-K for the year ended April 30, 1990, Exhibit 10(3) thereto.
10(4) Indemnity escrow Agreement dated as of December 20, 1989, by and
between the Company, Rosalco, Inc. and certain individuals named therein,
incorporated herein by reference to the Report on Form 8-K filed January 4,
1990, Exhibit 28(c) thereto.
10(5) Factoring Agreements dated as of February 7, 1992, by and between the
Company, Pilgrim Too Sportswear, Inc., J.F.D. Distributors, Inc., and others
named therein, and Barclays Commercial Corporation, incorporated herein by
reference to the Annual Report on Form 10-K for the year ending April 30, 1992,
Exhibit 10(10) thereto.
10(6) Diamond Press Asset Sale and Purchase Agreement dated as of November
23, 1992 by and between the Company and Harstan, Inc., incorporated herein
by reference to the Company's Form 8-K, as amended, as of November 23, 1992,
Exhibit 2 thereto.
<PAGE>
10(7) Asset Sale and Lease Termination Agreement, by and between Pilgrim Too
Manufacturing Company, Inc., New Images, Inc., Victor Freitag, Jr. and wife
Gilbert R. Freitag, and Robert E. Skirboll and wife Robin T. Skirboll, dated as
of April 2, 1993; Asset Purchase Agreement by and between the Company, Pilgrim
Too Sportswear, Inc., Pilgrim Too Manufacturing Company, Inc. Stage II
Apparel Corp., Shambuil Ltd., and Pilgrim II Apparel Corp., dated as of April 2,
1993; both incorporated herein by reference to the Company's Form 8-K as of
April 2, 1993, Exhibits thereto.
10(8) Amendment to certain Notes and Loan and Security Agreements each dated
as of January 20, 1992, incorporated herein by reference from the Annual
Report on Form 10-K for the year ended April 30, 1993, Exhibit 10(8) thereto.
10(9) Amendment to certain Notes and Loan and Security Agreements each dated
as of December 31, 1993, incorporated herein by reference from the Annual
Report on Form 10-K for the year ended April 30, 1994, Exhibit 10(9) thereto.
10(10) Asset Purchase Agreement, dated June 5, 1995, among LIB-Com Ltd.,
Liberty Bell Christmas, Inc., Ivy Mar Co., Inc., Creative Home Products, Inc.,
and Liberty Bell Christmas Realty, Inc. as the sellers and LCL International
Traders, Inc. as the buyer, incorporated herein by reference from the
Company's report on Form 8-K dated June 27, 1995, Exhibit 2(a) thereto.
10(11) Asset Purchase Agreement, dated June 5, 1995, between Award
Manufacturing Corporation as the seller, and LCL International Traders, Inc.,
as the buyer, incorporated herein by reference from the Company's report on
Form 8-K dated June 27, 1995, Exhibit 2(b) thereto.
10(12) Guarantee Agreement, dated June 5, 1995, by Award Manufacturing
Corporation in favor of LCL International Traders, Inc., incorporated herein by
reference from the Company's report on Form 8-K dated June 27, 1995, Exhibit
2(c) thereto.
10(13) Guarantee Agreement, dated June 5, 1995, by LIB-Com Ltd., Liberty Bell
Christmas, Inc., Ivy Mar Co., Inc., Creative Home Products, Inc., and
Liberty Bell Christmas Realty, Inc. in favor of LCL International Traders,
Inc., incorporated herein by reference from the Company's report on Form 8-K
dated June 27, 1995, Exhibit 2(d) thereto.
10(14) Promissory Note of LCL International Traders, Inc., due July 29, 1998,
payable to the order of Commerzbank AG, Hong Kong Branch, incorporated herein
by reference from the Company's report on Form 8-K dated June 27, 1995,
Exhibit 2(e) thereto.
10(15) Confirmation Letter Agreement dated June 22, 1995, among Citibank,
N.A., Commerzbank AG, Bayerische Vereinsbank AG, LCL International Traders,
Inc., and Jayark Corporation, incorporated herein by reference from the
Company's report on Form 8-K dated June 27, 1995, Exhibit 2(f) thereto.
<PAGE>
10(16) Factoring Agreement dated June 23, 1995, between LCL International
Traders, Inc. and the CIT Group/Commercial Services, Inc., incorporated
herein by reference from the Company's report on Form 8-K dated June 27,
1995, Exhibit 99(a) thereto.
10(17) Inventory Security Agreement dated June 23, 1995, between LCL
International Traders, Inc. and the CIT Group/Commercial Services, Inc.,
incorporated herein by reference from the Company's report on Form 8-K dated
June 27, 1995, Exhibit 99(b) thereto.
10(18) Letter Agreement dated June 23, 1995, between LCL International
Traders, Inc. and the CIT Group/Commercial Services, Inc., incorporated
herein by reference from the Company's report on Form 8-K dated June 27,
1995, Exhibit 99(c) thereto.
10(19) Letter Agreement dated June 23, 1995, between LCL International
Traders, Inc. and the CIT Group/Commercial Services, Inc., Liberty Bell
Christmas, Inc., Ivy Mar Co., Inc., and Creative Home Products, Inc.,
incorporated herein by reference from the Company's report on Form 8-K dated
June 27, 1995, Exhibit 99(d) thereto.
10(20) Amendment to certain Notes and Loan and Security Agreements each dated
as of December 31, 1994, incorporated herein by reference from the Annual
Report on Form 10-K for the year ended April 30, 1995, Exhibit 10(20) thereto.
10(21) Loan and Security Agreements dated April 29, 1996 between Rosalco,
Inc., and State Street Bank & Trust Company of Boston, Massachusetts.
10(22) Loan and Security Agreements dated April 29, 1996 between AVES Audio
Visual Systems, Inc.,and State Street Bank & Trust Company of Boston,
Massachusetts.
10(23) First amendment to Loan and Security Agreements dated as of September
19, 1996 between Rosalco, Inc. and State Street Bank & Trust Company of Boston,
Massachusetts.
10(24) Agreement of Extension of Maturity of 12% Convertible Subordinated
Debentures dated April 30, 1990.
10(25) Forbearance and Modification Agreement dated March 12,1997, between
Jayark Corporation,Rosalco, Inc., AVES Audio Visual Systems, Inc., David
L. Koffman, and State Street Bank and Trust Company of Boston,
Massachusetts.
10(26) Stock Pledge Agreement dated March 12, 1997, between Jayark Corporation
and State Street Bank and Trust Company of Boston, Massachusetts.
10(27) Subordination Agreement dated March 12, 1997, between Jayark
Corporation, Rosalco, Inc.,AVES Audio Visual Systems, Inc., David L. Koffman,
and State Street Bank and Trust Company of Boston, Massachusetts.
<PAGE>
10(28) Revolving Note dated March 12, 1997 between Jayark Corporation and A-V
Texas Holding, LLC.
10(29) Stock Pledge Agreement dated March 12, 1997 between Jayark Corporation
and A-V Texas Holding, LLC.
10(30) Stock Warrant to purchase 3,666,667 shares of common stock dated March
12, 1997 between Jayark Corporation and A-V Texas Holding, LLC.
10(31) Commercial Security Agreement dated February 18, 1997, between AVES
Audio Visual Systems, Inc. and BSB Bank and Trust Company.
10(32) Promissory Note dated February 18,1997, between AVES Audio Visual
Systems, Inc. and BSB Bank and Trust Company.
10(33) Commercial Guaranty dated February 18, 1997, between AVES Audio Visual
Systems, Inc., David L. Koffman and BSB Bank and Trust Company.
10(34) Subordinated Promissory Note date March 12, 1997 between Rosalco, Inc.
and Jayark Corporation.
10(35) Second Forbearance and Modification Agreement dated June 1, 1997,
between State Street Bank and Trust Company of Boston, Massachusetts,
Rosalco,Inc., and Jayark Coporation.
10(36) Stock Warrant to purchase 500,000 shares of common stock dated
March 12,1997 between Jayark Corporation and A-V Texas Holding, LLC.
10(37) Certificate of Amendment of The Certificate of Incorporation of Jayark
Corporation dated July 10, 1998.
10(38) Purchase and Sale Agreement dated June 1, 1998, between Vivax Medical
Corporation and MED Services Corp.
10(39) Distribution Agreement dated June 1, 1998, between MED Services Corp.
and Vivax Medical Corporation.
10(40) Revolving Line of Credit Grid Promissory Note dated August 7, 1998,
between MED Services Corp. and Atlantic Bank of New York.
10(41) Security Agreement dated August 7, 1998, between MED Services Corp.
and Atlantic Bank of New York.
<PAGE>
[ARTICLE] 5
[CIK] 0000053260
[NAME]
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] APR-30-1998
[PERIOD-START] MAY-01-1997
[PERIOD-END] APR-30-1998
[CASH] 239
[SECURITIES] 0
[RECEIVABLES] 1,724
[ALLOWANCES] 0
[INVENTORY] 272
[CURRENT-ASSETS] 2,272
[PP&E] 451
[DEPRECIATION] 357
[TOTAL-ASSETS] 2,635
[CURRENT-LIABILITIES] 2,115
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 2,766
[OTHER-SE] (5,692)
[TOTAL-LIABILITY-AND-EQUITY] (2,635)
[SALES] 13,605
[TOTAL-REVENUES] 13,605
[CGS] 11,446
[TOTAL-COSTS] 11,446
[OTHER-EXPENSES] 1,717
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 366
[INCOME-PRETAX] 76
[INCOME-TAX] 0
[INCOME-CONTINUING] 76
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 76
[EPS-PRIMARY] .01
[EPS-DILUTED] .01
</TABLE>
<PAGE>
EXHIBIT 10(37)
CERTIFICATE OF AMENDMENT
OF
THE CERTIFICATE OF INCORPORATION
OF
JAYARK CORPORATION
Under Section 242 of the General Corporation Law
It is hereby certified that:
FIRST: The name of the corporation is JAYARK CORPORATION (the
"Corporation").
SECOND: The Certificate of Incorporation of the Corporation is hereby
amended by striking out paragraph A of Article IV in its entirety and
the following new paragraph A of Article IV is substituted in lieu
thereof:
"A.
The total number of all shares of all classes of stock which the
Corporation shall have authority to issue is 35,000,000, of which
30,000,000 shares shall be common stock, par value $.01 per share
("Common Stock"), and 5,000,000 shares shall be preferred stock, par
value $.01 per share ("Preferred Stock")."
THIRD: The foregoing Amendment to the Certificate of Incorporation herein
certified has been duly adopted in accordance with the provisions of
Sections 242 and 228 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said Jayark Corporation has caused this certificate to be
signed by its President this 10th day of July 1998.
/s/ David L. Koffman
Name: David L. Koffman
Title: President
<PAGE>
EXHIBIT 10(38)
PURCHASE AND SALE AGREEMENT
Agreement made as of June 1, 1998 between VIVAX MEDICAL CORPORATION, a
Delaware corporation having its principal place of business at 545 Middle
Street, Bristol, Connecticut ("Seller") and MED SERVICES CORP., a Nevada
corporation having its principal place of business at 300 Plaza Drive, Vestal,
New York ("Buyer").
RECITALS
A. Seller is in the business of manufacturing specialty medical beds and
related equipment including, among other things, certain beds known as Nova
Beds, which are more particularly described in Exhibit "A" attached hereto and
made a part hereof ("Nova Beds"), and certain beds known as Soma Enclosure Beds,
which are more particularly described in Exhibit "B" attached hereto and made a
part hereof ("Enclosure Beds").
B. Seller has agreed to sell to Buyer and the Buyer has agreed to
purchase from the Seller certain Nova Beds and Enclosure Beds upon the terms and
conditions set forth in this Agreement.
C. Seller has also agreed to grant the Buyer options to purchase
additional Nova Beds and Enclosure Beds upon the terms and conditions set forth
in this Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Purchase and Sale of Nova Beds. Upon the closing of this
Agreement, Seller agrees to sell and Buyer agrees to purchase fifty Nova Beds at
$12,995.00 each, for an aggregate purchase price of $649,750.00.
2. Purchase and Sale of Enclosure Beds. Upon the closing of this
Agreement, Seller agrees to sell and Buyer agrees to purchase twenty-five
Enclosure Beds at $2,995.00 each, for an aggregate purchase price of $74,875.00.
3. Payment of Aggregate Purchase Price. The aggregate purchase
price of $724,625.00 for the purchases set forth above shall be payable upon the
closing of this Agreement by a payment of $579,700.00 in cash and the balance of
$144,925.00 by the execution and delivery of a promissory note ("Grid Note")
such amount payable five years from the date of closing and in the form of the
Grid Note ("Grid Note") attached hereto marked Exhibit "C" and made a part
hereof.
4. Option to Purchase Additional Nova Beds. Seller hereby grants
Buyer an irrevocable option (notwithstanding Buyer's refusal to exercise its
option from time to time) to purchase, upon their availability as manufactured
before sold or put into service for rental from time to time, up to one hundred
and fifty (150) additional Nova Beds at $12,995.00 each. This option shall be
in force through October 31, 1999. Seller shall offer each Nova Bed that it
manufactures to Buyer in accordance with this section until such time as the
Buyer has purchased an additional one hundred and fifty Nova Beds or the term of
<PAGE>
this option has expired, whichever is earlier. Upon receiving written
notification from the Seller of the availability of Nova Beds for purchase
subject to this option, Buyer shall have five business days in which to notify
Seller in writing of its intent to purchase all or any portion of such Nova Beds
and shall close on said purchase and deliver the required funds to Seller on or
before 15 business days after aforementioned notice.
5. Option to Purchase Additional Enclosure Beds. Seller hereby
grants Buyer an irrevocable option (notwithstanding Buyer's refusal to exercise
its option from time to time) to purchase, upon their availability as
manufactured, as to Enclosure Beds (i) 50% of the Enclosure Beds before sold
from time to time, and (ii) 100% of all Enclosure Beds before put into service
for rental from time to time up to an aggregate (inclusive of any such beds
purchased pursuant to clause (i) or (ii) above) of one hundred and seventy-five
(175) additional Enclosure Beds at $2,995.00 each. This option shall be in
force through October 31, 1999. Seller shall offer such Enclosure Bed that it
manufactures to Buyer in accordance with this section until such time as the
Buyer has purchased an additional one hundred and seventy-five Enclosure Beds,
or the term of this option has expired which ever is earlier. Upon receiving
written notification from the Seller of the availability of Enclosure Beds for
purchase subject to this option, Buyer shall have five business days in which to
notify Seller in writing of its intent to purchase all of any portion of such
Enclosure Beds and shall close on said purchase and deliver the required funds
to Seller on or before 15 business days after aforementioned notice.
6. Payment of Purchase Price for Purchases Pursuant to Options. If
pursuant to this Agreement the Buyer purchases Nova Beds which are designated
"Mediq Units" as that term is defined in that certain Consignment Agreement
entered in to between the parties hereto on even date herewith, the aggregate
purchase price therefor shall be payable seventy-five percent in cash and
twenty-five percent by the addition of such dollar amount to the Grid Note
payable five years from the date of such purchase. If, pursuant to the
aforesaid option, the Buyer purchases Nova Beds which are not designated as
"Mediq Beds" and/or purchases Enclosure Beds, the aggregate purchase price
therefor shall be payable eighty percent in cash and twenty percent by the
addition of such dollar amount to the Grid Note payable five years from the
date of such purchase as an advance.
7. Bills of Sale. Upon the closing of each sale hereunder, Seller
shall execute and deliver to Buyer a bill of sale in the form attached hereto
marked Exhibit "D" and made a part hereof. Each bill of sale shall set forth
the type and serial number of each Nova Bed and/or Enclosure Bed being conveyed
thereby, together with the then location and intended locations thereof and
whether such Unit is new or used.
8. Lien Searches. Upon the closing of each purchase hereunder, the
Seller shall provide Buyer with UCC searches in such jurisdictions and in such
form and substance as shall be acceptable to the Buyer and Buyer's legal
counsel, evidencing that Seller has good title to the Nova Beds and/or Enclosure
Beds being transferred, free and clear of any conflicting security interest or
any other lien or incumbrance.
9. Opinion of Legal Counsel. Upon the closing of this Agreement,
the Seller shall provide the Buyer with the written opinion of legal counsel to
the Seller and the Buyer shall provide the Seller with the written opinion of
legal counsel to the Buyer.
<PAGE>
10. Inspection. Buyer shall have the right to inspect the Nova Beds
and Enclosure Beds offered for purchase hereunder at Seller's facility. Seller
will permit the Buyer to enter the Seller's facility for such inspections at any
time during normal business hours.
11. Product Warranty. Seller agrees to replace, or repair to Buyer's
satisfaction, and at Seller's sole cost and expense, any and all Nova Beds
and/or Enclosure Beds sold pursuant to this Agreement which are found to be
defective in material, workmanship or function during the term of the aforesaid
Consignment Agreement and any extension thereof. This warranty is not exclusive
and is made in addition to any and all other warranties applicable to this
transaction, whether express or implied, including warranties of merchantability
and fitness for a particular purpose.
12. Representations and Warranties of Seller. Seller represents and
warrants to the Buyer as of the date hereof and on the date of the conveyance of
any Nova Beds or Enclosure Beds contemplated hereunder that:
(a) The Seller is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation and is
duly qualified to do business and is in good standing in every jurisdiction in
which the nature of its business requires it to be so qualified;
(b) Seller has the corporate power and authority to convey the
Nova Beds and/or Enclosure Beds pursuant to this Agreement, to execute and
deliver this Agreement and to perform the transactions required hereby (except
where a failure to qualify to do business in a jurisdiction(s) has no material
adverse affect upon Seller or Buyer);
(c) The execution, delivery and performance by Seller of this
Agreement and the transactions contemplated hereby have been duly authorized by
all necessary corporate or other action on the part of the Seller, do not
contravene or cause the Seller to be in default under its certificate of
incorporation or by-laws, any contractual restriction to which it or its
property is subject, or any law, rule, regulation, order, writ, judgment, award,
injunction or decree applicable to, binding on or affecting the Seller or its
property (except where such default has no material adverse affect upon Seller
or Buyer);
(d) This Agreement has been duly executed and delivered by the
Seller;
(e) No approvals or consents of, notice to, filing with or
licenses, permits, or qualifications from, or other actions by any governmental
authority or any other party except such as have been obtained or waived, is
required or necessary for the due execution, delivery and performance by the
Seller of this Agreement;
(f) This Agreement is the legal, valid and binding obligation of
the Seller enforceable against the Seller in accordance with the terms hereof,
subject to any applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect relating to or affecting the
enforceability of creditors' rights generally and equitable principles, whether
applied in a proceeding at law or in equity;
<PAGE>
(g) There is no pending, threatened, nor any reasonable basis
for any, action, suit or proceeding against or affecting Seller or its property
asserting the invalidity of this Agreement or seeking to prevent the performance
hereof except as listed on Schedule 2 attached hereto;
(h) The Seller has full and absolute right to transfer Nova Beds
and/or Enclosure Beds subject to this Agreement;
(i) All Nova Beds and/or Enclosure Beds to be transferred
hereunder are and shall be transferred free and clear of all security interests,
liabilities, obligations and encumbrances including but not limited to the lien
of any party holding a security interest in inventory; and
(j) These representations and warranties are made to induce the
Buyer to purchase Nova Beds and/or Enclosure Beds as herein provided and to pay
the consideration therefor specified herein.
(k) The patents listed on Schedule 1 attached hereto and
incorporated herein ("Patents"), are currently owned by Seller.
(l) Seller warrants and represents that all fees and other
charges due for the Patents have been paid in full as of the execution date of
this Agreement other than any payments which have no material adverse affect on
the enforceability or ownership of the Patents.
(m) No one or more of the Patents is invalid or unenforceable,
in whole or in part.
(n) Seller's the sole and exclusive owner of the Patents, and
that to its knowledge no other person or party has or shall have any claim of
ownership whatsoever with respect to the Patents.
13. Representations and Warranties of Buyer. Buyer represents and
warrants to the Seller as of the date hereof and on the date of the conveyance
of any Nova Beds or Enclosure Beds contemplated hereunder that:
(a) The Buyer is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation and is
duly qualified to do business and is in good standing in every jurisdiction in
which the nature of its business requires it to be so qualified (except where a
failure to qualify to do business in a jurisdiction(s) has no material adverse
affect upon Seller or Buyer);
(b) Buyer has the corporate power and authority to purchase the
Nova Beds and/or Enclosure Beds pursuant to this Agreement, to execute and
deliver this Agreement and to perform the transactions required hereby;
<PAGE>
(c) The execution, delivery and performance by Buyer of this
Agreement and the transactions contemplated hereby have been duly authorized by
all necessary corporate or other action on the part of the Buyer, do not
contravene or cause the Buyer to be in default under its certificate of
incorporation or by-laws, any contractual restrictions to which it or its
property is subject, or any law, rule, regulation, order, writ, judgment, award,
injunction or decree applicable to, binding on or affecting the Buyer or its
property (except where a failure to qualify to do business in a jurisdiction(s)
has no material adverse affect upon Seller or Buyer);
(d) This Agreement has been duly executed and delivered by the
Buyer;
(e) No approvals or consents of, notice to, filing with or
licenses, permits, qualifications from or other action by any governmental
authority or any other party, is required or necessary for the due execution,
delivery and performance by the Buyer of this Agreement;
(f) This Agreement is the legal, valid and binding obligation of
the Buyer enforceable against the Buyer in accordance with the terms hereof,
subject to any applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereinafter in effect relating to or affecting the
enforceability of creditors' rights generally and equitable principles, whether
applied in a proceeding at law or in equity;
(g) There is no pending, threatened nor any reasonable basis for
any, action, suit, or proceeding against or effecting Buyer or its property
asserting the invalidity of this Agreement or seeking to prevent the performance
hereof; and
(h) These representations and warranties are made to induce the
Seller to sell Nova Beds and/or Enclosure Beds as herein provided.
14. Rights of Buyer. Seller shall be in default if Seller becomes
insolvent or files, or becomes the subject of an involuntary filing of a
petition which is not discharged with 60 days of such filing, under any Chapter
of the United States Bankruptcy Code, shall fail to timely perform any
obligation hereunder or under the Consignment Agreement or any representation or
warranty of Seller hereunder shall be or with the passage of time becomes
untrue. In case of Seller's default and Seller's failure to cure said default
within 15 days of notice from Buyer, Buyer may offset damages or costs incurred
because of such default against any amounts due and owing under the Grid Note.
15. Notices. All notices and other communications provided for in
this Agreement shall be in writing and mailed, certified or registered mail,
express mailed, or delivered as to each party at its address set forth above or
at such other address as shall be designated by one party in a written notice to
the other party and deemed delivered upon receipt or refusal. Whenever a notice
or action is required hereunder within a certain number of "days" it shall be
deemed to mean calendar days unless otherwise specified.
16. Binding Effect Assignability. This Agreement shall be binding
upon and inure to the benefit of each party hereto and their respective
successors and assigns Seller shall not assign any of its rights or obligations
hereunder without the prior written consent of the Buyer. Buyer shall not
<PAGE>
assign any of its rights or obligations hereunder without Seller's prior written
consent which will not be unreasonably withheld, delayed or conditioned, except
that Seller's consent shall not be required for Buyer's assignment to any
affiliate, subsidiary or parent of Buyer. This Agreement shall create and
constitute the continuing obligations of the parties hereto in accordance with
the terms hereof and shall remain in full force and effect until its
termination, except that the rights and remedies pursuant to paragraphs 11 and
14 shall be continuing and shall survive any termination of this Agreement.
17. Amendments. Consents and Waivers.
Entire Agreement. No modification, amendment or waiver of, or
with respect to, any provision of this Agreement nor consent to any departure
from any of its terms and conditions, shall be effective unless it shall be in
writing and signed by both of the parties hereto. Any waiver or consent shall
be effective only in the specific instance and for the specific purpose for
which it was given. No consent or waiver shall entitle any party to any other
consent or waiver in similar or different circumstances. This Agreement and the
exhibits attached hereto embodies the entire agreement of the parties with
respect to the subject matter hereof and supersedes all prior agreements and
understandings relating to the subject matter hereof.
18. Costs and Expenses. In the event that either party hereto
institutes legal action to enforce the provisions of this Agreement or the Grid
Note, the non-prevailing party shall reimburse the prevailing party therein for
all costs and expenses incurred in the enforcement of this Agreement or the Grid
Note, including, without limitation reasonable attorneys' fees and expenses
incurred in such action.
19. Governing Law. Consent to Jurisdiction. Waiver of
Jury Trial. This Agreement shall be governed by, and construed in accordance
with, the law of the State of New York but without regard to the conflict of law
provisions thereof. The Buyer and Seller hereby submit to the jurisdiction of
the courts of the State of New York, and the United States District Courts
located therein, in the County of Broome, and State of New York. The Buyer and
Seller hereby waive any objection based on Forum Non Conveniens, and any
objection to venue of any action instituted hereunder. The parties hereto
hereby waive any right to have a jury participate in resolving any dispute
arising out of, connected with, related to, or in connection with this
Agreement. Instead, any dispute resolved in court will be resolved in a bench
trial without jury.
20. Descriptive Headings. The headings of the various paragraphs of
this Agreement are inserted for convenience of reference only and shall not be
deemed to affect the meaning or construction of any provisions hereof.
21. Further Assurances. Each party agrees to do such further acts
and things and to execute and deliver such additional documents as may be
required or deemed advisable to effectuate the purposes of this Agreement and to
better assure and confirm to each party its respective rights, powers and
remedies hereunder.
22. Broker. Seller and Buyer warrant and represent to each other
that no broker or agent brought about this transaction and there have not been
any dealings with any such broker or agent in the connection with this
Agreement, except Rinfret & Co., LLC. (hereinafter called the "Broker"). Each
party hereby agrees to indemnify, defend and hold the other harmless from and
<PAGE>
against any and all claims for commissions and all costs, expenses and
liabilities in connection therewith, including without limitation, attorneys
fees and expenses, arising out of any conversations or negotiations had by
either party with any broker other than Broker. Seller will pay Broker the
commission earned by Broker in connection with this transaction pursuant to a
separate agreement between Seller and Broker.
23. Patents. Seller shall pay all fees and other charges due for the
Patents as may be necessary to maintain or otherwise extend the Patents in full
force as permitted by law. Seller shall, at their expense, defend, indemnify
and hold harmless, from and against any and all liabilities, allegations,
claims, causes or action, suits, or damages, for infringement of any third
party's patent, trademark, trade dress, trade secret, copyright or other
intellectual property rights resulting from Licensee's manufacture, use, sale,
or offer to sell products covered by any one or more of the Patents. These
obligations shall survive the expiration or earlier termination of this
Agreement. In the event Seller fails to perform its obligations under this
Section Buyer shall have the right to bring and prosecute, any and all actions
against any third parties that Buyer believes to infringe any of the exclusive
rights granted under the Patents.
24. Counterparts. This Agreement may be executed in one or more
counterparts. All counterparts so executed when read together shall constitute
an agreement, binding on all parties hereto.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective duly authorized officers as of the date first above written.
SELLER:
VIVAX MEDICAL CORPORATION
By: /s/ Stephen M. Fisher_
Stephen M. Fisher, President
BUYER:
MED SERVICES CORP.
By: /s/ Howard M. Rittberg
Howard M. Rittberg, Asst. Secretary
<PAGE>
EXHIBIT A
Nova Beds
Serial # Serial #*
1. 197 147
2. 142 148
3. 144 149
4. 115 153
5. 116 156
6. 117 157
7. 138 158
8. 139 163
9. 140 169
10. 146 170
11. 176 171
12. 182 173
13. 183 175
14. 185 177
15. 186 178
16. 187 179
17. 188 180
18. 190 181
19. 191 111
20. 193 112
21. 194 114
22. 195 119
23. 1047 131
24. 198 132
25. 199 134
* Rights limited to rental stream only
<PAGE>
EXHIBIT B
Enclosure Beds
Serial # Serial #*
1. 100 STL
2. 101 23
3. 102 31
4. 103 32
5. 104 33
6. 105 36
7. 106 52
8. 107 50
9. 108 51
10. 109 59
11. 110 60
12. 111 61
13. 112 72
14. 113 45
15. 114 82
16. 115 84
17. 116 85
18. 117 86
19. 118 87
20. 119 77
21. 120 78
22. 121 90
23. 122 91
24. 123 89
25. 124 96
* Rights limited to rental stream only
<PAGE>
EXHIBIT C
Form Grid Note
<PAGE>
EXHIBIT D
Bill of Sale
<PAGE>
SCHEDULE 1
Patents
<PAGE>
SCHEDULE 2
Litigation
<PAGE>
EXHIBIT 10(39)
DISTRIBUTION AGREEMENT
Agreement made as of June 1, 1998 between MED SERVICES CORP., a Nevada
corporation having its principal place of business at 300 Plaza Drive, Vestal,
New York ("MED") and VIVAX MEDICAL CORPORATION, having its principal place of
business at 545 Middle Street, Bristol, Connecticut ("Vivax").
Recitals
A. MED is the owner of certain specialty medical beds known as Nova Beds
("Nova Beds"), which are more particularly described and identified by serial
number in Exhibit "A" attached hereto and made a part hereof.
B. MED is also the owner of certain specialty medical beds known as Soma
Enclosure Beds ("Enclosure Beds"), which are more particularly described and
identified by serial number in Exhibit "B" attached hereto and made a part
hereof.
C. MED may in the future purchase additional Nova Beds and/or Enclosure
Beds (each of the Nova Beds and Enclosure Beds, whether presently owned or
subsequently acquired by MED, are hereinafter sometimes referred to singularly
as a "Unit" and collectively as "Units".)
D. Vivax is in the business, among other things, of renting Units
directly to customers that operate health care facilities or customers that rent
medical equipment to health care facilities ("Vivax System").
E. Vivax also provides Units to SpectraCair, a division of Mediq/PRN Life
Support Services, Inc. ("Mediq") pursuant to a certain Rental Agreement dated
December 29, 1997 which Units are then rented to customers of Mediq ("Mediq
System").
F. MED and Vivax have agreed to enter in to an agreement whereby MED will
provide the Units to Vivax and Vivax will either rent such Units to its own
customers in the Vivax System ("Vivax Units") or provide some such Units to
Mediq pursuant to the aforesaid Rental Agreement ("Mediq Units"), upon the terms
and conditions set forth in this Agreement.
NOW THEREFORE, the parties agree as follows:
1. Term and Closing Date. The term of this Agreement with respect
to each conveyed Unit hereunder shall be sixty months from the respective date
of the delivery of each such Unit to the Vivax hereunder.
<PAGE>
2. Delivery of Units. On the date MED delivers funds with respect
to a particular Unit upon a closing under the Purchase Agreement ("Closing
Date") MED shall deliver to Vivax the Units which it presently owns and which
are set forth in Exhibits "A" and "B" and shall thereafter deliver to Vivax such
additional Units as it shall acquire in accordance with that certain Purchase
and Sale Agreement ("Purchase Agreement") between the parties, of even date
herewith, subject to the terms of this Agreement. After - acquired Units shall
be identified in the same manner and detail as those described in Exhibits "A"
and "B" when delivered to the Vivax. This Agreement will be modified each time
Units are transferred to include such additional Units on Exhibits A and B.
3. Title to Units and Rental Proceeds. MED shall at all times hold
and retain title to all of the Units delivered under this Agreement, together
with any and all replacements thereof, and title to MED's share of the rental
proceeds for such Units as hereinafter provided shall also vest in and remain
the property of MED.
4. Labels. Vivax shall, at its sole expense, affix and at all times
keep affixed in a readily locatable place on each Unit a metal placard or
similar permanent stamp stating the serial number of the Unit and that such unit
is owned exclusively by Med.
5. Distribution and Rental of Nova Beds. The first fifty Nova Beds
delivered hereunder and described in Exhibit "A" shall be rented by Vivax to its
customers in the Vivax System which customers are located in the counties of
Broward, Palm Beach and Dade in the State of Florida. Additional Nova Beds
subsequently acquired by MED and held hereunder shall be distributed to either
or both of the Vivax System or the Mediq System as Vivax shall determine with
the approval of the MED at the time of the purchase of such Unit and subject to
Section 8 hereof. Vivax shall at all times be required to rent Nova Beds in the
Vivax or Mediq Systems at rental rates averaging not less than $85.00 per day or
$2,000.00 per month (if rented on a monthly basis.) Such minimum average rental
rates may not be reduced without the prior written approval of MED.
6. Distribution and Rental of Enclosure Beds. The first twenty-five
Enclosure Beds delivered hereunder and described in Exhibit "B" shall be
distributed to Mediq and rented through the Mediq System. Additional Enclosure
Beds subsequently acquired by MED shall be distributed to the Vivax System
and/or the Mediq System as Vivax shall determine with the approval of MED.
Vivax shall be required to rent Enclosure Beds rented through either the Vivax
System or the Mediq System at rental rates averaging not less then $40.00 per
day or $720.00 per month (if rented on a monthly basis). Such minimum average
rental rates may not be reduced without the prior written approval of MED.
7. Division of Rental Proceeds. With respect to Units (Nova Beds or
Enclosure Beds) rented in the Vivax System, MED shall be entitled to fifty-two
percent of the gross rental income received therefor. With respect to Nova Beds
rented in the Mediq System, MED shall be entitled to thirty-seven percent of the
gross rental income received therefor. With respect to Enclosure Beds rented in
the Mediq System, MED shall be entitled to thirty-two percent of the gross
rental income received therefor. Rental proceeds shall be due on the first day
of the month following the Closing Date with respect to all of the Units which
are subject to this Agreement and are to be rented through the Vivax System in
the Counties of Broward, Palm Beach and Dade in the State of Florida or in any
other fashion or location.
<PAGE>
8. Priority of Unit Rentals. Vivax agrees that in the event Units
that are not owned by MED are utilized in either or both of the Vivax System or
the Mediq System, all Units owned by MED shall be rented before any Units not
owned by MED are offered for rental, subject to said Units being available for
rental at the distribution site which services the geographical area in which
rentals are required. Notwithstanding the above, the parties hereto agree that
in addition to the reports required under Section 9 hereof, Vivax shall provide
MED, on a continuing basis at the end of every six (6) month period commencing
with the date hereof, a report setting forth utilization and rental revenues in
all areas in which Units are rented. On or before fifteen (15) business days
following the receipt of the aforementioned report by MED if the Units located
at any distribution site(s) were utilized for rental during said six (6) month
period at a rate which is materially below the utilization rate for Units at
another distribution site, MED may request that Vivax, at Vivax's option and at
Vivax's sole cost and expense either (i) relocate all or a portion of said Units
to another distribution site with higher utilization rates or (ii) convey to MED
a Unit located in the distribution site requested by MED in exchange for a Unit
designated by MED being conveyed to Vivax.
9. Records and Reports. Vivax shall keep and maintain books and
records in form and content reasonably acceptable to MED, for the purpose of
documenting the assignment of Units to the Vivax System and/or the Mediq System,
for monitoring rentals of Units within each system and for determining the
amounts charged and collected for all such rentals. Vivax shall provide a
written report to MED and Custodian, as hereinafter defined, on a monthly basis
showing the status of all Units by serial numbers, the location of all Units,
current rentals of Units and accounts receivable attributable to the rental of
Units ("Reports").
10. Custodial Account. Customers in the Vivax System and Mediq
System, with respect to Units assigned to the Mediq System, shall be directed to
make payments of the amounts due for rentals to Vivax and sent to Atlantic Bank
of New York ("Custodian") at 960 Avenue of the Americas, New York, New York
10001 for deposit into a Custodial Account maintained by the Custodian pursuant
to a Custody Agreement to be entered into among MED, Vivax and Custodian in the
form attached hereto as Exhibit "C" ("Custodial Agreement"). The Custodian
shall be sent the Report on a monthly basis and Custodian and/or MED shall have
an ongoing right to audit the rental records of Vivax and, to the extent
available to or subject to the control of Vivax, the customers of Vivax in the
Vivax System, Mediq, and customers of Mediq in the Mediq System to determine
records of and verify the amounts to which MED and Vivax are entitled hereunder.
The Custodian shall collect, deposit and disburse the rental proceeds collected
in accordance with the applicable provisions of this Agreement and the Custody
Agreement. Title to all rental proceeds attributable to MED or Vivax hereunder
shall at all times remain in such party, and such proceeds in the hands of the
Custodian, or if remitted to or collected by either Vivax or MED in error, shall
be trust monies held for the benefit of the other party as provided herein. Any
proceeds otherwise received by the Vivax or MED in error which are subject to
this provision shall be immediately remitted in kind to the Custodian. MED
shall pay all fees of the Custodian.
<PAGE>
11. Replacements and Repairs. Maintenance. Vivax is obligated to
replace and repair Units in accordance with the warranty provision contained in
the Purchase Agreement entered in to by the parties on even date herewith
("Purchase Agreement"). Vivax hereby agrees to perform such warranty services
within ten calendar days from the time a Unit comes out of rental service. In
addition to the foregoing, if a new model of Nova Bed or Enclosure Bed
incorporating material changes or manufactured in order to comply with changed
industry standards is manufactured by Vivax, Vivax shall give MED written
notification of such change and MED may, at its option, require Vivax to replace
existing Units with such new models as they become available, at Vivax's sole
cost and expense but in any events Units will be replaced with new models where
required by market demand to ensure compliance with Section 8 hereof. At the
time of any such replacement, Vivax shall supply MED with a bill of sale for any
such Unit which shall include a description of the Unit, its serial number and
location. Units shall be maintained and serviced by Vivax at its sole expense,
and on a timely basis to insure maximum availability of Units for rental.
12. Products Liability Insurance. Vivax shall procure and maintain
products liability insurance in form, amount, coverage and basis and with an
insurer reasonably acceptable to MED. Vivax will deliver to MED upon the
execution of this Agreement and from time to time upon request form MED copies
of all policies or certificates of insurance with respect to such policies. Any
such policy shall name MED as an additional insured. Such insurance shall
provide that the same can not be cancelled without ten (10) days prior written
notice to MED.
13. Risk and Insurance. All risks of fire, theft or damage to the
Units shall be assumed by Vivax. Vivax shall keep, or cause to be kept by its
customers, such Units fully insured, at the expense of Vivax or its customers,
for the benefit of and in the name of MED, covering such risks, in such amounts
and with such issuers as shall be reasonably satisfactory to MED. Such
insurance shall provide that the same can not be cancelled without ten (10) days
prior written notice to MED and Atlantic Bank of New York.
14. Option to Purchase. MED hereby grants Vivax options to purchase
Units subject to this Agreement on the following terms and conditions. An
option to purchase a particular Unit shall be exercisable only at twenty-four,
thirty-six and forty-eight month intervals from the date of acquisition and
consignment of the particular Unit hereunder. Any exercise of a given option on
a particular Unit shall be made in writing no later than the fifth business day
after the twenty-fourth, thirty-sixth or forth-eighth month, as the case may be,
from the date of acquisition of a particular Unit. Prices for Nova Beds shall
be as follows:
Option Price Per Unit
Twenty-fourth month $9,282.00
Thirty-sixth month 7,426.00
Forty-eighth month 5,569.00
Option prices for Enclosure Beds shall be as follows:
<PAGE>
Option Price Per Unit
Twenty-fourth month $2,139.00
Thirty-sixth month 1,711.00
Forty-eighth month 1,284.00
Payments for Units purchased hereunder shall be made, at the election of MED, in
cash or in Vivax restricted common stock. (In lieu of cash payments, MED may
elect to have the amount of payment serve as an offset to and reduction of the
amounts then due under the Grid Note as defined in the Purchase Agreement.) In
the event MED elects to receive payment in the form of Vivax common stock, such
stock shall be valued at the lesser of $2.50 per share or the then market value
as quoted on the OTC Bulletin Board or such other system or exchange where
trading of such common stick is reported or listed (the "Public Market Price").
Such stock shall be transferred to MED pursuant to the terms and conditions of a
Subscription Agreement in the form of Exhibit "D" attached hereto and made a
part hereof.
15. Disposition of Units at End of Term.
A. Commencing on the date occurring twenty four (24) months
from the date of this Agreement MED at any time thereafter shall have the option
to sell all or any portion of the Units acquired by MED hereunder to Vivax for
the depreciated value of such Units as calculated in Section 14 above. The
payments due to MED from Vivax hereunder shall be made in the form of Vivax
common stock at a price $5.00 per share irrespective of the then Public Market
Price. Such stock shall be transferred to MED pursuant to the terms and
conditions of a Subscription Agreement in the form of Exhibit "D" attached
hereto and made a part hereof.
B. At the conclusion of sixty months from the date of
acquisition of a particular Unit subject to this Agreement, MED shall sell and
Vivax shall purchase such Unit at a price of $3,713.00 for a Nova Bed and
$856.00 for an Enclosure Bed. Such purchase shall be closed within thirty days
from the expiration of the sixty-month term. (Payments may, at the election of
MED, take the form of an offset to and reduction of the amounts, if any, then
due for such Units under the Grid Note.) At the time of the sale of the last
Unit subject to this Agreement pursuant to this paragraph, MED shall pay the
remaining balance of principal and accrued interest, if any, on the Grid Note.
16. Extension of Term. In the event that Vivax fails to purchase any
Unit or Units pursuant to paragraph 15 hereof, this Agreement shall remain in
full force and effect with respect to such Unit or Units for a period of 12
months thereafter upon the same terms and conditions, except, the purchase price
for such Units under Paragraph 15 shall be $1.00 for each Nova Bed and $1.00 for
each Enclosure Bed exercisable only at the end of such 12 month period.
17. Inspection. MED and the Custody Agent shall have the right to
inspect the Units, and any books and records relating thereto. MED shall be
permitted to enter distribution facilities or any other location where records
are maintained for such inspections at any time during normal business hours to
<PAGE>
the extent the same are within Vivax's control.
18. Financing Statements.
A. Vivax shall sign and deliver to MED such Uniform Commercial
Code Financing and Continuation Statements, in form satisfactory to MED, as MED
may from time to time reasonably request. In addition MED is hereby authorized
to sign and file such financing and continuation statements without the
signature of the Vivax. MED may, at its sole expense, execute, file such
statements in such filing offices as MED shall deem necessary or appropriate.
Such filings shall be precautionary only. Title to the Units and MED's share of
the rental proceeds thereof, shall remain in MED as provided herein, and this
Agreement shall not be in any event as an agreement for security purposes.
B. Vivax shall promptly file UCC financing statements or
continuation statements (i) naming as debtor, any distributor or consignee in
possession of the Units, including but not limited to, SpectraCair and Vivax
Medical Services, Inc. and (ii) in each and every state and county in which the
Units shall be located.
19. Indemnity. Vivax shall indemnify, defend and hold MED harmless
from and against any and all losses, damages, liabilities, expenses, claims,
suits, actions, or causes of action, including without limitation, reasonable
attorneys' fees, arising from any damage to persons or property resulting from
the distribution, rental and/or use, and maintenance, repair and saving, of the
Units, including, without limitation, any products liability claim made with
respect to any of the Units.
20. Opinion of Legal Counsel. Upon the execution of this Agreement
Vivax shall provide MED and Custody Agent with a written opinion of legal
counsel to the Vivax in form reasonably acceptable to Custody Agent and MED's
legal counsel.
21. Representations and Warranties of MED. MED represents and
warrants to the Vivax that:
(a) The MED is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation and is duly
qualified to do business and is in good standing in every jurisdiction in which
the nature of its business requires it to be so qualified (except where a
failure to qualify to do business in a jurisdiction(s) has no material adverse
impact on MED or Vivax);
(b) MED has the corporate power and authority to consign the Units
pursuant to this Agreement, to execute and deliver this Agreement and to perform
the transactions required hereby;
(c) The execution, delivery and performance by MED of this Agreement
and the transactions contemplated hereby have been duly authorized by all
necessary corporate or other action on the part of the MED, do not contravene or
cause the MED to be in default under its certificate of incorporation or by-
laws, any contractual restriction to which it or its property is subject, or any
law, rule, regulation, order, writ, judgment, award, injunction or decree
<PAGE>
applicable to, binding on or affecting the MED or its property (except where
such default has no material adverse impact on MED or Vivax);
(d) This Agreement has been duly executed and delivered by the MED;
(e) No approvals or consents of, notice to, filings with or licenses,
permits or qualifications from, or other actions by any governmental authority
or any other party, is required or necessary for the due execution, delivery and
performance by the MED of this Agreement;
(f) This Agreement is the legal, valid and binding obligation of the
MED enforceable against the MED in accordance with the terms hereof, subject to
any applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to or affecting the
enforceability of creditors' rights generally and equitable principles, whether
applied in a proceeding at law or in equity;
(g) There is no pending, threatened, nor any reasonable basis for
any, action, suit or proceeding against or affecting MED or its property
asserting the invalidity of this Agreement or seeking to prevent the performance
hereof;
(h) These representations and warranties are made to induce the Vivax
to enter in to this Agreement.
22. Representations and Warranties of Vivax. Vivax represents and
warrants to MED that:
(a) The Vivax is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation and is duly
qualified to do business and is in good standing in every jurisdiction in which
the nature of its business requires it to be so qualified (except where a
failure to qualify to do business in a jurisdiction(s) has no material adverse
impact on MED or Vivax);
(b) Vivax has the corporate power and authority to accept consignment
of the Units pursuant to this Agreement, to execute and deliver this Agreement
and to perform the transactions required hereby;
(c) The execution, delivery and performance by Vivax of this
Agreement and the transactions contemplated hereby have been duly authorized by
all necessary corporate or other action on the part of the Vivax, do not
contravene or cause the Vivax to be in default under its certificate of
incorporation or by-laws, any contractual restriction to which it or its
property is subject, or any law, rule, regulation, order, writ, judgment, award,
injunction or decree applicable to, binding on or affecting the Vivax or its
property (except where a failure to qualify to do business in a jurisdiction(s)
has no material adverse impact on MED or Vivax);
(d) This Agreement has been duly executed and delivered by the Vivax;
<PAGE>
(e) No approvals or consents of, notice to, filings with or licenses,
permits or qualifications from, or other actions by any governmental authority
or any other party except such as have been obtained or waived, is required or
necessary for the due execution, delivery and performance by the Vivax of this
Agreement;
(f) This Agreement is the legal, valid and binding obligation of the
Vivax enforceable against the Vivax in accordance with the terms hereof, subject
to any applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to or affecting the
enforceability of creditors' rights generally and equitable principles, whether
applied in a proceeding at law or in equity;
(g) There is no pending, threatened, nor any reasonable basis for
any, action, suit or proceeding against or affecting Vivax or its property
asserting the invalidity of this Agreement or seeking to prevent the performance
hereof except as set forth in Schedule 1 attached hereto;
(h) These representations and warranties are made to induce the Vivax
to enter in to this Agreement.
23. Rights of MED. Vivax shall be in default if Vivax files, or
becomes the subject of an involuntary filing of a petition which is not
discharged within 60 days of such filing, under any Chapter of the United States
Bankruptcy Code, shall fail to timely perform any obligation hereunder or under
the Purchase Agreement or any representation or warranty of Vivax hereunder
shall be untrue. In case of Vivax's default, after written notice from MED and
the failure of Vivax to cure within thirty days of such notice or if said
default cannot be cured within a thirty day period Vivax's failure to commence
to cure within thirty days and to complete said cure within a reasonable period
of time, MED may cancel this Agreement, repossess Units in the possession of
Vivax, customers of Vivax, Mediq, or of customers of Mediq offset any damages or
costs incurred because of such default against any amounts due and owing under
the Grid Note and MED's obligations to Vivax under this Agreement shall become
null, void and of no effect.
24. Notices. All notices and other communications provided for in
this Agreement shall be in writing and mailed certified mail return receipt
requested, express mailed, or delivered as to each party at its address set
forth above or at such other address as shall be designated by one party in a
written notice to the other party and deemed delivered upon receipt or refusal.
Whenever a notice or action is required hereunder within a certain number of
"days" it shall be deemed to mean calendar days unless otherwise specified.
25. Binding Effect. Assignability. This Agreement shall be binding
upon and inure to the benefit of each party hereto and their respective
successors and assigns, except that the Vivax shall not assign any of its rights
hereunder without the prior written consent of the MED. MED shall not assign
any of its rights or obligations hereunder without Vivax's prior written
consent, which will not be unreasonably withheld, delayed or conditioned, except
that Vivax's Consent shall not be required for MED's assignment to any
affiliate, subsidiary or parent of MED. This Agreement shall create and
constitute the continuing obligations of the parties hereto in accordance with
the terms hereof and shall remain in full force and effect until its
termination, except that the rights and remedies pursuant to paragraphs 10, 12,
<PAGE>
13, 19, 22 and 27 shall be continuing and shall survive any termination of this
Agreement.
26. Amendments. Consents and Waivers. Entire Agreement. No
modification, amendment or waiver of, or with respect to, any provision of this
Agreement nor consent to any departure from any of its terms and conditions,
shall be effective unless it shall be in writing and signed by both of the
parties hereto. Any waiver or consent shall be effective only in the specific
instance and for the specific purpose for which it was given. No consent or
waiver shall entitle any party to any other consent or waiver in similar or
different circumstances. This Agreement embodies the entire agreement of the
parties with respect to the subject matter hereof and supersedes all prior
agreements and understandings relating to the subject matter hereof.
27. Costs and Expenses. In the event that either party hereto
institutes legal action to enforce the provisions of this Agreement, the non-
prevailing party shall reimburse the prevailing party therein for all costs and
expenses incurred in the enforcement of this Agreement, including, without
limitation reasonable attorneys' fees and expenses incurred in such action.
28. Governing Law. Consent to Jurisdiction. Waiver of
Jury Trial. This Agreement shall be governed by, and construed in accordance
with, the law of the State of New York but without regard to the conflict of law
provisions thereof. The Vivax hereby submits to the jurisdiction of the courts
of the State of New York, and the United States District Courts, in the County
of Broome, and State of New York. The Vivax hereby waives any objection based
on Forum Non Conveniens, and any objection to venue of any action instituted
hereunder. The parties hereto hereby waive any right to have a jury participate
in resolving any dispute arising out of,
connected with, related to, or in connection with this Agreement. Instead, any
dispute resolved in court will be resolved in a bench trial without jury.
29. Descriptive Headings. The headings of the various paragraphs of
this Agreement are inserted for convenience of reference only and shall not be
deemed to affect the meaning or construction of any provisions hereof.
30. Further Assurances. Each party agrees to do such further acts
and things and to execute and deliver such additional documents as may be
required or deemed advisable to effectuate the purposes of this Agreement and to
better assure and confirm to each party its respective rights, powers and
remedies hereunder.
31. No Partnership or Joint Venture. Nothing in this Agreement shall
be construed to make the parties hereto partners or joint venturers or render
any of said parties liable for the debts or obligations of the other.
32. Right to Pledge. Notwithstanding anything to the contrary
contained herein, MED shall have the right to grant a security interest in all
or any portion of the Units. Vivax agrees, at MED's request, to execute such
agreements, in the form requested by such holder, as may be required by the
holder of a security interest in the Units, expressly recognizing the priority
of such security interest over any right Vivax may have to the Units, except the
rights set forth in Paragraphs 7 and 14 herein.
<PAGE>
33. Full Force and Effect. Within ten (10) days of MED's receipt of
written request by MED, from time to time, Vivax shall deliver to MED or MED's
lender, a duly executed and acknowledged instrument, certifying that this
Agreement and the Purchase and Sale Agreement are in full force and effect and
that no default exists under either aforementioned agreement.
34. Counterparts. This Agreement may be executed in one or more
counterparts. All counterparts so executed when read together shall constitute
one agreement, binding on all parties hereto.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective duly authorized officers as of the date first above written.
MED SERVICES CORP.
By: /s/ Howard M. Rittberg
Howard M. Rittberg, Asst. Secretary
VIVAX MEDICAL CORPORATION
By: /s/ Stephen M. Fisher______
Stephen M. Fisher, President
<PAGE>
Exhibit A
Nova Beds
<PAGE>
Exhibit B
Enclosure Beds
<PAGE>
Exhibit C
Custody Agreement
<PAGE>
Exhibit D
Subscription Agreement
<PAGE>
EXHIBIT 10(40)
REVOLVING LINE OF CREDIT GRID PROMISSORY NOTE
New York, New York $1,000,000
August 7, 1998
A. TERMS OF PAYMENT
1. FOR VALUE RECEIVED, on August 7, 1998 (the "Maturity Date"), Med
Services Corp., a corporation formed under the laws of the State of Nevada,
("Borrower") promises to pay to the order of ATLANTIC BANK OF NEW YORK (the
"Bank") at its offices at 960 Avenue of the Americas, New York, New York, or at
such other place as the Bank may designate in writing, the lesser of: (a) the
principal sum of One Million and 00/100 Dollars ($1,000,000) (the "Line of
Credit"), or (b) the aggregate unpaid principal sum of all loans ("Loans") made
by the Bank, which Loans may be made in the Bank's sole discretion, under this
Revolving Line of Credit Grid Promissory Note (the "Note") from time to time.
Within the limits of the Line of Credit and subject to the terms and conditions
of this Note, including, but not limited to, mandatory prepayment pursuant to
Section 13A hereof, Borrower may borrow, prepay and reborrow funds under this
Note.
2. Interest. (a) Borrower will pay interest on the unpaid principal
amount of all Loans from time to time outstanding, computed on the basis of a
360-day year (the charging of interest on the basis of a 360-day year results in
the payment of more interest than would be required if interest were charged on
the basis of the actual number of days in the year), at a rate per annum which
shall be equal to two percent (2.0%) per annum above the rate of interest
designated by the Bank, and in effect from time to time, as its "Benchmark
Rate,"1 adjusted as and when said Benchmark Rate changes. (Borrower
acknowledges that the Benchmark Rate may not necessarily represent the lowest
rate of interest charged by the Bank to its customers.)
(b) Borrower will pay interest, at the rate described above, monthly
on the first day of each month in each year, commencing immediately, at maturity
(whether by acceleration or otherwise) and upon the making of any prepayment, as
hereinafter provided. In addition, Borrower will pay interest on any overdue
installment of principal for the period for which it is overdue, on demand, at a
rate equal to 3% per annum above the rate of interest hereinabove indicated.
All payments, including insufficient payments, shall be credited, regardless of
their designation by Borrower, first to outstanding late charges, then to
interest and the remainder, if any, to principal.
(c) All payment obligations arising under this Note and any other
documents executed pursuant hereto, are subject to the express condition that at
no time shall Borrower be obligated or required to pay interest at a rate which
could subject the Bank to either civil or criminal liability as a result of
being in excess of the maximum rate which Borrower is permitted by law to
contract or agree to pay. If by the terms of this Note, or other documents
<PAGE>
executed pursuant hereto, Borrower is at any time required or obligated to pay
interest at a rate in excess of such maximum rate, the applicable rate of
interest shall be deemed to be immediately reduced to such maximum rate, and
interest thus payable shall be computed at such maximum rate, and the portion of
all prior interest payments in excess of such maximum rate shall be applied and
shall be deemed to have been payments in reduction of principal.
3. Maximum Borrowing. Notwithstanding anything to the contrary in this
Note, the principal amount of all Loans hereunder shall not exceed sixty percent
(60%) of the purchase price to be paid by Borrower with respect to each of the
Beds (hereinafter defined) purchased from Vivax Medical Corporation ("Vivax")
pursuant to the Vivax Purchase Agreement (hereinafter defined). The proceeds of
each of the Loans, after satisfaction of the Existing Note (hereinafter
defined), shall be used exclusively for the purchase by Borrower of Beds from
Vivax pursuant to the Vivax Purchase Agreement.
4. No Obligation to Extend Credit. Notwithstanding any terms in this
Note to the contrary, the enumeration in this Note of specific obligations of
Borrower to the Bank and/or conditions to the availability of funds under this
Note shall not be construed to qualify, define, or otherwise limit the Bank's
right, power, or ability, at any time, under applicable law, to decline to make
Loans to Borrower under this Note. Borrower agrees that its breach of or
default under any such enumerated obligations or conditions is not the only
basis upon which the Bank may refuse to extend credit under this Note.
5. Use Of Grid. (a) The Bank is hereby authorized by Borrower to enter
and record on the schedule attached hereto (or any similar record maintained by
the Bank) the amount of each Loan made under this Note, and each payment and
prepayment of principal thereon without any further authorization on the part of
Borrower or any endorser of this Note. The entry of a Loan on said schedule
shall be prima facie and presumptive evidence of the entered item and its
conditions. The Bank's failure to make an entry, however, shall not limit or
otherwise affect the obligations of Borrower or any endorser of this Note. At
its option, Borrower may make prepayments of principal hereof, in whole or in
part, at any time, without penalty or premium, provided that on the date of each
such prepayment Borrower shall pay all then accrued and unpaid interest on the
principal amount hereof.
(b) Subject to extension in writing, all Loans not theretofore
accelerated shall mature on the original Maturity Date of August 6, 1999.
6. Security Interest In Property. All Property (as hereinafter defined)
held by the Bank shall be subject to a security interest in favor of the Bank as
security for any and all Liabilities (as hereinafter defined) and as security
for such Liabilities, Borrower hereby grants to the Bank a continuing perfected
interest on and security interest in, and hereby pledges and assigns to the Bank
all of Borrower's right title and interest, whether now owned or hereafter
acquired, howsoever arising, in and to the Property. The term "Property" shall
mean the balance of every deposit account of Borrower with the Bank or any of
the Bank's nominees or agents and all other obligations of the Bank or any of
its nominees or agents to Borrower, whether now existing or hereafter arising,
and all other personal property of Borrower (including without limitation all
money, accounts, general intangibles, goods, instruments, documents, and chattel
paper) which, or evidence of which, are now or at any time in the future shall
come into the possession or under the control of or be in transit to the Bank or
any of its nominees or agents for any purpose, whether or not accepted for the
purposes for which it was delivered and any and all proceeds, howsoever arising,
<PAGE>
of the property described herein. The term "Liabilities" shall mean the
indebtedness evidenced by this Note and all other indebtedness, liabilities and
obligations of any kind of Borrower (or any partnership or other group of which
Borrower is a member) to (a) the Bank, (b) any group of which the Bank is a
member, or (c) any other person or entity if the Bank has a participation or
other interest in such indebtedness, liabilities or obligations, whether (i) for
the Bank's own account or as agent for others, (ii) acquired directly or
indirectly by the Bank from Borrower or others, (iii) absolute or contingent,
joint or several, secured or unsecured, liquidated or unliquidated, due or not
due, contractual or tortious, now existing or hereafter arising, or (iv)
incurred by Borrower as principal, surety, endorser, guarantor or otherwise, and
including without limitation, all expenses, including attorneys' fees and
disbursements, incurred by the Bank in connection with any such indebtedness,
liabilities, or obligations with respect to any of the Property (including any
sale or other disposition of any Property).
7. Account Debits, Etc. Borrower and any endorser of this Note hereby
authorize (but shall not require) the Bank to debit any account maintained by
Borrower or any such endorser with the Bank (including, without limitation
Account No. 01224174) at any date on which any payments, including, without
limitation, any payment of principal, interest or fees are due under this Note,
in an amount equal to any unpaid portion of such payment. If any payment of
principal, interest or fees becomes due on a day on which the Bank is closed (as
required or permitted by law or otherwise), such payment shall be made not later
than the next succeeding business day, and such extension shall be included in
computing interest in connection with such payment. All payments by Borrower or
any endorser of this Note on account of principal, interest or fees hereunder
shall be made in lawful money of the United States of America, in immediately
available funds.
8. Use Of Proceeds. Borrower shall use the proceeds of the loans to
immediately pay the Bank all obligations owed by Borrower to the Bank under a
certain promissory note dated June 17, 1998 in the principal sum of $450,000
(the "Existing Note"). Borrower will not, directly or indirectly, use any
proceeds of Loans hereunder for the purpose of purchasing or carrying any margin
stock within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System or to extend credit to any person for the purpose of
purchasing or carrying any such margin stock, or for any purpose which violates,
or is inconsistent with, Regulation X of such Board of Governors.
B. REPRESENTATIONS AND WARRANTIES
9. Borrower represents and warrants to the Bank that:
(a) Borrower is a corporation duly incorporated and validly existing,
under the laws of the jurisdiction of its incorporation, has the corporate power
and authority to own its assets and to transact the business in which it is now
engaged or proposes to be engaged, is duly qualified as a foreign corporation
and is in good standing under the laws of each other jurisdiction in which such
qualification is required.
(b) Borrower has full power and authority to execute and deliver
this Note, to borrow funds hereunder, and to incur the obligations provided for
in this Note, all of which have been duly authorized by all proper and necessary
corporate action. No consent or approval of any person or entity, including,
<PAGE>
without limitation, any of Borrower's stockholders or creditors, or any
governmental or administrative authority, instrumentality, or agency is required
as a condition to the validity of this Note.
(c) This Note is the legal, valid and binding obligation of Borrower
enforceable against Borrower in accordance with its terms.
(d) No certificate, information, exhibit, or report furnished by
Borrower to the Bank in connection with this Note contains any material
misstatement of fact or omits to state a material fact or any fact necessary to
make the statement contained therein not materially misleading.
(e) Borrower is not in default in any material respect in the
performance, observance or fulfillment of any of the obligations, covenants, or
conditions contained in any material agreement or instrument material to its
business to which it is a party or by which it or its property may be bound.
(f) There is no pending or threatened action or proceeding against or
affecting Borrower before any court, governmental agency, or arbitrator which
may, in any one case or in the aggregate, materially and adversely affect the
financial condition, operations, prospects, property, or business of Borrower,
or the ability of Borrower to perform its obligations under this Note.
(g) One hundred percent (100%) of the issued and outstanding shares of
Borrower is owned by Jayark Corporation, Inc. ("Jayark").
(h) No Subsidiary (hereinafter defined) of Borrower exists on the date
hereof and Borrower shall not in any way create a Subsidiary without the written
consent of the Bank.
(i) No debts, guarantees, liens or contractual agreements of any kind
between or among Borrower, Jayark, Vivax, Vivax Medical Services, Inc. ("Vivax
Services") or Mediq (hereinafter defined) exist with respect to Beds except for:
(a) this Note, (b) the Security Agreement dated the date hereof between Borrower
and the Bank (the "Security Agreement"), (c) the Vivax Purchase Agreement; (d)
the Vivax Distribution Agreement (hereinafter defined); (e) the Vivax Custody
Agreement (hereinafter defined); (f) the Consignment/Rental Agreement dated
December 29, 1997 by and between Vivax and SpectraCair, a division of Mediq; and
(g) the letter agreement dated June 17, 1998 between Jayark and Vivax pursuant
to which Vivax has engaged Jayark as a private placement agent.
C. AFFIRMATIVE COVENANTS
10. (a) So long as this Note remains unpaid in whole or in part, or the
Line of Credit shall remain in effect, Borrower shall furnish to the Bank, or
cause to be furnished to the Bank, at Borrower's expense:
(i) (A) annual audited financial statements for Borrower,
Jayark, Vivax, and Vivax Services prepared by independent certified public
accountants selected by Borrower, Jayark, Vivax, and Vivax Services
respectively, and satisfactory to the Bank, (B) if not included in such audited
statements, consolidated or consolidating disclosure statements for such year
prepared by management, all within 120 days after the end of each fiscal year,
<PAGE>
all of which financial statements shall be prepared in accordance with generally
accepted accounting principles in the United States as in effect from time to
time ("GAAP"), applied consistently with prior practices, and shall include a
balance sheet, a statement of operations, a statement of cash flows and a
statement of changes in shareholders' equity; and (C) a certificate, at the time
of delivery of the annual financial statements, by the certified public
accountants that the Borrower is not in default of any obligations;
(ii) within 45 days after the end of each fiscal quarter,
quarterly financial statements for Borrower, Jayark, Vivax and Vivax Services,
prepared by management, which financial statements shall be prepared in
accordance with GAAP, applied consistently with prior practices and shall
include a balance sheet, statement of operation, a statement of cash flows, a
statement of change in shareholders' equity, and a certificate stating that each
such entity is not in default of any obligations. All such financial statements
of the Borrower and Jayark shall be signed by David Koffman;
(iii) an aging of the accounts payable and accounts receivable
of Borrower (in a format satisfactory to the Bank), within 10 days after the
close of each calendar month and at any other time when the same is provided to
any other person, such aging to include receivables including, but not limited
to, all amounts due from Vivax under a certain Distribution Agreement dated June
1, 1998 between Borrower and Vivax (the "Vivax Distribution Agreement"), and any
allowance for doubtful accounts;
(iv) within 10 days of the close of each calendar month, a
schedule (each a "Collateral Status Schedule"), in form and substance
satisfactory to the Bank and including, without limitation: (A) an
identification of each item of the Collateral (as defined in the Security
Agreement) owned by Borrower and distributed by Vivax pursuant to the Vivax
Distribution Agreement, including, without limitation, the physical location of
each item of such Collateral, any lease or sublease concerning same, and for
each such lease or sublease the name and address of the lessee or sublessee, and
the period covered by such lease or sublease, and (B) the payment terms for each
such lease or sublease and lease and sublease billings to date, and (C) amounts
due Vivax and Borrower with respect to each lease with respect to the Beds.
Each such monthly Collateral Status Schedule shall be certified by a duly
authorized officer of Borrower and Vivax as being true, correct and complete;
(vii) promptly after the filing thereof each year, copies of all
federal and state income tax returns of Borrower and Jayark;
(viii) promptly after the entry thereof, a report of any judgment
against Borrower; and
(ix) promptly after a request by the Bank, such other
financial statements and information concerning the business operations,
properties and conditions, financial or otherwise, of Borrower, Jayark, Vivax,
and Vivax Services, as the Bank may reasonably request from time to time.
(b) Borrower and Vivax shall each at all times maintain insurance
with responsible and reputable insurance companies or associations in such
amounts and covering such risks as is usually carried by companies engaged in
similar businesses and owning similar properties in the same general areas in
<PAGE>
which Borrower operates, which insurance shall comply with Section 11 of the
Security Agreement.
(c) Borrower shall at any reasonable time and from time to time,
permit the Bank or any of its agents or representatives to examine and copy its
records and books of accounts, visit its properties and discuss its affairs,
finances and accounts with any of its officers, directors or independent
accountants.
(d) Borrower shall preserve and maintain its corporate existence and
good standing in the jurisdiction of incorporation of such corporation, and
qualify and remain qualified, as a foreign corporation in each jurisdiction in
which such qualification is required.
(e) Borrower shall comply in all material respects with all material
contracts to which it is a party and with all applicable laws, rules,
regulations, and orders, such compliance to include, without limitation, paying
before the same become delinquent all taxes, assessments, and governmental
charges imposed upon it and its property.
(f) Borrower shall promptly notify the Bank of any of the following:
(i) any proceeding being instituted or threatened to be instituted by or against
Borrower or, to the extent Borrower has actual knowledge, against Vivax, Vivax
Services, Mediq, or any lessee or sublessee of the Beds, in any federal, state,
local or foreign court or before any commission or other regulatory body
(federal, state, local or foreign), (ii) any order, judgment or decree being
entered against Borrower or, to the extent Borrower has actual knowledge,
against Vivax, Vivax Services, Mediq, or any lessee or sublessee of the Beds,
or any of their property or assets, (iii) any actual or prospective change,
development or event which has had or could reasonably be expected to have a
material adverse effect, on the affairs or condition (financial or otherwise) of
Borrower or, to the extent Borrower has actual knowledge, of Vivax, Vivax
Services, Mediq, or any lessee or sublessee of the Beds, or (iv) the occurrence
of a default or Event of Default hereunder.
(g) Borrower shall take all such further actions and execute all such
further documents and instruments as the Bank may at any time reasonably
determine, in its sole discretion, to be necessary or desirable to further
inform the Bank or to further or better carry out and consummate the
transactions contemplated by this Note and the other documents, instruments and
agreements executed or delivered in connection herewith. If the Bank requests,
Borrower shall cause any Subsidiary created hereafter to become a co-borrower
hereunder or a guarantor of this Note, and to pledge any collateral required by
the Bank to secure such Subsidiary's obligations, all pursuant to a guaranty in
form acceptable to the Bank and other documentation substantially the same as
this Note, the Security Agreement and the other documents made in connection
herewith and reasonably acceptable to the Bank.
(h) All proceeds of the Loans, after satisfaction of the Existing
Note, shall be used exclusively for the purchase of "Nova Beds" and/or
"Enclosure Beds" from Vivax, pursuant to a certain Purchase and Sale Agreement
dated as of June 1, 1998 (the "Vivax Purchase Agreement") [the terms "Nova Beds"
and "Enclosure Beds" are defined in the Vivax Purchase Agreement, and shall be
collectively referred to as the "Beds"].
<PAGE>
(i) Borrower shall maintain all of its savings and checking accounts
at the Bank.
(j) Borrower shall, at its sole expense, cause labels or a permanent
stamp to be permanently affixed to each of the Beds, which label or stamp shall
clearly indicate that such Bed is "Exclusively Owned By Med Services Corp." and
indicating Borrower's business address.
(k) Borrower shall not permit Vivax, Vivax Services, Mediq or any
other person or entity to enter into any lease or agreement with respect to the
Beds, unless: (i) with respect to Beds distributed by Vivax, such lease or
agreement is substantially in the form of Exhibit 1 to the Security Agreement,
or, with respect to Beds distributed by Mediq, such lease or agreement is
substantially in the form of Exhibit 2 to the Security Agreement; and (ii)
Borrower and Vivax each files a Uniform Commercial Code financing statement with
respect to such Beds in every state and county where the Beds are located.
(l) Borrower shall not permit Vivax or Mediq to have rented an
aggregate of greater than 5% of the Beds at any one time directly to natural
persons.
11. In addition to the above affirmative covenants, so long as this Note
remains unpaid or the Line of Credit shall remain in effect, Borrower agrees
that it shall at Borrower's sole expense, permit the Bank to, at any time and
from time to time, retain and employ the services of a certified public
accountant selected by the Bank, to conduct a field audit of Borrower's accounts
receivable or rights under the Vivax Distribution Agreement, if deemed necessary
by the Bank.
D. CONDITIONS PRECEDENT
12. In connection with the making of any Loan to Borrower, the Bank shall
have received on or before the date of the making of any such Loan any opinions,
assurances, searches, continuations and/or like items, and any subordination
agreements and other agreements as the Bank shall request. Among other things,
in connection with the first Loan hereunder, the Bank shall have received the
following, in form and substance satisfactory to the Bank and the Bank's
counsel:
(i) certified (as of the date of this Note) copies of all corporate
action taken by Borrower, including resolutions of its Board of Directors,
authorizing the execution, delivery, and performance under this Note and each
other document to be delivered pursuant thereto;
(ii) a certificate of incorporation of Borrower, a certificate of
good standing of Borrower, and a certificate (dated as of the date of this Note)
of the Secretary of Borrower certifying the names and true signatures of the
officers of Borrower authorized to sign the documents to be delivered in
connection herewith;
(iii) a Security Agreement granting the Bank a security interest
in all of Borrower's assets duly signed by an authorized officer of Borrower,
together with financing statements (UCC-1s) relating thereto;
<PAGE>
(iv) an endorsement for each of Borrower's insurance policies
naming the Bank as loss payee and an additional insured with respect to the Beds
purchased by Borrower and any other tangible personable property of Borrower;
(v) a subordination agreement with respect to any indebtedness
or obligations of Borrower to Vivax;
(vi) a copy of an invoice for the Beds purchased pursuant to the Vivax
Purchase Agreement, and the amount borrowed hereunder shall not exceed sixty
percent (60%) of such purchase price, and Jayark shall have paid in to Borrower
as equity an amount equal to twenty percent (20%) of such purchase price,
inclusive of all shipping and installation charges with respect to the Beds.
(vii) copies of the Vivax Purchase Agreement, the Vivax
Distribution Agreement and all other agreements between: (a) Vivax and Mediq/PRN
Life Support Services, Inc. ("Mediq"); (b) Vivax and Borrower; and (c) Vivax
and/or Mediq and any other person or entity concerning any of the "Nova Beds" or
"Enclosure Beds".
(viii) a letter from each of the secured creditors of Vivax and
Vivax Services releasing such creditors' liens on and security interests in the
Beds;
(ix) evidence that a notice has been sent to all creditors of Mediq
having a security interest in inventory and/or equipment notifying them that
Mediq shall receive possession of Beds on consignment from Vivax;
(x) a Custody Agreement among the Bank, Vivax, and Borrower, (the
"Vivax Custody Agreement") pursuant to which, among other things: (a) the Bank
shall be irrevocably appointed the custodian with respect to all rental income
from Borrower's Beds, (b) Vivax shall grant to the Bank a first lien on all
monies received by the Bank to secure Vivax's obligations under the Vivax
Custody Agreement and the right, upon an Event of Default, to apply such monies
against any of the claims of the Bank pursuant to the Vivax Custody Agreement,
as determined by the Bank, (c) the Bank may make distributions to Borrower and
Vivax, and (d) the Bank shall be entitled to a custodian's fee (in addition to
all other fees and amounts due the Bank hereunder);
(xi) satisfaction in full of the Borrower's obligations under the
Existing Note; and
(xii) the Vivax Distribution Agreement shall have been executed by
all parties and shall provide, among other things, that Vivax shall rent all
Beds owned by Borrower prior to renting any Beds owned by any other entity.
E. NEGATIVE COVENANTS
13. So long as this Note remains unpaid or the Line of Credit shall remain
in effect, Borrower shall not:
<PAGE>
(a) incur, create, assume or suffer to exist any indebtedness for
borrowed money or any goods or services provided on credit, other than
indebtedness evidenced by this Note, and indebtedness to Vivax pursuant to the
Vivax Purchase Agreement in the minimum amount of twenty percent (20%) of the
purchase price of the Beds and which is subordinate to the claims of the Bank,
without prior notice to and consent of the Bank;
(b) guaranty, endorse or otherwise become liable for the payment or
performance of the obligations of any other person or entity, except for the
endorsement of negotiable instruments in the ordinary course of business,
without prior notice to and consent of the Bank;
(c) create, incur, assume or suffer to exist any lien, encumbrance,
security interest, charge or mortgage (collectively "Liens") on any of its
property now owned or hereafter acquired except (i) Liens granted to the Bank;
(ii) Liens arising by operation of law for amounts that are not yet due and
payable or which are being diligently contested in good faith by Borrower, so
long as adequate reserves are maintained by Borrower for their payment, (iii)
deposits or pledges to secure obligations under workmen's compensation, social
security or similar laws, or under unemployment insurance, and (iv) deposits or
pledges to secure bids, tenders, contracts (other than contracts for the payment
of money), leases, statutory obligations, surety and appeal bonds and other
obligations of like nature arising in the ordinary course of business, without
prior notice to and consent of the Bank;
(d) sell, lease, assign, transfer or otherwise dispose of any of its
assets or properties other than pursuant to the Vivax Distribution Agreement;
(e) (i) acquire the capital stock or assets of any other business,
(ii) purchase any of its own outstanding stock, or (iii) lend or advance credit,
property or money to any person;
(f) make any distribution of any kind to any officers, directors,
shareholders of Borrower or to Jayark or any other affiliate of Borrower;
provided however, if no Event of Default has occurred Borrower: (i) may
distribute up to $5,000 to Jayark on the last day of each calendar month to
reimburse Jayark for overhead expenses related to Borrower; (ii) may, pursuant
to a letter agreement between Borrower and Peter Rinfret dated June 12, 1998,
pay Peter Rinfret a fee equal to two (2%) percent of the "gross rental income"
as described in and on the terms and conditions of such letter agreement; and
(iii) may make other distributions to Jayark, but only to the extent that the
cash balance of Borrower at an account maintained with the Bank, measured both
before and after giving effect to such contemplated distribution to Jayark,
exceeds $315,000.
F. PAYMENT IN THE EVENT BEDS ARE REPURCHASED BY VIVAX
13A. In the event Vivax repurchases Beds from Borrower, pursuant to the
Vivax Distribution Agreement, Borrower shall pay the Bank such amount as is
equal to the gross purchase price per unit as set forth in paragraphs 14 and 15
of the Vivax Distribution Agreement by Vivax for all such Beds, which payment
shall be applied to the Liabilities in such order of priority as Borrower shall
determine in its sole discretion.
G. EVENTS OF DEFAULT
<PAGE>
14. If any of the following events (each an "Event of Default") shall
occur and be continuing:
(a) Borrower shall fail to make any payment of principal or interest
on this Note, or any fee provided for herein, when due;
(b) Borrower shall default in the performance or observance of any
covenant or agreement contained herein, except that with respect to paragraph
10(a) of Section C hereof the Borrower shall have a grace period of 10 days
after notice of a default thereunder in which to cure such default before an
Event of Default will be deemed to have occurred;
(c) any representation or warranty made by or on behalf of Borrower
in this Note or in any other certificate, agreement, instrument, or statement
delivered to the Bank by or on behalf of Borrower shall at any time prove to
have been incorrect when made in any material respect;
(d) an event of default or default shall occur and be continuing
under any other agreement, document or instrument executed and delivered to the
Bank by Borrower or any endorser, guarantor or hypothecator relating to any
Liabilities;
(e) Borrower shall default in the payment of principal or interest on
any indebtedness for borrowed money (including any such indebtedness in the
nature of a lease) or shall default in the performance or observance of the
terms of any instrument pursuant to which such indebtedness was created or is
secured, the effect of which default is to cause or permit any holder of any
such indebtedness to cause the same to become due prior to its stated maturity
(and whether or not such default is waived by the holder thereof);
(f) Borrower or any of Borrower's officers, employees, or assets
shall be indicted for, or become a defendant in any civil or criminal proceeding
relating to racketeering activity or any other offense, a potential penalty for
which is forfeiture of all or any part of Borrower's assets to any federal or
state government or agency or any instrumentality thereof;
(g) any change in the condition or affairs (financial or otherwise)
of Borrower shall occur which, in the opinion of the Bank, increases its risk
with respect to any Liabilities or impairs any security therefor;
(h) any judgment against Borrower, Vivax, Vivax Services, Mediq or
any lessee of Beds, or any attachment, levy or execution against any of their
properties for any amount shall remain unpaid, or shall not be released,
discharged, dismissed, stayed or fully bonded for a period of thirty (30) days
or more after its entry, issue or levy, as the case may be;
(i) Borrower, Vivax, Vivax Services, Mediq or any lessee or sublessee
of the Beds (which lessee or sublessee is in possession of five (5) or more
Beds), shall become insolvent (however evidenced) or be unable, or admit in
writing its inability, to pay its debts as they mature;
<PAGE>
(j) Borrower, Vivax, Vivax Services, Mediq or any lessee or
sublessee of the Beds (which lessee or sublessee is in possession of five (5) or
more Beds), shall make an assignment for the benefit of creditors, or a trustee,
receiver or liquidator shall be appointed for Borrower, Vivax, Vivax Services,
or Mediq or for any of their property;
(k) the commencement of any proceedings by Borrower, Vivax, Vivax
Services, Mediq or any lessee or sublessee of the Beds (which lessee or
sublessee is in possession of five (5) or more Beds), under any bankruptcy,
reorganization, arrangement of debt, insolvency, readjustment of debt,
receivership, liquidation or dissolution law or statute, or the commencement of
any such proceedings without the consent of Borrower, Vivax, Vivax Services,
Mediq or any lessee or sublessee of the Beds, where such proceedings shall
continue undischarged for a period of twenty (20) days;
(l) David Koffman shall cease to be active in the day-to-day
management of Borrower;
(m) without the Bank's prior written consent (which shall not be
unreasonably withheld in the event of a transfer to a Koffman family member or
to an entity which the Bank in good faith determines to be controlled by Koffman
family members), Jayark shall cease to own one hundred percent (100%) of the
issued and outstanding shares of Borrower;
(n) a daily average of at least twenty percent (20%) of the Beds
purchased by Borrower under the Vivax Purchase Agreement shall not have been
rented out to end users of such Beds, during any fiscal quarter of Borrower, at
rates at least as high as specified in the Vivax Distribution Agreement; or
(o) any material breach shall occur with respect to any contract
between (i) Vivax and Borrower, including, but not limited to, the Vivax
Distribution Agreement, the Vivax Custody Agreement, and the Vivax Purchase
Agreement; (ii) Vivax and Mediq concerning the Beds; (iii) Mediq and Borrower;
or (iv) Vivax or Mediq and any lessee or sublessee of the Beds.
then, and in any such event, the Bank may declare the entire unpaid principal
amount of this Note and all interest and fees accrued and unpaid hereon to be
immediately due and payable (except with respect to any Event of Default
described above in paragraphs (i), (j), or (k) above, in which case the entire
unpaid principal amount of this Note and all interest and fees accrued and
unpaid hereon shall be automatically due and payable, without any further action
on the Bank's part), whereupon the same shall become and be forthwith due and
payable, without presentment, demand, protest or notice of any kind, all of
which are hereby expressly waived by Borrower. The balance of every account of
Borrower with, and each claim of Borrower against, the Bank existing from time
to time shall be subject to a lien and subject to be set off against any and all
Liabilities, including, but not limited to, those under Section 6 hereof.
H. MISCELLANEOUS
15. Definitions. (a) For purposes of this Note, the term "Subsidiary"
shall mean and include any corporation or other entity, if any, of which more
than 50% of the outstanding shares of capital stock having ordinary voting power
to elect a majority of the Board of Directors of such corporation (irrespective
<PAGE>
of whether or not at the time capital stock of any other class or classes of
such corporation shall or might have voting power upon the occurrence of any
contingency), or the equivalent for a partnership, limited liability company, or
other entity, is at the time, directly or indirectly, owned by Borrower or by
one or more other Subsidiaries.
(b) Terms such as "herein" or "hereof" or "hereunder" as used in this
Note are deemed to be references to this Note as a whole and not necessarily to
any particular portion of this Note.
16. Governing Law. This Note shall be shall be governed by, and construed
in accordance with, the laws of the State of New York, without regard to its
rules on conflicts of laws.
17. Notices, Etc. All notices and other communications provided for under
this Note shall be in writing (including telegraphic, telex, and facsimile
transmissions) and mailed or transmitted or delivered, if to Borrower, at 300
Plaza Drive, Vestal, New York 13850, Attn: David Koffman, and if to the Bank, at
its address at Atlantic Bank of New York, 960 Avenue of the Americas, New York,
New York 10001, Attention: Corporate Lending Department, or, as to each party,
at such other address as shall be designated by such party in a written notice
to the other party complying as to delivery with the terms of this paragraph.
Except as otherwise provided in this Note, all such notices and communications
shall be effective when deposited in the mails or delivered to the telegraph
company, or sent, answer back received, respectively, addressed as aforesaid,
except that notices to the Bank shall not be effective until received by the
Bank.
18. No Waiver. No failure or delay on the part of the Bank in exercising
any right, power, or remedy hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any such right, power, or remedy
preclude any other or further exercise thereof or the exercise of any other
right, power, or remedy hereunder. The rights and remedies provided herein are
cumulative, and are not exclusive of any other rights, powers, privileges, or
remedies, now or hereafter existing, at law or in equity or otherwise.
19. Costs And Expenses. Borrower shall reimburse the Bank for all costs
and expenses incurred by the Bank (including without limitation the reasonable
fees and disbursements of counsel to the Bank) in connection with the
negotiation, preparation, execution, delivery or enforcement of this Note, or
any document, instrument or agreement relating thereto, and the administration
of the Line of Credit and the Loans made hereunder. Borrower shall also pay any
and all taxes (other than taxes on or measured by net income of the holder of
this Note) incurred or payable in connection with the execution and delivery of
this Note.
20. Amendments. No amendment, modification, or waiver of any provision of
this Note nor consent to any departure by Borrower therefrom shall be effective
unless the same shall be in writing and signed by the Bank, and then such waiver
or consent shall be effective only in the specific instance and for the specific
purpose for which given.
21. Successors And Assigns. This Note shall be binding upon Borrower and
its successors and assigns and the terms hereof shall inure to the benefit of
the Bank and its successors and assigns, including subsequent holders hereof.
<PAGE>
22. Severability. The provisions of this Note are severable, and if any
provision shall be held invalid or unenforceable in whole or in part in any
jurisdiction, then such invalidity or unenforceability shall not in any manner
affect such provision in any other jurisdiction or any other provision of this
Note in any jurisdiction.
23. Entire Agreement. This Note sets forth the entire agreement of
Borrower and the Bank with respect to this Note and may be modified only by a
written instrument executed by Borrower and the Bank.
24. Note Not Effective Until Approved By Bank. This Note shall not be
effective until the Bank confirms its approval of this Note below.
25. Headings. The headings herein are for convenience only and shall not
limit or define the meaning of the provisions of this Note.
26. Jurisdiction; Service Of Process. Borrower agrees that in any action
or proceeding brought on or in connection with this Note (i) the Supreme Court
of the State of New York for the County of New York, or (in a case involving
diversity of citizenship) the United States District Court of the Southern
District of New York, shall have jurisdiction of any such action or proceeding,
(ii) service of any summons and complaint or other process in any such action or
proceeding may be made by the Bank upon Borrower by registered or certified mail
directed to Borrower at its address referenced in paragraph 17 above, Borrower
hereby waiving personal service thereof, and (iii) within thirty (30) days after
such mailing Borrower shall answer to any summons and complaint or other
process, and should Borrower fail to answer within said thirty (30) day period,
it shall be deemed in default and judgment may be entered by the Bank against
Borrower for the amount as demanded in any summons or complaint or other process
so served.
27. Facility Fee. Borrower agrees to pay the Bank a facility fee of: (i)
$5,000 on the date hereof (the "Initial Fee"); and (ii) an additional fee (the
"Percentage Fee") on the Maturity Date equal to one percent (1%) of the average
daily balance of the amounts borrowed under this Note less $5,000 (but in no
event shall Borrower be entitled to any credit or return of any monies in the
event the Percentage Fee is a negative number), in addition to all interest,
commissions, charges, costs and expenses of every kind set forth herein or in
any other instrument or document which have been or may hereafter be executed by
Borrower and delivered to the Bank. The payment of the Initial Fee and the
Percentage Fee is unconditional and non-refundable, in whole or in part, for any
reason whatsoever.
28. WAIVER OF THE RIGHT TO TRIAL BY JURY. BORROWER AND, BY ITS ACCEPTANCE
HEREOF, THE BANK, HEREBY IRREVOCABLY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY
ACTION, PROCEEDING, CLAIM, OR COUNTERCLAIM, WHETHER IN CONTRACT OR TORT, AT LAW
OR IN EQUITY, IN ANY MANNER CONNECTED WITH THIS NOTE OR ANY TRANSACTIONS
HEREUNDER. NO OFFICER OF THE BANK HAS AUTHORITY TO WAIVE, CONDITION, OR MODIFY
THIS PROVISION.
<PAGE>
29. Waiver of Presentment, etc. Borrower hereby waives presentment for
payment, demand, protest and notice of protest and of non-payment.
MED SERVICES CORP.
By: /s/ David L. Koffman
DAVID L. KOFFMAN
Title: President
Date: August 7, 1998
ACCEPTED BY
ATLANTIC BANK OF NEW YORK:
By: /s/ Paula Park
Name: Paula Park
Title: Vice President
Date: August 7, 1998
<PAGE>
SCHEDULE TO NOTE
Borrower: Med Services Corp. Date of Note: August 7, 1998
AMOUNT OF AMOUNT OF UNPAID PRINCIPAL NAME OF PERSON
DATE LOAN OR L/C PRINCIPAL REPAID BALANCE OF NOTE MAKING NOTATION
<PAGE>
EXHIBIT 10(41)
SECURITY AGREEMENT
SECURITY AGREEMENT dated as of August 7, 1998 between MED SERVICES CORP., a
Nevada corporation, (the "Grantor") and ATLANTIC BANK OF NEW YORK, a New York
banking corporation (the "Bank").
W I T N E S S E T H:
WHEREAS, the Grantor has entered into the Revolving Line of Credit Grid
Promissory Note dated as of the date hereof (as the same may from time to time
be amended, extended, supplemented, restated or otherwise modified or replaced,
the "Note"; capitalized terms used herein, and not otherwise defined herein, are
used with the meanings ascribed to them in the Note) between the Grantor and the
Bank, pursuant to which the Grantor has agreed to grant, assign and pledge to
the Bank, for the benefit of the Bank, a first priority security interest in and
to all of its respective rights, properties and assets referred to herein to
secure all of the Obligations (as hereinafter defined); and
WHEREAS, as a condition precedent to making any of the Loans to the Grantor
pursuant to the Note, the Bank has required the Grantor to grant, and the
Grantor has agreed to grant, to the Bank a continuing first and prior security
interest in and to all property, rights and interests in all property of the
Grantor to secure all obligations and liabilities of any kind whatsoever of the
Grantor;
NOW, THEREFORE, the Grantor, intending to be bound hereby, in consideration
of the premises hereof, in order to induce the Bank to enter into the Note with
the Grantor and to make Loans as aforesaid, and in consideration of any Loans so
made, and for other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, hereby agrees with, and for the benefit of,
the Bank as follows:
1. Grant of Security Interest. The Grantor, to secure the Obligations,
hereby assigns, pledges and grants to the Bank, a continuing first and prior
security interest in and to all of the Grantor's rights, title and interests in
and to all of the following, whether now owned or existing or hereafter acquired
or arising and regardless of where located and all products, proceeds,
substitutions, accessions and replacements thereof (all of the same being herein
referred to as the "Collateral"):
(A) ACCOUNTS: All present and future accounts, receivables and
contract rights, including, but not limited to, the Grantor's rights to receive
any payments under a certain Distribution Agreement (the "Vivax Distribution
Agreement") dated as of June 1, 1998, between the Borrower and Vivax Medical
Corporation ("Vivax"), or any payments under any and all leases providing for
the use of real or personal property ("Leases") and/or employment agreements and
"non-compete" agreements to which the Grantor is a party, chattel paper,
instruments, documents, general intangibles and other rights to payment of any
kind now or hereafter existing arising out of or in connection with the sale or
lease of goods, merchandise or inventory or the rendering of services,
including, without limitation, those which are not evidenced by instruments or
chattel paper and whether or not they have been earned by performance; all
proceeds of any letters of credit or insurance policies on which the Grantor is
<PAGE>
now (or may hereafter be) named as beneficiary; all claims against any third
parties for advances or other financial accommodations or any other obligations
whatsoever owing to such Grantor; all rights now or hereafter existing in and to
all security agreements, leases, documents of title and other contracts
securing, evidencing or otherwise relating to any such accounts, contract
rights, chattel paper, instruments, documents, general intangibles, other rights
of payment or proceeds or to any such claims against third parties, together
with all rights in any returned or repossessed goods, merchandise and inventory;
and all right, title, security and guaranties with respect to each of the
foregoing, including, without limitation, any right of stoppage in transit (any
and all such accounts, contract rights, chattel paper, instruments, documents,
rights of payment, proceeds, claims and rights being hereinafter referred to as
the "Accounts", and any and all such Leases, other leases, security agreements,
guaranties and other contracts being hereinafter referred to collectively as the
"Account Contracts");
(B) INVENTORY: All goods, merchandise and other personal property
furnished or to be furnished under any contract of service or intended for sale
or lease, including, without limitation, all Nova Beds and Enclosure Beds (as
such terms are defined in the Purchase and Sale Agreement dated as of June 1,
1998 between the Grantor and Vivax (the "Vivax Purchase Agreement"); whole
goods, spare parts, components, supplies, materials and consigned goods; all raw
materials, work-in-process, finished goods or materials or supplies of any kind,
nature or description, used or consumed in the Grantor's businesses or which
might be used in connection with the manufacture, assembling, packing, shipping,
advertising, selling or finishing of such goods, merchandise and personal
property; all returned or repossessed goods; and all documents of title or
documents evidencing the same; in each instance whether now owned or hereafter
acquired by the Grantor and wherever located, whether in the possession of the
Grantor or of a bailee or other person for sale, storage, transit, processing,
use or otherwise (all of the foregoing, collectively, being the "Inventory");
(C) EQUIPMENT: All machinery, equipment and fixtures, including,
without limitation, all manufacturing, assembling, packaging, distribution,
selling, data processing and office equipment, all furniture, furnishings,
appliances, trade fixtures, tools, tooling, molds, dies, vehicles, vessels and
all other goods of every type and description (other than Inventory), all
computer and other electronic data processing hardware, whether owned, licensed
or leased by the Grantor, including without limitation, all integrated computer
systems, central processing units, memory units, display terminals, printers
features, computer elements, card readers, tape drivers, hard and soft disk
drives, cables, electrical supply hardware, generators, power equalizers,
accessories and all peripheral devices and other related computer hardware and
all parts thereof and all accessions
thereto, and all substitutions therefor and replacements thereof, in each
instance whether now owned or hereafter acquired by the Grantor and wherever
located (all of the foregoing, collectively, being the "Equipment");
<PAGE>
(D) GENERAL INTANGIBLES: All rights, interests, choses in action,
causes of actions, claims and all other intangible property of the Grantor of
every kind and nature (other than Accounts) in each instance whether now owned
or hereafter acquired by the Grantor, including, without limitation, all
corporate and other business records; all loans, royalties, and other
obligations receivable including, without limitation, pursuant to the Vivax
Distribution Agreement, all trademarks, non-compete agreements, service marks,
trademark applications, patents, patent applications, tradenames, fictitious
names, inventions, designs, trade secrets, computer programs, computer source
codes, software and software programs, whether owned, licensed or leased by the
Grantor, designed for use on any of the Equipment (including, without
limitation, all operating system software, utilities and application programs in
whatever form (source code and object code in magnetic tape, disk or hard copy
format or any other listings whatsoever), all firmware associated with any
computer hardware or software, whether owned, licensed or leased by the Grantor,
printouts and other computer materials (including, without limitation, all
documentation for all computer hardware, software or firmware of the Grantor,
whether owned, licensed or leased by the Grantor, including but without
limitation, flow charts, logic diagrams, manuals, specifications, training
materials, charts and pseudo codes), goodwill (including, without limitation,
goodwill symbolized by the trademarks, tradenames and service marks of or owned
by the Grantor), registrations, copyrights, copyright applications, permits,
licenses, franchises, customer lists, credit files, correspondence, and
advertising materials; all existing or hereafter created or acquired materials
and know-how in relation to the research and development of the Inventory and
any future product lines; all customer and supplier contracts, firm sale orders,
rights under license and franchise agreements, and other contracts and contract
rights (including, but not limited to, all Leases, and the Grantor's rights
under any and all employment agreements and "non-compete" agreements to which it
is a party); all interests in any corporations, partnerships, limited liability
companies and joint ventures; all tax refunds and tax refund claims; all right,
title and interest under licenses and concessions and other agreements relating
to real or personal property; all payments due or made to the Grantor in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of any property by any person or governmental authority; all deposit
accounts (general or special) with any bank or other financial institution; all
credits with and other claims against third parties (including carriers and
shippers); all rights to indemnification; all reversionary interests in pension
and profit sharing plans and reversionary, beneficial and residual interest in
trusts; all proceeds of insurance of which the Grantor is a beneficiary; and all
letters of credit, guaranties, liens, security interests and other security held
by or granted to the Grantor; and all other intangible property, whether or not
similar to the foregoing; in each instance, whether now or hereafter existing
and however and wherever arising and all renewals thereof (all of the foregoing,
collectively, being the "General Intangibles");
(E) CHATTEL PAPER, INSTRUMENTS AND DOCUMENTS: All chattel paper, all
instruments, all bills of lading, warehouse receipts and other documents of
title and documents, in each instance whether now owned or hereafter acquired by
the Grantor; and
(F) OTHER PROPERTY: All other property or interests in property now
owned or hereafter acquired by the Grantor which now may be owned or hereafter
may come into the possession, custody or control of the Bank, or any other
agents or affiliates of the Bank in any way or for any purpose (whether for
safekeeping, deposit, custody, pledge, transmission, collection or otherwise);
and all rights and interests of the Grantor, now existing or hereafter arising
and however and wherever arising, in respect of any and all (i) notes, drafts,
<PAGE>
letters of credit, stocks, bonds, and debt and equity securities, whether or not
certificated, and any "Commodity Account", "Commodity Contract", "Investment
Property", "Security Entitlement" and "Securities Account" (as those terms are
defined in the New York Uniform Commercial Code, as amended the "UCC") and
warrants, options, puts and calls and other rights to acquire or otherwise
relating to the same; (ii) money; (iii) proceeds of loans, advances and other
financial accommodations, including, without limitation, loans, advances and
other financial accommodations, including, without limitation, Loans made
pursuant to the Note; and (iv) insurance proceeds and books and records relating
to any of the Collateral covered by this Security Agreement; together, in each
instance, with all accessions and additions thereto, substitutions therefor, and
replacements, proceeds and products thereof.
2. Security for Obligations. This Security Agreement secures the full and
prompt payment and performance when due of (a) all obligations and liabilities
of the Grantor to the Bank now or hereafter existing under the Note, whether for
principal, interest, fees, indemnification, expenses or otherwise, (b) all
obligations and liabilities of the Grantor now or hereafter existing under this
Security Agreement, (c) all obligations and liabilities of the Grantor to the
Bank now or hereafter existing under any of the other documents with respect to
the Note (the "Loan Documents") to which the Grantor is a party, and (d) all
other obligations, liabilities, covenants and duties owing to the Bank from or
by the Grantor of any kind or nature, present or future, whether or not
evidenced by any note, guaranty or other instrument, including, but not limited
to, those arising under the Note or any of the other Loan Documents, whether
direct or indirect (including those acquired by assignment), absolute or
contingent, due or to become due, now existing or hereafter arising and however
acquired (all such obligations and liabilities of the Grantor described in the
foregoing clauses (a), (b), (c) and (d) above being hereinafter collectively
referred to as the "Obligations"). The Grantor and the Bank, hereby agree that
they intend the security interests hereby granted to attach upon the execution
of this Security Agreement.
3. Grantor Remains Liable. Anything herein to the contrary
notwithstanding, (a) the Grantor shall remain liable under any contracts and
agreements included in the Collateral to the extent set forth therein to perform
all of its duties and obligations thereunder to the same extent as if this
Security Agreement had not been executed, (b) the exercise by the Bank of any of
the rights hereunder shall not release the Grantor from any of its duties or
obligations under any contracts and agreements included in the Collateral, and
(c) the Bank shall have no obligation or liability under any contracts and
agreements included in the Collateral by reason of this Security Agreement, nor
shall the Bank be obligated to perform any of the obligations or duties of the
Grantor thereunder or to take any action to collect or enforce any claim for
payment assigned hereunder.
4. Further Assurances. (a) The Grantor hereby agrees that from time to
time, at the expense of the Grantor, the Grantor will promptly execute and
deliver all further instruments and documents, and take all further action, that
may be necessary or appropriate, or that the Bank may request, in order to
create, evidence, perfect or preserve any security interest granted or purported
to be granted hereby or to enable the Bank to exercise and enforce its rights
and remedies hereunder with respect to any Collateral. Without limiting the
generality of the foregoing, the Grantor will: (i) at the written request of the
Bank upon the occurrence and continuation of an Event of Default, mark
conspicuously each chattel paper included in the Accounts and each Account
Contract, (ii) at the written request of the Bank upon the occurrence and
continuation of an Event of Default, mark conspicuously each of its records
pertaining to the Collateral, with a legend, in form and substance satisfactory
to the Bank, indicating that such chattel paper, Account Contract or other
<PAGE>
Collateral is subject to the security interest granted hereby; (iii) at the
written request of the Bank upon the occurrence and continuation of an Event of
Default, if any Account shall be evidenced by a promissory note or other
instrument or chattel paper, deliver and pledge to the Bank such note,
instrument or chattel paper duly endorsed and accompanied by duly executed
instruments of transfer or assignment, all in form and substance satisfactory to
the Bank; and (iv) execute and file such financing or continuation statements,
or amendments thereto, and such other instruments or notices (including, without
limitation, any filings with the United States Copyright Office and/or the
United States Patent and Trademark Office or in any similar or other office or
agency of the United States or any State thereof or in any other appropriate
jurisdiction), as may be necessary or desirable, or as the Bank may in good
faith request, in order to create, evidence, perfect or better preserve the
security interests granted or purported to be granted hereby.
(b) The Grantor hereby authorizes the Bank to file one or more
financing or continuation statements, and amendments thereto, (including,
without limitation, any filings with the United States Copyright Office and/or
the United States Patent and Trademark Office or in any similar office or other
agency of the United States or any State thereof or in any other appropriate
jurisdiction) relative to all or any part of the Collateral without the
signature of the Grantor, where permitted by law. The Grantor hereby agrees
that a carbon, photographic, photostatic or other reproduction of this Security
Agreement or of a financing statement is sufficient as a financing statement
where permitted by law.
(c) The Grantor will furnish to the Bank from time to time
statements and schedules further identifying and describing the Collateral and
the locations where the Collateral is moved to in accordance with Section 10(a)
hereof, and permitting the Bank to determine the places where it needs to file
any financing statement, and such other reports in connection with any or all of
the Collateral, in form and substance satisfactory to the Bank, as the Bank may
reasonably request, all in reasonable detail; and the Grantor will permit the
Bank, by any of its officers, employees and/or designated agents, at any time or
times during the Grantor's usual business hours, to inspect and/or conduct
audits with respect to the Collateral, at Grantor's expense.
(d) If the Bank so requires, the Grantor will join in and cause
any person with whom the Grantor maintains any Commodity Account or Securities
Account, to join in "control agreements" with respect to such Commodity Account
and/or Securities Account, which agreements shall be in form and substance
reasonably acceptable to the Bank.
5. Representations and Warranties: General. The Grantor hereby
acknowledges and agrees that all the representations and warranties made by the
Grantor in the Note and any other Loan Documents to which it is a party are
incorporated herein and made a part hereof as if fully set forth herein and
shall ipso facto be deemed to have been made by the Grantor to the Bank
hereunder. Without limiting the generality of the foregoing, the Grantor hereby
represents and warrants as follows:
(a) The principal place of business and chief executive office of the
Grantor is located at the address identified as such on Schedule A attached
hereto and all records concerning the Accounts, Leases and all originals of all
chattel paper which evidence the Accounts are located at the addresses specified
in said Schedule A and made a part hereof.
<PAGE>
(b) All of the Inventory and Equipment are located at the places
specified in Schedule B attached hereto and made a part hereof, except for
Inventory and Equipment in transit between such locations and Inventory and
Equipment located at vendors or distributors of the Grantor identified with
particularity on said Schedule B as being Inventory. To the best of the
Grantor's knowledge, the state and county in which each person in possession of
any of the Inventory or Equipment (each such person being a "Bailee") conducts
business is set forth in said Schedule B. With respect to Beds distributed by
Vivax, any lease or agreement for such Beds shall be substantially in the form
of Exhibit 1 hereto. With respect to Beds distributed by Mediq, any lease or
agreement for such Beds shall be substantially in the form of Exhibit 2 hereto.
(c) The Grantor has good, indefeasible and merchantable title to the
Collateral. The Grantor owns the Collateral free and clear of any lien,
security interest, charge or encumbrance, except for the security interests in
favor of the Bank created by this Security Agreement, and the temporary rights
of third parties to rent the Beds pursuant to leases with respect to the Beds to
be entered into by Vivax and Mediq.
(d) This Security Agreement, together with actions heretofore taken
and the proper filing of the UCC financing statements executed by the Grantor in
favor of the Bank on the date hereof, creates a valid and perfected first
priority security interest in the Intellectual Property (to the extent such a
security interest can be perfected by compliance with the UCC) and the other
Collateral of the Grantor located in or arising from the United States, securing
the payment of the Obligations of the Grantor, and all filings and other actions
necessary to create, evidence, perfect and preserve such security interest (save
for the timely filing of such UCC-1 financing statements and all continuation
statements or other statements required by applicable law) have been duly taken.
(e) The correct name of the Grantor is as set forth in the
introduction hereto and the Grantor has no other company names or fictitious
names and has not, during the immediately preceding five (5) years, been known
under or used any other company or fictitious names.
6. Representations and Warranties: Accounts. The Grantor hereby
represents and warrants with respect to its Accounts that:
(a) they are not evidenced by a judgment and represent bona fide
transactions contemplated in accordance with the terms and provisions contained
therein or in any Account Contracts related thereto;
(b) none arises out of any transaction with an account debtor that,
by the terms of any agreement with respect to the same, forbids or makes the
assignment of such Account to a third party void or unenforceable; and
(c) they have not been transferred, assigned or pledged to any
person, other than the Bank.
7. Representations and Warranties; Inventory. The Grantor hereby
represents and warrants with respect to its Inventory that all Inventory, taken
as a whole, consists in all material respects of items of a quality and quantity
usable or saleable in the ordinary course of the Grantor's business and, if
<PAGE>
saleable, is, to the best of the Grantor's knowledge and expertise, saleable at
values equal to or greater than the book value amounts thereof of the Grantor.
8. Covenants: General. Without limiting the agreements and covenants
contained in the Note or in any other Loan Document to which the Grantor is a
party, the Grantor hereby covenants and agrees with the Bank that:
(a) It shall preserve and maintain the security interest created by
this Security Agreement and will protect and defend its title to the Collateral
so that the security interests so granted shall be and remain a continuing first
and prior perfected security interest in the Collateral, except in Collateral
that the Grantor is allowed to dispose of in accordance with the Note. The
Grantor will not create, assume or suffer to exist any security interest or
other lien or encumbrance in the Collateral.
(b) The Grantor shall maintain books and records pertaining to the
Collateral in such detail, form and scope as the Bank may in good faith require.
9. Covenants Regarding Accounts. The Grantor shall comply with the
following covenants regarding Accounts and Account Contracts:
(a) The Grantor shall keep its chief place of business and chief
executive office and the office where it keeps its records concerning the
Accounts, and the offices where it keeps all originals of all Account Contracts
(including, without limitation, all chattel paper which evidence Leases and
Accounts), at the location therefor specified in Section 5(a) hereof or, upon
thirty (30) days' prior written notice to the Bank, at other locations in a
jurisdiction where all actions required by Section 4 hereof shall have been
taken with respect to the Accounts. The Grantor will hold and preserve such
records, Account Contracts and chattel paper and will permit representatives of
the Bank or at any time during normal business hours upon reasonable notice to
inspect and make abstracts from such records, Account Contracts and chattel
paper.
(b) Except as otherwise provided in this Section 9(b), the Grantor
shall continue to collect, at its own expense, all amounts due or to become due
to the Grantor under the Accounts and Account Contracts; provided however, that
all amounts due to Vivax and the Grantor under the Vivax Distribution Agreement
(including, but not limited to, amounts due from Mediq) shall be paid to the
Bank, as a custody agent, and applied and distributed in accordance with the
Custody Agreement dated August 7, 1998 among Vivax, the Grantor and the Bank
(the "Vivax Custody Agreement"). In connection with such collections, the
Grantor may take (and, at the Bank's direction, shall take) such action as the
Grantor or the Bank may deem necessary or advisable to enforce collection of the
Accounts and Account Contracts; provided, however, that upon the occurrence and
continuation of an Event of Default the Bank shall have the right at any time,
upon written notice to the Grantor of its intent to do so, to notify the account
debtors or obligors under any Accounts or Account Contracts, including but not
limited to Vivax or Mediq, of the assignment of such Accounts or Account
Contracts to the Bank and to direct such account debtors or obligors to make
payment of all amounts due or to become due to the Grantor thereunder directly
to the Bank and, upon such notification and at the expense of the Grantor, to
enforce collection of any such Accounts, or Account Contracts, and, upon the
occurrence and continuation of an Event of Default to adjust, settle or
<PAGE>
compromise the amount or payment thereof, in the same manner and to the same
extent as the Grantor might have done. After receipt by the Grantor of the
notice from the Bank referred to in the proviso to the preceding sentence, (i)
all amounts and proceeds (including instruments) received by the Grantor in
respect of the Accounts or Account Contracts shall be received in trust for the
benefit of the Bank, shall be segregated from other funds of the Grantor and
shall be forthwith paid over to the Bank in the same form as so received (with
any necessary endorsement) and (ii) the Grantor shall not adjust, settle or
compromise the amount or payment of any Account or Account Contract, or release
wholly or partly any account debtor or obligor thereof, or allow any credit or
discount thereon. All amounts and proceeds of Accounts or Account Contracts,
and other Collateral received by the Bank, shall be held as cash collateral and,
so long as no Event of Default shall have occurred and be continuing shall be
either (A) released to the Grantor or (B) applied to Obligations then due and
payable by the Grantor to the Bank. If an Event of Default shall have occurred
and be continuing, all such amounts and proceeds shall be applied as provided
under Section 16(b) hereof.
(c) Anything to the contrary in this Security Agreement
notwithstanding, the Bank shall have the right in connection with the monitoring
of the Collateral, to verify, at any time and from time to time, the Accounts
agings and listings delivered to the Bank by the Grantor, by such means as the
Bank in its sole discretion deems appropriate, including, without limitation, by
direct request of confirmations from the account debtors under the Accounts. In
addition, the Grantor will permit any authorized representative, including, but
not limited to a certified public accountant, designated by the Bank, upon
reasonable advance notice, to visit, inspect and audit Grantor's property and
condition, including its books of account and accounts receivable, and to
discuss its affairs, finances and accounts with its officers/managers, at such
reasonable times and as often as may be reasonably requested by the Bank, at
Grantor's sole expense.
10. Covenants Regarding Equipment and Inventory. The Grantor shall
comply with the following covenants regarding Equipment and Inventory:
(a) The Grantor shall keep the Equipment and Inventory at the places
specified in Section 5(b); provided, however, that, upon at least five (5)
business days written notice to the Bank, the Grantor may keep or allow to be
kept the Equipment and Inventory at other locations pursuant to the Vivax
Distribution Agreement, but only if the Grantor shall have complied with Section
4(c) hereof.
(b) The Grantor shall cause the Equipment to be maintained and
preserved in the same condition, repair and working order as when new, excepting
ordinary wear and tear and damage due to casualty, and in accordance with any
manufacturer's manual, and shall forthwith, and in the case of any loss or
damage to any of the Equipment as quickly as practicable after the occurrence
thereof and unless otherwise required under the Note, make or cause to be made
all repairs, replacements and other improvements in connection therewith which
are necessary or desirable to such end. The Grantor shall promptly furnish to
the Bank a statement respecting any material loss or damage to any of the
Equipment or Inventory with an aggregate fair market value exceeding $25,000 as
a result of a single occurrence.
(c) Upon the occurrence and continuation of an Event of Default, if
any Inventory is in the possession or control of any Bailee or any of the
Grantor's agents, the Grantor shall, at the Bank's written request, notify such
<PAGE>
Bailee or such agents of the Bank's security interest in such Inventory. At the
Bank's request, upon the occurrence and continuation of an Event of Default, the
Grantor shall direct all Bailees or agents of the Grantor to hold all such
Inventory for the Bank's account and subject to the Bank's instructions.
(d) The Grantor shall not permit any of the Equipment or Inventory to
become a fixture to any real estate that is not subject to a mortgage, deed of
trust or assignment of lessee's interest in lease made by the Grantor in favor
of the Bank. The Grantor shall, on demand therefor by the Bank, deliver to the
Bank any and all evidence of ownership of any of the Equipment (including,
without limitation, certificates of title and applications for title).
11. Insurance. (a) The Grantor will maintain or cause to be maintained, at
its own expense, insurance as required under the Note. Each policy for (i)
liability insurance shall provide for all losses to be paid on behalf of the
Bank and the Grantor as their respective interests may appear and with all
reimbursements being paid directly to the person who shall have incurred
liability covered by such insurance, and (ii) property damage/casualty insurance
which shall (A) not later than the date hereof, name the Bank as the first loss
payee and additional insured party thereunder (without any representation or
warranty by or obligation upon the Bank), (B) provide that there shall be no
recourse against the Bank for payment of premiums or other amounts with respect
thereto, and (C) provide that at least thirty (30) days' prior written notice of
amendment, modification, cancellation, termination or of lapse shall be given to
the Bank by the insurer. For all property damage/casualty insurance, the
Grantor will have the insurer(s) agree that any loss thereunder shall be payable
to the Bank notwithstanding any action, inaction or breach of representation or
warranty by the Grantor. Not later than five (5) business days prior to the
renewal, replacement or material modification of any policy or program, the
Grantor shall deliver or cause to be delivered to the Bank a detailed schedule
setting forth for each such policy or program: (i) the amount of such policy,
(ii) the risks and amounts (with deductibles) insured against by such policy,
(iii) the name of the insurer and each insured party under such policy, (iv) the
policy number of such policy and (v) a comparison of such policy with the policy
so renewed, replaced or modified. The Grantor will if so requested by the Bank,
deliver to the Bank the original policy, of such insurance and, as often as the
Bank may reasonably request, a report of a reputable insurance broker with
respect to such insurance. Further, the Grantor will at the request of the
Bank, duly execute and deliver instruments of assignment of such insurance
policies to comply with the requirements of this Section 11 and cause the
respective insurers to acknowledge notice of such assignment.
(b) Grantor shall at all times require Vivax to maintain similar
insurance as maintained by Grantor, with respect to all Collateral subject to
the Vivax Distribution Agreement, which insurance will name Grantor as loss
payee and an additional insured party.
(c) The Grantor will use all and any insurance proceeds from property
damage/casualty insurance or a condemnation awards it receives to restore or
replace such property as soon as practicable; provided, however, that in the
event that (i) Event of Default has occurred and is continuing, or (ii) no Event
of Default has occurred and is continuing and the individual or aggregate amount
of any and all such insurance proceeds or condemnation awards exceeds $25,000,
<PAGE>
then the Grantor will not restore or replace such property without the prior
written consent of the Bank, and absent such consent, such insurance proceeds or
condemnation awards shall forthwith be paid to the Bank and applied to the
permanent reduction of the Obligations then outstanding, without penalty or
premium, in such order as the Bank shall determine.
(d) Within two business days after receipt by the Grantor of any
insurance proceeds or a condemnation award in excess of $25,000, the Grantor
will provide to the Bank written notice (or telephone notice promptly confirmed
in writing) thereof and a description of the property damaged, lost or taken.
Such notice shall specify whether the property damaged, lost or taken will be
restored or replaced or the proceeds applied to the permanent reduction of the
Obligations then outstanding and if to restore or replace such property, such
notice shall also include a description of the plans, if any, to restore or
replace such property.
12. Transfers and Other Liens. The Grantor shall not, unless otherwise
permitted (and then only to the extent permitted) under the terms of the Note or
unless the Bank shall have provided its prior written consent thereto, which
consent shall be in the Bank's sole discretion:
(a) sell, assign (by operation of law or otherwise) or otherwise
dispose of any of the Collateral; or
(b) create or suffer to exist any Liens, security interest or other
charge or encumbrance upon or with respect to any of the Collateral.
13. Bank Appointed Attorney-in-Fact. Upon the occurrence and during the
continuation of an Event of Default, the Grantor hereby irrevocably appoints the
Bank (and any officer or agent of the Bank with full power of substitution and
revocation) as the Grantor's attorney-in-fact (coupled with an interest), with
full authority in the place and stead of the Grantor and in the name of the
Grantor or otherwise, from time to time in the Bank's discretion, to take any
action and to execute any instrument which the Bank may deem necessary or
advisable to accomplish the purposes of this Security Agreement, including,
without limitation:
(a) to obtain and adjust insurance required to be paid to the Bank
pursuant to Section 11 hereof,
(b) to ask, demand, collect, sue for, recover, compound, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any of the Collateral;
(c) to receive, endorse, and collect any drafts or other instruments,
documents and chattel paper, in connection with clauses (a) and (b) above;
(d) to file any claims or take any action or institute any
proceedings which the Bank may deem necessary or desirable for the collection of
any of the Collateral or otherwise to enforce the rights of the Bank with
respect to any of the Collateral; and
(e) to discharge any lien or encumbrance on or against the Collateral
or bond the same.
<PAGE>
14. Bank May Perform Agreements. If the Grantor fails to perform any
agreement contained herein, the Bank may, after three days notice to the Grantor
(unless the Bank in good faith deems it necessary to take more immediate
action), itself perform, or cause performance of, such agreements, and the
reasonable out-of-pocket expenses of the Bank incurred in connection therewith
shall be payable by the Grantor under Section 18(b) hereof (including, without
limitation, the reasonable fees and disbursements of counsel); provided,
however, that any such action by the Bank shall not be deemed to be a waiver of
any Event of Default, which may have resulted from the Grantor's failure to
perform any such agreement.
15. Bank's Duties. The powers conferred on the Bank hereunder are solely
to protect its interest in the Collateral and shall not impose any duty upon it
to exercise any such powers or any liability upon the Bank upon the exercise of
any such powers. Except for the safe custody of any Collateral in its
possession and the accounting for moneys actually received by it hereunder, the
Bank shall have no duty as to any Collateral or as to the taking of any
necessary steps to preserve rights against prior parties or any other rights
pertaining to any Collateral. The Bank shall be deemed to have exercised
reasonable care in the custody and preservation of the Collateral in its
possession if the Collateral is accorded treatment substantially equal to that
which the Bank accords its own property.
16A. Event of Default. If any of the following events (each an "Event of
Default" hereunder) shall occur and be continuing:
(a) any Event of Default (as defined in the Note) shall occur; or
(b) Grantor shall fail to satisfy any of its obligations or breach any
of its representations, warranties or covenants hereunder.
16B. Remedies Upon Default. If any Event of Default shall have occurred
and be continuing:
(a) The Bank may exercise in respect of any Collateral in addition to
other rights and remedies provided for herein or otherwise available to it, all
the rights and remedies of a secured party under applicable law and also may do
any or all of the following, to the extent permitted under applicable law:
(i) In the name of the Bank, or in the name of the Grantor or
otherwise, demand, sue for, collect or receive any money or property at any time
payable or receivable on account of or in exchange for, or make any compromise
or settlement deemed desirable with respect to, any of the Collateral, but the
Bank shall be under no obligation so to do, and the Bank, may extend the time of
payment, arrange for payment in installments, or otherwise modify the terms of,
or release, any of the Collateral without thereby incurring responsibility to,
or discharging or otherwise affecting any liability of, the Grantor.
(ii) Enter upon the premises, or wherever any Collateral may be,
and take possession thereof, and maintain such possession on the Grantor's
premises, or demand and receive such possession from any person who has
possession thereof, or remove the Collateral or any part thereof, to such other
<PAGE>
places as the Bank may desire, without any obligation to pay the Grantor for any
use and occupancy of such premises.
(iii) Require the Grantor to, and the Grantor hereby agrees
that it will at its expense and upon request of the Bank forthwith, assemble all
or part of the Collateral as directed by the Bank and make it available to the
Bank at a place to be designated by the Bank which is reasonably convenient to
both parties.
(iv) Without notice except as specified below and with or without
taking the possession thereof, sell, lease, assign, grant an option or options
to purchase or otherwise dispose of the Collateral or any part thereof in one or
more parcels at public or private sale, at any location chosen by the Bank, for
cash, on credit or for future delivery, and at such price or prices and upon
such other terms as the Bank may deem commercially reasonable. The Grantor
hereby agrees that, to the extent notice of sale shall be required by law, at
least five (5) business days' notice to the Grantor of the time and place of any
public sale or the time after which any private sale is to be made shall
constitute reasonable notification, but notice given in any other reasonable
manner or at any other reasonable time shall constitute reasonable notification.
The Bank shall not be obligated to make any sale of Collateral regardless of
notice of sale having been given. The Bank may adjourn any public or private
sale from time to time by announcement at the time and place fixed therefor, and
such sale may, without further notice, be made at the time and place to which it
was so adjourned. The Grantor hereby agrees that the Bank shall have no
obligation to preserve rights in the Collateral against prior parties or to
marshal any Collateral for the benefit of any person. The Bank is hereby
granted a license or other right to use, without charge, the Grantor's labels,
patents, copyrights, rights of use of any name, trade secrets, trade names,
trademarks and advertising matter, or any other Intellectual Property or
property of a similar nature, as it pertains to the Collateral, in completing
production of, advertising for, sale of, and the selling of any Collateral, and
the Grantor's rights under all licenses and franchise agreements shall inure to
the Bank's benefit in such connection.
(v) The Bank may, if the Loans shall have matured or shall have
been accelerated by the Bank in addition to any other rights it may have under
this Security Agreement or otherwise, appoint by instrument in writing a
receiver or receiver and manager (both of which are herein called a "Receiver")
of all or any part of the Collateral or may institute proceedings in any court
of competent jurisdiction for the appointment of such a Receiver. Any such
Receiver is hereby given and shall have the same powers and rights as the Bank
has under this Security Agreement, at law or in equity. In exercising any such
powers, any such Receiver shall act as, and for all purposes shall be deemed to
be, the agent of the Grantor and the Bank shall not be responsible for any act
or omission of any such Receiver absent the wilful misconduct of the Bank or the
Receiver. The Bank may appoint one or more Receivers hereunder and may remove
any such Receiver or Receivers and appoint another or other in his or their
stead from time to time. Any Receiver so appointed may be an officer or
employee of the Bank. The Grantor agrees that any Receiver appointed by the
Bank need not be appointed by, nor is his appointment required to be ratified
by, nor his actions in any way supervised by, a court.
(vi) Apply, without notice, any cash or cash items constituting
Collateral in the possession of the Bank (constructive or otherwise), in a
manner consistent with this Security Agreement and the Note, to payment of any
of the Obligations.
<PAGE>
The Grantor hereby waives, to the extent permitted by applicable law, all rights
of the Grantor to prior notice and hearing under any applicable statute or
constitution (in the case of such notice only, to the extent that such statute
or constitution gives rights as to notice that are greater than are provided for
herein or provides for any notice period when none is otherwise provided for
herein).
(b) All cash proceeds received by the Bank in respect of any sale of,
collection from, or other realization upon all or any part of the Collateral
may, in the discretion of the Bank, be held by the Bank as Collateral for,
and/or then or at any time thereafter applied (after payment of any amounts
payable to the Bank pursuant to Section 18 hereof) in whole or in part by the
Bank against all or any part of the Obligations in such order as the Bank shall
elect. Any surplus of such cash or cash proceeds held by the Bank and remaining
after payment in full of all the Obligations shall be paid over to the Grantor
or to whomsoever may be lawfully entitled to receive such surplus.
17. Absolute Obligations. The Obligations will be paid unconditionally by
the Grantor, including, without limitation, without regard to any right of
setoff or cross-claim under any applicable law. Any indebtedness owing by the
Bank to the Grantor may be setoff and applied by the Bank against the
Obligations as set forth in the Note.
18. Indemnity and Expenses. (a) The Grantor agrees to defend, protect,
indemnify and hold harmless the Bank and each past, current, or future officer,
director, employee, shareholder, affiliate and agent of the Bank (each a "Bank
Party") from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgment, suits, claims, costs, expenses and disbursements
of any kind or nature whatsoever (including, without limitation, the reasonable
fees and disbursements of counsel for each Bank Party incurred in connection
with any action or proceeding between: (i) the Grantor or Vivax or Mediq/PRN
Life Support Services, Inc. and any Bank Party or (ii) between any Bank Party
and any third party or otherwise, with respect to any investigative,
administrative or judicial proceeding, whether or not such indemnified person
shall be designated a party thereto), imposed on, incurred by, or asserted
against such Bank Party (whether direct, indirect, economic, special, punitive,
treble or consequential and whether based on any Federal, state, local or
foreign laws or other statutory regulations, including, without limitation,
environmental laws, securities and commercial laws and regulations, under common
law or equitable principles) in any manner relating to or arising out of this
Security Agreement, the Note or any of the other Loan Documents, or any act,
event or transaction related or attendant thereto or contemplated hereby, or any
action or inaction by any Bank Party hereunder or in connection therewith,
including, in each such case, any allegation of any such matters, whether
meritorious or not (collectively, the "Indemnified Matters"); provided, however,
that the Grantor shall have no obligation to any Bank Party hereunder with
respect to Indemnified Matters resulting from the gross negligence or willful
misconduct of such Bank Party. The covenants of the Grantor contained in this
Section 18(a) shall survive the payment in full of all amounts due and payable
under this Security Agreement, the Note or any of the other Loan Documents and
the full satisfaction of all other Obligations, and are in addition to, and
cumulative with respect to, all other indemnities contained in the Note or any
of the other Loan Documents.
<PAGE>
(b) The Grantor will, upon demand pay to the Bank the amount of any
and all expenses, including the reasonable fees and disbursements of the Bank's
counsel and of any experts and agents (including, without limitation, any
affiliates of the Bank), which the Bank may incur in good faith in connection
with (i) the administration of this Security Agreement, (ii) the administration
of the Vivax Custody Agreement; (iii) the custody, preservation, use or
operation of, or the sale of, collection from, or other realization upon, any of
the Collateral, including, without limitation, any funds received by the Bank
pursuant to the Vivax Custody Agreement and any and all amounts paid by or on
behalf of the Bank in respect of returned and uncollected checks and drafts
pursuant to Section 9(b) hereof, (iv) all out-of-pocket costs and expenses in
connection with the audits, inspections and investigations conducted by the Bank
pursuant to Section 9(c) hereof, (v) the exercise or enforcement of any of the
rights of the Bank hereunder, including, without limitation, any and all audits
with respect to the Collateral conducted by or on behalf of the Bank pursuant to
Section 4(c) hereof, or (vi) the failure by the Grantor to perform or observe
any of the provisions hereof; provided, however that the Grantor shall not have
any obligation to the Bank to pay such costs or expenses if such costs or
expenses were incurred primarily due to the Bank's gross negligence or willful
misconduct.
19. Security Interests Absolute. All rights of the Bank and the security
interests hereunder, and all obligations of the Grantor hereunder, shall be
absolute and unconditional, irrespective of:
(a) any lack of validity or enforceability of the Note or any other
Loan Document or other agreement or instrument relating thereto;
(b) any action or inaction by any third party, including, but not
limited to Vivax, Mediq or any lessee or sublessee of the Beds;
(c) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations or any other amendment or waiver
of, or any consent to any departure from, the Note or any Loan Document;
(d) any exchange, release or non-perfection of any portion of the
Collateral or any other collateral held by the Bank or any release or amendment
or waiver of, or consent to any departure from, any guaranty for all or any of
the Obligations; and
(e) any other circumstance which might otherwise constitute a defense
available to, or a discharge of, the Grantor in respect of the Obligations or
otherwise with respect to this Security Agreement.
20. Survival of Representations and Warranties. The Grantor hereby
covenants, warrants and represents to the Bank that all representations and
warranties of the Grantor contained in this Security Agreement are true and
correct at the time of the Grantor's execution of this Security Agreement, shall
survive the execution, delivery and acceptance hereof by the parties hereto, and
the closing under the Note, and shall continue in effect until no Obligations
shall remain outstanding or until the earlier termination of the security
interest granted hereby.
<PAGE>
21. Waiver by the Bank. The Bank's failure, at any time or times, to
require strict performance by the Grantor of any provision of this Security
Agreement shall not waive, affect or diminish any right of the Bank thereafter
to demand strict compliance and performance therewith. Any suspension or waiver
by the Bank of an Event of Default shall not suspend, waive or affect any other
Event of Default, whether the same is prior or subsequent thereto and whether of
the same or of a different type. None of the undertakings, agreements,
warranties, covenants and representations of the Grantor contained in this
Security Agreement and no Event of Default shall be deemed to have been
suspended or waived by the Bank, unless such suspension or waiver is by an
instrument in writing signed by an officer of the Bank and directed to the
Grantor specifying such suspension or waiver.
22. Severability. Wherever possible, each provision of this Security
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Security Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Security Agreement.
23. Provisions Reasonable. The Grantor hereby expressly acknowledges and
agrees that the provisions of this Security Agreement and, in particular, those
respecting remedies and powers of the Bank against the Grantor, its business and
the Collateral upon the occurrence of any Event of Default, are commercially
reasonable and not manifestly unreasonable.
24. Amendments. No amendment or waiver of any provision of this Security
Agreement nor consent to any departure by the Grantor herefrom shall in any
event be effective unless the same shall be in writing and signed by the Bank
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.
25. Addresses for Notices. Each notice to, and each demand upon, the
Grantor by the Bank relating to this Security Agreement and each notice to, and
each demand upon, the Bank by the Grantor relating to this Security Agreement
and any notice to the Bank of the bankruptcy, insolvency or consummation of any
other similar proceeding of the Grantor, Vivax or Mediq shall specifically refer
to this Security Agreement, and shall be in writing (including facsimiles) and
shall be conclusively deemed to have been given when addressed, sent, delivered
or received (as applicable) and so deemed under Section 17 of the Note.
26. Continuing Security Interest; Assignments. This Security Agreement
shall create a continuing security interest in the Collateral granted by the
Grantor and shall (i) remain in full force and effect until the Obligations are
indefeasibly paid in full, (ii) be binding upon the Grantor, its successors and
assigns, and (iii) inure, together with the rights and remedies of the Bank
hereunder, to the benefit of the Bank and its successors, transferees and
assigns. The Grantor's successors and assigns shall include, without
limitation, a receiver, trustee or debtor-in-possession thereof or therefor.
When the Obligations have been indefeasibly paid in full and are no longer
outstanding, the security interests granted hereby shall terminate and all
rights to the Collateral granted by the Grantor shall revert to the Grantor.
Upon any such termination, the Bank will, at the Grantor's expense, execute and
deliver to the Grantor such documents as the Grantor shall reasonably request to
evidence such termination.
<PAGE>
27. Governing Law; Terms. This Security Agreement shall be governed by
and construed in accordance with the substantive, internal laws of the State of
New York, without regard to its principles of conflicts of law. Unless
otherwise defined herein or in the Agreement, terms used in Articles 8 and 9 of
the Uniform Commercial Code in the State of New York are used herein as therein
defined.
28. Consent to Jurisdiction and Service of Process: WAIVER OF JURY TRIAL.
The Grantor and the Bank agree that Sections 26 and 28 of the Note shall apply
with respect to any litigation based on or arising under this Security
Agreement, and such Sections are incorporated by reference herein.
29. Modification of Agreement. Other than as set forth herein, this
Security Agreement may not be modified, discharged or waived, in whole or in
part, except by a writing signed by each of the parties hereto. No statement,
promise or representation as to the enforceability, validity or intent of the
Bank to enforce this Security Agreement or any of its terms has been made by the
Bank or any person acting or purporting to act on their behalf, and the Grantor
expressly acknowledges that it has not relied on any such statement, promise or
representation in entering into or executing this Security Agreement.
30. Limitation of Liability. No claim may be made by the Grantor or any
other person against any Bank Party for any special, indirect, consequential,
punitive or treble damages in respect of any claim for breach of contract or any
other theory of liability arising out of or related to the transactions
contemplated by this Security Agreement, the Note, any other Loan Documents or
any act, omission or event occurring in connection herewith or therewith; and
the Grantor hereby waives, releases and agrees not to sue upon any claim for any
and all special, indirect, consequential, punitive or treble damages, whether or
not accrued and whether or not known or suspected to exist in its favor.
31. Headings; Construction. The Section headings in this Security
Agreement are for convenience only and shall not be used in construing or
interpreting any provision of this Security Agreement. Unless otherwise
specified, terms such as "hereunder", "herein" or "hereof" shall be construed as
referring to this Security Agreement as a whole and not merely to the clause,
sentence, paragraph or section in which they appear. The word "person" shall be
construed to mean any natural person or entity of any kind whatsoever.
IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement
to be duly executed and delivered by their respective officers there into duly
authorized as of the date first above written.
MED SERVICES CORP.
By: /s/ David L. Koffman
Name: David L. Koffman
Title: President
AGREED:
<PAGE>
ATLANTIC BANK OF NEW YORK
By: /s/ Paula Park
Name: Paula Park
Title: Vice President
<PAGE>
Schedule A to
Security Agreement
PRINCIPAL PLACE OF BUSINESS:
RECORDS, CHATTEL PAPER,
ETC.
LOCATED AT:
<PAGE>
Schedule B to
Security Agreement
LOCATION OF INVENTORY AND EQUIPMENT:
Florida - Broward County, Palm Beach County, Dade County
New Jersey - Camden County
Conn. - Middlesex County
New Hampshire - Rockingham County
Georgia - Macon County
Maryland - Howard County
Texas - Harris County
<PAGE>
Exhibit 1 to
Security Agreement
<PAGE>
Exhibit 2 to
Security Agreement
_______________________________
1At the date hereof the Benchmark Rate is 8.5%.
