<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
COMMISSION FILE NUMBER
0-4538
CYBEX INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK 11-1731581
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
10 TROTTER DRIVE, MEDWAY, 02053
MASSACHUSETTS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (508) 533-4300
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------
<S> <C>
Common Stock, $.10 Par Value American Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
(TITLE OF CLASS)
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 required for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
----------------
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT AS OF MARCH 23, 1998
COMMON STOCK, $.10 PAR VALUE--$59,213,985
----------------
THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF COMMON
STOCK, AS OF MARCH 23, 1998
COMMON STOCK, $.10 PAR VALUE--8,676,559 SHARES
----------------
DOCUMENTS INCORPORATED BY REFERENCE:
The information required by Part III (items 10, 11, 12 and 13) is
incorporated by reference from the Registrant's definitive proxy statement for
its Annual Meeting of Stockholders, to be filed with the Commission pursuant
to Regulation 14A, or if such proxy statement is not filed with the Commission
on or before 120 days after the end of the fiscal year covered by this Report,
such information will be included in an amendment to this Report filed no
later than the end of such 120-day period.
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<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Cybex International, Inc. (the "Company" or "Cybex") is a strength and
cardiovascular equipment company which develops, manufactures and markets
premium-quality, professional human performance products for the commercial
and consumer markets. The Company operates in one industry segment.
On May 23, 1997, a merger (the "Merger") between Trotter Inc. ("Trotter")
and a wholly-owned subsidiary of Cybex was consummated with Trotter surviving
the Merger as a subsidiary of Cybex. For accounting purposes, the transaction
was accounted for as a purchase, with Trotter deemed to be the acquiring
company 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, with the results of Cybex included from and
after the May 23, 1997 merger date.
Prior to the Merger, Cybex (formerly known as Lumex, Inc.) was engaged in
the manufacture, sale and distribution of fitness equipment, testing and
rehabilitation products and, through its Lumex Division, various healthcare
products and therapeutic support systems. In December 1995 Cybex announced a
restructuring plan which included the sale of the Lumex Division, and on April
30, 1996, Cybex sold substantially all of the assets and business of the Lumex
Division to Fuqua Enterprises, Inc. ("Fuqua"). See Item 3 hereto for a
description of certain legal matters pertaining to this sale.
In connection with the Merger, the Company announced its plans to sell its
testing and rehabilitation product line and its Ronkonkoma, New York facility,
both of which were sold for cash during the fourth quarter of 1997.
The Company has a wholly owned finance subsidiary, Cybex Finance Corp
("CFC"), which provides capital equipment financing for Company products
primarily to its domestic customer base.
PRODUCTS
The Company develops, manufactures, distributes and services professional
quality human performance equipment for the commercial and consumer markets.
These products can generally be grouped into two major categories:
cardiovascular products and strength systems. The Company also manufactured
and distributed isokinetics testing and rehabilitation products until the sale
of this product line in the fourth quarter of 1997.
While a portion of the Company's sales are to individuals for home fitness
programs, all of its products are of "premium quality"; they are typically the
best in the category in which they compete featuring high performance and
durability comparable to that utilized in health clubs or by professional
athletes. Accordingly, all of the Company's products are premium-priced.
The contribution to net sales of the Company's product lines over the past
three years is as follows (dollars in millions):
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
NET NET NET
SALES PERCENT SALES PERCENT SALES PERCENT
----- ------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Cardiovascular Products............... $46.2 51% $35.3 74% $34.6 79%
Strength Systems...................... 41.4 46 12.3 26 9.1 21
Isokinetics (1)....................... 2.6 3 -- -- -- --
----- --- ----- --- ----- ---
$90.2 100% $47.6 100% $43.7 100%
===== === ===== === ===== ===
</TABLE>
- --------
(1) Represents sales of the Cybex isokinetics testing and rehabilitation
product line from the May 23, 1997 merger date to September 30, 1997, the
date the product line was sold.
2
<PAGE>
Cardiovascular Products
The Company's cardiovascular equipment is designed to provide aerobic
conditioning by elevating the heart rate, increasing lung capacity, endurance
and circulation, and burning body fat. Trotter commenced operations in 1973 as
one of the pioneers in the design and manufacture of treadmills specifically
intended for use by individuals in their home as part of a home fitness
program. The Company's cardiovascular products today include five treadmill
models, two bikes and the "Reactor", a human movement product which measures
agility, balance, coordination and reaction time through the use of platforms
which a person moves around on in accordance with audio and visual cues. The
Company anticipates introducing during the first quarter of 1998 the Trotter
600H Hiker by Cybex, which provides a total body workout with a natural
"hiking" motion. The Treadmill and Bike products are motorized. All of the
Company's cardiovascular products incorporate computerized electronics which
control the unit and provide feedback to the user.
Treadmills. Each treadmill model is motorized and incorporates computerized
electronics controlling speed, incline, and both preset and customized
exercise programs. The electronics also provide readout displays to indicate
program profiles, calories burned, calories per hour, speed, incline,
distance, elapsed time and pace. In addition, diagnostic information can be
accessed through the computer system which is useful in the maintenance of the
product. The Company presently sells five treadmill models, with list prices
ranging from $3,695 to $7,995.
Bikes. The Company has two cycle ergometer products, THE BIKE and THE SEMI.
THE BIKE was designed by integrating the most popular features that were
identified by customer focus groups. These features include a biomechanically
contoured design, numerous pre-programmed operating modes and profiles, as
well as a durable structural steel frame and multi-position handle bars. THE
SEMI is a semi-recumbent cycle ergometer that incorporates the same features
as THE BIKE and is designed to complement THE BIKE in both function and
appearance. These two ergometer products have list prices ranging from $2,395
to $2,695.
Strength Training Products
Strength training equipment provides a physical workout by exercising the
muscular system. The Company's strength training equipment uses weights for
resistance. Today, this product line includes selectorized single station
equipment, modular multi-station units, plate loaded and free-weight
equipment.
Selectorized Equipment. The Company's selectorized equipment is sold under
the trademarks "VR2", "Galileo" and VR. Selectorized single station equipment
incorporates stacked weights, permitting the user to select different weight
levels for a given exercise by inserting a pin at the appropriate weight
level. Each selectorized product is designed for a specific muscle group with
each product line utilizing a different technology. The Company sells 85
selectorized equipment products with list prices between $1,795 and $5,295.
Modular Multi-Station Units. This product line has the advanced design and
high performance features of the VR selectorized equipment line while being
able to be configured into multiple station design. The Company has seven
multi-station modular products with list prices ranging from $2,095 to $2,895.
Plate Loaded Equipment. The Company manufactures and distributes a series of
strength equipment which mimics many of the movements found on our
selectorized machines but are manually loaded with weights. These are simple,
space efficient products ranging in price from $695 to $2,795. There are 21
plate-loaded products.
Free-Weight Equipment. The Company also sells free-weight equipment,
including benches, bars, weights and squat racks. This line is complimented by
barbells and plates. The Company offers approximately 28 items of free weight
equipment with list prices ranging from $195 to $1,195.
CUSTOMERS AND DISTRIBUTION
The Company markets its products to individuals interested in purchasing
premium quality equipment and to commercial customers. Since its products are
premium-priced, sales to individuals tend to be made to persons interested in
a comprehensive home fitness program. A commercial customer is any purchaser
who does not intend the product for home use. Typical commercial customers are
health clubs, corporate fitness centers, hotels, resorts, spas, educational
institutions, military installations and community centers.
3
<PAGE>
The Company distributes its products through independent authorized dealers,
its own domestic sales force and international distributors.
Independent authorized dealers operate independent stores specializing in
fitness-related products and promote home and in certain instances commercial
sales of Company products. The operations of the independent dealers are
primarily local or regional in nature. In North America, the Company enters
into performance standards agreements with its dealers which are designed to
assure that the Company brand is properly positioned in the marketplace. The
dealers must, in order to qualify as an authorized dealer, maintain a retail
showroom, achieve minimum revenue goals, and have personnel trained to install
and service Company products. Today, the Company has approximately 220 active
dealers it North America. The Company believes that its current dealer network
is adequate to service its targeted markets.
The Company's domestic sales force is comprised of 21 territory managers
supported by four regional directors and one national accounts director. The
sales force makes sales to users such as professional sports teams, university
physical education and physiology departments, gym owners, health clubs,
sports medicine clinics and individuals. The Company may also involve its
dealers in some direct sales and utilize the dealer in the delivery and
installation of the product, and in follow-up sales and service. Dealers also
receive a fee for providing delivery and installation services.
International sales accounted for approximately 18% of the Company's net
sales for 1997. The international sales force consists of 2 Regional Sales
Directors, 1 Regional Sales Manager, and 4 Account Representatives. There are
66 independent distributors in 65 countries currently representing the
Company. The Company enters into international distributor agreements with
these distributors which define territories, performance standards and volume
requirements. In 1996, the Company formed a joint venture with a third party
for the sale, distribution and servicing of its products in Europe (including
Russia), Africa and the Middle East. As a result of the Merger, this joint
venture was dissolved and replaced by an international distributor agreement
with the third party involving different pricing and terms, performance
standards, and more limited geography.
The Company markets its products by advertising in publications, such as The
Wall Street Journal, which appeal to individuals within its targeted
demographic profiles. The Company's authorized dealers are provided
cooperative allowances, pursuant to which the dealer advertises its store and
the Company's products on a shared cost basis. In addition, the Company
advertises in trade publications such as Club Industry Magazine, Club Business
International and Fitness Management Magazine and participates in industry
trade shows.
The Company offers lease financing for its products through CFC, its wholly
owned finance subsidiary. The Company periodically enters into agreements to
sell lease receivables to financial institutions.
WARRANTIES
The Company promotes its warranty as a statement of the quality of its
products, and believes that its warranty helps differentiate the Company's
products from those of its competitors. The cardiovascular products have a
three year repair or replacement warranty. The various components for strength
products are warranted for varying periods of time, up to a lifetime warranty
with respect to the structural frame. Warranty expense for the years ended
December 31, 1997, 1996 and 1995 was approximately $3,269,000, $1,968,000 and
$1,564,000, respectively.
COMPETITION
The market in which the Company operates is highly competitive. Numerous
companies manufacture, sell or distribute exercise equipment. The Company
competes primarily in the premium-priced, professional quality equipment
segment of the market, which is a small segment of the total exercise
equipment market. Its competitors vary according to product line and include
companies with greater name recognition and more extensive financial and other
resources than the Company.
4
<PAGE>
Important competitive factors include price, product quality and
performance, diversity of features, warranties and customer service. The
Company consistently follows a policy of premium quality, responsive customer
service and a comprehensive warranty program, with the result that its
products in most cases have suggested retail prices at or above those of its
competitors. The Company focuses on the segment of the market which values
quality and is willing to pay a premium for products with performance
advantages over the competition. The Company believes that its reputation for
producing products of high quality and dependability, accompanied by strong
warranties and customer service, constitutes a competitive advantage.
PRODUCT DEVELOPMENT
The Company's research and development expenditures were $2,616,000,
$1,167,000 and $1,544,000 in 1997, 1996 and 1995, respectively. At December
31, 1997, the Company had the equivalent of ten employees engaged in ongoing
research and development programs. The Company's development efforts focus on
improving existing products and developing new products, with the goal of
producing user-friendly, bio-mechanically correct, durable exercise equipment.
MANUFACTURING AND SUPPLY
The Company maintains integrated manufacturing facilities which are equipped
to perform certain fabrication, welding, grinding, assembly and finishing of
its products, unlike many of its competitors which either acquire products
through original equipment manufacturers or assemble components manufactured
by third party sources. The Company believes that its vertical integration
provides the Company with better control over product quality and cost and
shortens delivery time.
The Company manufactures its products in two facilities located in Medway,
Massachusetts and Owatonna, Minnesota. Raw materials and purchased components
are comprised primarily of steel, aluminum, wooden decks, electric motors,
molded or extruded plastics, milled products, circuit boards for computerized
controls and upholstery. These materials are assembled, fabricated, machined,
welded, powder coated and upholstered to create finished products. The
electronics are specifically designed by Company employees for use in the
Company's products and all electrical motors are made to the Company's
specifications.
The Company single sources certain of its raw materials and component parts,
including drive motors, belts, running decks, molded plastic components and
electronics, where it believes that sole sourcing is beneficial for reasons
such as quality control, reliability of the vendor or cost. The Company
attempts to reduce the risk of sole source suppliers by maintaining varying
levels of parts inventory. However, the loss of a significant supplier, or
delays or disruptions in the delivery of components or materials, or increases
in material costs, could have a material adverse effect on the Company's
operations.
The Company manufacturers most of its strength-training equipment on a
"build-to-order" system which responds to specific sales orders. The Company
manufactures its other products based upon projected sales.
BACKLOG
Backlog historically has not been a significant factor in the Company's
business.
PATENTS AND TRADEMARKS
The Company owns, licenses or has applied for various patents with respect
to its products and has also registered or applied for a number of trademarks.
While these patents and trademarks are of value, the Company does not believe
that it is dependent to any material extent upon patent or trademark
protection.
INSURANCE
The Company's product liability insurance is written on a claims-made basis
and provides an aggregate of $5,000,000 of coverage, with a deductible of up
to $50,000 per claim with an aggregate deductible of $500,000. The Company
believes that this level of coverage is adequate.
5
<PAGE>
GOVERNMENTAL REGULATION
The Company's products are not subject to material governmental regulation.
The Company's operations are subject to federal, state and local laws and
regulations relating to the environment. The Company regularly monitors and
reviews its operations and practices for compliance with these laws and
regulations, and the Company believes that it is in material compliance with
such environmental laws and regulations. Despite these compliance efforts,
some risk of liability is inherent in the operation of the business of the
Company, as it is with other companies engaged in similar businesses, and
there can be no assurance that the Company will not incur material costs in
the future for environmental compliance.
EMPLOYEES
On December 31, 1997, the Company employed 532 persons on a full-time basis.
None of the Company's employees are represented by a union. The Company
considers its relations with its employees to be good.
ITEM 2. PROPERTIES
The Company occupies approximately 100,000 square feet of space in Medway,
Massachusetts and approximately 210,000 square feet of space in Owatonna,
Minnesota, in each case for administrative offices, manufacturing and
warehousing. Both facilities are owned by the Company. The Company also
utilizes outside warehousing.
The Company's manufacturing facilities are fully equipped to perform
fabrication, machining, welding, grinding, assembly and powder coating of its
products. The Company believes that its manufacturing and storage facilities
provide adequate capacity for its operations for the foreseeable future, and
the facilities are well maintained and kept in good repair.
Additional information concerning the financing of the Company's owned
facilities is described in Note 5 to the Company's consolidated financial
statements.
ITEM 3. LEGAL PROCEEDINGS
As a manufacturer of fitness products, the Company is inherently subject to
the hazards of product liability litigation; however, the Company has
maintained, and expects to continue to maintain, insurance coverage which the
Company believes is adequate to protect against these risks.
FUQUA ARBITRATION AND LITIGATION.
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 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.
Subsequent to the closing, Fuqua asserted that the stated amount of the net
assets of the Lumex Division as of the closing date was overstated by
$9,300,000 and demanded arbitration to resolve this dispute. 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 May 9, 1997, 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 appealed this decision, which appeal
was denied.
The arbitration of the dispute proceeded and on February 13, 1998 a final
decision was rendered in the arbitration, awarding to Fuqua claims totaling
$3,180,000, resulting in a net payment currently due to Fuqua, including
interest, of approximately $2,400,000, after offsetting the Company's post-
closing adjustment claim against Fuqua which amounted to $1,146,000.
6
<PAGE>
During 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. In
February 1998, Fuqua commenced an action in the State Court of Fulton County,
State of Georgia against the Company and certain former officers of the
Company, alleging fraud, negligent misrepresentation, breach of
representations and warranties, violation of the Georgia RICO statute and
seeking an unspecified amount of compensatory and punitive damages and fees
and expenses. The Company intends to vigorously defend this action.
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during
the fourth quarter of 1997.
SPECIAL ITEM. EXECUTIVE OFFICERS OF REGISTRANT
Officers are elected by the Board of Directors and serve at the pleasure of
the Board. The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Peter C. Haines....................... 47 President and Chief Executive Officer
Gregory Davall........................ 42 Vice President--Manufacturing
Raymond Giannelli..................... 43 Vice President--Research and
Development
William S. Hurley..................... 53 Vice President and Chief Financial
Officer
Karen Slein........................... 40 Vice President--Human Resources
</TABLE>
Mr. Haines has served as the Company's President and Chief Executive Officer
since the date of the Merger, May 23, 1997. Prior to the Merger, he was
employed by Trotter since 1980, serving as the President of Trotter since
1983, and acting as its Sales and Marketing Manager from 1980 to 1983. Prior
thereto, he served as Import/Export Manager for Donley Manufacturing for three
years.
Mr. Davall has served as the Company's Vice President--Manufacturing since
December 1997. Prior to such time, he served for five years as Vice President
of Manufacturing for BTI Packaging Technologies, Inc.
Mr. Giannelli has served as the Company's Vice President of Research and
Development since the date of the Merger. He served in the same capacity for
Trotter since May 1991. Prior to such time, he was employed by Cybex for more
than 15 years in a variety of capacities, including most recently Vice
President of Engineering.
Mr. Hurley has served as the Company's Vice President and Chief Financial
Officer since the date of the Merger. He joined Trotter as its Vice President
and Chief Financial Officer in August of 1996. Prior to joining Trotter, Mr.
Hurley was Vice President and Controller of BBN Company of Cambridge,
Massachusetts, a diversified high technology company, from 1992 to 1995. For
nineteen years prior to that, he was employed in various management positions,
most recently Vice President and Controller, at Wyman Gordon Company, a North
Grafton, Massachusetts manufacturer of forgings, investment castings and
advanced composite structures. Mr. Hurley is also a member of the Board of
Directors of L.S. Starrett Company of Athol, Massachusetts.
7
<PAGE>
Ms. Slein has served as the Company's Vice President--Human Resources since
the date of the Merger. She joined Trotter in 1995 as Manager of Human
Resources and was promoted to Director of Human Resources in June 1996. From
1992 to 1995, she was Director of Human Resources for EcoScience, a publicly
traded biotechnology company. Prior to that, she spent seven years as Manager
of Administration for New England Shrimp Company.
8
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common shares are traded on the American Stock Exchange
(Amex). The Company's
Amex symbol is CYB.
The following table shows the high and low market prices as reported by the
Amex:
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
CALENDAR HIGH LOW HIGH LOW
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
First Quarter................................ $11.875 $ 8.938 $14.130 $ 9.130
Second Quarter............................... 12.500 10.125 12.880 10.250
Third Quarter................................ 12.125 10.000 12.130 9.750
Fourth Quarter............................... 12.250 10.125 11.880 9.000
</TABLE>
As of February 28, 1998 there were approximately 511 common shareholders of
record. This figure does not include stockholders with shares held under
beneficial ownership in nominee name.
The Company's ability to pay dividends is limited to 50% of its net income
(reduced by any repurchases of its stock), by the terms of its financing
arrangements with its principal lender. The present policy of the Company is
to retain any future earnings to provide funds for the operation and expansion
of its business, and the Company does not anticipate paying any cash dividends
in the immediate future.
ITEM 6. SELECTED FINANCIAL DATA
The following information has been extracted from the Company's consolidated
financial statements for the five years ended December 31, 1997. This selected
consolidated financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's consolidated financial statements and notes thereto included
elsewhere in this report.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1997(A) 1996 1995 1994 1993
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
(A):
Net sales..................... $90,234 $47,605 $43,719 $41,365 $32,461
Cost of sales................. 54,101 (b) 29,541 27,860 24,836 19,075
------- ------- ------- ------- -------
Gross profit................ 36,133 18,064 15,859 16,529 13,386
Selling, general and
administrative expenses...... 35,069 (c) 13,797 12,762 12,260 11,159
Nonrecurring charges.......... 7,134 (d) -- -- -- --
------- ------- ------- ------- -------
Operating income (loss)..... (6,070) 4,267 3,097 4,269 2,227
Interest income............... 427 49 4 -- --
Interest expense.............. (1,188) (1,004) (260) (219) (210)
------- ------- ------- ------- -------
Income (loss) before income
taxes...................... (6,831) 3,312 2,841 4,050 2,017
Income tax provision
(benefit).................... (1,586) 1,344 1,171 1,675 780
------- ------- ------- ------- -------
Net income (loss)............. $(5,245)(e) $ 1,968 $ 1,670 $ 2,375 $ 1,237
======= ======= ======= ======= =======
Basic earnings (loss) per
share........................ $ (.76)(e) $ .46 $ .39 $ .56 $ .29
======= ======= ======= ======= =======
Diluted earnings (loss) per
share........................ $ (.76)(e) $ .45 $ .38 $ .56 $ .29
======= ======= ======= ======= =======
</TABLE>
9
<PAGE>
- --------
(a) On May 23, 1997, a merger (the "Merger") between Trotter Inc. ("Trotter")
and a wholly-owned subsidiary of Cybex was consummated with Trotter
surviving the Merger as a subsidiary of Cybex. For accounting purposes,
the transaction was accounted for as a purchase, with Trotter deemed to be
the acquiring company 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, with the results
of Cybex included from and after the May 23, 1997 merger date.
(b) Includes $2,375,000 of costs considered unusual, or a direct result of the
Merger.
(c) Includes $4,599,000 of costs considered unusual, or a direct result of the
Merger.
(d) Includes $2,734,000 of costs related to the Sharpsville plant closure, a
$2,500,000 charge for acquired research and development and a $1,900,000
charge related to the Fuqua settlement.
(e) Includes $14,108,000 of pre-tax charges ($9,465,000, on an after-tax
basis) for nonrecurring and merger-related costs comprised of the items
listed in (b), (c) and (d) above.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)............ $19,013 $ 4,205 $ 5,206 $ 594 $(1,521)
Total assets......................... 78,725 20,367 21,067 19,306 16,562
Long-term debt....................... 13,639 11,369 14,825 3,900 --
Stockholders' equity (deficit)....... 38,908 1,396 (572) 4,263 3,047
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Cybex International, Inc. (the "Company" or "Cybex") is a strength and
cardiovascular equipment company which develops, manufactures and markets
premium quality, professional human performance products for the commercial
and consumer markets.
On May 23, 1997, a wholly owned subsidiary of Cybex merged with Trotter Inc.
("Trotter") with Trotter surviving the merger as a subsidiary of Cybex (the
"Merger"). The Merger 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. Accordingly, the accompanying
financial information is that of Trotter for all periods presented, and is
combined with Cybex from the May 23, 1997 acquisition date.
Subsequent to the Merger, the Company consolidated its manufacturing
facilities, merged certain product lines, centralized and consolidated support
functions, created a new distribution system that utilizes a combination of
its direct sales staff and its realigned dealer network, and sold Cybex's
isokinetic product line and Ronkonkoma, New York facility for cash of
$6,837,000.
RESULTS OF OPERATIONS
In connection with the Merger, the Company incurred $14,108,000 of pre-tax
charges, ($9,465,000, or $1.36 per share on an after-tax basis), for unusual
or nonrecurring merger-related costs, comprised of $2,734,000 related to
closing Trotter's Sharpsville manufacturing facility, $1,900,000 related to
the Fuqua arbitration settlement, $2,500,000 for acquired in-process research
and development that was written off and $6,974,000 related primarily 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. The following table sets forth
selected items from the Consolidated Statements of Operations as a percentage
of net sales, exclusive of $14,108,000 of unusual or nonrecurring merger-
related charges incurred in 1997:
10
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Net sales...................................... 100% 100% 100%
Cost of sales.................................. 57 62 64
------- ------- -------
Gross profit................................... 43 38 36
Selling, general and administrative expenses... 34 29 29
------- ------- -------
Operating income............................... 9 9 7
Interest income................................ * * *
Interest expense............................... (1) (2) (1)
------- ------- -------
Income before income taxes..................... 8% 7% 6%
======= ======= =======
</TABLE>
- --------
* Not meaningful
YEAR ENDED DECEMBER 31, 1997 VS. YEAR ENDED DECEMBER 31, 1996
NET SALES
For the year ended December 31, 1997, the Company's net sales increased to
$90,234,000 from $47,605,000 for the year ended December 31, 1996. This
increase is directly due to the Merger as the 1997 period includes the
combined sales of the merged companies from May 23, 1997 through December 31,
1997.
GROSS PROFIT
Gross profit increased from $18,064,000 for the year ended December 31, 1996
to $36,133,000 for the year ended December 31, 1997. The increase is primarily
due to the Merger, partially offset by a $2,375,000 one-time charge for
unusual or nonrecurring merger-related costs charged to cost of sales for
1997. Gross margin, excluding the $2,375,000 one-time charge, as a percentage
of net sales, increased to 43% for 1997 from 38% for 1996. The percentage
increase is primarily due to cost containment efforts (particularly in the
second half of 1997), the addition of Cybex's results (whose products have
historically generated higher margins due to its direct distribution system)
for the period from May 23, 1997 through December 31, 1997 and a more
favorable product mix in 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased from $13,797,000 for
the year ended December 31, 1996 to $35,069,000 for the year ended December
31, 1997, primarily as a result of the Merger. Selling, general and
administrative expense, excluding the $4,599,000 one-time charge, as a percent
of net sales, increased to 34% for 1997, from 29% for 1996. The percentage
increase in 1997 is primarily due to the addition of Cybex's results (whose
business historically had higher sales and marketing costs due to its direct
distribution system) for the period from May 23, 1997 through December 31,
1997.
NONRECURRING CHARGES
The nonrecurring charges during 1997 include $2,734,000 of costs related to
closing the Sharpsville manufacturing plant (primarily the write-off of
goodwill and other intangibles, severance costs and lease termination costs),
$2,500,000 for the write-off of in-process research and development acquired
in the Merger and $1,900,000 of costs related to the Fuqua arbitration
settlement.
INTEREST INCOME
Interest income increased from $49,000 for the year ended December 31, 1996
to $427,000 for the year ended December 31, 1997. The increase is due to the
inclusion of the leasing operations of Cybex for the period from May 23, 1997
through December 31, 1997, as well as larger cash balances in 1997.
11
<PAGE>
INTEREST EXPENSE
Interest expense increased from $1,004,000 for the year ended December 31,
1996 to $1,188,000 for the year ended December 31, 1997. The increase is due
to larger average outstanding debt balances during 1997.
INCOME TAX PROVISION (BENEFIT)
The Company's effective tax rate was 23% for the year ended December 31,
1997 versus a 41% for the year ended December 31, 1996. The rate decrease was
due primarily to the write-off of acquired in-process research and development
in 1997 that is not deductible for income tax purposes.
YEAR ENDED DECEMBER 31, 1996 VS. YEAR ENDED DECEMBER 31, 1995
NET SALES
Net sales increased 8.9% from $43,719,000 for the year ended December 31,
1995 to $47,605,000 for the year ended December 31, 1996. The increase
resulted primarily from a $3,200,000 increase in the net sales of strength
systems, primarily due to higher volumes, and a $700,000 increase in the net
sales of cardiovascular products.
GROSS PROFIT
Gross profit increased 13.9% from $15,859,000 for the year ended December
31, 1995 to $18,064,000 for the year ended December 31, 1996. As a percentage
of net sales, gross profit increased from 36% in 1995 to 38% in 1996. This
improvement was primarily due to a more favorable product mix as well as
certain productivity improvements.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 8.1% from $12,762,000
for the year ended December 31, 1995 to $13,797,000 for the year ended
December 31, 1996. The increase was primarily a result of increased sales and
marketing costs. As a percentage of net sales, selling, general and
administrative expenses remained flat at 29%.
INTEREST EXPENSE
Interest expense increased from $260,000 for the year ended December 31,
1995 to $1,004,000 for the year ended December 31, 1996. The increase is due
to a higher level of outstanding indebtedness in 1996 as a result of a new
loan agreement entered into in December 1995.
INCOME TAX PROVISION
The effective income tax rate was 41% for the years ended December 31, 1996
and 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition has strengthened subsequent to the Merger.
Working capital increased from $4,205,000 at December 31, 1996 to $19,013,000
at December 31, 1997 and cash and cash equivalents increased from $1,656,000
at December 31, 1996 to $6,689,000, at December 31, 1997. Tangible net worth
increased to $27,191,000 from a net deficit of $1,450,000 at December 31,
1996, and the Company's debt-to-equity ratio decreased to 0.3-to-1 at December
31, 1997 from 8-to-1 at December 31, 1996.
For the year ended December 31, 1997, net cash used in operating activities
was $2,301,000 compared to net cash provided by operating activities of
$4,822,000 for the year ended December 31, 1996. The decrease in
12
<PAGE>
1997 was primarily due to increases in accounts receivable and inventories and
decreases in accounts payable and accrued expenses, net of the effect of
working capital acquired in the Merger.
Cash provided by investing activities of $5,932,000 for the year ended
December 31, 1997, resulted from net proceeds of $6,837,000 from the sale of
certain assets acquired in the Merger and net cash acquired in the Merger of
$705,000, offset by capital expenditures of $1,610,000. The increase in
capital expenditures from $605,000 in 1996, was primarily the result of
capital expenditures in connection with the new Bike and Hiker product lines
in addition to general increases due to the requirements of the larger, post-
merger company.
Cash provided by financing activities was $1,402,000 for the year ended
December 31, 1997 compared to cash used in financing activities of $2,566,000
in 1996. The increase resulted primarily from the sale of lease receivables in
1997, which generated net proceeds of $4,288,000.
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. Additionally, the Company's
finance subsidiary is expected to continue to support working capital
requirements through periodic sales of its lease portfolios to third party
financial institutions.
Management believes that the cash flow from its operations and available
borrowings under its line of credit will be sufficient to meet its general
working capital and capital expenditure requirements in the near term. The
Company may need additional capital to pursue acquisitions and significant
capital improvements in 1998. There is no assurance that the Company will have
additional financing available to fund these costs or, if available, that such
financing will be on terms favorable to the Company.
YEAR 2000
Many computer systems were not designed to process dates beyond 1999, and
certain of the Company's computer hardware and software will need to be
modified or replaced prior to the year 2000 in order to remain functional. The
Company has initiated the implementation of a new enterprise resource planning
("ERP") system to replace the two information technology systems currently in
use. It is anticipated that the total cost of hardware, software, training and
implementation will be approximately $2,000,000. The Company anticipates that
the ERP system and other modifications will be functional in 1999, at which
time it believes it will be Year 2000 compliant. In addition, in the event
that any of the Company's significant suppliers or customers do not
successfully achieve Year 2000 compliance on a timely basis, the Company's
business or operations could be adversely affected.
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 Reports filed with the
Securities and Exchange Commission on Form 10-Q for the quarters ended June
30, 1997 and September 27, 1997 and its proxy statement dated April 23, 1997.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
13
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<S> <C>
Report of Independent Public Accountants.................................... F-2
Consolidated Financial Statements:
Consolidated Balance Sheets............................................... F-3
Consolidated Statements of Operations..................................... F-4
Consolidated Statements of Stockholders' Equity........................... F-5
Consolidated Statements of Cash Flows..................................... F-6
Notes to Consolidated Financial Statements................................ F-7
Consolidated Financial Statement Schedule:
II. Valuation and Qualifying Accounts..................................... S-1
</TABLE>
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission that are not required
under the related instructions or are inapplicable have been omitted.
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Cybex International, Inc.:
We have audited the accompanying consolidated balance sheets of Cybex
International, Inc. (see Note 1) and subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1997. These financial statements and the schedule referred to below are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cybex International, Inc.
and subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the Index to
Consolidated Financial Statements and Schedule is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in our audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
Arthur Andersen LLP
Philadelphia, PA
February 18, 1998
F-2
<PAGE>
CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1996
------- -------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................... $ 6,689 $ 1,656
Accounts receivable, net of allowance of $2,615 and $477.... 21,906 7,604
Lease receivables........................................... 1,200 --
Inventories................................................. 6,980 2,083
Recoverable income taxes.................................... 1,100 --
Deferred income taxes....................................... 6,913 665
Prepaid expenses and other.................................. 2,117 410
------- -------
Total current assets...................................... 46,905 12,418
Property, plant and equipment, net............................ 13,103 4,725
Lease receivables............................................. 999 --
Goodwill, net................................................. 10,785 2,451
Other assets.................................................. 973 558
Deferred income taxes......................................... 5,960 215
------- -------
$78,725 $20,367
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt........................ $ 2,954 $ 1,409
Accounts payable............................................ 5,192 2,838
Accrued expenses............................................ 18,305 2,658
Income taxes payable........................................ 1,441 1,308
------- -------
Total current liabilities................................. 27,892 8,213
Long-term debt................................................ 10,685 9,960
Accrued warranty obligation................................... 1,240 798
------- -------
Total liabilities......................................... 39,817 18,971
------- -------
Commitments and contingencies (Notes 3, 10 and 13)
Stockholders' Equity:
Common Stock, $.10 par value, 20,000,000 shares authorized,
8,853,756 and 4,273,056 shares issued...................... 885 427
Additional paid-in capital.................................. 44,189 --
Treasury stock, at cost (189,707 shares in 1997)............ (1,890) --
Retained earnings (accumulated deficit)..................... (4,276) 969
------- -------
Total stockholders' equity................................ 38,908 1,396
------- -------
$78,725 $20,367
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Net sales......................................... $90,234 $47,605 $43,719
Cost of sales..................................... 54,101 (a) 29,541 27,860
------- ------- -------
Gross profit.................................... 36,133 18,064 15,859
Selling, general and administrative expenses...... 35,069 (b) 13,797 12,762
Nonrecurring charges.............................. 7,134 (c) -- --
------- ------- -------
Operating income (loss)......................... (6,070) 4,267 3,097
Interest income................................... 427 49 4
Interest expense.................................. (1,188) (1,004) (260)
------- ------- -------
Income (loss) before income taxes............... (6,831) 3,312 2,841
Income tax provision (benefit).................... (1,586) 1,344 1,171
------- ------- -------
Net income (loss)................................. $(5,245)(d) $ 1,968 $ 1,670
======= ======= =======
Basic earnings (loss) per share................... $ (.76) $ .46 $ .39
======= ======= =======
Diluted earnings (loss) per share................. $ (.76) $ .45 $ .38
======= ======= =======
</TABLE>
- --------
(a) Includes $2,375 of costs considered unusual, or a direct result of the
Merger (Note 4).
(b) Includes $4,599 of costs considered unusual, or a direct result of the
Merger (Note 4).
(c) Includes $2,734 of costs related to the Sharpsville plant closure, a
$2,500 charge for acquired research and development (Note 4) and a $1,900
charge related to the Fuqua settlement (Note 3).
(d) Includes $14,108 of pre-tax charges ($9,465, on an after-tax basis) for
nonrecurring and merger-related costs comprised of the items listed in
(a), (b) and (c) above.
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED TOTAL
EARNINGS STOCK-
COMMON STOCK ADDITIONAL (ACCUM- HOLDER'S
------------- PAID-IN TREASURY ULATED EQUITY
SHARES AMOUNT CAPITAL STOCK DEFICIT) (DEFICIT)
------ ------ ---------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1994..................... 4,273 $427 $ 2,853 $ -- $ 983 $ 4,263
Net income.............. -- -- -- -- 1,670 1,670
Net distributions to UM
Holdings Ltd........... -- -- (2,853) -- (3,652) (6,505)
----- ---- ------- ------- ------- -------
Balance, December 31,
1995..................... 4,273 427 -- -- (999) (572)
Net income.............. -- -- -- -- 1,968 1,968
----- ---- ------- ------- ------- -------
Balance, December 31,
1996..................... 4,273 427 -- -- 969 1,396
Merger between Trotter
Inc. and Cybex
International, Inc..... 4,512 451 43,448 (1,442) -- 42,457
Exercise of stock
options................ 60 6 643 (486) -- 163
Common stock issued to
Directors.............. 9 1 98 38 -- 137
Net loss................ -- -- -- -- (5,245) (5,245)
----- ---- ------- ------- ------- -------
Balance, December 31,
1997..................... 8,854 $885 $44,189 $(1,890) $(4,276) $38,908
===== ==== ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)................................. $(5,245) $ 1,968 $ 1,670
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization................... 2,324 1,269 1,487
Deferred income taxes........................... (2,620) (447) 135
Provisions for losses on accounts and lease
receivables.................................... 2,071 567 264
Write-off of intangibles and in-process research
and development................................ 4,877 -- --
Changes in operating assets and liabilities, net
of effect of the Merger:
Accounts receivable........................... (1,084) 60 (1,806)
Lease receivables............................. (678) -- --
Inventories................................... (602) 225 406
Recoverable income taxes...................... 1,244 -- --
Prepaid expenses and other.................... 728 253 --
Accounts payable, accrued liabilities and
other current liabilities.................... (3,316) 927 (665)
------- ------- -------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES..................................... (2,301) 4,822 1,491
------- ------- -------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment........ (1,610) (605) (716)
Cash acquired in merger, net of transaction costs
of $1,645........................................ 705 -- --
Proceeds from sale of acquired assets held for
sale, net........................................ 6,837 -- --
------- ------- -------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES..................................... 5,932 (605) (716)
------- ------- -------
FINANCING ACTIVITIES:
Proceeds from sale of lease receivables........... 4,288 -- --
Proceeds from long-term debt...................... -- 75 9,000
Principal payments of long-term debt.............. (2,886) (1,406) (200)
Net borrowings (repayments) under revolving loan.. -- (2,125) 2,125
Deferred financing costs.......................... (125) -- --
Remittances from (repayments to) UM Holdings
Ltd.............................................. -- 890 (5,190)
Net distributions to UM Holdings Ltd.............. -- -- (6,505)
Exercise of stock options......................... 125 -- --
------- ------- -------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES..................................... 1,402 (2,566) (770)
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................................ 5,033 (1,651) 5
CASH AND CASH EQUIVALENTS, beginning of year........ 1,656 5 --
------- ------- -------
CASH AND CASH EQUIVALENTS, end of year.............. $ 6,689 $ 1,656 $ 5
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1--BACKGROUND AND BASIS OF PRESENTATION
Cybex International, Inc. (the "Company" or "Cybex"), a New York
Corporation, is a strength and cardiovascular equipment company which
develops, manufactures and markets premium quality, human performance products
for the commercial and consumer markets.
On May 23, 1997, the merger between a wholly-owned subsidiary of Cybex and
Trotter Inc. ("Trotter") was consummated (the "Merger") with Trotter surviving
the Merger as a subsidiary of Cybex. Pursuant to the terms of the Merger,
4,273,056 shares of the Company's Common Stock were issued to a subsidiary of
UM Holdings, Ltd. (UM)., 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. All historical share amounts have been retroactively
adjusted to reflect the exchange.
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 includes the combined results of Trotter and Cybex from the May 23, 1997
acquisition date to December 31, 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 transaction costs of $1,645,000. The purchase price was
allocated based on the estimated fair market value of Cybex's net assets,
including identifiable intangibles. The Company assigned $2,500,000 to in-
process research and development and such amount was charged to operations in
the accompanying statement of operations. The Company also recorded goodwill
of $10,097,000, which 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, primarily related to income taxes.
The following table summarizes the unaudited pro forma combined results of
operations for the years ended December 31, 1997 and 1996 as if the Merger had
occurred on January 1, 1996. The pro forma information does not purport to be
indicative of the results that would have been attained if the operations had
actually been combined during the periods presented:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996
----------- -----------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
(UNAUDITED)
<S> <C> <C>
Net sales......................................... $ 116,147 $ 120,528
Operating income (loss)........................... (1,266) 3,937
Net income (loss)................................. (773) 2,264
Basic and diluted earnings (loss) per share....... (.09) .26
Shares used in computing earnings (loss) per
share............................................ 8,664 8,664
</TABLE>
The pro forma data does not include nonrecurring charges of $7,134,000,
($5,280,000, or $.61 per share, on an after-tax basis) related to the
Sharpsville plant closure, the settlement of the Fuqua arbitration and the
write-off of acquired in-process research and development. The pro forma data
does include nonrecurring charges of $6,974,000, ($4,185,000 on an after-tax
basis or $.48 per share) related primarily to conforming to new accounting and
operating policies of the merged companies.
F-7
<PAGE>
CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries after elimination of all significant intercompany
accounts and transactions.
Cash and cash equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents.
Inventories
Inventories are valued at the lower of cost (first in, first out) or market.
Costs include materials, labor and manufacturing overhead. Inventories are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1997 1996
------ ------
<S> <C> <C>
Finished goods............................................... $1,199 $ 407
Work in process.............................................. 1,137 568
Raw materials................................................ 4,644 1,108
------ ------
$6,980 $2,083
====== ======
</TABLE>
Property and equipment
Property and equipment are recorded at cost. Depreciation is calculated
using the straight-line method based on estimated useful lives for financial
statement purposes and various prescribed methods for tax purposes. The
estimated useful lives for financial statement purposes are 25 years for
buildings and improvements and 3 to 7 years for equipment and furniture.
Impairment of Long-Lived Assets
In 1995, The Financial Accounting Standards Board ("FASB") issued Statement
of Accounting Standards ("SFAS") No. 121, "Accounting for Impairment of Long-
Lived Assets and for Long Lived Assets to Be Disposed Of ", which the Company
adopted effective January 1, 1996. SFAS No. 121 requires that long-lived
assets and certain identifiable intangibles held and used by a company be
reviewed for possible impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. SFAS No.
121 also requires that long-lived assets and certain identifiable intangibles
held for sale be reported at the lower of carrying amount or fair value less
cost to sell.
The Company continually evaluates whether later events and circumstances
have occurred that indicate that the remaining estimated useful life of long-
lived assets and intangible assets may warrant revision or that the remaining
balance may not be recoverable. When factors indicate that such assets should
be evaluated for possible impairment, the Company uses an estimate of the
related future undiscounted cash flow in measuring whether the asset should be
written down to fair value. As of December 31, 1997, management believes that
no revision to the remaining useful lives or write-down of such assets is
required.
F-8
<PAGE>
CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Goodwill
Goodwill is being amortized over periods ranging from 30 to 40 years. As of
December 31, 1997 and 1996, accumulated amortization was $726,000 and
$780,000, respectively. Amortization expense for the years ended December 31,
1997, 1996 and 1995 was $293,000, $130,000 and $132,000, respectively.
Other Assets
Other assets include intangibles that consist principally of an exclusive
license and patent rights recorded at cost and amortized over their estimated
useful lives by the straight-line method for periods ranging from 3 to 5 years
accumulated amortization at December 31, 1997 and 1996 was $236,000 and
$1,130,000, respectively. Amortization expense was $417,000, $295,000 and
$295,000 for the years ended December 31, 1997, 1996 and 1995, respectively
Fair value of Financial Instruments
The company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, accounts payable, accrued expenses, and debt
instruments. The book values of cash and cash equivalents, accounts
receivable, accounts payable, and accrued expenses are considered to be
representative of their respective fair values. Based on the terms of the
Company's debt instruments that are outstanding as of December 31, 1997, the
carrying values are considered to approximate their respective fair values.
See Note 5 for the terms and carrying value of the Company's various debt
instruments.
Concentration of Credit Risk and Export Sales
The majority of the Company's customers are specialty fitness-related
dealers, health clubs, and consumers located in the United States. Financial
instruments that potentially subject the Company to concentrations of credit
risk consist primarily of trade accounts and lease receivables. No single
customer accounted for more than 10% of the Company's net sales for the year
ended December 31, 1997. For the years ended December 31, 1996 and 1995, one
customer accounted for 11% and 10% of net sales, respectively. There is no
single geographic area of significant concentration, and the Company utilizes
third-party insurers for certain trade accounts receivable. Export sales
accounted for approximately 18%, 14% and 12% of total net sales for the years
ended December 31, 1997, 1996 and 1995, respectively.
Accrued Warranty Obligations
The Company generally provides a three-year warranty on cardiovascular
products and a warranty on strength products that varies by components.
Warranty expense was $3,269,000, $1,968,000 and $1,564,000 for the years ended
December 31, 1997, 1996 and 1995 respectively. The accrued warranty obligation
is provided at the time of product sale based on management estimates which
are developed from historical information and certain assumptions about future
events which are subject to change.
Revenue recognition
Revenue is recorded when products are shipped.
Advertising Costs
The Company expenses advertising costs as incurred. For the years ended
December 31, 1997, 1996 and 1995, advertising expense was $2,712,000,
$1,610,000 and $1,455,000, respectively. Included in advertising
F-9
<PAGE>
CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
expense is the cost to reimburse certain customers for a portion of their
advertising costs under a cooperative advertising program. These obligations
are accrued when the related revenues are recognized.
Research and Development Costs
All research and development costs are charged to expense as incurred. Such
costs were $2,616,000, $1,167,000 and $1,544,000 for the years ended December
31, 1997, 1996 and 1995, respectively, exclusive of the $2,500,000 write-off
of acquired in-process research and development. These expenditures are
included in selling, general and administrative expenses in the accompanying
consolidated statements of operations.
Supplemental Cash Flow Disclosures
Cash paid for interest was $1,197,000, $1,004,000 and $191,000 for the years
ended December 31, 1997, 1996 and 1995, respectively. Cash paid for income
taxes, including amounts paid to UM (see Note 7) was $1,663,000, $1,235,000
and $847,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.
The following table displays the net non-cash assets and liabilities that
were acquired in 1997 as a result of the Merger (in thousands):
<TABLE>
<S> <C>
Non-cash assets (liabilities):
Accounts receivable............................................ $ 14,989
Lease receivables.............................................. 6,109
Inventories.................................................... 4,295
Assets held for sale........................................... 6,837
Prepaid expenses and other..................................... 5,307
Property, plant and equipment.................................. 8,810
Intangibles and other assets................................... 1,254
In-process research and development............................ 2,500
Goodwill....................................................... 10,097
Deferred income taxes.......................................... 8,776
Accounts payable and accrued expenses.......................... (23,710)
Long-term debt................................................. (5,157)
--------
40,107
Issuance of common stock......................................... 42,457
--------
Net cash acquired................................................ $ 2,350
========
</TABLE>
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Income Taxes
Income taxes are calculated using the liability method in accordance with
SFAS No. 109, "Accounting for Income Taxes." Accordingly, deferred tax assets
and liabilities are recognized currently for the future tax consequences
attributable to differences between the financial statement carrying amounts
of assets and liabilities
F-10
<PAGE>
CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and their respective tax basis. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
Reclassifications
Certain amounts reported in prior years have been reclassified conform to
the current year's presentation.
Earnings (loss) per common share
In 1997 the Company adopted SFAS No. 128 "Earnings Per Share". This
statement requires that the Company report basic and diluted earnings (loss)
per share for all periods reported. Basic earnings (loss) per share is
calculated by dividing net income (loss) by the weighted average number of
common shares outstanding for the period. Diluted earnings per share is
calculated by dividing net income by the weighted average number of common
shares outstanding for the period, adjusted for the dilutive effect of common
stock equivalents, consisting of dilutive common stock options using the
treasury stock method. Dilutive common stock options are not included in the
computation during periods with net losses as they would be anti-dilutive.
The table below sets forth the reconciliation of the basic and diluted
earnings (loss) per share computations (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Net income (loss)................................ $ (5,245) $ 1,968 $ 1,670
======== ======= =======
Shares used in computing basic earnings (loss)
per share....................................... 6,937 4,273 4,273
Dilutive effect of options....................... -- 109 115
-------- ------- -------
Shares used in computing diluted earnings (loss)
per share....................................... 6,937 4,382 4,388
======== ======= =======
</TABLE>
For the year ended December 31, 1997, options to purchase 794,789 shares of
Common Stock at exercise prices ranging from $5.85 to $12.75 per share were
outstanding but not included in the computation of diluted loss per share as
the result would be anti-dilutive.
Recent Accounting Pronouncement
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." This
statement was effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996. SFAS No. 125
provides accounting and reporting standards based on consistent application of
a financial-components approach that focuses on control. The adoption of SFAS
No. 125 was not material to the Company's financial position and results of
operations (see Note 10).
New Accounting Pronouncement
In June of 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of
an Enterprise and Related Information". This statement establishes additional
standards for segment reporting in the financial statements and is effective
for fiscal years beginning after December 15, 1997. Since the Company operates
in a single line of business, management believes that SFAS No. 131 will not
have an effect on the Company's financial reporting.
F-11
<PAGE>
CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--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. Fuqua claimed that the stated
amount of the net assets of the Lumex Division as of the closing date was
overstated by $9,300,000 and that they were not responsible for reimbursing
the Company for approximately $1,026,000, of assumed insurance liabilities.
Prior to the Merger, Cybex determined to proceed with arbitration to resolve
the dispute.
At the Merger date, the Company provided a reserve for the Fuqua claim based
on the information available at that time in accordance with SFAS No. 38,
"Accounting for Preacquisition Contingencies of Purchased Enterprises". A
final decision with respect to the arbitration was received on February 13,
1998, awarding a payment of $2,400,000 to Fuqua. The Company recorded a
$1,900,000 charge in the fourth quarter of 1997 related to the arbitration and
accrued professional fees. While the arbitration is complete, during 1997
Fuqua notified Cybex of a separate claim for breaches of certain of Cybex's
representations and warranties in the asset sale agreement involving
substantially the same matters submitted to the arbitrator. In February 1998
Fuqua commenced an action in the State Court of Georgia against the Company,
alleging fraud, negligent misrepresentation, breach of representations and
warranties and violation of Georgia RICO statute seeking an unspecified amount
of compensatory and punitive damages, fees and expenses. Therefore, additional
costs related to this matter may result in the future. Such costs, if any, to
resolve this claim will be included in operations if the costs become probable
and quantifiable. Professional fees related to this matter are being expensed
as incurred.
NOTE 4--UNUSUAL AND NONRECURRING MERGER-RELATED COSTS
The statement of operations for the year ended December 31, 1997 includes
pre-tax charges for unusual and nonrecurring merger-related costs of
$14,108,000 ($9,465,000, or $1.36 per share on an after-tax basis), comprised
of $7,134,000 ($5,280,000 or $.76 per share, on an after-tax basis) related to
closing the Sharpsville manufacturing facility, the write-off of acquired in-
process research and development and charges related to the Fuqua arbitration,
and $6,974,000 ($4,185,000 on an after-tax basis or $.60 per share) of costs
and expenses considered by management to be unusual, or a direct result of the
Merger, and not representative of the ongoing business. These latter costs and
expenses 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.
NOTE 5--LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1996
------- -------
<S> <C> <C>
Bank term loans.......................................... $ 7,728 $ 7,800
Industrial development revenue note...................... 1,750 --
Industrial development revenue bond...................... 3,300 3,500
Other.................................................... 861 69
------- -------
13,639 11,369
Less--Current portion.................................... (2,954) (1,409)
------- -------
$10,685 $ 9,960
======= =======
</TABLE>
F-12
<PAGE>
CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--LONG-TERM DEBT (CONTINUED)
On December 7, 1995, the Company entered into a Loan and Security Agreement
("the Agreement") with a commercial bank ("the 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 to $12,000,000. The revolver matures on December 31, 2000. Borrowings
under the revolver 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 the Company's
level of compliance with certain financial covenants, as defined. The average
outstanding revolver balance during 1997 and 1996 was approximately $2,011,000
and $1,011,000, respectively, and the weighted average interest rate in 1997
and 1996 was 7.67% and 8.2%, respectively. Interest expense on the revolver
was $177,000, and $88,000 for the years ended December 31, 1997 and 1996
respectively. No amounts were outstanding under the revolver at December 31,
1997 and 1996 and at December 31, 1997, $11,020,000 was available as $980,000
in stand-by letters of credit were outstanding in connection with the
Company's workers' compensation insurance program.
Borrowings under the term loan bear interest at the Company's option at
either the prime rate or LIBOR plus 1.25% to 2.25%, adjusted up or down based
on the Company's level of compliance with certain financial covenants, as
defined. The interest rate at December 31, 1997 was 7.53%. In January 1996,
the Company entered into an interest rate cap agreement which, in effect fixed
the LIBOR rate at 5.625% on the term loan through January 1999. The term loan
matures on December 31, 2000. As of December 31, 1997 and 1996, $6,600,000 and
$7,200,000 were outstanding under the term loan, respectively. Interest
expense on the term loan was $568,000, and $723,000 for the years ended
December 31, 1997 and 1996, respectively.
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. Additionally, the Company
is limited in its ability to pay cash dividends to 50% of its net income.
Borrowings under the Agreement are secured by substantially all of the
Company's assets with certain exceptions.
In December 1997, an industrial development revenue note assumed in the
Merger was assigned to the Bank. The industrial development revenue note was
used to construct and equip the manufacturing facility in Owatonna, Minnesota.
The note is collateralized by land, building and equipment, bears interest at
62.5% of the bank's prime rate and requires annual principal payments of
$175,000 through 2002 with a final payment of $875,000 due on January 1, 2004.
The interest rate of the note at December 31, 1997 was 5.31%. Interest expense
on the note was $57,000 for the year ended December 31, 1997.
In 1992, an industrial development revenue bond provided the funds to
construct and equip the manufacturing and administrative facility in Medway,
Massachusetts. The bonds bear interest at a rate that resets weekly (3.60% at
December 31, 1997) with interest payable monthly and principal payable
annually through May 2007. Interest expense on the bonds was $194,000,
$190,000 and $191,000 for the years ended December 31, 1997, 1996 and 1995
respectively. A letter of credit in the amount of $3,579,000 has been issued
on behalf of the Company for the benefit of the bondholders to guarantee
principal and interest payments.
In connection with the Merger, the Company assumed a bank term loan in the
original amount of $2,465,000 pursuant to a five year, 9.48% fixed rate term
loan agreement. The term loan is payable in equal monthly principal
installments plus interest through March 2001. The term loan is secured by
specific lease receivables. As of December 31, 1997, $1,128,000 was
outstanding under this term loan. Interest expense on the term loan was
$84,000 for the year ended December 31, 1997.
In connection with the Merger, the Company assumed an 8.9% note payable to a
finance company in the original amount of $1,051,000. The note is payable in
equal monthly payments of principal and interest of $22,000 through November
2001. The note is collateralized by certain manufacturing equipment. Interest
expense on the note was $50,000 for the year ended December 31, 1997.
F-13
<PAGE>
CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--LONG-TERM DEBT (CONTINUED)
At December 31, 1997, long-term debt maturities are as follows (in
thousands):
<TABLE>
<S> <C>
1998............................................................... $ 2,954
1999............................................................... 2,927
2000............................................................... 3,797
2001............................................................... 712
2002............................................................... 475
Thereafter......................................................... 2,774
-------
$13,639
=======
</TABLE>
NOTE 6--STOCKHOLDERS' EQUITY
STOCK OPTIONS
1993 Stock Option Plan
In August 1993, Trotter established a nonqualified stock option plan
covering certain key employees and directors. The options cover the purchase
of common stock of the Company at exercise prices initially set above current
fair value as determined by the Board of Directors based in part on
independent appraisals. In connection with the Merger, all options outstanding
under this plan were converted into options under the 1995 Omnibus Incentive
Plan discussed below. Accordingly, Trotter options have been adjusted
retroactively to give effect to the exchange ratio implied in the Merger (see
Note 1).
1995 Omnibus Incentive Plan
Cybex's Omnibus Incentive Plan ("Omnibus Plan"), as amended, is designed to
provide incentives that will attract and retain individuals key to the success
of the Company through direct or indirect ownership of the Company's Common
Stock. The Omnibus Plan provides for the granting of stock options, stock
appreciation rights, stock awards, performance awards and bonus stock purchase
awards. The Company has reserved 750,000 shares of Common Stock for issuance
pursuant to the Plan. The terms and conditions of each award are determined by
a committee of the Board of Directors of the Company. Under the Omnibus Plan,
the committee may grant either incentive or nonqualified stock options with a
term not to exceed ten years from the grant date and at an exercise price per
share that the committee may determine (which in the case of incentive stock
options may not be less than the fair market value of a share of the Company's
Common Stock on the date of grant).
1987 Stock Option Plan
The terms and conditions of grants of stock options under the 1987 Stock
Option Plan were determined by a committee of the Board of Directors. Options
outstanding under this plan were granted at exercise prices which were not
less than fair market value on the date of grant and were generally
exercisable over a period not to exceed ten years from the original date of
grant. No future grants may be made under this plan.
F-14
<PAGE>
CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--STOCKHOLDERS' EQUITY (CONTINUED)
Information with respect to options under the Company's plans is as follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER RANGE OF AVERAGE
OF EXERCISE EXERCISE
SHARES PRICE PRICE
------- ------------- --------
<S> <C> <C> <C>
Outstanding at December 31, 1994............. 403,270 $5.85 $ 5.85
Forfeited.................................. (24,036) 5.85 5.85
------- ------------- ------
Outstanding at December 31, 1995............. 379,234 5.85 5.85
Granted.................................... 4,273 5.85 5.85
Forfeited.................................. (10,683) 5.85 5.85
------- ------------- ------
Outstanding at December 31, 1996............. 372,824 5.85 5.85
Merger..................................... 131,050 9.38-12.75 11.00
Granted.................................... 373,096 10.38-11.75 10.96
Exercised.................................. (60,681) 5.85-10.00 7.22
Forfeited.................................. (21,500) 9.38-12.75 12.46
------- ------------- ------
Outstanding at December 31, 1997............. 794,789 $ 5.85-$12.75 $ 8.81
======= ============= ======
</TABLE>
At December 31, 1997, 485,788 options with a weighted average exercise price
of $7.37 were exercisable and 119,345 options were available for future
grants. The options generally vest over a five year period except for an
option to purchase 238,000 shares issued to the Company's President in 1997
which is exercisable in June 2004, or sooner if certain performance criteria
is met. The weighted average remaining contractual life of outstanding options
at December 31, 1997 was 7.1 years.
The Company applies Accounting Principles Board Opinion No. 25 "Accounting
for Stock Issued to Employees" and the related interpretations in accounting
for its stock option plans. Had compensation cost for the plans been
determined based upon the fair value of the options as prescribed by SFAS No.
123, "Accounting for Stock Based Compensation", the Company's net income
(loss) and earnings (loss) per share would have been as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Net income (loss):
As Reported............................ $(5,245,000) $1,968,000 $1,670,000
=========== ========== ==========
Pro Forma.............................. $(5,426,000) $1,809,000 $1,670,000
=========== ========== ==========
Basic earnings (loss) per share:
As Reported............................ $ (.76) $ .46 $ .39
=========== ========== ==========
Pro Forma.............................. $ (.78) $ .42 $ .39
=========== ========== ==========
Diluted earnings (loss) per share:
As Reported............................ $ (.76) $ .45 $ .38
=========== ========== ==========
Pro Forma.............................. $ (.78) $ .41 $ .38
=========== ========== ==========
</TABLE>
F-15
<PAGE>
CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--STOCKHOLDERS' EQUITY (CONTINUED)
The weighted average fair value of each stock option granted during the
years ended December 31, 1997 and 1996 was $7.35 and $2.62, respectively. No
options were granted during the year ended December 31, 1995. The fair value
of each option grant is estimated on the date of grant using the Black-Scholes
option pricing model with the following weighted-average assumptions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996
----------- -----------
<S> <C> <C>
Risk free interest rate......................... 6.3% 6.3%
Expected dividend yield......................... -- --
Expected life................................... 7 years 3 years
Expected volatility............................. 60% --
</TABLE>
The above pro forma amounts may not be indicative of future amounts because
option grants prior to January 1, 1995, have not been included and because
future option grants are expected.
STOCK RETAINER PLAN FOR NONEMPLOYEE DIRECTORS
The Company's Amended and Restated Stock Retainer Plan for Nonemployee
Directors ("Retainer Plan"), provides that each nonemployee director will
receive 70% of their annual retainer in shares of Common Stock of the Company.
The number of shares to be issued is computed by dividing the applicable
amount of the annual retainer to be paid in stock by the fair market value of
a common share on January 1 of each calendar year. Up to 35,000 shares of
Common Stock may be issued pursuant to the Retainer Plan. The issuance of
shares in payment of annual retainers results in expense based on the fair
market value of such shares. As of December 31, 1997, 10,762 shares of Common
Stock are available for issuance under the Retainer Plan.
LEVERAGED EMPLOYEE STOCK OWNERSHIP PLAN
The Company's leveraged Employee Stock Ownership Plan (ESOP) is a
noncontributory plan covering substantially all employees meeting a one year
length of service requirement. The plan is designed to give employees a
proprietary interest in the Company through Common Stock ownership. At
December 31, 1997, no unallocated shares were held by the ESOP.
SHAREHOLDERS' RIGHTS PLAN
The Company's Shareholders Rights Plan (the "Rights Plan") was adopted in
May 1988 to insure that any acquisition of the Company would be on terms that
are fair to and in the best interest of all shareholders. Under the Rights
Plan, holders of Common Stock are entitled to receive one right, as defined by
the Rights Plan, for each share of Common Stock held. Separate rights
certificates would be issued and become exercisable in the event an acquiring
party accumulates 15% or more of the Company's Common Stock or announces an
offer to acquire 30% or more of the Common Stock. The rights expire in May
1998 and may be redeemed by the Company at a price of $.05 per right at any
time up to ten days after they become exercisable (subject to extension in
certain circumstances) or in connection with an approved transaction as
defined in the Rights Plan.
F-16
<PAGE>
CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--INCOME TAXES
The income tax provision (benefit) consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Current provision:
Federal............................... $ 823,000 $1,423,000 $ 847,000
State................................. 211,000 368,000 189,000
----------- ---------- ----------
1,034,000 1,791,000 1,036,000
----------- ---------- ----------
Deferred provision (benefit):
Federal............................... (2,070,000) (336,000) 101,000
State................................. (550,000) (111,000) 34,000
----------- ---------- ----------
(2,620,000) (447,000) 135,000
----------- ---------- ----------
$(1,586,000) $1,344,000 $1,171,000
=========== ========== ==========
</TABLE>
The reconciliation between income taxes at the federal statutory rate and
the amount recorded in the accompanying consolidated financial statements is
as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Tax at statutory rate......................... (34.0)% 34.0% 34.0%
State income taxes, net of federal tax
benefit...................................... (3.3) 5.1 5.1
Acquired in-process research and development.. 12.4 -- --
Other......................................... 1.7 1.5 2.1
-------- ------- -------
(23.2)% 40.6% 41.2%
======== ======= =======
</TABLE>
The significant components of the Company's net deferred tax assets are as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1997 1996
------- -----
<S> <C> <C>
Deferred tax assets:
Net operating and capital loss carryforwards............. $ 7,715 $ --
Litigation reserves...................................... 1,427 --
Warranty reserves........................................ 1,310 676
Other accruals and reserves.............................. 1,579 135
Bad debt and lease reserves.............................. 1,234 179
Depreciation............................................. (613) 55
Intangible amortization.................................. 429 (161)
Other--net............................................... 192 (4)
------- -----
13,273 880
Less--Valuation allowance.................................. (400) --
------- -----
$12,873 $ 880
======= =====
</TABLE>
A valuation allowance of $400,000 at December 31, 1997 has been provided due
to uncertainties surrounding the realizability of certain acquired capital
loss carryforwards. Management believes that it is more likely than not that
future taxable income will be sufficient to realize the net deferred tax
asset. Approximately $38,000,000 of future taxable income is needed to fully
realize the net deferred tax asset recorded at December
F-17
<PAGE>
CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--INCOME TAXES (CONTINUED)
31, 1997. If the capital loss carryforwards are utilized in the future, the
corresponding valuation allowance decrease will reduce goodwill.
At December 31, 1997, the Company had federal net operating and capital loss
carryforwards of approximately $19,814,000, which begin to expire in 2011,
federal AMT credit carryforwards of $269,000, which do not expire and federal
tax credit carryforwards of $269,000, which begin to expire in 2008.
Prior to the Merger, Trotter was included in the consolidated federal income
tax return of UM under a tax-sharing agreement pursuant to which Trotter paid
UM amounts equal to the taxes calculated on a separate return basis. Trotter
paid $1,582,000, $1,235,000 and $847,000 to UM for federal income taxes for
the period from January 1, 1997 to May 23, 1997 and for the years ended
December 31, 1996 and 1995, respectively.
NOTE 8--BENEFIT PLANS
Subsequent to the Merger, Trotter's employees (previously included in UM's
401k profit sharing plan) were added to Cybex's defined contribution
retirement plan ("Retirement Plan"). The Company currently matches 100% of the
first 2% of the employee's eligible compensation contributions and 50% of the
next 4% of the employee's eligible compensation contributions. Contributions
by the Company to the retirement plans were $230,000, $97,000 and $87,000 for
the years ended December 31, 1997, 1996 and 1995, respectively. Additionally,
the Company may make discretionary contributions to the Retirement Plan. No
discretionary contributions were made for the year ended December 31, 1997.
NOTE 9--RELATED PARTY TRANSACTIONS
For the year ended December 31, 1997, the Company paid $227,000, to a law
firm of which one of the directors of the Company is a member.
NOTE 10--COMMERCIAL LEASING
Subsequent to the Merger, the Company continued Cybex's lease financing
program for selected products to its commercial customers through the wholly-
owned Cybex leasing subsidiary. Such leases are generally accounted for as
sales-type leases and are for terms of three to five years at which time title
transfers to the lessee. Leases are secured by the equipment financed, often
with additional security in the form of other equipment liens, letters of
credit, cash down payments and personal guarantees.
At December 31, 1997, lease receivables were comprised of the following (in
thousands):
<TABLE>
<S> <C>
Minimum lease payments receivable.................................. $2,551
Less--Unearned interest income..................................... (289)
Less--Allowance for uncollectible accounts......................... (63)
------
$2,199
======
</TABLE>
Minimum lease payments receivable as of December 31, 1997 are due as follows
(in thousands):
<TABLE>
<S> <C>
1998.............................. $1,287
1999.............................. 750
2000.............................. 340
2001.............................. 91
2002.............................. 61
Thereafter........................ 67
------
$2,551
======
</TABLE>
F-18
<PAGE>
CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--COMMERCIAL LEASING (CONTINUED)
The Company provided lease financing for $4,604,000 of its sales for the
period from May 23, 1997 to December 31, 1997. Income before income taxes from
leasing activities was $130,000 for the period from May 23, 1997 to December
31, 1997.
The Company periodically enters into agreements, generally subject to
limited recourse, to sell lease receivables to financial institutions. For the
year ended December 31, 1997, the Company generated net proceeds of $4,288,000
from the sale of lease receivables. Under the terms of these agreements the
Company continues to bill and collect the monthly lease payments which are
then remitted to the respective financial institutions each month. The Company
is subject to recourse provisions which may require it to repurchase or
replace leases in default. In return, the Company receives the collateral
position in the defaulted leases. The recourse provisions, which range from
15% to 100% of the outstanding net lease receivables, may be reduced annually
based upon the remaining outstanding lease payment streams. At December 31,
1997, the maximum contingent liability under these recourse provisions was
approximately $5,300,000. A reserve for estimated losses under recourse
provisions of $620,000 has been recorded based upon historical and industry
experience, and is included in accrued liabilities in the accompanying
consolidated balance sheet.
NOTE 11--ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1997 1996
------- ------
<S> <C> <C>
Customer deposits.......................................... $ 1,563 $ --
Warranty reserves.......................................... 2,465 1,042
Self insurance reserves.................................... 2,842 184
Severance and merger-related reserves...................... 2,328 --
Fuqua reserve.............................................. 2,385 --
Other...................................................... 6,722 1,432
------- ------
$18,305 $2,658
======= ======
</TABLE>
NOTE 12--PROPERTY PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1996
------- -------
<S> <C> <C>
Land, building and improvements.......................... $ 7,646 $ 4,176
Equipment and furniture.................................. 11,644 6,195
------- -------
19,290 10,371
Less--Accumulated depreciation........................... (6,187) (5,646)
------- -------
$13,103 $ 4,725
======= =======
</TABLE>
Depreciation expense was $1,614,000, $844,000 and $1,060,000 for the years
ended December 31, 1997, 1996 and 1995 respectively.
F-19
<PAGE>
CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13--COMMITMENTS AND CONTINGENCIES
Operating Lease Commitments
The Company has lease commitments expiring at various dates through 2002,
principally for equipment under noncancelable operating leases. Future minimum
payments under these leases at December 31, 1997 are as follows (in
thousands):
<TABLE>
<S> <C>
1998................................ $263
1999................................ 168
Thereafter.......................... 169
----
$600
====
</TABLE>
Rent expense under all operating leases for the years ended December 31,
1997, 1996 and 1995 was $352,000, $291,000 and $214,000, respectively.
Risk Retention
The Company's risk retention amounts per occurrence are as follows:
<TABLE>
<S> <C>
Workers compensation................................... $250,000--$500,000
Product liability...................................... 50,000
Employee medical and hospitalization................... 50,000--70,000
</TABLE>
The Company has excess primary coverage on a per-claim and aggregate basis
beyond the deductible levels and also maintains umbrella policies to
supplement the primary liability coverage. Reserves for self-insured
retention, including claims incurred but not yet reported, are included in
accrued liabilities in the accompanying balance sheets, based on management's
review of outstanding claims and claims history and consultation with its
third-party claims administrators. Actual results may vary from management
estimates.
Product Liability
Due to the nature of its products, the Company is involved in certain
pending product liability claims and lawsuits. The Company maintains product
liability insurance coverage subject to deductibles. Management believes that
the outcome of known product liability claims will not have a material effect
on its financial position or results of operations.
Fuqua litigation
See Note 3 for a description of the Fuqua litigation.
Kirila et al v. Cybex International, Inc., et al
In May 1997, an action was commenced against the Company in regard to the
sale of a strength equipment company to the Company. The Company has not
received a formal indication of the claims made or relief sought in the
proceedings or the factual basis alleged to underlie the proceedings. The
Company intends to vigorously defend this matter.
Other Litigation
The Company is involved in certain other legal actions and claims arising in
the ordinary course of business. Management believes that the outcome of such
litigation and claims will not have a material adverse effect on its financial
position or results of operations.
F-20
<PAGE>
CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING OF BALANCE AT END
DESCRIPTION PERIOD ADDITIONS DEDUCTIONS OF PERIOD
- ----------- ------------ ---------- ---------- --------------
<S> <C> <C> <C> <C>
For the year ended
December 31, 1997
Allowance for doubtful
accounts............. $477,000 $2,808,000(1) $(670,000) $2,615,000
======== ========== ========= ==========
For the year ended
December 31, 1996
Allowance for doubtful
accounts............. $305,000 $ 567,000 $(395,000) $ 477,000
======== ========== ========= ==========
For the year ended
December 31, 1995
Allowance for doubtful
accounts............. $238,000 $ 264,000 $(197,000) $ 305,000
======== ========== ========= ==========
</TABLE>
- --------
(1) Includes allowance for doubtful accounts of $1,037,000 assumed in the
Merger.
S-1
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the Directors of the Company and compliance with
Section 16(a) of the Securities Exchange Act of 1934 is incorporated herein by
reference from the sections captioned "Election of Directors" and "Security
Ownership of Certain Beneficial Owners and Management--Section 16(a)
Beneficial Ownership Reporting Compliance" in the Company's definitive proxy
statement for its 1998 Annual Meeting of Shareholders (the "Proxy Statement").
For information concerning the executive officers of the Company, see
"Executive Officers of the Registrant" in Part I of this Report.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the captions "Executive Compensation" and
"Election of Directors--Compensation of Directors" in the Proxy Statement is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the captions "Security Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the captions "Election of Directors" in the
Proxy Statement is incorporated herein by reference.
II-1
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed or incorporated by reference as a part of
this report:
(1) (2) EXHIBITS
27 Financial Statements and Schedules See Index to Consolidated
Financial Statements and Schedules (Part II--Item 8).
(3)EXHIBITS
2(a) Asset Sale Agreement, dated as of March 13, 1996, by and
between the Company, MUL Acquisition Corp. I, MUL Acquisition
Corp. II and Fuqua Enterprises, Inc., incorporated by reference
to Exhibit 2.1 to the Company's Current Report on Form 8-K,
dated April 3, 1996.
2(b)(i) Agreement and Plan of Merger, dated as of December 27, 1996, by
and among the Company, Trotter Inc., and CAT'S TAIL, INC.,
incorporated by reference to Exhibit 2(b)(i) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997
(the "1997 10-K").
2(b)(ii) First Amendment to Agreement and Plan of Merger, dated as of
January 16, 1997, to Agreement and Plan of Merger, dated as of
December 27, 1996, by and among the Company, Trotter Inc., and
CATS TAIL, INC., incorporated by reference to Exhibit 2(b)(ii)
to the 1997 10-K.
3(a)(1) Restated Certificate of Incorporation of the Company, dated May
20, 1988, incorporated by reference to Exhibit 3(a)(1) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996 (the "June 1996-10-Q").
3(a)(2) Certificate of Amendment of the Certificate of Incorporation of
the Company, dated May 30, 1988, incorporated by reference to
Exhibit 3(a)(2) to the June 1996 10-Q.
3(a)(3) Certificate of Amendment of the Certificate of Incorporation of
the Company, dated August 7, 1996, incorporated by reference to
Exhibit 3(a)(3) to the June 1996 10-Q.
3(a)(4) Certificate of Amendment of the Certificate of Incorporation of
the Company, dated May 27, 1997, incorporated by reference to
Exhibit 3.1 to the Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997 (the "June 1997 10-Q").
3(b) By-Laws of the Company, as amended, incorporated by reference
to Exhibit 3(b) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1987.
4(i)(a) Rights Agreement dated as of May 23, 1988 between the Company
and Registrar & Transfer Company, incorporated reference to
Exhibit 4.1 to the Company's Current Report on Form 8-K dated
May 18, 1988 (the "May 1988 8-K").
4(i)(b) Amendment to Rights Agreement dated as of March 15, 1989
between the Company and Registrar & Transfer Company,
incorporated by reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K dated March 15, 1989.
10(i)(a) Loan Agreement dated December 28, 1983 between City of
Owatonna, Minnesota and the Company, incorporated by reference
to Exhibit 10(i)(b) to the 1983 10-K.
10(i)(b) Combination Mortgage, Security Agreement and Fixture Financing
Statement dated December 28, 1983 between the Company,
Mortgagor, and Norwest Bank Owatonna, National Association,
Mortgagee, incorporated by reference to Exhibit 10(i)(c) to
the 1983 10-K.
II-2
<PAGE>
10(i)(c) Construction Loan Agreement dated December 28, 1983 by and
between the Company and Norwest Bank, National Association, and
the City of Owatonna, incorporated by reference to Exhibit,
10(i)(d) to the 1983 10-K.
10(i)(d) Assignment of Rents and Leases dated December 28, 1983 between
the Company and Norwest Bank Owatonna, National Association,
incorporated by reference to Exhibit 10(i)(e) to the 1983 10-K.
10(i)(e) Form of City of Owatonna Industrial Development Revenue Note in
the principal amount of $3,500,000 dated December 1983,
incorporated by reference to Exhibit 10(i)(f) to the 1983 10-K.
10(i)(f) Amendment to Industrial Development Revenue Note (Lumex, Inc.
Project) and Loan Agreement dated December 17, 1997 (filed
herewith).
10(i)(g) Assignment Agreement from Norwest Bank Minnesota South, N.A.,
successor in interest to Norwest Bank, Owatonna N.A., to
Summit Bank (filed herewith).
10(ii) Lumex, Inc. Amended and Restated 1987 Stock Option Plan,
incorporated by reference to Exhibit 28 to the Company's
Registration Statement on Form S-8 (No. 33-48124), filed May
26, 1992.*
10(iii)(a) Amended and Restated Loan and Security Agreement, dated June
16, 1997, among Summit Bank, the Company and the Company's
subsidiaries, incorporated by reference to Exhibit 10.3(a)
to the June, 1997 10-Q.
10(iii)(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, incorporated by
reference to Exhibit 10.3(b) to the June, 1997 10-Q.
10(iii)(c) Second Amendment to Amended and Restated Loan and Security
Agreement, dated August 11, 1997, among Summit Bank, the
Company and the Company's subsidiaries, incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 27, 1997.
10(iii)(d) Third Amendment to Amended and Restated Loan and Security
Agreement, dated December 17, 1997, among Summit Bank, the
Company and the Company's subsidiaries (filed herewith).
10(iv) Distributor Agreement dated June 5, 1997 among the Company,
Trotter, Inc., Forza Fitness Equipment, Ltd. and Forza Group,
Ltd., incorporated by reference to Exhibit 10.1 to the June,
1997 10-Q.
10(v) Loan Agreement, dated as of July 30, 1993, among the Company,
CYBEX Financial Corp., and Chemical Bank, incorporated by
reference to Exhibit 10(vi) to the 1993 10-K.
10(vi) First Amendment to Loan Agreement, dated as of November 26,
1993, among the Company, CYBEX Financial Corp., and Chemical
Bank, incorporated by reference to Exhibit 10(vii) to the 1993
10-K.
10(vii) Asset Purchase Agreement between Henley Healthcare, Inc. and
the Company, dated September 30, 1997 (filed herewith).
10(viii) Loan Agreement, dated as of May 18, 1994, among the Company,
CYBEX Financial Corp. and European American Bank, incorporated
by reference to Exhibit 10(ix) to the Annual Report on Form
10-K for the year ended December 31, 1994 (the "1994 10-K").
10(ix) Ultimate Net Loss Vendor Agreement with Portfolio Purchase,
dated December 30, 1994, among the Company, CYBEX Financial
Corp. and C.I.T., incorporated by reference to Exhibit 10(x) to
the 1994 10-K.
II-3
<PAGE>
10(x) Portfolio Purchase Agreement, dated December 30, 1994, among
the Company, CYBEX Financial Corp. and European American Bank,
incorporated by reference to Exhibit 10(xi) to the 1994 10-K.
10(xi) Amended and Restated 1995 Stock Retainer Plan for Non-Employee
Directors of the Company (filed herewith).*
10(xii) 1995 Omnibus Incentive Plan, as amended, incorporated by
reference by Exhibit 10(xx) to the Company's Registration
Statement on Form S-8 (No. 333-29045), filed June 12, 1997.*
10(xiii) Covenant Not to Compete, dated as of April 3, 1996, by and
among the Company, Lumex Medical Products, Inc. (f/k/a MUL
Acquisition Corp. I), MUL Acquisition Corp. II, and Fuqua
Enterprises, Inc., incorporated by reference to Exhibit 10
(xvii) to the June 1996 10-Q.
10(xiv) Management Employment Agreement between the Company and Peter
C. Haines, incorporated by reference to Exhibit 10.2 to the
June, 1997 10-Q.*
21 Subsidiaries of the Registrant. (filed herewith)
23.1 Consent of Independent Public Accountants - Arthur Andersen LLP
(filed herewith)
27 Financial Data Schedule. (filed herewith)
- --------
* Executive Compensation Plans and Arrangements
(b)Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter ended
December 31, 1997.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
CYBEX International, Inc.
_____________________________________
(REGISTRANT)
March 26, /s/ Peter C. Haines
1998 By: _________________________________
_____________ PRESIDENT
(DATE)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
March 26, /s/ Peter C. Haines
1998 By: _________________________________
_____________ PETER HAINES, PRESIDENT AND CHIEF
(DATE) EXECUTIVE OFFICER (PRINCIPAL
EXECUTIVE OFFICER)
March 26, /s/ William S. Hurley
1998 By: _________________________________
_____________ WILLIAM S. HURLEY, VICE PRESIDENT
(DATE) AND CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
March 26, /s/ John Aglialoro
1998 By: _________________________________
_____________ JOHN AGLIALORO, DIRECTOR
(DATE)
March 26, /s/ James H. Carll
1998 By: _________________________________
_____________ JAMES H. CARLL, DIRECTOR
(DATE)
March 26, /s/ Joan Carter
1998 By: _________________________________
_____________ JOAN CARTER, DIRECTOR
(DATE)
March 26, /s/ Kay Knight Clarke
1998 By: _________________________________
_____________ KAY KNIGHT CLARKE, DIRECTOR
(DATE)
March 26, /s/ Arthur W. Hicks, Jr.
1998 By: _________________________________
_____________ ARTHUR W. HICKS, JR., DIRECTOR
(DATE)
March 26, /s/ Jerry Lee
1998 By: _________________________________
_____________ JERRY LEE, DIRECTOR
(DATE)
March 26, /s/ Thomas W. Kahle
1998 By: _________________________________
_____________ THOMAS W. KAHLE, DIRECTOR
(DATE)
March 26, /s/ Alan H. Weingarten
1998 By: _________________________________
_____________ ALAN H. WEINGARTEN, DIRECTOR
(DATE)
II-5
<PAGE>
10(I)(F)
AMENDMENT TO
INDUSTRIAL DEVELOPMENT REVENUE NOTE
(LUMEX, INC. PROJECT)
AND LOAN AGREEMENT
THIS AMENDMENT is made as of December 17, 1997, between the CITY OF
OWATONNA, MINNESOTA, a municipal corporation of the State of Minnesota (the
"City"), CYBEX INTERNATIONAL, INC., a New York Corporation, formerly known as
Lumex, Inc. (the "Corporation"), and SUMMIT BANCORP (the "Holder").
RECITALS:
A. The City has issued its Industrial Development Revenue Note (Lumex,
Inc. Project), dated December 28, 1983 (the "Note"), and loaned the proceeds
received from the sale thereof to the Corporation pursuant to a Loan Agreement,
dated December 28, 1983 (the "Loan Agreement"), between the City and the
Corporation, to finance a Project, as defined in the Loan Agreement. Under
Section 3.01 of the Loan Agreement, the Corporation agrees to be bound by all
the terms and conditions of the Note and the provisions of the Note are
incorporated by reference therein and made a part thereof.
B. Holder is the registered owner of the Note.
C. The Note bears interest at a rate per annum equal to 62.5% of the
"Prime Rate" as defined in the Note. Prime Rate is defined in the Note to be
the rate publicly announced by Norwest Bank Minnesota, National Association, as
successor to Norwest Bank Minneapolis, National Association as its prime rate.
The Corporation and Holder desire to amend the definition of "Prime Rate" in the
Note to be the rate publicly announced by Summit Bancorp as its prime rate.
AGREEMENT:
1. Amendment of Note and Loan Agreement. The parties agree that the
------------------------------------
definition of "Prime Rate" in the first paragraph of the Note shall be amended
to be "the rate publicly announced by Summit Bancorp as its prime rate," and
that such amendment is incorporated by reference in the Loan Agreement and made
a part thereof.
2. Effective Date. The amendment to the Note and Loan Agreement
--------------
contained in paragraph 1 hereof shall be effective as of the date hereof.
3. Note and Loan Agreement Unchanged. Except as amended herein, the Note
---------------------------------
and Loan Agreement are otherwise unchanged and shall remain in full force and
effect.
4. Counterparts. This Agreement may be signed in any number of
------------
counterparts, each of which taken together shall be deemed one original
document.
<PAGE>
EXECUTION:
The parties have executed this Agreement as of the date first stated above.
CITY OF OWATONNA, MINNESOTA
By /s/ Peter W. Connor
------------------------------------------
Mayor
Attest: /s/ Greg L. Sparks
-----------------------
City Clerk
CYBEX INTERNATIONAL, INC.
By /s/ William Hurley
------------------------------------------
Its Vice-President - CFO
---------------------------------------
SUMMIT BANCORP
By /s/ Adrian M. Marquez
------------------------------------------
Its Vice-President
---------------------------------------
<PAGE>
10(I)(G)
ASSIGNMENT AGREEMENT
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which
is hereby acknowledged, Norwest Bank Minnesota South, National Association,
successor in interest to Norwest Bank Owatonna, National Association,
("Assignor"), hereby assigns, transfers and sets over to Summit Bank
("Assignee") all of its right, title and interest, without recourse, in, to and
under the following documents:
(a) Promissory note of City of Owatonna, Industrial Development Revenue
Note (Lumex, Inc. Project), dated December 28, 1983 in the original
principal amount of $3,500,000.00 ("Note");
(b) Combination Mortgage, Security Agreement and Fixture Financing
Statement dated December 28, 1983 between Assignor and Lumex, Inc.,
and recorded December 28, 1983 with the County Recorder of Steele
County, in Book No. 130 of Mortgages page 181 as Document No. 188881
("Mortgage");
(c) Assignment of Rents and Leases dated December 28, 1983, between
Assignor and Lumex, Inc. and recorded December 28, 1983, with the
County Recorder of Steele County, in Book No. 130 of Mortgages page
182 as Document No. 188882 ("Assignment");
(d) Loan Agreement dated December 28, 1983 between City of Owatonna,
Minnesota and Lumex, Inc. ("Loan Agreement");
(e) Pledge Agreement Between the City of Owatonna, Minnesota and Assignor
dated December 28, 1983 ("Pledge Agreement");
(f) Acknowledgment and Reaffirmation of Obligation between Cybex
International, Inc. f/n/a Lumex, Inc. and Assignor ("Acknowledgment");
(g) Construction Loan Agreement dated December 28, 1983, Assignor, Lumex,
Inc., and the City of Owatonna, Minnesota ("Construction Loan
Agreement");
(h) UCC financing statements filed with the Minnesota Secretary of State
on December 30, 1983 as document No. 720985, continuation filed August
2, 1988 as No. 1167491, amendment filed August 6, 1993 as No. 1607620,
continuation filed August 6, 1993 as No. 1607621, amendment filed
November 11, 1996 as no. 1890891; financing statement filed with the
Minnesota Secretary of State on November 4, 1996 and filed as document
No. 1890893 and financing statement filed with the Minnesota Secretary
of State on June 21, 1993, as document no. 1596558 ("Financing
Statements");
<PAGE>
(i) Supplemental Agreement dated May 30, 1997, between Assignor, Lumex,
Inc., and the City of Owatonna, Minnesota ("Supplemental Agreement");
(j) Title insurance policy no. 60-020188 issued by American Title
Insurance Company.
together with all rights of Assignor against Cybex International, Inc., f/k/a
Lumex, Inc., and others by reason of the transaction evidenced by the foregoing
documents, as well as the benefit of all representations, warranties, agreements
and other terms contained in such documents to the extent they are assignable.
1. Assignor warrants and represents that the unpaid principal amount on
the Note is $1,925,000.00 and accrued interest of $4,545.15 as of December 17,
1997, and that the execution of and performance under this Agreement have been
duly authorized. Except as provided in the foregoing sentence, this Assignment
is made and accepted without any representation, promise, or warranty, either
express or implied, oral or written and neither the Assignee nor the successors
or assigns of the Assignee shall have any recourse to the Assignor or the
successors of the Assignor, in any event whatsoever. Assignee warrants and
represents that it has conducted such investigation, review and inquiry as it
deems appropriate with respect to the documents and property being assigned, the
perfection or priority of liens or any other matter and assumes all risks
related to the genuineness, validity, legality, sufficiency or enforceability of
the agreements, rights and interests assigned hereby. The Assignee and it's
successors and assigns hereby releases the Assignor and the successors of the
Assignor from any liability under or in connection with this Assignment, except
for any breach of warranty or misrepresentation by the Assignor of the
representations or warranties contained in this paragraph.
2. Upon execution of this Agreement, Assignor shall deliver to Assignee
the Note endorsed to the order of Assignee, without recourse; the promissory
notes which the Note renewer and replaced; the UCC-3s indicating the assignment
in favor of Assignee; and an assignment of
<PAGE>
Mortgage and assignment of Assignment of Rents and Leases in favor of Assignee.
3. The Assignee hereby indemnifies the Assignor against all liability,
loss and expense, including reasonable attorney's fees, that the Assignor may
incur by reason of this Assignment or subsequent acts, duties or breaches of
contract by Assignee, or in defending or prosecuting any suit, action, or other
proceeding brought in connection therewith, or in obtaining or attempting to
obtain a release from liability in respect thereof.
NORWEST BANK MINNESOTA SOUTH,
NATIONAL ASSOCIATION
Dated: December 17 , 1997 By: /s/ Timothy McManimon
--------------------- ---------------------------------
Its: President
---------------------------------
Accepted by:
Summit Bank
Dated: December 17 , 1997 By: /s/ Adrian M. Marquez
--------------------- --------------------------------
Its: Vice President
--------------------------------
<PAGE>
10(iii)(d)
III)(D)
THIRD AMENDMENT
TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
THIS THIRD AMENDMENT, dated as of December 17, 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").
On July 15, 1997 the Lender and the Borrower entered into a First Amendment to
Loan Agreement (hereinafter "First Amendment"). Thereafter, on August 11, 1997,
Lender and the Borrower entered into a Second Amendment to the Loan Agreement
(hereinafter "Second Amendment"). All capitalized terms utilized herein and not
otherwise defined have the respective meaning indicated in the Loan Agreement.
The parties desire to enter into this Third Amendment, to modify certain
financial covenants in the Loan Agreement and to ratify and confirm all the
terms and conditions of the Loan Agreement and the First Amendment.
1. Section 1.34 of the Loan Agreement is hereby amended to read in its
entirety as follows:
1.34 "LOANS" shall mean the Revolving Loans, the Term Loan, the
-------
Trotter Letter of Credit and the Lumex, Inc. $3,500,000.00 Revenue Note dated
December 18, 1983 ("LUMEX NOTE").
2. Section 1.36 of the Loan Agreement is hereby amended to read in its
entirety as follows:
1.36 "NOTE" OR "NOTES" means the Revolving Note, the Term Note and
------------------
the Lumex Note executed and delivered by the Borrowers to the Lender to evidence
the Loans.
3. Section 1.37 of the Loan Agreement is hereby amended to read in its
entirety as follows:
1.37 "OBLIGATIONS" shall mean any and all Revolving Loans, the Term
-------------
Loan, the Trotter Letter of Credit, the Lumex Note 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,
<PAGE>
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.
4. The Loan Agreement shall be amended by the addition of the following
paragraphs:
4.1 LUMEX NOTE. The Lender has on this date advanced the sum of
-----------
$1,934,090.30 on behalf of the Borrowers and obtained an assignment from Norwest
Bank of a certain $3,500,000.00 Revenue Note dated December 28, 1983 (Lumex
Note). The Lumex Note shall hereinafter be deemed part of Indebtedness as
defined in Paragraph 1.26 of this Agreement. The Borrowers acknowledge and agree
that all of the terms and conditions of the Loan Agreement shall be applicable
to the Lumex Note and the Indebtedness evidenced thereby.
9.24 AMENDMENT TO LUMEX LOAN AGREEMENT. Borrowers and Lender hereby
----------------------------------
specifically acknowledge and agree that the covenants contained in this
paragraph and this Agreement replace and amend the covenants contained in
Article Four of the Loan Agreement dated December 28, 1983, as heretofore
amended, between the City of Owatonna and Lumex, Inc. (now known as Cybex
International, Inc.), pursuant to which the Lumex Note was issued.
5. CONFIRMATION OF OBLIGATIONS. This Third Amendment is made
----------------------------
supplemental to and a part of the Loan Agreement. Except as expressly amended
and modified by this Third Amendment, the Loan Agreement, the First Amendment
and the Second Amendment, are hereby ratified and confirmed in all respects.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Third Amendment as of the date first above written.
Witness SUMMIT BANK
/s/ Frank V. Tedesco By: /s/ Adrian M. Marquez
- ------------------------------ ----------------------------
Adrian M. Marquez, V.P.
Witness CYBEX INTERNATIONAL, INC.
/s/ James H. Carll By: /s/ William Hurley
- ------------------------------ ----------------------------
Witness EAGLE PERFORMANCE SYSTEMS, INC.
/s/ James H. Carll By: /s/ William Hurley
- ------------------------------ ----------------------------
Witness CYBEX FITNESS GERATE VERTRIEBS,
GMBH
/s/ James H. Carll By: /s/ William Hurley
- ------------------------------ ----------------------------
Witness GENERAL MEDICAL EQUIPMENT
LIMITED
/s/ James H. Carll By: /s/ William Hurley
- ------------------------------ ----------------------------
<PAGE>
Witness LUMEX BED SYSTEMS
/s/ James H. Carll By: /s/ William Hurley
- ------------------------------ ----------------------------
Witness TROTTER, INC.
/s/ James H. Carll By: /s/ William Hurley
- ------------------------------ ----------------------------
Witness TROTTER HOLDING COMPANY
/s/ James H. Carll By: /s/ William Hurley
- ------------------------------ ----------------------------
<PAGE>
10 (vii)
________________________________________________________________________________
ASSET PURCHASE AGREEMENT
By And Between
HENLEY HEALTHCARE, INC.
And
CYBEX INTERNATIONAL, INC.
Dated September 30, 1997
________________________________________________________________________________
<PAGE>
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT is entered into on this 30th day of
September, 1997 by and between Henley Healthcare, Inc., a Texas corporation (the
"Buyer"), and CYBEX International, Inc., a New York corporation (the "Seller").
W I T N E S S E T H:
WHEREAS, one segment of Seller's business is the manufacture, distribution,
sales, marketing and service of its isokenetic rehabilitation product line, as
more fully defined in Section 6.1.14 (the "Product Line"); and
WHEREAS, the Seller desires to sell to Buyer, and Buyer desires to purchase
from Seller the Product Line and certain related assets of Seller on the terms
and conditions herein set forth.
NOW, THEREFORE, for and in consideration of the premises, and the mutual
and dependent promises contained herein, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto, intending to be legally bound, hereby agree as follows:
ARTICLE 1
Purchase And Sale Of Assets
1.1 CERTAIN DEFINITIONS. As used in this Agreement, each parenthetically
capitalized term in the introduction, recitals and other Sections of this
Agreement has the meaning so ascribed to it, and other capitalized terms have
the meaning given them in Section 6.1.
1.2 PURCHASE AND SALE OF ASSETS. Subject to the terms and conditions set
forth in this Agreement, Seller, at the Closing hereinafter referred to, hereby
agrees to sell, convey, transfer, assign and deliver to Buyer the following
assets of Seller (all such assets being sold hereunder are referred to
collectively herein as the "Assets"):
1.2.1 the tangible personal property of Seller used or useful in the
operation of the Product Line (such as machinery, equipment, tools,
replacement parts, molds and furniture and fixtures) as described on
SCHEDULE 1.2.1 attached hereto but excluding the Inventory (as defined in
Section 1.2.2 hereof) (collectively, the "Tangible Personal Property");
1.2.2 all of Seller's inventories of supplies, raw materials, work-
in-process and finished goods relating to the Product Line as of the
Closing Date, including, without limitation, that which is described on
SCHEDULE 1.2.2 attached hereto (the "Inventory");
1.2.3 (i) Seller's rights to the patents, patent applications,
copyrights, trademarks and service marks (including registrations and
applications therefor), trade names, licenses or sublicenses and written
know-how, trade secrets and other similar proprietary data and the goodwill
associated therewith used or held in connection with the Product Line
(collectively, the "Seller's Intellectual Property") as described on
SCHEDULE 1.2.3, and (ii) Seller's sales
<PAGE>
and promotional literature, copies of books, records, files and data
(including customer and supplier lists), copies of contracts and documents
evidencing accounts and contracts receivable and payable, and certain other
records of Seller relating to the Assets or the Product Line (items (i) and
(ii) collectively, the "Intangibles"), as described on SCHEDULE 1.2.3
attached hereto;
1.2.4 the leases, subleases, contracts, contract rights, licenses and
agreements relating to the Assets or the operation of the Product Line as
described on SCHEDULE 1.2.4 attached hereto (collectively, the
"Contracts");
1.2.5 Seller's franchises, approvals, permits, licenses, orders,
registrations, certificates, variances, and similar rights obtained from
governments and governmental agencies relating principally to all or any of
the Assets or to the operation of the Product Line as described on SCHEDULE
1.2.5 attached hereto (collectively, the "Business Licenses") to the extent
assignable;
1.2.6 the goodwill and going concern value of the Product Line; and
1.2.7 all of Seller's backlog of orders for products manufactured or
sold by Seller included in the Product Line, which were accepted by Seller
in the ordinary course of business prior to the date hereof and not
invoiced or shipped (or canceled) prior to the date hereof (collectively,
the "Backlog Orders").
1.3 CONSIDERATION. As consideration for the sale of the Assets to Buyer
and for the other covenants and agreements of Seller contained herein, Buyer
agrees to:
1.3.1 pay to Seller the amount of $3,200,000 in cash (the "Cash
Consideration") at Closing by wire transfer on the Closing Date to the
account designated by Seller by written notice delivered to Buyer before
the Closing Date; and
1.3.2 assume only those liabilities of Seller related to the
Contracts and the Outstanding Warranty Obligations subject to the
conditions and limitations as set forth in Section 1.10 (collectively, the
"Assumed Liabilities"). Seller shall be responsible for all other
liabilities of Seller (collectively, the "Retained Liabilities"),
including, without limitation, any product liability relating to products
in the Product Line sold prior to or on the Closing Date, and any sales
taxes which are payable as a result of the consummation of the transactions
contemplated hereby.
1.4 NO OTHER LIABILITIES ASSUMED. Except for the Assumed Liabilities as
described in Section 1.3.2, Buyer shall not assume or be obligated to pay,
perform, or discharge any debt, obligation, expense or liability of Seller,
whether absolute or contingent, and whether known or unknown.
1.5 ALLOCATION OF CONSIDERATION. The total consideration for the Assets,
including the Assumed Liabilities, shall be allocated among the Assets and the
Seller's non-competition agreement pursuant to Article 5 in accordance with
SCHEDULE 1.5. The Buyer and Seller affirm that said allocation is fair and
equitable and that the parties shall adhere to such allocation for the purposes
of all tax returns filed by them on or after the Closing Date.
<PAGE>
1.6 CLOSING. Consummation of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of CYBEX
International, Inc., located at 10 Trotter Drive, Medway, Massachusetts 02053,
at 10:00 a.m. on September 30, 1997 (the "Closing Date"), unless another time,
place or date is agreed to by the Seller and the Buyer.
1.7 BUYER'S CLOSING DELIVERIES. At the Closing, Buyer shall deliver to
the Seller: (i) the Cash Consideration described in Section 1.3; (ii) a duly
executed copy of each of the Ancillary Agreements (as defined in Section 1.9);
(iii) a duly executed copy of an assignment and assumption agreement pertaining
to the Contracts and the Assumed Liabilities; and (iv) a favorable opinion of
counsel, dated the Closing Date, from Porter & Hedges, L.L.P., counsel to the
Buyer, in form and substance satisfactory to the Seller, to the effect that (a)
Buyer has been duly incorporated and is validly existing as a corporation in
good standing under the laws of the State of Texas; (b) this Agreement and the
Ancillary Agreements have been duly authorized, executed and delivered by, and
are the legal, valid and binding obligation of the Buyer and are enforceable
against the Buyer in accordance with their terms, except as the enforceability
may be limited by (x) equitable principles of general applicability or (y)
bankruptcy, insolvency, reorganization, fraudulent conveyance or similar laws
affecting the rights of creditors generally; and (c) the execution, delivery and
performance of this Agreement and the Ancillary Agreements by the Buyer, and the
consummation of the transactions contemplated in the Agreement and the Ancillary
Agreements, will not constitute a breach or violation of, or default under, the
Articles of Incorporation or bylaws of the Buyer or any Law applicable to the
Buyer, or violate or conflict with or result in breach of, or constitute a
default under (or an event which, with notice or lapse of time or both, would
constitute a default under), any contract, indenture, loan agreement, order,
decree or instrument known to such counsel to which the Buyer is a party or by
which it or its assets are bound known to such counsel. In rendering such
opinion, such counsel may rely upon certificates of public officials and of
officers of the Buyer as to matters of fact.
1.8 SELLER'S CLOSING DELIVERIES. At the Closing, Seller shall deliver to
the Buyer: (i) a duly executed bill of sale relating to the Assets, reasonably
satisfactory in form and substance to Buyer; (ii) a duly executed copy of each
of the Ancillary Agreements (as defined in Section 1.9); (iii) a duly executed
copy of the Forza Release (as defined below); (iv) a duly executed copy of an
assignment and assumption agreement pertaining to the Contracts and the Assumed
Liabilities; (v) any consents necessary pursuant to SCHEDULE 2.2; (vi) all such
other instruments as shall be reasonably requested by the Buyer to vest fully in
the Buyer good and indefeasible title to the Assets, including, but not limited
to, patent and patent license transfers and trademark assignments; and (vii) a
favorable opinion of counsel, dated the Closing Date, from Archer & Greiner, a
Professional Corporation, counsel to the Seller, in form and substance
satisfactory to the Buyer, to the effect that (a) Seller has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the State of New York; (b) this Agreement and the Ancillary Agreements
have been duly authorized, executed and delivered by all necessary corporate
actions, and are the legal, valid and binding obligation of the Seller and are
enforceable against the Seller in accordance with their terms, except as the
enforceability may be limited by (x) equitable principles of general
applicability or (y) bankruptcy, insolvency, reorganization, fraudulent
conveyance or similar laws affecting the rights of creditors generally; (c)
Seller is not required to obtain shareholder approval of the consummation of the
transactions contemplated under this Agreement and the Ancillary Agreements
under any applicable Laws; (d) the Forza Release is a full and complete release
of any obligation on the part of Seller or Buyer as successor owner to the
Assets to sell the Assets to Forza or any right by Forza to purchase the Assets
known to such counsel; and (e) the execution, delivery and performance of
<PAGE>
this Agreement and the Ancillary Agreements by the Seller, and the consummation
of the transactions contemplated in the Agreement and the Ancillary Agreements,
will not constitute a breach or violation of, or default under, the Articles of
Incorporation or bylaws of the Seller or any Law applicable to the Seller, or
violate or conflict with or result in breach of, or constitute a default under
(or an event which, with notice or lapse of time or both, would constitute a
default under), any contract, indenture, loan agreement, order, decree or
instrument to which the Seller is a party or by which it or its assets are bound
known to such counsel. In rendering such opinion, such counsel may rely upon
certificates of public officials and of officers of the Seller as to matters of
fact.
1.9 ANCILLARY AGREEMENTS. At the Closing, the Buyer and Seller will enter
into the following agreements (collectively with any and all other ancillary
documents or agreements necessary to effect the consummation of the transactions
contemplated herein, the "Ancillary Agreements"):
1.9.1 TRANSITION AGREEMENT. The Buyer and Seller will enter into a
Transition Agreement (the "Transition Agreement") of even date herewith,
and in substantially the form as attached hereto as EXHIBIT A, whereby the
Product Line will continue to be manufactured at the Seller's Ronkonkoma,
New York facility for a period of 60 days following the Closing Date;
1.9.2 DISTRIBUTION AGREEMENTS. The Buyer and Seller will enter into
(a) a Distribution Agreement (the "Buyer Distribution Agreement") of even
date herewith and in substantially the form as attached hereto as EXHIBIT
B, whereby the Buyer will become a non-exclusive distributor of Seller's
fitness equipment in the Territory (as defined therein), and (b) a
Distribution Agreement (the "Seller Distribution Agreement") of even date
herewith and in substantially the form as attached hereto as EXHIBIT C,
whereby the Seller will become a non-exclusive distributor of Buyer's
rehabilitation equipment in the Territory (as defined therein); and
1.9.3 TRADEMARK LICENSE AGREEMENT. The Buyer and Seller will enter
into a Trademark License Agreement (the "Trademark License Agreement:) of
even date herewith, and substantially in the form as attached hereto as
EXHIBIT D, through which the Buyer will obtain the right to use the trade
name and trademark "CYBEX(R)" in connection with the manufacture, sale,
distribution and service of the Product Line.
1.10 OUTSTANDING WARRANTY OBLIGATIONS. Buyer hereby assumes, as of the
Closing Date, all of Seller's Outstanding Warranty Obligations. Buyer further
agrees to respond to and fulfill the Outstanding Warranty Obligations in a
timely manner and in accordance with the terms and provisions of Seller's
standard product warranty (the "Standard Product Warranty," a copy of which is
attached hereto as SCHEDULE 1.10), and the unwritten warranty with regard to the
6000 (the "Unwritten Warranty," a complete description of which is included as
part of SCHEDULE 1.10). In addition, Buyer agrees to continue to provide
replacement parts and/or repair services with respect to the Product Line, at
Buyer's standard rates, following the expiration of any warranty period for a
commercially reasonable length of time. Seller acknowledges that it is
retaining, as a Retained Liability, responsibility with respect to product
liability claims pertaining to products in the Product Line sold prior to the
Closing Date. Buyer agrees to cooperate with Seller with regard to its defense
of any product liability Claims brought against Seller involving products in the
Product Line sold prior to the Closing Date, and Seller agrees to so cooperate
with Buyer concerning Claims brought
<PAGE>
against Buyer involving products in the Product Line sold after to the Closing
Date.
1.11 WARRANTY SERVICE AGREEMENT. As a condition precedent to the Buyer's
obligations under this Agreement, the Buyer, on or before the Closing Date,
shall have entered into a new warranty service agreement (the "Warranty Service
Agreement") to replace the Statement of Work to Technical Support Agreement
between Seller and Technology Service Solutions ("TSS") with TSS on terms
acceptable to the Buyer.
1.12 PRODUCT LINE DISTRIBUTORS. As a condition precedent to the Buyer's
obligations under this Agreement, the Buyer, on or before the Closing Date,
shall have entered into new distribution agreements with the current
distributors of the Product Line (the "Product Line Distributors") on terms
acceptable to the Buyer, including, without limitation, Forza Fitness Equipment
Ltd. ("Forza"), Sakai Medical Co., Ltd., and Proxomed Hess Medizintechnik GMBH.
1.13 FORZA PURCHASE RIGHT RELEASE. As a condition precedent to the Buyer's
obligations under this Agreement, Seller agrees to obtain a complete release of
any right which Forza may have to purchase or acquire the Product Line from
Seller (the "Forza Release"). Seller will obtain and deliver the Forza Release
to Buyer in form and substance reasonably agreeable to Buyer.
1.14 ACCOUNTS RECEIVABLE. Buyer hereby agrees that it will act as Seller's
agent for collection with respect to the accounts receivable attributable to
sales of the Product Line prior to the Closing Date (the "Accounts Receivable")
for a period of 120 days following the Closing Date. Seller shall attach, as
SCHEDULE 1.14 hereto, a complete and accurate list of the Accounts Receivable
that the Buyer shall attempt to collect. Buyer shall remit any such collections
on the Accounts Receivable every second Friday following the Closing Date
accompanied with a detailed ledger of all such collections during that period to
date. On the 150th day following the Closing Date, Buyer shall provide Seller
with its final accounting of the then outstanding Accounts Receivable. Buyer
shall apply any payments to the receivables of each debtor in the order such
receivables were booked. Buyer agrees to use commercially practicable efforts in
collecting the Accounts Receivable; provided, however, that Buyer shall not in
any way be responsible or liable to Seller for any nonpayment of or failure to
collect the Accounts Receivable.
1.15 OFFSET. If Buyer is entitled to indemnification pursuant to the
provisions of Article 4, Buyer at its option shall be entitled to offset the
amount of any such expenses or Claims, respectively, against any payments
otherwise due to Seller under this Agreement or any payments due under the
Trademark License Agreement. The rightful exercise of the right of offset
hereunder shall not constitute a breach or default of any provision requiring
payment of sums so offset, or relieve the party against whom such right of
offset is exercised from performing its obligations thereunder.
1.16 FURTHER ASSURANCES. From time to time, as and when requested by any
party hereto, any other party hereto shall execute and deliver, or cause to be
executed and delivered, such documents and instruments and shall take, or cause
to be taken, such further or other actions as may be reasonably necessary to
effectuate the transactions contemplated hereby, including, without limitation,
the transfer to Buyer of all of the Assets, free and clear of all Encumbrances.
<PAGE>
ARTICLE 2
Representations And Warranties Of Seller
As material inducements to the execution, delivery and performance of this
Agreement by Buyer, Seller hereby represents and warrants to Buyer as follows
except as otherwise described in the attached Exception Schedule attached
hereto. The Exception Schedule shall identify each exception by the section
number(s) of this Article 2 to which it relates; Buyer shall be deemed to have
knowledge of all matters described on the Exception Schedule.
2.1 ORGANIZATION AND STANDING. Seller is a corporation duly organized,
validly existing, and in good standing under the laws of the State of New York.
Seller has all necessary statutory and corporate power and authority to own,
operate, and lease its properties and to carry on its business as now owned or
leased and operated by it. Seller is duly qualified or licensed to do business
and is in good standing as a foreign corporation authorized to do business in
all jurisdictions in which the character of the properties owned or the nature
of the business conducted by it would make such qualification or license
necessary, except where such failure to qualify or license would not have
material adverse effect on either the Seller, its Assets or the operation of the
Product Line. True, correct and complete copies of Seller's Articles of
Incorporation and Bylaws, as each may have been amended, are attached to the
Exception Schedule.
2.2 AUTHORITY. Seller has the absolute and unrestricted right, power,
legal capacity, and authority to enter into, and perform such Seller obligations
under this Agreement and the Ancillary Agreements.
2.3 AGREEMENT AUTHORIZED AND ENFORCEABLE. The execution and delivery of
this Agreement and the Ancillary Agreements and the consummation of the
transactions contemplated hereby and thereby has been duly and validly
authorized by all necessary corporate action on the part of the Seller. No
Shareholder approval of the transactions contemplated in this Agreement and the
Ancillary Agreements is required under any Laws to which the Seller is subject.
This Agreement and the Ancillary Agreements constitute valid and binding
obligations of Seller, enforceable against it in accordance with their terms,
except as may be limited by applicable bankruptcy laws, insolvency laws and
other similar laws affecting the rights of creditors generally.
2.4 NO VIOLATIONS OR CONFLICTS. Neither the execution and delivery of
this Agreement and the Ancillary Agreements by Seller nor the consummation of
the transactions contemplated hereby and thereby will: (a) violate or conflict
with any provision of Seller's Articles of Incorporation or Bylaws, as amended
to date; (b) violate or conflict with any provision of any Laws applicable to
the Seller, or its business or assets; (c) result in a breach of, or constitute
a default (or with notice or lapse of time or both result in a breach of or
constitute a default) under or otherwise give any Person the right to terminate
or accelerate payment under or performance of any note, bond, loan agreement,
contract, lease, license, franchise, permit, trust agreement or declaration of
trust, or other agreement or instrument to which the Seller is a party or to
which its assets are subject; (d) result in the creation or imposition of any
Encumbrance of any nature upon or with respect to any of the assets of Seller;
or (e) be an event that would permit any party to terminate any of the
Contracts; provided, that, with respect to clauses (c), (d) and (e), all
required consents are first obtained.
<PAGE>
2.5 TITLE TO AND CONDITION OF ASSETS. Seller has and will convey to Buyer
good, indefeasible and marketable title to the Assets, free and clear of any
Encumbrance except liens for current taxes not yet due and payable and except as
set forth in SCHEDULE 2.5 of the Exception Schedule attached hereto. Seller is
in possession of any and all of the Assets which are leased to it from others.
The Assets and the assets and rights transferred or assigned to Buyer pursuant
to the Ancillary Agreements constitute all of the material property, whether
real, personal, mixed, tangible or intangible, that is used in the Product Line
by Seller and that is necessary for the continued conduct of the Product Line as
conducted by Seller prior to the date hereof. SCHEDULE 2.5 of the Exception
Schedule attached hereto contains a description of all of the Assets leased
pursuant to the Contracts, which are the only Assets which are not owned by
Seller. Except for such conditions and defects which do not materially impact on
the conduct of the business related to the Product Line, all of the Assets are
in good condition and in a state of good maintenance and repair, ordinary wear
and tear excepted, and are free from any known defects, except as may be
repaired by routine maintenance.
2.6 TANGIBLE PERSONAL PROPERTY AND INVENTORY. The items listed on
SCHEDULE 1.2.1 attached hereto constitute all of the material personal property
which is used by Seller in connection with the ownership and operation of the
Product Line. SCHEDULE 1.2.2 attached hereto is believed by Seller to be a
materially correct list of all of the Inventory owned or used by Seller in
connection with the ownership and operation of the Product Line. Said SCHEDULE
122 is not based upon a physical inventory count, and was prepared by Seller
consistent with prior practice. Except as disclosed on SCHEDULE 2.5 of the
Exception Schedule attached hereto, no material Tangible Personal Property (i)
is held under any lease, security agreement, conditional sales contract, or
other title retention or security arrangement, or (ii) is located other than in
the possession of Seller. No material items included in the Inventory have been
pledged as collateral or are held by Seller on consignment from others, except
for such Encumbrances as will be released at Closing.
2.7 INTELLECTUAL PROPERTY. The Intellectual Property described on
SCHEDULE 1.2.3 attached hereto and the intellectual property transferred or
licensed to Buyer pursuant to the Ancillary Agreements constitutes all of the
material Intellectual Property owned or licensed by Seller and used in the
Product Line. To Seller's knowledge, Seller owns or possesses licenses to use
all Intellectual Property that is material to or necessary for the continued
conduct of the Product Line. Except as listed on the Exception Schedule, the
Seller's Intellectual Property is owned or licensed by Seller free and clear of
any Encumbrance. Seller has not granted to any other Person any license to use
any of the Seller's Intellectual Property, except for non-exclusive licenses
granted in the normal course of business pursuant to the distribution agreements
listed on Schedules 1.2.4 and 2.8 hereto. To Seller's knowledge, the use of the
Seller's Intellectual Property will not, and the conduct of the Product Line
prior to the date hereof did not, infringe, misappropriate or conflict with the
intellectual property rights of others. Except as indicated on the Exception
Schedule, Seller has not received any notice of infringement, misappropriation,
or conflict with the intellectual property rights of others in connection with
the use by Seller of the Seller's Intellectual Property.
2.8 CONTRACTS. The Contracts contained on SCHEDULE 1.2.4 attached hereto
together with those other contracts, agreements, and other written arrangements
(the "Other Agreements") as listed on SCHEDULE 2.8 attached hereto constitute
all of the material contracts, agreements, and other written arrangements
relating to the Assets or Product Line to which Seller is a party, or by which
the Assets are bound. To Seller's knowledge, each of the Contracts is valid and
in full force and effect. There has not been any material default by Seller, or
to Seller's knowledge, any other party
<PAGE>
to any of the Contracts, or any event that with notice or lapse of time or both,
would constitute a material default by Seller, or to Seller's knowledge, any
other party to any of the Contracts. Seller has not received notice that any
party to any of the Contracts intends to cancel or terminate any of the material
Contracts or exercise or not exercise any options that they might have under any
of the Contracts which might have a material adverse effect on the Assets or the
rights under such Contract.
2.9 BUSINESS LICENSES. SCHEDULE 1.2.5 attached hereto, is a schedule of all
material Business Licenses owned by Seller or in which Seller has any rights or
licenses in connection with the Product Line, together with a brief description
of each. Seller is in compliance in all material respects with the terms of the
Business Licenses, except for such violations which, alone or in the aggregate,
do not and will not have a material adverse effect on the ability to conduct the
business associated with the Product Line. None of the Business Licenses have
been, or, to the knowledge of Seller, are threatened to be, revoked, canceled,
suspended or modified.
2.10 LITIGATION. Except as set forth in the Exception Schedule, there is
no suit, action, or legal, administrative, arbitration, or other proceeding or
governmental investigation pending or threatened to which Seller is a party or,
to the knowledge of Seller, might become a party, and which might have a
material adverse effect on the Assets or the Product Line.
2.11 ENVIRONMENTAL MATTERS. Except as described on the Exception Schedule,
none of the current or past operations of the Product Line or the Assets is
being or has been conducted or used in such a manner as to constitute a
violation of any Applicable Environmental Laws, Seller has not received any
notice (whether formal or informal, written or oral) from any entity,
governmental agency or individual regarding any existing, pending or threatened
investigation or inquiry related to violations of any Applicable Environmental
Laws or regarding any claims for remedial obligations or contribution for
removal costs or damages under any Applicable Environmental Laws, and there are
no writs, injunction decrees, orders or judgments outstanding, or lawsuits,
claims, proceedings or investigations pending or threatened relating to the
ownership, use, maintenance or operation of the Assets or the conduct of the
Product Line, nor, to Seller's knowledge, is there any basis for any of the
foregoing. No Hazardous Substances have been or are currently being used by
Seller in its operations in violation of any Applicable Environmental Laws. No
Hazardous Substances are or have ever been situated on or under Seller's
properties, whether owned or leased, or incorporated into any of the Assets in
violation of any Applicable Environmental Laws.
2.12 COMPLIANCE WITH OTHER LAWS. Seller is not in violation of or in
default with respect to, or in alleged violation of or alleged default with
respect to, any other applicable law or any applicable rule, regulation, or any
writ or decree of any court or any governmental commission, board, bureau,
agency, or instrumentality, and Seller is not delinquent with respect to any
report required to be filed with any governmental commission, board, bureau,
agency or instrumentality, except for such violations or delinquencies which,
alone or in the aggregate, do not have a material adverse effect on the ability
to conduct the business associated with the Product Line.
2.13 SOLVENCY. Seller is not now Insolvent, nor will Seller be rendered
Insolvent by the occurrence of the transactions contemplated by this Agreement.
2.14 ERISA PLANS, LABOR ISSUES AND AFFILIATE PAYMENTS. Except as
identified in SCHEDULE 2.14, Seller does not currently sponsor, maintain or
contribute to, and has not at any time sponsored, maintained or contributed to
any employee benefit plan which is or was subject to any
<PAGE>
of the provisions of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), in which any of its Employees are or were participants
(whether or not on an active or frozen basis). Each benefit plan set forth in
SCHEDULE 2.14 hereto (collectively the "Benefit Plans") complies currently, and
has complied in the past, in form and operation, with the applicable provisions
of ERISA, the Code and other applicable Laws. All contributions required to be
made to each Benefit Plan under the terms of such Benefit Plans, ERISA or other
applicable Laws have been timely made. None of the Benefit Plans (i) is a
"multiemployer plan" (as defined in Section 3(37) of ERISA), or (ii)
------------------
provides for medical or other insurance benefits to current or future retired
Employees or former Employees of the Seller (other than as required for group
health plan continuation coverage under Code Section 4980B or applicable state
law). During the five years preceding the Closing Date, (i) no under funded
pension plan subject to Section 412 of the Code has been transferred out of the
Seller and (ii) the Seller has not participated in or contributed to, or had an
obligation to contribute to, any multiemployer plan (as defined in ERISA Section
3(37)) and has no withdrawal liability with respect to any multiemployer plan.
There are no claims or lawsuits which have been asserted, instituted or
threatened against the Assets by the trustees under the Benefit Plans. Seller
has not engaged in any unfair labor practices which could have a material
adverse effect on the Assets or the operations of the Business. Except as
described on the Exception Schedule, (i) Seller has no collective bargaining
agreements with any labor union or other representative of Employees, (ii)
Seller has no pending or threatened, dispute with any of its existing or former
Employees, (iii) there are no labor disputes pending or threatened by Seller's
current or former Employees, and (iv) since January 1, 1997, Seller has not made
any payments to any of its Affiliates, and has not granted or agreed to grant
any bonus to any current Employee, any general increase in the rates of salaries
or compensation of its Employees or any specific increase to any current
Employee, except in accordance with past practice, regularly scheduled periodic
bonuses and other increases, and has not provided for any new pension,
retirement or other employee benefits to any of its current Employees or any
increases in any existing benefits. Seller has complied and will comply with the
Worker Adjustment and Retraining Notification Act ("WARN") with respect to any
Employees which may be terminated or laid off or any "plant closing" which may
occur as a result of the consummation of the transactions contemplated by this
Agreement. The term "Employees" refers to those of Seller's employees whose
principal duties pertain to the manufacture, sale or marketing of the Product
Line.
2.15 OUTSTANDING WARRANTY OBLIGATIONS. Seller's Standard Product Warranty
and the Unwritten Warranty are the only warranties that Seller has given with
respect to the products sold in the Product Line on or before the Closing Date,
and are currently in full force and effect. TSS has performed substantially all
of the third-party warranty obligation work necessary pursuant to the Standard
Product Warranty and the Unwritten Warranty during the last three years up to
and including the Closing Date.
2.16 FDA REGULATIONS. Attached hereto as SCHEDULE 2.16 is a complete list
of any and all warning letters, Form FDA 483s or other correspondence received
by Seller which pertain to the Product Line copies of which have been previously
provided to Buyer. To Seller's knowledge, the Seller is currently in full
compliance with all U.S. Food and Drug Administration ("FDA") regulations
pertaining to the operation of the Product Line, including, without limitation,
the Medical Device Reporting Regulations as specified in 21 C.F.R. (S) 803, and
any FDA registrations or reports are current.
2.17 BROKERS. Neither Seller nor any of its Affiliates has employed any
broker, agent or
<PAGE>
finder, or incurred by any liability for any brokerage fees, agent's fees,
commissions or finder's fees in connection with the transactions contemplated by
this Agreement.
2.18 UNTRUE STATEMENTS. This Agreement and all schedules, documents and
information furnished by Seller or any of its representatives to Buyer and its
representatives pursuant hereto or in connection with the transactions
contemplated by this Agreement do not include any untrue statement of a material
fact or, to Seller's knowledge, omit to state any material fact necessary to
make the statements made herein and therein not materially misleading.
ARTICLE 3
Representations And Warranties Of Buyer
As material inducements for the execution, delivery and performance of this
Agreement by Seller, Buyer hereby represents and warrants to Seller that as of
the Closing Date:
3.1 ORGANIZATION. Buyer is a corporation duly organized, validly existing
and in good standing under the laws of the State of Texas, and has all the
necessary powers to own its business as now owned and operated by it.
3.2 AUTHORITY. Buyer has the absolute and unrestricted right, power,
legal capacity, and authority to enter into, and perform such Buyer obligations
under this Agreement and the Ancillary Agreements.
3.3 AGREEMENTS AUTHORIZED AND ENFORCEABLE. The execution and delivery of
this Agreement and the Ancillary Agreements and the consummation of the
transactions contemplated hereby and thereby (i) are within the corporate power
and authority of the Buyer, and (ii) have been duly and validly authorized by
all necessary corporate action on the part of Buyer. This Agreement and the
Ancillary Agreements constitute valid and binding obligations of Buyer,
enforceable against Buyer in accordance with their terms, except as may be
limited by applicable bankruptcy laws, insolvency laws and other similar laws
affecting the rights of creditors generally.
3.4 NO VIOLATIONS OR CONFLICTS. Neither the execution and delivery of
this Agreement and the Ancillary Agreements by Buyer nor the consummation of the
transactions contemplated hereby and thereby will: (a) violate or conflict with
any provision of Buyer's Articles of Incorporation or Bylaws, as amended to
date; (b) violate or conflict with any provision of any Laws applicable to the
Buyer, or its business or assets; or (c) result in a breach of, or constitute a
default (or with notice or lapse of time or both result in a breach of or
constitute a default) under or otherwise give any Person the right to terminate
or accelerate payment under or performance of any note, bond, loan agreement,
contract, lease, license, franchise, permit, trust agreement or declaration of
trust, or other agreement or instrument to which the Buyer is a party or to
which its assets are subject.
3.5 BROKERS. Except for its agreement with Principal Financial
Securities, Inc., neither Buyer nor any of its Affiliates have employed any
broker, agent, or finder, or incurred any liability for any brokerage fees,
agent's fees, commissions or finder's fees in connection with the transactions
contemplated herein.
<PAGE>
3.6 UNTRUE STATEMENTS. This Agreement and all schedules, documents and
information furnished by Buyer or its representatives to Seller and any of its
representatives pursuant hereto or in connection with the transactions
contemplated by this Agreement do not include any untrue statement of a material
fact or, to Buyer's knowledge, omit to state any material fact necessary to make
the statements made herein and therein not materially misleading.
ARTICLE 4
Indemnification
4.1 INDEMNIFICATION BY SELLER. Seller shall indemnify, defend and hold
harmless Buyer and its officers, directors, employees, agents and shareholders,
against and with respect to any and all Claims that such indemnitees shall incur
or suffer, which arise, result from or relate to (i) any breach of, or failure
by Seller to perform, any of Seller's representations, warranties, covenants or
agreements in this Agreement or in any schedule, certificate, exhibit or other
instrument furnished to Buyer by Seller under this Agreement ("Breach Claims"),
and (ii) any and all Retained Liabilities of Seller, including, without
limitation, any tax liabilities, with respect to which Seller or any other
Person at any time asserts a Claim therefor against the Buyer ("Liability
Claims"). Unless otherwise indicated, the term "Claims" when used herein
includes Breach Claims, Liability Claims and Warranty Claims (as defined below).
4.2 INDEMNIFICATION BY BUYER. Buyer shall indemnify, defend and hold
harmless Seller and its officers, directors, employees, agents and shareholders,
against and with respect to any and all Claims that such indemnitees shall incur
or suffer, which arise, result from or relate to (i) any breach of, or failure
by Buyer to perform, any of its representations, warranties, covenants or
agreements in this Agreement or in any schedule, certificate, exhibit or other
instrument furnished to Seller by Buyer under this Agreement ("Breach Claims"),
and (ii) any and all liabilities of Buyer relating to the Outstanding Warranty
Obligations with respect to which any other Person at any time asserts a Claim
therefor against the Seller ("Warranty Claims").
4.3 INDEMNIFICATION PROCEDURE.
4.3.1 Promptly upon the receipt of notice of any third-party (i.e.,
one who is not a party to this Agreement) Claim, judicial or otherwise,
with respect to any matter as to which indemnification may be claimed under
this Article 4, the indemnified party shall give written notice thereof to
the indemnifying party together with such information respecting such
matter as the indemnifying party shall then have; provided however, that
the failure of the indemnified party to give notice as provided herein
shall not relieve the indemnifying party of any obligations, to the extent
the indemnifying party is not materially prejudiced thereby. If
indemnification is sought with respect to a third-party Claim asserted or
brought against an indemnified party, the indemnifying party shall be
entitled to participate in and to assume the defense thereof, jointly with
any other indemnifying party similarly notified, to the extent that it may
wish, with counsel reasonably satisfactory to such indemnified party. After
such notice from the indemnifying party to such indemnified party of its
election to so assume the defense of such a third-party Claim, the
indemnifying party shall not be liable to such indemnified party for any
legal or other expenses subsequently incurred by the latter in connection
with the defense thereof, other than reasonable and necessary costs of
investigation, unless the indemnifying party has failed to assume and
diligently prosecute the
<PAGE>
defense of such third-party Claim and to employ counsel reasonably
satisfactory to such indemnified Person. An indemnifying party who elects
not to assume the defense of a third-party Claim shall not be liable for
the fees and expenses of more than one counsel in any single jurisdiction
for all parties indemnified by such indemnifying party with respect to such
Claim or with respect to Claims separate but similar or related in the same
jurisdiction arising out of the same general allegations. Notwithstanding
any of the foregoing to the contrary, the indemnified party will be
entitled to select its own counsel and assume the defense of any action
brought against it if the indemnifying party fails to select counsel
reasonably satisfactory to the indemnified party or if counsel fails to
diligently prosecute, the expenses of such defense to be paid by the
indemnifying party. No indemnifying party shall consent to entry of any
judgment or enter into any settlement with respect to a claim without the
consent of the indemnified party, which consent shall not be unreasonably
withheld. No indemnified party shall consent to entry of any judgment or
enter into any settlement of any such action the defense of which has been
assumed by an indemnifying party without the consent of such indemnifying
party, which consent shall not be unreasonably withheld.
4.3.2 If any party becomes aware of a fact, circumstance, claim,
situation, demand or other matter (other than a third-party Claim) for
which it or any other indemnified party has been indemnified under this
Article 4 and which has resulted or could result in a Claim being owed to
the indemnified party by the indemnifying party, the indemnified party
shall give prompt written notice to the indemnifying party of the Claim,
stating the nature and basis of the Claim and the amount claimed
thereunder, together with supporting information to the Claim, if any. If
the indemnifying party does not notify the indemnified party within 30 days
from the date such Claim notice is given that it disputes the Claim, the
amount of the Claim shall conclusively be deemed to be a liability of the
indemnifying party hereunder.
4.3.3 Payments of all amounts owing hereunder with respect to any
Claim shall be made immediately after the settlement between the parties of
the third party Claim.
4.4 INDEMNIFICATION THRESHOLD AND LIMITATIONS. Any request for
indemnification by an indemnified party under the indemnification procedures of
this Article 4 regarding the breach of any representation or warranty under this
Agreement must be asserted by such indemnified party prior to the expiration of
the applicable survival period as set forth in Section 65. Notwithstanding any
provision to the contrary contained in this Agreement, neither Buyer nor Seller
shall make any request for indemnification against the other party for any
Breach Claim under this Agreement until the dollar amount of all losses to such
other party for such Breach Claims suffered after the Closing, shall exceed in
the aggregate the amount of $300,000, and, if such amount is exceeded, Buyer or
Seller, as the case may be, shall be required to pay the entire amount of such
aggregate loss to the other party for all such Breach Claims; provided, however,
that a party's obligation and liability for any and all Breach Claims shall not
exceed in the aggregate an amount equal to the purchase price set forth in
Section 13. Without regard to the above-mentioned $300,000 aggregate Claim
threshold: (i) Seller shall reimburse Buyer for any and all Liability Claims,
and (ii) Buyer shall reimburse Seller for any and all Warranty Claims.
<PAGE>
ARTICLE 5
Non-Competition Agreement
As used in this Article 5, any reference to "Buyer" or "Seller" shall mean
and include their respective Affiliates.
5.1 SELLER COVENANT NOT TO COMPETE. For a two-year period beginning on
the Closing Date, Seller shall not directly or indirectly, engage or invest in,
finance, own, manage, operate, control or participate in the ownership,
management, operation or control of, be employed by, associated or in any manner
connected with, render services or advice to, or assist (whether or not for
compensation), any Competing Business (as defined below); provided however, that
this Section 51 shall not preclude the Seller or its Affiliates from (a)
investing in up to an aggregate of 5% of the securities of any enterprise
engaged in a Competing Business (but without otherwise participating in the
activities of such enterprise) if such securities are listed on any United
States national or regional securities exchange or have been registered under
Section 12(g) of the Securities Exchange Act of 1934, provided that the Seller
and its Affiliates combined do not purchase or hold (directly or indirectly) an
aggregate equity interest of more than 5% in any such enterprise, or (b)
pursuant to Seller's Distributor Agreement.
5.2 COVENANTS NOT TO INTERFERE OR HIRE. For a two-year period beginning
on the Closing Date, neither Seller nor Buyer shall directly or indirectly,
either as principal, agent, independent contractor, consultant, director,
officer, employee, employer, advisor (whether paid or unpaid), stockholder,
partner or in any other individual or representative capacity whatsoever, either
for their own benefit or for the benefit of any other Person, either (i) hire,
attempt to hire, contact or solicit with respect to hiring any employee (not
including independent sales representatives) of the other party hereto as of the
Closing Date, (ii) induce or otherwise counsel, advise or encourage any employee
of the other party as of the Closing Date to leave the employment of that party,
or (iii) induce any distributor, vendor, supplier, representative or agent of or
to the other party to terminate or modify its relationship with that party;
provided, however, that the covenants in this Section shall not prohibit the
Buyer from hiring any of the employees listed on SCHEDULE 52, nor shall the
hiring of any such employees constitute a breach of such covenants.
5.3 NECESSITY AND REASONABLENESS. The parties hereto hereby specifically
acknowledge, agree and represent to each other as a material inducement for
their entering into this Agreement:
5.3.1 the covenants and agreements of the parties in this Article 5
are necessary and essential to the protection of the business which will be
conducted by the parties after the Closing Date, and to enable the parties
to realize and derive all of the benefits, rights and expectations
associated with this Agreement;
5.3.2 Buyer will suffer great loss and irreparable harm if the Seller
directly or indirectly enters into a Competing Business;
5.3.3 the temporal and other restrictions contained in this Article 5
are in all respects reasonable and necessary to protect the business
goodwill, trade secrets, prospects and other business interests of Buyer in
respect of the Seller;
<PAGE>
5.3.4 the enforcement of this Agreement in general, and of this
Article 5 in particular, will not work an undue or unfair hardship on
either party or otherwise be oppressive to it, it being specifically
acknowledged and agreed by the Seller that it has other business interests
and opportunities which will provide it adequate means of support if the
provisions of this Article 5 are enforced;
5.3.5 the enforcement of this Agreement in general, and of this
Article 5 in particular, will neither deprive the public of needed goods or
services nor otherwise be injurious to the public; and
5.3.6 good, independent and valuable consideration exists for the
agreement of the parties to be bound by the covenants and agreements
contained in this Article 5.
5.4 ENFORCEMENT. Because of the unique nature of the Assets and the
Product Line, the business to be conducted and further developed by Buyer
therewith, and the confidential and proprietary information relating thereto,
the Seller acknowledges, understands and agrees that Buyer will suffer immediate
and irreparable harm if the Seller or its Affiliates fail to comply with any of
their respective obligations under this Article 5 and that monetary damages will
be inadequate to compensate Buyer for such breach. Accordingly, the Seller
agrees that Buyer shall, in addition to any other remedies available to it at
law or in equity, be entitled to temporary, preliminary, and permanent
injunctive relief and specific performance to enforce the terms of this Article
5 without the necessity of proving inadequacy of legal remedies or irreparable
harm, or posting bond.
ARTICLE 6
Miscellaneous
6.1 CERTAIN DEFINITIONS. As used in this Agreement, each of the following
terms has the meaning ascribed to it in this Section 61:
6.1.1 "Affiliate" when used to indicate a relationship with any
Person, means: (i) any corporation or organization of which such Person is
an officer, director or partner or is directly or indirectly the beneficial
owner of at least 20% of the outstanding shares of any class of equity
securities or financial interest therein; (ii) any trust or other estate in
which such Person has a beneficial interest or as to which such Person
serves as trustee or in any similar fiduciary capacity; or (iii) any Person
that directly, or indirectly through one or more intermediaries, controls,
or is controlled by, or is under common control with, or is acting as agent
on behalf of, or as an officer or director of, such Person. As used in the
definition of Affiliate, the term "control" (including the terms
"controlling," "controlled by" or "under common control with") means the
possession, direct or indirect, of the power to direct, cause the direction
of or influence the management and policies of a Person, whether through
the ownership of voting securities, by contract, through the holding of a
position as a director or officer of such Person, or otherwise.
6.1.2 "Agreement" means and includes this Agreement and the schedules
and exhibits hereto.
6.1.3 "Ancillary Agreements" means the Transition Agreement, the
Buyer
<PAGE>
Distribution Agreement, Seller Distribution Agreement and the Trademark
License Agreement, all between the Buyer and Seller and all of even date
herewith, and any and all other ancillary documents or agreements entered
into among or executed by the parties hereto in order to effect the
consummation of the transactions contemplated herein.
6.1.4 "Applicable Environmental Laws" mean all Laws relating to
protection of the environment, including, without limitation, land use,
zoning, health, chemical use, safety and sanitation Laws, and Laws
governing the on or off-site use, storage, treatment, recycling,
generation, transportation, processing, handling, production or disposal of
Hazardous Substances or sanitary (non-hazardous) substances or waste,
including, without limitation, garbage, refuse or other similar substances,
including, without limitation (i) the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (42 U.S.C. (S)(S) 9601 et seq.), as
amended from time to time, including, without limitation, as amended
pursuant to the Superfund Amendments and Reauthorization Act of 1986
("CERCLA"), and regulations promulgated thereunder, (ii) the Resources
Conservation and Recovery Act of 1976 (42 U.S.C. (S)(S) 6901 et seq.), as
amended from time to time ("RCRA"), and regulations promulgated thereunder,
(iii) the Federal Water Pollution Control Act (U.S.C.A. (S) 9601 et seq.),
as amended, and regulations promulgated thereunder, and (iv) any applicable
state laws or regulations relating to the environment.
6.1.5 "Claims" mean any claims, demands, actions, costs, damages,
losses, expenses, obligations, liabilities, recoveries, judgments,
settlements, suits, proceedings, or causes of action, including interest,
penalties (including civil and criminal penalties) and reasonable
attorneys' fees.
6.1.6 "Competing Business" means any Person who engages in the sale
or distribution of the Product Line or any competing product line in the
geographic area in which Seller conducts Product Line operations as of the
date of this Agreement. Notwithstanding the foregoing, the term "Competing
Business" specifically excludes the current business activities of the
Seller and all natural extensions thereof, other than the manufacture, sale
and marketing of the Product Line.
6.1.7 "Encumbrance" means and includes (i) any security interest,
mortgage, deed of trust, pledge, lien (including unpaid debts for which a
lien arising under Laws may be asserted if such debts remain unpaid),
encumbrance, charge, defect, option, right of first refusal, preferential
purchase right, proxy or voting trust or agreement, preemptive right,
adverse Claim, equity, power of attorney, equitable interest or servitude,
other right or interest of any other Person, or restriction of any kind,
including but not limited to, any restriction or servitude on the use,
transfer, receipt of income, or other exercise of any attributes of
ownership, and (ii) any Uniform Commercial Code financing statement or
other public filing, notice, or record that by its terms purports to
evidence or notify interested parties of any of the matters referred to in
clause (i) that has not been terminated or released by another proper
public filing, notice, or record.
6.1.8 "Governmental Authority" means any federal, state, county,
municipal, or other local governmental body, legislature, agency,
commission, board, department, court or other authority, or any subdivision
thereof, or private body exercising any regulatory, judicial or taxing
authority, and includes, without limitation, the Federal Trade Commission,
<PAGE>
the Food and Drug Administration, the Environmental Protection Agency, the
Occupational Safety and Health Administration, and the Internal Revenue
Service.
6.1.9 "Hazardous Substance" means, without limitation, (i) any
flammable explosives, radon, radioactive materials, asbestos, urea
formaldehyde foam insulations, polychlorinated biphenyls, benzene,
petroleum and petroleum products, methane, or (ii) hazardous materials,
hazardous wastes, biomedical wastes, hazardous or toxic substances or
related materials defined as such in the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended (42 U.S.C.
Sections 9601 et seq.), the Resource Conservation and Recovery Act, as
amended (42 U.S.C. Sections 6901 et seq.), or any other Applicable
Environmental Laws.
6.1.10 "Insolvent" means, for any Person or entity, that the sum of
the present fair saleable value of its assets does not and/or will not
exceed its debts and other probable liabilities, and the term "debts"
includes any legal liability, whether matured or unmatured, liquidated or
unliquidated, absolute, fixed or contingent, disputed or undisputed or
secured or unsecured.
6.1.11 "Laws" mean any statute, law, code, ordinance, rule,
regulation, policy, guideline interpretation, order, permit, license,
certificate, writ, judgment, injunction, decree, determination, award or
other decision or directive of, or promulgated, issued or declared by any
Governmental Authority.
6.1.12 "Outstanding Warranty Obligations" means Seller's outstanding
service duties and warranty obligations from time to time arising under
Seller's Standard Product Warranty and Unwritten Warranty, both as attached
hereto as SCHEDULE 110, with respect to the products sold under the Product
Line which were manufactured and/or sold by the Seller on or before the
Closing Date, whether such obligations arise prior to or after the Closing
Date.
6.1.13 "Person" means an individual, corporation, limited liability
company, partnership, limited partnership, joint venture, joint stock
company, firm, company, syndicate, trust, estate, association, Governmental
Authority, business, organization or any other incorporated or
unincorporated entity.
6.1.14 "Product Line" means the manufacture, distribution, sales,
marketing and service of the following isokinetic products: (i) NORM
(extremity testing), (ii) TMC (back testing), (iii) Kinetron (Iso Rehab),
(iv) TEF, 300, ETC. (refurbished equipment), (v) All ORTHOTRON and KT
products, (vi) FITRON, and (vii) UBE.
6.2 PUBLIC ANNOUNCEMENTS. Except as mutually agreed, neither Buyer nor
Seller nor any of their respective Affiliates or agents shall issue any press
release or public announcement regarding the execution of this Agreement or the
transactions contemplated thereby.
6.3 EXPENSES. Except as otherwise explicitly provided in this Agreement,
each of Seller and Buyer shall bear their own respective legal and accounting
fees, and other costs and expenses with respect to the negotiation, execution
and delivery of this Agreement, and consummation of the transactions
contemplated hereby. Buyer hereby agrees to reimburse Seller for all reasonable
direct
<PAGE>
expenses, not including any portion of the salary or hourly rates of any
employees for time spent, incurred by Seller as a result of providing any
requested assistance to Buyer in the preparation of Buyers Form 8-K, if any,
which will be filed as a result of the consummation of the transactions
contemplated herein.
6.4 NOTICES AND WAIVERS. Any notice, instruction, authorization, request,
demand or waiver hereunder shall be in writing, and shall be delivered either by
personal delivery, by telegram, telex, telecopy or similar facsimile means, by
certified or registered mail, return receipt requested, or by courier or
delivery service, addressed to the parties hereto at the address indicated
below, or at such other address and number as a party shall have previously
designated by written notice given to the other parties in the manner
hereinabove set forth:
If to Buyer:
Henley Healthcare, Inc.
120 Industrial Boulevard
Sugar Land, Texas 77478
Attention: President
Facsimile No.: (281) 276-7047
With a required copy to:
Porter & Hedges, L.L.P.
700 Louisiana
Houston, Texas 77002-2764
Attention: Robert G. Reedy, Esq.
Facsimile No.: (713) 226-0274
If to Seller:
CYBEX International, Inc.
10 Trotter Drive
Medway, Massachusetts 02053
Attn: William Hurley
Facsimile No.: (508) 533-5500
With a required copy to:
Archer & Greiner,
A Professional Corporation
One Centennial Square
Haddonfield, New Jersey 08033
Attention: James H. Carll, Esq.
Facsimile No.: (609) 795-0574
Notices shall be deemed given when received, if sent by facsimile means
(confirmation of such receipt by confirmed facsimile transmission being deemed
receipt of communications sent by facsimile means); and when delivered and
receipted for (or upon the date of attempted delivery
<PAGE>
where delivery is refused), if hand-delivered, sent by express courier or
delivery service, or sent by certified or registered mail, return receipt
requested.
6.5 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties contained in this Agreement shall survive the Closing regardless of
any investigation made by a party hereto, and, except for those representations
and warranties in Sections 2.2, 2.3, 2.4, 2.5, 3.2, 3.3, 3.4 and 2.7 (with
regard to title), which will survive indefinitely, all representations and
warranties will expire on June 1, 1999.
6.6 KNOWLEDGE, GENDER AND CERTAIN REFERENCES. Unless otherwise provided
for herein, a representation or statement made herein to the knowledge of Seller
or Buyer shall mean the actual knowledge of Seller or Buyer. Unless otherwise
specified, all references herein to days, weeks, months or years shall be to
calendar days, weeks, months or years. Capitalized terms defined in this
Agreement are equally applicable to both their singular and plural forms.
Whenever the context requires, the gender of all words used herein shall include
the masculine, feminine and neuter. References to Articles or Sections shall be
to Articles or Sections of this Agreement unless otherwise specified. The
headings and captions used in this Agreement are solely for convenient reference
and shall not affect the meaning or interpretation of any article, section or
paragraph herein, or this Agreement. The terms "hereof," "herein" or
"hereunder" shall refer to this Agreement as a whole and not to any particular
article, section or paragraph. The terms "including" or "include" are used
herein in an illustrative sense and not to limit a more general statement. When
computing time periods described by a number of days before or after a stated
date or event, the stated date or date on which the specified event occurs shall
not be counted and the last day of the period shall be counted.
6.7 SUCCESSOR AND ASSIGNS. This Agreement shall bind, inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and permitted assigns, and if an individual, by his executors,
administrators, and beneficiaries of his estate by will or the laws of descent
and distribution. This Agreement and the rights and obligations hereunder shall
not be assignable or delegable by any party; provided, however, that Buyer shall
be entitled to assign its rights and delegate its duties hereunder to any
corporate Affiliate, but any such assignment shall not have the effect of
terminating Buyer's duties or obligations as provided herein.
6.8 APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas and of the United States
applicable in Texas, excluding, however, any rule of conflict-of-laws that would
direct or refer the resolution of any issue to the laws of any other
jurisdiction. Each party hereto hereby acknowledges and agrees that it has
consulted legal counsel in connection with the negotiation of this Agreement and
that it has bargaining power equal to that of the other parties hereto in
connection with the negotiation and execution of this Agreement. Accordingly,
the parties hereto agree that the rule that an agreement shall be construed
against the draftsman shall have no application in the construction or
interpretation of this Agreement.
6.9 SEVERABILITY; JUDICIAL MODIFICATION. If any term, provision,
covenant, or restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions shall remain in full force and effect and
shall in no way be affected, impaired or invalidated. It is hereby stipulated
and declared to be the intention of the parties that they would have executed
this Agreement had the terms, provisions, covenants and restrictions which may
be hereafter declared invalid, void, or unenforceable not
<PAGE>
initially been included herein. If a court of competent jurisdiction determines
that the length of time or any other restriction, or portion thereof, set forth
in Article 5 is overly restrictive and unenforceable, the court may reduce or
modify such restrictions to those which it deems reasonable and enforceable
under the circumstances, and the parties agree to request the court to exercise
such power, and, as so reduced or modified, the parties hereto agree that the
restrictions of Article 5 shall remain in full force and effect, shall be
enforceable and shall be enforced.
6.10 AMENDMENT AND ENTIRETY. This Agreement, the Ancillary Agreements, and
any exhibits hereto or thereto, may be amended, modified, or superseded only by
written instrument executed by all parties hereto. This Agreement sets forth the
entire agreement and understanding of the parties with respect to the
transactions contemplated hereby and supersedes all prior agreements,
arrangements, and understandings relating to the subject matter hereof. In the
event of any conflict or inconsistency between the provisions of this Agreement
and the contents or provisions of any schedule or exhibit hereto, the provisions
of this Agreement shall control. Except as expressly permitted by this
Agreement, the contents of schedules and exhibits hereto shall not be deemed to
negate or modify any representation, warranty, covenant or agreement contained
in this Agreement. Without limiting the generality of the preceding sentence,
any representation, warranty, covenant or other agreement contained in any
document, instrument or agreement delivered pursuant hereto or entered into in
connection herewith is made in addition to, and not in lieu of, any
representation, warranty, covenant or other agreement contained herein.
6.11 RIGHTS OF PARTIES. Nothing in this Agreement, whether express or
implied, is intended to confer any rights or remedies under or by reason of this
Agreement on any Persons other than the parties hereto and their respective
successors and assigns, nor shall any provision give any third Persons any right
of subrogation or action over against any party to this Agreement. Without
limiting the generality of the foregoing, it is expressly understood that this
Agreement does not create any third party beneficiary rights.
6.12 TIME OF ESSENCE. Time is of the essence in the performance of this
Agreement.
6.13 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and by facsimile signature, each of which shall be deemed an
original and all which together shall constitute one and the same instrument.
[Signature Page Follows]
<PAGE>
In Witness Whereof, this Asset Purchase Agreement is executed and delivered
on and as of the day first above written.
BUYER: SELLER:
HENLEY HEALTHCARE, INC. CYBEX INTERNATIONAL, INC.
/s/ Michael M. Barbour /s/ Peter C. Haines
- ---------------------- -------------------
Michael M. Barbour, Peter C. Haines,
President and Chief Executive Officer President
[Exhibits Not Included]
<PAGE>
10(xi)
CYBEX INTERNATIONAL, INC.
AMENDED AND RESTATED
1995 STOCK RETAINER PLAN FOR NONEMPLOYEE DIRECTORS
The 1995 Stock Retainer Plan for Nonemployee Directors of Cybex
International, Inc. (formerly Lumex, Inc.), is amended and restated, effective
as of January 1, 1998, to read as follows:
1. PURPOSE. The Cybex International, Inc. 1995 Stock Retainer Plan for
Nonemployee Directors (the "Plan") is intended (i) to further the identity of
interests of the directors of Cybex International, Inc. (the "Company") who are
neither officers nor employees of the Company or its subsidiaries ("Nonemployee
Directors") with the interests of the Company's shareholders, (ii) to stimulate
and sustain constructive and imaginative thinking by such Nonemployee Directors,
and (iii) to induce the service or continued service of the most highly
qualified individuals to serve as Nonemployee Directors of the Company.
2. PARTICIPANTS. All Nonemployee Directors are eligible to participate in
the Plan and each such director will participate as described in Section 4
hereof.
3. COMMON STOCK AVAILABLE UNDER THE PLAN. The aggregate number of shares
of common stock, $.10 par value per share ("Common Stock"), of the Company that
may issued under this Plan shall be 35,000 shares of Common Stock, which may be
authorized and unissued shares or treasury shares, subject to any adjustments
made in accordance with Section 6 hereof. If any shares of Common Stock issued
pursuant to a Stock Retainer (as defined below) shall, after issuance, be
reacquired by the Company for any reason, such shares may again be issued
pursuant to the Plan, to the extent permitted by Rule 16b-3 (or any successor
rule) promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
4. STOCK RETAINER. (a) Except as provided herein, from and after January
1, 1998, on December 31 of each calendar year (each, a "Payment Date"), each
person serving as a Nonemployee Director on such Payment Date will, for service
as such, be issued a number of shares of Common Stock ("Stock Retainer") equal
to the quotient obtained by dividing (i) seventy percent (70%) of his annual
retainer (the "Retainer Amount") by (ii) the Fair Market Value (as defined
herein) of a share of Common Stock on January 1 of such calendar year. To the
extent that such calculation does not result in a whole number of shares, the
fractional share shall be rounded upwards to the next whole number so that no
fractional shares shall be issued.
(b) In the event that a Stock Retainer is to be paid on a Payment Date to a
Nonemployee Director who shall have commenced service as a Nonemployee Director
subsequent to the immediately preceding Payment Date, his Stock Retainer shall
be adjusted to reflect the percentage of the year during which such Nonemployee
Director served as such.
(c) In the event a Nonemployee Director shall cease to serve as a director
of the Company between Payment Dates, such person shall receive a Stock Retainer
equal to the Stock Retainer that would otherwise have been paid on the
immediately following Payment Date had such person continued to serve, adjusted
to reflect the percentage of the year during which such person served as a
Nonemployee Director, and such Stock Retainer shall be paid as soon as
practicable following the date the Nonemployee Director ceases to serve as a
director of the Company.
<PAGE>
(d) The stock certificate representing the Stock Retainer shall be
delivered to each Nonemployee Director as soon as practicable following each
Payment Date. After the delivery of the shares, each Nonemployee Director shall
have all the rights of a shareholder with respect to such shares (including the
right to vote such shares and the right to receive all dividends paid with
respect to such shares); provided, however; shares of Common Stock received
pursuant to a Stock Retainer in respect of a Payment Date may not be sold,
transferred, assigned, pledged, hypothecated or otherwise disposed of until at
least six months and one day after such Payment Date.
(e) Notwithstanding the foregoing, no Stock Retainer will be issued to a
Nonemployee Director who is removed for cause, as specified in the Company's
Restated Certificate of Incorporation, as the same may be amended.
5. FAIR MARKET VALUE. For purposes of this Plan, Fair Market Value shall
be the closing price for the Company's Common Stock on the date of calculation
(or on the last preceding trading date if Common Stock was not traded on the
date of calculation) if the Company's Common Stock is readily tradeable on a
national securities exchange or other market system, and if the Company's Common
Stock is not readily tradeable, Fair Market Value shall mean the amount
determined in good faith by the Board of Directors as the fair market value of
the Common Stock of the Company.
6. ADJUSTMENT PROVISIONS.
(a) In the event that any reclassification, split-up or consolidation of
the Common Stock shall be effected, or the outstanding shares of Common Stock
are, in connection with a merger or consolidation of the Company or a sale by
the Company of all or a part of its assets, exchanged for a different number or
class of shares of stock or other securities or property of the Company or for
shares of the stock or other securities or property of any other corporation or
person, or a record date for determination of holders of Common Stock entitled
to receive a dividend payable in Common Stock shall occur, (i) the number and
class of shares that may be issued pursuant to Stock Retainers thereafter paid,
and (ii) the number and class of shares that have not been issued under
effective Stock Retainers, shall in each case be equitably adjusted as
determined by the Board of Directors.
(b) In the event that any spin-off or other distribution of assets of the
Company to its shareholders shall occur, the number and class of shares that may
be issued pursuant to Stock Retainers thereafter paid shall be equitably
adjusted as determined by the Board of Directors.
7. GENERAL PROVISIONS.
(a) Nothing in this Plan or in any instrument executed pursuant hereto
shall confer upon any person any right to continue to serve as a Nonemployee
Director of the Company.
(b) No shares of Common Stock shall be issued pursuant to a Stock Retainer
unless and until all legal requirements applicable to the issuance of such
shares have been complied with in the opinion of counsel to the Company. In
connection with any such issuance, the person acquiring the shares shall, if
requested by the Company, give assurances, satisfactory to counsel to the
Company, in respect of such matters as the Company may deem desirable to assure
compliance with all applicable legal requirements.
<PAGE>
(c) No person (individually or as a member of a group), and no beneficiary
or other person claiming under or through him, shall have any right, title or
interest in or to any shares of Common Stock allocated or reserved for the
purposes of this Plan or subject to any Stock Retainer except as to such shares
of Common Stock, if any, as shall have been issued to him.
(d) Nothing in this Plan is intended to be a substitute for, or shall
preclude or limit the establishment or continuation of, any other plan, practice
or arrangement for the payment of compensation or benefits to Nonemployee
Directors that the Company now has or may hereafter put into effect.
(e) It shall be a condition to the obligation of the Company to issue
shares of Common Stock hereunder, that the participant pay to the Company, upon
its demand, such amount as may be requested by the Company for the purpose of
satisfying any liability to withhold federal, state, local or foreign income or
other taxes. If the amount requested is not paid, the Company shall have no
obligation to issue, and the participant shall have no right to receive, shares
of Common Stock.
8. DURATION, AMENDMENTS AND TERMINATION.
(a) No Stock Retainers shall be paid under this Plan with respect to any
period beginning after March 7, 2005. The Board of Directors may amend or
suspend the Plan from time to time or terminate the Plan at any time; provided,
however, that (i) no amendment shall become effective without the approval of
the shareholders of the Company to the extent shareholder approval is required
in order to comply with Rule 16b-3, and (ii) neither the Retainer Amount, nor
any other provision of this Plan affecting the number of shares of Common Stock
receivable pursuant to a Stock Retainer or the frequency with which Stock
Retainers are paid, shall be amended or otherwise modified more than once every
six months, except as may be necessary or appropriate to comport with the
Internal Revenue Code of 1986 or the Employee Retirement Income Security Act of
1974, as either of the same may be amended, or the rules and regulations
promulgated thereunder.
(b) No amendment, suspension or termination of this Plan shall adversely
affect any Stock Retainer theretofore paid.
9. GOVERNING LAW. This Plan and actions taken in connection herewith
shall be governed and construed in accordance with the laws of the State of New
York (regardless of the law that might otherwise govern under applicable New
York principles of conflict of laws).
10. COMPLIANCE WITH RULE 16B-3. With respect to persons subject to Section
16 of the Exchange Act, transactions under the Plan are intended to comply with
all applicable conditions of Rule 16b-3 under the Exchange Act. To the extent
any provision of the Plan fails to so comply, it shall be deemed null and void,
to the extent permitted by law and deemed advisable by the Board of Directors.
11. EFFECTIVE DATE. (a) This Plan was effective as of January 1, 1995 (the
"Effective Date") and this Amendment and Restatement shall be effective as of
January 1, 1998.
(b) This Plan shall terminate on March 7, 2005 (unless sooner terminated by
the Board of Directors).
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
--------------------------
Jurisdiction of
Name Incorporation
---- -------------
Cybex Financial Corporation New York
Eagle Performance Systems, Inc. Minnesota
Cybex Fitness Gerate Vertriebs, GmbH Germany
General Medical Equipment, Ltd. U.S. Virgin Islands
Lumex Bed Systems, Inc Pennsylvania
Trotter Inc. Delaware
Trotter Holding Company Delaware
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K, into the Company's previously filed
Form S-8 Registration Statement (File No. 333-29045), Form S-3 Registration
Statement, as amended (File No. 333-34309), Form S-8 Registration Statement
(File No. 2-79563, Form S-8 Registration Statement (File No. 33-46109), Form
S-8 Registration Statement (File No. 33-46110, Form S-8 Registration Statement
(File No. 33-48124), Form S-8 Registration Statement (File No. 33-59947) and
Form S-8 Registration Statement (File No. 59945).
/s/ Arthur Andersen llp
Philadelphia, Pennsylvania
March 23, 1998
<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-K AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 6,689
<SECURITIES> 0
<RECEIVABLES> 24,521
<ALLOWANCES> (2,615)
<INVENTORY> 6,980
<CURRENT-ASSETS> 46,905
<PP&E> 19,290
<DEPRECIATION> (6,187)
<TOTAL-ASSETS> 78,725
<CURRENT-LIABILITIES> 27,892
<BONDS> 13,639
0
0
<COMMON> 885
<OTHER-SE> 38,023
<TOTAL-LIABILITY-AND-EQUITY> 78,725
<SALES> 90,234
<TOTAL-REVENUES> 90,234
<CGS> 54,101
<TOTAL-COSTS> 42,203
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,188
<INCOME-PRETAX> (6,831)
<INCOME-TAX> (1,586)
<INCOME-CONTINUING> (5,245)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,245)
<EPS-PRIMARY> (.76)
<EPS-DILUTED> (.76)
</TABLE>
