FORM 10-QA-2
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________ to _____________________
Commission file number 1-6107
SKLAR CORPORATION (formerly MEDCO GROUP, INC.)
(Exact name of registrant as specified in its charter)
Pennsylvania 44-0625447
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
889 S. Matlack Street, West Chester, Pennsylvania 19382
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (610) 430-3200
Indicate by check mark whether the registrant (l) 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 shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes __X__ No ____
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at January 31, 1995
(Common stock, $0.10 par value) 1,237,711
<PAGE>
SKLAR CORPORATION
INDEX
Page No.
Part I Financial Information
Balance Sheet -
December 31, 1994 and March 31, 1994 .......................3
Statement of Income -
three months and nine months ended
December 31, 1994 and 1993 .................................4
Statement of Cash Flows -
three months and nine months ended
December 31, 1994 and 1993 .................................5
Notes to condensed financial statements .........................6 - 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations ...................9 - 10
Part II Other Information
Item 1 Legal Proceedings .........................................11
Item 3 Defaults Upon Senior Securities ...........................11
Item 5 Other Information .........................................11
Item 6 Exhibits ..................................................11
2
<PAGE>
SKLAR CORPORATION
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
ASSETS 12/31/94 3/31/94
<S> <C> <C>
CURRENT ASSETS:
Cash $ 0 $ 13,733
Accounts Receivable 1,153,849 1,053,319
Inventories (Note 5) 2,917,914 1,896,546
Prepaid Expenses 49,057 54,679
----------- -----------
TOTAL CURRENT ASSETS 4,120,820 3,018,277
EQUIPMENT AND IMPROVEMENTS (Note 6) 414,046 291,162
GOODWILL (Note 7) 948,119 970,457
OTHER ASSETS 569,751 646,124
----------- -----------
TOTAL ASSETS $ 6,052,736 $ 4,926,020
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Cash Overdraft $ 52,559 $ 29,777
Short-term Bank Borrowings (Note 2) 1,390,000 1,646,000
Current Portion-Long-Term Debt 377,626 24,293
Current Portion-Capital Lease Obligation 22,645 15,996
Trade Accounts Payable 1,442,784 1,113,182
Accrued Expenses 89,933 91,913
Accrued Income Taxes 1,041 39,000
----------- -----------
TOTAL CURRENT LIABILITIES 3,376,588 2,960,161
Long-Term Debt (Note 3) 815,115 163,984
Long-Term Capital Lease Obligation 16,951 0
----------- -----------
TOTAL LIABILITIES 4,208,654 3,124,145
----------- -----------
CONTINGENCIES 0 0
STOCKHOLDERS' EQUITY (Note 9):
Series A convertible preferred stock, par value
$.01 per share, authorized, 10,000,000 shares;
issued and outstanding 24,825 shares 248 248
Series A subordinate convertible preferred stock,
no par value, authorized 4,000 shares; issued
and outstanding -0- 0 0
Common stock, par value $.10 per share,
authorized, 1,500,000 shares; issued and
outstanding, 1,237,711 shares 123,771 123,771
Additional Paid-in Capital 2,106,482 2,106,482
Deficit (386,419) (428,626)
----------- -----------
1,844,082 1,801,875
----------- -----------
TOTAL LIABILITIES & STOCKHOLDER'S EQUITY $ 6,052,736 $ 4,926,020
=========== ===========
</TABLE>
See notes to financial statements
3
<PAGE>
SKLAR CORPORATION
STATEMENTS OF INCOME
AND DEFICIT
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
12/31/94 12/31/93 12/31/94 12/31/93
<S> <C> <C> <C> <C>
Revenues:
Net Sales (Note 10) $ 1,772,951 $ 1,486,134 $ 4,485,386 $ 4,301,871
Other 0 0 0 0
----------- ----------- ----------- -----------
1,772,951 1,486,134 4,485,386 4,301,871
Cost and Expenses:
Cost of Goods Sold 895,097 782,050 2,166,243 2,177,166
Selling, General and Administrative 791,307 617,614 2,098,972 1,892,152
Interest 62,630 56,003 166,264 164,509
----------- ----------- ----------- -----------
1,749,034 1,455,667 4,431,479 4,233,827
----------- ----------- ----------- -----------
Income before taxes 23,917 30,467 53,907 68,044
Provision for Income Taxes
Currently Payable (Note 8):
State (5,700) (8,000) (11,700) (20,000)
----------- ----------- ----------- -----------
Net Income 18,217 22,467 42,207 48,044
Deficit beginning of period (404,636) (494,169) (428,626) (519,746)
----------- ----------- ----------- -----------
Deficit end of period $ (386,419) $ (471,702) $ (386,419) $ (471,702)
=========== =========== =========== ===========
Per Share Data:
Weighted Average Common Shares
Outstanding 1,237,711 1,237,711 1,237,711 1,237,711
----------- ----------- ----------- -----------
Loss Per Share (Note 11) $ (0.05) $ (0.05) $ (0.15) $ (0.15)
=========== =========== =========== ===========
</TABLE>
See notes to financial statements
4
<PAGE>
SKLAR CORPORATION
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
12/31/94 12/31/93 12/31/94 12/31/93
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 18,217 $ 22,467 $ 42,207 $ 48,044
----------- ----------- ----------- -----------
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 72,206 63,081 212,126 189,239
Provision for losses on
accounts receivable 6,848 6,000 18,000 18,000
Change in operating assets and liabilities:
(Increase)Decrease in accounts receivable (192,229) 28,526 (100,530) 33,251
(Increase)Decrease in inventory (945,705) 63,552 (1,021,368) 32,785
(Increase)Decrease in prepaid expenses 14,274 (4,999) 5,622 (4,550)
Increase(Decrease) in accounts payable 308,986 (88,498) 329,602 68,346
Increase(Decrease) in accrued expenses 52,788 16,208 (1,980) (81,813)
Increase(Decrease) in income taxes payable (2,906) (4,000) (37,959) 18,936
----------- ----------- ----------- -----------
Total Adjustments (685,738) 79,870 (596,487) 274,194
----------- ----------- ----------- -----------
Net cash provided by(used in)
operating activities (667,521) 102,337 (554,280) 322,238
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (124,626) (10,843) (174,274) (54,547)
Principal payments received on
note receivable 60,000 0 60,000 41,039
Intangible Assets (55,090) (39,268) (62,042) (135,476)
----------- ----------- ----------- -----------
Net cash used in investing activities (119,716) (50,111) (176,316) (148,984)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings(payments)
on line-of-credit agreement 100,000 (25,000) 144,000 (175,000)
Net borrowings(payments)
on capital lease (Note 12) (579) (7,406) (13,707) (22,256)
Net borrowings(payments) of long term debt 619,774 (4,979) 563,788 (14,925)
----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities 719,195 (37,385) 694,081 (212,181)
----------- ----------- ----------- -----------
NET INCREASE(DECREASE) IN CASH (68,042) 14,841 (36,515) (38,927)
CASH BEGINNING OF PERIOD 15,483 (33,633) (16,044) 20,135
----------- ----------- ----------- -----------
CASH END OF THE PERIOD $ (52,559) $ (18,792) $ (52,559) $ (18,792)
=========== =========== =========== ===========
</TABLE>
See notes to financial statements
5
<PAGE>
SKLAR CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 MANAGEMENT'S REPRESENTATION
In the opinion of Management, the unaudited financial statements contain all
adjustments necessary to present fairly the financial position as of December
31, 1994 and the results of operations and statement of cash flows for the
period then ended, as presented.
NOTE 2 SHORT-TERM BANK BORROWINGS
On November 10, 1994 the Company entered into agreements with Meridian Bank to
restructure the existing financing agreements concurrent with the acquisition of
the Herwig division of General Medical Corporation. The amended line of credit
has a maximum principal amount of $2,200,000, replacing the former $1,600,000.
The rate of interest on the new line is calculated at the Bank's National
Commercial Rate plus 2.25%. The acquisition of Herwig's inventory was financed
by a $700,000 loan which has a 20-month term with an interest rate of Prime plus
2.25%. Previously, on May 20, 1994 the Company negotiated a three year term loan
of $400,000 at Prime plus 2.5%, of which principal of $11,111 and accrued
interest will be paid in 36 monthly installments commencing June 1, 1994 and due
in full May 1, 1997.
These loans are secured by the Accounts Receivable and Inventory of the Company.
Total borrowings under the line of credit may not exceed the lesser of
$2,200,000 or the Borrowing Base, which is the sum of 80% of qualified Accounts
Receivable plus 45% of qualified Inventory not to exceed $800,000. Additionally,
the Inventory Component may never exceed 60% of the Borrowing Base. The new
agreement also facilitates a $100,000 letter of credit which is a subline of the
line of credit facility.
NOTE 3 LONG-TERM DEBT
The Company negotiated a three year term loan of $400,000 on May 20, 1994 and a
20-month $700,000 loan on November 10, 1994 to finance the acquisition of
Herwig's inventory with Meridian Bank. These loans were part of a general
restructuring of existing financing agreements as described in Note 2 above.
The contract under which Dental Corporation of America (DCA) was acquired was
renegotiated in April 1992. The renegotiated contract, among other things,
changed the payment terms from three fixed $100,000 annual payments plus
interest and royalties based upon future sales to a fixed monthly payment of
$12,000 for one year commencing April 1, 1992 followed by a monthly payment of
$5,000 for six years commencing April 1, 1993. The gross payments and associated
liability under the new agreement are substantially the same as to those which
were recorded, including interest, upon the acquisition of DCA. Accordingly,
there has been no change to the financial statements in connection with this
renegotiation. The new agreement did however change the aggregate prospective
maturities.
6
<PAGE>
SKLAR CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 BUSINESS OPERATIONS
The Company imports and distributes under the Sklar, Misdom-Frank and other
trademarks hand-held, non-electronic instruments for the surgical, dental and
veterinary fields.
NOTE 5 INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
NOTE 6 EQUIPMENT AND IMPROVEMENTS
Equipment and improvements are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are provided generally on the
straight-line method over the useful lives of the assets which are estimated to
be three to ten years for equipment and the shorter of the life of the lease or
the life of the asset for leasehold improvements.
NOTE 7 GOODWILL AND CATALOG DEVELOPMENT COSTS
Goodwill is amortized over forty years, and catalog development costs are being
amortized at various schedules ranging from 1 1/2 - 7 years.
NOTE 8 INCOME TAXES
Federal Income taxes are credited to Goodwill until prior year's loss
carryforwards expire. Income taxes are computed on the effective tax rate of
33%. Federal income taxes will be offset by net operating loss carryforwards and
goodwill will be reduced accordingly to reflect the utilization of the loss
carryforwards. No carryforwards exist for state income tax purposes.
NOTE 9 STOCKHOLDERS' EQUITY
As of December 31, 1994 of the 1,500,000 shares of Common Stock authorized,
1,237,711 are outstanding. Of the Series A Convertible Preferred Stock, 24,825
shares are authorized and outstanding.
The Series A Convertible Preferred Stock may be redeemed by the Company after
March 1, 1986 at a price of $100 per share and is entitled to a liquidation
preference of $100 per share plus cumulative dividends. Annual dividends of
$12.50 per share accrue cumulatively on the Series A Convertible Preferred Stock
commencing on July 1, 1984, payable on June 30 of each year commencing June 30,
1985. No dividends have been declared in the years 1988 through 1994.
7
<PAGE>
SKLAR CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 10 SALES
A sale is recorded when title to the product passes to the customer.
NOTE 11 NET LOSS PER SHARE
Net loss per share is computed by dividing the net income(loss) by the weighted
average number of shares of Common Stock outstanding after giving effect to the
ratably accrued preferred dividend. No effect has been given to Common Stock
equivalent shares as such would be anti-dilutive.
NOTE 12 CASH FLOW INFORMATION
For purposes of the statement of cash flows, the Company considers cash in bank
and on hand as cash equivalents.
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
The Company restructured its borrowings with Meridian Bank on November 10, 1994
by refinancing the $1,600,000 credit line with a new line of $2,200,000 and a
$700,000 20-month term loan to acquire the Herwig inventory. The Company also
has a three year $400,000 term loan with Meridian from May 20, 1994. In December
1994 a lease obligation of $48,638 with a two year payout was incurred to
finance new computer equipment replacing an April 1992 lease which will expire
at the end of this fiscal year.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid amounted to $137,448 in the nine months ended December 31, 1994,
and $152,970 in the nine months ended December 31, 1993.
Income taxes paid amounted to $32,939 in the nine months ended December 31,
1994, and $14,408 in the nine months ended December 31, 1993.
8
<PAGE>
SKLAR CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's results
of operations and financial condition. The discussion should be read in
conjunction with the financial statements and notes thereto appearing elsewhere
herein.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of net
sales for certain items in the Company's Statements of Income for each period:
<TABLE>
<CAPTION>
Income and Expense Items as Percentage of
Net Sales for the Quarter ended December 31
1994 1993
<S> <C> <C>
Net Sales 100.0% 100.0%
Cost of Sales 48.3 52.6
Gross Profit 51.7 47.4
Selling, General and
Admin. Expenses 46.8 41.6
Income (Loss) Before
Interest & Taxes 4.9 5.8
Interest Expenses 3.7 3.8
Income Before
Income Taxes 1.2 2.0
Net Income 1.0 1.5
</TABLE>
SALES
For the three months ended December 31, 1994 compared to the three months ended
December 31, 1993, sales increased by $286,817. This increase reflects the
additional sales generated by the acquisition of the inventory of the Herwig
division of General Medical and resulting agreement to sell said product to
General Medical branches.
COST OF SALES
Cost of sales decreased by approximately 4% compared to the three months ended
December 31, 1993.
9
<PAGE>
SKLAR CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, General and Administrative expenses have increased approximately 5%
from the three months ended December 31, 1993. The increase in these
expenditures was largely the result of transitional expense associated with the
acquisition of Herwig inventory from General Medical.
INCOME TAXES
As a result of the merger of Medco Jewelry Corporation and Misdom-Frank
Corporation, management believes that the net operating loss carry-forwards
available to Medco Jewelry Corporation at the date of merger have transferred to
Medco Group Incorporated. Such loss carry-forwards of approximately $6,518,000
which expire in 1994 ($2,668,000), 1995 ($1,596,000), 1997 ($244,000), 1998
($974,000), 1999 ($50,000), 2000 ($14,000), 2001 ($461,000) and 2002 ($511,000),
are available as deductions from taxable income of future years. For financial
statement purposes, the net operating loss carry-forwards will be used to reduce
goodwill as the benefit is realized.
LIQUIDITY AND CAPITAL RESOURCES
The Company's $2,200,000 revolving line of credit and term loans of $400,000 and
$700,000 with Meridian Bank are considered adequate to meet the financing
requirements of the Company both now and in the foreseeable future. Currently
the Company uses $1,390,000 of the credit line.
OTHER MATTERS
On November 10, 1994, and amended on November 18, 1994, the Company entered into
an agreement with General Medical Manufacturing, a wholly-owned subsidiary of
General Medical Corporation of Richmond, VA to purchase the surgical instruments
inventory of its Herwig division. As part of the transaction General Medical and
Sklar entered into a non-exclusive distribution agreement for general surgical
instruments under the Sklar and Herwig brand names. The Company purchased only
Herwig's inventory and the transaction was financed by Meridian Bank through a
restructuring of the Company's existing line of credit and a new term loan. The
revolving line of credit has been raised from $1,600,000 to $2,200,000 with an
interest rate equal to the bank's national commercial rate (BNCR) plus 2.25%.
The $700,000 loan has a 20-month term with an interest rate of BNCR plus 2.25%.
10
<PAGE>
SKLAR CORPORATION
PART II - OTHER INFORMATION
ITEM 1 LEGAL MATTERS
(A) In 1986 the former president of Medco contracted with a business broker
(ROI) to acquire another business. One hundred thousand (100,000) shares of
Medco stock were issued for the services which were to be performed. A dispute
arose and ROI claims they are entitled to dollars instead of stock.
(B) In June of 1991 the Company was notified that a four-count complaint had
been filed against the Company by an individual who alleges that a piece of
trachea tube broke off while in the plaintiff in May of 1990. Each cause of
action was made in the amount of one million dollars. The Company referred the
matter to its insurance company and contacted the manufacturer of the trachea
tube.
(C) The Company has filed suit against the former principal of DCA for violating
terms of a non-compete agreement signed as part of a re-negotiated settlement
for the purchase of DCA. This suit will seek the return of all moneys paid to
the former principal to date. This case is currently in the pleading and
discovery stage, therefore, no assessment of the outcome of the case has been
made by legal counsel.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
As reported in registrant's form 10-Q for the quarter ended December 31, 1985
and as further discussed in Note 9 to the financial statements, the registrant
did not declare a dividend on its cumulative Series A Convertible Preferred
Stock on June 30, 1988 through 1994.
ITEM 5 OTHER INFORMATION
On July 29, 1993, the Company entered into a marketing agreement with a
gynecological firm by the name of Simpson/Bayse whereby the Company would be the
exclusive representative of Simpson/Bayse in certain markets. The Company has
taken possession of certain inventory and other assets which it has committed to
acquire subject to future minimum sales that have a cost in the amount of
$60,000.00 with respect to the inventory.
At the annual meeting held on February 27, 1992, it was approved by shareholder
vote to change the name of the corporation from Medco Group Incorporated to
Sklar Corporation. The Company applied for and was granted on May 26, 1993, the
approval of the Pennsylvania Department of State in compliance with the
requirements as set forth in 15 PA C.S. ss 1915 Articles of Amendment. The
Company filed a form 8-K dated December 13, 1993 to notify the Securities and
Exchange Commission of the name change.
ITEM 6 EXHIBITS
10(ii)(B&C) Agreement to Purchase Assets of the Herwig Division of General
Medical Corporation and for a continuing marketing relationship. Confidential
treatment has been requested for portions of this agreement.
11
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THE REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
SKLAR CORPORATION
DON TAYLOR
PRESIDENT
January 31, 1996
EXHIBIT 10
#1-6107
[Bracketed] sections of this Agreement are confidential and have been
omitted. They have been filed separately with the Commission.
ASSET PURCHASE AGREEMENT
An ASSET PURCHASE AGREEMENT, made and effective November 10, 1994
("Effective Date") by and between Sklar Corporation, 889 South Matlack Street,
West Chester, Pennsylvania 19382, a Delaware corporation ("Purchaser") and
General Medical Manufacturing Company ("GMMC"), a Virginia Corporation, and its
parent corporation, General Medical Corporation ("GM"), a Virginia corporation,
8741 Landmark Road, Richmond, Virginia 23228, and their subsidiary and
affiliated companies (the "Company").
This Agreement sets forth the terms and conditions pursuant to which GMMC
will sell to the Purchaser, and the Purchaser will purchase from GMMC, certain
of the assets ("the Assets") associated with the Herwig Instrument Division of
GMMC ("Herwig") and a continuing marketing relationship between Purchaser and
the Company.
In consideration of the mutual promises in this Agreement, and for other
good and variable consideration, receipt of which is acknowledged, the parties
agree as follows:
1. Term. The term of this Agreement shall be fifty (50) consecutive months,
beginning on the Effective Date and ending on December 31, 1998 (the "Term").
All references to "calendar quarter" mean the three (3) month periods in each
year ending on March 31, June 30, September 30, and December 31, except that the
first quarter of 1995 shall include December, 1994, purchases for the purposes
of Section 3.2.
2. Purchase and Sale of Assets. At the Closing (as defined below), GMMC
shall sell to the Purchaser, and the Purchaser shall purchase from GMMC, the
Assets (as listed in Schedule 1) free of any mortgage, lien, charge, security
interest, or other incumbrance. GMMC will not sell, and the Purchaser will not
purchase from GMMC, the Excluded Assets (as listed in Schedule 2).
2.1. Liability. Except as expressly provided herein, the Purchaser
assumes no liabilities of the Company.
2.2. The Closing. The Closing shall take place at the offices of the
Company on November 22, 1994, at 9:00 a.m., or on such other date and
time as may be mutually agreed upon by the parties, but in any event
not later than December 15, 1994. The date on which the Closing occurs
is referred to hereafter as the "Closing Date." All transactions to be
effected at the Closing will be deemed to have been effected at the
opening of business on the Closing Date.
3. Purchase Price. The purchase price for the Assets shall be paid to the
Company by the Purchaser in cash and marketing incentives, as follows:
3.1 Cash. At the Closing, the Purchaser shall pay the gross book value
of the Assets described in Schedule 1 (as determined in accordance
with standard accounting principles), not to exceed $1,000,000, in
cash by transfer of immediately available funds to a bank account
designated by the Company, but subject to the purchase price
adjustment described in Section 4 below.
<PAGE>
3.2 Marketing Incentives. After the Closing, the Company shall purchase
Products, as defined in Section 5 below, from Purchaser and, as part of
the consideration for the Assets, shall receive the following marketing
incentives, rebates, and fees:
3.2.1 Rebate on Products. During the Term, the Purchaser shall
pay to the Company a quarterly rebate of [ ] Said rebate shall be
paid within forty-five (45) days after the close of each calendar
quarter, commencing with the calendar quarter ending March 31,
1995. This rebate shall not apply to [ ]
3.2.2 Western Rebate. During the Term, the Purchaser shall pay to
the Company a separate rebate ("Western Rebate") equal to [ ]
during each calendar quarter of this Agreement. [ ] Said Western
Rebate shall be paid within forty-five (45) days after the close
of each calendar quarter.
3.2.3 Free Goods. As additional consideration, the Purchaser
shall provide to the Company for its sales representatives free
goods having a retail value of [ ] The free goods shall be made
available to the Company's sales representatives within thirty
(30) days after the Effective Date.
3.2.4. [ ] Protection. During the Terms of this Agreement, the
Purchaser shall use reasonable best efforts to sell Products to
the Company at a competitive price, as compared with the
competitors of Purchaser for the same or similar Products, that
will enable the Company to resell the Products at a minimum [ ]
<PAGE>
3.2.5 Promotional Fees. Purchaser shall pay to the Company a fee
equal to [ ] net after rebate of the Purchase Price actually paid
by the Company for Products during the preceding quarter. This
fee shall be used by the Company and the Purchaser to cover the
costs of meetings, promotions, awards, and bonuses related to the
Products, including the expenses for Purchaser's participation in
the Company's National Sales Meeting and market literature, as
mutually agreed upon by the parties. The Company shall allocate
at least [ ] described in Sections 3.2.1 and 3.2.2 above to the
budget of the Marketing Department for promotion of Products.
3.2.6 Hospital Orders. Purchaser shall use reasonable commercial
efforts to refer hospital orders for Products to the Company for
sale and distribution; provided, however, that Purchaser may
honor the request of a customer for any other specific
distributor.
3.2.7. Sales Support. During the Term, the Purchaser shall
support the sales efforts of the Company by employing [ ] sales
representatives to service and support the Company's district
offices, current hospital sales representatives, and customer
service representatives; [ ] customer service representatives
specifically to support the district offices and sales
representatives of the Company; and [ ] telemarketing sales
representatives to work exclusively with the district offices of
the Company, subject to the provisions in Section 3.2.6 above.
Vacancies shall be filled within a reasonable period of time. The
new sales representatives shall be hired not later than June 1,
1995, the additional customer service representatives shall be
hired not later than January 15, 1995, and the additional
telemarketing sales representatives shall be hired not later than
February 15, 1995. The Purchaser shall maintain the positions
described in this Section 3.8 for the duration of the Term,
except as otherwise mutually agreed upon by the Purchaser and the
Company, commensurate with the Company's sales of Products.
4. Purchase Price Adjustment. The Company acknowledges that the Herwig
inventory may contain slow-moving, outdated, obsolete, or excess items. The
parties shall use best efforts to sell all of the Herwig inventory acquired by
the Purchaser. The Purchaser shall give the Company, upon written request, a
report of the Herwig inventory which remains unsold. Any Herwig inventory
remaining unsold after two (2) years from the Effective Date ("Excess
Inventory") shall be sold, returned to the Company, or otherwise disposes of as
the Company shall direct in writing and on or about January 15, 1997, the
Company shall pay to the Purchaser, in cash or by bank check, the Purchaser's
actual acquisition cost (i.e., the gross book value determined in accordance
with Section 3.1) of such Excess Inventory as an adjustment to the purchase
price and return the Excess Inventory to the Company.
<PAGE>
5. Products, Fill Rate, and Delivery. After the Closing, the Company shall
purchase from the Purchaser, via same day facsimile, general surgical
instruments, including items from the Herwig inventory (the "Products"), in such
quantities as the Company shall choose. The Purchaser shall ship Products
ordered by the Company and guarantees a Fill Rate of not less than [ ] on all
Products listed in Purchaser's current catalog at the time of the order. "Fill
Rate" means the arithmetic average of the fill rates for all line items ordered
during each month. The fill rate for a line item is the ratio of the total
number of said line items actually shipped on the next business day divided by
the total number of such line items ordered. The Purchaser shall accept the
Company's orders via electronic order entry or in writing. All shipments shall
be made by regular United Parcel Service or an equivalent service, except that
the Company may request any faster means of shipment, at its sole expense.
5.1. Terms of Sale. All purchases of Products shall be governed
by the terms of sale in Schedule 3.
5.2. Audit Rights. The Fill Rate shall be determined by the
Purchaser's order and shipping records, which the Company shall
be permitted to audit to verify the Purchaser's compliance with
the Fill Rate guarantee above. The Purchaser shall be granted not
less than forty-eight (48) hours advance notice of each audit.
5.3. Fill Rate Guaranty. If the Fill Rate is less than [ ] in any
month, the Company shall receive credit for such unfilled and
cancelled orders for the purpose of calculating the rebate
described in Sections 3.2 and 3.3 above, as if such unfilled and
cancelled orders had actually been purchased by the Company,
which shall be the Company's sole remedy for Purchaser's breach
of the Fill Rate Guaranty. The Company may cancel any order that
remains unfilled [ ] after the date of order.
5.4. Payment. The terms of payment for Products shall be [ ] or
any terms more favorable to the Company that the Purchaser may
choose to extend to the Company from time to time.
5.5. Prospective Electronic Ordering. The Company shall cooperate
with Purchaser in utilizing electronic order entry at such time
as the Purchaser makes it available.
6. Business Review. In the first year following the Closing, the parties
shall confer quarterly, in person or by telephone, to review their respective
performances under this Agreement. In the second through the fourth year
following the Closing, the parties shall meet semi-annually to review their
respective performances. The parties shall use their reasonable best efforts to
resolve any discrepancies in performance and to enhance their respective profit
opportunities for the future.
7. Commitments of the Company. As part of the consideration for this
Agreement, the Company agrees to make the following marketing commitment with
respect to the Products:
<PAGE>
7.1. The Company shall emphasize the Products in communications
to its sales representatives and encourage their sale
preferentially.
7.2. The Company shall exclusively promote the Products to its
customers.
7.3. The Company shall feature the Products exclusively at the
Company's National Sales Meeting and shall feature the Products
exclusively in the Company's product literature.
7.4. The Company shall invite four (4) representatives of the
Purchaser to participate in the Company's National Sales Meeting
and at the discretion of the Purchaser to participate in any
regularly scheduled Company district sales meeting.
7.5.[ ]
7.6. The Company shall not use the Herwig name or logo for any
purpose after the Closing Date, except usage incidental to the
sales of Herwig items at the Company's district locations or
Products.
8. Quality Assurance. The Company with respect to Herwig inventory in
Attachment 1.1 states that to its knowledge, the Herwig inventory meets all
requirements of the laws and regulations of the Food and Drug Administration,
including the metallurgical requirements for surgical grade stainless steel, if
so described or designated in the literature or on the labels or labelling, and
agrees to replace or refund the purchase price for any item from the Herwig
inventory that is deemed to be adulterated or misbranded by the Food and Drug
Administration or subject to any recall, seizure, or injunction. The Purchaser
with respect to the Products to be furnished under the terms of this Agreement
states that to the knowledge of the Purchaser all said Products (except for the
items from the Herwig inventory) shall meet all requirements of the laws and
regulations of the Food and Drug Administration, including the metallurgical
requirements for surgical grade stainless steel, if so described or designated
in the literature or on the labels or labelling, and agrees to replace or refund
the purchase price for any such item that is deemed to be adulterated or
misbranded by the Food and Drug Administration or subject to any recall,
seizure, or injunction. Upon written request, the Purchaser shall provide the
Company with metallurgical certification for the manufacturer or vendor for any
lot or shipment of Products. The rebates in Sections 3.2.1 and 3.2.2 shall not
apply to Products for which a refund is paid.
<PAGE>
8.1. Quality Audit. The Company (or its agent or representative)
may conduct a quality audit or Purchaser's quality and purchasing
procedures from receipt of Products or materials for Products to
sale of Products to the Company. The Company shall give Purchaser
at least seventy-two (72) hours notice of any audit, and shall
not conduct more than one (1) audit per calendar quarter.
9. Repair Services. Purchaser shall make available its in-house repair
services to the Company, generally featuring a turnaround time of forty-eight
(48) hours or less to refurbish or repair all Products made available for sale
by the Purchaser and any other medical-surgical instruments serviced by the
Purchaser, including laser and electro-surgery instruments sold to customers by
other distributors or manufacturers. The prices for repair services will be
quoted to the Company at time of order and shall not exceed the prices generally
charged by the Purchaser to its preferred customers.
10. Bids. To address the needs of customer bids of [ ] or more in the
aggregate, at the request of the Company, the Purchaser may provide special
pricing to the Company, lower than the prices quoted in the Purchaser's standard
price list, said prices to be dependent upon the terms and circumstances of the
bid, including, but not limited to, the projected volume, the opposing bidders,
and the prevailing market conditions for instruments of the type being bid. The
Purchaser's special pricing for each hospital bid shall be designated as a
special rebate contract with net pricing for that specific customer, and the
rebates described in this Agreement shall not apply to any of the purchases
under said special rebate contract.
11. Transition. The Purchaser shall remove all of the Assets from the
Company's facility in Richmond, Virginia within a reasonable period of time
following the Closing, but in any event not later than fifteen (15) days after
the Closing Date. From the Effective Date through the Closing Date, the Company
will cooperate with the Purchaser by assisting the Purchaser in completing its
due diligence review of the Assets, making available to the Purchaser and its
financial institutions, attorneys, accountants, and advisors any other
information pertaining to the Assets reasonably required in connection herewith,
working with existing management to formulate business and operating plans and
to develop and implement a plan for transition of the Assets. The Company shall
provide the services of the Herwig General Manger, Jerry Scheib, or another
knowledgeable executive to assist the Purchaser with the transition of the
Assets through January 1, 1995, with the Purchaser to pay all related expenses
(excluding salary and benefits) and travel requested by Purchaser.
<PAGE>
12. Representation and Warranties. The Company and the Purchaser each
represents and warrants to the other that it is a corporation duly organized,
validly existing, and in good standing under the laws of its respective State of
Incorporation and has all requisite corporate power and authority to enter into
this Agreement and the assignment of contracts, intellectual property, and any
other documents related to or part of the Assets ("Related Documents") as listed
in Schedule 1 and to consummate the transaction and carry out the obligations of
the parties hereunder and thereunder. The execution and delivery of this
Agreement and the Related Documents and the consummation of the transactions
contemplated herein and therein have been duly and validly authorized by the
Board of Directors of each party. No other corporate acts or proceedings on the
part of either party are necessary to authorize this Agreement, the Related
Documents, or the consummation of the transactions contemplated herein and
therein. When duly executed and delivered by the parties, this Agreement and the
Related Documents will constitute valid and binding obligations of each party
and will be enforceable against the respective party in accordance with the
terms of said documents.
12.1. Agreements. Any and all contracts, agreements, and
commitments listed in Schedule 1 shall be assigned to the
Purchaser to the extent permitted by the terms of said contracts,
agreements, and commitments. The Company is not aware of any
breach of said contracts, agreements, or commitments that would
cause the Purchaser to incur liability therefor.
13. Litigation. There are no judicial, administrative, or arbitration
actions, suits, proceedings, claims, or investigations pending or, to the
knowledge of the Company, threatened against the Company affecting any of the
Assets nor is the Company aware of any grounds therefor.
14. Third Party Consents and Governmental Approval. Except as set forth in
Schedule 5, no consent or approval of any third party or of any court or
governmental agency or instrumentality is required for the Purchaser or the
Company to execute and delivery this Agreement and the Related Documents or to
consummate the transactions contemplated herein or therein.
15. Purchaser's Investigation. As of the Closing date, the Purchaser has
completed its due diligence investigation of the Assets and has been granted
access to the books, records, and financial statements of the Company insofar as
they pertain to the Assets and has had the opportunity to question or receive
answers from representatives of the Company with regard to the Assets. Purchaser
is satisfied with the quantity, quality, and condition of the Assets, as
signified by Purchaser's execution of this Agreement.
16. No Brokers or Finders. Neither the Company nor the Purchaser has
retained a broker to assist either party in consummating the transaction
described in this Agreement. No person has or will have, as the result of the
transactions contemplated by this Agreement and the Related Documents, any
right, interest, or valid claim against or upon the Company or the Purchaser for
any commission, fee, or other compensation as a finder or broker because of any
act or omission of the Purchaser or any agent of the Purchaser.
<PAGE>
17. Disclosure. No representation or warranty made by the Purchaser or the
Company in this Agreement contains any untrue statement or fails to state a
material fact necessary to make the statements contained herein not misleading.
From the Effective Date through the Closing Date, each party shall give promptly
to the other notice in writing of any event, condition, or circumstances which
would cause any representation or warranty of the party contained in this
Agreement to become misleading or inaccurate or which would constitute a breach
of this Agreement.
18. Conduct of Herwig. From the Effective Date until the Closing, the
Company will carry on the business of Herwig in the ordinary course in
substantially the same manner in which it previously has been conducted and use
reasonable efforts to preserve its relationships with customers, suppliers, and
others having business dealings with Herwig; maintain the Company's books of
account and records with respect to the Assets and the business of Herwig in a
customary manner, consistent with past practices; and notify the Purchaser of
any emergency or material change in the normal conduct of the business or the
operations of Herwig or the threat or initiation of any material litigation
against the Company which relates to the Assets or the business of Herwig. In
addition, from the Effective Date until the Closing, without the written consent
of the Purchaser, the Company shall not sell, dispose of, transfer, mortgage,
pledge, or otherwise encumber any of the Assets or amend or cancel any of the
contracts to be assigned. The Purchaser understands that the Assets are
presently subject to a lien granted by the Company's bank lenders, which liens
will be released at the Closing.
19. Indemnity.
19.1. Indemnity by the Company. The Company shall indemnify,
defend, and hold harmless the Purchaser and the Purchaser's
directors, officers, agents, and affiliates from and against any
claim, demand, cause of action, judgment, loss, liability, cost,
or other expense whatsoever, including, without limitation,
reasonable expenses of litigation and investigation and
reasonable fees and costs of attorneys, accountants, and other
professionals incurred in the defense thereof or the enforcement
of rights hereunder incurred by the Purchaser as a result of any
breach of any material representation, warranty, covenant, or
agreement of the Company contained in this Agreement. In
addition, the Company shall indemnify, defend, and hold the
Purchaser harmless from and against any product liability claim
or lawsuit based on or arising out of the sale of any product of
Herwig sold by Herwig or the Company on or before the Closing
Date.
<PAGE>
19.2. Indemnity by the Purchaser. The Purchaser shall indemnify,
defend, and hold harmless the Company and the Company's
directors, officers, agents, and affiliates harmless from and
against any claim, demand, cause of action, judgment, loss,
liability, cost, or other expense whatsoever, including, without
limitation, reasonable expenses of litigation and investigation
and reasonable fees and costs of attorneys, accountants, and
other professionals incurred in the defense thereof or the
enforcement of rights hereunder incurred by the Company as a
result of any breach of any material representation, warranty,
covenant, or agreement of the Purchaser contained in this
Agreement. Purchaser also provides the Products indemnity in
Schedule 3.
19.3. Defense and Settlement of Claims. If any person entitled to
indemnification hereunder is threatened in writing with any claim
or lawsuit by any third party, the indemnified party shall give
written notice thereof as promptly as reasonably practicable to
the party required to provide indemnification ("the Indemnifying
Party") and the Indemnifying Party shall assume the defense of
such claim or lawsuit. The Indemnifying Party shall not make any
settlement of such claim or lawsuit without the written consent
of the Indemnified Party, which consent shall not be unreasonably
withheld.
20. Termination. This Agreement may be terminated prior to the Closing Date
by mutual agreement of the parties; by the Company by notice to the Purchaser if
the Closing shall not have taken place on or before December 15, 1994; by either
party if there has been a breach by the other party of any representation,
warranty, covenant, or agreement contained herein or if any condition contained
in this Agreement which must be met prior to the Closing becomes impossible to
fulfill; or if either party is unable to obtain any consent, authorization, or
approval of a third party necessary to consummate this Agreement. If this
Agreement is terminated, it shall become wholly void and of no further force and
effect.
21. Expenses. Each of the parties shall bear its own expenses incident to
this Agreement and the transactions contemplated hereby, including without
limitation, all fees and disbursements of counsel, accountants, and financial
advisors retained by such party, whether or not the transactions contemplated in
this Agreement are consummated.
22. Confidentiality/Publicity. It is intended by the parties that this
transaction and this Purchase Agreement shall be confidential and not disclosed
publicly until the Closing, except for any notices to financial institutions,
legal advisors, or governmental agencies required by law or necessary to the
consummation of this transaction; provided, however, that either party shall be
free to make such notices as are required by law with respect to the
transactions contemplated in this Agreement. At the Closing, the parties shall
issue the joint press release attached as Schedule 6. Thereafter, the respective
obligations of the parties under this provision of confidentiality shall lapse
and be of no further effect.
23. Miscellaneous. The following miscellaneous provisions may apply to this
Agreement:
<PAGE>
23.1. Counterparts. This Agreement shall be executed
simultaneously in one (1) or more counterparts, each of which
shall be deemed an original, but all of which together shall
constitute and be the same instrument.
23.2. Severability. Any provision of this Agreement which is
deemed invalid, illegal or unenforceable by a court of law in any
jurisdiction shall, as to that jurisdiction, be ineffective to
the extent of such invalidity, illegality, or unenforceability,
without affecting in any way the remaining provisions hereof in
such jurisdiction and without rendering that or any other
provision of this Agreement invalid, illegal, or unenforceable in
any other jurisdiction.
23.3. Governing Law. This Agreement shall be deemed to be made in
the Commonwealth of Virginia and shall in all respects be
interpreted, construed, and governed by and in accordance with
the laws of the Commonwealth of Virginia without any presumption
or construction against the party causing the Agreement to be
drafted.
23.4. Headings. The headings and subheadings are inserted for
convenience of reference only and shall not affect the
interpretation of this Agreement.
23.5. Amendment. This Agreement may be amended only in writing,
signed by all of the parties.
23.6. No Waiver. The failure of either party to enforce at any
time any of the provisions of this Agreement shall not be
construed to be a waiver of the right of such party hereafter to
enforce each and every provision of this Agreement.
23.7. Independent Contractors. The parties are independent
contractors, and neither party shall act or attempt to act, or
represent itself as, an agent of the other party.
23.8. Successors and Assign. This Agreement shall be binding
upon, shall inure to the benefit of, and shall be enforceable by
the respective successors and assigns of the parties.
23.9. Notices. Any notice due under this Agreement, including any
notice of termination, shall be in writing and delivered by
certified mail, return receipt requested, and mailed to each
party at its address above, addressed to "Chief Executive
Officer," with a copy to the General Counsel.
23.10 Authorization. This Agreement is executed by an officer of
each party duly authorized by its Board of Directors to enter
into the obligations and commitments set forth in this Agreement.
This Agreement represents a valid and binding Agreement of each
party.
<PAGE>
23.11. Assignment. Either party may assign this Agreement in its
entirety only with the written consent of the other party, which
consent shall not be unreasonably withheld. A party's proposed
assignment of this Agreement to a competitor of the other party
is understood to be inherently unreasonable.
24. Entire Agreement. This Agreement constitutes the entire understanding
of the parties with respect to the subject matter of this Agreement, all prior
agreements, proposals, or understandings being merged into this Agreement or
cancelled.
IN WITNESS WHEREOF, the parties have signed and dated this Agreement in the
spaces below.
GENERAL MEDICAL CORPORATION SKLAR CORPORATION
("Company") ("Purchaser")
/s/ Donald B. Garber /s/ Don Taylor
- ---------------------------- -------------------------
Donald B. Garber Don Taylor
Senior Vice President and President
Chief Financial Officer
Date: 11/10/94 Date: Nov. 10, 1994
