<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
____________________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the quarterly period ended 6/30/97.
-------
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 0-4538
CYBEX INTERNATIONAL, INC.
-------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
New York 11-1731581
- ---------------------------------------------------- ----------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 Trotter Drive, Medway, Massachusetts 02053
- ---------------------------------------------------- ----------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (508) 533-4300
----------------------------------------
</TABLE>
Registrant's former address: 2100 Smithtown Avenue, Ronkonkoma, New York 11779
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 [ ]
On June 30, 1997, the registrant had outstanding 8,650,347 shares of Common
Stock, par value $.10 per share, which is the registrant's only class of common
stock.
<PAGE>
CYBEX INTERNATIONAL, INC.
INDEX
-----
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations (unaudited) --
Three and six months ended June 30, 1997 and 1996 3
Condensed Consolidated Balance Sheets -- June 30, 1997 (unaudited)
and December 31, 1996 4
Condensed Consolidated Statements of Cash Flows (unaudited) -- Six
months ended June 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote 15
Item 5. Other Information 16
Item 6. Exhibits 16
Signatures 17
</TABLE>
2
<PAGE>
CYBEX INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------- ---------------------------------------
1997 1996 1997 1996
--------------- -------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Net sales $ 15,352 $9,746 $ 30,893 $22,416
Cost of sales 11,750(a) 6,353 20,715(a) 14,440
--------------- -------------- ----------------- -------------------
Gross profit 3,602 3,393 10,178 7,976
Selling, general and administrative expenses 10,548(b) 3,275 14,755(b) 6,474
Nonrecurring charges 5,234(c) -- 5,234(c) --
--------------- -------------- ----------------- -------------------
Operating income (loss) (12,180) 118 (9,811) 1,502
Interest expense, net 193 261 376 563
--------------- -------------- ----------------- -------------------
Income (loss) before income taxes (12,373) (143) (10,187) 939
Income tax provision (benefit) (3,788) (57) (2,903) 385
--------------- -------------- ----------------- -------------------
Net income (loss) $ (8,585) $ (86) $ (7,284) $ 554
=============== ============== ================= ===================
Net income (loss) per share $(1.42) $(0.02) $(1.41) $0.13
=============== ============== ================= ===================
Shares used in computing net income
(loss) per share 6,041 4,273 5,152 4,273
=============== ============== ================= ===================
</TABLE>
(a) Includes $2,375 of costs considered unusual, or a direct result of the
Merger
(b) Includes $4,599 of costs considered unusual, or a direct result of the
Merger
(c) Includes $2,734 of costs related to the Sharpsville plant closure and a
$2,500 charge for acquired research and development.
See notes to condensed consolidated financial statements.
3
<PAGE>
CYBEX INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(in thousands, except share data)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------------- -------------
(unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 4,262 $ 1,656
Accounts receivable, net 18,186 7,604
Inventories 6,130 2,083
Lease receivables 4,799 --
Deferred income taxes 7,851 665
Net assets held for sale 5,500 --
Refundable income taxes 3,360 --
Other current assets 2,375 410
-------------- -------------
Total current assets 52,463 12,418
Property and equipment, net 12,572 4,725
Goodwill 11,738 2,451
Lease receivables 1,609 --
Deferred income taxes 3,633 215
Other assets, 1,474 558
-------------- -------------
$83,489 $20,367
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 3,231 $ 1,409
Accounts payable 6,311 2,838
Other current liabilities 20,017 3,966
-------------- -------------
Total current liabilities 29,559 8,213
Long-term debt 15,930 9,960
Other liabilities 1,198 798
Commitments and contingencies
Stockholders' equity:
Common stock, $.10 par value, 20,000,000
shares authorized, 8,837,528 and 4,273,056 shares issued 884 427
Additional paid-in capital 44,088 --
Retained earnings (accumulated deficit) (6,315) 969
Treasury stock, at cost (187,181 shares in 1997) (1,855) --
-------------- -------------
Total stockholders' equity 36,802 1,396
============== =============
$83,489 $20,367
============== =============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
CYBEX INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------
1997 1996
----------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $(7,284) $ 554
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities --
Depreciation and amortization 745 662
Non-cash nonrecurring charges 4,195 --
Provision for doubtful accounts 1,878 190
Deferred income taxes (2,903) --
Net changes in operating assets and liabilities, net of effect
of the Merger 2,823 1,053
----------- ----------
Net cash provided by (used in) operating activities (546) 2,459
----------- ----------
INVESTING ACTIVITIES:
Purchases of property and equipment (262) (272)
Cash acquired in merger, net of transaction costs of $1,645 705 --
----------- ----------
Net cash provided by (used in) investing activities 443 (272)
----------- ----------
FINANCING ACTIVITIES:
Net borrowings (repayments) of debt 2,636 (2,400)
Remittances from UM Holdings, Ltd. -- 890
Exercise of stock options 73 --
----------- ----------
Net cash provided by (used in) financing activities 2,709 (1,510)
----------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS 2,606 677
CASH AND CASH EQUIVALENTS -- Beginning of Period 1,656 5
----------- ----------
CASH AND CASH EQUIVALENTS -- End of Period $ 4,262 $ 682
=========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
CYBEX INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(unaudited)
NOTE 1 -- BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and, therefore, do not include
all information and footnotes necessary for a fair presentation of financial
position, results of operations and changes in cash flows in conformity with
generally accepted accounting principles. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. Operating results for the six
months ended June 30, 1997, are not necessarily indicative of the results that
may be expected for the entire year. The Company has reclassified the
presentation of certain prior year amounts to conform to the current year
presentation.
It is suggested that these condensed financial statements be read in conjunction
with the financial statements and the notes thereto included in both the
company's latest Annual Report on Form 10-K for the year ended December 31, 1996
as well as the Company's definitive Proxy Statement dated April 23, 1997 filed
with the Securities and Exchange Commission in connection with the Company's
merger with Trotter Inc.
NOTE 2 -- TROTTER INC. MERGER
On May 23, 1997, a wholly-owned subsidiary of the Company merged with and into
Trotter Inc. ("Trotter"), ("the Merger"). Pursuant to the terms of the Merger,
4,273,056 shares of the Company's Common Stock were issued to UM Equity Corp.,
the sole stockholder of Trotter in exchange for all of the issued and
outstanding Trotter shares. Additionally, options to purchase Trotter shares
were converted to options to purchase 436,920 shares of Company Common Stock,
using the exchange ratio implied in the Merger of 1.1244884-to-1.0.
The Merger was accounted for as a purchase transaction with Trotter deemed to be
the acquiring company for accounting purposes. Accordingly, the accompanying
financial statements include Trotter's historical results for the three and six
months ended June 30, 1997 and 1996 and include Cybex's results from the May 23,
1997 acquisition date through June 30, 1997.
The purchase price of the Merger was $44,102,000, which consists of the
$42,457,000 market value of Cybex Common Stock (4,381,555 shares outstanding
multiplied by the $9.69 per share five day average share price ending December
31, 1996) and estimated transaction costs of $1,645,000. All identifiable
assets acquired were assigned a portion of the purchase price based on the fair
value of Cybex's assets. Such allocation included the identification and
evaluation of each development project to determine if technological feasibility
had been achieved and if there were any alternative future uses. Where
technological feasibility or alternative future uses did not exist, the costs of
such technology was charged to expense, in accordance with SFAS No. 2. The
amount allocated to acquired research and development of $2,500,000 was charged
to operations as of the effective date of the Merger. The remaining amount of
purchase price in excess of net tangible assets acquired was allocated to
goodwill and is being amortized on a straight line basis over 30 years.
The purchase price allocation used in the preparation of the accompanying
financial statements is preliminary. The Company is still gathering information
and analysis related to income taxes, contingencies and certain exit costs.
6
<PAGE>
The following table summarizes the unaudited pro forma combined results of
operations for the six months ended June 30, 1997 and 1996 as if the Merger had
occurred at the beginning of those periods:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
1997 1996
--------- ---------
<S> <C> <C>
(in thousands,except
per share amounts)
Net sales $56,847 $56,574
========= =========
Net income (loss) from continuing operations $(3,969) $ 534
========= =========
Net income (loss) per share from continuing
operations $ (.46) $ .06
========= =========
</TABLE>
The above pro forma data reflects the discontinuance of Cybex's treadmill
product line and adjustments for certain duplicate costs, which, as a direct
result of the Merger, will be eliminated.
The pro forma data for the six months ended June 30, 1997, does not include
$5,234,000, or $.48 per share, of nonrecurring charges expensed by the Company
in the second quarter of 1997 related to the Sharpsville plant closure and
acquired research and development expenses. The pro forma data for the six
months ended June 30, 1997 includes $6,974,000, or $.49 per share, of unusual
and nonrecurring merger-related costs related primarily to conforming to new
accounting and operating policies of the merged companies.
NOTE 3 -- UNUSUAL AND NONRECURRING MERGER-RELATED COSTS
The second quarter and six months ended June 30, 1997 include unusual and
nonrecurring merger-related costs of $12,208,000, comprised of a pre-tax
charge of $5,234,000 related to closing the Sharpsville manufacturing facility
and acquired research and development, in addition to $6,974,000 of pre-tax
costs and expenses considered by management to be unusual, or a direct result of
the Merger, and not representative of the ongoing business. These costs are
included in cost of sales ($2,375,000) and selling, general and administrative
expenses ($4,599,000). Such costs and expenses relate primarily to conforming to
new accounting and operating policies of the merged company, including
reorganizing the Company's domestic and international sales operations and
manufacturing initiatives aimed at achieving the full benefit of synergies and
efficiencies which the Company believes are available as a result of the Merger.
The Company is currently in the process of integrating the two businesses and
management believes certain transition and integration costs will continue
through the remainder of the year.
NOTE 4 -- CREDIT FACILITY
On December 7, 1995, Trotter entered into a Loan and Security Agreement ("the
Agreement") with a bank that consisted of a $3,000,000 revolving loan and a
$9,000,000 term loan. On June 16, 1997, the Company amended the Agreement to
renew and increase funds available under the revolver portion of the Agreement
from $3,000,000 to $12,000,000. Borrowings under the facility bear interest at
the Company's option of either the prime rate or LIBOR plus 1.25% to 2.25%
adjusted up or down based on certain covenant calculations, as defined. The
credit facility matures on December 31, 2000. As of June 30, 1997, $3,000,000
and $7,8000,000 were outstanding under the revolver and the term loan,
respectively. Borrowings under the credit facility are secured by substantially
all of the assets of the Company with certain exceptions.
7
<PAGE>
Pursuant to the Agreement, the Company is required to maintain certain financial
and non-financial covenants, as defined, including minimum working capital,
tangible net worth and certain liquidity ratios, in addition to restrictions on
dividends and capital expenditures.
NOTE 5 -- CONTINGENCY RELATED TO SALE OF BUSINESS
On April 3, 1996, Cybex completed the sale of substantially all the assets of
its Lumex Division to Fuqua Enterprises, Inc. ("Fuqua") for $40,750,000 in cash.
The asset sale agreement provided for a post-closing adjustment to the sales
price based on the change in the net assets of the Lumex Division from December
31, 1995, through the closing date. The Company has received notice from Fuqua
that Fuqua believes the stated amount of the net assets of the Lumex Division as
of the closing date was overstated by $9,300,000 and that Fuqua believes that it
is not responsible for reimbursing the Company for approximately $1,026,000, of
assumed insurance liabilities. Prior to the Merger, the Company determined to
proceed with arbitration to resolve this dispute. The Company disagrees with
Fuqua's claim and is vigorously defending its position. An initial submission to
the arbitrator was made by Fuqua in March 1997, and the Company's response was
made in May 1997. The arbitrator has directed that pre-hearing briefs be filed
in August 1997, and has scheduled hearings in early September 1997. Fuqua has
also notified the Company of claims for breaches of certain of the Company's
representations and warranties in the asset sale agreement involving
substantially the same matters submitted to the arbitrator. Any differences
between the actual cost to resolve this contingency and the amount accrued will
be included in operations when the matter is concluded.
NOTE 6 -- INVENTORIES
Inventories are valued at the lower of cost or market and consist of the
following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- ------------
<S> <C> <C>
Raw materials $ 1,230 $ 1,108
Work in process 2,065 568
Finished goods 2,835 407
----------- ------------
$ 6,130 $ 2,083
=========== ============
</TABLE>
NOTE 7-- NET ASSETS HELD FOR SALE
The Company has announced plans to sell its isokinetics business and its
Ronkonkoma, New York facility, and is currently in negotiations with interested
parties. Accordingly, the net assets expected to be sold have been presented as
net assets held for sale in the accompanying balance sheet. Net sales of
isokinetic products were $4,973,000 and $6,372,000 for the six months ended June
30, 1997 and 1996, respectively.
NOTE 8-- NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed by dividing net income (loss) by the
weighted average shares outstanding during the periods presented. Common stock
equivalents, consisting of dilutive common stock options, have not been included
in the computation as they are anti-dilutive during periods with a net loss and
are immaterial to the six months ended June 30, 1996. Historical Trotter shares
have been adjusted retroactively to give effect to the equivalent number of
shares received by the Trotter Stockholders in the Merger (see Note 2).
8
<PAGE>
Statement of Financial Accounting Standards No. 128 (SFAS No. 128), "Earnings
per Share," was issued in February 1997 which requires dual presentation of
basic and diluted earnings per share (EPS) for complex capital structures on the
face of the statement of operations. SFAS No. 128 is required to be adopted for
the year-ended 1997; earlier application is not permitted. The adoption of SFAS
No. 128 would not have a material impact on earnings per share presented for the
three and six months ended June 30, 1997 and 1996.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
OVERVIEW
The Company is a strength and cardiovascular company which develops,
manufactures and sells premium quality, professional performance products for
the commercial and consumer markets.
On May 23, 1997, the merger between a wholly-owned subsidiary of Cybex
International, Inc. ("Cybex") and Trotter Inc. ("Trotter") was consummated (the
"Merger") with Trotter surviving the Merger as a subsidiary of Cybex. The
transaction was accounted for as a purchase with Trotter deemed to be the
acquiring company for accounting purposes and, therefore, the surviving company
for financial reporting purposes. As a result, the accompanying historical
financial information is that of Trotter for all periods presented, and also
includes the results of Cybex from the May 23, 1997 acquisition date to June 30,
1997.
Trotter commenced operations in 1973 as one of the pioneers in the manufacture
of treadmills specifically intended for home use. In 1993, Trotter entered the
strength equipment market. Prior to the Merger, Trotter was an indirect, wholly-
owned subsidiary of UM Holdings, Ltd.
Cybex's products are marketed in the United States through direct sales
representatives and independent sales agents. International markets are served
by more than 60 distributors worldwide. Trotter's products are distributed
through independent authorized dealers, a small direct sales force primarily
focused on commercial customers and a limited number of international
distributors. Trotter' sales are divided about equally between the home and
commercial markets. In 1996, Cybex entered into a joint venture with its U.K.
distributor to improve its sales and service efforts in Europe. In connection
with the Merger, the Company terminated the joint venture and entered into a new
distribution agreement with its U.K. distributor.
In connection with the Merger, the Company has announced its plans to sell
Cybex's isokinetics business and Cybex's Ronkonkoma, New York facility, and is
currently in negotiations with interested parties.
RESULTS OF OPERATIONS
In connection with the Merger, the Company incurred unusual and nonrecurring
merger-related costs of $12,208,000, comprised of a pre-tax charge of $2,734,000
related to closing Trotter's Sharpsville manufacturing facility, $2,500,000 of
acquired research and development and $6,974,000 primarily related to conforming
to new accounting and operating policies of the merged company, of which
$2,375,000 is included in cost of sales and $4,599,000 is included in selling,
general and administrative expenses.
10
<PAGE>
The following table sets forth selected items from the condensed consolidated
statements of operations as a percentage of net sales, excluding the $12,208,000
of unusual or nonrecurring merger-related charges in 1997:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- -------------------
1997 1996 1997 1996
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Net sales 100% 100% 100% 100%
Cost of sales 61 65 59 64
--------- -------- --------- --------
Gross profit 39 35 41 36
Selling, general and administrative
expenses 39 34 33 29
--------- -------- --------- --------
Operating income -- % 1% 8% 7%
========= ======== ========= ========
</TABLE>
NET SALES
For the three months ended June 30, 1997, the Company's net sales increased 58%
to $15,352,000 from $9,746,000 in the same period of the prior year. This
increase is directly due to the Merger as the 1997 period includes the combined
sales of the merged companies for the last five weeks of the quarter.
For the six months ended June 30, 1997, the Company's net sales increased 38% to
$30,893,000 from $22,416,000 in the same period of the prior year.
Approximately two-thirds of this increase is directly attributed to the Merger.
The six month sales increase also resulted from a higher volume of treadmill
sales, partially offset by a decrease in climber sales as climber production was
phased out during the second quarter.
GROSS PROFIT
Gross profit increased 6% to $3,602,000 for the three months ended June 30, 1997
and 28% to $10,178,000 for the six months ended June 30, 1997 from the
comparable periods of 1996. The 1997 periods include the results of Cybex for
the last five weeks of the quarter in addition to $2,375,000 of unusual or
nonrecurring merger-related costs charged to cost of sales. On a pro forma
basis, excluding the $2,375,000 of unusual or nonrecurring costs in 1997, gross
margin, as a percent of net sales, increased to 39% for the three months ended
June 30, 1997 from 35% for the comparable period of the prior year. For the six
months ended June 30, 1997, pro forma gross margin as a percent of net sales was
41%, compared to 36% for the same period in the prior year. The margin
improvements in 1997 are due to the addition of Cybex's results, whose products
have higher margins, for the last five weeks of the 1997 periods, in addition to
more favorable product mix and productivity improvements at Trotter in 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased $7,273,000 to $10,548,000
for the three months ended June 30, 1997 and $8,281,000 to $14,755,000 for the
six months ended June 30, 1997 from the comparable periods of 1996. The overall
increases in selling, general and administrative expenses in 1997, exclusive of
the $4,599,000 charge, are due to the 1997 period including Cybex for the last
five weeks of the period and higher costs associated with Cybex's direct sales
force. In addition, during June, the Company was involved in integrating the two
companies' businesses and various duplicate administrative costs existed. The
1997 period includes the expenses of Cybex for the last five weeks of the
quarter, in addition to $4,599,000 of unusual or nonrecurring merger-related
costs. On a pro forma basis, excluding the $4,599,000 of unusual or
nonrecurring costs in 1997, selling, general and
11
<PAGE>
administrative expenses, as a percent of net sales, increased to 39% for the
three months ended June 30, 1997 from 34% for the comparable period of the prior
year. For the six months ended June 30, 1997 pro forma selling, general and
administrative expenses as a percent of net sales were 33% compared to 29% for
the same period in the prior year.
NONRECURRING CHARGES
The nonrecurring charges during the quarter ended June 30, 1997 include
$2,734,000 of costs related to closing Trotter's Sharpsville manufacturing plant
(primarily the write-off of goodwill and other intangibles, severance costs and
lease termination costs) and $2,500,000 for acquired research and development.
INTEREST EXPENSE
Net interest expense was $193,000 for the three months ended June 30, 1997
versus $261,000 for the three months ended June 30, 1996 and $376,000 for the
six months ended June 30, 1997 versus $563,000 for the six months ended June 30,
1996. The decrease in interest expense in 1997 is primarily due to strong
operating cash flows in late 1996 and early 1997 which allowed the Company to
reduce its average debt levels.
INCOME TAX PROVISION (BENEFIT)
The Company's effective income tax rate was 31% for the quarter ended June 30,
1997 and 28% for the six months ended June 30, 1997. The effective tax rate for
the three and six months ended June 30, 1996 was 40% and 41%, respectively. The
effective tax rate used to record the tax benefit for the three and six months
ended June 30, 1997 was lower than the 1996 effective tax rate due primarily to
the $2.5 million research and development charge not being deductible for income
tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition was strengthened at June 30, 1997, as a result
of the Merger, which became effective on May 23, 1997. Working capital
increased $18,699,000, from $4,205,000 at December 31, 1996 to $22,904,000 at
June 30, 1997, and cash and cash equivalents rose $2,606,000, from $1,656,000 at
December 31, 1996 to $4,262,000, at June 30, 1997. Tangible net worth rose
$25,567,000, from a net deficit of $1,450,000 at December 31, 1996, to net worth
of $24,117,000 at June 30, 1997 and long-term debt as a percentage of total
equity was reduced to 43%.
For the six months ended June 30, 1997, cash used in operating activities was
$546,000 compared to cash provided by operating activities of $2,459,000 for
the same period in 1996. The decrease was primarily due to a net loss of
$7,284,000 and a deferred tax benefit of $2,903,000, partially offset by non-
cash nonrecurring charges of $4,195,000 and a non-cash provision for doubtful
accounts of $1,878,000 during the 1997 period versus net income of $554,000 and
a provision for doubtful accounts of $190,000 during the 1996 period.
Cash provided by investing activities of $443,000 for the six months ended June
30, 1997, resulted primarily from cash acquired in the merger of $2,350,000
offset by transaction costs of $1,645,000 and capital expenditures of $262,000.
Cash used in investing activities for the same period in 1996 was $272,000, due
to capital expenditures.
Cash provided by financing activities was $2,709,000 for the six months ended
June 30, 1997 as compared to cash used in financing activities of $1,510,000 for
the same period in 1996. Cash provided by financing activities during the six
months ended June 30, 1997 consisted mostly of borrowings under the Company's
revolving credit facility, offset partially by repayments of the term loan and
industrial revenue bonds.
12
<PAGE>
On June 16, 1997, the Company amended its Loan and Security Agreement ("the
Agreement") to renew and increase funds available under the revolver portion of
the Agreement from $3,000,000 to $12,000,000. In addition, the Company
reestablished financing lines for its lease portfolio and, subsequent to June
30, 1997, sold certain lease receivables to a financial institution for net
proceeds of $2,900,000. Management expects that the cash flow from its
operations and available lines of credit will be sufficient to meet its general
working capital and capital expenditure requirements in the near term. The
Company's finance subsidiary is expected to continue to support its working
capital requirements through periodic sales of its lease portfolios to third
party financial institutions.
CAUTIONARY STATEMENT FOR FORWARD LOOKING INFORMATION
Statements included in this Management's Discussion and Analysis of Financial
Condition and Results of Operations may contain forward-looking statements.
There are a number of risks and uncertainties that could cause actual results to
differ materially from those anticipated by the statements made above. These
include, but are not limited to, competitive factors, technological and product
developments, market demand, and uncertainties relating to the consolidation of
the merged companies businesses. Further information on these and other factors
which could affect the Company's financial results can be found in the Company's
Report on 10-K for the year ended December 31, 1996 and its proxy statement
dated April 23, 1997.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
FUQUA ARBITRATION
-----------------
On April 3, 1996, the Company completed the sale of substantially all
the assets of its Lumex Division to Fuqua Enterprises, Inc. ("Fuqua")
for $40,750,000 in cash. The asset sale agreement with Fuqua provides
for a post-closing adjustment to the sales price based on the change in
the net assets of the Lumex Division from December 31, 1995, through the
closing date. The Company has received notice from Fuqua that Fuqua
believes the stated amount of the net assets of the Lumex Division as of
the closing date are overstated by $9.3 million. The Company has
determined to proceed to arbitration to resolve parts of this dispute.
An initial submission to the arbitrator was made by Fuqua in March,
1997. On March 27, 1997, Fuqua notified the Company of claims for
breaches of certain of the Company's representations and warranties in
the asset sale agreement involving substantially the same matters
submitted to the arbitrator. The Company applied to the New York County
Supreme Court for a determination of the scope of the arbitration clause
contained in the purchase price provision of the asset sale agreement.
On April 18, 1997, the court issued an interim stay of the arbitration
proceedings pending a hearing of the Company's application to stay
arbitration as to six of the Fuqua claims. On May 9, 1997, following the
hearing, the court denied the Company's application for a stay of
arbitration and ordered the Company to arbitrate the dispute with Fuqua
in full.
The Company made its initial submission to the arbitrator in May, 1997
and filed its notice of appeal of the order issued by the Court dated
May 9, 1997. The Company perfected its appeal from said order on August
4, 1997. The arbitrator has directed that pre-hearing briefs be filed in
August, 1997, and has scheduled hearings in early September, 1997.
KIRILA ET AL V. CYBEX INTERNATIONAL, INC., ET AL
------------------------------------------------
This action was commenced in the Court of Common Pleas of Mercer County,
Pennsylvania on May 14, 1997 against the Company, the Company's wholly-
owned subsidiary, Trotter Inc., and certain officers, directors and
affiliates of the Company. The Plaintiffs are companies, and the
principal thereof, which sold to Trotter Inc., a strength equipment
company in 1993. In accordance with Pennsylvania practice, while this
action has been instituted, no Complaint has been filed. Accordingly, the
Company has not received a formal indication of the claims made or relief
sought in the proceeding or the factual basis alleged to underlie the
proceeding. The Company has, however, received a letter from counsel for
the Plaintiffs, indicating that the Plaintiffs will seek compensatory and
punitive damages in an amount exceeding $12,000,000. The Company intends
to vigorously defend this matter.
ITEM 2. CHANGES IN SECURITIES
On May 23, 1997, the Company issued 4,273,056 shares of Common Stock to
UM Equity Corp., pursuant to the Agreement and Plan of Merger dated
December 27, 1996, as amended, among the Company, the Company's wholly-
owned subsidiary, Cat's Tail, Inc., and Trotter Inc., in exchange for
all of the outstanding capital stock of Trotter Inc. In issuing these
shares, the Company relied on the exemption from registration provided
by Section 4(2) of the Securities Act of 1933, as amended.
14
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of the Company was held on May 23,
1997. At the meeting, action was taken on the following matters:
1. Kay Knight Clarke and Alan H. Weingarten were re-elected
directors of the Company. Immediately following the meeting,
directors J. Raymond Elliott, Carol G. Nelson and John C. Spratt
resigned from the Board, and John Aglialoro, James Carll, Joan
Carter, Arthur W. Hicks, Jr. and Jerry Lee were appointed to the
Board. In addition to the above individuals, Thomas W. Kahle and
Robert R. McMillan remain as continuing directors of the Company.
2. The proposal to adopt the Agreement and Plan of Merger dated as
of December 27, 1996, as amended (the "Merger Agreement"), among
the Company, Trotter Inc. and Cat's Tail, Inc., was approved.
3. The proposal to authorize an amendment to the Restated
Certificate of Incorporation of the Company ("Charter Amendment")
to increase the number of authorized shares of Company Common
Stock to 20,000,000 shares was approved.
4. The proposal to amend the Company's 1995 Omnibus Incentive Plan
("Plan Amendment") to increase the aggregate number of shares of
Company Common Stock that may be subject to benefits thereunder
to 750,000 shares was approved.
The number of shares cast for, against or withheld, as well as
the number of abstentions and broker non-votes, on each matter
considered at the meeting, were as follows:
<TABLE>
<CAPTION>
SHARES SHARES ABSTENTIONS/
VOTED VOTED SHARES BROKER NON-
FOR AGAINST WITHHELD VOTES
------- ------- -------- ------------
<S> <C> <C> <C> <C>
1. Election of Directors
Kay Knight Clarke 3,747,305 -- 444,334 --
Alan H. Weingarten 3,745,633 -- 446,006 --
2. Approval of Merger
Agreement 2,714,196 112,709 19,977 1,344,757
3. Approval of Charter
Amendment 2,879,620 114,759 22,253 1,175,007
4. Approval of Plan
Amendment 2,296,520 466,802 33,751 1,394,566
</TABLE>
15
<PAGE>
ITEM 5. OTHER INFORMATION
Jeffrey B. Leeson, Vice President, Strategic Planning and Operations,
has elected to exercise the Change of Control provision of his
employment contract and will be leaving the Company. He will be retained
as a consultant through the remainder of 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
3.1 Certificate of Amendment of the Certificate of
Incorporation of the Company, dated May 27, 1997. (Filed
herewith)
10.1 Distributor Agreement dated June 5, 1997 among the
Company, Trotter Inc., Forza Fitness Equipment, Ltd. and
Forza Group Ltd. (Filed herewith)
10.2 Management Employment Agreement between the Company and
Peter C. Haines*. (Filed herewith)
10.3(a) Amended and Restated Loan and Security Agreement, dated
June 16, 1997, among Summit Bank, the Company, and the
Company's Subsidiaries. (Filed herewith)
10.3(b) First Amendment to Amended and Restated Loan and
Security Agreement, dated July 15, 1997, among Summit
Bank, the Company, and the Company's Subsidiaries.
(Filed herewith)
10.4 1995 Omnibus Incentive Plan, as amended, incorporated by
reference to Exhibit 10(xx) to the Company's
Registration Statement on Form S-8 (No. 333-29045),
filed June 12, 1997*.
27.1 Financial Data Schedule. (Filed herewith)
________________________
* Executive compensation plans and arrangements
(b) Reports on Form 8-K
-------------------
On June 6, 1997, the Company filed a Report on Form 8-K, dated May
23, 1997, reporting on the merger with Trotter Inc. By means of an
amendment on Form 8-K/A, filed August 6, 1997, this Report
included the following financial statements:
The Company - Unaudited Pro Forma Combined Financial Statements
as of March 31, 1997
Trotter Inc. - Historical Unaudited Condensed Consolidated
Financial Statements as of March 31, 1997 and 1996
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CYBEX International, Inc.
------------------------------------------
By: /s/ Peter C. Haines
------------------------------------------
August 12, 1997 Peter C. Haines
President and Chief Executive Officer
By: /s/ William S. Hurley
------------------------------------------
August 12, 1997 William S. Hurley
Vice President and Chief Financial Officer
17
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.1 Certificate of Amendment of the Certificate of Incorporation of the
Company, dated May 27, 1997. (Filed herewith)
10.1 Distributor Agreement dated June 5, 1997 among the Company, Trotter
Inc., Forza Fitness Equipment, Ltd. and Forza Group Ltd. (Filed
herewith)
10.2 Management Employment Agreement between the Company and Peter C.
Haines*. (Filed herewith)
10.3(a) Amended and Restated Loan and Security Agreement, dated June 16,
1997, among Summit Bank, the Company, and the Company's
Subsidiaries. (Filed herewith)
10.3(b) First Amendment to Amended and Restated Loan and Security
Agreement, dated July 15, 1997, among Summit Bank, the Company, and
the Company's Subsidiaries. (Filed herewith)
10.4 1995 Omnibus Incentive Plan, as amended, incorporated by reference
to Exhibit 10(xx) to the Company's Registration Statement on Form
S-8 (No. 333-29045), filed June 12, 1997*.
27.1 Financial Data Schedule. (Filed herewith)
____________
* Executive compensation plans and arrangements
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
CYBEX INTERNATIONAL, INC.
Under Section 805 of the Business Corporation Law
-------------------------------------------------
WE, THE UNDERSIGNED, Peter C. Haines and William S. Hurley, being
respectively the President and the Assistant Secretary of CYBEX International,
Inc., do hereby certify:
FIRST: The name of the Corporation is CYBEX International, Inc.
-----
(hereinafter referred to as the "Corporation"). The name under which the
Corporation was formed was LUMEX, INC.
SECOND: The Certificate of Incorporation was filed with the
------
Department of State of New York on September 11, 1953.
THIRD: The Certificate of Incorporation is hereby amended to
-----
increase the aggregate number of Common Shares, par value $.10 per share, which
the Corporation shall have the authority to issue from 15,000,000 to 20,000,000.
Except for the increase in the number of shares authorized, the Corporation's
1
<PAGE>
Common Shares, par value $.10 per share, will not be affected in any manner.
The 500,000 Preferred Shares, par value $1 per share, that the Corporation is
authorized to issue (none of which have been issued), will not be affected by
such amendment. To effect such amendment, the first paragraph of Article THIRD
of the Corporation's Certification of Incorporation is hereby amended to read in
its entirety as follows:
"THIRD: The total number of shares of all classes which the
-----
Corporation shall have the authority to issue is twenty million five
hundred thousand (20,500,000) of which five hundred (500,000) are to be
Preferred Shares of the par value of the one dollar ($1) per share, and
twenty million (20,000,000) are to be Common Shares of the par value of ten
cents ($.10) per share. The Preferred Shares shall consist of such one or
more series as may be established from time to time by the Board of
Directors of the Corporation pursuant to the authority hereinafter
granted."
FOURTH: The Foregoing amendment of the Certificate of Incorporation
------
was authorized by the affirmative vote of the Board of Directors of the
Corporation, followed by the affirmative vote of the holders of a majority of
all outstanding Common Shares of the Corporation entitled to vote thereon at the
Corporation's Annual Meeting of Shareholders held on May 23, 1997.
2
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Certificate of
Amendment to be executed as of this 27th day of May, 1997 and do hereby affirm
under the penalties of perjury that the statements contained herein are true and
correct.
/s/ Peter C. Haines
--------------------------------
Peter C. Haines
President
/s/ William S. Hurley
--------------------------------
William S. Hurley
Assistant Secretary
3
<PAGE>
EXHIBIT 10.1
DISTRIBUTOR AGREEMENT
AGREEMENT, dated as of June 5, 1997, between (1) CYBEX International, Inc., a
New York corporation ("CYBEX"), (2) Trotter Inc., a Delaware corporation having
its principal place of business at 10 Trotter Drive, Medway, Massachusetts
("Trotter"), (3) Forza Fitness Equipment Ltd., a company registered in England
with number 2836238 (the "Distributor"), and (4) The Forza Group Limited, a
company registered in England with number 2768509 ("Forza").
PRELIMINARY STATEMENT
---------------------
(A) CYBEX has entered into the Agreement and Plan of Merger dated as of
December 27, 1996 (the "Merger Agreement"), among itself, Trotter, and Cats
Tail, Inc., a wholly-owned subsidiary of CYBEX, pursuant to which Cats
Tail, Inc. has merged with and into Trotter, with the result that Trotter
has become a wholly-owned subsidiary of CYBEX (the "Merger").
(B) CYBEX, the Distributor and Trotter have agreed that, subject as provided in
Clause 2, CYBEX/Trotter shall appoint the Distributor its exclusive
distributor for certain products within the Territories on the terms and
conditions more fully set forth herein.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Definitions
-----------
(a) The following terms, when utilized herein, shall have the indicated
meanings:
business day: A day (other than a Saturday or Sunday) on
------------
which banks are open for business in London;
Cardiovascular Products: Any cardiovascular-based health or fitness
-----------------------
related products or equipment of any kind
(including any improvements, modifications,
supplements, or replacements therefor)
which, in any such case, are developed,
manufactured, and/or promoted by any member
of the CYBEX Group from time to time, but
excluding New Products;
Cost: The cost to CYBEX/Trotter of the Strength
----
Products and Isokinetic Products as
certified by CYBEX/Trotter, from time to
time, on the basis of the cost model set out
in Exhibit A;
CYBEX Forza: CYBEX Forza International Ltd., a company
-----------
registered in England with number 3215786;
<PAGE>
CYBEX Group: CYBEX and all its subsidiary undertakings
-----------
and associated undertakings from time to
time;
CYBEX Products: Together CYBEX Cardiovascular Products,
--------------
CYBEX Strength Products, and Isokinetic
Products;
CYBEX Proprietary Marks: The trademarks and/or trade names and/or
-----------------------
logos of CYBEX listed in Exhibit B and/or
any other such trade marks and/or trade
names and/or logos used on or in relation to
the CYBEX Products from time to time;
CYBEX/Trotter: CYBEX and/or Trotter, as applicable;
-------------
Effective Date: The effective date of this Agreement, as
--------------
provided in Clause 2;
Enlarged Territory: Those territories edged and hatched black
------------------
(including the area edged and hatched blue)
on the map included in Exhibit C together
with any other geographical area(s) which
may be included by written agreement of the
parties;
Fitness Products: Together Cardiovascular Products and
----------------
Strength Products;
Force Majeure: In relation to any party, war, civil
-------------
conflicts, floods, Acts of God, strike,
lock-out or other form of Industrial action
or any other cause beyond its control and
for which it is not responsible;
Isokinetic Business: The sale and promotion of Isokinetic
-------------------
Products currently carried on by CYBEX;
Isokinetic Products: Those products listed in Exhibit D together
-------------------
with any other derivative products which are
internally developed by CYBEX from time to
time;
New Products: Any health, fitness or medical products or
------------
equipment of any kind (including any
improvements, modifications, supplements, or
replacements therefor) which, in any such
case,
2
<PAGE>
are manufactured or promoted by a
third party (other than a member of the
CYBEX Group) and which products (or the
rights thereto or interest therein) are
acquired by any member of the CYBEX Group
together with any medical products developed
by any member of the CYBEX Group;
Products: Such Cardiovascular Products, Strength
--------
Products, Isokinetic Products, Reactor and
New Products as to which the Distributor
from time to time, in accordance with the
provisions hereof, acts as a distributor
within the Territories (for the avoidance of
doubt, unless otherwise stated, Products
shall include parts for Products);
Proprietary Marks: Together the CYBEX Proprietary Marks and
-----------------
Trotter Proprietary Marks, together with any
trademarks and/or logos used on or in
connection with any Product;
Reactor: The product manufactured by CYBEX and known
-------
as "The Reactor";
Strength Products: Any strength-based health or fitness related
-----------------
products or equipment of any kind (including
any improvements, modifications,
supplements, or replacements therefor)
which, in any such case, are developed,
manufactured and/or promoted by any member
of the CYBEX Group from time to time, but
excluding New Products;
Term: The term of this Agreement;
----
Termination Agreement: The agreement of even date herewith between
---------------------
the parties to this Agreement;
Territories: Such portions of the Territory and the
-----------
Enlarged Territory as to which the
Distributor from time to time, in accordance
with the provisions hereof, has been
appointed as a distributor of Products;
Territory: England, Scotland, Wales, Germany, Austria,
---------
Switzerland, and Russia (as defined by the
old
3
<PAGE>
USSR and as edged and hatched blue on
the Territory map included in Exhibit C);
Trotter Proprietary Marks:The trademarks and/or trade names and
-------------------------
logos of Trotter listed in Exhibit E and/or
any other such trade marks and/or trade
names and/or logos used on or in relation to
the Trotter Products from time to time;
Trotter Products: Together Trotter Cardiovascular Products and
----------------
Trotter Strength Products.
(b) References to the singular shall include the plural and to any gender
shall include every gender and references to persons shall include
corporations and unincorporated associations.
2. Effectiveness of Agreement
--------------------------
This Agreement shall be effective solely upon CYBEX and Forza having
complied with their obligations under Clauses 2 and 3 of the Termination
Agreement. In the event that the above condition is not consummated on or
before July 1, 1997 (or such later date as may be agreed to by the
parties), this Agreement shall be void and of no further force or effect.
3. Appointment of Distributor
--------------------------
(a) CYBEX hereby appoints the Distributor as of the Effective Date as its
sole and exclusive distributor for the sale, marketing and promotion
of
(i) the CYBEX Products and the Reactor in the Territory;
(ii) the Reactor in the Enlarged Territory until 31 December 1997;
and
(iii) the Isokinetic Products in the Enlarged Territory until 31
December 1997 or until the sale of the Isokinetic Business or
the discontinuance by CYBEX of said Business (whichever is the
earlier)
in each case in accordance with the terms of this Agreement.
(b) CYBEX/Trotter shall on the Effective Date serve notice of termination
of the existing Distributor Agreement dated January 10, 1994 between
Trotter and Polaris International, which notice shall state that such
termination shall be effective three months after the date of notice.
4
<PAGE>
(c) CYBEX/Trotter shall appoint the Distributor with effect from the
termination of the agreement referred to in Clause 3(b) as its sole
and exclusive distributor for the sale, marketing and promotion of the
Trotter Products in England, Scotland and Wales all in accordance with
the terms of this Agreement.
(d) CYBEX/Trotter hereby appoints the Distributor as of the Effective Date
as its sole and exclusive distributor for the sale, marketing and
promotion of the Trotter Products in the Territory (other than
England, Scotland and Wales) all in accordance with the terms of this
Agreement.
(e) Prior to commencing the sale of New Products in the Territory, CYBEX
shall offer the Distributor the right to be the exclusive distributor
in the Territory for such New Products, at the best pricing offered by
CYBEX and on such other commercial terms as are generally offered to
CYBEX's other distributors. Such offer shall be in writing and shall
include all material terms of the proposed arrangement. If the
Distributor accepts such offer (which acceptance must be made in
writing within thirty days after receipt of such offer), it shall be
the exclusive distributor for such New Products in the Territory. If
the Distributor does not provide such notice of acceptance in
accordance with this Clause, (i) the Distributor shall have no right
to promote, market or sell such New Products in the Territory, (ii)
the term "Products" as utilized herein shall specifically exclude such
New Products, and (iii) CYBEX shall be free to promote, market and
sell such Products throughout the Territory in any manner it
determines to be appropriate.
(f) During the Term CYBEX will not appoint, nor will it permit Trotter or
any other subsidiary to appoint, another authorized distributor in the
Territory for Products; provided that Trotter may, subject to Clause
3(b), continue to utilize Trotter UK/Polaris International as its
distributor in England, Scotland and Wales until the effective
termination of the agreement referred to in Clause 3(b). During this
period of time, Trotter shall only accept orders from Trotter
UK/Polaris International against orders evidenced in writing and sold
by Trotter UK/Polaris International. CYBEX and Trotter each reserves
the right to sell and distribute Products to anyone on any terms
outside of the Territory and to terminate the manufacture or sale to
the Distributor of any Product if it has ceased to manufacture and
sell any such Product throughout the world.
(g) The Distributor shall be entitled, subject to Clause 9(e), to promote
and market the Products in the Territories in any reasonable manner
and, in particular, to resell the Products to its customers at such
prices as it may determine and, subject to Clause 4(l), to appoint and
remove sales agents or sub-distributors for any jurisdiction within
the Territories on an exclusive or nonexclusive basis in connection
with the sales or marketing of the Products as aforesaid.
5
<PAGE>
(h) For the avoidance of doubt, the Distributor shall be entitled to
fulfill (but not solicit) orders for Fitness Products for supply to
medical establishments in the Enlarged Territory until 31 December
1997.
(i) Notwithstanding any other provision of this Agreement, all
distributors (including sub-distributors) and/or dealers with whom
CYBEX Forza is carrying on business at the Effective Date shall for
the period of 30 days thereafter be entitled to place orders for CYBEX
Products through and for the account of the Distributor.
(j) Notwithstanding any other provision of this Agreement, all
distributors (including sub-distributors) and/or dealers with whom
Trotter is carrying on business at the Effective Date shall for the
period of 30 days thereafter be entitled to place orders for Trotter
Products through and for the account of Trotter.
(k) Following the Effective Date, the parties shall cooperate to ensure
that payments received by CYBEX Forza and/or the Distributor and/or
CYBEX/Trotter are applied to the oldest outstanding invoices of CYBEX
Forza and/or CYBEX/Trotter.
4. Distributor Responsibilities
----------------------------
Distributor hereby undertakes to:
(a) Actively and aggressively promote, demonstrate and sell Products
throughout the Territories.
(b) Submit an outline marketing plan to CYBEX at least 60 days prior to
the beginning of each of CYBEX's fiscal years, outlining promotional
activities, advertising, pricing strategies, training requirements and
sales forecasts for that fiscal year, the first such plan to be
submitted in respect of the fiscal year commencing January 1, 1998.
(c) Provide or procure the provision of prompt and appropriate
installation, repair and maintenance services to customers in the
Territories and instruct them in the proper use and care of Products.
(d) Absorb labor costs for repair and service on Products under warranty,
except (i) where such costs are incurred in respect of Products sold
prior to the Effective Date of this Agreement (in which case
CYBEX/Trotter shall reimburse the Distributor for any actual costs
within 60 days of receipt of evidence of same, provided the
Distributor uses reasonable endeavours to utilize the most efficient
6
<PAGE>
means of warranty service; this reimbursement procedure shall be
effective during 1997 and shall be subject to adjustment as mutually
agreed between the parties as of January 1, 1998), without regard to
the customer's source of the Products, and (ii) that Distributor will
be entitled to standard warranty reimbursement for Products under
warranty sold after the Effective Date of this Agreement;
(e) Assure, with the full cooperation of CYBEX/Trotter, that Distributor's
sales and service personnel are thoroughly and properly trained.
(f) Establish and maintain an adequate inventory of replacement parts.
(g) Maintain demonstration models of at least two CYBEX or Trotter models
per Product category on display.
(h) Assist CYBEX/Trotter in securing any necessary clearance for the legal
sale of Products in the Territories.
(i) Communicate as often as is reasonably necessary with CYBEX/Trotter
regarding promotional activities, service situations, and other
matters relating to performance under this Agreement.
(j) Keep confidential all technical and marketing information supplied by
CYBEX/Trotter unless such information has become public knowledge
through no fault of the Distributor.
(k) Subject to Clause 5(c), assume sole responsibility for all costs and
expenses of its own activities, programs and operations carried out in
pursuit of the objectives of this Agreement.
(l) Use all reasonable endeavors as soon as reasonably practicable
following its appointment under Clause 3(c) (i) to appoint Trotter
UK/Polaris International as a sub-distributor of Trotter Products in
Great Britain under fair and reasonable terms as agreed between the
Distributor and Trotter UK/Polaris International provided that CYBEX
has complied with its obligations under Clause 5(q), and (ii) to
continue such sub-distributor relationship during the Term.
(m) Meet or exceed the Performance Criteria set forth in Clause 13.
(n) Meet the payment terms set forth in Clause 7.
7
<PAGE>
5. CYBEX/Trotter Responsibilities
------------------------------
CYBEX/Trotter hereby undertakes to:
(a) Provide sales manuals, service manuals and such other promotional and
documentary materials as are available from time to time and which are
normally provided to the overseas distribution network at no cost to
the Distributor save for any reproduction costs.
(b) Provide promotional literature in English at no charge in reasonable
quantities and furnish existing artwork for production of literature
or advertisements by Distributor at no charge. Copies of artwork,
photographs or advertisements for the production of literature or
advertisements by the Distributor shall be charged at reproduction
cost only.
(c) Provide to the Distributor the same global marketing program it
provides to others and, in addition, each year CYBEX will reimburse
the Distributor for its participation in the FIBO show in Germany and
the LIW show in the United Kingdom in an aggregate amount equal to the
average CYBEX cost for these shows for the three years prior to the
Effective Date, plus any additional amounts agreed to by the parties
as part of the Distributor's marketing plan. During the first year
following the Effective Date these additional amounts will include the
amount which is necessary to fund the trade show presence at the FIBO
show 1998 and the LIW show 1997 and which Trotter has at the date of
this Agreement agreed to purchase. Trotter will as soon as practicable
following the Effective Date inform the organizers of said shows that
the Distributor is its authorized representative thereat.
Reimbursements will be made 90 days following actual expenditures
during the remainder of 1997 and 60 days following actual expenditures
thereafter.
(d) Provide timely delivery of orders in accordance with prevailing
manufacturing lead times. The time period from order to availability
will be consistent with the time period from order to availability for
other CYBEX/Trotter distributors of like size. CYBEX/Trotter shall not
be liable to Distributor for failure to deliver or for delay in making
delivery if such failure or delay results from any event brought about
by causes other than wilful or grossly negligent conduct by
CYBEX/Trotter.
(e) Organize training programs for Distributor's sales and service
personnel. CYBEX will assume responsibility for normal room and board
for Distributor personnel while they are in Massachusetts or Minnesota
for training.
8
<PAGE>
(f) Offer as soon as reasonably practicable following any request therefor
such technical assistance for service and repair problems as the
Distributor may experience and may reasonably require.
(g) Forward to the Distributor any sales leads for Products received from
the Territories, including requests for quotation.
(h) Keep confidential all confidential information supplied to
CYBEX/Trotter by the Distributor unless such information has become
public knowledge through no fault of CYBEX or any member of the CYBEX
Group.
(i) Submit an outline marketing plan to the Distributor at least 60 days
prior to the beginning of each of CYBEX's fiscal years, outlining
promotional activities, advertising, pricing strategies, training
requirements and sales forecasts for that fiscal year, the first such
plan to be submitted in respect of the fiscal year commencing January
1, 1998.
(j) Communicate as often as is reasonably necessary with Distributor
regarding product changes, pricing, promotional data and other
information that would be of assistance to Distributor.
(k) Not appoint any other person as a distributor or agent for the
Isokinetic Products in the Enlarged Territory while the Distributor is
acting as exclusive distributor pursuant to Clause 3(a)(ii).
(l) Not directly or indirectly, while the Distributor is acting as
exclusive distributor pursuant to this Agreement, supply to any other
person (i) any of the Products for resale in the Territory and/or (ii)
any of the Isokinetic Products for resale in the Enlarged Territory or
sell any Products itself in the Territories.
(m) Supply to the Distributor up-to-date copies of cost lists for the
Strength Products and Isokinetic Products from time to time.
(n) Supply to the Distributor up-to-date copies of distributor prices for
the Strength Products from time to time.
(o) Supply to the Distributor up to date copies of all list prices for
Cardiovascular Products and the Reactor from time to time.
(p) Ensure that the pricing for Cardiovascular Products and/or Strength
Products and/or the Reactor is equal to the most favorable pricing
then in place by CYBEX/Trotter and inform the Distributor within five
business days of any
9
<PAGE>
changes to most favorable pricing for Cardiovascular Products and/or
Strength Products and/or the Reactor.
(q) Procure that, as soon as reasonable practicable after the
Distributor's appointment under Clause 3(c), Trotter UK Limited shall
change its name to such name as shall not include the word "Trotter"
or any word reasonable capable of being confused with the word
"Trotter."
6. Exclusions
----------
Distributor and Forza each hereby agrees:
(a) Subject to Clause 6(b), not to manufacture, promote, distribute or
sell products within the Territories which both:
(i) are intended for resale at a price within 5% of the price of any
Product in the Territories; and
(ii) perform substantially the same function and have substantially
the same features as the Product referred to in (i);
provided, however, this restriction shall not apply to any products
which may be acquired by the Distributor from any manufacturer with
which the Distributor is actively trading as of the date of this
Agreement, a list of which is set out as Exhibit F.
(b) With effect from December 31, 1997 to cease distributing and acting as
a distributor of products manufactured by Quinton and to begin to
reduce its distribution of such products as of July 31, 1997.
(c) Subject to Clause 3(i) of this Agreement and to the sale, pursuant to
the Termination Agreement, of the Allocated Inventory (as defined in
the Termination Agreement), not to promote, distribute or sell
Products outside the Territories without the prior written consent of
CYBEX.
(d) Not to make changes or alterations to the Products without the prior
written consent of CYBEX.
7. Pricing and Terms of Supply
---------------------------
(a) Upon receipt of each order CYBEX/Trotter shall exercise best
endeavours to inform the Distributor as soon as reasonably practicable
of the estimated date on which the Products will be available ex-
factory, and the time period from order
10
<PAGE>
to availability will be consistent with the time period from order to
availability for other CYBEX/Trotter distributors of like size.
CYBEX/Trotter shall notify the Distributor as soon as reasonably
practicable if it becomes aware of circumstances that will cause these
estimated dates to be exceeded. CYBEX/Trotter shall provide weekly
updates of changes in manufacturing lead times.
(b) Purchase orders, invoices and directions/instructions issued pursuant
to this Agreement and any other directions or instructions issued by
either the Distributor or CYBEX/Trotter shall be consistent with this
Agreement, and any additional terms or conditions whatsoever shall not
be binding, upon the parties unless separately agreed to in writing by
the receiving party, and if there is any inconsistency between any
purchase orders, invoices or other directions or instructions and this
Agreement, this Agreement shall prevail.
(c) All Products to be supplied under this Agreement shall be sold ex-
factory, excluding freight, insurance, custom duties, export crating,
and forwarding, banking and consularization fees, which shall be paid
by Distributor, at the following prices:
(i) Strength Products - Cost plus 23% thereof;
(ii) Isokinetic Products - Cost plus 35% thereof;
(iii) Cardiovascular Products and the Reactor - 50% off the prevailing
domestic price list published from time to time by CYBEX/Trotter
(which may include price increases) or the best pricing then
available from CYBEX/Trotter (whichever is more favorable to the
Distributor). CYBEX and Trotter each warrants to the Distributor
that this discount rate is equal to the most favorable pricing
currently in place by CYBEX or Trotter, as applicable, and
undertakes to the Distributor that this discount rate shall not
be adversely altered for the Distributor and that the Distributor
shall receive the benefit of any improvement in pricing by
CYBEX/Trotter. If a product discount is used in lieu of cash with
respect to a promotional or marketing program, CYBEX and Trotter
need not include such product discount in determining best
pricing available.
(iv) Parts shall be supplied at the best applicable discounts
available to other distributors.
11
<PAGE>
(d) CYBEX/Trotter will be responsible for all standard packaging and will
provide labour for packing the Products into standard shipment
containers at its warehouse(s), but it shall not be responsible for
the costs of such containers.
(e) Distributor shall be responsible for all costs of shipment, including
freight, insurance, customs duties, export crating, and forwarding,
banking and consularization fees, including those of U.S. banks.
(f) CYBEX/Trotter shall give to the Distributor not less than 90 days
notice of any changes in the prices of any Products. Prior
notification of parts price increases, however, shall be not less than
seven days. Such notice may be by letter or fax and may indicate
future price increases as a percentage of current prices. Orders
received in writing, delivered by mail, fax or courier, before the
effective date of a new price list shall be invoiced according to the
prices prevailing at time of receipt of order, regardless of prices
prevailing at time of shipment, provided they call for immediate
shipment and acceptance of goods subject to normal manufacturing lead
times.
(g) During calendar year 1997, invoices shall be paid in full in US
dollars within ninety days of the invoice date therefor (which shall
be the date of shipment of the Products). Effective January 1, 1998,
unless otherwise agreed to in writing, invoices shall be paid in full
in US dollars within sixty days of the invoice date therefor (which
shall be the date of shipment of the Products). The applicable date
for payment is hereinafter referred to as the "Due Date."
(h) If the Distributor fails to pay the price for any Products on or
before the Due Date therefor CYBEX/Trotter shall be entitled to charge
and collect from the Distributor interest at the rate of 18% per annum
on the relevant invoice value.
(i) If the Distributor fails to pay the price for any Products within 15
days after the Due Date therefor CYBEX/Trotter shall be entitled to
withhold shipment of future Products until such time as the
Distributor shall have remedied such non-payment unless the nonpayment
has arisen as a result of a bona fide dispute between the parties with
respect to which the Distributor has given CYBEX/Trotter at least 30
days prior written notice.
(j) CYBEX/Trotter is not obligated to provide consignment inventory after
the Effective Date, and the parties shall handle existing consignment
inventory on a mutually agreeable basis.
8. Limitations
-----------
12
<PAGE>
Nothing in this Agreement shall be construed as authorizing the Distributor
to contract any debt or liability on behalf of CYBEX or the CYBEX Group.
Subject to Clause 4(d), CYBEX/Trotter will not be liable for any
expenditures made or incurred by Distributor in connection with the
performance of the Distributor's obligations pursuant to this Agreement.
9. Licence and Intellectual Property
---------------------------------
(a) CYBEX/Trotter hereby grants during the Term and thereafter during the
sell-off period referred to in Clause 12, a royalty free exclusive
licence, subject to the terms of this Agreement, to use the
Proprietary Marks within the Territories in connection with the
distribution of Products.
(b) The Distributor acknowledges that all CYBEX Proprietary Marks are
valid and belong exclusively to CYBEX and that all Trotter Proprietary
Marks are valid and belong exclusively to Trotter, and the Distributor
agrees not contest the same or any other proprietary rights of CYBEX
or Trotter during the Term or at any time thereafter.
(c) The Distributor shall be entitled to describe itself as CYBEX's and
Trotter's "Authorized Distributor" for the Products as contemplated by
this Agreement.
(d) The Distributor and CYBEX/Trotter agree to cooperate with each other
as shall be necessary to prevent any acts of trademark infringement or
unfair competition with respect to any Proprietary Marks and
CYBEX/Trotter shall be obliged to take all such steps as shall be
necessary to prevent the same, but CYBEX/Trotter shall have sole
control over all actions and legal proceedings to suppress
infringement of and unfair competition with respect to any such
Proprietary Marks and any costs incurred by the Distributor at the
request of CYBEX/Trotter in connection with such actions and legal
proceedings shall be at CYBEX's/Trotter's expense.
(e) Distributor agrees that it will use the Proprietary Marks in
connection with the promotion and sale of Products and customer
service for Products only in such manner, to such extent, and for such
purposes as are within CYBEX/Trotter's accepted manner of usage of
such Proprietary Marks as communicated by CYBEX/Trotter to the
Distributor in writing from time to time.
10. Duration
--------
This Agreement shall come into force on the date hereof, subject to Clause
2, and, except as provided herein, shall continue for a fixed term until 31
December 2002, at which point:
13
<PAGE>
(a) if the Distributor has not met the performance criteria set forth in
Clause 13(b) for the calendar year 2002, CYBEX will have the right to
terminate this Agreement during the 90 day period referred to in
Clause 13(c); or
(b) if the Distributor has met the performance criteria set forth in
Clause 13(b) for the calendar year 2002, the Term shall thereafter be
terminable on not less than 24 calendar months' written notice to
expire at any time on or after 31 December 2004. In the event of any
such extension of the Term, then this Agreement shall thereafter be
varied such that:
(i) the prices relating to the supply of Products shall be equal to
the most favorable prices then in place by CYBEX/Trotter (and
CYBEX/Trotter undertakes to the Distributor that such prices
shall be adjusted upon any change in the most favorable prices by
CYBEX/Trotter); and
(ii) Clause 13 shall no longer apply.
11. Warranties, Liability and Replacement Parts Service
---------------------------------------------------
(a) CYBEX/Trotter warrants to the Distributor that:
(i) all Proprietary Marks are (or will be in respect of any
applications for registration of such marks made following the
date hereof) capable of being licensed as set out hereunder; and
(ii) it is not aware of any rights of any third party which would
render the sale of the Products, or the use of any of the
Proprietary Marks on or in relation to the Products, unlawful or
an infringement of any third party rights relating thereto, nor
has it received any written notification from any third party
alleging such infringement;
(b) CYBEX warrants to the Distributor that any information supplied by it
or any member of the CYBEX Group to the Distributor pursuant to this
Agreement shall be complete and accurate in all material respects and
shall not omit anything which would affect the accuracy of said
information in any material respect.
(c) The Distributor warrants to CYBEX that any information supplied by it
to CYBEX or to any member of the CYBEX Group pursuant to this
Agreement shall be complete and accurate in all material respects and
shall not omit anything which would affect the accuracy of said
information in any material respect.
14
<PAGE>
(d) All sales of Products hereunder shall comply with relevant CE and TUV
requirements (where applicable) and shall be made pursuant to
CYBEX's/Trotter's standard written warranty, as from time to time in
effect. Without limiting the foregoing, and notwithstanding any
contrary provision contained herein, CYBEX's and Trotter's
responsibility with respect to any defect in material or workmanship
of, or in connection with any injury to persons or property caused by,
the Products sold hereunder shall be solely governed by the terms and
provisions of such standard warranty. Except for such written
warranty, CYBEX AND TROTTER EACH HEREBY DISCLAIMS ALL WARRANTIES,
EXPRESSED OR IMPLIED, INCLUDING IMPLIED WARRANTIES ON MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE.
(e) Distributor shall be solely responsible for any warranty in connection
with any sales of Products which it has provided other than the
warranties set forth in CYBEX's/Trotter's published warranty policies
which have supplied to the Distributor by CYBEX/Trotter.
(f) Distributor agrees to follow the procedures established from time to
time by CYBEX/Trotter and supplied to the Distributor for the
processing and disposition of warranty claims and the return and
disposition of replacement parts supplied by CYBEX/Trotter for
Products which are claimed to be defective.
(g) Distributor's obligation hereunder extends, subject to Clause 4(d), to
all Products under warranty presented to Distributor by a customer in
the Territories, regardless of when the Products were sold and whether
Distributor sold Products to the customer.
(h) CYBEX/Trotter will provide replacement Products/replacement parts for
Products during the Term, at no cost to Distributor (except duty), in
accordance with the applicable warranty described in Clause 11(d).
(i) CYBEX shall to the fullest extent permitted by law indemnify, defend
and hold harmless the Distributor from and against any and all claims,
actions, liabilities, demands, proceedings or judgments (collectively,
"Claims") brought or established against the Distributor in any
jurisdiction by any third party arising from or related to (i) CYBEX
disposing of or ceasing to carry on the Isokinetic Business and/or
(ii) CYBEX's actions or omissions in connection with the termination
of the agreement referred to in Clause 3(b) and/or the termination of
any other existing agreements or arrangements relating to the
distribution of Trotter Products in the Territory, provided that the
Distributor gives CYBEX prompt notice of the assertion of the Claims,
the Distributor provides
15
<PAGE>
reasonable assistance as requested by CYBEX (and at CYBEX's expense)
in the defense of the Claim, and CYBEX has the sole right to control
the defense and settlement of the Claim, and provided further that
CYBEX's obligations hereunder shall not apply to any claims arising
from actions or omissions of the Distributor.
12. Termination
-----------
(a) This Agreement may be terminated by CYBEX with respect to any country
or countries within the Territory in accordance with Clause 13(c).
(b) Except to the extent that a greater notice period is required by any
applicable statute, CYBEX shall have the right to terminate the
Agreement (or by part thereof) with immediate effect by sending notice
to Distributor by certified mail, return receipt requested or by fax,
for the following specific reasons:
(i) The dissolution, liquidation or change of ownership (i.e.
transfer of majority of capital stock) of the Distributor.
(ii) The voluntary institution by the Distributor of any proceeding
seeking relief or readjustment of indebtedness or the involuntary
institution against the Distributor of any such proceedings.
(iii) Any sale, assignment or transfer or attempted sale, assignment or
transfer by the Distributor of such part of its business as
relates to the distribution of the Products without the prior
written consent of CYBEX, not to be unreasonably withheld.
(iv) Submission by Distributor of a fraudulent report or statement or
of a fraudulent claim for reimbursement, refund or credit which
in any case has not been remedied by the Distributor within
thirty (30) days of Distributor's receipt of written notice of
same from CYBEX.
(v) The failure of Distributor to pay any invoice hereunder within 60
days after the Due Date of the relevant invoice, provided that
CYBEX has given the Distributor at least thirty (30) days prior
written notice in accordance with Clause 25.1 of Distributor's
failure to pay on the Due Date.
(c) Except to the extent that a greater notice period is required by any
applicable statute, the Distributor shall have the right to terminate
this Agreement with immediate effect by sending notice to CYBEX by
certified mail, return receipt requested, or by fax, for the following
specific reasons:
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<PAGE>
(i) The dissolution or liquidation of CYBEX.
(ii) The voluntary institution by CYBEX of any proceeding seeking
relief or readjustment of indebtedness or the involuntary
institution against CYBEX of any such proceedings.
(d) Upon termination of this Agreement, the Distributor may sell stocks of
Products (and, to the extent that such stocks are insufficient
CYBEX/Trotter will supply to the Distributor sufficient numbers of
Products) to enable the Distributor to fulfil orders which it has
accepted from customers prior to the date of termination of this
Agreement but which are unfulfilled (in whole or in part) or to
otherwise dispose of its stock on hand.
(e) Upon termination of this Agreement, all outstanding debts or claims
which one party may have against the other shall become immediately
due.
(f) Upon termination of this Agreement, CYBEX is entitled (but not
obligated), subject to Clause 12(d), to take over Distributor's stock
of Products at that time to dispose of as is seen fit, in which event
it will credit Distributor with ex-factory prices (including freight
and duty) for the corresponding goods (as long as they are in good
repair and condition).
(g) After termination of this Agreement, Distributor shall save as
provided in Clause 12(d) refrain from the use or promotion of
equipment, literature or advertising matter related to CYBEX, Trotter
or the Products which may imply or suggest a continuing relationship
with CYBEX or Trotter.
(h) Upon termination of this Agreement, Distributor shall provide CYBEX
with the names and addresses of all customers who purchased and/or
obtained service for Products from or by Distributor and the service
records of all such customers.
(i) Nothing in this Clause 12 shall be construed as adversely affecting
the rights and remedies of the parties as provided by law with respect
to breaches of this Agreement.
13. Performance Criteria
--------------------
(a) The parties agree that the initial base sales figures for the purposes
of this Clause shall (i) in respect of each individual country within
the Territory be as set out in Column (1) of Schedule 1 (the figures
for each individual country in said Column being an "Individual Base
Amount") and (ii) in respect of the entire Territory be the aggregate
total of all Individual Base Amounts, being the "Total Base Amount."
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<PAGE>
(b) The Distributor undertakes to CYBEX to ensure that the aggregate price
of Products ordered during each successive period of 12 months
commencing 1 January 1998 is equal to or exceeds the Total Base
Amount:
(i) plus on a compound basis 15% thereof (being the aggregate total
(the "Total Adjusted Base Amount") of the amounts set out in
Columns (2) -(6) of Schedule 1 (being in respect of each country
an "Individual Adjusted Base Amount")); or
(ii) plus on a compound basis x% thereof (where x equals the amount
(expressed as a percentage) by which the aggregate turnover of
CYBEX and Trotter worldwide sales (net of sales pursuant to this
Agreement) for the relevant period of 12 months exceeds said
turnover in the immediately preceding period of 12 months, in
each case as set out in the relevant accounts of CYBEX),
whichever is the lower.
(c) In the event that the Distributor fails to meet the performance
criteria set forth in Clause 13(b) for any year, CYBEX shall be
entitled, at any time during the 90-day period following the
publication of CYBEX's audited financial statements for the year, to
terminate this Agreement in respect of any country or countries in the
Territory where the aggregate price of Products ordered for re-sale in
that country during the prior year is less than the relevant
Individual Base Amount or Individual Adjusted Base Amount, but such
termination shall be without prejudice to the Distributor's rights to
the remaining countries in the Territory. The provisions of Clause
12(d) shall apply to the sales of any Products following any such
termination by CYBEX.
(d) The parties agree that if the lead delivery times (being the period
between the placement of any confirmed orders for Products and
shipment thereof) are longer than eight weeks then this may have an
adverse effect upon the Distributor's ability to comply with its
obligations under Clause 13(b) and the parties shall agree upon such
adjustment to the performance criteria in Clause 13(b) as shall be
reasonable in the circumstances.
(e) The Distributor shall provide to CYBEX within 60 days after the end of
each year all information reasonably required to determine the price
of Products ordered for re-sale in each country listed on Schedule 1
for that year.
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14. Isokinetic Business
-------------------
(a) In the event that CYBEX intends to sell or otherwise dispose of the
Isokinetic Business it shall provide the Distributor with a notice (a
"Transfer Notice") as soon as reasonably practicable and in any event
not less than 14 days prior to such sale or other disposition setting
out all material terms upon which it intends to sell or otherwise
dispose of said Business and shall offer to sell the Isokinetic
Business to the Distributor on terms no less favorable than as set out
in the Transfer Notice (save that the consideration payable by the
Distributor shall exceed the consideration set out in the Transfer
Notice by US$1).
(b) The Distributor shall within seven days of receipt of a Transfer
Notice inform CYBEX whether it wishes to acquire the Isokinetic
Business and if it wishes to acquire said Business CYBEX shall be
obliged to sell said Business to the Distributor. If the Distributor
does not indicate within the said seven day period its intention to
acquire the Isokinetic Business then CYBEX shall be at liberty to
transfer said Business to any third party in accordance with the terms
set out in the Transfer Notice but shall not be entitled to sell said
Business for any lower consideration than specified in said Notice.
(c) In the event that CYBEX intends to cease operating the Isokinetic
Business (without a sale or other disposition of such Business), CYBEX
shall give the Distributor not less than seven days notice of its
cessation of such Business and the Distributor shall be entitled to
make a bid to purchase such Business; provided (in the event there is
no sale of such Business) CYBEX will exercise its best endeavors
(subject to the transfer of its physical facility) to supply
Isokinetic Products as reasonably required by Distributor for the
period of six months following the date of such notice and CYBEX will
supply replacement parts for any Isokinetic Product as long as there
is an existing warranty obligation by CYBEX for such product. In the
event CYBEX intends to transfer its physical facility, it will give
the Distributor not less than seven days notice prior to such transfer
and the Distributor shall be entitled to place a bulk order (on
mutually agreed reasonable terms) to cover the time gap resulting from
the transfer of the physical facility.
15. Information Evaluation
----------------------
(a) The Distributor shall have the right once during any calendar year of
the Term, on not less than seven days prior written notice, to inspect
the source of any information relating to the price of the Products
under this Agreement and to instruct its auditors to produce a report
certifying the accuracy of any such information. If such audit reveals
any material inaccuracy in such information (being any such inaccuracy
which has resulted in the Distributor making any
19
<PAGE>
overpayments exceeding 1% of the total amount shown by such Report to
be the correct amount which should have been paid by the Distributor
for all Products for the year) and such material inaccuracy is
confirmed by agreement of, or a decision binding on, the parties,
CYBEX shall bear the cost of such Report. If a material inaccuracy is
not shown by such Report and confirmed, the Distributor shall bear the
cost of such Report. If an overpayment or underpayment is identified
and confirmed through this process, CYBEX or the Distributor, as
applicable, shall make a corrective payment within 14 days of demand.
(b) CYBEX shall have the right once during any calendar year of the Term,
on not less than seven days prior written notice, to inspect the
source of any information relating to the Distributor's performance
against the Performance Criteria set forth in Clause 13 and to
instruct its auditors to produce a report certifying the accuracy of
any such information. If such audit reveals any material inaccuracy in
such information (being any such inaccuracy which has resulted in the
Distributor not meeting one or more of the Performance Criteria and
thereby being subject to a termination pursuant to Clause 13(c)) and
such material inaccuracy is confirmed by agreement of, or a decision
binding on, the parties, the Distributor shall bear the cost of such
Report. If a material inaccuracy is not shown by such Report and
confirmed, CYBEX shall bear the cost of such report.
(c) Each party shall, if requested by the other in accordance with this
Agreement, provide that other party and its authorized representatives
with such information, access to documentation and assistance as is
within the possession of that party and which may be reasonably
required by the other party for the purposes of any such review.
16. Force Majeure
-------------
(a) If any party is affected by Force Majeure it shall forthwith notify
the other parties of the nature and extent thereof.
(b) No party shall be deemed to be in breach of this Agreement, or
otherwise be liable to the others, by reason of any delay in
performance, or non-performance, of any of its obligations hereunder
to the extent that such delay or non-performance is due to any Force
Majeure of which it has notified the other party, and the time for
performance of that obligation shall be extended accordingly.
(c) If the Force Majeure in question prevails for a continuous period of
five months, the parties shall make a bona fide attempt to alleviate
the effect of the
20
<PAGE>
Force Majeure and, if that attempt has not been successful by the end
of the sixth month, the affected party or parties have the right to
terminate this Agreement in accordance with Clause 12 notwithstanding
the existence of the Force Majeure.
17. Binding Effect
--------------
This Agreement is binding on and shall inure to the benefit of the parties
hereto and their respective successors and assigns.
18. No Implied Waivers
------------------
The failure of either party at any time to require performance by the other
of any provision of this Agreement shall in no way affect the full right to
require such performance at any time thereafter, nor shall waiver by either
party of any succeeding breach of the same or any other provision
constitute a waiver of the provision itself.
19. Amendments
----------
Terms of this Agreement may be amended by mutual consent of the parties
hereto only in writing, duly signed by authorized officials of each of the
parties.
20. Entire Agreement
----------------
This Agreement contains the entire agreement among CYBEX, Trotter,
Distributor, and Forza with respect to the subject matters hereof and with
effect from the Effective Date supersedes all prior agreements or
understandings of the parties with respect thereto.
21. Severability
------------
If at any time subsequent to the date hereof, any provision of this
Agreement shall be held by any court of competent jurisdiction to be
illegal, void or unenforceable or in conflict with the law of any state or
jurisdiction, such provision shall be severed from this Agreement or
otherwise modified to become valid and enforceable insofar as it relates to
that jurisdiction only, but the illegality or unenforceability of such
provision shall have no effect upon and shall not impair the enforceability
of any other provision of this Agreement.
22. Nature of Agreement
-------------------
Nothing in this Agreement shall create, or be deemed to create, a
partnership or the relationship of principal and agent or employer and
employee between the parties.
21
<PAGE>
23. Applicable Law
--------------
This Agreement shall be governed by and construed in all respects in
accordance with the laws of England.
24. Jurisdiction
------------
The courts within the State of Massachusetts shall have exclusive
jurisdiction of all disputes and controversies arising out of or related to
this Agreement or the parties' performance hereunder, and the parties
consent to the exclusive jurisdiction of such courts.
25. Notices and Service
-------------------
25.1 Any Notice required or desired to be given by either party hereto to the
other shall be deemed validly given if delivered by hand or sent by pre-
paid post (airmail, if sent abroad) or by fax:
(i) in the case of CYBEX or Trotter, to its above address (fax 1508
533 5799) (attn: Peter Haines) but with a courtesy copy to James
Carll at Archer & Greiner (fax 1 609 795 0574);
(ii) in the case of the Distributor or Forza, to its above address
(fax 44 171 816 5375) (attn: David Giampaolo/Patrick Hooper) but
with a courtesy copy to John Loffhagen at Gouldens (fax 44 171
583 3051)
but any party may by written notice to the others nominate an alternative
address (or fax number) for the purposes of service hereunder.
25.2 In the case of a Notice delivered by hand it shall be deemed to be
delivered at the time of delivery (if delivered between 9:00 a.m. and 4:30
p.m. on a business day in the receiving party's country) or (if not so
delivered) at 9:00 a.m. in the receiving party's country on the next
business day following; in the case of a Notice posted as aforesaid it
shall be deemed to have been served on the fifth business day following
dispatch; and in the case of a Notice sent by fax it shall be deemed to
have been served at the time of dispatch (if dispatched on a business day
between 9:00 a.m. and 4:30 p.m. in the receiving party's country) or (if
not so dispatched) at 9:00 a.m. in the receiving party's country on the
next following business day.
25.3 For the avoidance of doubt any consent required to be given in writing
pursuant to the provisions of this Agreement may be given by fax.
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<PAGE>
25.4 Each of the parties shall give notice to the other of any address or
telephone, fax or similar number at the earliest possible opportunity but
in any event within 48 hours of such change.
26. Warranty as to Status and Authority
-----------------------------------
(a) CYBEX hereby warrants and represents to the Distributor that it is a
corporation duly organized under the laws of the State of New York
with full power to enter into this Agreement and any agreement to be
entered into pursuant hereto and to exercise its rights and perform
its obligations under this Agreement and any such ancillary agreements
and all corporate and other action required to authorize its execution
of such documents and its performance of its obligations thereunder
has been duly taken.
(b) Trotter hereby warrants and represents to the Distributor that it is a
corporation duly organized under the laws of the State of Delaware
with full power to enter into this Agreement and any agreement to be
entered into pursuant hereto and to exercise its rights and perform
its obligations under this Agreement and any such ancillary agreements
and all corporate and other action required to authorize its execution
of such documents and its performance of its obligations thereunder
has been duly taken.
(c) CYBEX and Trotter each hereby warrants and represents to the
Distributor that it has obtained all necessary consents and
authorizations to enable it lawfully to enter into and perform its
obligations under or contemplated by this Agreement and any ancillary
agreements each of which it warrants is or will when entered into be
valid and enforceable against it in accordance with its terms.
(d) The Distributor and Forza each hereby warrants and represents to CYBEX
that it is a corporation duly organized under the laws of England with
full power to enter into this agreement and any agreement to be
entered into pursuant hereto and to exercise its rights and perform
its obligations under this Agreement and any such ancillary agreements
and all corporate and other actions required to authorize its
execution of such documents and its performance of its obligations
thereunder has been duly taken.
(e) The Distributor and Forza each hereby warrants and represents to CYBEX
that it has obtained all necessary consents and authorizations to
enable it lawfully to enter into and perform its obligations under or
contemplated by this Agreement and any ancillary agreements each of
which it warrants is or will when entered into be valid and
enforceable against it in accordance with its terms.
23
<PAGE>
27. Announcements
-------------
Save in respect of statutory returns or matters required to be disclosed by
law or to any governmental or regulatory authority, none of the parties
hereto shall make any press statement or other public announcement in
connection with this Agreement without the prior written approval of the
others in connection with the text of such statement or announcement.
CYBEX agrees to publish an announcement within ten business days of the
Effective Date disclosing that it is taking the action described in Clause
3(b), and the Distributor agrees to publish an announcement within ten
business days of the Effective Date disclosing that it is taking the action
described in Clause 6(b).
28. Costs of Litigation
-------------------
In the event of litigation arising out of or related to this Agreement or
the parties' performance hereunder, the prevailing party or parties shall
be entitled to recover from the other party or parties to the litigation,
upon a final judgment, reasonable costs and expenses of litigation,
including without limitation attorneys fees, relating to such litigation
(including appeals).
29. Enforceability.
--------------
Insofar as the restrictions contained in this Agreement or any arrangement
of which it forms part are registerable under the Restrictive Trade
Practices Act 1976 (the "RTPA") such restrictions shall to such extent not
come into force until the day following the day upon which such particulars
relating thereto as are required to be filed with the Office of Fair
Trading ("OFT") pursuant to the RTPA shall have been received by the OFT
for filing. CYBEX hereby authorizes Forza to file such particulars with
the OFT and CYBEX and Forza hereby undertake to use their respective best
endeavours to provide such further information and assistance as may be
required in relation to this Agreement (i) by the OFT or (ii) in support of
an application to the Court for a declaration that none of the said
restrictions is contrary to the public interest.
24
<PAGE>
30. Counterparts
------------
This Agreement may be executed in one or more counterparts, all of which
shall be considered one and the same agreement and each of which shall be
deemed an original instrument.
AS WITNESS the hands of the duly authorized representatives of the parties the
day and year first above written.
CYBEX INTERNATIONAL, INC. TROTTER INC.
BY: /s/ Peter Haines BY: /s/ Peter Haines
-------------------------------- -------------------------------
Print Name: Peter Haines Print Name: Peter Haines
------------------------ -----------------------
FORZA FITNESS EQUIPMENT LIMITED THE FORZA GROUP LIMITED
BY: /s/ Patrick Hooper BY: /s/ David Giampaolo
-------------------------------- -------------------------------
Print Name: Patrick Hooper Print Name: David Giampaolo
------------------------ -----------------------
25
<PAGE>
EXHIBIT 10.2
MANAGEMENT EMPLOYMENT AGREEMENT
-------------------------------
The following Agreement is hereby entered into between PETER HAINES (hereinafter
known as Employee) and CYBEX INTERNATIONAL, INC. "Cybex" and (together with its
affiliated corporations hereinafter known as the "Company"), having its
principal offices at 10 Trotter Drive, Medway, MA 02053
1. DUTIES AND RESPONSIBILITIES
---------------------------
Employee agrees to hold the position of President and Chief Executive
Officer and shall be directly responsible to the Company's Board of
Directors. Employee will be eligible to be elected to the Company's Board
of Directors when the first vacancy becomes available.
2. BEST EFFORTS
------------
Employee agrees to devote best efforts to his employment with the Company,
on a full-time (no less than 40 hours/week) basis. He further agrees not
to use the facilities, personnel or property of the Company for personal or
private business benefit.
3. ETHICAL CONDUCT
---------------
Employee will conduct himself in a professional and ethical manner at all
times and will comply with all Company policies as well as all State and
Federal regulations and laws as they may apply to the services, products,
and business of the Company.
4. COMPENSATION
------------
a) Salary shall be at the rate of $365,000 per year payable in
accordance with the Company's normal payroll cycle. Employee shall be
eligible for increases in salary commencing January 1, 1999 as
determined by the Company's Board.
b) Benefits shall be the standard benefits of the Company as they shall
exist from time to time for senior executive personnel.
c) Employee shall be eligible to receive compensation if the Company's
performance meets certain objectives which enhance shareholder value.
The agreed-upon bonus plan for the calendar year 1998 is attached as
Exhibit A.
d) Employee shall receive a bonus of $75,250 for amounts earned under
the 1996 bonus plan which shall terminate on signing of this
agreement. No other bonuses will be payable with respect to 1997
performance.
5. STOCK OPTIONS
-------------
a) Employee will be eligible to receive stock options as they are granted
by the Board of Directors.
<PAGE>
b) Such options, if granted, will be at the greater of fair market value
as of the date of the grant or $9.75.
6. NON-DISCLOSURE
--------------
Employee acknowledges that employment with the Company requires him to have
access to confidential information and material belonging to the Company,
including customer lists, contracts, proposals, operating procedures, and
trade secrets. Upon termination of employment for any reason, Employee
agrees to return to the Company any such confidential information and
material in his possession with no copies thereof retained. Employee
further agrees, whether during employment with the Company or any time
after the termination thereof (regardless of the reason for such
termination), he will not disclose nor use in any manner, any confidential
or other material relating to the business, operations, or prospects of the
Company except as authorized in writing by the Company. The foregoing
restrictions do not apply to any information which is presently public
knowledge or which becomes public knowledge through a source or sources
other than Employee.
7. NON-COMPETITION
---------------
During his employment with the Company and for a period of two years
thereafter (regardless of the reason for termination), Employee agrees he
will not, directly or indirectly, in any way for his own account, as
employee, stockholder, partner, or otherwise, or for the account of any
other person, corporation, or entity:
a) Engage, within any geographic area in which the Company is then
conducting its business, in any business segment in which he has
actively participated as an employee of the Company; or
b) Solicit customers who, during the period of employment, were
customers of the Company or were actively solicited as customers of
the Company; or
c) Offer employment to any employee of the Company in any capacity
whatsoever, or attempt to induce or cooperate with any other firm in
an attempt to induce an employee of the Company to leave the employ of
the Company; or
d) Attempt or cooperate with any other firm in an attempt to induce any
independent contractor of the Company to cease providing services to
the Company.
8. INVENTIONS
----------
Employee agrees to promptly disclose to the Company each discovery,
improvement, or invention conceived, made, or reduced to practice (whether
during working hours or otherwise) during the term of employment. Employee
agrees to grant to the Company the entire interest in all of such
discoveries, improvements, and inventions and to sign all patent/copyright
applications or other documents needed to implement the provisions of this
paragraph without additional consideration. Employee further agrees that
all works of authorship subject to statutory copyright protection developed
jointly or solely, while employed shall be considered a work made for hire
and any copyright thereon shall belong to the Company. Any invention,
discovery, or improvement conceived, made, or disclosed,
<PAGE>
during the one year period following the termination of employment with the
Company shall be deemed to have been made, conceived, or discovered during
employment with the Company.
Employee acknowledges that the only discoveries, improvements, and other
inventions made prior to the date hereof which have not been filed in the
United States Patent Office are as follows:
None
----------------------------------
----------------------------------
----------------------------------
[If none, print "None"]
9. NO CURRENT CONFLICT
-------------------
Employee hereby assures the Company that he is not currently restricted by
any existing employment or noncompete agreement that would conflict with
the terms of this Agreement.
10. TERMINATION AND TERMINATION BENEFTTS
------------------------------------
Employee's employment with Company is "at will" which means that either the
Company or Employee may terminate such employment at any time, with or
without cause or good reason, as follows:
a) The Company may terminate Employee's employment at any time, with or
without cause, upon written notice of termination to Employee.
<PAGE>
b) Any termination of Employee's employment by the Company shall be deemed to
be "for cause" if the Company shall have provided written notice to
Employee of any event specified in clauses (1) through (4) below and, in
the case of clause (1) or (4), the failure or default shall not have been
fully cured to the reasonable satisfaction of the Company within thirty
days after the date such notification is provided:
(1) Employee's failure to perform his duties and responsibilities to the
Company, which failure is either (A) the result of the intentional
conduct of Employee or (B) substantial and prolonged in nature.
(2) Any Employee misconduct which is injurious to the business or
interests of the Company.
(3) Violation by Employee in any material way of any federal, state, or
local law or regulation applicable to the business of the Company.
(4) Any material breach by Employee of the terms and conditions of this
Agreement.
c) Employee may terminate employment at any time, with or without good reason,
upon 60 days written notice to the Company.
d) In the event that the Company terminates Employee's employment other than
"for cause" as defined in subparagraph (b) above, the Company shall,
as a severance benefit, continue to pay Employee his normal salary, as
adjusted by the amount of any bonus which is payable under Exhibit A,
and health benefits for a period ending on the first to occur of (1)
the first anniversary of the date of termination of employment or (2)
the date Employee obtains other substantially similar employment. In
the event that Employee's employment terminates for any other reason
(including termination by the Company for cause or Employee's
resignation) the Company shall have no obligation to pay any severance
or similar benefits to the Employee. Regardless of the reason for
termination, the Employee shall have such rights as may be provided by
COBRA and as may be provided pursuant to any retirement plan which is
qualified pursuant to ERISA and in which Employee participates.
11. MISCELLANEOUS
-------------
a) This Agreement and any disputes arising herefrom shall be governed by New
Jersey law.
<PAGE>
b) In the event that any provision of this Agreement is held to be invalid or
unenforceable for any reason, including without limitation the
geographic or business scope or duration thereof, this Agreement shall
be construed as if such provision had been more narrowly drawn so as
not to be invalid or unenforceable.
c) This Agreement supersedes all prior agreements, arrangements, and
understandings, written or oral, relating to the subject matter.
d) The failure of either party at any time or times to require performance of
any provision hereof shall in no way affect the right at a later time
to enforce the same.
CYBEX INTERNATIONAL, INC.
By: /s/ John Aglialoro
--------------------------
John Aglialoro, Chairman
Date: 27 May 97
--------------------------
/s/ Peter Haines
--------------------------
Peter Haines, "Employee"
Date: 16 May 97
--------------------------
The effective date of this Agreement shall be as of the date it is approved by
the CYBEX Board of Directors.
<PAGE>
EXHIBIT A
---------
Employment Agreement Dated 2 May 1997
PETER HAINES
1998
----
BONUS COMPENSATION PLAN
REPORTABLE EPS (Historical and Estimated Future)
1994 1995 1996 1997 (EST) 1998 (EST)
EPS .63 .44 .52 1.00
RONA 22.1% 14.8% 18.6%
BONUS EXPRESSED AS % OF BASE SALARY AT MEASUREMENT PERIOD
EARNINGS PER SHARE
RONA $1.00 $1.05 $1.10 $1.20 $1.25
20% 25% 50% 75% 100% 150%
25% 28% 53% 79% 105% 158%
30% 30% 55% 83% 110% 165%
Bonus paid based on 1998 results. Payout will be within 30 days post 1998
earnings release.
<PAGE>
EXHIBIT 10.3(a)
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
SUMMIT BANK
AS LENDER
AND
CYBEX INTERNATIONAL, INC.,
CYBEX FINANCIAL CORPORATION,
EAGLE PERFORMANCE SYSTEMS, INC.,
CYBEX FITNESS GERATE VERTRIEBS GMBH,
GENERAL MEDICAL EQUIPMENT LIMITED,
LUMEX BED SYSTEMS,
TROTTER, INC.,
AND
TROTTER HOLDING COMPANY
AS BORROWERS
DATED: JUNE 16, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
<TABLE>
<CAPTION>
<C> <S> <C>
SECTION 1. DEFINITIONS....................................... 2
SECTION 2. CREDIT FACILITIES................................. 9
2.1 Revolving Loan...................................... 9
2.2 Term Loan........................................... 10
2.3 Trotter Letter of Credit............................ 11
SECTION 3. NOTES, INTEREST AND FEES.......................... 11
3.1 Notes............................................... 11
3.2 Interest on Notes; Fees............................. 12
3.3 Fees................................................ 12
3.4 Prepayment of Loans................................. 13
SECTION 4. CONDITIONS PRECEDENT.............................. 13
4.1 Conditions Precedent to Loans....................... 13
SECTION 5. GRANT OF SECURITY INTEREST........................ 15
SECTION 6. COLLECTION AND ADMINISTRATION..................... 17
6.1 Borrowers' Loan Account............................. 17
6.2 Statements.......................................... 17
6.3 Payments............................................ 17
6.4 Authorization to Make Loans......................... 18
6.5 Use of Proceeds..................................... 18
SECTION 7. COLLATERAL REPORTING AND COVENANTS................ 19
7.1 Collateral Reporting................................ 19
7.2 Accounts Covenants.................................. 19
7.3 Inventory Covenants................................. 21
7.4 Equipment Covenants................................. 21
7.5 Power of Attorney................................... 22
7.6 Right to Cure....................................... 23
7.7 Access to Premises.................................. 23
7.8 Audit of Accounts Receivables....................... 23
7.9 Additional Collateral............................... 24
i
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
SECTION 8. REPRESENTATIONS AND WARRANTIES..................... 24
8.1 Corporate Existence, Power and Authority:
Subsidiaries........................................ 24
8.2 Financial Statements; No Material Adverse Change.... 25
8.3 Chief Executive Office; Collateral Locations........ 25
8.4 Priority of Liens; Title to Properties.............. 25
8.5 Tax Returns......................................... 26
8.6 Litigation.......................................... 26
8.7 Compliance with Other Agreements and Applicable
Laws................................................ 26
8.8 Accuracy and Completeness of Information............ 27
8.9 Corporate Structure................................. 27
8.10 Environmental Matters............................... 27
8.11 Exclusion of Certain Subsidiaries................... 28
8.12 Survival of Warranties; Cumulative.................. 28
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS................ 28
9.1 Maintenance of Existence............................ 28
9.2 New Collateral Locations............................ 28
9.3 Compliance with Laws Relations, Etc................. 28
9.4 Payment of Taxes and Claims......................... 29
9.5 Insurance........................................... 29
9.6 Financial Statements and Other Information.......... 30
9.7 Sale of Assets, Consolidation Merger, Dissolution,
Etc................................................. 31
9.8 Encumbrances........................................ 32
9.9 Indebtedness........................................ 32
9.10 Loans, Investments, Guarantees, Etc................. 34
9.11 Dividends and Redemptions........................... 34
9.12 Minimum Adjusted Tangible Capital Funds.............. 35
9.13 Fixed Charge Coverage Ratio......................... 35
9.14 Maximum Total Liabilities to Adjusted Tangible
Capital Funds....................................... 35
9.15 Minimum Working Capital............................. 35
9.16 Interest Coverage Ratio............................. 35
9.17 Transactions with Affiliates........................ 36
9.18 Capital Expenditures................................ 36
9.19 Costs and Expenses.................................. 36
9.20 Environmental Laws.................................. 36
9.21 Change in Business.................................. 37
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
9.22 Further Assurances.................................. 38
9.23 Amendment to Prior Agreement........................ 38
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default................................... 38
10.2 Remedies............................................ 40
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS;
GOVERNING LAW..................................... 42
11.1 Governing Law; Choice of Forum; Service of Process;
Jury Trial Waiver................................... 42
11.2 Waiver of Notices................................... 43
11.3 Amendments and Waivers.............................. 43
11.4 Waiver of Counterclaims............................. 43
11.5 Indemnification..................................... 44
SECTION 12. MISCELLANEOUS..................................... 44
12.1 Notices............................................. 44
12.2 Partial Invalidity.................................. 45
12.3 Successors.......................................... 45
12.4 Use of Loan Proceeds................................ 46
12.5 Entire Agreement.................................... 46
</TABLE>
iii
<PAGE>
INDEX TO
EXHIBITS AND SCHEDULES
----------------------
Schedule A Information Certificate
Schedule 8.4 Existing Liens
Schedule 8.7 Licenses and Permits
Schedule 8.10 Environmental Liabilities
iv
<PAGE>
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
------------------------------------------------
This Amended and Restated Loan and Security Agreement dated June 16, 1997
(the "AGREEMENT"), is entered into by and between SUMMIT BANK, a New Jersey
banking corporation ("LENDER"), successor by merger to United Jersey Bank; CYBEX
INTERNATIONAL, INC., a New York corporation ("CYBEX"); CYBEX FINANCIAL
CORPORATION, a New York corporation, ("CYBEX FINANCIAL"); EAGLE PERFORMANCE
SYSTEMS, INC., a Minnesota corporation ("EAGLE PERFORMANCE"); CYBEX FITNESS
GERATE VERTRIEBS, GmbH, a German corporation ("CYBEX FITNESS"); GENERAL MEDICAL
EQUIPMENT LTD., a U.S. Virgin Island corporation ("GENERAL MEDICAL"), LUMEX BED
SYSTEMS, a Pennsylvania corporation ("LUMEX"); TROTTER, INC., a Delaware
corporation ("TROTTER"); and TROTTER HOLDING COMPANY, a Delaware corporation
("TROTTER HOLDING") (collectively, Cybex, Cybex Financial, Eagle Performance,
Cybex Fitness, General Medical, Lumex, Trotter and Trotter Holding are called
the "BORROWER" or "BORROWERS").
BACKGROUND
----------
On December 7, 1995, the Lender loaned to Trotter and Trotter Holding two
credit facilities consisting of a revolving loan of the principal sum of
$3,000,000 (the "TROTTER REVOLVING LOAN"), and a term loan in the original
principal amount of $9,000,000 (the "TROTTER TERM LOAN").
On February 28, 1996, the Lender provided to Trotter, Inc. a third credit
facility in the original principal amount of $3,579,000 as evidenced by a Letter
of Credit and Reimbursement Agreement dated February 1, 1996 (the "TROTTER
LETTER OF CREDIT"). Hereinafter, the Trotter Revolving Loan, Trotter Term Loan
and the Trotter Letter of Credit are collectively called the "TROTTER LOANS".
As of December 27, 1996, Cybex, Trotter and Cat's Tail, Inc., a Delaware
corporation (the "MERGER SUB") executed an Agreement and Plan of Merger pursuant
to which Merger Sub was merged on May 23, 1997 into Trotter and Trotter became a
wholly-owned subsidiary of Cybex. Trotter Holding continues to be a wholly-
owned subsidiary of Trotter.
The Borrowers have requested the Lender to make additional loans to the
Borrowers and to renew, extend and increase the Trotter Loans, but with the
1
<PAGE>
Borrowers as the Obligors thereon; and the Lender, subject to and in accordance
with the terms and conditions herein, contained, has agreed to make available to
and lend to the Borrowers, the credit facilities described herein.
As of June 16, 1997 there was due and owing to the Lender by Trotter and
Trotter Holding for the Trotter Loans, the sum of $14,422,135.67 computed as
follows:
<TABLE>
<CAPTION>
PRINCIPAL INTEREST TOTAL
-------------- ---------- --------------
<S> <C> <C> <C>
Trotter Revolving
Loan: $ 3,000,000.00 $19,125.00 $ 3,019,125.00
Trotter Term
Loan: $ 7,800,000.00 $23,941.67 $ 7,823,941.67
Trotter Letter of
Credit: $ 3,579,069.00 0.00 $ 3,579,069.00
-------------- ---------- --------------
Total due as of
6/16/97: $14,379,069.00 $43,066.67 $14,422,135.67
============== ========== ==============
</TABLE>
NOW, THEREFORE, in consideration of the mutual conditions and agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. DEFINITIONS
-----------
All terms used herein which are defined in Article 1 or Article 9 of the
Uniform Commercial Code shall have the meanings given therein unless otherwise
defined in this Agreement. All references to the plural herein shall also mean
the singular and to the singular shall also mean the plural. All references to
Borrowers and Lender pursuant to the definitions set forth in the recitals
hereto, or to any other person herein, shall include their respective successors
and assigns. The words "hereof," "herein," "hereunder," "this Agreement" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not any particular provision of this Agreement and as
this Agreement now exists or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced. An Event of Default shall exist or
2
<PAGE>
continue until such Event of Default is waived in accordance with Section 11.3.
Any accounting term used herein unless otherwise defined in this Agreement shall
have the meanings customarily given to such term in accordance with GAAP as
hereinafter defined. For purposes of this Agreement, the following terms shall
have the respective meanings given to them below:
1.1 "ACCOUNTS" shall mean all present and future rights of Borrowers to
----------
payment for goods sold or leased or for services rendered, which are not
evidenced by instruments or chattel paper, and whether or not earned by
performance.
1.2 "ADJUSTED TANGIBLE CAPITAL FUNDS" means Tangible Capital Funds less
---------------------------------
amounts reserved or paid by Cybex for settlement with Fuqua, Inc. not to exceed
$6,000,000.
1.3 "AFFILIATE" means any Person which, directly or indirectly, is in
-----------
control of, is controlled by, or is under common control with, such Person. For
purposes of this definition, a Person shall be deemed to be "controlled by"
another Person if such Person possesses, directly or indirectly, power either to
(i) vote 10% or more of the securities having ordinary voting power for the
election of directors of such Person or (ii) direct or cause the direction of
the management and policies of such Person whether by contract or otherwise.
1.4 "AGREEMENT" means this Amended and Restated Loan and Security
-----------
Agreement, together with all modifications and amendments thereto.
1.5 "APPLICABLE LAW" means all provisions of statutes, rules, regulations
----------------
and orders of governmental bodies or regulatory agencies applicable to a Person,
and all orders and decrees of all courts and arbitrators in proceedings or
actions in which the Person in question is a party.
1.6 "BORROWING" means a borrowing of funds by Borrowers being either a
-----------
Floating Rate or a LIBOR Based Rate Borrowing advanced by Lender hereunder on
any given day under the Revolving Loan Facility or the Term Loan Facility.
1.7 "BUSINESS DAY" means any day other than a Saturday, Sunday or other
--------------
day on which banks in the State of New Jersey are permitted to close; provided,
3
<PAGE>
however, that when used in connection with a LIBOR Borrowing, the term Business
Day shall also exclude any day on which banks are not open for dealings in
dollar deposits on the London Interbank Market.
1.8 "CAPITAL EXPENDITURES" as applied to any Person means any expenditures
----------------------
by the Borrowers for assets which are required to be capitalized as depreciable
or amortizable assets in accordance with GAAP.
1.9 "CAPITAL LEASE" as applied to any Person, means any lease of any
---------------
property (whether real, personal or mixed) by that Person as lessee which, in
accordance with GAAP, is or should be accounted for as a capital lease on the
balance sheet of that Person.
1.10 "CHANGE OF CONTROL" means any of the following events: (i) the sale,
-------------------
lease, transfer, conveyance or other disposition of all or substantially all of
the assets of Cybex and its Subsidiaries; (ii) the liquidation or dissolution of
Cybex, and (iii) any event which would be deemed to be a "change in control" as
defined in the Securities and Exchange Commission's Current Report on Form 8K.
1.11 "CLOSING DATE" means the date on which the conditions precedent to the
--------------
making of the Loans as set forth in Section 4.1 have been satisfied or waived,
which shall in no event be later than June 16, 1997.
1.12 "CODE" means the Internal Revenue Code of 1986 and the rules and
------
regulations issued thereunder, as now and hereafter in effect, or any successor
provision thereto.
1.13 "COLLATERAL" shall have the meaning set forth in Section 5 hereof.
------------
1.14 "CPLTD" means current portion of long term debt as determined in
-------
accordance with GAAP.
1.15 "EBITDA" means, without duplication, for any period for which such
--------
amount is being determined, the sum of the amounts for such period of (i) net
income, (exclusive of (a) interest income, and (b) extraordinary items), (ii)
provision for income taxes, (iii) depreciation expense, (iv) Interest Expense,
4
<PAGE>
(v) amortization expense, but each of the above (ii) through (v) only to the
extent reducing net income. All of the foregoing items (i) through (v) are
otherwise to be determined on a consolidated basis for Borrowers and their
consolidated subsidiaries in accordance with GAAP.
1.16 "ENVIRONMENTAL ACTIONS" refers to any complaint, summons, citation,
-----------------------
notice, directive, order, claim, litigation, investigation, proceeding,
judgment, letter or other communication from any federal, state, local, or
municipal agency, department, bureau, office or other authority, or any third
party involving a violation of any Environmental Laws or a Hazardous Discharge
(i) from or onto any of the real properties or assets owned or leased by the
Borrowers or any of their Subsidiaries or any tenant, subtenant, prior tenant or
prior subtenant of such real properties or (ii) from or onto any facilities
which received solid wastes or Hazardous Materials from the Borrowers, or any of
their Subsidiaries or any tenant, subtenant, prior tenant or prior subtenant of
the real properties.
1.17 "ENVIRONMENTAL LAW" means any and all applicable federal, state, local
-------------------
or municipal laws, rules, orders, regulations, statutes, ordinances, codes,
decrees or requirements of any Governmental Authority regulating, relating to or
imposing liability or standards of conduct concerning any Hazardous Material or
environmental protection or health and safety, as now or may at any time
hereafter be in effect, including without limitation, the Clean Water Act also
known as the Federal Water Pollution Control Act ("FWPCA"), 33 U.S.C. (S) 1251
et seq , the Clean Air Act ("CAA"), 42 U.S.C. (S) 7401 et seq, the Federal
- -- --- -- ---
Insecticide, Fungicide and Rodenticide Act ("FIFRA"), 7 U.S.C. (S)(S) 300f et
--
seq, the Surface Mining Control and Reclamation Act (S)(S) 1201 et seq,
- --- -- ---
("SMCRA"), 30 U.S.C. (S)(S) 1201 et seq, the Comprehensive Environmental
-- ---
Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. (S) 9601 et seq
-- ---
as amended by the Superfund Amendment and Reauthorization Act of 1986 ("SARA"),
the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. (S) 6901 et seq,
-- ---
the Occupational Safety and Health Act as amended ("OSHA"), 29 U.S.C. (S) 655
and (S) 657, relevant state laws, together, in each case, with any amendment
thereto, and the regulations adopted thereunder and all substitutions thereof.
1.18 "EQUIPMENT" shall mean all of Borrowers' now owned and hereafter
-----------
acquired equipment, machinery, computers and computer hardware and software
5
<PAGE>
(whether owned or licensed), tools, furniture, fixtures, all attachments,
accessions and property now or hereafter affixed thereto or used in connection
therewith, and substitutions and replacements thereof, wherever located.
1.19 "EVENT OF DEFAULT" have the meaning given such term in Section 10
------------------
hereof.
1.20 "FINANCING AGREEMENTS" shall mean, collectively, this Agreement, and
----------------------
all notes, guarantees, security agreements mortgages, assignments, and other
agreements, documents and instruments now or at any time hereafter executed
and/or delivered by Borrowers or any Obligor in connection with this Agreement
as the same now exist or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced.
1.21 "FIXED CHARGE COVERAGE RATIO" means, for any period, the ratio of
-----------------------------
EBITDA for such period to the sum of the following: (a) the CPLTD for such
period, plus (b) Interest Expense for such period plus (c) the current portion
of amounts payable under Capital Leases for such period plus (d) taxes plus (e)
Capital Expenditures which have not been financed through borrowing and (f)
dividends paid or declared for such period.
1.22 "FLOATING BASE RATE" shall mean the rate from time to time publicly
--------------------
announced by Lender or its successors, as its Floating Base Rate, whether or not
such announced rate is the best rate available at Lender.
1.23 "FLOATING RATE BORROWING" means a Borrowing as to which Borrowers have
-------------------------
elected the Floating Rate Option.
1.24 "FLOATING RATE OPTION" means Borrowers' option, as applicable, to pay
----------------------
interest on Borrowings at the Floating Base Rate pursuant.
1.25 "GAAP" shall mean generally accepted accounting principles in the
------
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Boards which are applicable to the
circumstances as of the date of determination consistently applied.
6
<PAGE>
1.26 "GOVERNMENTAL AUTHORITY" means any federal, state, municipal or other
------------------------
governmental department, commission, board, bureau, agency or instrumentality,
or any court, in each case whether of the United States or foreign.
1.26 "INDEBTEDNESS" as used in this Agreement means, as to any given
--------------
Borrower, all items of indebtedness, obligations, or liabilities, whether
matured or unmatured, liquidated or unliquidated, direct or contingent, joint or
several, owed by the said Borrower, including (without implied limitation):
(a) All indebtedness guaranteed, directly or indirectly, in any
manner, or endorsed (other than for collection or deposit in the ordinary course
of business) or discounted with recourse;
(b) All indebtedness guaranteed, directly or indirectly, through
agreements, contingent or otherwise: (i) to purchase such indebtedness; or (ii)
to purchase, sell, or lease (as lessee or lessor) property, products, materials,
or supplies or to purchase or sell services, primarily for the purpose of
enabling the Account Debtor to make payment of such indebtedness or to insure
the owner of the indebtedness against loss; or (iii) to supply funds to, or in
any other manner invest in, the debtor;
(c) All indebtedness secured by (or for which the holder of such
indebtedness has a right, contingent or otherwise, to be secured by) any
mortgage, deed of trust, pledge, lien, security interest, or other lien, charge
or encumbrance upon property owned or acquired subject thereto, whether or not
the liabilities secured thereby have been assumed;
(d) All Obligations due the Lender; and
(e) All indebtedness incurred as the lessee of goods or services under
leases that, in accordance with GAAP, should not be reflected on the lessee's
balance sheet.
1.27 "INFORMATION CERTIFICATE" shall mean the Information Certificate of
-------------------------
Borrowers constituting Schedule "A" hereto containing material information with
respect to each of the Borrowers, their businesses and assets provided by or on
behalf of Borrowers to Lender in connection with the preparation of this
7
<PAGE>
Agreement and the other Financing Agreements and the financing arrangements
provided for herein.
1.28 "INTEREST COVERAGE RATIO" means for any period for which such amount
-------------------------
is being determined, EBITDA divided by all interest expense of the Borrowers.
1.29 "INTEREST EXPENSE" means for any period for which such amount is being
------------------
determined, gross interest expense (including that properly attributable to
Capital Leases in accordance with GAAP) of the Borrowers and their subsidiaries
on a consolidated basis.
1.30 "INTEREST PERIOD" means as to any LIBOR Rate Borrowing, the period
-----------------
commencing on the date of such Borrowing and ending on the numerically
corresponding day (or if there is no corresponding day, the last day) in the
calendar month that is one (1), two (2), or three (3) months thereafter as
Borrowers may elect; provided, however, that (i) if any Interest Period would
end on a day which shall not be a Business Day, such interest period shall be
extended to the next succeeding Business Day, and (ii) no interest period with
respect to a LIBOR Rate Borrowing may be selected which would end later than the
date such principal would mature hereunder.
1.31 "INVENTORY" shall mean all of Borrowers' now owned and hereafter
-----------
existing or acquired raw materials, work in process, finished goods and all
other inventory of whatsoever kind or nature, wherever located.
1.32 "LIBOR BASED RATE" means the interest rate payable on LIBOR Rate
------------------
Borrowings and as elected by Borrowers on the Revolving Note and the Term Note,
being the sum of the Adjusted LIBOR Rate as defined in the Notes plus (a) 225
basis points (2.25%) when Borrowers' ratio of Total Liabilities to Adjusted
Tangible Capital Funds ("TL/ATCF") as of the last day of the previous full
fiscal quarter of the Borrowers is equal to or greater than 2.50:1; (b) 200
basis points (2.00%) when Borrowers' Tl/ATCF as of the last day of the previous
full fiscal quarter of Borrowers is greater than 2.0:1.0; (c) 175 basis points
(1.75%) when the Borrowers' TL/ATCF for such previous quarter is equal to or
greater than 1.75:1.0; (d) 150 basis points (1.50%) when the Borrowers' TL/ATCF
for such previous quarter is equal to or greater than 1.50:1.0; and (e) 125
basis points (1.25%) when the Borrowers' TL/ATCF for such previous quarter is
8
<PAGE>
equal to or greater than 1.25:1.0; except that the applicable LIBOR Based Rate
shall not change by reason of a change in the TL/ATCF until the end of an
Interest Period.
1.33 "LIBOR RATE BORROWING" means a Borrowing under the Revolving Loan
----------------------
Facility as to which Borrowers have elected the LIBOR Based Rate.
1.34 "LOANS" shall mean the Revolving Loans, and the Term Loan and the
-------
Trotter Letter of Credit.
1.35 "MERGER SUB" means Cat's Tail, Inc., a Delaware corporation.
------------
1.36 "NOTES" OR "NOTES" means the Revolving Note and the Term Note executed
------------------
and delivered by the Borrowers to the Lender to evidence the Loans.
1.37 "OBLIGATIONS" shall mean any and all Revolving Loans, the Term Loan,
-------------
the Trotter Letter of Credit and all other obligations, liabilities and
indebtedness of every kind, nature and description owing by Borrowers to Lender
and/or their affiliates, including principal, interest charges, fees, costs and
expenses, however evidenced, whether as principal, surety, endorser, guarantor
or otherwise, whether arising under this Agreement or otherwise, whether now
existing or hereafter arising, whether arising before, during or after the
initial or any renewal term of this Agreement or after the commencement of any
case with respect to Borrowers under the United States Bankruptcy Code or any
similar statute (including, without limitation, the payment of interest and
other amounts which would accrue and become due but for the commencement of such
case), whether direct or indirect, absolute or contingent, joint or several, due
or not due, primary or secondary, liquidated or unliquidated, secured or
unsecured, and however acquired by Lender.
1.38 "OBLIGOR" shall mean the Borrowers as co-borrowers, any guarantor,
---------
endorser, acceptor, surety or other person liable on or with respect to the
Obligations or who is the owner of any property which is security for the
Obligations, other than Borrowers.
1.39 "PERSON" shall mean any individual, sole proprietorship, partnership,
--------
corporation (including, without limitation, any corporation which elects
subchapter S status under the Internal Revenue Code of 1986, as amended),
9
<PAGE>
business trust, unincorporated association, joint stock corporation, trust,
joint venture or other entity or any government or any agency or instrumentality
or political subdivision thereof.
1.40 "RECORDS" shall mean all of Borrowers' present and future books of
---------
account of every kind or nature, purchase and sale agreements, invoices, ledger
cards, bills of lading and other shipping evidence, statements, correspondence,
memoranda, credit files and other data relating to the Collateral or any account
debtor, together with the tapes, disks, diskettes and other data and software
storage media and devices, file cabinets or containers in or on which the
foregoing are stored (including any rights of Borrowers with respect to the
foregoing maintained with or by any other person).
1.41 "REVOLVING LOANS" shall mean the loans now or hereafter made by Lender
-----------------
to or for the benefit of Borrowers on a revolving basis (involving advances,
repayments and readvances) as set forth in Section 2.1 hereof.
1.42 "REVOLVING LOAN FACILITY" means the Revolving Loan Facility provided
-------------------------
pursuant to Section 2.1 below.
1.43 "REVOLVING NOTE" means the Note referred to in Section 3.1(a).
----------------
1.44 "TANGIBLE CAPITAL FUNDS" means for any period for which such amount
------------------------
is being determined, total stockholders' equity plus any subordinated
indebtedness less intangible assets of the Borrowers, or each of them.
1.45 "TERM LOAN" shall mean the term loan made by Lender to Borrowers as
-----------
provided for in Section 2.2 hereof.
1.46 "TERM NOTE" means the Note referred to in Section 3.1(b).
-----------
1.47 "TOTAL LIABILITIES" of any Person means, all Indebtedness that, in
-------------------
accordance with GAAP should be classified as liabilities on a balance sheet.
1.48 "TROTTER LETTER OF CREDIT" means the Irrevocable Letter of Credit
--------------------------
issued by the Bank February 28, 1996, Credit No. 20961100 in favor of PNC Bank,
10
<PAGE>
National Association, Trustee for the benefit of the bondholders of the
$4,300,000 Massachusetts Industrial Finance Agency Industrial Development Bonds
(United Medical Corporation Issue, Series 1992).
SECTION 2. CREDIT FACILITIES
-----------------
2.1 REVOLVING LOAN.
--------------
(a) Subject to, and upon the terms and conditions contained herein,
Lender agrees to make advances to Borrowers from time to time in amounts
requested by Borrowers up to the amount of Twelve Million Dollars ($12,000,000).
The Revolving Loan is intended, in part, to be a renewal of the existing Trotter
Revolving Loan, the liability for which has been assumed hereby all Borrowers.
The Revolving Loan is to be repaid together with interest and other amounts in
accordance with this Agreement, the Revolving Note and the other Financing
Agreements and is secured by all of the Collateral.
(b) Each Borrowing under the Revolving Loan Facility shall be a
Floating Rate Borrowing or a LIBOR Rate Borrowing as the Borrowers may request
subject to and in accordance with this Section and the Revolving Note. Subject
to the other provisions of this Section, Borrowings of more than one type may be
outstanding at the same time.
(c) Borrowers shall give Lender at least three Business Days' prior
written, telecopier, facsimile or telephonic (promptly, confirmed in writing)
notice of each LIBOR Rate Borrowing and at least one Business Day's prior
written, telecopier, facsimile or telephonic (promptly confirmed in writing)
notice of each Floating Rate Borrowing. Each such notice in order to be
effective must be received by Lender not later than 2:00 p.m. Each such notice
shall be irrevocable and shall specify whether the Borrowing then being
requested is a LIBOR Rate or a Floating Rate Borrowing and in the case of LIBOR
Rate Borrowings, the Interest Period or Interest Periods with respect thereto.
If no election of Interest Period is specified in such notice in the case of
LIBOR Rate Borrowings, such notice shall be deemed to be a request for an
Interest Period of one month. If no election is made as to the type of
Borrowing, such notice shall be deemed a request for a Floating Rate Borrowing.
11
<PAGE>
(d) The aggregate amount of any Borrowing of new funds shall be in an
aggregate principal amount of (x) with respect to LIBOR Rate Borrowings,
$100,000 (or such lesser amount as shall equal the available but unused portion
of the Revolving Credit Facility) or such greater amount which is an integral
multiple of $100,000, and (y) with respect to Floating Rate Borrowings, $100,000
(or such lesser amount as shall equal the available unused portion of the
Revolving Credit Facility) or such greater amount which is an integral multiple
of $100,000.
(e) The Borrowers may at any time, on not less than ten (10) days
written notice permanently reduce the Revolving Loan, provided that any
reduction shall be in the amount of $1,000,000 or a multiple thereof. In the
event the Revolving Loan Facility is reduced, the Borrowers shall,
simultaneously with such reduction, make a prepayment of principal and interest
of the Revolving Loans in such amount as is necessary to assure that the
aggregate principal amount of all Revolving Loans outstanding immediately after
such reduction will not exceed the Revolving Loan Facility, as reduced.
(f) Subject to, and upon the terms and conditions contained herein, as
part of the Revolving Loan, the Lender has agreed to make available at
Borrowers' request, from time to time until December 31, 2000, two additional
types of credit facilities in the sublimit amounts set forth as follows:
(i) Standby/Documentary Letters of Credit - the Lender agrees to issue
standby or documentary letters of credit for and on behalf of the Borrowers with
maturity date(s) not extending beyond December 31, 2000. Any standby or
documentary letters of credit issued by Lender, as aforesaid, shall not, at any
given time, exceed in the aggregate the principal sum of Three Million Dollars
($3,000,000) and shall reduce dollar for dollar the amount available to be
loaned by the Lender to the Borrowers under the Revolving Loan.
(ii) Foreign exchange transactions - the Lender agrees to make
available to the Borrowers a Revolving Loan sublimit not to exceed at any given
time in the aggregate the principal sum of One Million Dollars ($1,000,000).
The foreign exchange sublimit loan(s) shall reduce dollar for dollar the amount
available to be loaned by the Lender to the Borrowers under the Revolving Loan.
12
<PAGE>
2.2 TERM LOAN. The Trotter Term Loan to Borrowers in the original
---------
principal amount of Nine Million Dollars ($9,000,000) with a present principal
balance of Seven Million Eight Hundred Thousand Dollars ($7,800,000) shall be
repaid by the Borrowers, together with interest and other amounts, in accordance
with this Agreement, the Term Note, and the other Financing Agreements and is
secured by all of the Collateral. The Term Loan is intended, to be a renewal of
the existing Trotter Term Loan, the liability for which is hereby assumed by all
Borrowers.
2.3 TROTTER LETTER OF CREDIT.
------------------------
The Lender will continue to make available to the Borrowers its
Trotter Letter of Credit in the principal amount of up to $3,579,000. This
credit facility is intended to be a renewal of the existing Trotter Letter of
Credit, the liability for which has been assumed by all Borrowers pursuant to
the terms hereof and the Instrument of Assumption of even date herewith. The
Trotter Letter of Credit shall be evidenced by the Lender's Letter of Credit
Agreement(s), amendments thereto, the Instrument of Assumption and related
documents executed on even date herewith by the Borrowers and is secured by all
of the Collateral.
SECTION 3. NOTES, INTEREST AND FEES.
------------------------
3.1 NOTES.
-----
(a) The Revolving Credit Loans shall be evidenced by a promissory note
in the face amount of Twelve Million Dollars ($12,000,000) (the "Revolving
Note") payable to the order of Lender, duly executed on behalf of Borrowers and
dated the Closing Date. Interest shall be payable monthly in arrears except
that interest calculated at the Libor Based Rate shall be due on the last day of
the Interest Period. The outstanding principal balance of the Revolving Note
shall be payable on December 31, 2000.
(b) The Term Loan shall be evidenced by a promissory note in the face
amount of $7,800,000 (the "Term Note"), payable to the order of Lender, duly
executed on behalf of Borrowers and dated the Closing Date. Interest shall be
payable quarterly in arrears, except that interest calculated at the LIBOR Based
Rate shall be due on the last day of the Interest Period. Principal shall be
repaid in eight (8) semi-annual payments as follows:
13
<PAGE>
June 30, 1997 $ 600,000
December 31, 1997 $ 600,000
June 30, 1998 $ 800,000
December 31,1998 $ 800,000
June 30, 1999 $1,000,000
December 31,1999 $1,000,000
June 30, 2000 $1,500,000
December 31,2000 $1,500,000
3.2 INTEREST ON NOTES; FEES.
-----------------------
(a) In the case of a LIBOR Rate Borrowing under the Revolving Loan
Facility, interest shall be payable at a rate per annum (computed on the basis
of the actual number of days elapsed over a year of 360 days) equal to the LIBOR
Based Rate, which interest shall be payable as set forth in the Revolving Note.
(b) In the case of a Floating Rate Borrowing under the Revolving Loan
Facility, interest shall be payable at a rate per annum (computed on the basis
of the actual number of days elapsed over a year of 360 days) equal to the
Floating Base Rate. Interest shall be payable on each Floating Rate Borrowing
as set forth in the Revolving Note.
(c) Interest on the Term Loan shall accrue at Borrower's option from
time to time either (i) at the Floating Base Rate or (ii) the LIBOR Based Rate.
In order for a LIBOR Based Rate to apply, Borrowers must have given Lender at
least three Business Days' prior written, telecopier, facsimile or telephonic
(promptly confirmed in writing) notice thereof (herein, a "LIBOR Notice") which
notice shall specify the Interest Period or Interest Periods elected by
Borrowers and the principal amount or amounts to which such LIBOR Notice shall
apply. Unless a new LIBOR Notice hereunder is given, upon expiration of an
Interest Period with respect to principal under the Term Loan, such principal
amount shall bear interest at the Floating Rate. The Floating Rate shall apply
at all times to any principal [or portion thereof] not covered by a LIBOR
Notice. A LIBOR Notice as to less than all the principal shall cover at least
$1,000,000. No LIBOR Notice may be given if the principal covered thereby would
be due prior to expiration of the applicable Interest Period. Interest shall be
payable
14
<PAGE>
quarterly as set forth in the Term Note, except for interest at the
LIBOR Based Rate, which shall be due upon expiration of the applicable Interest
Period.
(d) Anything in this Agreement or the Notes to the contrary
notwithstanding, the interest rate on the Loans shall in no event be in excess
of the maximum permitted by Applicable Law.
3.3 FEES.
----
(a) Borrowers agree to pay to Lender an origination fee of $70,000.
(b) Borrowers agree to pay to Lender on the last Business Day of each
March, June, September and December in each year (commencing on the last
Business Day of June, 1997) a commitment fee of one-fourth of one percent
(0.25%) per annum, computed on the basis of the actual number of days elapsed
over a year of 360 days, on the average daily unused amount of the
Lender's commitment under the Revolving Loan Facility. Such commitment fee
shall accrue from the Closing Date.
(c) Borrowers agree to pay to Lender on the last business day of each
March, June, September and December in each year (commencing on the last
Business Day of June, 1997) a letter of credit fee of one and one-half percent
(1 1/2%) per annum, computed on the basis of the actual number of days elapsed
over a year of 360 days, on the principal amount of the Trotter Letter of
Credit. Such fee has continued to accrue from April 1, 1997.
3.4 PREPAYMENT OF LOANS.
-------------------
In the event that Borrowers intend to prepay the Loans in whole,
whether by refinance or payment through cash reserves, the Borrowers shall give
Lender not less than thirty (30) days' prior written notice of Borrowers'
intention to prepay (which notice shall be irrevocable) and (unless the
refinance of the Loans is accomplished through the Lender) pay to Lender an
additional sum (the "PREPAYMENT CONSIDERATION") equal to:
(i) $75,000 if the Loan is prepaid during the year 1997;
and
(ii) $50,000 if the Loan is prepaid during the year 1998;
15
<PAGE>
Any prepayment will also be accompanied by payment of all accrued and
unpaid interest due to the date of prepayment on the principal amount prepaid
and all other fees, expenses and other sums due and owing under the Loan
Documents. Any partial prepayment will be applied to installments of principal
due in their inverse order of maturity. The Prepayment Consideration shall
apply to a voluntary or involuntary prepayment, whether by acceleration of the
Loans upon a default or otherwise.
SECTION 4. CONDITIONS PRECEDENT
--------------------
4.1 CONDITIONS PRECEDENT TO LOANS. Each of the following is a condition
-----------------------------
precedent to Lender making the Loans hereunder:
(a) Except for encumbrances listed on Schedule 8.4 or permitted under
Section 9.8, Lender shall have received, in form and substance satisfactory to
Lender, all releases, terminations and such other documents as Lender may
request to evidence and effectuate the termination by the existing lender or
lenders to Borrowers of its or their, as the case may be, respective financing
arrangements with Borrowers and the termination and release by it or them, as
the case may be, of any interest in and to any assets and properties of
Borrowers and each Obligor, duly authorized, executed and delivered by it or
each of them, including, but not limited to, (i) UCC termination statements for
all UCC financing statements previously filed by it or any of them or their
predecessors, as secured party and Borrowers or any Obligor, as debtor and (ii)
satisfactions and discharges of any mortgages, deeds of trust or deeds to secure
debt by Borrowers or any Obligor in favor of such existing lender or lenders, in
form acceptable for recording in the appropriate government office;
(b) Lender shall have received evidence, in form and substance
satisfactory to Lender, that Lender has valid perfected and first priority
security interests in and liens upon the Collateral and any other property which
is intended to be security for the Obligations or the liability of any Obligor
in respect thereof, subject only to the security interests and liens permitted
herein or in the other Financing Agreements. Notwithstanding the foregoing,
unless Lender otherwise requests, Borrowers will not be required to perfect the
liens on property owned by Lumex, Cybex Fitness or General Medical, provided,
however, that in the event that the Loans remain outstanding for a period of six
(6) months
16
<PAGE>
from the date of execution any and all documents necessary to grant a
perfected first lien security interest on the property owned by Lumex, Cybex
Fitness or General Medical, if such company is still in existence;
(c) all requisite corporate action and proceedings in connection with
this Agreement and the other Financing Agreements shall be satisfactory in form
and substance to Lender, and Lender shall have received all information and
copies of all documents, including, without limitation, records of requisite
corporate action and proceedings which Lender may have requested in connection
therewith, such documents where requested by Lender or its counsel to be
certified by appropriate corporate officers or governmental authorities;
(d) no material adverse change shall have occurred in the assets,
business or prospects of Borrowers since the date of Lender's latest field
examination (or if none, Borrowers' latest audited financial statements) and no
change or event shall have occurred which would impair the ability of Borrowers
or any Obligor to perform its Obligations hereunder or under any of the other
Financing Agreements to which it is a party or of Lender to enforce the
Obligations or realize upon the Collateral, except as described on Schedule
4.1(d);
(e) Lender shall have received, in form and substance satisfactory to
Lender, all consents, waivers, acknowledgments and other agreements from third
persons which Lender may deem necessary or desirable in order to permit, protect
and perfect its security interests in and liens upon the Collateral or to
effectuate the provisions or purposes of this Agreement and the other Financing
Agreements, including, without limitation, acknowledgements by lessors,
mortgagees and warehousemen of Lender's security interests in the Collateral,
waivers by such persons of any security interests, liens or other claims by such
persons to the Collateral and agreements permitting Lender access to, and the
right to remain on, the premises to exercise its rights and remedies and
otherwise deal with the Collateral;
(f) Lender shall have received evidence of insurance and loss payee
endorsements required hereunder and under the other Financing Agreements, in
form and substance satisfactory to Lender,
17
<PAGE>
and certificates of insurance policies and/or endorsements naming Lender as loss
payee;
(g) Lender shall have received, in form and substance satisfactory to
Lender, such opinion letters of counsel to Borrowers with respect to the
Financing Agreements and such other matters as Lender may request; and
(h) the other Financing Agreements and all instruments and documents
hereunder and thereunder shall have been duly executed and delivered to Lender,
in form and substance satisfactory to Lender.
(i) all representations and warranties contained herein and in the
other Financing Agreements shall be true and correct in all material respects
with the same effect as though such representations and warranties had been made
on and as of the date of the making of each such Loan and after giving effect
thereto;
(j) no Event of Default and no event or condition which, with notice
or passage of time or both, would constitute an Event of Default, shall exist or
have occurred and be continuing on and as of the date of the making of such Loan
and after giving effect thereto; and
(k) Lender shall have received a "compliance certificate" to such
effect executed by the chief financial officer of each of the Borrowers.
SECTION 5. GRANT OF SECURITY INTEREST
--------------------------
To secure payment and performance of all Obligations, Borrowers hereby
grant to Lender a continuing security interest in, a lien upon, a right of set
off against, or a mortgage upon, and hereby assign to Lender as security, the
following property and interests in property, whether now owned or hereafter
acquired or existing, and wherever located (collectively, the "COLLATERAL");
provided, however, that the Collateral specifically excludes (1) any lease of
equipment which is sold or assigned to a third party or financed with a third
party (in each case other than the Lender), (2) all Accounts and Receivables
arising out of any such lease and (3) the Equipment covered by any such lease:
18
<PAGE>
5.1 ACCOUNTS;
---------
5.2 All present and future contract rights, general intangibles
(including, but not limited to, tax and duty refunds), registered and
unregistered patents, trademarks, service marks, copyrights, trade names,
applications for the foregoing, trade secrets, goodwill, processes, drawings,
blueprints, customer lists, licenses, whether as licensor or licensee,
(including, without limitation, licenses issued by any governmental agency),
permits, choses in action and other claims and existing and future leasehold
interests in equipment, real estate and fixtures), chattel paper, documents,
instruments, letters of credit, bankers' acceptances and guaranties;
5.3 All present liens, security interests, rights, remedies, title and
interest in, to and in respect of Accounts and other Collateral, including,
without limitation, (a) rights and remedies under or relating to guaranties,
contracts of suretyship, letters of credit and credit and other insurance
related to the Collateral, (b) rights of stoppage in transit, replevin,
repossession, reclamation and other rights and remedies of an unpaid vendor,
lienor or secured party, (c) goods described in invoices, documents, contracts
or instruments with respect to, or otherwise representing or evidencing,
Accounts or other Collateral, including, without limitation, returned,
repossessed and reclaimed goods, and (d) deposits by and property of account
debtors or other persons securing the obligations of account debtors;
5.4 INVENTORY AND GOODS;
--------------------
5.5 MACHINERY AND EQUIPMENT;
------------------------
5.6 Mortgage(s) on the real property of the Borrowers, or each of them as
follows:
(a) Mortgages of Trotter, Inc., (the "TROTTER MORTGAGE") on real
property located at 10 Trotter Drive, Medway, Massachusetts, which mortgages
were dated February 2, 1996 in the amount of $3,779,069 and a second mortgage of
even date (the "SECOND MORTGAGE") in the amount of $12,000,000. The Second
Mortgage in the amount of $12,000,000 shall be modified to reflect a total
principal sum of $19,800,000 and shall secure all of the obligations of the
Borrowers to the Lenders; and
19
<PAGE>
5.7 RECORDS; and
--------
5.8 All products and proceeds of the foregoing, in any form, including,
without limitation, dividends and insurance proceeds and all claims against
third parties for loss or damage to or destruction of any or all of the
foregoing.
5.9 REAFFIRMATION BY BORROWERS OF EXISTING COLLATERAL. This Agreement
-------------------------------------------------
evidences in part the assumption by all Borrowers of the Trotter Loans due the
Lender by Trotter and Trotter Holding. It is the intention of the Borrowers that
all existing Collateral pledged or hypothecated to the Lender by Trotter and
Trotter Holding continue to serve as collateral security for the Obligations of
the Borrowers assumed or created pursuant to this Agreement. Accordingly, the
Borrowers hereby represent, warrant and reaffirm to the Lender that it is the
intention that all existing collateral security held by the Lender shall
continue to serve as Collateral for the Loans and any other liabilities due the
Lender by the Borrowers and until the Loans are paid in full, the security
interests and mortgages held by the Lender shall otherwise continue in full
force and legal effect.
SECTION 6. COLLECTION AND ADMINISTRATION
-----------------------------
6.1 BORROWERS' LOAN ACCOUNT. Lender shall maintain one or more loan
-----------------------
account(s) on its books in which shall be recorded (a) all Loans and other
Obligations and the Collateral, (b) all payments made by or on behalf of
Borrowers and (c) all other appropriate debits and credits as provided in this
Agreement, including, without limitation, fees, charges, costs, expenses and
interest. All entries in the loan account(s) shall be made in accordance with
Lender's customary practices as in effect from time to time.
6.2 STATEMENTS. Lender shall render to Borrowers each month a statement
----------
setting forth the balance in the Borrowers' loan account(s) maintained by Lender
for Borrowers pursuant to the provisions of this Agreement, including principal,
interest, fees, costs and expenses. Each such statement shall be subject to
subsequent adjustment by Lender but shall, absent manifest errors or omissions,
be considered correct and deemed accepted by Borrowers and conclusively binding
upon Borrowers as an account stated except to the extent that Lender receives a
written notice
20
<PAGE>
from Borrowers of any specific exceptions of Borrowers thereto within thirty
(30) days after the date such statement has been mailed by Lender. Until such
time as Lender shall have rendered to Borrowers a written statement as provided
above, the balance in Borrowers' loan account(s) shall be presumptive evidence
of the amounts due and owing to Lender by Borrowers.
6.3 PAYMENTS. All Obligations shall be payable at Lender's office or as
--------
Lender may designate from time to time. Lender may apply payments received or
collected from Borrowers or for the account of Borrowers (including, without
limitation, the monetary proceeds of collections or of realization upon any
Collateral) to such of the Obligations, whether or not then due, in such order
and manner as Lender determines. At Lender's option, all principal, interest,
fees, costs, expenses and other charges provided for in this Agreement or the
other Financing Agreements may be charged directly to the loan account(s) of
Borrowers. Borrowers shall make all payments to Lender on the Obligations free
and clear of, and without deduction or withholding for or on account of, any
set-off, counterclaim, defense, duties, taxes, levies, posts, fees, deductions,
withholding, restrictions or conditions of any kind. If after receipt of any
payment of, or proceeds of Collateral applied to the payment of, any of the
Obligations, Lender is required to surrender or return such payment or proceeds
to any Person for any reason, then the Obligations intended to be satisfied by
such payment or proceeds shall be reinstated and continue and this Agreement
shall continue in full force and effect as if such payment or proceeds had not
been received by Lender. Borrowers shall be liable to pay to Lender, and do
hereby indemnify and hold Lender harmless for the amount of any payments or
proceeds surrendered or returned. This Section 6.3 shall remain effective
notwithstanding any contrary action which may be taken by Lender in reliance
upon such payment or proceeds. This Section 6.3 shall survive the payment of the
Obligations and the termination or nonrenewal of this Agreement.
6.4 AUTHORIZATION TO MAKE LOANS. Lender is authorized to make the Loans
---------------------------
based upon telephonic or other instructions received from anyone purporting to
be an officer of Borrowers or other authorized person who is listed on a list of
authorized officers provided to Lender, provided that the Borrower shall confirm
any telephonic messages by a writing signed by an authorized officer of the
Borrower. All requests for Loans hereunder shall specify the
21
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date on which the requested advance is to be made (which day shall be a business
day) and the amount of the requested Loan. Requests received after 11:00 a.m.
Eastern time on any day shall be deemed to have been made as of the opening of
business on the immediately following business day. All Loans under this
Agreement shall be conclusively presumed to have been made to, and at the
request of and for the benefit of, Borrowers when deposited to the credit of
Borrowers or otherwise disbursed or established in accordance with the
instructions of Borrowers or in accordance with the terms and conditions of this
Agreement.
6.5 USE OF PROCEEDS. Borrowers shall use the proceeds of the Loans
---------------
provided by Lender to Borrowers hereunder only for the following purposes: (a)
merger costs incurred in the merger of Merger Sub with Trotter, severance
payments to employees of the Borrowers, closing of industrial facilities and/or
office locations, and movement of manufacturing facilities; (b) working capital
and general corporate purposes; (c) to refinance or repay the Norwest Mortgage
loan due by Cybex and the mortgage loan on the Ronkonkoma real estate; and (d)
costs, expenses and fees in connection with the preparation, negotiation,
execution and delivery of this Agreement and the other Financing Agreements.
None of the proceeds will be used, directly or indirectly, for the purpose of
purchasing or carrying any margin security or for the purposes of reducing or
retiring any indebtedness which was originally incurred to purchase or carry any
margin security or for any other purpose which might cause any of the Loans to
be considered a "purpose credit" within the meaning of Regulation U of the Board
of Governors of the Federal Reserve System, as amended.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
----------------------------------
7.1 COLLATERAL REPORTING. Borrowers shall provide Lender with the
--------------------
following documents in a form satisfactory to Lender:
(a) as required by Lender, a schedule of Accounts;
(b) as required by Lender a certification by Borrowers' Chief
Financial Officer certifying the amount of finished goods, raw materials, and
inventory of Borrowers;
(c) upon Lender's request, (i) copies of customer statements and
credit memos, remittance advises and reports, and
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copies of deposit orders, invoices and delivery documents for Inventory and
Equipment acquired by Borrowers; deposit slips and bank statements; (ii) copies
of shipping and delivery documents; and (iii) copies of purchase orders,
invoices and delivery documents for Inventory and Equipment acquired by
Borrowers;
(d) such other reports as to the Collateral as Lender shall request
from time to time.
If any of Borrowers' records or reports of the Collateral are prepared or
maintained by an accounting service, contractor shipper or other agent,
Borrowers hereby irrevocably authorize such service, contractor, shipper or
agent to deliver such records, reports, and related documents to Lender and to
follow Lender's instructions with respect to further services at any time that
an Event of Default exists or has occurred and is continuing.
7.2 ACCOUNTS COVENANTS.
------------------
(a) If requested by the Lender, Borrowers shall notify Lender promptly
of: (i) any material delay in Borrowers' performance of any of their obligations
to any account debtor or the assertion of any claims, offsets, defenses or
counterclaims by any account debtor, or any disputes with account debtors, or
any settlement, adjustment or compromise thereof and (ii) all material adverse
information relating to the financial condition of any account debtor. No
credit, discount, allowance or extension or agreement for any of the foregoing
shall be granted to any account debtor without Lender's consent, except in the
ordinary course of Borrower's business in accordance with practices and policies
previously disclosed in writing to Lender. So long as no Event of Default
exists or has occurred and is continuing, Borrowers shall settle, adjust or
compromise any claim, offset, counterclaim or dispute with any account debtor.
At any time that an Event of Default exists or has occurred and is continuing,
Lender shall, at its option, have the exclusive right to settle, adjust or
compromise any claim, offset, counterclaim or dispute with account debtors or
grant any credits, discounts or allowances.
(b) With respect to each Account: (i) the amounts shown on any invoice
delivered to Lender or schedule thereof delivered to Lender shall be true and
complete, (ii) no credit, discount, allowance or extension or agreement for any
of the foregoing shall
23
<PAGE>
be granted to any account debtor except as reported to Lender in accordance with
this Agreement and except for credits, discounts, allowances or extensions made
or given in the ordinary course of Borrowers' business in accordance with
practices and policies previously disclosed to Lender, (iii) there shall be no
set-offs, deductions, contracts, defenses, counterclaims or disputes existing or
asserted with respect thereto except as reported to Lender in accordance with
the terms of this Agreement, (iv) none of the transactions giving rise thereto
will violate any applicable State or Federal laws or regulations, all
documentation relating thereto will be legally sufficient under such laws and
regulations and all such documentation will be legally enforceable in accordance
with its terms.
(c) Lender shall have the right at any time or times, in Lender's name
or in the name of a nominee of Lender, to verify the validity, amount or any
other matter relating to any Account or other Collateral, by mail, telephone,
facsimile transmission or otherwise.
(d) Borrowers shall deliver or cause to be delivered to Lender, with
appropriate endorsement and assignment, with full recourse to Borrowers, all
chattel paper and instruments which Borrowers now owns or may at any time
acquire immediately upon Borrowers' receipt thereof, except as Lender may
otherwise agree.
(e) Lender may, at any time that an Event of Default exists or has
occurred and is continuing, (i) notify any or all account debtors that the
Accounts have been assigned to Lender and that Lender has a security interest
therein and Lender may direct any or all accounts debtors to make payment of
Accounts directly to Lender, (ii) extend the time of payment of, compromise,
settle or adjust for cash credit, return of merchandise or otherwise, and upon
any terms or. conditions, any and all Accounts or other obligations included in
the Collateral and thereby discharge or release the account debtor or any other
party or parties in any way liable for payment thereof without affecting any of
the Obligations, (iii) demand, collect or enforce payment of any Accounts or
such other obligations, but without any duty to do so, and Lender shall not be
liable for its failure to collect or enforce the payment thereof nor for the
negligence of its agents or attorneys with respect thereto and (iv) take
whatever other action Lender may deem necessary or desirable for the protection
of its
24
<PAGE>
interests. At any time that an Event of Default exists or has occurred and is
continuing, at Lender's request, all invoices and statements sent to any account
debtor shall state that the Accounts and such other obligations have been
assigned to Lender and are payable directly and only to Lender and Borrowers
shall deliver to Lender such originals of documents evidencing the sale and
delivery of goods or the performance of services giving rise to any Accounts as
Lender may require.
7.3 INVENTORY COVENANTS. With respect to the Inventory: (a) Borrowers
-------------------
shall at all times maintain inventory records reasonably satisfactory to Lender,
keeping correct and accurate records itemizing and describing the kind, type,
quality and quantity of Inventory, Borrowers' cost therefor and withdrawals
therefrom and additions thereto; (b) only in the event of default, the Bank may
request and the Borrowers shall conduct a physical count of the Inventory at
least once each year, but at any time or times as Lender may request on or after
an Event of Default, and promptly following such physical inventory shall supply
Lender with a report in the form and with such specificity as may be reasonably
satisfactory to Lender concerning, such physical count; (c) except for
demonstration and show equipment in the ordinary course of business, Borrowers
shall not remove any Inventory from the locations set forth or permitted herein,
without the prior written consent of Lender, except for sales of Inventory in
the ordinary course of Borrowers' business and except to move Inventory directly
from one location set forth or permitted herein to another such location; (d)
Borrowers shall, at their expense, at any time as Lender may request on or after
an Event of Default, deliver or cause to be delivered to Lender written reports
or appraisals as to the Inventory in form, scope and methodology acceptable to
Lender and by an appraiser acceptable to Lender, addressed to Lender or upon
which Lender is expressly permitted to rely; (e) Borrowers shall produce, use,
store and maintain the Inventory, with all reasonable care and caution and in
accordance with applicable standards of any insurance and in conformity with
applicable laws (including, but not limited to, the requirements of the Federal
Fair Labor Standards Act of 1938, as amended and all rules, regulations and
orders related thereto); (f) Borrowers assume all responsibility and liability
arising from or relating to the production, use, sale or other disposition of
the Inventory; (g) except for demonstration and show equipment in the ordinary
course of business, Borrowers shall not sell Inventory to any customer on
25
<PAGE>
approval, or any other basis which entitles the customer to return or may
obligate Borrowers to repurchase such Inventory; (h) Borrowers shall keep the
Inventory in good and marketable condition; and (i) Borrowers shall not, without
prior written notice to Lender, acquire or accept any Inventory on consignment
or approval.
7.4 EQUIPMENT COVENANTS. With respect to the Equipment: (a) upon Lender's
-------------------
request, Borrowers shall, at their expense, at any time as Lender may request on
or after an Event of Default, deliver or cause to be delivered to Lender written
reports or appraisals as to the Equipment in form, scope and methodology
acceptable to Lender and by an appraiser acceptable to Lender; (b) Borrowers
shall keep the Equipment in good order, repair, and marketable condition
(ordinary wear and tear excepted); (c) Borrowers shall use the Equipment with
all reasonable care and caution and in accordance with applicable standards of
any insurance and in conformity with all applicable laws; (d) the Equipment is
and shall be used in Borrowers' business and not for personal, family, household
or farming use; (e) Borrowers shall not remove any Equipment from the locations
set forth or permitted herein, except to the extent necessary to have any
Equipment repaired or maintained in the ordinary course of the business of
Borrowers or to move Equipment directly from one location set forth or permitted
herein to another such location and except for the movement of motor vehicles
used by or for the benefit of Borrowers in the ordinary course of business; (f)
the Equipment is now and shall remain personal property and Borrowers shall not
permit any of the Equipment to be or become a part of or affixed to real
property; and (g) Borrowers assume all responsibility and liability arising from
the use of the Equipment.
7.5 POWER OF ATTORNEY. Borrowers hereby irrevocably designate and appoint
-----------------
Lender (and all persons designated by Lender) as Borrowers' true and lawful
attorney-in-fact, and authorize Lender, in Borrowers' or Lender's name, to: (a)
at any time an Event of Default or event which with notice or passage of time or
both would constitute an Event of Default exists or has occurred and is
continuing (i) demand payment on Accounts or other proceeds of Inventory or
other Collateral, (ii) enforce payment of Accounts by legal proceedings or
otherwise, (iii) exercise all of Borrowers' rights and remedies to collect any
Account or other Collateral, (iv) sell or assign any Account upon such terms,
for such amount
26
<PAGE>
and at such time or times as the Lender deems advisable, (v) settle, adjust,
compromise, extend or renew an Account, (vi) discharge and release any Account,
(vii) prepare, file and sign Borrowers' name on any proof of claim in bankruptcy
or other similar document against an account debtor, (viii) notify the post
office authorities to change the address for delivery of Borrower's mail to an
address designated by Lender, and open and dispose of all mail addressed to
Borrowers, (ix) take control in any manner of any item of payment or proceeds
thereof, (x) have access to any lockbox or postal box into which Borrowers' mail
is deposited,and (xi) do all acts and things which are necessary, in Lender's
determination, to fulfill Borrowers' obligations under this Agreement and the
other Financing Agreements and (b) at any time to (i) endorse Borrowers' name
upon any items of payment or proceeds thereof and deposit the same in the
Lender's account for application to the Obligations, (ii) endorse Borrowers'
name upon any chattel paper, document, instrument, invoice, or similar document
or agreement relating to any Account or any goods pertaining thereto or any
other Collateral, (iii) sign Borrowers' name on any verification of Accounts and
notices thereof to account debtors and (iv) execute in Borrowers' name and file
any UCC financing statements or amendments thereto. Borrowers hereby release
Lender and its officers, employees and designees from any liabilities arising
from any act or acts under this power of attorney and in furtherance thereof,
whether of omission or commission, except as a result of Lender's own gross
negligence or wilful misconduct as determined pursuant to a final non-appealable
order of a court of competent jurisdiction.
7.6 RIGHT TO CURE. Lender may, at its option, (a) cure any default by
-------------
Borrowers under any agreement with a third party or pay or bond on appeal any
judgment entered against a Borrower (b) discharge taxes, liens, security
interests or other encumbrances at any time levied on or existing with respect
to the Collateral and (c) pay any amount, incur any expense or perform any act
which, in Lender's judgment, is necessary or appropriate to preserve, protect,
insure or maintain the Collateral and the rights of Lender with respect thereto.
Lender may add any amounts so expended to the Obligations and charge Borrowers'
account therefor, such amounts to be repayable by Borrowers on demand. Lender
shall be under no obligation to effect such cure, payment or bonding and shall
not, by doing so, be deemed to have assumed any obligation or liability of
Borrowers. Any payment made or other action taken by Lender
27
<PAGE>
under this Section shall be without prejudice to any right to assert an Event of
Default hereunder and to proceed accordingly.
7.7 ACCESS TO PREMISES. From time to time as requested by Lender, at the
------------------
cost and expense of Borrowers after an Event of Default, (a) Lender or its
designee shall have complete access to all of Borrowers' premises during normal
business hours and after notice to Borrowers, or at any time and without notice
to Borrowers if an Event of Default exists or has occurred and is continuing,
for the purposes of inspecting, verifying and auditing the Collateral and all of
Borrowers' books and records, including, without limitation, the Records, and
(b) Borrowers shall promptly furnish to Lender such copies of such books and
records or extracts therefrom as Lender may request, and (c) Lender shall have
use free of charge during normal business hours of such of Borrowers' personnel,
equipment, supplies and premises as may be reasonably necessary for the
foregoing and if an Event of Default exists or has occurred and is continuing
for the collection of Accounts and realization of other Collateral.
7.8 AUDIT OF ACCOUNTS RECEIVABLES. The Lender or its designee shall have
-----------------------------
reasonable access to books and receivables of the Borrowers and the Borrowers
shall comply with all reasonable requests of the Lender to supply information
including but not limited to a review and/or audit of the accounts receivable by
the Lender or its designee. All reasonable costs and expenses incurred by the
Lender in inspecting and reviewing the financial information of the Borrowers
including, if required by the Lender, an audit of the accounts receivable, shall
be paid by the Borrowers.
7.9 ADDITIONAL COLLATERAL. Borrowers and the Guarantors agree to pledge
----------------------
as additional collateral for the repayment of the Loans the following real and
personal property:
1. A mortgage in the amount of $3,000,000 on the real and
personal property located at the Borrower's facility in Ronkonkoma, New York.
It is specifically agreed by the Borrowers that the Borrowers shall execute the
Mortgage on the above-referenced property on the date hereof. However, said
Mortgage shall not be recorded with the appropriate recording office in the
County of Suffolk for a period of six (6) months from the date of this
Agreement. The purpose of this delay in recording said Mortgage is to permit
the Borrowers to complete the sale of the
28
<PAGE>
Ronkonkoma facility. In the event that the facility is not sold within six (6)
months, the aforesaid Mortgage may be recorded with the appropriate recording
officer in the County of Suffolk, New York. The Borrowers represent and warrant
that subsequent to the date of this Agreement and prior to the expiration of six
(6) months from same, the Borrowers shall not mortgage, pledge or otherwise
encumber the real and personal property owned by the Borrowers and located in
Ronkonkoma, New York.
2. The Borrowers and the Lender acknowledge that the lien of
the Lender on all personal property, fixtures, furniture, equipment, inventory,
account receivable and chattel paper owned by the Borrowers and located in the
Borrowers' facility in Owatonna, Minnesota ("OWATONNA COLLATERAL") is subject to
a prior lien by Norwest Bank Minnesota South N.A. The Borrowers represent and
warrant that Norwest Bank Minnesota South N.A. has agreed to limit the lien of
the prior filing to personal property, fixtures and equipment located on the
premises as of the date of the execution of this Agreement and said lien shall
not attach to any additions or substitutions of the Owatonna Collateral.
SECTION 8. REPRESENTATIONS AND WARRANTIES
------------------------------
Borrowers hereby represent and warrant to Lender the following (which
shall survive the execution and delivery of this Agreement), the truth and
accuracy of which are a continuing condition of the making of Loans by Lender to
Borrowers:
8.1 CORPORATE EXISTENCE, POWER AND AUTHORITY: SUBSIDIARIES. Each Borrower
------------------------------------------------------
is a corporation duly organized and in good standing under the laws of its state
of incorporation and is duly qualified as a foreign corporation and in good
standing in all states or other jurisdictions where the nature and extent of the
business transacted by it or the ownership of assets makes such qualification
necessary, except for those jurisdictions in which the failure to so qualify
would not have a material adverse effect on each Borrower's financial condition,
results of operation or business or the rights of Lender in or to any of the
Collateral. The execution, delivery and performance of this Agreement, the other
Financing Agreements and the transactions contemplated hereunder and thereunder
are all within Borrowers' corporate powers, have been duly authorized and are
not in contravention of
29
<PAGE>
law or the terms of each Borrower's certificate of incorporation, bylaws, or
other organizational documentation, or any indenture, agreement or undertaking
to which each Borrower is a party or by which each Borrower or its property are
bound. This Agreement and the other Financing Agreements constitute legal, valid
and binding obligations of each Borrower enforceable in accordance with their
respective terms. Trotter does not have any subsidiaries except for Trotter
Holding, and Trotter Holding owns no assets except for the trademarks and/or
tradenames listed on the attached information sheet.
8.2 FINANCIAL STATEMENTS; NO MATERIAL ADVERSE CHANGE. All financial
------------------------------------------------
statements relating to Borrowers which have been or may hereafter be delivered
by Borrowers to Lender have been prepared in accordance with GAAP and fairly
present the financial condition and the results of operation of Borrowers as at
the dates and for the periods set forth therein. Except as disclosed in any
interim financial statements furnished by Borrowers to Lender prior to the date
of this Agreement, there has been no material adverse change in the assets,
liabilities, properties and condition, financial or otherwise, of Borrowers
since the date of the most recent audited financial statements furnished by
Borrowers to Lender prior to the date of this Agreement.
8.3 CHIEF EXECUTIVE OFFICE; COLLATERAL LOCATIONS. The chief executive
--------------------------------------------
office of Borrowers and Borrowers' Records concerning Accounts are located only
at 10 Trotter Drive, Medway, Massachusetts and its other places of business and
the only other locations of Collateral, if any, are the addresses set forth in
the Information Certificate, subject to the right of Borrowers to establish new
locations in accordance with Section 9.2 below. The Information Certificate
correctly identifies any of such locations which are not owned by Borrowers and
sets forth the owners and/or operators thereof and, to the best of Borrowers'
knowledge, the holders of any mortgages on such locations.
8.4 PRIORITY OF LIENS; TITLE TO PROPERTIES. The security interests,
--------------------------------------
mortgages and liens granted to Lender under this Agreement and the other
Financing Agreements constitute valid and perfected first priority liens and
security interests in and upon the Collateral subject only to the liens
indicated on Schedule 8.4 hereto and the other liens permitted under Section 9.8
hereof (it being understood that unless Lender otherwise requests, Borrowers
30
<PAGE>
will not be required to perfect the liens on property owned by Lumex, Cybex
Fitness or General Medical, provided, however, that in the event that the Loans
remain outstanding for a period of six (6) months from the date of execution any
and all documents necessary to grant a perfected first lien security interest on
the property owned by Lumex, Cybex Fitness or General Medical, if such company
is still in existence. Borrowers have good and marketable title to all of their
properties and assets subject to no liens, mortgages, pledges, security
interests, encumbrances or charges of any kind, except those granted to Lender
and such others as are specifically listed on Schedule 8.4 hereto or permitted
under Section 9.8 hereof.
8.5 TAX RETURNS. Each Borrower has filed, or caused to be filed, in a
-----------
timely manner all tax returns, reports and declarations which are required to be
filed by it (without requests for extension, except as previously disclosed in
writing to Lender) the failure of which to file would result in material adverse
consequences to the Borrowers as a whole or would jeopardize or result in a lien
on any of the Collateral. All information in such tax returns, reports and
declarations is complete and accurate in all material respects. Each Borrower
has paid or caused to be paid all taxes due and payable or claimed due and
payable in any assessment received by it, except taxes the validity of which are
being contested in good faith by appropriate proceedings diligently pursued and
available to each Borrower and with respect to which adequate reserves have been
set aside on its books. Adequate provision has been made for the payment of all
accrued and unpaid Federal, State, county, local, foreign and other taxes
whether or not yet due and payable and whether or not disputed.
8.6 LITIGATION. Except as set forth on the Information Certificate, there
----------
is no present investigation by any governmental agency pending, or to the best
of Borrowers' knowledge threatened, against or affecting any Borrower, its
assets or business and there is no action, suit, proceeding or claim by any
Person pending, or to the best of Borrowers' knowledge threatened, against
Borrowers or their assets or goodwill, or against or affecting any transactions
contemplated by this Agreement, which if adversely determined against such
Borrowers would result in any material adverse change in the assets, business or
prospects of Borrowers or would impair the ability of Borrowers to perform their
obligations hereunder or under any of the other Financing Agreements to which
31
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it is a party or of Lender's ability to enforce any Obligations or realize upon
any Collateral.
8.7 COMPLIANCE WITH OTHER AGREEMENTS AND APPLICABLE LAWS. Borrowers are
----------------------------------------------------
not in default in any material respect under, or in violation in any material
respect of any of the terms of, any material agreement, contract, instrument,
lease or other commitment to which it is or they are a party or by which it is
or they are or any of its or their assets are bound and Borrowers are in
compliance in all material respects with all applicable provisions of laws,
rules, regulations, licenses, permits, approvals and orders of any foreign,
Federal, State or local governmental authority. Schedule 8.7 hereto is a
complete and accurate list of all governmental licenses and permits issued to
Borrowers and that are necessary or useful in the operation of their business.
8.8 ACCURACY AND COMPLETENESS OF INFORMATION. All information furnished
----------------------------------------
by or on behalf of Borrowers in writing to Lender in connection with this
Agreement or any of the other Financing Agreements or any transact ion
contemplated hereby or thereby, including without limitation, all information on
the Information Certificate is true and correct in all material respects on the
date as of which such information is dated or certified and does not omit any
material fact necessary in order to make such information not misleading. No
event or circumstance has occurred which has had or could reasonably be expected
to have a material adverse affect on the business, assets or prospects of
Borrowers, which has not been fully and accurately disclosed to Lender in
writing.
8.9 CORPORATE STRUCTURE. Cybex, Cybex Financial, Eagle Performance, Cybex
-------------------
Fitness, General Medical, Lumex and Trotter are wholly-owned subsidiaries of
Cybex. Trotter Holding is a wholly owned subsidiary of Trotter.
8.10 ENVIRONMENTAL MATTERS.
---------------------
(a) To the knowledge of Borrowers, none of the Borrowers or any of its
subsidiaries has used, stored, treated, transported, manufactured, refined,
generated, handled, produced or disposed of any Hazardous Materials on, under,
at, from, or in any way affecting any of their properties or assets, or
otherwise, in any manner in violation of any Environmental Law, except in each
32
<PAGE>
instance such violations as in the aggregate would not have a material adverse
effect upon the Borrowers and their subsidiaries taken as a whole.
(b) To the knowledge of Borrowers, and except as set forth in Schedule
8.10, none of the Borrowers or their subsidiaries has any obligations or
liabilities, known or unknown, matured or not matured, absolute or contingent,
assessed or unassessed, where such would reasonably be expected to have a
materially adverse effect on Borrowers or its subsidiaries taken as a whole, and
no Environmental Actions have been filed against Borrowers or their subsidiaries
or any of their respective employees, agents, representatives or predecessors in
interest in connection with or in any way arising from or relating to Borrowers
or their subsidiaries or any of their respective properties, or relating to or
arising from or attributable, in whole or in part, to the manufacturing,
processing, distributing, using, treating, storing, disposing, transporting or
handling of any Hazardous Materials, by any other Person at or on or under any
of the real properties owned or used by Borrowers or their subsidiaries or any
other location where any of the foregoing could reasonably be expected to have a
materially adverse effect.
8.11 EXCLUSION OF CERTAIN SUBSIDIARIES. The Borrowers represent and
----------------------------------
warrant that the Borrowers' financial condition as of June 30, 1997 will comply
with the covenants contained in paragraphs 9.12, 9.14 and 9.15 of this Agreement
without any consideration of the assets and liabilities of the following
subsidiaries: Lumex, Cybex Fitness and General Medical.
8.12 SURVIVAL OF WARRANTIES; CUMULATIVE. All representations and
----------------------------------
warranties contained in this Agreement or any of the other Financing Agreements
shall survive the execution and delivery of this Agreement and shall be deemed
to have been made again to Lender on the date of each additional borrowing or
other credit accommodation hereunder and shall be conclusively presumed to have
been relied on by Lender regardless of any investigation made or information
possessed by Lender. The representations and warranties set forth herein shall
be cumulative and in addition to any other representations or warranties which
Borrowers shall now or hereafter give, or cause to be given, to Lender.
33
<PAGE>
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
----------------------------------
9.1 MAINTENANCE OF EXISTENCE. Except for mergers among the Borrowers,
------------------------
each Borrower shall at all times preserve, renew and keep in full force and
effect its corporate existence and rights and franchises with respect thereto
and maintain in full force and effect all permits, licenses, trademarks,
tradenames, approvals, authorizations, leases and contracts necessary to carry
on the business as presently or proposed to be conducted. Lender hereby
consents to the dissolution of Cybex Fitness and Lumex. Each Borrower shall
give Lender thirty (30) days' prior written notice of any proposed change in its
corporate name, which notice shall set forth its new name and Borrowers shall
deliver to Lender a copy of the amendment to the certificate of incorporation of
such Borrower providing for the name change certified by the Secretary of State
of the jurisdiction of incorporation of such Borrower as soon as it is
available.
9.2 NEW COLLATERAL LOCATIONS. Borrowers may open any new location within
------------------------
the continental United States provided Borrowers (a) give Lender thirty (30)
days prior written notice of the intended opening of any such new location and
(b) execute and deliver, or cause to be executed and delivered, to Lender such
agreements, documents, and instruments as Lender may deem reasonably necessary
or desirable to protect their interests in the Collateral at such location,
including, without limitation, UCC financing statements.
9.3 COMPLIANCE WITH LAWS RELATIONS, ETC. Each Borrower shall, at all
-----------------------------------
times, comply in all material respects with all laws, rules, regulations,
licenses, permits, approvals and orders of any Federal, State or local
governmental authority applicable to it.
9.4 PAYMENT OF TAXES AND CLAIMS. Each Borrower shall duly pay and
---------------------------
discharge all taxes, assessments, contributions and governmental charges upon or
against it or its properties or assets the failure of which to pay shall result
in material adverse consequences to the Borrowers as a whole or would jeopardize
or result in a lien on any of the Collateral, except for taxes the validity of
which are being contested in good faith by appropriate proceedings diligently
pursued and available to Borrowers and with respect to which adequate reserves
have been set aside on its books. Borrowers shall be liable for any tax or
penalties imposed
34
<PAGE>
on Lender as a result of the financing arrangements provided for herein
and Borrowers agree to indemnify and hold Lender harmless with respect
to the foregoing, and to repay to Lender on demand the amount thereof,
and until paid by Borrowers such amount shall be added and deemed part of the
Loans, provided, that, nothing contained herein shall be construed to require
-------- ----
Borrowers to pay any income or franchise taxes attributable to the income of
Lender from any amounts charged or paid hereunder to Lender. The foregoing
indemnity shall survive the payment of the Obligations and the termination or
non-renewal of this Agreement.
9.5 INSURANCE. Borrowers shall, at all times, maintain with financially
---------
sound and reputable insurers insurance with respect to the Collateral against
loss or damage and all other insurance of the kinds and in the amounts
customarily insured against or carried by corporations of established reputation
engaged in the same or similar businesses and similarly situated. Said policies
of insurance shall be satisfactory to Lender as to form, amount and insurer.
Borrowers shall furnish certificates, policies or endorsements to Lender as
Lender shall require as proof of such insurance, and, if Borrowers fail to do
so, Lender is authorized, but not required, to obtain such insurance at the
expense of Borrowers. All policies shall provide for at least thirty (30) days'
prior written notice to Lender of any cancellation or reduction of coverage and
that Lender may act as attorney for Borrowers in obtaining, and at any time an
Event of Default exists or has occurred and is continuing, adjusting, settling,
amending and canceling such insurance. Borrowers shall cause Lender to be named
as a loss payee and an additional insured (but without any liability for any
premiums) under such insurance policies and Borrowers shall obtain non-
contributory lender's loss payable endorsements to all insurance policies in
form and substance satisfactory to Lender. Such lender's loss payable
endorsements shall specify that the proceeds of such insurance shall be payable
to Lender as its interests may appear and further specify that Lender shall be
paid regardless of any act or omission by Borrowers or any of its affiliates.
At its option, Lender may apply any insurance proceeds received by Lender at any
time to the cost of repairs or replacement of Collateral and/or to payment of
the Obligations, whether or not then due, in any order and in such manner as
Lender may determine or hold such proceeds as cash collateral for the
Obligations.
35
<PAGE>
9.6 FINANCIAL STATEMENTS AND OTHER INFORMATION
------------------------------------------
(a) Borrowers shall keep proper books and records in which true and
complete entries shall be made of all dealings or transactions of or in relation
to the Collateral and the businesses of Borrowers and their subsidiaries (if
any) in accordance with GAAP and Borrowers shall furnish or cause to be
furnished to Lender: (i) within one hundred twenty (120) days after the end of
each fiscal year, annual audited consolidated financial statements of Borrowers
and their Subsidiaries (including in each case balance sheets, statements of
income and loss, statements of cash flow and statements of shareholders'
equity), and the accompanying notes thereto, all in reasonable detail, fairly
presenting the financial position and the results of the operations of Borrowers
and their Subsidiaries as of the end of and for such fiscal year, together with
the opinion of independent certified public accountants, which accountants shall
be an independent accounting firm selected by Borrowers and reasonably
acceptable to Lender, that such financial statements have been prepared in
accordance with GAAP, and present fairly the results of operations and financial
condition of Borrowers and their Subsidiaries as of the end of and for the
fiscal year then ended; (ii) within one hundred twenty (120) days after the end
of each fiscal year, management or accountant prepared consolidating financial
statements of Cybex and its subsidiaries along with a copy of the management
letter from Cybex auditors, in form, substance and on the terms set forth in (i)
above; (iii) within one hundred twenty (120) days after the end of each fiscal
year, the Securities and Exchange Commission ("SEC") Annual Report (Form 10-k)
of Cybex; (iv) Within forty-five (45) days after the end of each fiscal quarter
other than the fourth quarter, SEC quarterly Report (Form 10Q) of Cybex, all in
reasonable detail, fairly presenting the financial position and the results of
the operations of Borrowers and their Subsidiaries as of the end of and through,
respectively, such fiscal quarter, accompanied by a "COMPLIANCE CERTIFICATE"
executed by the Chief Financial Officer of Cybex, certifying the accuracy of all
representations and warranties of Borrowers hereunder and the absence of an
Event of Default or an event which, with the passage of time or giving of notice
or both, would constitute an Event of Default.
(b) Borrowers shall promptly notify Lender in writing of the details
of (i) any loss, damage, investigation, action, suit,
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<PAGE>
proceeding or claim in excess of $250,000 relating to the Collateral or any
other property which is security for the Loans or which would result in any
material adverse change in Borrowers' business, properties, assets, goodwill or
condition, financial or otherwise and (ii) the occurrence of any Event of
Default or event which, with the passage of time or giving of notice or both,
would constitute an Event of Default.
(c) Borrowers shall promptly, after the sending or filing thereof,
furnish or cause to be furnished to Lender copies of all reports of Cybex sent
to its stockholders generally and copies of all reports and registration
statements which Cybex files with the Securities and Exchange Commission, any
national securities exchange or the National Association of Securities Dealers,
Inc.
(d) Prior to the start of each fiscal year, Borrowers shall provide
Lender annual budget and financial projections of the Borrowers and Borrowers
shall distribute or cause to be distributed to Lender such budgets, forecasts,
projections and other information respecting the Collateral and the businesses
of Borrowers, as Lender may, from time to time, reasonably request. Lender is
hereby authorized to deliver a copy of any financial statement or any other
information relating to the businesses of Borrowers to any court or other
government agency or to any participant or assignee or prospective participant
or assignee. Borrowers hereby irrevocably authorize and direct all accountants
or auditors to deliver to Lender, at Borrowers' expense, copies of the financial
statements of Borrowers and any reports or management letters prepared by such
accountants or auditors on behalf of Borrowers and to disclose to Lender such
information they may have regarding the business of Borrowers. Any documents,
schedules, invoices or other papers delivered to Lender may be destroyed or
otherwise disposed of by Lender one (1) year after the same are delivered to
Lender, except as otherwise designated by Borrowers to Lender in writing.
9.7 SALE OF ASSETS, CONSOLIDATION MERGER, DISSOLUTION, ETC. No Borrowers
-------------- ---------------------------------------
shall, directly or indirectly, (a) except for mergers among Borrowers, merge
into or with or consolidate with any other Person or permit any other Person to
merge into or with or consolidate with it, or (b) sell, assign, lease, transfer,
abandon or otherwise dispose of any stock or indebtedness to any other
37
<PAGE>
Person or any of its assets to any other Person (except for (i) sale or
assignment by any Borrower of leases of equipment and the equipment leased,
chattel paper in the ordinary course of its business; (ii) sales of Inventory in
the ordinary course of business and (iii) the disposition of worn-out or
obsolete Equipment or Equipment no longer used in the business of such Borrower
so long as (A) if an Event of Default exists or has occurred and is continuing,
any proceeds of a sale or disposition of chattel paper, inventory or Equipment
no longer used in the business of such Borrower, are paid to Lender and (B) such
sales do not involve Equipment having an aggregate fair market value in excess
of $250,000 for all such Equipment disposed of in any fiscal year of said
Borrower), or (c) form or acquire any subsidiaries, or (d) wind up, liquidate or
dissolve (the Lender consenting to the dissolution of Cybex Fitness and Lumex);
or (e) agree to do any of the foregoing. Notwithstanding the foregoing, (a)
Borrowers may issue stock pursuant to Cybex's Stock Option Plans or Employee
Stock Ownership Plan, (b) sell Equipment, provided that the proceeds of sale are
utilized solely to purchase replacement Equipment, (c) sell the Real Property
owned by the Borrower in Ronkonkoma, New York, and (d) sell the isokenetic
product line of Cybex.
9.8 ENCUMBRANCES. No Borrower shall create, incur, assume or suffer to
------------
exist any security interest, mortgage, pledge, lien, charge or other encumbrance
of any nature whatsoever on any of its assets or properties, including, without
limitation, the Collateral, except: (a)(i) any lease of equipment which is sold
-------
or assigned to a third party or financed with a third party (in each case other
than the Lender), (ii) all Accounts and Receivables arising out of any such
lease and (iii) the Equipment covered by any such lease; (b) liens and security
interests of Lender; (c) liens securing the payment of taxes, either not yet
overdue or the validity of which are being contested in good faith by
appropriate proceedings diligently pursued and available to Borrowers and with
respect to which adequate reserves have been set aide on their books; (d) non-
consensual statutory liens (other than liens securing the payment of taxes)
arising in the ordinary course of Borrowers' businesses to the extent: (i) such
liens secure indebtedness which is not overdue or (ii) such liens secure
indebtedness relating to claims or liabilities which are fully insured and being
defended at the sole cost and expense and at the sole risk of the insurer or
being contested in good faith by
38
<PAGE>
appropriate proceedings diligently pursued and available to Borrower, in each
case prior to the commencement of foreclosure or other similar proceedings and
with respect to which adequate reserves have been set aide on their books; (e)
zoning restrictions, easements, licenses, covenants and other restrictions
affecting the use of real property which do not interfere in any material
respect with the use of such real property or ordinary conduct of the businesses
of Borrowers as presently conducted thereon or materially impair the value of
the real property which may be subject thereto, (f) purchase money security
interests in Equipment (including capital leases) and purchase money mortgages
on real estate not to exceed amounts provided in Paragraph 9.9 below, so long as
any security interests and mortgages do not apply to any property of Borrowers
other than Equipment or real estate so acquired, and the indebtedness secured
thereby does not exceed the cost of the Equipment or real estate so acquired, as
the case may be; and (g) the security interests and liens set forth on Schedule
8.4 hereto.
9.9 INDEBTEDNESS. Borrowers shall not incur, create, assume, become or be
------------
liable in any manner with respect to, or permit to exist, any obligations or
indebtedness, except the following:
(a) refinance the Owatonna Facility or pay or satisfy any mortgage or
indebtedness thereon;
(b) the Obligations;
(c) trade obligations and normal accruals in the ordinary course of
business not yet due and payable, or with respect to which the Borrowers are
contesting in good faith the amount or validity thereof by appropriate
proceedings diligently pursued and available to Borrowers, and with respect to
which adequate reserves have been set aside on its books;
(d) purchase money indebtedness, including Capital Leases, not to
exceed at any time $2,500,000.00 in the aggregate in each fiscal year, provided
no Event of Default, or event which with notice or passage of time or both would
constitute an Event of Default, shall exist or have occurred and be continuing
or result from such indebtedness; provided, further, Borrowers' aggregate
increase in purchase money indebtedness in any given fiscal year shall not
exceed $500,000 over the amount of purchase money
39
<PAGE>
indebtedness outstanding as of the end of the immediately preceding fiscal year;
(e) obligations or indebtedness set forth on the Information
Certificate, Provided, that, (i) Borrowers may only make regularly scheduled
---------------
payments of principal and interest, but not any prepayments or other non-
mandatory payments, in accordance with the terms of the instruments and
agreements related thereto as in effect on the date hereof; (ii) Borrowers shall
not, directly or indirectly, (A) amend, modify, alter or change the terms of
such indebtedness or any agreement, document, or instrument related thereto in
effect on the date hereof, or (B) redeem, retire, defease, purchase or otherwise
acquire such indebtedness, or set aside or otherwise deposit or invest any sums
for such purpose, and (iii) Borrowers shall furnish to Lender all notices or
demands in connection with such indebtedness either received by Borrowers or on
their behalf, promptly after the receipt thereof, or sent by Borrower or on its
behalf, concurrently with the sending thereof, as the case may be; and
(f) obligations to any shareholder, director or officer of Borrowers
for advances of funds, provided such debt is subordinated to the Obligations
pursuant to a subordination agreement acceptable to Lender and pledged to
Lender;
(g) repurchase obligations of Borrowers referred to in Section 9.10(c)
below; and
(h) Indebtedness of Cybex and its Subsidiaries in respect of the sale
to any third party by Cybex or its Subsidiaries of receivables due under leases
of Cybex' or a Subsidiary's equipment; provided the portion of such Indebtedness
(i) which is recourse to Cybex or any Subsidiary or (ii) in respect of which
Cybex or Subsidiary has issued any guaranty or otherwise has any contingent
obligation; does not exceed, in the aggregate, $12,000,000.
(i) Indebtedness of Cybex and its Subsidiaries in respect of any
equipment leases either funded or financed by third party sources (not
subsidiaries of Borrowers) to a maximum amount of $6,000,000 or leases of
equipment held by the Borrowers and not funded or financed by third parties
which leases will not exceed in the aggregate, $4,000,000.
40
<PAGE>
9.10 LOANS, INVESTMENTS, GUARANTEES, ETC. Except with the prior written
-----------------------------------
consent of Lender, no Borrower shall, directly or indirectly, make any loans or
advance money or property to any person, or invest in (by capital contribution,
dividend or otherwise) or purchase or repurchase the stock or indebtedness or
all or a substantial part of the assets or property of any person, or guarantee,
assume, endorse, or otherwise become responsible for (directly or indirectly)
the indebtedness, performance, obligations or dividends of any Person or agree
to do any of the foregoing, except (a) the endorsement of instruments for
------
collection or deposit in the ordinary course of business; (b) investments in:
(i) short-term direct obligations of the United States Government, (ii)
negotiable certificates of deposit issued by any bank satisfactory to Lender,
payable to the order of Borrowers or to bearer and delivered to Lender, and
(iii) commercial paper or other money market instruments rated Al or PI; and (c)
up to an aggregate of $100,000 in addition to the lease obligations set forth in
paragraphs 9.9(h) and (i), at any time in potential liability under repurchase
obligations owed by Borrower to certain equipment lessors in connection with
leases covering products sold by Borrower; provided, that, as to any of the
-------- ----
foregoing which constitute investments, unless waived in writing by Lender,
Borrowers shall take such actions as are deemed necessary by Lender to perfect
the security interest of Lender in such investments.
9.11 DIVIDENDS AND REDEMPTIONS. Provided the payment of dividends on
-------------------------
account of any shares of class of capital stock does not result in the
occurrence of an Event of Default, Cybex shall be permitted to pay dividends or
buy back stock in an amount not to exceed 50% of its net income (and determined
in accordance with GAAP). Except as provided in the immediately preceding
sentence, Cybex shall not, directly or indirectly, declare or pay any dividends
on account of any shares of class of capital stock of Cybex now or hereafter
outstanding, or set aide or otherwise deposit or invest any sums for such
purpose, or redeem, retire, defease, purchase or otherwise acquire any shares of
any class of capital stock (or set aside or otherwise deposit or invest any sums
for such purpose) for any consideration other than common stock or apply or set
apart any sum, or make any other distribution (by reduction of capital or
otherwise) in respect of any such shares or dilute in any manner its capital
stock or agree to do any of the foregoing.
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9.12 MINIMUM ADJUSTED TANGIBLE CAPITAL FUNDS. Borrowers shall not permit
----------------------------------------
their Adjusted Tangible Capital Funds to be (a) less than $29,000,000 as of June
30, 1997 and September 30, 1997; (b) less than $30,000,000 as of December 31,
1997 and quarterly thereafter; (c) less than $37,000,000 as of December 31, 1998
and quarterly thereafter; and (d) less than $42,000,000 as of December 31, 1999
and quarterly thereafter.
9.13 FIXED CHARGE COVERAGE RATIO. Borrowers shall not permit their Fixed
---------------------------
Charge Ratio to be less than 1.25:1 as of December 31, 1997 and measured
quarterly thereafter on a rolling four quarter basis (provided, however, that
the cost of the Sharpsville plant closure technical research and development
costs and other merger-related costs (in the case of merger-related costs, as
agreed to by Lender) expensed in fiscal 1997 will not be calculated in the Fixed
Charge Ratio for the appropriate four quarters); less than 1.50:1 as of December
31, 1998 and measured quarterly thereafter on a rolling four quarter basis; and
less than 1.75:1 as of December 31, 1999 and measured quarterly thereafter on a
rolling four quarter basis and annually thereafter.
9.14 MAXIMUM TOTAL LIABILITIES TO ADJUSTED TANGIBLE CAPITAL FUNDS.
-------------------------------------------------------------
Borrowers' ratio of Total Liabilities to Adjusted Tangible Capital Funds shall
not at any time during the following periods of time exceed:
<TABLE>
<CAPTION>
<S> <C>
6/30/97 to 9/30/97: 3.0:1
12/31/97 to 9/30/98: 2.5:1
12/30/98 to 9/30/99: 2.25:1
12/31/99 to 12/31/2000: 2.00:1
</TABLE>
The foregoing covenants being measured for at the end of the fiscal
quarters ending March 31, June 30, September 30 and December 31 of each year,
commencing June 30, 1997.
9.15 MINIMUM WORKING CAPITAL. Borrowers' current assets minus current
------------------------
liabilities, as determined in accordance with GAAP, shall not be (a) less than
$14,100,000 after the year ending December 31, 1997; (b) less than $22,000,000
after the year ending December 31, 1998; and (c) less than $28,000,000 after the
year ending December 31, 1999; the foregoing covenants being measured for any
four consecutive fiscal quarters ending March 30, June 30, September 30 and
December 31 of each year, commencing as of December 31, 1997.
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<PAGE>
9.16 INTEREST COVERAGE RATIO. Borrowers' Interest Coverage Ratio shall not
------------------------
at any time during the term of any Obligations due Lender by Borrowers be less
than 3.0:1, commencing December 31, 1997; provided, however, that the cost of
the Sharpsville plant closure, technical research and development costs, and
other merger-related costs (in the case of merger-related costs, as agreed to by
Lender) expensed in fiscal 1997 will not be calculated in the interest coverage
ratio.
9.17 TRANSACTIONS WITH AFFILIATES. Borrowers shall not enter into any
----------------------------
transaction for the purchase, sale or exchange of property or the rendering of
any service to or by any Affiliate, except in the ordinary course of and
pursuant to the reasonable requirements of Borrowers' businesses and upon fair
and reasonable terms no less favorable to the Borrowers than Borrowers would
obtain in a comparable arm's length transaction with an unaffiliated person.
9.18 CAPITAL EXPENDITURES. Borrowers shall limit Capital Expenditures to
--------------------
(a) $3,500,000.00 in 1997 (b) $4,500,000.00 in 1998 and (c) $3,500,000 annually
thereafter.
9.19 COSTS AND EXPENSES. Borrowers shall pay to Lender on demand all costs,
------------------
expenses, filing fees and taxes paid or payable in connection with the
preparation, negotiation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of the Obligations, Lender's
rights in the Collateral, this Agreement, the other Financing Agreements and all
other documents related hereto or thereto, including any amendments, supplements
or consents which may hereafter be contemplated (whether or not executed) or
entered into in respect hereof and thereof, including, but not limited to: (a)
all costs and expenses of filing or recording (including Uniform Commercial Code
financing statement filing taxes and fees, documentary taxes, intangibles taxes
and mortgage recording taxes and fees, if applicable); (b) all title insurance
and other insurance premiums, appraisal fees and search fees; (c) costs and
expenses of remitting loan proceeds, collecting checks and other items of
payment, together with Lender's customary charges and fees with respect thereto;
(d) costs and expenses of preserving and protecting the Collateral; (e) costs
and expenses paid or incurred in connection with obtaining payment of the
Obligations, enforcing the security interests and liens of Lender, selling or
otherwise realizing upon the Collateral, and otherwise enforcing the provisions
of this
43
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Agreement and the other Financing Agreements or defending any claims
made or threatened against Lender arising out of the transactions contemplated
hereby and thereby (including, without limitation, preparations for and
consultations concerning any such matters); (f) subject to the limits stated in
Section 7.7, all out-of -pocket expenses and costs heretofore and from time to
time hereafter incurred by Lender during the course of periodic field
examinations of the Collateral and Borrowers' operations; and (g) the fees and
disbursements of counsel (including legal assistants) to Lender in connection
with any of the foregoing.
9.20 ENVIRONMENTAL LAWS.
------------------
(a) Borrowers shall promptly notify Lender following receipt by an
officer of Borrowers or any Subsidiary thereof of any actual or threatened
Environmental Action or any violation or potential violation of or non-
compliance with, or liability or potential liability under any Environmental
Laws which, when taken together with all other pending violations could
reasonably be expected to have a material adverse effect on Borrowers and its
Subsidiaries taken as a whole, and promptly furnish to Lender all material
notices of any nature which Borrowers or any Subsidiary thereof may receive from
the Governmental Authority or other Person with respect to any Environmental
Action, violation, or potential violation of or non-compliance with, or
liability or potential liability under any Environmental Laws which, in any case
or when taken together with all such other notices, could reasonably be expected
to have a material adverse effect on Borrower and its Subsidiaries taken as a
whole.
(b) Borrowers shall comply in all material respects with and use
reasonable efforts to ensure compliance by all tenants and subtenants with all
Environmental Laws, and obtain and comply in all material respects with and
maintain and use reasonable best efforts to ensure that all tenants and
subtenants obtain and comply with all licenses, approvals, registrations or
permits required by Environmental Laws.
(c) Borrowers shall conduct and complete all investigations, studies,
sampling and testing, and all remedial, removal, reporting and other actions
required under all Environmental Laws and promptly comply in all material
respects with all lawful orders and directives of all Governmental
44
<PAGE>
Authorities subject to the Borrowers' or any Subsidiary's right to contest or
negotiate any such order or directive in good faith and in compliance with
Environmental Laws provided such contest or negotiation is promptly commenced.
(d) Defend, indemnify and hold harmless Lender and its respective
employees, agents, officers and directors, from and against any claims, demands,
penalties, fines, liabilities (including strict liability), settlements,
damages, costs and expenses of whatever kind or nature, known or unknown,
contingent or otherwise, arising out of, or in any way related to the violation
of or non-compliance with any Environmental Laws, or any orders, requirements or
demands of Governmental Authorities by the Borrowers or any Subsidiary thereof,
including, without limitation, any cleanup or remediation costs, reasonable
attorney and consultant fees, investigation and laboratory fees, court costs and
litigation expenses.
9.21 CHANGE IN BUSINESS. So long as any amount shall remain outstanding
------------------
under any Note or unpaid under this Agreement, unless Lender shall otherwise
consent in writing, Borrowers agree that they will not, nor will they permit any
subsidiary thereof to, directly or indirectly to engage, to any material extent,
as determined by Lender in the reasonable exercise of its discretion, in any
business other than the manufacturing, leasing, sale and wholesale distribution
of fitness equipment and supplies.
9.22 FURTHER ASSURANCES. At the request of Lender at any time and
------------------
from time to time, Borrowers shall, at their expense, duly execute and deliver,
or cause to be duly executed and delivered, such further agreements, documents
and instruments, and do or cause to be done such further acts as may be
necessary or proper to evidence, perfect, maintain and enforce the security
interests and the priority thereof in the Collateral and to otherwise effectuate
the provisions or purposes of this Agreement or any of the other Financing
Agreements. Lender may at any time and from time to time request a certificate
from an officer of Borrower representing that all conditions precedent to the
making of Loans contained herein are satisfied. In the event of such request by
Lender, Lender may, at its option, cease to make any other Loans or provide any
further Letter of Credit Accommodations until Lender has received such
certificate and, in addition, Lender has determined that such conditions are
satisfied. Where permitted by law, Borrowers hereby
45
<PAGE>
authorize Lender to execute and file one or more UCC financing statements signed
only by Lender.
9.23 AMENDMENT OF PRIOR AGREEMENT. Borrowers and the Lender hereby
----------------------------
specifically acknowledge and agree that the covenants contained in this
paragraph and this Agreement replace and amend the covenants contained in
Article 7 of the Letter of Credit and Reimbursement Agreement dated February 1,
1996 between United Jersey Bank, Bank of Nova Scotia and Trotter, Inc.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
------------------------------
10.1 EVENTS OF DEFAULT. The occurrence or existence of any one or more of
-----------------
the following events are referred to herein individually as an "Event of
Default," and collectively as "Events of Default:"
(a) Borrowers fail to pay when due or within ten days after the due
date any of the Obligations or within 30 days after notice from Lender fail to
perform any of the terms, covenants, conditions or provisions contained in this
Agreement or any of the other Financing Agreements;
(b) any representation, warranty or statement of fact made by a
Borrower to Lender in this Agreement, the other Financing Agreements or any
other agreement, schedule, confirmatory assignment or otherwise shall when made
or deemed made be false or misleading in any material respect;
(c) any Obligor revokes, terminates or fails to perform, beyond any
grace or cure period and subject to Notice provisions, any of the terms,
covenants, conditions or provisions of any guarantee, endorsement or other
agreement of such party in favor of Lender;
(d) any judgment for the payment of money is rendered against any
Borrower or any Obligor in excess of $100,000 in any one case or in excess of
$200,000 in the aggregate and shall remain undischarged or unvacated for a
period in excess of sixty (60) days or execution shall at any time not be
effectively stayed, or any judgment other than for the payment of money, or
injunction which would have a material adverse effect on said Borrower, or an
attachment, garnishment or execution is rendered in excess of the
46
<PAGE>
above amount against said Borrower or any Obligor or any of their assets, which
event would have a material adverse effect on said Borrower, its business or the
Collateral;
(e) except as permitted in the Loan Documents, any Obligor (being a
natural person or a general partner of an Obligor which is a partnership) dies
or a Borrower or any Obligor, which is a partnership or corporation, dissolves
or suspends or discontinues doing business;
(f) Any Borrower or any Obligor becomes insolvent (however defined or
evidenced), makes an assignment for the benefit of creditors, makes or sends
notice of a bulk transfer or calls a meeting of its creditors or principal
creditors;
(g) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law or
in equity) is filed against any Borrower, any Obligor or all or any part of its
properties and such petition or application is not dismissed within sixty (60)
days after the date of its filing or any Borrower, any such Obligor shall file
any answer admitting or not contesting such petition or application or indicates
its consent to, acquiescence in or approval of, any such action or proceeding or
the relief requested is granted sooner;
(h) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at a law
or equity) is filed by any Borrower for all or any part of its property; or
(i) any default by a Borrower or any Obligor under any agreement,
document or instrument relating to any indebtedness for borrowed money owing to
any person other than Lender, or any capitalized lease obligations, contingent
indebtedness in connection with any guarantee, letter of credit, indemnity or
sent in favor of any person other than Lender, in any case in an amount in
excess of $100,000, which default continues for more than the applicable cure
period, if any, with respect thereto, or default by
47
<PAGE>
Borrower or any Obligor under any material contract, lease, license or other
obligation to any person other than Lender, which default continues for more
than the applicable cure period, if any, with respect thereto;
(j) any substantial change in management of Cybex, whether by reason
of death, resignation, protractive illness, change of ownership or employment or
management policies or for any other reason, Cybex shall give prompt written
notice thereof to the Lender and Lender, whether or not so notified upon being
informed of such change may, if not reasonably satisfied with the new
management, require that same be revised or reformed in the manner satisfactory
to the Lender;
(k) the indictment of a Borrower or any Obligor under any criminal
statute, or commencement of criminal or civil proceedings against a Borrower or
any Obligor, pursuant to which statute or proceedings the penalties or remedies
sought or available include forfeiture of any material property of a Borrower or
such Obligor; or
(l) there shall be an event of default under any of the other
Financing Agreements.
10.2 REMEDIES.
--------
(a) At any time an Event of Default exists or has occurred and is
continuing, Lender shall have all rights and remedies provided in this
Agreement, the other Financing Agreements, the Uniform Commercial Code and other
applicable law, all of which rights and remedies may be exercised without notice
to or consent by Borrowers or any Obligor, except as such notice or consent is
expressly provided for hereunder or required by applicable law. All rights,
remedies and powers granted to Lender hereunder, under any of the other
Financing Agreements, the Uniform Commercial Code or other applicable law, are
cumulative, not exclusive and enforceable, in Lender's discretion,
alternatively, successively, or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court of equity for
an injunction to restrain a breach or threatened breach by a Borrower of this
Agreement or any of the other Financing Agreements. Lender may, at any time or
times, proceed directly
48
<PAGE>
against Borrowers or any Obligor to collect the Obligations without prior
recourse to the Collateral.
Without limiting the foregoing, at any time an Event of Default exists or
has occurred and is continuing, Lender may, in its discretion and without
limitation, (i) accelerate the payment of all Obligations and demand immediate
payment thereof to Lender (provided, that, upon the occurrence of any Event of
----------------
Default described in Sections 10.1(g) and 10.1(h), all Obligations shall
automatically become immediately due and payable), (ii) with or without judicial
process or the aid or assistance of others, enter upon any premises on or in
which any of the Collateral may be located and take possession of the Collateral
or complete processing, manufacturing and repair of all or any portion of the
Collateral, (iii) require Borrowers, at Borrowers' expense, to assemble and make
available to Lender any part or all of the Collateral at any place and time
designated by Lender, (iv) collect, foreclose, receive, appropriate, set-off and
realize upon any and all Collateral, (v) remove any or all of the Collateral
from any premises on or in which the same may be located for the purpose of
effecting the sale, foreclosure or other disposition thereof or for any other
purpose, (vi) sell, lease, transfer, assign, deliver or otherwise dispose of any
and all Collateral (including, without limitation, entering into contracts with
respect thereto, public or private sales at any exchange, broker's board, at any
office of Lender or elsewhere) at such prices or terms as Lender may deem
reasonable, for cash, upon credit or for future delivery, with the Lender having
the right to purchase the whole or any part of the Collateral at any such public
sale, all of the foregoing being free from any right or equity of redemption of
Borrowers, which right or equity of redemption is hereby expressly waived and
released by Borrowers and/or (vii) terminate this Agreement. If any of the
Collateral is sold or leased by Lender upon credit terms or for future delivery,
the Obligations shall not be reduced as a result thereof until payment therefor
is finally collected by Lender. If notice of disposition of Collateral is
required by law, five (5) days' prior notice by Lender to Borrowers designating
the time and place of any public sale or the time after which any private sale
or other intended disposition of Collateral is to be made, shall be deemed to be
reasonable notice thereof and Borrowers waive any other notice. In the event
Lender institutes an action to recover any Collateral or seeks recovery of any
49
<PAGE>
Collateral by way of prejudgment remedy, Borrowers waive the posting of any bond
which might otherwise be require.
(b) Lender may apply the cash proceeds of Collateral actually received
by Lender from any sale, lease, foreclosure or other disposition of the
Collateral to payment of the Obligations, in whole or in part and in such order
as Lender may elect, whether or not then due. Borrowers shall remain liable to
Lender for the payment of any deficiency with interest at the highest rate
provided for herein and all costs and expenses of collection or enforcement,
including attorneys' fees and legal expenses.
(c) Without limiting the foregoing, upon the occurrence of an Event of
Default or an event which with notice or passage of time or both would
constitute an Event of Default, Lender may, at its option, without notice, (i)
cease making Loans or reduce the lending formulas or amounts of Revolving Loans
available to Borrower and/or (ii) terminate any provision of this Agreement
providing for any future Loans to be made by Lender to Borrowers.
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS;
GOVERNING LAW
---------------------------------------------
11.1 GOVERNING LAW; CHOICE OF FORUM; SERVICE OF PROCESS; JURY TRIAL WAIVER.
----------------------------------------------------------------------
(a) The validity, interpretation and enforcement of this Agreement and
the other Financing Agreements and any dispute arising out of the relationship
between the parties hereto, whether in contract, tort, equity or otherwise,
shall be governed by the internal laws of the State of New Jersey (without
giving effect to principles of conflicts of law).
(b) Borrowers and Lender irrevocably consent and submit to the non-
exclusive jurisdiction of the Superior Court of the State of New Jersey and the
United States District Court for the District of New Jersey and waive any
objection based on venue or forum non conveniens with respect to any action
--------------------
instituted therein arising under this Agreement or any of the other Financing
Agreements or in any way connected with or related or incidental to the dealings
of the parties hereto in respect of this Agreement or any of the other Financing
Agreements or the transactions related hereto or thereto, in each case whether
now existing or hereafter
50
<PAGE>
arising, and whether in contract, tort, equity or otherwise, and agree that any
dispute with respect to any such matters shall be heard only in the courts
described above (except that Lender shall have the right to bring any action or
proceeding against a Borrower or its property in the courts of any other
jurisdiction which Lender deems necessary or appropriate in order to realize on
the Collateral or to otherwise enforce its rights against a Borrower or its
property).
(c) Each Borrower hereby waives personal service of any and all
process upon it and consents that all such service of process may be made by
certified mail (return receipt requested) directed to its address set forth on
the signature pages hereof and service so made shall be deemed to be completed
five (5) days after the same shall have been so deposited in the U.S. mails, or,
at Lender's option, by service upon Borrower in any other manner provided under
the rules of any such courts. Within thirty (30) days after such service,
Borrower shall appear in answer to such process, failing which Borrower shall be
deemed in default and judgment may be entered by Lender against Borrower for the
amount of the claim and other relief requested.
(d) BORROWERS AND LENDER EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY
OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (I) ARISING UNDER THIS AGREEMENT
OR ANY OF THE OTHER FINANCING AGREEMENTS OR (II) IN ANY WAY CONNECTED WITH OR
RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS
AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS RELATED
HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND
WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWERS AND LENDER EACH HEREBY
AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL
BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT BORROWERS OR LENDER MAY FILE
AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO
TRIAL BY JURY.
(e) Lender shall not have any liability to a Borrower (whether in
tort, contract, equity or otherwise) for losses suffered by a Borrower in
connection with, arising out of, or in any way related to the transactions or
relationships contemplated by this Agreement, or any act, omission or event
occurring in connection herewith, unless it is determined by a final and
51
<PAGE>
nonappealable judgment or court order binding on Lender, that the losses were
the result of acts or omissions constituting gross negligence or willful
misconduct. In any such litigation, Lender shall be entitled to the benefit of
the rebuttable presumption that it acted in good faith and with the exercise of
ordinary care in the performance by it of the terms of this Agreement.
11.2 WAIVER OF NOTICES. Borrowers hereby expressly waive demand,
-----------------
presentment, protest and notice of protest and notice of dishonor with respect
to any and all instruments and commercial paper, included in or evidencing any
of the Obligations or the Collateral, and any and all other demands and notices
of any kind or nature whatsoever with respect to the Obligations, the Collateral
and this Agreement, except such as are expressly provided for herein. No notice
to or demand on a Borrower which Lender may elect to give shall entitle a
Borrower to any other or further notice or demand in the same, similar or other
circumstances.
11.3 AMENDMENTS AND WAIVERS. Neither this Agreement nor any provision
----------------------
hereof shall be amended, modified, waived or discharged orally or by course of
conduct, but only by a written agreement signed by an authorized officer of
Lender. Lender shall not, by any act, delay, omission or otherwise be deemed to
have expressly or impliedly waived any of its rights, powers and/or remedies
unless such waiver shall be in writing and signed by an authorized officer of
Lender. Any such waiver shall be enforceable only to the extent specifically set
forth therein. A waiver by Lender of any right, power and/or remedy on any one
occasion shall not be construed as a bar to or waiver of any such right, power
and/or remedy which Lender would otherwise have on any future occasion, whether
similar in kind or otherwise.
11.4 WAIVER OF COUNTERCLAIMS. Each Borrower waives all rights to interpose
-----------------------
any claims, deductions, set-offs or counterclaims of any nature (other then
compulsory counterclaims) in any action or proceeding with respect to this
Agreement, the Obligations, the Collateral or any matter arising therefrom or
relating hereto or thereto.
11.5 INDEMNIFICATION. Borrowers shall indemnify and hold Lender, and its
---------------
directors, agents, employees and counsel, harmless from and against any and all
losses, claims, damages, liabilities,
52
<PAGE>
costs or expenses imposed on, incurred by or asserted against any of them in
connection with any litigation, investigation, claim or proceeding commenced or
threatened related to the negotiation, preparation, execution, delivery,
enforcement, performance or administration of this Agreement, any other
Financing Agreements, or any undertaking or proceeding related to any of the
actions contemplated hereby or any act, omission, event or transaction related
or attendant thereto, including, without limitation, amounts paid in settlement,
court costs, and the fees and expenses of counsel. To the extent that the
undertaking to indemnify, pay and hold harmless set forth in this Section may be
unenforceable because it violates any law or public policy, Borrower shall pay
the maximum portion which it is permitted to pay under applicable law to Lender
in satisfaction of indemnified matters under this Section. The foregoing
indemnity shall survive the payment of the Obligations and the termination or
nonrenewal of this Agreement.
SECTION 12. MISCELLANEOUS
-------------
12.1 NOTICES. All notices, requests and demands hereunder shall be in
-------
writing and (a) made to Lender and to Borrowers at the addresses set forth below
or to such other address as either party may designate by written notice to the
other in accordance with this provision, and (b) deemed to have been given or
made: if delivered in person, immediately upon delivery; if by telex, telegram
or facsimile transmission, immediately upon sending and upon confirmation of
receipt; if by nationally recognized overnight courier service with instructions
to deliver the next business day, one (I) business day after sending; and if by
certified mail, return receipt requested, five (5) days after mailing.
If to Lender:
Summit Bank
1800 Chapel Avenue West
Cherry Hill, New Jersey 08034
ATTN: Adrian M. Marquez, Vice President
FAX No.: (609) 486-3716
53
<PAGE>
With copy to:
Dilworth, Paxson, Kalish & Kauffman
P.O. Box 2570
Cherry Hill, New Jersey 08034
ATTN: Frank V. Tedesco, Esquire
FAX NO.: (609) 663-8855
If to Borrower:
Cybex International, Inc.
10 Trotter Drive
Medway, Massachusetts 02053
ATTN: William S. Hurley, Vice President and Chief
Financial Officer
FAX NO.: (508) 533-5500
and
Arthur W. Hicks, Jr., Vice President
Trotter, Inc.
56 Haddon Avenue
Haddonfield, NJ 08033
With copy to:
Archer & Greiner
One Centennial Square
Haddonfield, New Jersey 08033
ATTN: James H. Carll, Esquire
FAX NO.: (609) 795-0574
12.2 PARTIAL INVALIDITY. If any provision of this Agreement is held to be
------------------
invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
54
<PAGE>
12.3 SUCCESSORS. This Agreement, the other Financing Agreements and any
----------
other document referred to herein or therein shall be binding upon and inure to
the benefit of and be enforceable by Lender, Borrowers and their respective
successors and assigns, except that Borrowers may not assign their rights under
this Agreement, the other Financing Agreements and any other document referred
to herein or therein without the prior written consent of Lender. Lender may,
after notice to Borrowers, assign its rights and delegate its obligations under
this Agreement and the other Financing Agreements and further may assign, or
sell participations in, all or any part of the Loans, or any other interest
herein to another financial institution or other person, in which event, the
assignee or participant shall have, to the extent of such assignment or
participation, the same rights and benefits as it would have if it were the
Lender hereunder, except as otherwise provided by the terms of such assignment
or participation.
12.4 USE OF LOAN PROCEEDS. The Co-Borrowers by execution of this Agreement
---------------------
acknowledge and certify that the credit facilities provided by the Lender to the
Borrowers constitute a direct financial benefit to the Borrowers individually
and as a whole.
12.5 ENTIRE AGREEMENT. This Agreement, the other Financing Agreements, any
----------------
supplements thereto, and any instruments or documents delivered or to be
delivered in connection herewith or therewith represent the entire agreement and
understanding concerning the subject matter hereof and thereof between the
parties hereto, and supersede all other prior agreements, understandings,
negotiations and discussions, representations, warranties, commitments,
proposals, offers and contracts concerning the subject matter hereof, whether
oral or written.
55
<PAGE>
IN WITNESS WHEREOF, Lender and Borrowers have caused these presents to be
duly executed as of the day and year first above written.
CO-BORROWER
-----------
CYBEX INTERNATIONAL, INC.
Attest:
/s/ James H. Carll By: /s/ William S. Hurley
- ------------------------------- -------------------------------
James H. Carll, Asst. Secretary William S. Hurley
Title: Vice President and
Chief Financial Officer
CO-BORROWER
-----------
CYBEX FINANCIAL CORPORATION
Attest:
/s/ James H. Carll By: /s/ William S. Hurley
- ------------------------------- -------------------------------
James H. Carll, Asst. Secretary William S. Hurley
Title: Vice President and
Chief Financial Officer
CO-BORROWER
-----------
EAGLE PERFORMANCE SYSTEMS, INC.
Attest:
/s/ James H. Carll By: /s/ William S. Hurley
- ------------------------------- -------------------------------
James H. Carll, Asst. Secretary William S. Hurley
Title: Vice President and
Chief Financial Officer
CO-BORROWER
-----------
CYBEX FITNESS GERATE VERTRIEBS Attest:
GmbH
Attest:
/s/ James H. Carll By: /s/ William S. Hurley
- ------------------------------- -------------------------------
James H. Carll, Asst. Secretary William S. Hurley
Title: Vice President and
Chief Financial Officer
56
<PAGE>
CO-BORROWER
-----------
GENERAL MEDICAL EQUIPMENT
LIMITED
Attest:
/s/ James H. Carll By: /s/ William S. Hurley
- ------------------------------- -------------------------------
James H. Carll, Asst. Secretary William S. Hurley
Title: Vice President and
Chief Financial Officer
CO-BORROWER
-----------
LUMEX BED SYSTEMS
Attest:
/s/ James H. Carll By: /s/ William S. Hurley
- ------------------------------- -------------------------------
James H. Carll, Asst. Secretary William S. Hurley
Title: Vice President and
Chief Financial Officer
CO-BORROWER
-----------
TROTTER, INC.
Attest:
/s/ James H. Carll By: /s/ William S. Hurley
- ------------------------------- -------------------------------
James H. Carll, Asst. Secretary William S. Hurley
Title: Vice President and
Chief Financial Officer
CO-BORROWER
-----------
TROTTER HOLDING COMPANY
Attest:
/s/ James H. Carll By: /s/ Arthur W. Hicks, Jr.
- ------------------------------- -------------------------------
James H. Carll, Asst. Secretary Arthur W. Hicks, Jr.
Title: Vice President
57
<PAGE>
LENDER
------
SUMMIT BANK, successor by
merger to UNITED JERSEY BANK
By: /s/ Adrian M. Marquez
------------------------------
Adrian M. Marquez
Title: Vice President
58
<PAGE>
EXHIBIT 10.3(b)
FIRST AMENDMENT
TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
FIRST AMENDMENT, dated as of July 15, 1997, among SUMMIT BANK, a New Jersey
Banking Corporation ("Lender"); and CYBEX INTERNATIONAL, INC., CYBEX FINANCIAL
CORPORATION, EAGLE PERFORMANCE SYSTEMS, INC., CYBEX FITNESS GERATE VERTRIEBS,
GMBH, GENERAL MEDICAL EQUIPMENT LIMITED, LUMEX BED SYSTEMS, TROTTER INC., and
TROTTER HOLDING COMPANY (collectively, the "Borrowers").
BACKGROUND
----------
The Lender and the Borrowers have heretofore entered into the Amended and
Restated Loan and Security Agreement dated June 16, 1997 (the "Loan Agreement").
All capitalized terms utilized herein and not otherwise defined have the
respective meaning indicated in the Loan Agreement. Pursuant to Section 5 of
the Loan Agreement, the Borrowers have granted to the Lender, to secure payment
and performance of all Obligations, a continuing security interest in the
Collateral. The parties desire to enter into this First Amendment, to clarify
and confirm the exclusion of certain specific property from the Collateral.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. The proviso in the lead-in paragraph of Section 5 of the Loan
Agreement is hereby amended to read in its entirety as follows:
provided, that the Collateral specifically excludes (1) all leases,
security agreements and other chattel paper now or hereafter assigned,
sold, transferred or pledged as security to a third party or financed
with a third party, in each case other than the Lender (collectively,
the "Excluded Chattel Paper"), (2) all equipment, all machinery, all
other personal property and all other collateral or security described
in the Excluded Chattel Paper (collectively, the "Excluded
Equipment"), (3) all contract rights, rentals, accounts, general
intangibles and other income related to or arising from the Excluded
Chattel Paper or the Excluded Equipment, and (4) all other rights,
remedies and interests of the Borrowers relating to or arising from
the Excluded Chattel Paper or the Excluded Equipment and all cash and
non-cash proceeds of the foregoing:
<PAGE>
2. Amendments to Financing Statements. The Lender agrees to execute
----------------------------------
appropriate amendments to the outstanding financing statements, as required to
reflect the foregoing amendment to the Loan Agreement.
3. References to Leases. All references to leases in Sections 9.7,
--------------------
9.8(a), 9.9(h) and (i) and 9.10(c) of the Loan Agreement shall include chattel
paper relating to equipment sold by Borrowers with a retained security interest.
4. Confirmation of Obligations. This First Amendment is made
---------------------------
supplemental to and a part of the Loan Agreement. Except as expressly amended
and modified by this First Amendment, the Loan Agreement and all other Financing
Agreements, are hereby ratified and confirmed in all respects.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
First Amendment as of the date first above written.
SUMMIT BANK
By: /s/ Adrian M. Marquez
---------------------------------
CYBEX INTERNATIONAL, INC.
By: /s/ William S. Hurley
---------------------------------
CYBEX FINANCIAL CORPORATION
By: /s/ William S. Hurley
---------------------------------
EAGLE PERFORMANCE SYSTEMS, INC.
By: /s/ William S. Hurley
---------------------------------
CYBEX FITNESS GERATE VERTRIEBS, GMBH
By: /s/ William S. Hurley
---------------------------------
-2-
<PAGE>
GENERAL MEDICAL EQUIPMENT LIMITED
By: /s/ William S. Hurley
---------------------------------
LUMEX BED SYSTEMS
By: /s/ William S. Hurley
---------------------------------
TROTTER INC.
By: /s/ William S. Hurley
---------------------------------
TROTTER HOLDING COMPANY
By: /s/ Arthur W. Hicks, Jr.
---------------------------------
-3-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE BODY OF THE FORM 10-Q AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 4,262
<SECURITIES> 0
<RECEIVABLES> 26,472
<ALLOWANCES> (3,487)
<INVENTORY> 6,130
<CURRENT-ASSETS> 52,463
<PP&E> 18,675
<DEPRECIATION> (6,103)
<TOTAL-ASSETS> 83,489
<CURRENT-LIABILITIES> 29,559
<BONDS> 15,930
0
0
<COMMON> 884
<OTHER-SE> 35,918
<TOTAL-LIABILITY-AND-EQUITY> 83,489
<SALES> 30,893
<TOTAL-REVENUES> 30,893
<CGS> 20,715
<TOTAL-COSTS> 20,715
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 518
<INCOME-PRETAX> (10,187)
<INCOME-TAX> (2,903)
<INCOME-CONTINUING> (7,284)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,284)
<EPS-PRIMARY> (1.41)
<EPS-DILUTED> (1.41)
</TABLE>
