SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) September 4, 1996.
-----------------
GRAHAM-FIELD HEALTH PRODUCTS, INC.
- -------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-10881 NY 11-2578230
- -------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
400 Rabro Drive East, Hauppauge, New York 11788
- ------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 582-5900
---------------
Not Applicable
- -------------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
Item 2. Acquisition or Disposition of Assets.
------------------------------------
On September 4, 1996 (the "Closing Date"), Graham-Field Health
Products, Inc., a Delaware corporation (the "Registrant"), through its wholly-
owned subsidiary, Graham-Field Express (Puerto Rico), Inc. ("GFPR"), a Delaware
corporation, acquired substantially all of the assets, including, but not
limited to, accounts receivable, inventory, customer lists, dealer lists and
advertising materials (the "Assets") of V.C. Medical Distributors Inc. ("V.C.
Medical"), a corporation organized under the laws of the commonwealth of Puerto
Rico, pursuant to an Asset Purchase Agreement dated as of September 4, 1996 (the
"Asset Purchase Agreement"), by and among the Registrant, GFPR and V.C. Medical.
The Asset Purchase Agreement contains customary representations and warranties
of the parties. Under the terms of the Asset Purchase Agreement, the
obligations of V.C. Medical were guaranteed by the former principal of V.C.
Medical, Vicente Guzman, Jr., and his wife. In accordance with the terms and
provisions of the Asset Purchase Agreement, GFPR acquired the Assets for a
purchase price (the "Purchase Price") consisting of (i) $1,703,829.00 in cash,
and (ii) the issuance and delivery of 32,787 shares (the "Shares") of common
stock, par value $.025 per share, of the Registrant valued at $7.625 per share
representing the closing market price of the common stock of the Registrant on
the last trading day immediately prior to the Closing Date. In addition, GFPR
assumed certain liabilities of V.C. Medical in the approximate amount of
$296,721. The Purchase Price is subject to adjustment if the final
determination of the closing date net book value (as defined in the Asset
Purchase Agreement) of the Assets acquired and liabilities assumed by GFPR is
greater than or less than $1,018,406.50. Pursuant to the terms of the Asset
Purchase Agreement, in the event the pretax income of the acquired business
equals or exceeds $1,000,000 during the twelve (12) months following the closing
date, an additional $500,000 in cash will be paid to V.C. Medical. The Shares
were delivered to an escrow agent to be held until February 4, 1998, whereupon
the Shares will be released to V.C. Medical, subject to any claims for
indemnification or purchase price adjustments in favor of GFPR.
The former principal of V.C. Medical, Vicente Guzman, Jr., entered
into a five (5) year employment agreement dated as of September 4, 1996,
pursuant to which Mr. Guzman has been appointed the President of GFPR. GFPR
will operate under the name "GF Express, Puerto Rico."
V.C. Medical, a formerly privately-owned company, was a distributor of
home healthcare products, and generated annual revenues of approximately $5
million.
- 2 -
<PAGE>
Item 7. Financial Statements, Pro-Forma Financial Information and Exhibits.
------------------------------------------------------------------
(a) Financial Statements:
--------------------
(a)(1)- Independent Auditor Report for 1994 and 1993.
(a)(2)- Balance Sheet as of December 31, 1994 and 1993.
(a)(3)- Income Statement for the period ending December
31, 1994 and 1993.
(a)(4)- Statement of Cash Flow for the period ending
December 31, 1994 and 1993.
(a)(5)- Notes to Financial Statements for December 31,
1994 and 1993.
(a)(6)- Independent Auditor Report for 1995.
(a)(7)- Balance Sheet as of December 31, 1995.
(a)(8)- Income and Retained Earnings Statement for the
period ending December 31, 1995.
(a)(9)- Statement of Cash Flow for the period ending
December 31, 1995.
(a)(10)- Notes to Financial Statements for December 31,
1995.
(b) Pro-Forma Financial Information and Interim Financial
-----------------------------------------------------
Statements. It is impracticable to provide the required pro-forma
----------
financial information and interim financial statements concurrently
with the filing of this report. The Registrant will file the required
pro-forma financial information and interim financial statements as
soon as practicable, but in no event later than sixty (60) days after
the due date of this Current Report on Form 8-K.
- 3 -
<PAGE>
(c) Exhibits:
--------
Exhibit No. Description
---------- -----------
2(a) Asset Purchase Agreement* dated as of
September 4, 1996, by and among Graham-Field
Health Products, Inc. (the "Registrant"),
Graham-Field Express (Puerto Rico), Inc.
("GFPR"), and V.C. Medical Distributors, Inc.
("V.C. Medical").
10(a) Escrow Agreement dated as of September 4,
1996, by and among GFPR, V.C. Medical and the
Bank & Trust of Puerto Rico.
10(b) Employment Agreement dated as of September 4,
1996, by and between GFPR and Vicente Guzman,
Jr.
99(a) Press Release dated June 28, 1996.
99(b) Press Release dated September 5, 1996.
- --------------------
* The Registrant shall furnish all omitted schedules and exhibits to the
Asset Purchase Agreement dated as of September 4, 1996, by and among
the Registrant, GFPR and V.C. Medical, upon the request of the
Securities and Exchange Commission.
- 4 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned hereunto duly authorized.
GRAHAM-FIELD HEALTH PRODUCTS, INC.
Date: September 17, 1996 By: /s/ Irwin Selinger
--------------------------
Irwin Selinger
Chairman of the Board and
Chief Executive Officer
- 5 -
<PAGE>
EXHIBIT INDEX
-------------
Item No. Description Page No.
----------- ----------- --------
(a) Financial Statements:
---------------------
(a)(1) Independent Auditor Report for 1994 and
1993.
(a)(2) Balance Sheet as of December 31, 1994 and
1993.
(a)(3) Income Statement for the period ending
December 31, 1994 and 1993.
(a)(4) Statement of Cash Flow for the period
ending December 31, 1994 and 1993.
(a)(5) Notes to Financial Statements for December
31, 1994 and 1993.
(a)(6) Independent Auditor Report for 1995.
(a)(7) Balance Sheet as of December 31, 1995.
(a)(8) Income and Retained Earnings Statement for
the period ending December 31, 1995.
(a)(9) Statement of Cash Flow for the period
ending December 31, 1995.
(a)(10) Notes to Financial Statements for December
31, 1995.
(c) Exhibits:
---------
2(a) Asset Purchase Agreement* dated as of
September 4, 1996, by and among Graham-
Field Health Products, Inc. (the
"Registrant"), Graham-Field Express
(Puerto Rico), Inc. ("GFPR"), and V.C.
Medical Distributors, Inc. ("V.C.
Medical").
10(a) Escrow Agreement dated as of September 4,
1996, by and among GFPR, V.C. Medical and
Bank & Trust of Puerto Rico.
10(b) Employment Agreement dated as of September
4, 1996, by and between GFPR and Vicente
Guzman, Jr.
99(a) Press Release dated June 28, 1996.
99(b) Press Release dated September 5, 1996.
- --------------------------------
* The Registrant shall furnish all omitted schedules and exhibits
to the Asset Purchase Agreement dated as of September 4, 1996,
by and among the Registrant, GFPR and V.C. Medical, upon the
request of the Securities and Exchange Commission.
- 6 -
<PAGE>
(a)(1)
------
INDEPENDENT AUDITOR REPORT
Sr. Vicente Guzman Lopez D/B/A
V C Medical Distributors
I have audited the Balance Sheet of Vicente Guzman Lopez D/B/A V.C. Medical
Distributors, as of December 31, 1994 and 1993 and the related Statements of
Income, Cash Flows and Changes in Owners Equity for the period then ended. The
Financial Statements are the responsibility of the company management. My
responsibility is to express an opinion on those Financial Statements based on
my audit.
I conducted my audit in accordance with the generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the Financial Statements are free of material
misstatements. An audit also includes assessing the accounting principles used
and significant statements made by management, as well as evaluating the overall
Financial Statements presentation. I believe that my audit provides a
reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Vicente Guzman Lopez D/B/A V C
Medical Distributors, as of December 31, 1994 and 1993 and the results of its
operations and its Cash Flows for the year then ended in conformity with the
generally accepted accounting principles.
Hipolito Perez Rosa
Lic - 2033
July 28, 1996
<PAGE>
(a)(2)
------
VICENTE GUZMAN LOPEZ D/B/A/
V C MEDICAL DISTRIBUTORS
BALANCE SHEET
AS OF DECEMBER 31
ASSETS
------
1994 1993
---- ----
Cash in Bank $ - 0 - $ 14,429
Accounts Receivable (net of $13,573
Allowance for doubtful accounts) 332,683 187,166
Prepaid Merchandise 67,679
Inventory (Note B-1) 150,225 95,208
Prepaid Expenses 3,791 4,793
-------- --------
Total Current Assets $554,378 $301,596
Equipment $ 14,261 9,861
Vehicles Owned 37,690 37,690
Leased Vehicles (Note E) 20,800 20,800
Leasehold Improvements - 0 - 8,000
-------- --------
Total Fixed Assets $ 72,751 $ 76,351
Less Accumulated Depr. and
Amortization (Note B-2) (32,301) (25,226)
-------- --------
Net Fixed Assets 40,450 $ 51,125
Other Assets - Deposits 1,600 100
-------- --------
Total Assets $596,428 $352,821
======== ========
<PAGE>
VICENTE GUZMAN LOPEZ D/B/A/
V C MEDICAL DISTRIBUTORS
BALANCE SHEET
AS OF DECEMBER 31
LIABILITIES AND OWNERS EQUITY
-----------------------------
Liabilities:
-----------
Accounts Payable $ 47,000 $ - 0 -
Accrued Expenses and Bank Overdraft 59,424 3,698
Current Portion of Long Term Debt
(Note C) 6,452 34,387
-------- --------
Total Current Liabilities 112,876 $ 38,085
Long Term Notes Payable (Note C) 30,925 34,800
Deferred Income Taxes (Note B) 114,480 54,456
Accounts Payable - Others (Note - D) 60,422 60,422
-------- --------
Total Long Term Debt 205,827 $149,678
-------- --------
Total Liabilities $318,703 $187,763
Owners Equity:
-------------
Vicente Guzman Lopez Equity
December 31 277,725 165,058
-------- --------
Total Liabilities and Equity $596,428 $352,821
======== ========
SEE THE AUDITOR REPORT AND NOTES TO FINANCIAL STATEMENTS
<PAGE>
(a)(3)
------
VICENTE GUZMAN LOPEZ D/B/A/
V C MEDICAL DISTRIBUTORS
INCOME STATEMENT
FOR THE PERIOD ENDING DECEMBER 31
1994 1993
---- ----
Sales $1,455,174 $967,532
Less Cost of Sales 1,100,173 719,983
---------- --------
Gross Margin 355,001 247,549
Less Operating Expenses 158,101 103,076
---------- --------
Net Income before income Taxes 196,900 $144,473
Less Income Tax Expense 59,481 41,153
---------- --------
Net Income 137,419 $103,320
Add Owners Equity at the beginning of
the Year 165,058 106,720
Deduct Owners Drawings (24,752) (44,982)
---------- --------
Owners Equity at the end of the
Year $ 277,725 $165,058
========== ========
SEE THE AUDITOR REPORT AND NOTES TO FINANCIAL STATEMENTS
<PAGE>
(a)(4)
------
VICENTE GUZMAN LOPEZ D/B/A/
V.C. MEDICAL DISTRIBUTORS
STATEMENT OF CASH FLOW
FOR THE PERIOD ENDING DECEMBER 31
Cash Provided by Operating Activities: 1994 1993
------------------------------------- ---- ----
Net Income $ 137,419 $ 103,320
--------- ---------
Adjustment reconcile Net Income to Net
Cash Provided by operating activities:
Depreciation expense 15,075 10,696
Changes In Assets and Liabilities:
Increase in Accounts Receivable $(145,517) ( 2,548)
(Increase) Decrease in Inventory ( 55,017) ( 39,997)
Increase in Prepaid Expenses ( 66,677) ( 3,991)
Increase (Decrease) in Accounts
Payable 47,000 ( 15,899)
Increase (Decrease) in Other Current
Liabilities 115,750 34,105
--------- ---------
Total Adjustments $( 89,386) ( 17,634)
Total Cash Provided by Operations $( 48,033) $ 85,686
Cash Provided (Used) by Investing
---------------------------------
Activities:
----------
(Increase) Decrease in Fixed Assets $( 4,400) (38,795)
Increase (Decrease) in Other Assets ( 1,500)
Owner Drawings ( 24,752) ( 44,982)
--------- ---------
( 30,652) ( 83,777)
Cash Provided (Used) by Financing
---------------------------------
Activities:
----------
Increase (Decrease) in Notes Payable $ (31,810) 12,520
--------- ---------
Net Increase (Decrease) in Cash (14,429) 14,429
Add Cash at the beginning of the
year 14,429 - 0 -
--------- ---------
Cash at the end of the year - 0 - $ 14,429
========= =========
SEE THE AUDITOR REPORT AND NOTES TO FINANCIAL STATEMENTS
<PAGE>
(a)(5)
------
VICENTE GUZMAN LOPEZ D/B/A/
V.C. MEDICAL DISTRIBUTORS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
A- Organization:
------------
V.C. Medical Distributors is a company owned by Mr. Vicente Guzman Lopez.
The fiscal closing date is December 31, and is mainly engaged in the
wholesale of Medical Equipment and Supplies. Established in 1990 by Mr.
Vicente Guzman Sierra, was sold to his son Mr. Vicente Guzman Lopez on
January 1, 1992.
B- Significant Accounting Policies:
-------------------------------
The financial Statements are presented under the Accrual Method of
Accounting in accordance with the Generally Accepted Accounting Principles.
For income tax purposes the company uses Cash Basis of Accounting and the
temporary differences are recorded as deferred assets or liabilities in
accordance with FASB-109
1) Perpetual inventory is presented at cost using first-in first-out
flow assumption.
2) Depreciation is computed mainly by applying the Straight-Line
method of accounting over the useful lives of the respective
assets which are recorded at cost.
C- Notes Payable:
-------------
Notes payable at December 31 consist of:
1994 1993
---- ----
1- Unsecured bank commercial note
in the amount of $85,000, which
is amortized with equal monthly
payments to principal of $2,361,
until 1994. Interest at 1% over
N.Y. prime rate is paid at the
end of each month. $ 2,361 $28,333
2- Vehicle loan in the amount of
$19,995 at 13.63% which is
amortized with equal payments to
principal and interest of $211
until 1998. 7,235 8,984
<PAGE>
3- Obligations over leased vehicles
in the amount of $20,800 at
10.98% which is amortized with
equal payments to principal and
interest of $395., plus a
residual amount of $5,450 at the
end of the lease.
18,336 20,604
4- Vehicle Loan in the amount of
$13,695 at 14.75% which is
amortized with equal payments to
principal and interest of $328
until 1996, plus a balloon
payment of $5,379 at the end of
the finance agreement. 9,445 11,266
------- -------
Subtotal $37,377 $69,187
Less current portion
included in current
liabilities 6,452 34,387
------- -------
Long Term Notes Payable $30,925 $34,800
======= =======
D- Related Party Transactions:
--------------------------
On January 1, 1992 the company was sold by prior owner Mr. Vicente Guzman
Sierra to his son Mr. Vicente Guzman Jr. As a result, a liability was
created in the amount of $60,422 and is presented under the Long Term
liabilities section of the Balance Sheet. The amount does not bear
interest and there are no agreements for repayment.
V C Healthcare Inc., a company engaged in the rental and sales of medical
equipment to Medicare patients which is owned by relatives of Mr. Vicente
Guzman Lopez. The referred company owed the amount of $38,021 for 1993 and
$33,550 for 1994, related to merchandise purchases.
E- Leased Vehicles:
---------------
The company owns a vehicle subject to a Capital Lease Agreement. The
financing details of the lease are described on Note C-3. The following
are the minimum lease payments:
1994 $ 4,740
1995 4,740
1996 4,740
1997 4,740
1998 8,610
<PAGE>
F- Contractual Commitments:
-----------------------
At December 31, 1993 the company ad the following contract commitments.
Amount Annual
-------------
1) Operating Leases for
warehouse and Office
facilities $5,800
<PAGE>
(a)(6)
------
INDEPENDENT AUDITOR REPORT
Board of Directors
V C Medical Distributors Inc.
I have audited the Balance Sheet of V C Medical Distributors Inc. as of December
31, 1995 and the related Statements of Income, Retained Earnings and Cash Flow
for the period then ended. The Financial Statements are the responsibility of
the company management. My responsibility is to express an opinion on those
Financial Statements based on my audit.
I conducted my audit in accordance with the generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the Financial Statements are free of material
misstatements. An audit also includes assessing the accounting principles used
and significant statements made by management, as well as evaluating the overall
Financial Statements presentation. I believe that my audit provides a
reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of V C Medical Distributors Inc., as
of December 31, 1995 and the results of its operations and its Cash Flows for
the year then ended in conformity with the generally accepted accounting
principles.
Hipolito Perez Rosa
Lic - 2033
May 20, 1996
<PAGE>
(a)(7)
------
V C MEDICAL DISTRIBUTORS, INC.
BALANCE SHEET
AS OF DECEMBER 31, 1995
ASSETS
------
Cash in Banks $ 2,735
Accounts Receivable (Net of $5,452
allowance for doubtful accounts) 539,773
Inventory (Note B-1) 362,303
Prepaid Merchandise 36,813
Prepaid Insurance 9,266
----------
Total Current Assets $ 950,890
Office Equipment (Net of $837
accumulated depreciation) 3,348
Vehicles Under Capital Lease
Agreements (Net of $3,813
accumulated depreciation) (Note C) 7,627
Vehicles (Net of $17,378 accumulated
depreciation) 61,989
----------
Net Fixed Assets (Note B-1) $ 72,964
Other assets - Deposits $ 1,600
----------
Total Assets $1,025,454
==========
<PAGE>
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
Liabilities:
-----------
Accounts Payable $ 00
Income Tax Payable 170,647
Accrued Expenses Payable 23,403
Bank Credit Lines (Note D) 65,000
Current Portion of Long Term Debt (Note E) 15,595
----------
Total Current Liabilities $ 274,645
Long Term Notes Payable (Note E) 25,907
Accounts Payable to Stockholders (Note F) 75,016
Accounts Payable - Others (Note G) 60,422
----------
Contingencies (Note I) -
Total Long Term Debt 161,345
----------
Total Liabilities $ 435,990
Capital Stock:
Common Stock $1.00 par value authorized
1,000,000 shares, 305,000 shares paid
and not issued $ 305,000
Retained Earnings 284,464
----------
Total Stockholder's Equity $ 589,464
----------
Total Liabilities and Equity $1,025,454
==========
SEE ACCOUNTANT COMPILATION REPORT AND NOTES TO FINANCIAL STATEMENTS
<PAGE>
(a)(8)
------
V C MEDICAL DISTRIBUTORS INC
INCOME AND RETAINED EARNINGS STATEMENT
FOR THE PERIOD ENDING DECEMBER 31, 1995
Sales $3,508,221
Less Cost of Sales 2,682,013
----------
Gross Margin $ 826,208
Less Operating Expenses 393,133
----------
Income from primary operations $ 433,075
Other Income:
Commissions $ 18,850
Rent Income 3,052
Miscellaneous Income 134
----------
Total Other Income $ 22,036
Income before income taxes $ 455,111
Less Income Tax Expense 170,647
----------
Net Income $ 284,464
Add Retained Earnings at the beginning of the
Year $ 00
----------
Retained Earnings at the end of the Year $ 284,464
==========
SEE ACCOUNTANT COMPILATION REPORT AND NOTES TO FINANCIAL STATEMENTS
<PAGE>
(a)(9)
------
V C MEDICAL DISTRIBUTORS INC.
STATEMENT OF CASH FLOW
FOR THE PERIOD ENDING DECEMBER 31, 1995
Cash Provided by Operating Activities:
-------------------------------------
Net Income $ 284,464
---------
Adjustment to Reconcile Net Income to Net Cash
Provided by operating activities:
Depreciation Expense 22,028
Allowance for Doubtful Accounts 5,452
Changes in Assets and Liabilities:
Increase in Accounts Receivable (198,969)
Increase in Inventory (141,830)
Increase in Prepaid Expenses ( 3,210)
Decrease in Accounts Payable ( 47,000)
Increase in Other Current Liabilities 136,753
---------
Total Adjustments $226,776
Total Cash Provided by Operations $ 57,688
Cash Provided (Used) by Investing Activities:
--------------------------------------------
Purchase of Fixed Assets $(39,172)
Increase in Other Accounts Receivable (36,813)
--------
Total Cash Used by Investing Activities $(75,985)
Cash Provided (Used) by Financing Activities:
--------------------------------------------
Increase in Credit Line $ 65,000
Decrease in Notes Payable 6,485
Decrease in Accounts Payable Stockholders (50,453)
--------
$ 21,032
--------
Net Increase (Decrease) in Cash 2,735
Add Cash at the beginning of the year 00
--------
Cash at the end of the year $ 2,735
========
SEE ACCOUNTANT COMPILATION REPORT AND NOTES TO FINANCIAL STATEMENTS
<PAGE>
(a)(10)
-------
V C MEDICAL DISTRIBUTORS INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
A- Organization:
------------
V.C. Medical Distributors Inc. is a Corporation authorized to do business
in Puerto Rico since 1994. The company is owned by one stockholder and is
mainly engaged in the wholesale of medical equipment and supplies. The
fiscal closing date is December 31.
The company was originally established in 1991 by Mr. Vicente Guzman
Sierra. In January 1992 Mr. Vicente Guzman Sierra, sold the business to
his son Mr. Vicente Guzman Lopez, who operated the business as an
individually owned business until January 1995, when Mr. Guzman Lopez,
decided to operate the business as a corporation.
B- Significant Accounting Policies:
-------------------------------
The financial Statements are presented under the Accrual Method of
Accounting in accordance with the Generally Accepted Accounting Principles.
1) Perpetual inventory is presented at cost using first-in first-out
flow assumption.
2) Depreciation is computed mainly by applying the Straight-Line
method of accounting over the useful lives of the respective
assets which are recorded at cost.
C- Vehicles Under Capital Leases:
-----------------------------
The company owns a vehicle subject to a capital lease contract in the gross
amount of $20,800 at 10.98%. The information related to the remaining
minimum lease payments is included as follows:
1996 4,740
1997 4,740
1998 4,740
1999 6,240
D- Bank Credit Lines:
-----------------
Consist of two unsecured bank credit lines in the amount of $115,000 at one
percent over N.Y. Prime Rate. Accrued interest is amortized at the end of
each month.
<PAGE>
E- NOTES PAYABLE:
-------------
Notes payable at December 31, 1995 consist of:
1) Vehicle financing note in the
amount of $13,695 at 14.75% which
is amortized with equal monthly
payments to principal and interest
of $327 until 1997. A balloon
payment of $5,380 is required in
1997. $ 7,560
2- Vehicle financing note in the
amount of $15,879 at 14.95% which
is amortized with equal monthly
payments to principal and interest
of $448 until 1999. 12,657
3- Vehicle financing note in the
amount of $9,995 at 13.63% which
is amortized with equal payments
of principal and interest of $231
until 1998. 5,337
4- Vehicle Capital Lease Agreement in
the amount of $20,800 at 10.98%
which is amortized with equal
payments to principal and interest
of $395 until 1998. A lump sum
payment of $5,350 is required at
the end of the agreement. 15,948
-------
Subtotal 41,502
Less current portion included
in current liabilities 15,595
-------
Long Term Notes Payable $25,907
F- ACCOUNTS PAYABLE STOCKHOLDERS:
-----------------------------
Accounts payable to stockholders represents the net difference between the
Owners Equity Account when the business was operated as an individually
owned business and the amount of the owner contribution to the legal
capital of the corporation less the amortization of the debt by the
Corporation. The amount does not bear interest and there are no agreements
for the repayment of the debt.
<PAGE>
G- ACCOUNTS PAYABLE OTHERS:
-----------------------
Accounts Payable others represents the amount owed by the company to Mr.
Vicente Guzman Sierra (original owner of the business) for the purchase of
the beginning inventory when the business was purchased by his son Mr.
Vicente Guzman Lopez in 1992. The amount does not bear interest and there
are no agreements for the repayment of the debt.
H- OPERATING LEASES:
----------------
The company is subject to a lease agreement for the building used as office
and warehouse facilities for the yearly amount of $46,400 until June 1997.
I- CONTINGENCIES:
-------------
The company did not carry any property insurance nor any industrial
insurance (State Insurance Fund) for the period covered by this audit.
ASSET PURCHASE AGREEMENT
dated as of September 4, 1996
by and among
GRAHAM-FIELD HEALTH PRODUCTS, INC.,
GRAHAM-FIELD EXPRESS (PUERTO RICO), INC.
and
VC MEDICAL DISTRIBUTORS, INC.
<PAGE>
TABLE OF CONTENTS
-----------------
This Table of Contents is not part of the Agreement to which it is
attached but is inserted for convenience only.
Page
No.
----
ARTICLE I
SALE OF ASSETS AND CLOSING
1.01 Assets . . . . . . . . . . . . . . . . . . . . . . 1
1.02 Liabilities . . . . . . . . . . . . . . . . . . . 5
1.03 Purchase Price; Adjustment; Allocation . . . . . . 6
1.04 Closing; Escrow . . . . . . . . . . . . . . . . . 10
1.05 Pre-Tax Income Payment . . . . . . . . . . . . . . 11
1.06 Accounts Receivable Payment . . . . . . . . . . . 11
1.07 Further Assurances; Post-Closing Cooperation . . . 12
1.08 Financial Statements . . . . . . . . . . . . . . . 13
1.09 Transfer Taxes . . . . . . . . . . . . . . . . . . 14
1.10 Third-Party Consents . . . . . . . . . . . . . . . 14
1.11 Legends on Purchased Shares . . . . . . . . . . . 14
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
2.01 Organization of Seller . . . . . . . . . . . . . . 15
2.02 Authority; Capital Stock . . . . . . . . . . . . . 16
2.03 No Conflicts . . . . . . . . . . . . . . . . . . . 16
2.04 Governmental Approvals and Filings . . . . . . . . 17
2.05 Books and Records . . . . . . . . . . . . . . . . 17
2.06 Financial Statements . . . . . . . . . . . . . . . 17
2.07 Absence of Changes . . . . . . . . . . . . . . . . 18
2.08 No Undisclosed Liabilities . . . . . . . . . . . . 20
2.09 Taxes . . . . . . . . . . . . . . . . . . . . . . 20
2.10 Legal Proceedings . . . . . . . . . . . . . . . . 20
2.11 Compliance With Laws and Orders . . . . . . . . . 21
2.12 Benefit Plans; ERISA . . . . . . . . . . . . . . . 21
2.13 Real Property. . . . . . . . . . . . . . . . . . . 24
- i -
<PAGE>
Page
No.
----
2.14 Tangible Personal Property; Investment Assets. . . 26
2.15 Intellectual Property Rights. . . . . . . . . . . 26
2.16 Contracts . . . . . . . . . . . . . . . . . . . . 27
2.17 Customer Orders . . . . . . . . . . . . . . . . . 29
2.18 Licenses . . . . . . . . . . . . . . . . . . . . . 29
2.19 Warranty Claims . . . . . . . . . . . . . . . . . 29
2.20 Product Liability Claims . . . . . . . . . . . . . 30
2.21 Insurance . . . . . . . . . . . . . . . . . . . . 30
2.22 Affiliate Transactions . . . . . . . . . . . . . . 30
2.23 Employees; Labor Relations . . . . . . . . . . . . 31
2.24 Environmental Matters . . . . . . . . . . . . . . 31
2.25 Substantial Customers and Suppliers . . . . . . . 33
2.26 Inventory; Tools, Molds and Dies . . . . . . . . . 33
2.27 Vehicles . . . . . . . . . . . . . . . . . . . . . 34
2.28 No Guarantees . . . . . . . . . . . . . . . . . . 34
2.29 Bulk Sales Act . . . . . . . . . . . . . . . . . . 34
2.30 Entire Business . . . . . . . . . . . . . . . . . 34
2.31 Nature of Purchase. . . . . . . . . . . . . . . . 34
2.32 Accredited Investor . . . . . . . . . . . . . . . 35
2.33 Ownership of Securities of Parent . . . . . . . . 35
2.34 Brokers . . . . . . . . . . . . . . . . . . . . . 35
2.35 Disclosure . . . . . . . . . . . . . . . . . . . . 35
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
3.01 Organization . . . . . . . . . . . . . . . . . . . 36
3.02 Authority; Purchased Shares . . . . . . . . . . . 36
3.03 No Conflicts. . . . . . . . . . . . . . . . . . . 36
3.04 Governmental Approvals and Filings. . . . . . . . 37
3.05 Legal Proceedings . . . . . . . . . . . . . . . . 37
3.06 Brokers . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE IV
COVENANTS OF SELLER
4.01 Books and Records, etc.; Removal of Property . . . 37
4.02 Use of "VC Medical Distributors" Name . . . . . . 37
- ii -
<PAGE>
Page
No.
----
4.03 Change of Corporate Name . . . . . . . . . . . . . 38
4.04 Retention of Corporate Existence . . . . . . . . . 38
ARTICLE V
NON-COMPETITION AGREEMENT
5.01 Non-Competition . . . . . . . . . . . . . . . . . . 38
ARTICLE VI
EMPLOYEE BENEFITS MATTERS
6.01 Employment . . . . . . . . . . . . . . . . . . . . 39
ARTICLE VII
SURVIVAL AND INDEMNIFICATION
7.01 Survival of Representations and Warranties . . . . 39
7.02 Indemnification . . . . . . . . . . . . . . . . . 40
ARTICLE VIII
DEFINITIONS
8.01 Definitions. . . . . . . . . . . . . . . . . . . . 42
ARTICLE IX
MISCELLANEOUS
9.01 Notices . . . . . . . . . . . . . . . . . . . . . 53
9.02 Entire Agreement . . . . . . . . . . . . . . . . . 55
9.03 Expenses . . . . . . . . . . . . . . . . . . . . . 55
9.04 Public Announcements . . . . . . . . . . . . . . . 55
9.05 Waiver . . . . . . . . . . . . . . . . . . . . . . 55
9.06 Amendment . . . . . . . . . . . . . . . . . . . . 55
9.07 No Third Party Beneficiary . . . . . . . . . . . . 55
9.08 No Assignment; Binding Effect . . . . . . . . . . 56
9.09 Headings . . . . . . . . . . . . . . . . . . . . . 56
9.10 Invalid Provisions . . . . . . . . . . . . . . . . 56
- iii -
<PAGE>
Page
No.
----
9.11 Governing Law . . . . . . . . . . . . . . . . . . 56
9.12 Counterparts . . . . . . . . . . . . . . . . . . . 56
- iv -
<PAGE>
ANNEXES
ANNEX I Purchase Price Allocation
EXHIBITS
EXHIBIT A Escrow Agreement
EXHIBIT B Employment and Non-Competition Agreement
EXHIBIT C Guaranty Agreement
EXHIBIT D Incentive Stock Option Agreement
EXHIBIT E Sublease Agreement
- v -
<PAGE>
This ASSET PURCHASE AGREEMENT dated as of September 4, 1996, is made
and entered into by and among Graham-Field Health Products, Inc., a Delaware
corporation ("Parent"), Graham-Field Express (Puerto Rico), Inc., a Delaware
------
corporation and a wholly-owned subsidiary of Parent ("Purchaser") and VC Medical
---------
Distributors, Inc., a corporation organized under the laws of the Commonwealth
of Puerto Rico ("Seller"). Capitalized terms not otherwise defined herein have
------
the meanings set forth in Section 8.01.
------------
WHEREAS, Seller is engaged in the business of distributing health-care
products in the Commonwealth of Puerto Rico (the "Business"); and
--------
WHEREAS, Seller desires to sell, transfer and assign to Purchaser, and
Parent desires that Purchaser purchase and acquire from Seller, substantially
all of the assets of Seller relating to the operation of the Business, and in
connection therewith, Purchaser has agreed to assume certain of the liabilities
of Seller relating to the Business, all on the terms set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
SALE OF ASSETS AND CLOSING
1.01 Assets. (a) Assets Transferred. On the terms and subject to
------ ------------------
the conditions set forth in this Agreement, Seller hereby sells, transfers,
conveys, assigns and delivers to Purchaser, and Purchaser hereby purchases and
pays for, free and clear of all Liens other than Permitted Liens, all of
Seller's right, title and interest in, to and under the following Assets and
Properties of Seller used or held for use in connection with the Business,
except as otherwise provided in Section 1.01(b), as
<PAGE>
the same shall exist on the Closing Date (collectively, the "Assets"):
------
(i) Real Property. The real property described in Section 1.01(a)(i)
------------- ------------------
of the Disclosure Schedule, and all of the rights arising out of the
--------------------------
ownership thereof or appurtenant thereto (the "Real Property"), together
-------------
with all buildings, structures, facilities, fixtures and other improvements
thereto (the "Improvements");
------------
(ii) Real Property Leases. (A) The leases and subleases of real
--------------------
property described in Section 1.01(a)(ii)(A) of the Disclosure Schedule as
-------------------------------------------------
to which Seller is the lessor or sublessor and (B) the leases and subleases
of real property described in Section 1.01(a)(ii)(B) of the Disclosure
----------------------------------------
Schedule as to which Seller is the lessee or sublessee, together with any
--------
options to purchase the underlying property and leasehold improvements
thereon, and in each case all other rights, subleases, licenses, permits,
deposits and profits appurtenant to or related to such leases and subleases
(the leases and subleases described in subclauses (A) and (B), the "Real
----
Property Leases");
---------------
(iii) Inventory. All inventories of raw materials, work-in-process,
---------
parts (up to a one-year supply), finished goods (up to a six-month supply),
products under research and development, demonstration equipment, office
and other supplies, parts and operating supplies, packaging materials and
other accessories related thereto which are held at, or are in transit from
or to, the locations at which the Business is conducted, or located at
customers' premises on consignment, in each case, which are used or held
for use by Seller in the conduct of the Business, including any of the
foregoing purchased subject to any conditional sales or title retention
agreement in favor of any other Person, together with all rights of Seller
against suppliers of such inventories, including but not limited to the
items listed in Section 1.01(a)(iii) of the Disclosure Schedule (the
-----------------------------------------------
"Inventory");
---------
(iv) Accounts Receivable. All trade accounts receivable and all
-------------------
notes, bonds and other evidences of
- 2 -
<PAGE>
Indebtedness of and rights to receive payments arising out of sales
occurring in the conduct of the business, including but not limited to the
accounts receivable listed in Section 1.01(a)(iv) of the Disclosure
-------------------------------------
Schedule, and the security arrangements and collateral related thereto,
--------
including any rights of or any other Actions or Proceedings which have been
commenced in connection therewith (the "Accounts Receivable");
-------------------
(v) Tangible Personal Property. All furniture, fixtures, equipment,
--------------------------
machinery and other tangible personal property (other than Inventory and
Vehicles) used or held for use in the conduct of the Business at the
locations which the Business is conducted or at customers' premises on
consignment, or otherwise used or held for use by Seller in the conduct of
the Business (including but not limited to the items listed in Section
-------
1.01(a)(v) of the Disclosure Schedule), including any of the foregoing
-------------------------------------
purchased subject to any conditional sales or title retention agreement in
favor of any other Person (the "Tangible Personal Property");
--------------------------
(vi) Personal Property Leases. (A) The leases or subleases of
------------------------
tangible personal property described in Section 1.01(a)(vi)(A) of the
-----------------------------
Disclosure Schedule as to which Seller is the lessor or sublessor and (B)
-------------------
all leases related to computer equipment, rolling stock, telephone
equipment and other office equipment used in connection with the Business,
including the leases of tangible personal property described in Section
-------
1.01(a)(vi)(B) of the Disclosure Schedule as to which Seller is the lessee,
-----------------------------------------
together with any options to purchase the underlying property (the leases
and subleases described in subclauses (A) and (B), the "Personal Property
-----------------
Leases");
------
(vii) Business Contracts. All Contracts (other than the Real Property
------------------
Leases, the Personal Property Leases and the Accounts Receivable) to which
Seller is a party and which are utilized in the conduct of the Business,
including without limitation Contracts relating to customers, suppliers,
sales representatives, distributors, purchase orders, marketing
arrangements and manufacturing
- 3 -
<PAGE>
arrangements, including but not limited to the Contracts listed in Section
-------
1.01(a)(vii) of the Disclosure Schedule (the "Business Contracts");
--------------------------------------- ------------------
(viii) Prepaid Expenses. All prepaid expenses relating to the Business,
----------------
including but not limited to the items listed in Section 1.01(a)(viii) of
------------------------
the Disclosure Schedule (the "Prepaid Expenses");
----------------------- ----------------
(ix) Intangible Personal Property. All Intellectual Property used or
----------------------------
held for use in the conduct of the Business (including Seller's goodwill
therein) including the right to use the name "VC Medical Distributors" and
all variations thereof, and all rights, privileges, claims, causes of
action and options relating or pertaining to the Business or the Assets,
including but not limited to the items listed in Section 1.01(a)(ix) of the
--------------------------
Disclosure Schedule (the "Intangible Personal Property");
------------------- ----------------------------
(x) Licenses. All Licenses (including applications therefor)
--------
utilized in the conduct of the Business, including but not limited to the
Licenses listed in Section 1.01(a)(x) of the Disclosure Schedule (the
---------------------------------------------
"Business Licenses");
-----------------
(xi) Vehicles. All motor vehicles owned or leased by Seller and used
--------
or held for use in the conduct of the Business, including but not limited
to the vehicles listed in Section 1.01(a)(xi) of the Disclosure Schedule
----------------------------------------------
(the "Vehicles");
--------
(xii) Security Deposits. All security deposits deposited by or on
-----------------
behalf of Seller as lessee or sublessee under the Real Property Leases,
including but not limited to the security deposits listed in Section
-------
1.01(a)(xii) of the Disclosure Schedule (the "Tenant Security Deposits");
--------------------------------------- ------------------------
(xiii) Books and Records. All Books and Records used or held for use in
-----------------
the conduct of the Business or otherwise relating to the Assets, other than
the minute books, stock transfer books and corporate seal of Seller (the
"Business Books and Records");
--------------------------
- 4 -
<PAGE>
(xiv) Tools, Molds and Dies. All of the tools, molds and dies listed
---------------------
in Section 1.01(a)(xiv) of the Disclosure Schedule (the "Tools, Molds and
----------------------------------------------- ----------------
Dies");
----
(xv) Artworks, etc. All artworks, mechanicals or stats prepared in
--------------
connection with marketing and advertising materials, catalogs, brochures or
similar items relating to the Business, including but not limited to the
items listed in Section 1.01(a)(xv) of the Disclosure Schedule;
----------------------------------------------
(xvi) Marketing Materials. All customer lists, dealer lists, sales
-------------------
representative lists, distributor lists, toll free telephone numbers,
marketing and advertising materials, catalogs and brochures used in or
generated for the Business, including but not limited to the items listed
in Section 1.01(a)(xvi) of the Disclosure Schedule (the "Marketing
----------------------------------------------- ---------
Materials");
---------
(xvii) Designs, Blueprints. All designs, products, drawings, plans,
-------------------
blueprints, bills of material, flowsheets, specifications, plan sheets,
formulas, parts lists, instruction manuals, FDA Form 510K product filings
and registrations and device master records relating to the Business,
including but not limited to the items listed in Section 1.01(a)(xvii) of
------------------------
the Disclosure Schedule (the "Instruction Materials");
----------------------- ---------------------
(xviii) Catalog Numbers. All catalog numbers used in connection with
---------------
the Business (the "Catalog Numbers");
---------------
(xix) Customers Orders. The unfilled sales orders and customer
----------------
commitments relating to the Business listed in Section 1.01(a)(xix) of the
---------------------------
Disclosure Schedule (the "Customer Orders");
------------------- ---------------
(xx) Cash. Cash, commercial paper, certificates of deposit and other
----
bank deposits, treasury bills and other cash equivalents, including but not
limited to the cash and other items listed in Section 1.01(a)(xx) of the
--------------------------
Disclosure Schedule;
-------------------
- 5 -
<PAGE>
(xxi) Goodwill. All goodwill of Seller relating to the Business or the
--------
Assets;
(xxii) Other Assets and Properties. All other Assets and Properties
---------------------------
of Seller used or held for use in connection with the Business except as
otherwise provided in Section 1.01(b) (the "Other Assets").
--------------- ------------
(b) Excluded Assets. Notwithstanding anything in this Agreement to
---------------
the contrary, the following Assets and Properties of Seller (the "Excluded
--------
Assets") shall be excluded from and shall not constitute Assets:
- ------
(i) Insurance. Life insurance policies of officers and other
---------
employees of Seller and all other insurance policies relating to the
operation of the Business;
(ii) Employee Benefit Plans. All assets owned or held by any Benefit
----------------------
Plans;
ii
(iii) Corporate Records. The minute books, stock transfer books and
-----------------
corporate seal of Seller;
(iv) Litigation Claims. Any rights (including indemnification) and
-----------------
claims and recoveries under litigation of Seller against third parties
arising out of or relating to events prior to the Closing Date;
(v) Prepaid Deposit. The prepaid deposit of Seller with the
---------------
Autoridad De Energia Electrica in the amount of $1,500;
(vi) Excess Property Tax Payment. The excess property tax payment of
---------------------------
Seller in the amount of $4,564.
(vii) Excluded Obligations. The rights of Seller in, to and under all
--------------------
Contracts of any nature, the obligations of Seller under which expressly
are not assumed by Purchaser pursuant to Section 1.02(b); and
---------------
(viii) Seller's rights under this Agreement.
- 6 -
<PAGE>
1.02 Liabilities. (a) Assumed Liabilities. In connection with the
----------- -------------------
sale, transfer, conveyance, assignment and delivery of the Assets pursuant to
this Agreement, on the terms and subject to the conditions set forth in this
Agreement, Purchaser hereby assumes and agrees to pay, perform and discharge
when due the following obligations of Seller arising in connection with the
operation of the Business, as the same exist on the Closing Date (the "Assumed
-------
Liabilities"), and no others:
- -----------
(i) Closing Date Balance Sheet Liabilities. The Liabilities of the
--------------------------------------
Business set forth on the Closing Date Balance Sheet, other than any
Liabilities included under the line items "Income Taxes Payable",
"Municipal Taxes Payable" and "Insurance Financing";
(ii) Real Property Lease Obligations. All obligations of Seller under
-------------------------------
the Real Property Leases arising and to be performed on or after the
Closing Date and excluding any such obligations arising or to be performed
prior to the Closing Date;
(iii) Personal Property Lease Obligations. All obligations of Seller
-----------------------------------
under the Personal Property Leases arising and to be performed on or after
the Closing Date, and excluding any such obligations arising or to be
performed prior to the Closing Date; and
(iv) Obligations under Contracts and Licenses. All obligations of
----------------------------------------
Seller under the Business Contracts and Business Licenses arising and to be
performed on or after the Closing Date, and excluding any such obligations
arising or to be performed prior to the Closing Date.
(b) Retained Liabilities. Except for the Assumed Liabilities,
--------------------
Purchaser shall not assume by virtue of this Agreement or the transactions
contemplated hereby, and shall have no liability for, any Liabilities of Seller
(including, without limitation, those related to the Business) of any kind,
character or description whatsoever (the "Retained Liabilities"). Seller shall
--------------------
discharge in a timely manner or shall make adequate provision for all of the
Retained Liabilities, provided that Seller shall have the ability to contest, in
--------
good faith, any such
- 7 -
<PAGE>
claim of liability asserted in respect thereof by any Person other than
Purchaser and its Affiliates.
1.03 Purchase Price; Adjustment; Allocation. (a) Purchase Price.
-------------------------------------- ---------------
The aggregate purchase price for the Assets is $1,585,038.50 plus an amount
equal to the excess of the Final Net Book Value over $649,616 or minus an amount
equal to the excess of $649,616 over the Final Net Book Value, as applicable
(the "Purchase Price").
--------------
- 8 -
<PAGE>
(b) Purchase Price Adjustment to Reflect Net Book Value.
---------------------------------------------------
(i) On September 4, 1996, Seller delivered to Purchaser (A) a
preliminary unaudited balance sheet of the Business (the "July 31 Balance
---------------
Sheet") prepared in accordance with Seller's books and records, and based
-----
on Seller's good faith estimate of the financial position of the Business
as of July 31, 1996 and the results of its operations for the portion of
its fiscal year then ended in accordance with GAAP consistently applied,
and (B) a certificate, executed in the name of and on behalf of Seller by
its President (the "Pre-Closing Certificate"), setting forth Seller's good
-----------------------
faith estimate of the Net Book Value of the Business as of the Closing Date
(the "Estimated Net Book Value"), which estimate was derived from and is
------------------------
supported by the July 31 Balance Sheet. The amount, if any, by which the
Estimated Net Book Value exceeds $649,616 is referred to herein as the
"Estimated Net Book Value Increase". The amount, if any, by which $649,616
---------------------------------
exceeds the Estimated Net Book Value is referred to herein as the
"Estimated Net Book Value Decrease".
---------------------------------
(ii) On or about the Closing Date, representatives of Seller and its
independent public accountants ("Seller's Accountants") observed by
--------------------
Purchaser and/or Purchaser's independent public accountants ("Purchaser's
-----------
Accountants") shall conduct a physical count of the inventory of the
-----------
Business and shall expeditiously perform such other procedures with respect
to the Business as are necessary and appropriate to prepare and audit the
Closing Date Financial Statements (as defined below). Not later than
forty-five (45) days following the Closing Date, Seller shall deliver to
Purchaser (A) a balance sheet of the Business as of the Closing Date
audited by Seller's Accountants (the "Closing Date Balance Sheet"), and the
--------------------------
related statement of operations and cash flow for the period commencing
January 1, 1996 and ending on the Closing Date (together with the Closing
Date Balance Sheet, the "Closing Date Financial Statements"), which Closing
---------------------------------
Date Financial Statements shall (I) be prepared in accordance with the
Business Books and Records, (II) present fairly the
- 9 -
<PAGE>
financial position of the Business as of the Closing Date and the results
of its operations for the applicable period in accordance with GAAP applied
consistently with those accounting policies and practices used in the
preparation of the Audited Financial Statements, and (III) be accompanied
by a true and correct copy of the unqualified report on such information by
Seller's Accountants and (B) a certificate, executed in the name of and on
behalf of Seller by its President (the "Closing Date Certificate"), which
------------------------
shall set forth the Net Book Value of the Business as of the Closing Date
(the "Closing Date Net Book Value") as determined from and supported by the
---------------------------
Closing Date Balance Sheet. To the extent requested by Seller, Purchaser
shall, prior to the delivery of the Closing Date Balance Sheet, make
available to Seller and Seller's Accountants such of the Business Books and
Records in the possession of Purchaser as shall be reasonably necessary for
the preparation of the Closing Date Balance Sheet. Purchaser's Accountants
may participate in and observe the preparation of the Closing Date Balance
Sheet. Seller shall make all of its work papers and other relevant
documents in connection with the preparation of the Closing Date Balance
Sheet available to Purchaser and Purchaser's Accountants, and shall make
the persons in charge of the preparation of the Closing Date Balance Sheet
available for reasonable inquiry by Purchaser and Purchaser's Accountants.
If Purchaser fails to timely notify Seller of its disagreement with the
Closing Date Net Book Value set forth on the Closing Date Certificate in
accordance with the first sentence of the next succeeding paragraph, the
Closing Date Net Book Value set forth on the Closing Date Certificate shall
be final and binding on Seller and Purchaser for purposes of this paragraph
(b).
(iii) Purchaser shall notify Seller in writing within twenty (20) days
following receipt of the Closing Date Certificate if it does not agree with
the Closing Date Net Book Value set forth thereon, in which case Seller and
Seller's Accountants on the one hand, and Purchaser and Purchaser's
Accountants on the other, will use good faith efforts during the ten-day
period following the date such written notice was received by Seller to
resolve any differences they may have as to the Closing Date Net Book
- 10 -
<PAGE>
Value. Such written notice will identify with specificity the calculations
with which Purchaser disagrees or other bases for such disagreement. If
Seller and Purchaser cannot reach agreement during such ten-day period,
their disagreements shall be promptly submitted to an independent,
nationally-recognized public accounting firm jointly selected by Seller's
Accountants and Purchaser's Accountants (the "Independent Accountant"),
----------------------
which shall conduct such additional review as is necessary to resolve the
specific disagreements referred to it and, based thereon, shall determine
the Closing Date Net Book Value. The review of the Independent Accountant
will be restricted as to scope to address only those matters as to which
Seller and Purchaser have not reached agreement pursuant to the preceding
sentence. The Independent Accountant's determination of the Closing Date
Net Book Value, which shall be completed as promptly as practicable but in
no event later than thirty (30) days following its selection, shall be
confirmed by the Independent Accountant in writing to, and shall be final
and binding on, Seller and Purchaser for purposes of this paragraph (b).
(iv) To the extent that the Closing Date Net Book Value determined in
accordance with subparagraph (ii) or (iii), as the case may be (the "Final
-----
Net Book Value"), is greater than the Estimated Net Book Value reflected on
--------------
the Pre-Closing Certificate (the amount by which the Final Net Book Value
exceeds the Estimated Net Book Value being herein referred to as the
"Excess Amount"), then Purchaser shall, no later than five (5) days
-------------
following the date of the determination of the Final Net Book Value (the
"Determination Date"), pay the Excess Amount to Seller by wire transfer of
------------------
immediately available funds to Seller's account listed in Section 9.01. To
------------
the extent that the Final Net Book Value is less than the Estimated Net
Book Value reflected on the Pre-Closing Certificate (the difference between
the Estimated Net Book Value and the Final Net Book Value being herein
referred to as the "Deficiency Amount"), then Seller and Purchaser shall,
-----------------
no later than two (2) days following the Determination Date, deliver to the
Escrow Agent the Purchase Price Certificate referred to in the Escrow
Agreement, setting forth in the
- 11 -
<PAGE>
appropriate place thereon the Deficiency Amount. To the extent that the
Escrow Fund referred to in the Escrow Agreement is insufficient to pay the
Deficiency Amount, then Seller shall, within five (5) days following the
Determination Date, pay to Purchaser the amount of such deficiency by wire
transfer of immediately available funds to Purchaser's account listed in
Section 9.01.
------------
(v) The fees and expenses of the Independent Accountant shall be
prorated between Seller and Purchaser in proportion to the amounts in
dispute resolved against each of them.
(c) Allocation of Purchase Price. Purchaser and Seller agree to
----------------------------
allocate the consideration paid by Purchaser for the Assets in accordance with
Annex 1 hereto. Each party hereto agrees (i) that such allocation shall be
- -------
consistent with the requirements of Section 1060 of the Code and the regulations
thereunder, (ii) to complete jointly and to file separately Form 8594 with its
Federal income Tax Return consistent with such allocation for the tax year in
which the Closing Date occurs and (iii) not to take a position on any income,
transfer or gains Tax Return, before any Governmental or Regulatory Authority
charged with the collection of any such Tax or in any judicial proceeding, that
is in any manner inconsistent with the terms of any such allocation without the
consent of the other party.
1.04 Closing; Escrow. (a) The Closing is taking place concurrently
---------------
with the execution and delivery of this Agreement at the offices of Fiddler,
Gonzalez & Rodriguez, Munoz Rivera Ave. No. 254, Chase Manhattan Bank, 8th
Floor, Hato Rey, Puerto Rico 00918, at 10:00 A.M., local time, on the Closing
Date. At the Closing, Purchaser is paying the Purchase Price by (i) delivering
32,787 shares of common stock, par value $.025 per share, of Parent ("Parent
------
Common Stock") to The Bank & Trust of Puerto Rico, as escrow agent (the "Escrow
- ------------ ------
Agent") under an escrow agreement, in the form of Exhibit A hereto (the "Escrow
- ----- ------
Agreement") entered into by Seller, Purchaser and the Escrow Agent
- ---------
simultaneously herewith and (ii) wire transfer of immediately available funds to
Seller's account listed in Section 9.01 in an amount equal to (x) $1,585,038.50
------------
plus the Estimated Net Book Value Increase or minus the Estimated Net Book Value
- 12 -
<PAGE>
Decrease, as the case may be, less (y) an amount equal to the value of the
32,787 shares of Parent Common Stock being delivered to the Escrow Agent at
Closing, valued at the closing market price of the Parent Common Stock on the
last trading day prior to the Closing Date (as reported on the New York Stock
Exchange). Simultaneously, Seller is assigning and transferring to Purchaser
title in and to the Assets by delivery of such instruments of conveyance,
assignment and transfer, in form and substance reasonably acceptable to
Purchaser's counsel, as shall be effective to vest in Purchaser good and valid
title to the Assets (such instruments being collectively referred to herein as
"Assignment Instruments"), and (ii) Purchaser is assuming from Seller the due
----------------------
payment, performance and discharge of the Assumed Liabilities by delivery of
such instruments of assumption, in form and substance reasonably acceptable to
Seller's counsel, as shall be effective to cause Purchaser to assume the Assumed
Liabilities as and to the extent provided in Section 1.02 (such instruments
------------
being collectively referred to herein as the "Assumption Instruments").
----------------------
(a) Simultaneously with, and as a condition to, the deliveries
described in paragraph (a) above, (i) Purchaser and Vicente Guzman, Jr., the
owner of all of the outstanding capital stock of Seller, are entering into (A)
an Employment and Non-Competition Agreement, in the form of Exhibit B hereto and
---------
(B) a Guaranty Agreement in the form of Exhibit C hereto, and (ii) Parent and
---------
Vicente Guzman, Jr. are entering into an Incentive Stock Option Agreement, in
the form of Exhibit D hereto.
---------
(b) Simultaneously with, and as a condition to, the deliveries
described in paragraph (a) above, Vicente Guzman, Jr., Silkia Rivera Roque and
Purchaser are entering into a Sublease Agreement, in the form of Exhibit E
---------
hereto.
1.05 Pre-Tax Income Payment.
----------------------
Not later than forty-five (45) days following the twelve-month period
commencing on the first day of the first calendar month subsequent to the
Closing Date (the last day of such twelve-month period being referred to herein
as the "Anniversary Date"), Purchaser shall deliver to Seller a certificate,
----------------
executed in the name and on behalf of Purchaser by
- 13 -
<PAGE>
its Chief Financial Officer, which shall set forth the Pre-Tax Income of the
Business for the twelve-month period ending on the Anniversary Date. The Pre-
Tax Income of the Business, as set forth on such certificate, shall be
determined from and supported by financial statements of the Business, which
shall be prepared on a "stand-alone" basis in accordance with GAAP. In the
event that the Pre-Tax Income of the Business set forth in such certificate
equals or exceeds $1,000,000, Purchaser shall, no later than sixty (60) days
following the Anniversary Date, pay to Seller $500,000 by wire transfer of
immediately available funds to Seller's account listed in Section 9.01. In the
------------
event that the Pre-Tax Income of the Business set forth in such certificate is
less than $1,000,000, Seller will not be entitled to receive any payment in
respect of the Pre-Tax Income of the Business.
1.06 Accounts Receivable Payment.
---------------------------
(a) On the Closing Date, Seller is providing Purchaser with a
certificate, executed in the name of and on behalf of Seller by its
President, setting forth in detail (i) the face value of the Accounts
Receivable of the Business as of the close of business on the day prior to
the Closing Date (the "Closing Date Accounts Receivable") and (ii) the
--------------------------------
amount of any bad debt reserves with respect to the Closing Date Accounts
Receivable. The face value of the Closing Date Accounts Receivable less
any amounts of such bad debt reserves is herein referred to as the ("Net
---
Receivables Amount").
------------------
(b) Purchaser shall, on and after the Closing Date, use commercially
reasonable efforts to collect the Closing Date Accounts Receivable.
Purchaser shall, after the Closing Date, also provide Seller with reports
from time to time as to the Closing Date Accounts Receivable collected.
(c) Not later than the fifth Business Day following the 180th day
after the Closing Date, Purchaser shall provide Seller with a written
notice (the "Receivables Notice") describing in reasonable detail all
------------------
uncollected Closing Date Accounts Receivable, if any, and the total face
amount thereof. Purchaser will sell, and Seller agrees to purchase, in the
manner provided in the following sentence,
- 14 -
<PAGE>
uncollected Closing Date Accounts Receivable specified by Purchaser with an
aggregate face value of up to the Net Receivables Amount, for an aggregate
purchase price equal to the total face amount thereof. Seller shall,
within three (3) Business Days following its receipt of the Receivables
Notice pay such aggregate purchase price to Purchaser by delivering to the
Escrow Agent the Accounts Receivable Certificate referred to in the Escrow
Agreement, setting forth in the appropriate place thereon such aggregate
purchase price. To the extent that the Escrow Fund referred to in the
Escrow Agreement is insufficient to pay such amount, then Seller shall,
within five (5) days following its receipt of the Receivables Notice, pay
to Purchaser the amount of such deficiency by wire transfer of immediately
available funds to Purchaser's account listed in Section 9.01. After such
------------
uncollected Closing Date Accounts Receivable are purchased by Seller,
Purchaser will continue to make efforts to collect such Closing Date
Accounts Receivable in the normal course of business, and any payments
received thereon by Purchaser will be remitted to Seller after deducting
any expenses incurred in connection with such collection;
1.07 Further Assurances; Post-Closing Cooperation. (a) At any time
--------------------------------------------
or from time to time after the Closing, at Purchaser's request and without
further consideration, Seller shall execute and deliver to Purchaser such other
instruments of sale, transfer, conveyance, assignment and confirmation, provide
such materials and information and take such other actions as Purchaser may
reasonably deem necessary or desirable in order more effectively to transfer,
convey and assign to Purchaser, and to confirm Purchaser's title to, all of the
Assets, and, to the full extent permitted by Law, to put Purchaser in actual
possession and operating control of the Business and the Assets and to assist
Purchaser in exercising all rights with respect thereto, and otherwise to cause
Seller to fulfill its obligations under this Agreement and the Operative
Agreements.
(b) Seller hereby constitutes and appoints Purchaser the true and
lawful attorney of Seller, with full power of substitution, in the name of
Seller or Purchaser, but on behalf of and for the benefit of Purchaser: (i) to
demand and receive
- 15 -
<PAGE>
from time to time any and all the Assets and to make endorsements and give
receipts and releases for and in respect of the same and any part thereof (ii)
to institute, prosecute, compromise and settle any and all Actions or
Proceedings that Purchaser may deem proper in order to collect, assert or
enforce any claim, right or title of any kind in or to the Assets, (iii) to
defend or compromise any or all Actions or Proceedings in respect of any of the
Assets; and (iv) to do all such acts and things in relation to the matters set
forth in the preceding clauses (i) through (iii) as Purchaser shall deem
reasonably necessary or desirable. Seller hereby acknowledges that the
appointment hereby made and the powers hereby granted are coupled with an
interest and are not and shall not be revocable by it in any manner or for any
reason. Seller shall deliver to Purchaser at Closing an acknowledged power of
attorney to the foregoing effect executed by Seller. Purchaser shall indemnify
and hold harmless Seller from any and all Losses caused by or arising out of any
breach of Law by Purchaser in its exercise of such power of attorney.
(c) Following the Closing, each party will afford the other party,
its counsel and its accountants, during normal business hours, reasonable access
to the Business Books and Records and other data relating to the Business in its
possession with respect to periods prior to the Closing and the right to make
copies and extracts therefrom, to the extent that such access may be reasonably
required by the requesting party in connection with (i) the preparation of Tax
Returns, (ii) the determination or enforcement of rights and obligations under
this Agreement, (iii) compliance with the requirements of any Governmental or
Regulatory Authority, (iv) the determination or enforcement of the rights and
obligations of any party to this Agreement or (v) in connection with any actual
or threatened Action or Proceeding. Further, each party agrees for a period
extending six (6) years after the Closing Date not to destroy or otherwise
dispose of any such books, records and other data unless such party shall first
offer in writing to surrender such books, records and other data to the other
party and such other party shall not agree in writing to take possession thereof
during the ten (10) day period after such offer is made.
(d) If, in order properly to prepare its Tax Returns, other documents
or reports required to be filed with Governmental
- 16 -
<PAGE>
or Regulatory Authorities or its financial statements or to fulfill its
obligations hereunder, it is necessary that a party be furnished with additional
information, documents or records relating to the Business not referred to in
paragraph (c) above, and such information, documents or records are in the
possession or control of the other party, such other party shall use its best
efforts to furnish or make available such information, documents or records (or
copies thereof) at the recipient's request, cost and expense.
(e) Notwithstanding anything to the contrary contained in this
Section, if the parties are in an adversarial relationship in litigation or
arbitration, the furnishing of information, documents or records in accordance
with any provision of this Section shall be subject to applicable rules relating
to discovery.
1.08 Financial Statements. Not later than forty-five (45) days
--------------------
following the Closing Date, Seller shall deliver to Parent, at Seller's sole
cost and expense, such financial statements of Seller and/or the Business (which
shall not be limited to the Financial Statements) as are sufficient to enable
Parent to comply with its obligations to file a Current Report on Form 8-K with
the SEC and any other SEC filing related to the transactions hereunder.
1.09 Transfer Taxes. Seller shall file all Tax Returns and pay all
--------------
Taxes shown as due thereon with respect to the Transfer Taxes. Purchaser agrees
to cooperate with Seller in connection with the filing of such Tax Returns and
obtaining exemptions from Transfer Taxes.
1.10 Third-Party Consents. To the extent that any Business Contract
--------------------
or Business License is not assignable without the consent of another party, this
Agreement shall not constitute an assignment or an attempted assignment thereof
if such assignment or attempted assignment would constitute a breach thereof.
Seller and Purchaser shall use their best efforts to obtain the consent of such
other party to the assignment of any such Business Contract or Business License
to Purchaser in all cases in which such consent is or may be required for such
assignment. If any such consent shall not be obtained, Seller
- 17 -
<PAGE>
shall cooperate with Purchaser in any reasonable arrangement designed to provide
for Purchaser the benefits intended to be assigned to Purchaser under the
relevant Business Contract or Business License, including enforcement at the
cost and for the account of Purchaser of any and all rights of Seller against
the other party thereto arising out of the breach or cancellation thereof by
such other party or otherwise. If and to the extent that such arrangement
cannot be made, Purchaser shall have no obligation pursuant to Section 1.02 or
------------
otherwise with respect to any such Business Contract or Business License.
1.11 Legends on Purchased Shares. (a) Upon original issuance
---------------------------
thereof, and until such time as the same is no longer required hereunder or
under the applicable requirements of the Securities Act or applicable state
securities or blue sky laws, any certificate issued representing any of the
Parent Common Stock issued to Seller pursuant to this Agreement (the "Purchased
---------
Shares") (including, without limitation, all certificates issued upon transfer
- ------
or in exchange thereof or in substitution therefor) shall bear the following
legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS
OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
UNLESS THEY ARE SO REGISTERED OR UNLESS AN EXEMPTION FROM REGISTRATION
IS AVAILABLE.
(b) Parent may make a notation on its records or give instructions to
any transfer agents or registrars for the Purchased Shares in order to implement
the restrictions on transfer set forth in this Section.
(c) In connection with any sale, transfer or other disposition of any
of the Purchased Shares (a "Purchased Shares Transfer"), the transferor shall
-------------------------
provide Parent with such customary certificates, legal opinions and other
documents as Parent may reasonably request to assure that such Purchased Shares
Transfer complies fully with applicable securities and other laws.
- 18 -
<PAGE>
(d) Parent shall not incur any liability for any delay in recognizing
any Purchased Shares Transfer if Parent in good faith reasonably believes that
such Purchased Shares Transfer may have been or would be in violation in any
material respect of the provisions of the Securities Act, applicable state
securities or blue sky laws, or this Agreement.
(e) After such time as the legend described by this Section 1.11 is
------------
no longer required on any certificate or certificates representing the Purchased
Shares, upon the request of Seller, Parent will cause such certificate or
certificates to be exchanged for a certificate or certificates that do not bear
such legend.
(f) Any certificate issued representing any of the Purchased Shares
(including, without limitation, all certificates issued upon transfer or in
exchange thereof or in substitution therefor) shall bear the legend required by
the Rights Agreement between Parent and American Stock Transfer & Trust Company,
as Rights Agent.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to each of Parent and Purchaser
that, immediately prior to the Closing:
2.01 Organization of Seller. Seller is a corporation duly organized,
----------------------
validly existing and in good standing under the Laws of the Commonwealth of
Puerto Rico, and has full corporate power and authority to conduct the Business
as and to the extent now conducted and to own, use and lease the Assets. Seller
has full corporate power and authority to execute and deliver this Agreement and
to perform its obligations hereunder and to consummate the transactions
contemplated hereby, including without limitation to sell and transfer (pursuant
to this Agreement) the Assets.
2.02 Authority; Capital Stock. (a) The execution and delivery by
------------------------
Seller of this Agreement and the performance by
- 19 -
<PAGE>
Seller of its obligations hereunder have been duly and validly authorized by the
Board of Directors of Seller, and by Vicente Guzman, Jr., the owner,
beneficially and of record, of all the outstanding capital stock of Seller, no
other corporate action on the part of Seller or its sole stockholder being
necessary. This Agreement has been duly and validly executed and delivered by
Seller and constitutes a legal, valid and binding obligation of Seller
enforceable against Seller in accordance with its terms.
(b) The authorized capital stock of Seller consists solely of
1,000,000 shares of common stock, par value $1.00 per share ("Seller Common
Stock"), of which 605,000 shares have been issued. Vicente Guzman, Jr. owns all
of the outstanding shares of Seller Common Stock, beneficially and of record,
free and clear of all Liens. There are no outstanding securities, rights,
subscriptions, warrants or options with respect to Seller or any capital stock
of Seller.
2.03 No Conflicts. The execution and delivery by Seller of this
------------
Agreement do not, and the performance by Seller of its obligations under this
Agreement and the consummation of the transactions contemplated hereby will not:
(a) conflict with or result in a violation or breach of any of the
terms, conditions or provisions of the certificate of incorporation or by-laws
(or other comparable corporate charter documents) of Seller;
(b) subject to obtaining the consents, approvals and actions, making
the filings and giving the notices disclosed in Section 2.04 of the Disclosure
------------------------------
Schedule, conflict with or result in a violation or breach of any term or
- --------
provision of any Law or Order applicable to Seller or any of its Assets and
Properties; or
(c) except as disclosed in Section 2.03 of the Disclosure Schedule,
---------------------------------------
(i) conflict with or result in a violation or breach of, (ii) constitute (with
or without notice or lapse of time or both) a default under, (iii) require
Seller to obtain any consent, approval or action of, make any filing with or
give any notice to any Person as a result or under the terms of, (iv) result in
or give to any Person any right of termination,
- 20 -
<PAGE>
cancellation, acceleration or modification in or with respect to, (v) result in
or give to any Person any additional rights or entitlement to increased,
additional, accelerated or guaranteed payments under, or (vi) result in the
creation or imposition of any Lien upon Seller or any of its Assets and
Properties under, any Contract or License to which Seller is a party or by which
any of its Assets and Properties is bound.
2.04 Governmental Approvals and Filings. Except as disclosed in
----------------------------------
Section 2.04 of the Disclosure Schedule, no consent, approval or action of,
- ---------------------------------------
filing with or notice to any Governmental or Regulatory Authority on the part of
Seller is required in connection with the execution, delivery and performance of
this Agreement or the consummation of the transactions contemplated hereby or
thereby.
2.05 Books and Records. Except as set forth in Section 2.05 of the
----------------- -------------------
Disclosure Schedule, none of the Business Books and Records is recorded, stored,
- -------------------
maintained, operated or otherwise wholly or partly dependent upon or held by any
means (including any electronic, mechanical or photographic process, whether
computerized or not) which (including all means of access thereto and therefrom)
are not under the exclusive ownership and direct control of Seller.
2.06 Financial Statements. Prior to the execution of this Agreement,
--------------------
Seller has delivered to Purchaser true and complete copies of the following
financial statements:
(a) the audited balance sheets of Seller as of December 31, 1993,
1994 and 1995, and the related audited statements of operations and cash flows
for each of the fiscal years then ended, together with a true and correct copy
of the report on such audited information by Seller's Accountants, and all
letters from such accountants with respect to the results of such audits; and
(b) the unaudited balance sheets of Seller as of March 31, June 30,
September 30 and December 31, 1995 and March 31 and June 30, 1996, and the
related unaudited consolidated statements of operations and cash flows for the
portion of the fiscal year then ended.
- 21 -
<PAGE>
Except as set forth in the notes thereto or as disclosed in Section 2.06 of the
-------------------
Disclosure Schedule, all the Financial Statements (i) were prepared in
- -------------------
accordance with GAAP, (ii) fairly present the consolidated financial condition
and results of operations of the Business as of the respective dates thereof and
for the respective periods covered thereby, and (iii) were compiled from
Business Books and Records regularly maintained by management and used to
prepare the financial statements of Seller in accordance with the principles
stated therein. Seller has maintained the Business Books and Records in a
manner sufficient to permit the preparation of financial statements in
accordance with GAAP, the Business Books and Records fairly reflect, in all
material respects, the income, expenses, assets and liabilities of the Business
and the Business Books and Records provided a fair and accurate basis for the
preparation of the Financial Statements delivered to Purchaser in accordance
with this Section.
2.07 Absence of Changes. Except for the execution and delivery of
------------------
this Agreement and the transactions to take place pursuant hereto on or prior to
the Closing Date, since the Audited Financial Statement Date there has not been
any material adverse change, or any event or development which, individually or
together with other such events, could reasonably be expected to result in a
material adverse change, in the Condition of the Business. Without limiting the
foregoing, except as disclosed in Section 2.07 of the Disclosure Schedule, there
---------------------------------------
has not occurred between the Audited Financial Statement Date and the date
hereof:
(i) (x) any increase in the salary, wages or other compensation of
any officer, Employee or consultant of Seller whose annual salary is, or
after giving effect to such change would be, $20,000 or more; (y) any
establishment or modification of (A) targets, goals, pools or similar
provisions in respect of any fiscal year under any Benefit Plan,
employment-related Contract or other employee compensation arrangement or
(B) salary ranges, increase guidelines or similar provisions in respect of
any Benefit Plan, employment-related Contract or other employee
compensation arrangement; or (z) any adoption, entering into or becoming
bound by any Benefit Plan, employment-related Contract or collective
bargaining agreement, or amendment,
- 22 -
<PAGE>
modification or termination (partial or complete) of any Benefit Plan,
employment-related Contract or collective bargaining agreement, except to
the extent required by applicable Law and, in the event compliance with
legal requirements presented options, only to the extent the option which
Seller reasonably believed to be the least costly was chosen;
(ii) (A) incurrences by Seller of Indebtedness in an aggregate
principal amount exceeding $10,000 (net of any amounts discharged during
such period), or (B) any voluntary purchase, cancellation, prepayment or
complete or partial discharge in advance of a scheduled payment date with
respect to, or waiver of any right of Seller under, any Indebtedness of or
owing to Seller with respect to the conduct of the Business;
(iii) any physical damage, destruction or other casualty loss (whether
or not covered by insurance) affecting any of the plant, real or personal
property or equipment of Seller used or held for use in the conduct of the
Business in an aggregate amount exceeding $10,000;
(iv) any material change in (x) any pricing, investment, accounting,
financial reporting, inventory, credit, allowance or Tax practice or policy
of the Business or (y) any method of calculating any bad debt, contingency
or other reserve of the Business for accounting, financial reporting or Tax
purposes;
(v) (A) any acquisition or disposition of any Assets and Properties
used or held for use in the conduct of the Business, other than Inventory
in the ordinary course of business consistent with past practice and other
acquisitions or dispositions not exceeding in either case $10,000 in the
aggregate; or (B) any creation or incurrence of a Lien, other than a
Permitted Lien, on any Assets and Properties used or held for use in the
conduct of the Business;
(vi) any entering into, amendment, modification, termination (partial
or complete) or granting of a waiver
- 23 -
<PAGE>
under or giving any consent with respect to (A) any Contract which is
required (or had it been in effect on the date hereof would have been
required) to be disclosed in the Disclosure Schedule pursuant to
Section 2.16(a) or (B) any License disclosed in Section 1.01(a)(x) of the
--------------- -------------------------
Disclosure Schedule;
-------------------
(vii) capital expenditures or commitments for additions to property,
plant or equipment used or held for use in the conduct of the Business
constituting capital assets in an aggregate amount exceeding $10,000;
(viii) any transaction with any officer, director, Affiliate or
Associate of Seller or any Associate of any such officer, director or
Affiliate (A) outside the ordinary course of business consistent with past
practice or (B) other than on an arm's-length basis, other than pursuant to
any Contract in effect on the Audited Financial Statement Date and
disclosed pursuant to Section 2.16(a)(vii) of the Disclosure Schedule;
-----------------------------------------------
(ix) any material adverse change in net sales, costs of goods sold or
collection of Accounts Receivable;
(x) any entering into of a Contract to do or engage in any of the
foregoing after the date hereof; or
(xi) any other transaction involving or development affecting the
Business or the Assets outside the ordinary course of business consistent
with past practice.
2.08 No Undisclosed Liabilities. Except as reflected or reserved
--------------------------
against in the balance sheet included in the Audited Financial Statements or in
the notes thereto or as disclosed in Section 2.08 of the Disclosure Schedule or
---------------------------------------
any other Section of the Disclosure Schedule, there are no Liabilities against,
relating to or affecting the Business or any of the Assets, other than
Liabilities (i) incurred in the ordinary course of business consistent with past
practice or (ii) which, individually or in the aggregate, are not material to
the Condition of the Business.
- 24 -
<PAGE>
2.09 Taxes. Except as set forth on Section 2.09 of the Disclosure
----- ------------------------------
Schedule, no claim for any Tax due from or assessed against Seller is being
- --------
contested by Seller, none of Seller's Tax Returns or reports have been audited
by the IRS or any state or local Tax authority, and Seller has not received any
notice of deficiency or other adjustment from the IRS or any state or local Tax
authority. Except as described on Section 2.09 of the Disclosure Schedule,
---------------------------------------
there are no pending Tax examinations of or Tax claims, including, but not
limited to, withholding claims asserted against Seller or any of its assets or
properties, there are no Tax liens on any of the assets or properties of Seller,
there are no agreements, waivers, or other arrangements providing an extension
of time with respect to the assessment of any Tax against Seller, nor are there
any Tax proceedings now pending or, to the best of Seller's Knowledge,
threatened against Seller. There is no basis for any additional assessment of
any Taxes against Seller. Seller has made all deposits required by law to be
made with respect to employees' withholding and other employment Taxes,
including without limitation the portion of such deposits relating to Taxes
imposed upon Seller. In connection with any audit of the Tax Returns of Seller,
no issue has been raised by any Tax officials which, by the application of
similar principles, reasonably can be expected to result in a deficiency for any
other year not so examined.
2.10 Legal Proceedings. Except as disclosed in Section 2.10 of the
----------------- -------------------
Disclosure Schedule (with paragraph references corresponding to those set forth
- -------------------
below):
(a) there are no Actions or Proceedings pending or, to the Knowledge
of Seller, threatened against, relating to or affecting Seller with respect to
the Business or any of its Assets and Properties which (i) could reasonably be
expected to result in the issuance of an Order restraining, enjoining or
otherwise prohibiting or making illegal the consummation of any of the
transactions contemplated by this Agreement or any of the Operative Agreements
or otherwise result in a material diminution of the benefits contemplated by
this Agreement or any of the Operative Agreements to Purchaser, or (ii) if
determined adversely to Seller, could reasonably be expected to result in (x)
any injunction or other equitable relief against Seller that
- 25 -
<PAGE>
would interfere in any material respect with the Business or (y) Losses by
Seller, individually or in the aggregate with Losses in respect of other such
Actions or Proceedings, exceeding $10,000;
(b) there are no facts or circumstances Known to Seller that could
reasonably be expected to give rise to any Action or Proceeding that would be
required to be disclosed pursuant to clause (a) above; and
(c) there are no Orders outstanding against Seller with respect to
the Business or any of the Assets.
Prior to the execution of this Agreement, Seller has delivered to Purchaser all
responses of counsel to auditors' requests for information delivered in
connection with the Audited Financial Statements (together with any updates
provided by such counsel) regarding Actions or Proceedings pending or threatened
against, relating to or affecting the Business.
2.11 Compliance With Laws and Orders. Except as disclosed in
-------------------------------
Section 2.11 of the Disclosure Schedule, Seller is not, nor has it at any time
- ---------------------------------------
within the last five (5) years been, nor has it received any notice that it is
or has at any time within the last five (5) years been, in violation of or in
default under, in any material respect, any Law or Order applicable to the
Business or the Assets.
2.12 Benefit Plans; ERISA.
--------------------
(a) Section 2.12(a) of the Disclosure Schedule (i) contains a true
------------------------------------------
and complete list and description of each of the Benefit Plans, (ii) identifies
each of the Benefit Plans that is a Qualified Plan, (iii) identifies each
Benefit Plan which at any time during the five-year period preceding the date of
this Agreement was a Defined Benefit Plan and (iv) lists, describes and
identifies each other Plan maintained, established, sponsored or contributed to
by an ERISA Affiliate, or any predecessor thereof, which, during the five-year
period preceding the date of this Agreement, was at any time a Defined Benefit
Plan. Seller has not scheduled or agreed upon future increases of benefit
levels (or creations of new benefits) with respect to any Benefit
- 26 -
<PAGE>
Plan, and no such increases or creation of benefits have been proposed, made the
subject of representations to Employees or requested or demanded by Employees
under circumstances which make it reasonable to expect that such increases will
be granted. Except as disclosed in Section 2.12(a) of the Disclosure Schedule,
------------------------------------------
no loan is outstanding between Seller and any Employee.
(b) Seller does not maintain nor is it obligated to provide benefits
under any life, medical or health plan (other than as an incidental benefit
under a Qualified Plan) which provides benefits to retired or other terminated
employees other than benefit continuation rights under the Consolidated Omnibus
Budget Reconciliation of 1985, as amended.
(c) Except as set forth in Section 2.12(c) of the Disclosure
---------------------------------
Schedule, each Benefit Plan covers only Employees (or former employees or
- --------
beneficiaries with respect to service with Seller in connection with the
Business), so that the transactions contemplated by this Agreement will require
no spin-off of assets and liabilities or other division or transfer of rights
with respect to any such plan.
(d) Neither Seller, any ERISA Affiliate nor any other corporation or
organization controlled by or under common control with any of the foregoing
within the meaning of Section 4001 of ERISA has at any time contributed to any
"multiemployer plan", as that term is defined in Section 4001 of ERISA.
(e) Each of the Benefit Plans is, and its administration is and has
been since inception, in all material respects in compliance with, and Seller
has not received any claim or notice that any such Benefit Plan is not in
compliance with, all applicable Laws and Orders and prohibited transactions
exemptions, including the requirements of ERISA, the Code, the Age
Discrimination in Employment Act, the Equal Pay Act and Title VII of the Civil
Rights Act of 1964. Each Qualified Plan is qualified under Section 401(a) of
the Code or Section 1165(a) of the Commonwealth Code, and, if applicable,
complies with the requirements of Section 401(k) of the Code or Section 1165(e)
of the Commonwealth Code. Each Benefit Plan which is intended to provide for
the deferral of income, the reduction of salary or other compensation or to
afford other Tax benefits complies with
- 27 -
<PAGE>
the requirements of the applicable provisions of the Code or other Laws required
in order to provide such Tax benefits.
(f) Seller is not in default in performing any of its contractual
obligations under any of the Benefit Plans or any related trust agreement or
insurance contract. All contributions and other payments required to be made by
Seller to any Benefit Plan with respect to any period ending before or at or
including the Closing Date have been made or reserves adequate for such
contributions or other payments have been or will be set aside therefor and have
been or will be reflected in Financial Statements in accordance with GAAP.
There are no outstanding liabilities of any Benefit Plan other than liabilities
for benefits to be paid to participants in such Benefit Plan and their
beneficiaries in accordance with the terms of such Benefit Plan.
(g) No event has occurred, and there exists no condition or set of
circumstances in connection with any Benefit Plan, under which Seller, directly
or indirectly (through any indemnification agreement or otherwise), could
reasonably be expected to be subject to any risk of liability under Section 409
of ERISA, Section 502(i) of ERISA, Title IV of ERISA or Section 4975 of the
Code.
(h) No transaction contemplated by this Agreement will result in
liability to the PBGC under Section 302(c)(ii), 4062, 4063, 4064 or 4069 of
ERISA, or otherwise, with respect to Purchaser or any corporation or
organization controlled by or under common control with Purchaser within the
meaning of Section 4001 of ERISA, and no event or condition exists or has
existed which could reasonably be expected to result in any such liability with
respect to Purchaser or any such corporation or organization. No "reportable
event" within the meaning of Section 4043 of ERISA has occurred with respect to
any Defined Benefit Plan. No termination re-establishment or spin-off
re-establishment transaction has occurred with respect to any Subject Defined
Benefit Plan. No Subject Defined Benefit Plan has incurred any accumulated
funding deficiency whether or not waived. No filing has been made and no
proceeding has been commenced for the complete or partial termination of, or
- 28 -
<PAGE>
withdrawal from, any Benefit Plan which is a Pension Benefit Plan.
(i) No benefit under any Benefit Plan, including, without limitation,
any severance or parachute payment plan or agreement, will be established or
become accelerated, vested, funded or payable by reason of any transaction
contemplated under this Agreement.
(j) To the Knowledge of Seller, there are no pending or threatened
claims by or on behalf of any Benefit Plan, by any Person covered thereby, or
otherwise, which allege violations of Law which could reasonably be expected to
result in liability on the part of Purchaser or any fiduciary of any such
Benefit Plan, nor is there any basis for such a claim.
(k) No employer securities, employer real property or other employer
property is included in the assets of any Benefit Plan.
(l) The fair market value of the assets of each Subject Defined
Benefit Plan, as determined as of the last day of the plan year of such plan
which coincides with or first precedes the date of this Agreement, was not less
than the present value of the projected benefit obligations under such plan at
such date as established on the basis of the actuarial assumptions applicable
under such Subject Defined Benefit Plan at said date and, to the Knowledge of
Seller, there have been no material changes in such values since said date.
(m) Complete and correct copies of the following documents have been
furnished to Purchaser prior to the execution of this Agreement:
(i) the Benefit Plans and any predecessor plans referred to therein,
any related trust agreements, and service provider agreements, insurance
contracts or agreements with investment managers, including without
limitation, all amendments thereto;
- 29 -
<PAGE>
(ii) current summary Plan descriptions of each Benefit Plan subject to
ERISA, and any similar descriptions of all other Benefit Plans;
(iii) the most recent Form 5500 and Schedules thereto for each Benefit
Plan subject to ERISA reporting requirements;
(iv) the most recent determination of the IRS or the Commonwealth
Treasury Department with respect to the qualified status of each Qualified
Plan;
(v) the most recent accountings with respect to any Benefit Plan
funded through a trust;
(vi) the most recent actuarial report of the qualified actuary of any
Subject Defined Benefit Plan or any other Benefit Plan with respect to
which actuarial valuations are conducted; and
(vii) all qualified domestic relations orders or other orders governing
payments from any Benefit Plan; and
(viii) an election under Section 1022(i) of ERISA, if any.
2.13 Real Property. (a) Section 1.01(a)(i) of the Disclosure
------------- ------------------------------------
Schedule contains a true and correct list of each parcel of real property owned
- --------
by Seller and used or held for use in connection with the Business, and Section
-------
1.01(a)(ii) of the Disclosure Schedule contains a true and correct list of each
- --------------------------------------
parcel of real property leased by Seller (as lessor or lessee) and used or held
for use in connection with the Business.
(b) Except as disclosed in Section 2.13(a) of the Disclosure
---------------------------------
Schedule, Seller has good and marketable fee simple title to the Real Property,
- --------
free and clear of all Liens other than Permitted Liens. Except for the Real
Property subject to Real Property Leases described in Section 1.01(a)(ii)(A) of
-------------------------
the Disclosure Schedule, Seller is in possession of the Real Property. Seller
- -----------------------
has adequate rights of ingress and egress with respect to the Real Property and
the Improvements. None of the
- 30 -
<PAGE>
Real Property, or the Improvements, or the use thereof, contravenes or violates
any building, zoning, administrative, occupational safety and health or other
applicable Law in any material respect (whether or not permitted on the basis of
prior nonconforming use, waiver or variance).
(c) Seller has a valid and subsisting leasehold estate in and the
right to quiet enjoyment of the real properties subject to the Real Property
Leases described in Section 1.01(a)(ii)(B) of the Disclosure Schedule for the
-------------------------------------------------
full term of the lease thereof. Each Real Property Lease is a legal, valid and
binding agreement, enforceable in accordance with its terms, of Seller and of
each other Person that is a party thereto, and except as set forth in
Section 2.13(c) of the Disclosure Schedule, there is no, nor has Seller received
- ------------------------------------------
any notice of any, default (or any condition or event which, after notice or
lapse of time or both, would constitute a default) thereunder. Seller does not
owe any brokerage commissions with respect to any such leased space.
(d) Seller has delivered to Purchaser prior to the execution of this
Agreement true and complete copies of (i) all deeds, leases, mortgages, deeds of
trust, certificates of occupancy, title insurance policies, title reports,
surveys and similar documents, and all amendments thereof, with respect to the
Real Property and (ii) all Real Property Leases (including any amendments and
renewal letters) and, to the extent reasonably available, all other documents
referred to in clause (i) of this paragraph (d) with respect to the Real
Property Leases described in Section 1.01(a)(ii)(B) of the Disclosure Schedule.
-------------------------------------------------
(e) Except as disclosed in Section 2.13(e) of the Disclosure
---------------------------------
Schedule, no tenant or other party in possession of any of the real properties
- --------
subject to the Real Property Leases described in Section 1.01(a)(ii)(B) of the
-----------------------------
Disclosure Schedule has a right to purchase, or holds any right of first refusal
- -------------------
to purchase, such properties.
(f) Except as disclosed in Section 2.13(f) of the Disclosure
---------------------------------
Schedule, the Improvements are in good operating condition and in a state of
- --------
good maintenance and repair, ordinary wear and tear excepted, are adequate and
suitable for the
- 31 -
<PAGE>
purposes for which they are presently being used and, to the Knowledge of
Seller, there are no condemnation or appropriation proceedings pending or
threatened against any of such real property or the improvements thereon.
2.14 Tangible Personal Property; Investment Assets. (a) Seller is in
---------------------------------------------
possession of and has good title to, or has valid leasehold interests in or
valid rights under Contract to use, all the Tangible Personal Property, which
includes all tangible personal property reflected on the balance sheet included
in the Unaudited Financial Statements and tangible personal property acquired
since the Unaudited Financial Statement Date other than property disposed of
since such date in the ordinary course of business consistent with past
practice. All the Tangible Personal Property is free and clear of all Liens,
other than Permitted Liens and Liens disclosed in Section 2.14(a) of the
----------------------
Disclosure Schedule, and is in good working order and condition, ordinary wear
- -------------------
and tear excepted, and its use complies in all material respects with all
applicable Laws.
(b) Section 2.14(b) of the Disclosure Schedule describes each
------------------------------------------
Investment Asset included among the Assets on the date hereof. Except as
disclosed in Section 2.14(b) of the Disclosure Schedule, all such Investment
------------------------------------------
Assets are owned by Seller free and clear of all Liens other than Permitted
Liens.
2.15 Intellectual Property Rights. Seller has interests in or uses
----------------------------
only the Intellectual Property disclosed in Section 1.01(a)(ix) of the
--------------------------
Disclosure Schedule, each of which Seller either has all right, title and
- -------------------
interest in or a valid and binding rights under Contract to use. No other
Intellectual Property is used or necessary in the conduct of the Business.
Except as disclosed in Section 2.15 of the Disclosure Schedule, (i) Seller has
---------------------------------------
the exclusive right to use the Intellectual Property disclosed in
Section 1.01(a)(ix) of the Disclosure Schedule, (ii) all registrations with and
- ----------------------------------------------
applications to Governmental or Regulatory Authorities in respect of such
Intellectual Property are valid and in full force and effect and are not subject
to the payment of any Taxes or maintenance fees or the taking of any other
actions by Seller to maintain their validity or effectiveness, (iii) there are
no restrictions on the
- 32 -
<PAGE>
direct or indirect transfer of any Contract, or any interest therein, held by
Seller in respect of such Intellectual Property, (iv) Seller has delivered to
Purchaser prior to the execution of this Agreement documentation with respect to
any invention, process, design, computer program or other know-how or trade
secret included in such Intellectual Property, which documentation is accurate
in all material respects and reasonably sufficient in detail and content to
identify and explain such invention, process, design, computer program or other
know-how or trade secret and to facilitate its full and proper use without
reliance on the special knowledge or memory of any Person, (v) Seller has taken
reasonable security measures to protect the secrecy, confidentiality and value
of their trade secrets, (vi) Seller is not, nor has it received any notice that
it is, in default (or with the giving of notice or lapse of time or both, would
be in default) under any Contract to use such Intellectual Property and (vii) to
the Knowledge of Seller, no such Intellectual Property is being infringed by any
other Person. Seller has not received any notice that Seller is infringing any
Intellectual Property of any other Person, no claim is pending or, to the
Knowledge of Seller, has been made to such effect that has not been resolved
and, to the Knowledge of Seller, Seller is not infringing any Intellectual
Property of any other Person.
2.16 Contracts. (a) Section 2.16(a) of the Disclosure Schedule (with
--------- ------------------------------------------
paragraph references corresponding to those set forth below) contains a true and
complete list of each of the following Contracts or other arrangements (true and
complete copies or, if none, reasonably complete and accurate written
descriptions of which, together with all amendments and supplements thereto and
all waivers of any terms thereof, have been delivered to Purchaser prior to the
execution of this Agreement), to which Seller is a party or by which any of the
Assets is bound:
(i) (A) all Contracts (excluding Benefit Plans) providing for a
commitment of employment or consultation services for a specified or
unspecified term or otherwise relating to employment or the termination of
employment of any Employee, the name, position and rate of compensation of
each Employee party to such a Contract and the expiration date of each such
Contract; and (B) any written or unwritten
- 33 -
<PAGE>
representations, commitments, promises, communications or courses of
conduct (excluding Benefit Plans and any such Contracts referred to in
clause (A)) involving an obligation of Seller to make payments in any year,
other than with respect to salary or incentive compensation payments in the
ordinary course of business, to any Employee or former employee;
(ii) all Contracts with any Person containing any provision or
covenant prohibiting or limiting the ability of Seller to engage in any
business activity or compete with any Person in connection with the
Business or prohibiting or limiting the ability of any Person to compete
with Seller in connection with the Business;
(iii) all partnership, joint venture, shareholders' or other similar
Contracts with any Person in connection with the Business;
(iv) all Contracts with distributors, dealers, manufacturer's
representatives, sales agencies or franchisees with whom Seller deals in
connection with the Business;
(v) all Contracts relating to the future disposition or acquisition
of any Assets other than dispositions or acquisitions of Inventory in the
ordinary course of business consistent with past practice;
(vi) all Contracts between Vicente Guzman, Jr. and Seller;
(vii) all collective bargaining or similar labor Contracts covering any
Employee; and
(viii) all other Contracts (other than Benefit Plans, the Real Property
Leases and insurance policies listed in Section 2.18 of the Disclosure
------------------------------
Schedule) with respect to the Business that (A) involve the payment or
--------
potential payment, pursuant to the terms of any such Contract, by or to
Seller of more than $10,000 annually and (B) cannot be terminated
- 34 -
<PAGE>
within thirty (30) days after giving notice of termination without
resulting in any material cost or penalty to Seller.
(b) Each Contract required to be disclosed in Section 2.16(a) of the
----------------------
Disclosure Schedule is in full force and effect and constitutes a legal, valid
- -------------------
and binding agreement, enforceable in accordance with its terms, of each party
thereto; and except as disclosed in Section 2.16(b) of the Disclosure Schedule
------------------------------------------
neither Seller nor, to the Knowledge of Seller, any other party to such Contract
is, or has received notice that it is, in violation or breach of or default
under any such Contract (or with notice or lapse of time or both, would be in
violation or breach of or default under any such Contract) in any material
respect.
(c) Except as disclosed in Section 2.16(c) of the Disclosure
---------------------------------
Schedule, (i) the execution, delivery and performance by Seller of this
- --------
Agreement, and the consummation of the transactions contemplated hereby, will
not (A) result in or give to any Person any right of termination, cancellation,
acceleration or modification in or with respect to, (B) result in or give to any
Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed payments under, or (C) result in the creation or
imposition of any Lien upon Seller or any of its Assets and Properties under,
any Business Contract, and (ii) Seller is not a party to or bound by any
Business Contract that has been or could reasonably be expected to be,
individually or in the aggregate with any other Business Contracts, materially
adverse to the Condition of the Business.
2.17 Customer Orders. (a) Each Customer Order is in full force and
---------------
effect and constitutes a legal, valid and binding agreement, enforceable in
accordance with its terms, of each party thereto; and except as disclosed in
Section 2.17(a) of the Disclosure Schedule neither Seller nor any other party to
- ------------------------------------------
such Customer Order is, or has received notice that it is, in violation or
breach of or default under any such Customer Order (or with notice or lapse of
time or both, would be in violation or breach of or default under any such
Customer Order) in any material respect.
- 35 -
<PAGE>
(b) Section 2.17(b) of the Disclosure Schedule contains a true and
------------------------------------------
complete list of all Customer Orders as of the day immediately preceding the
date hereof to which Seller is a party.
2.18 Licenses. Section 1.01(a)(x) of the Disclosure Schedule
-------- ---------------------------------------------
contains a true and complete list of all material Licenses used or held for use
in the Business (and all pending applications for any such Licenses), setting
forth the grantor, the grantee, the function and the expiration and renewal date
of each. Prior to the execution of this Agreement, Seller has delivered to
Purchaser true and complete copies of all such Licenses. Except as disclosed in
Section 2.18 of the Disclosure Schedule:
- ---------------------------------------
(i) Seller owns or validly holds all Licenses that are material,
individually or in the aggregate, to the Business;
(ii) each Business License is valid, binding and in full force and
effect;
(iii) Seller is not, nor has it received any notice that it is, in
default (or with the giving of notice or lapse of time or both, would be in
default) under any Business License;
(iv) the execution, delivery and performance by Seller of this
Agreement, and the consummation of the transactions contemplated hereby,
will not (A) result in or give to any Person any right of termination,
cancellation, acceleration or modification in or with respect to, (B)
result in or give to any Person any additional rights or entitlement to
increased, additional, accelerated or guaranteed payments under, or (C)
result in the creation or imposition of any Lien upon Seller or any of its
Assets and Properties under, any Business License.
2.19 Warranty Claims. Except as set forth in Section 2.19 of the
--------------- -------------------
Disclosure Schedule, there are no pending claims against Seller arising out of
- -------------------
or relating to any products manufactured or sold in connection with the Business
under any warranties, whether express or implied, nor, to the knowledge of
- 36 -
<PAGE>
Seller, does there exist, or during the past five (5) years has there existed,
any reasonable basis therefor.
2.20 Product Liability Claims. Except as set forth in Section 2.20
------------------------ ------------
of the Disclosure Schedule, there are, and during the past five (5) years there
- --------------------------
have been, no product liability claims with respect to any products now or
previously manufactured and/or sold by Seller in connection with the Business,
nor to the knowledge of Seller, does there exist, or during the past five (5)
years has there existed, any reasonable basis therefor.
2.21 Insurance. (a) Section 2.21 of the Disclosure Schedule
--------- ---------------------------------------
contains a true and complete list (including the names and addresses of the
insurers, the names of the Persons to whom such policies have been issued, the
expiration dates thereof, the annual premiums and payment terms thereof, whether
it is a "claims made" or an "occurrence" policy and a brief description of the
interests insured thereby) of all liability, property, workers' compensation,
and other insurance policies currently in effect that insure the Business, the
Employees or the Assets. Each policy listed in Section 2.21 of the Disclosure
------------------------------
Schedule is valid and binding and in full force and effect, no premiums due
- --------
thereunder have not been paid and Seller has not received any notice of
cancellation or termination in respect of any such policy or is in default
thereunder. The insurance policies listed in Section 2.21 of the Disclosure
------------------------------
Schedule are placed with financially sound and reputable insurers and, in light
- --------
of the nature of the Business and the Assets, are in amounts and have coverages
that are reasonable and customary for Persons engaged in such businesses and
operations and having such Assets and Properties. Neither Seller nor the Person
to whom such policy has been issued has received notice that any insurer under
any policy referred to in this Section is denying liability with respect to a
claim thereunder or defending under a reservation of rights clause.
(b) Seller has complied with and maintains in full force and effect
all applicable employment insurance required by law, including, without
limitation, with the Commonwealth State Insurance Fund Corporation, Unemployment
Insurance, Social
- 37 -
<PAGE>
Security Fund for Chauffeurs and the Non-Occupational Disability Insurance.
2.22 Affiliate Transactions. Except as disclosed in Section 2.22(a)
---------------------- ---------------
of the Disclosure Schedule, (i) no officer, director or Affiliate of Seller
- --------------------------
provides or causes to be provided any assets, services or facilities used or
held for use in connection with the Business, and (ii) the Business does not
provide or cause to be provided any assets, services or facilities to any such
officer, director or Affiliate. Except as disclosed in Section 2.22(b) of the
----------------------
Disclosure Schedule, each of the transactions listed in Section 2.22(a) of the
- ------------------- ----------------------
Disclosure Schedule is engaged in on an arm's-length basis.
- -------------------
2.23 Employees; Labor Relations. (a) Section 2.23 of the Disclosure
-------------------------- ------------------------------
Schedule contains a list of the name of each Employee at the date hereof,
- --------
together with such Employee's position or function, annual base salary or wages
and any incentive or bonus arrangement with respect to such Employee in effect
on such date. Seller has not received any information that would lead it to
believe that any Employees will or may cease to be Employees, or will refuse
offers of employment from Purchaser, because of the consummation of the
transactions contemplated by this Agreement.
(b) Except as disclosed in Section 2.23 of the Disclosure Schedule,
---------------------------------------
(i) no Employee is presently a member of a collective bargaining unit and, to
the Knowledge of Seller, there are no threatened or contemplated attempts to
organize for collective bargaining purposes any of the Employees, and (ii) no
unfair labor practice complaint or sex, age, race or other discrimination claim
has been brought during the last ten (10) years against Seller with respect to
the conduct of the Business before the National Labor Relations Board, the Equal
Employment Opportunity Commission or any other Governmental or Regulatory
Authority. Since August 31, 1991, there has been no work stoppage, strike or
other concerted action by employees of Seller engaged in the Business. During
that period, Seller has complied in all material respects with all applicable
Laws relating to the employment of labor, including, without limitation those
relating to wages, hours and collective bargaining.
- 38 -
<PAGE>
(c) Except as disclosed in Section 2.23 of the Disclosure Schedule,
---------------------------------------
no condition or event exists which would give rise to Purchaser being entitled
to indemnity from Seller pursuant to clause (ii) of Section 7.02(a).
---------------
2.24 Environmental Matters. Seller has obtained all Licenses which
---------------------
are required under applicable Environmental Laws in connection with the conduct
of the Business or the Assets. Each of such Licenses is in full force and
effect. Seller has conducted the Business in compliance in all material
respects with the terms and conditions of all such Licenses and with any
applicable Environmental Law. In addition, except as set forth in Section 2.24
------------
of the Disclosure Schedule (with paragraph references corresponding to those set
- --------------------------
forth below):
(a) No Order has been issued, no Environmental Claim has been filed,
no penalty has been assessed and no investigation or review is pending or, to
the Knowledge of Seller, threatened by any Governmental or Regulatory Authority
with respect to any alleged failure by Seller to have any License required under
applicable Environmental Laws in connection with the conduct of the Business or
with respect to any generation, treatment, storage, recycling, transportation,
discharge, disposal or Release of any Hazardous Material in connection with the
Business, and to the Knowledge of Seller there are no facts or circumstances in
existence which could reasonably be expected to form the basis for any such
Order, Environmental Claim, penalty or investigation.
(b) Seller does not own, operate or lease a treatment, storage or
disposal facility on any of the Real Property requiring a permit under the
Resource Conservation and Recovery Act, as amended, or under any other
comparable state or local Law; and, without limiting the foregoing, (i) no
polychlorinated biphenyl is or has been present, (ii) no asbestos or asbestos-
containing material is or has been present, (iii) there are no underground
storage tanks or surface impoundments for Hazardous Materials, active or
abandoned, and (iv) no Hazardous Material has been Released in a quantity
reportable under, or in violation of, any Environmental Law or otherwise
Released, in the cases of clauses (i) through (iv), at, on or under any such
site or
- 39 -
<PAGE>
facility during any period that Seller owned, operated or leased such property.
(c) Seller has not transported or arranged for the transportation of
any Hazardous Material in connection with the operation of the Business to any
location that is (i) listed on the NPL under CERCLA, (ii) listed for possible
inclusion on the NPL by the Environmental Protection Agency in CERCLIS or on any
similar state or local list or (iii) the subject of enforcement actions by
federal, state or local Governmental or Regulatory Authorities that may lead to
Environmental Claims against Seller or the Business.
(d) No Hazardous Material generated in connection with the operation
of the Business has been recycled, treated, stored, disposed of or Released by
Seller at any location.
(e) No oral or written notification of a Release of a Hazardous
Material in connection with the operation of the Business has been filed by or
on behalf of Seller, and no site or facility now or previously owned, operated
or leased by Seller on any of the Real Property is listed or proposed for
listing on the NPL, CERCLIS or any similar state or local list of sites
requiring investigation or clean-up.
(f) No Liens have arisen under or pursuant to any Environmental Law
on any site or facility owned, operated or leased by Seller on any of the Real
Property, and no federal, state or local Governmental or Regulatory Authority
action has been taken or, to the Knowledge of Seller, is in process that could
subject any such site or facility to such Liens, and Seller would not be
required to place any notice or restriction relating to the presence of
Hazardous Materials at any such site or facility in any deed to the Real
Property on which such site or facility is located.
(g) There have been no environmental investigations, studies, audits,
tests, reviews or other analyses conducted by, or that are in the possession of,
Seller in relation to any site or facility now or previously owned, operated or
leased by Seller on any of the Real Property which have not been delivered to
Purchaser prior to the execution of this Agreement.
- 40 -
<PAGE>
2.25 Substantial Customers and Suppliers. Section 2.25(a) of the
----------------------------------- ----------------------
Disclosure Schedule lists the ten (10) largest customers of the Business, on the
- -------------------
basis of revenues for goods sold or services provided for the most recently-
completed fiscal year. Section 2.25(b) of the Disclosure Schedule lists the ten
------------------------------------------
(10) largest suppliers of the Business, on the basis of cost of goods or
services purchased for the most recently-completed fiscal year. Except as
disclosed in Section 2.25(c) of the Disclosure Schedule, no such customer or
------------------------------------------
supplier has ceased or materially reduced its purchases from, use of the
services of, sales to or provision of services to the Business since the Audited
Financial Statement Date, or to the Knowledge of Seller, has threatened to cease
or materially reduce such purchases, use, sales or provision of services after
the date hereof. Except as disclosed in Section 2.25(d) of the Disclosure
---------------------------------
Schedule, to the Knowledge of Seller, no such customer or supplier is threatened
- --------
with bankruptcy or insolvency.
2.26 Inventory; Tools, Molds and Dies. (a) All the Inventory
--------------------------------
consists of a quality and quantity usable and salable in the ordinary course of
business consistent with past practice, subject to normal and customary
allowances in the industry for spoilage, damage and outdated items. All items
included in the Inventory are the property of Seller, free and clear of any Lien
other than Permitted Liens, have not been pledged as collateral, are not held by
Seller on consignment from others and conform in all material respects to all
standards applicable to such inventory or its use or sale imposed by
Governmental or Regulatory Authorities.
(b) Set forth on Section 1.01(a)(xiv) of the Disclosure Schedule is a
-----------------------------------------------
list of all tools, molds and dies used in or relating to the Business. Seller
is in possession of and has good and valid title to the Tools, Molds and Dies.
The Tools, Molds and Dies are free and clear of all Liens, are in good working
order and condition and are all the tools, molds and dies required to conduct
the Business in the same manner conducted by Seller immediately prior to the
Closing Date.
2.27 Vehicles. Section 1.01(a)(xi) of the Disclosure Schedule
-------- ----------------------------------------------
contains a true and complete list of all motor vehicles owned or leased by
Seller and used or held for use in the conduct
- 41 -
<PAGE>
of the Business. Except as set forth in Section 2.27 of the Disclosure
------------------------------
Schedule, Seller has good and valid title to, or has valid leasehold interests
- --------
in or valid rights under Contract to use, each Vehicle, free and clear of all
Liens other than Permitted Liens.
2.28 No Guarantees. None of the Liabilities of the Business or of
-------------
Seller incurred in connection with the conduct of the Business is guaranteed by
or subject to a similar contingent obligation of any other Person, nor has
Seller guaranteed or become subject to a similar contingent obligation in
respect of the Liabilities of any customer, supplier or other Person to whom
Seller sells goods or provides services in the conduct of the Business or with
whom Seller otherwise has significant business relationships in the conduct of
the Business.
2.29 Bulk Sales Act. Seller has complied in all respects with the
--------------
applicable provisions of the Puerto Rico Bulk Sales Act relating to the transfer
of the Assets to Seller pursuant to this Agreement.
2.30 Entire Business. The sale of the Assets by Seller to Purchaser
---------------
pursuant to this Agreement will effectively convey to Purchaser the entire
Business and all of the tangible and intangible property used by Seller (whether
owned, leased or held under license by Seller, by any of Seller's Affiliates or
Associates or by others) in connection with the conduct of the Business as
heretofore conducted by Seller (except for the Excluded Assets) including,
without limitation, all tangible Assets and Properties of Seller reflected in
the balance sheet included in the Unaudited Financial Statements and Assets and
Properties acquired since the Unaudited Financial Statement Date in the conduct
of the Business, other than the Excluded Assets and Assets and Properties
disposed of since such date, consistent with Section 2.07(v). Except as
---------------
disclosed in Section 2.30 of the Disclosure Schedule, there are no shared
---------------------------------------
facilities or services which are used in connection with any business or other
operations of Seller or any of Seller's Affiliates other than the Business.
2.31 Nature of Purchase. Seller is purchasing the Purchased Shares
------------------
for its own account for investment, not as a
- 42 -
<PAGE>
nominee or agent, and not with a view to the resale or distribution of the
Purchased Shares or any part thereof, and Seller has no present intention of
selling, granting any participation in, or otherwise distributing the same.
Seller acknowledges that the offering of the Purchased Shares pursuant to this
Agreement will not be registered under the Securities Act or any state
securities or blue sky law, on the grounds that the offering and sale of the
Purchased Shares contemplated by this Agreement are exempt from registration
pursuant to exceptions available under such laws, and that Parent's reliance
upon such exemptions is predicated upon Seller's representations set forth in
this Agreement. Seller acknowledges and understands that the Purchased Shares
must be held for an indefinite period of time unless they are subsequently
registered under the Securities Act and/or applicable state securities or blue
sky laws or an exemption from such registration is available.
2.32 Accredited Investor. Seller is an "accredited investor" within
-------------------
the meaning of Regulation D promulgated under the Securities Act.
2.33 Ownership of Securities of Parent. Except for the Purchased
---------------------------------
Shares, Seller and its Affiliates do not, directly or indirectly, beneficially
own any capital stock of Parent.
2.34 Brokers. All negotiations relative to this Agreement and the
-------
transactions contemplated hereby have been carried out by Seller directly with
Parent and Purchaser without the intervention of any Person on behalf of Seller
in such manner as to give rise to any valid claim by any Person against Parent
or Purchaser for a finder's fee, brokerage commission or similar payment.
2.35 Disclosure. All material facts relating to the Condition of the
----------
Business have been disclosed to Purchaser in or in connection with this
Agreement. No representation or warranty contained in this Agreement, and no
statement contained in the Disclosure Schedule or in any certificate, list or
other writing furnished to Purchaser pursuant to any provision of this Agreement
(including without limitation the Financial Statements), contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the
- 43 -
<PAGE>
statements herein or therein, in the light of the circumstances under which they
were made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Each of Parent and Purchaser hereby represents and warrants to Seller
that, immediately prior to the Closing:
3.01 Organization. Each of Parent and Purchaser is a corporation
------------
duly incorporated, validly existing and in good standing under the Laws of the
State of Delaware. Each of Parent and Purchaser has full corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby.
3.02 Authority; Purchased Shares. (a) The execution and delivery by
---------------------------
each of Parent and Purchaser of this Agreement, and the performance by each of
Parent and Purchaser of its obligations hereunder, have been duly and validly
authorized by its Board of Directors, no other corporate action on the part of
Parent or Purchaser or their stockholders being necessary. This Agreement has
been duly and validly executed and delivered by Parent and Purchaser and
constitutes, a legal, valid and binding obligations of Parent and Purchaser
enforceable against Parent and Purchaser in accordance with its terms.
(b) The Purchased Shares have been duly authorized by all necessary
corporate action on the part of Parent and, when issued to Seller in accordance
with this Agreement, shall be validly issued and outstanding, fully paid and
nonassessable, and shall not be subject to the preemptive rights of the holders
of any class or series of capital stock of Parent.
3.03 No Conflicts. The execution and delivery by Parent and
------------
Purchaser of this Agreement do not, the performance by Parent and Purchaser of
their obligations under this Agreement and the consummation of the transactions
contemplated hereby will not:
- 44 -
<PAGE>
(a) conflict with or result in a violation or breach of any of the
terms, conditions or provisions of the certificate of incorporation or by-laws
(or other comparable corporate charter document) of Parent or Purchaser;
(b) subject to obtaining the consents, approvals and actions, making
the filings and giving the notices disclosed in Schedule 3.04 hereto, conflict
-------------
with or result in a violation or breach of any term or provision of any Law or
Order applicable to Parent or Purchaser or any of their respective Assets and
Properties; or
(c) except as disclosed in Schedule 3.03 hereto, (i) conflict with or
-------------
result in a violation or breach of, (ii) constitute (with or without notice or
lapse of time or both) a default under, (iii) require Parent or Purchaser to
obtain any consent, approval or action of, make any filing with or give any
notice to any Person as a result or under the terms of, or (iv) result in the
creation or imposition of any Lien upon Parent or Purchaser or any of their
respective Assets or Properties under, any Contract or License to which Parent
or Purchaser is a party or by which any of their respective Assets and
Properties are bound.
3.04 Governmental Approvals and Filings. Except as disclosed in
----------------------------------
Schedule 3.04 hereto, no consent, approval or action of, filing with or notice
- -------------
to any Governmental or Regulatory Authority on the part of Parent or Purchaser
is required in connection with the execution, delivery and performance of this
Agreement or the consummation of the transactions contemplated hereby.
3.05 Legal Proceedings. There are no Actions or Proceedings pending
-----------------
or, to the knowledge of Parent, threatened against, relating to or affecting
Parent or Purchaser or any of their respective Assets and Properties which could
reasonably be expected to result in the issuance of an Order restraining,
enjoining or otherwise prohibiting or making illegal the consummation of any of
the transactions contemplated by this Agreement.
- 45 -
<PAGE>
3.06 Brokers. All negotiations relative to this Agreement and the
-------
transactions contemplated hereby have been carried out by Parent or Purchaser
directly with Seller without the intervention of any Person on behalf of Parent
or Purchaser in such manner as to give rise to any valid claim by any Person
against Seller for a finder's fee, brokerage commission or similar payment.
ARTICLE IV
COVENANTS OF SELLER
4.01 Books and Records, etc.; Removal of Property. On the Closing
--------------------------------------------
Date, Seller will deliver or make available to Purchaser at the location at
which the Business is conducted all of the Business Books and Records and such
other Assets as are in Seller's possession at other locations, and if at any
time after the Closing Seller discovers in its possession or under its control
any other Business Books and Records or other Assets, it will forthwith deliver
such Business Books and Records or other Assets to Purchaser.
4.02 Use of "VC Medical Distributors" Name. Immediately following
-------------------------------------
the Closing Date, Seller and its Affiliates will cease using the name "VC
Medical Distributors" and any trade dress, designs or logos associated with such
name, or any confusingly similar variations thereof.
4.03 Change of Corporate Name. On the Closing Date, Seller shall
------------------------
take all steps necessary to change its corporate name to a non-similar name.
After the Closing Date, Seller will not, nor will it permit any of its
Affiliates to, use the name VC Medical Distributors, or any confusingly similar
variations thereof, in any business conducted by Seller or any such Affiliates.
4.04 Retention of Corporate Existence. Seller shall retain (under a
--------------------------------
new corporate name) its corporate existence in the Commonwealth until the
seventh anniversary of the Closing Date.
- 46 -
<PAGE>
ARTICLE V
NON-COMPETITION AGREEMENT
5.01 Non-Competition. (a) Seller will, for a period of ten (10)
---------------
years following the Closing Date, refrain from, either alone or in conjunction
with any other Person, or directly or indirectly through its present or future
Affiliates, owning, managing, operating, joining, controlling or participating
in any Competitor, as defined below, or any subsidiary or affiliate thereof.
For purposes hereof, a "Competitor" shall be deemed to mean any business,
----------
individual, partnership, firm, corporation or organization (other than Parent or
any direct or indirect subsidiary of Parent (collectively, the "Parent
------
Affiliates")) anywhere in the Commonwealth of Puerto Rico which is (i) in
- ----------
competition with the then-business of Purchaser or any Parent Affiliate, (ii)
involved in a business activity of a type not engaged in by Purchaser or any
Parent Affiliate but with respect to which Purchaser or any Parent Affiliate has
made a material commitment, or (iii) involved in the business of Purchaser or
any Parent Affiliate as then conducted by any person, firm or corporation which
shall succeed to all or a substantial part of the business of Purchaser or any
Parent Affiliate.
(b) Nothing in this Section 5.01 is intended, or shall be construed,
------------
to prevent Seller from investing in the stock or other securities listed in the
national securities exchange or traded in the over-the-counter market of any
corporation which is at the time a Competitor, provided that Seller shall not,
--------
directly or indirectly, hold, beneficially or otherwise, in the aggregate, more
than one percent (1%) of any issue of such stock or other securities of any one
(1) such corporation.
(c) During the period commencing on the Closing Date and ending on
the tenth anniversary of the Closing Date, Seller agrees that it will not,
directly or indirectly, interfere with or solicit (i) any of the business or
accounts of Purchaser or any of the Parent Affiliates, or (ii) any prospective
customer of Purchaser or any Parent Affiliate whose business Parent or any
Parent Affiliate is in the process of soliciting at any time or
- 47 -
<PAGE>
had solicited at any time; and during the period commencing on the Closing Date
and ending on the tenth anniversary of the Closing Date, Seller agrees that it
will not, directly or indirectly, solicit (i) the employment of or hire any
employee or representative of Parent or any of the Parent Affiliates who was so
employed, or otherwise had a commercial relationship with Parent or any Parent
Affiliate, on the Closing Date or at any time ending on the tenth anniversary of
the Closing Date, or (ii) in competition with Parent or any of the Parent
Affiliates, any supplier of Parent or any of the Parent Affiliates or induce or
request any such person or business entity to curtail or terminate its
commercial or employment relationship with Parent or any of the Parent
Affiliates.
ARTICLE VI
EMPLOYEE BENEFITS MATTERS
6.01 Employment. Purchaser has offered, or shall offer, employment
----------
to those Persons who are employed by Seller in the Business immediately prior to
the Closing Date whom Purchaser wishes to hire, in Purchaser's sole discretion
(all Persons so employed, whether or not receiving such offers, "Employees").
---------
ARTICLE VII
SURVIVAL AND INDEMNIFICATION
7.01 Survival of Representations and Warranties. Notwithstanding any
------------------------------------------
right of Purchaser (whether or not exercised) to investigate the Business or any
right of any party (whether or not exercised) to investigate the accuracy of the
representations and warranties of the other party contained in this Agreement,
Seller and Purchaser have the right to rely fully upon the representations and
warranties of the other contained in this Agreement. The representations and
warranties of Seller and Parent contained in this Agreement and the statements
contained in the Disclosure Schedule or in any certificate, list or other
- 48 -
<PAGE>
writing furnished to Parent or Purchaser pursuant to any provision of this
Agreement, will survive the Closing.
7.02 Indemnification.
---------------
(a) Seller shall indemnify the Purchaser Indemnified Parties in
respect of, and hold each of them harmless from and against, any and all Losses
suffered, incurred or sustained by any of them or to which any of them becomes
subject, resulting from, arising out of or relating to (i) any
misrepresentation, breach of warranty or nonfulfillment of or failure to perform
any covenant or agreement on the part of Seller contained in this Agreement,
(ii) any workers compensation claim or other similar claim by any employee of
the Company relating to any injury sustained by such employee that occurred or
arose out of events occurring or conditions existing prior to the Closing Date,
(iii) the termination or cancellation of any agreement or contract of Seller,
including the Exclusive Distributor Agreements, due to the execution of this
Agreement, (iv) any claim against Seller, Vicente Guzman, Jr. or Seller's
directors, officers, employees or agents based on any deficiency or
noncompliance with the filing or payment, or the failure to properly file or
pay, by Seller, Vicente Guzman, Jr., or an agent for Seller or Vicente Guzman,
Jr., any Tax or Tax Return or (v) a Retained Liability.
(b) Purchaser shall indemnify the Seller Indemnified Parties in
respect of, and hold each of them harmless from and against, any and all Losses
suffered, incurred or sustained by any of them or to which any of them becomes
subject, resulting from, arising out of or relating to (i) any
misrepresentation, breach of warranty or nonfulfillment of or failure to perform
any covenant or agreement on the part of Purchaser contained in this Agreement
or (ii) an Assumed Liability.
(c) If an Indemnified Party seeks to settle any claim or demand which
is asserted against or sought to be collected from it by a Person other than a
party hereto or any of its Affiliates (a "Third Party Claim"), and in respect of
-----------------
which Third Party Claim such Indemnified Party might seek indemnity under this
Section 7.02, then such Indemnified Party shall obtain the
- ------------
- 49 -
<PAGE>
prior consent of the Indemnifying Party to such settlement, which consent shall
not be unreasonably withheld.
(d) In the event of any claim or demand, including Third Party
Claims, in respect of which an Indemnified Party might seek indemnity under this
Section 7.02, the Indemnified Party shall deliver an Indemnity Notice with
- ------------
reasonable promptness to the Indemnifying Party. The failure by any Indemnified
Party to give the Indemnity Notice shall not impair such party's rights
hereunder except to the extent that an Indemnifying Party demonstrates that it
has been irreparably prejudiced thereby. The Indemnifying Party will notify the
Indemnified Party within the thirty (30) day period following its receipt of
such Indemnity Notice (the "Dispute Period") as to whether the Indemnifying
--------------
Party disputes its liability to the Indemnified Party hereunder. If the
Indemnifying Party notifies the Indemnified Party that it does not dispute the
claim described in such Indemnity Notice, or fails to notify the Indemnified
Party within the Dispute Period whether the Indemnifying Party disputes the
claim described in such Indemnity Notice, the Loss specified in the Indemnity
Notice will be conclusively deemed a liability of the Indemnifying Party under
this Section 7.02 and the Indemnifying Party shall pay the amount of such Loss,
------------
when it has been finally determined, to the Indemnified Party on demand. If the
Indemnifying Party has timely disputed its liability with respect to such claim,
the Indemnifying Party and the Indemnified Party will proceed in good faith to
negotiate a resolution of such dispute, and if not resolved through negotiations
within sixty (60) days following the Indemnified Party's receipt of a written
notice from the Indemnifying Party disputing such claim, such dispute shall be
finally settled by arbitration in accordance with paragraph (e) of this Section
-------
7.02.
- ----
(e) Any dispute submitted to arbitration pursuant to this
Section 7.02 shall be finally and conclusively settled by the decision of a
- ------------
board of arbitration consisting of three (3) members (hereinafter sometimes
called the "Board of Arbitration") selected as hereinafter provided. Each of
--------------------
the Indemnified Party and the Indemnifying Party shall select one (1) member and
the third member shall be selected by mutual agreement of the other
- 50 -
<PAGE>
members, or if the other members fail to reach agreement on a third member
within twenty (20) days after their selection, such third member shall
thereafter be selected by the American Arbitration Association upon application
made to it for a third member possessing expertise or experience appropriate to
the dispute jointly by the Indemnified Party and the Indemnifying Party. The
Board of Arbitration shall meet in New York, New York or such other place as a
majority of the members of the Board of Arbitration determines more appropriate,
and shall reach and render a decision in writing (concurred in by a majority of
the members of the Board of Arbitration) with respect to the amount, if any,
which the Indemnifying Party is required to pay to the Indemnified Party in
respect of a claim filed by the Indemnified Party. In connection with rendering
its decisions, the Board of Arbitration shall adopt and follow such rules and
procedures as a majority of the members of the Board of Arbitration deems
necessary or appropriate. It is the intent of the parties hereto that, barring
extraordinary circumstances, decisions of the Board of Arbitration shall be
rendered no more than thirty (30) days following commencement of proceedings
with respect thereto. The Board of Arbitration shall cause its written decision
to be delivered to the Indemnified Party and the Indemnifying Party. Any
decision made by the Board of Arbitration (either prior to or after the
expiration of such thirty (30) calendar day period) shall be final, binding and
conclusive on the Indemnified Party and the Indemnifying Party and entitled to
be enforced to the fullest extent permitted by law and entered in any court of
competent jurisdiction. Each party to any arbitration shall bear its own
expense in relation thereto, including but not limited to such party's
attorneys' fees, if any, and the expenses and fees of the Board of Arbitration
shall be divided between the Indemnifying Party and the Indemnified Party in the
same proportion as the portion of the related claim determined by the Board of
Arbitration to be payable to the Indemnified Party bears to the portion of such
claim determined not to be so payable.
(f) Purchaser's right to be indemnified for breaches of
representations or warranties contained in this Agreement shall not be limited
to amounts held in the Escrow Fund referred to in the Escrow Agreement.
- 51 -
<PAGE>
ARTICLE VIII
DEFINITIONS
8.01 Definitions. (a) Defined Terms. As used in this Agreement, the
----------- -------------
following defined terms have the meanings indicated below:
"Accounts Receivable" has the meaning ascribed to it in
-------------------
Section 1.01(a)(iv).
- -------------------
"Actions or Proceedings" means any action, suit, proceeding,
----------------------
arbitration or Governmental or Regulatory Authority investigation or audit.
"Affiliate" means any Person that directly, or indirectly through one
---------
of more intermediaries, controls or is controlled by or is under common control
with the Person specified. For purposes of this definition, control of a Person
means the power, direct or indirect, to direct or cause the direction of the
management and policies of such Person whether by Contract or otherwise and, in
any event and without limitation of the previous sentence, any Person owning ten
percent (10%) or more of the voting securities of another Person shall be deemed
to control that Person.
"Agreement" means this Asset Purchase Agreement and the Exhibits, the
---------
Disclosure Schedule and the Schedules hereto.
"Anniversary Date" has the meaning ascribed to it in Section 1.05.
---------------- ------------
"Assets" has the meaning ascribed to it in Section 1.01(a).
------ ---------------
"Assets and Properties" of any Person means all assets and properties
---------------------
of every kind, nature, character and description (whether real, personal or
mixed, whether tangible or intangible, whether absolute, accrued, contingent,
fixed or otherwise and wherever situated), including the goodwill related
thereto, operated, owned or leased by such Person, including without
- 52 -
<PAGE>
limitation cash, cash equivalents, Investment Assets, accounts and notes
receivable, chattel paper, documents, instruments, general intangibles, real
estate, equipment, inventory, goods and Intellectual Property.
"Assignment Instruments" has the meaning ascribed to it in
----------------------
Section 1.04.
- ------------
"Assumed Liabilities" has the meaning ascribed to it in
-------------------
Section 1.02(a).
- ---------------
"Assumption Instruments" has the meaning ascribed to it in
----------------------
Section 1.04.
- ------------
"Audited Financial Statement Date" means the last day of the most
--------------------------------
recent fiscal year of Seller for which Financial Statements are delivered to
Purchaser pursuant to Section 2.06.
------------
"Audited Financial Statements" means the Financial Statements for the
----------------------------
most recent fiscal year of Seller delivered to Purchaser pursuant to
Section 2.06.
- ------------
"Benefit Plan" means any Plan established by the Seller, or any
------------
predecessor or Affiliate of Seller, existing at the Closing Date or prior
thereto, to which Seller contributes or has contributed on behalf of any
Employee, former employee or director, or under which any Employee, former
employee or director of Seller or any beneficiary thereof is covered, is
eligible for coverage or has benefit rights.
"Books and Records" of any Person means all files, documents,
-----------------
instruments, papers, books and records relating to the business, operations,
condition of (financial or otherwise), results of operations and Assets and
Properties of such Person, including without limitation financial statements,
Tax Returns and related work papers and letters from accountants, budgets,
pricing guidelines, ledgers, journals, deeds, title policies, minute books,
stock certificates and books, stock transfer ledgers, Contracts, Licenses,
customer lists, computer files and programs, retrieval programs, operating data
and plans and environmental studies and plans.
- 53 -
<PAGE>
"Business" has the meaning ascribed to it in the forepart of this
--------
Agreement.
"Business Books and Records" has the meaning ascribed to it in
--------------------------
Section 1.01(a)(xiii).
- ---------------------
"Business Day" means a day other than Saturday, Sunday or any day on
------------
which banks located in the State of New York or the Commonwealth of Puerto Rico
are authorized or obligated to close.
"Business Contracts" has the meaning ascribed to it in
------------------
Section 1.01(a)(vii).
- --------------------
"Business Licenses" has the meaning ascribed to it in
-----------------
Section 1.01(a)(x).
- ------------------
"Catalog Numbers" has the meaning ascribed to it in
---------------
Section 1.01(a)(xviii).
- ----------------------
"CERCLA" means the Comprehensive Environmental Response, Compensation
------
and Liability Act of 1980, as amended, and the rules and regulations promulgated
thereunder.
"CERCLIS" means the Comprehensive Environmental Response and Liability
-------
Information System, as provided for by 40 C.F.R. Sec.300.5.
"Closing" means the closing of the transactions contemplated by
-------
Section 1.03.
- ------------
"Closing Date" means the date of this Agreement.
------------
"Closing Date Accounts Receivable" has the meaning ascribed to it in
--------------------------------
Section 1.06(a).
- ---------------
"Closing Date Balance Sheet" has the meaning ascribed to it in Section
-------------------------- -------
1.03(b)(ii).
- -----------
"Closing Date Certificate" has the meaning ascribed to it in Section
------------------------ -------
1.03(b)(ii).
- -----------
- 54 -
<PAGE>
"Closing Date Financial Statements" has the meaning ascribed to it in
---------------------------------
Section 1.03(b)(ii).
- -------------------
"Closing Date Net Book Value" has the meaning ascribed to it in
---------------------------
Section 1.03(b)(ii).
- -------------------
"Code" means the Internal Revenue Code of 1986, as amended, and the
----
rules and regulations promulgated thereunder.
"Competitor" has the meaning ascribed to it in Section 5.01.
---------- ------------
"Commonwealth" means the government of the Commonwealth of Puerto
------------
Rico, or Puerto Rico.
"Commonwealth Code" means the Commonwealth of Puerto Rico Internal
-----------------
Revenue Code of 1994, as amended.
"Condition of the Business" means the business, condition (financial
-------------------------
or otherwise), results of operations, Assets and Properties and prospects of the
Business.
"Contract" means any agreement, lease, license, evidence of
--------
Indebtedness, mortgage, indenture, security agreement or other contract (whether
written or oral).
"Customer Orders" means all unfulfilled sales orders and customer
---------------
commitments with respect to products sold in connection with the Business.
"Deficiency Amount" has the meaning ascribed to it in Section
----------------- -------
1.03(b)(iv).
- -----------
"Defined Benefit Plan" means each Benefit Plan which is subject to
--------------------
Part 3 of Title I of ERISA, Section 412 of the Code or Title IV of ERISA.
"Determination Date" has the meaning ascribed to in Section
------------------ -------
1.03(b)(iv).
- -----------
"Disclosure Schedule" means the record delivered to Purchaser by
-------------------
Seller herewith and dated as of the date hereof,
- 55 -
<PAGE>
containing all lists, descriptions, exceptions and other information and
materials as are required to be included therein by Seller pursuant to this
Agreement.
"Dispute Period" has the meaning ascribed to it in Section 7.02(d).
-------------- ---------------
"Employees" has the meaning ascribed to it in Section 6.01.
--------- ------------
"Environmental Claim" means, with respect to any Person, any written
-------------------
or oral notice, claim, demand or other communication (collectively, a "claim")
by any other Person alleging or asserting such Person's liability for
investigatory costs, cleanup costs, Governmental or Regulatory Authority
response costs, damages to natural resources or other property, personal
injuries, fines or penalties arising out of, based on or resulting from (a) the
presence, or Release into the environment, of any Hazardous Material at any
location, whether or not owned by such Person, or (b) circumstances forming the
basis of any violation, or alleged violation, of any Environmental Law. The
term "Environmental Claim" shall include, without limitation, any claim by any
Governmental or Regulatory Authority for enforcement, cleanup, removal,
response, remedial or other actions or damages pursuant to any applicable
Environmental Law, and any claim by any third party seeking damages,
contribution, indemnification, cost recovery, compensation or injunctive relief
resulting from the presence of Hazardous Materials or arising from alleged
injury or threat of injury to health, safety or the environment.
"Environmental Law" means any Law or Order relating to the regulation
-----------------
or protection of human health, safety or the environment or to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals or industrial, toxic or hazardous substances or wastes into the
environment (including, without limitation, ambient air, soil, surface water,
ground water, wetlands, land or subsurface strata), or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, chemicals or industrial,
toxic or hazardous substances or wastes.
- 56 -
<PAGE>
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended, and the rules and regulations promulgated thereunder.
"ERISA Affiliate" means any Person who is in the same controlled group
---------------
of corporations or who is under common control with Seller or, before the
Closing, the Company or any Subsidiary (within the meaning of Section 414 of the
Code).
"Escrow Agent" and "Escrow Agreement" have the respective meanings
------------ ----------------
ascribed to them in Section 1.04(a).
---------------
"Estimated Net Book Value" has the meaning ascribed to it in Section
------------------------ -------
1.03(b)(i).
- ----------
"Estimated Net Book Value Decrease" has the meaning ascribed to it in
---------------------------------
Section 1.03(b)(i).
- ------------------
"Estimated Net Book Value Increase" has the meaning ascribed to it in
---------------------------------
Section 1.03(b)(i).
- ------------------
"Excess Amount" has the meaning ascribed to it in Section 1.03(b)(iv).
------------- -------------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
and the rules and regulations thereunder.
"Excluded Assets" has the meaning ascribed to it in Section 1.01(b).
--------------- ---------------
"Exclusive Distributor Agreements" means the agreements listed in
--------------------------------
Section 8.01 of the Disclosure Schedule.
- ---------------------------------------
"Final Net Book Value" has the meaning ascribed to it in Section
-------------------- -------
1.03(b)(iv).
- -----------
"Financial Statements" means the financial statements of Seller
--------------------
delivered to Purchaser pursuant to Section 2.06.
------------
"GAAP" means generally accepted accounting principles, consistently
----
applied throughout the specified period and in the immediately prior comparable
period.
- 57 -
<PAGE>
"Governmental or Regulatory Authority" means any court, tribunal,
------------------------------------
arbitrator, authority, agency, commission, official or other instrumentality of
the United States, the Commonwealth, any foreign country or any domestic or
foreign state, county, city or other political subdivision.
"Hazardous Material" means (A) any petroleum or petroleum products,
------------------
flammable explosives, radioactive materials, asbestos in any form that is or
could become friable, urea formaldehyde foam insulation and transformers or
other equipment that contain dielectric fluid containing levels of
polychlorinated biphenyls (PCBs); (B) any chemicals or other materials or
substances which are now or hereafter become defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous materials,"
"extremely hazardous wastes," "restricted hazardous wastes," "toxic substances,"
"toxic pollutants" or words of similar import under any Environmental Law; and
(C) any other chemical or other material or substance, exposure to which is now
or hereafter prohibited, limited or regulated by any Governmental or Regulatory
Authority under any Environmental Law.
"Improvements" has the meaning ascribed to it in Section 1.01(a)(i).
------------ ------------------
"Indebtedness" of any Person means all obligations of such Person (i)
------------
for borrowed money, (ii) evidenced by notes, bonds, debentures or similar
instruments, (iii) for the deferred purchase price of goods or services (other
than trade payables or accruals incurred in the ordinary course of business),
(iv) under capital leases and (v) in the nature of guarantees of the obligations
described in clauses (i) through (iv) above of any other Person.
"Indemnified Party" means any Person claiming indemnification under
-----------------
any provision
- 58 -
<PAGE>
of Section 7.02, including without limitation a Person asserting a claim
------------
pursuant to Section 7.02(c).
---------------
"Indemnifying Party" means any Person against whom a claim for
------------------
indemnification is being asserted under any provision of Section 7.02, including
------------
without limitation a Person against whom a claim is asserted pursuant to Section
7.02(c).
- -------
"Indemnity Notice" means written notification pursuant to Section
---------------- -------
7.02(b) of a claim for indemnity under Section 7.02 by an Indemnified Party,
- ------- ------------
specifying the nature of and basis for such claim, together with the amount or,
if not then reasonably determinable, the estimated amount, determined in good
faith, of the Loss arising from such claim.
"Independent Accountant" has the meaning ascribed to it in Section
---------------------- -------
1.03(b)(iii).
- ------------
"Instruction Materials" has the meaning ascribed to it in Section
--------------------- -------
1.01(a)(xvii).
- -------------
"Intangible Personal Property" has the meaning ascribed to it in
----------------------------
Section 1.01(a)(ix).
- -------------------
"Intellectual Property" means all patents and patent rights,
---------------------
trademarks and trademark rights, trade names and trade name rights, service
marks and service mark rights, service names and service name rights, brand
names, inventions, trade secrets, processes, formulae, copyrights and copyright
rights, trade dress, business and product names, logos, slogans, trade secrets,
industrial models, processes, designs, methodologies, computer programs
(including all source codes) and related documentation, technical information,
manufacturing, engineering and technical drawings, know-how and all pending
applications for and registrations of patents, trademarks, service marks and
copyrights.
"Inventory" has the meaning ascribed to it in Section 1.01(a)(iii).
--------- --------------------
"Investment Assets" means all debentures, notes and other evidences of
-----------------
Indebtedness, stocks, securities (including rights to purchase and securities
convertible into or exchangeable for other securities), interests in joint
ventures and general and limited partnerships, mortgage loans and other
investment or portfolio assets owned of record or beneficially by
- 59 -
<PAGE>
Seller (other than trade receivables generated in the ordinary course of
business of Seller).
"IRS" means the United States Internal Revenue Service.
---
"July 31 Balance Sheet" has the meaning ascribed to it in Section
--------------------- -------
1.03(b)(i).
- ----------
"Knowledge of Seller" or "Known to Seller" means the knowledge of any
------------------- ---------------
officer, director or employee of Seller.
"Laws" means all laws, statutes, rules, regulations, ordinances and
----
other pronouncements having the effect of law of the United States, the
Commonwealth, any foreign country or any domestic or foreign state, county, city
or other political subdivision or of any Governmental or Regulatory Authority.
"Liabilities" means all Indebtedness, obligations and other
-----------
liabilities of a Person (whether absolute, accrued, contingent, fixed or
otherwise, or whether due or to become due).
"Licenses" means all licenses, permits, certificates of authority,
--------
authorizations, approvals, registrations, franchises and similar consents
granted or issued by any Governmental or Regulatory Authority.
"Liens" means any mortgage, pledge, assessment, security interest,
-----
lease, lien, adverse claim, levy, charge or other encumbrance of any kind, or
any conditional sale Contract, title retention Contract or other Contract to
give any of the foregoing.
"Loss" means any and all damages, fines, fees, penalties,
----
deficiencies, losses and expenses (including without limitation interest, court
costs, fees of attorneys, accountants and other experts or other expenses of
litigation or other proceedings or of any claim, default or assessment).
"Marketing Materials" has the meaning ascribed to it in Section
------------------- -------
1.01(a)(xvi).
- ------------
- 60 -
<PAGE>
"Net Book Value of the Business" means the total assets of the
------------------------------
Business (net of allowances for doubtful accounts and accumulated depreciation)
minus the Assumed Liabilities as shown on the applicable balance sheet of the
Business, calculated in accordance with GAAP.
"NPL" means the National Priorities List under CERCLA.
---
"Order" means any writ, judgment, decree, injunction or similar order
-----
of any Governmental or Regulatory Authority (in each such case whether
preliminary or final).
"Parent" has the meaning ascribed to it in the forepart of this
------
Agreement.
"Parent Affiliate" has the meaning ascribed to it in Section 5.01.
---------------- ------------
"Parent Common Stock" has the meaning ascribed to it in Section 1.04.
------------------- ------------
"PBGC" means the Pension Benefit Guaranty Corporation established
----
under ERISA.
"Pension Benefit Plan" means each Benefit Plan which is a pension
--------------------
benefit plan within the meaning of Section 3(2) of ERISA.
"Permitted Lien" means (i) any Lien for Taxes not yet due or
--------------
delinquent or being contested in good faith by appropriate proceedings for which
adequate reserves have been established in accordance with GAAP, (ii) any
statutory Lien arising in the ordinary course of business by operation of Law
with respect to a Liability that is not yet due or delinquent and (iii) any
minor imperfection of title or similar Lien which individually or in the
aggregate with other such Liens does not materially impair the value of the
property subject to such Lien or the use of such property in the conduct of the
Business.
"Person" means any natural person, corporation, general partnership,
------
limited partnership, proprietorship, other business
- 61 -
<PAGE>
organization, trust, union, association or Governmental or Regulatory Authority.
"Plan" means any bonus, incentive compensation, deferred compensation,
----
pension, profit sharing, retirement, stock purchase, stock option, stock
ownership, stock appreciation rights, phantom stock, leave of absence, layoff,
vacation, day or dependent care, legal services, cafeteria, life, health,
accident, disability, workmen's compensation or other insurance, severance,
separation or other employee benefit plan, practice, policy or arrangement of
any kind, whether written or oral, including, but not limited to, any "employee
benefit plan" within the meaning of Section 3(3) of ERISA.
"Pre-Closing Certificate" has the meaning ascribed to it in Section
----------------------- -------
1.03(b)(i).
- ----------
"Prepaid Expenses" has the meaning ascribed to it in
----------------
Section 1.01(a)(viii).
- ---------------------
"Pre-Tax Income of the Business" means the net income of the Business
------------------------------
after tax for the applicable period, calculated without taking into account the
aggregate amount of the extraordinary losses or extraordinary gains during such
period and without giving effect to any gains or losses from discontinued
operations or any adjustments to reflect the cumulative effect of changes in
accounting principles.
"Purchase Price" has the meaning ascribed to it in Section 1.03.
-------------- ------------
"Purchased Shares" has the meaning ascribed to it in Section 1.11(a).
---------------- ---------------
"Purchased Shares Transfer" has the meaning ascribed to it in Section
------------------------- -------
1.11(c).
- -------
"Purchaser" has the meaning ascribed to it in the forepart of this
---------
Agreement.
"Purchaser's Accountants" has the meaning ascribed to it in Section
----------------------- -------
1.03(b)(ii).
- -----------
- 62 -
<PAGE>
"Purchaser Indemnified Parties" means Purchaser and its officers,
-----------------------------
directors, employees, agents and Affiliates.
"Qualified Plan" means each Benefit Plan which is intended to qualify
--------------
under Section 401 of the Code.
"Real Property" has the meaning ascribed to it in Section 1.01(a)(i).
------------- ------------------
"Real Property Leases" has the meaning ascribed to it in
--------------------
Section 1.01(a)(ii).
- -------------------
"Receivables Notice" has the meaning ascribed to it in Section
------------------ -------
1.06(c).
- -------
"Release" means any release, spill, emission, leaking, pumping,
-------
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the indoor or outdoor environment, including, without limitation, the movement
of Hazardous Materials through ambient air, soil, surface water, ground water,
wetlands, land or subsurface strata.
"Resolution Period" means the period ending thirty (30) days following
-----------------
receipt by an Indemnified Party of a written notice from an Indemnifying Party
stating that it disputes all or any portion of a claim set forth in a Claim
Notice or an Indemnity Notice.
"SEC" means the Securities and Exchange Commission.
---
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations thereunder.
"Seller" has the meaning ascribed to it in the forepart of this
------
Agreement.
"Seller Common Stock" has the meaning ascribed to it in Section 2.02.
------------------- ------------
"Seller's Accountants" has the meaning ascribed to it in Section
-------------------- -------
1.03(b)(ii).
- -----------
- 63 -
<PAGE>
"Seller Indemnified Parties" means Seller and its officers, directors,
--------------------------
employees, agents and Affiliates.
"Subject Defined Benefit Plan" means each Defined Benefit Plan listed
----------------------------
and described in Section 2.12(a) of the Disclosure Schedule.
------------------------------------------
"Tangible Personal Property" has the meaning ascribed to it in
--------------------------
Section 1.01(a)(v).
- ------------------
"Taxes" means any Federal, Commonwealth, state, county, local or
-----
foreign income, profits, gross receipts, franchise, sales, use, occupancy,
excise gains, value added, withholding, employment, payroll, social security,
general property, personal property, intangible property and all other taxes of
any nature, fees, levies, duties, assessments, deficiencies or charges imposed
by any Governmental or Regulatory Authority, and includes any interest and
penalties (civil or criminal) on or additions to any such taxes and any expenses
incurred in connection with the determination, settlement or litigation of any
Tax Liability.
"Tax Returns" means a report, return or other information (including
-----------
any amendments) required to be supplied to a Governmental or Regulatory
Authority with respect to Taxes.
"Tenant Security Deposits" has the meaning ascribed to it in
------------------------
Section 1.01(a)(xii).
- --------------------
"Third Party Claim" has the meaning ascribed to it in Section 7.02(c).
----------------- ---------------
"Tools, Molds and Dies" has the meaning ascribed to it in Section
--------------------- -------
1.01(a)(iv).
- -----------
"Transfer Taxes" means all sales, use, transfer, real property
--------------
transfer, reporting, recording, gains, stock transfer and other similar taxes
and fees arising out of or in connection with the transactions effected pursuant
to this Agreement.
"Unaudited Financial Statement Date" means the last day of the most
----------------------------------
recent fiscal quarter of Seller for which Financial Statements are delivered to
Purchaser pursuant to Section 2.06.
------------
- 64 -
<PAGE>
"Unaudited Financial Statements" means the Financial Statements for
------------------------------
the most recent fiscal quarter of Seller delivered to Purchaser pursuant to
Section 2.06.
- ------------
"Vehicles" has the meaning ascribed to it in Section 1.01(a)(xi).
-------- -------------------
(b) Construction of Certain Terms and Phrases. Unless the context of
-----------------------------------------
this Agreement otherwise requires, (i) words of any gender include each other
gender; (ii) words using the singular or plural number also include the plural
or singular number, respectively; (iii) the terms "hereof," "herein," "hereby"
and derivative or similar words refer to this entire Agreement; (iv) the terms
"Article" or "Section" refer to the specified Article or Section of this
Agreement; and (v) the phrases "ordinary course of business" and "ordinary
course of business consistent with past practice" refer to the business and
practice of Seller in connection with the Business. Whenever this Agreement
refers to a number of days, such number shall refer to calendar days unless
Business Days are specified. All accounting terms used herein and not expressly
defined herein shall have the meanings given to them under GAAP.
ARTICLE IX
MISCELLANEOUS
9.01 Notices. All notices, requests and other communications
-------
hereunder must be in writing and will be deemed to have been duly given only if
delivered personally or by facsimile transmission or mailed (first class postage
prepaid) to the parties at the following addresses or facsimile numbers:
If to Parent or Purchaser, to:
Graham-Field Health Products, Inc.
400 Rabro Drive East
Hauppauge, NY 11788
Facsimile No.: (516) 582-5608
Attn: Richard S. Kolodny, Esq.
- 65 -
<PAGE>
with a copy to:
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, NY 10005
Facsimile No.: (212) 530-5219
Attn: Robert S. Reder, Esq.
and:
Fiddler, Gonzalez and Rodriguez
Chase Manhattan Bank Building
Munoz Rivera Avenue No. 254
Hato Rey, Puerto Rico 00918
Facsimile No.: (787) 759-3124
Attn: Jose Julian Alvarez
Purchaser Wire Transfer Instructions
------------------------------------
[name of bank]
[address]
ABA No.:
Account No.:
If to Seller, to:
VC Medical Distributors, Inc.
P.O. Box 4094
Hato Rey, Puerto Rico 00919
Facsimile No.:
Attn: Vicente Guzman, Jr.
with a copy to:
Caban & Yunque
Capital Center - Suite 301
Arterial Hostos Num. 3
Hato Rey, Puerto Rico 00918
Facsimile No.:
Attn: Jossie Yunque, Esq.
- 66 -
<PAGE>
Seller Wire Transfer Instructions
---------------------------------
[name of bank]
[address]
ABA No.:
Account No.:
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section, be deemed given upon receipt, and (iii) if delivered
by mail in the manner described above to the address as provided in this
Section, be deemed given upon receipt (in each case regardless of whether such
notice, request or other communication is received by any other Person to whom a
copy of such notice, request or other communication is to be delivered pursuant
to this Section). Any party from time to time may change its address, facsimile
number or other information for the purpose of notices to that party by giving
notice specifying such change to the other party hereto.
9.02 Entire Agreement. This Agreement supersedes all prior
----------------
discussions and agreements between the parties with respect to the subject
matter hereof, including without limitation that certain letter of intent
between the parties dated June 25, 1996, and contain the sole and entire
agreement between the parties hereto with respect to the subject matter hereof.
9.03 Expenses. Except as otherwise expressly provided in this
--------
Agreement, each party will pay its own costs and expenses incurred in connection
with the negotiation, execution and closing of this Agreement and the
transactions contemplated hereby.
9.04 Public Announcements. Each party hereto will obtain the other
--------------------
party's prior approval of any press release to be issued immediately following
the Closing announcing the consummation of the transactions contemplated by this
Agreement.
- 67 -
<PAGE>
9.05 Waiver. Any term or condition of this Agreement may be waived
------
at any time by the party that is entitled to the benefit thereof, but no such
waiver shall be effective unless set forth in a written instrument duly executed
by or on behalf of the party waiving such term or condition. No waiver by any
party of any term or condition of this Agreement, in any one or more instances,
shall be deemed to be or construed as a waiver of the same or any other term or
condition of this Agreement on any future occasion. All remedies, either under
this Agreement or by Law or otherwise afforded, will be cumulative and not
alternative.
9.06 Amendment. This Agreement may be amended, supplemented or
---------
modified only by a written instrument duly executed by or on behalf of each
party hereto.
9.07 No Third Party Beneficiary. The terms and provisions of this
--------------------------
Agreement are intended solely for the benefit of each party hereto and their
respective successors or permitted assigns, and it is not the intention of the
parties to confer third-party beneficiary rights upon any other Person other
than any Person entitled to indemnity under Section 7.02.
------------
9.08 No Assignment; Binding Effect. Neither this Agreement nor any
-----------------------------
right, interest or obligation hereunder may be assigned by any party hereto
without the prior written consent of the other party hereto and any attempt to
do so will be void, except (a) for assignments and transfers by operation of Law
and (b) that Purchaser may assign any or all of its rights, interests and
obligations hereunder to a wholly-owned subsidiary, provided that any such
--------
subsidiary agrees in writing to be bound by all of the terms, conditions and
provisions contained herein, but no such assignment shall relieve Purchaser of
its obligations hereunder. Subject to the preceding sentence, this Agreement is
binding upon, inures to the benefit of and is enforceable by the parties hereto
and their respective successors and assigns.
9.09 Headings. The headings used in this Agreement have been
--------
inserted for convenience of reference only and do not define or limit the
provisions hereof.
- 68 -
<PAGE>
9.10 Invalid Provisions. If any provision of this Agreement is held
------------------
to be illegal, invalid or unenforceable under any present or future Law, and if
the rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (a) such provision will be fully
severable, (b) this Agreement will be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised a part hereof, and (c)
the remaining provisions of this Agreement will remain in full force and effect
and will not be affected by the illegal, invalid or unenforceable provision or
by its severance herefrom.
9.11 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the Laws of the Commonwealth of Puerto Rico ap-
plicable to a Contract executed and performed in such Commonwealth, without
giving effect to the conflicts of laws principles thereof.
9.12 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
- 69 -
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officer of each party hereto as of the date
first above written.
GRAHAM-FIELD HEALTH PRODUCTS, INC.
By:/S/ RICHARD S. KOLODNY
----------------------
Name: RICHARD S. KOLODNY
Title:VICE PRESIDENT, GENERAL COUNSEL
GRAHAM-FIELD EXPRESS (PUERTO RICO),
INC.
By:/S/ RICHARD S. KOLODNY
----------------------
Name: RICHARD S. KOLODNY
Title: VICE PRESIDENT, GENERAL COUNSEL
V.C. MEDICAL DISTRIBUTORS INC.
By:/S/ VICENTE GUZMAN, JR.
-----------------------
Name: VICENTE GUZMAN, JR.
Title: PRESIDENT
- 70 -
EXHIBIT 10(a)
ESCROW AGREEMENT
ESCROW AGREEMENT, dated as of September 4, 1996, among Graham-Field
Express (Puerto Rico), Inc., a Delaware corporation ("Purchaser"), VC Medical
---------
Distributors, Inc. ("Seller"), and The Bank & Trust of Puerto Rico, as escrow
------
agent (the "Escrow Agent").
------------
WHEREAS, concurrently with the execution and delivery of this
Agreement and pursuant to an Asset Purchase Agreement dated as of September 4,
1996 (the "Asset Purchase Agreement"; capitalized terms not defined herein shall
------------------------
have the meanings ascribed to them in the Asset Purchase Agreement) among
Seller, Purchaser and Graham-Field Health Products, Inc., Seller is selling to
Purchaser substantially all of the assets of Seller used or held for use in the
conduct of the Business; and
WHEREAS, the Asset Purchase Agreement provides that Purchaser, Seller
and the Escrow Agent enter into this Agreement and that Purchaser deposit a
portion of the Purchase Price with the Escrow Agent in order to provide a fund
for (i) payment of a Purchase Price adjustment, if any, as provided in Section
1.03(b)(iv) of the Asset Purchase Agreement, (ii) payment with respect to
accounts receivable, as provided in Section 1.06(c) of the Asset Purchase
Agreement and (iii) indemnity payments that Seller becomes obligated to make to
Purchaser or its officers, directors, employees, agents or Affiliates (together,
the "Indemnified Parties") as and to the extent provided in Section 7.02 of the
-------------------
Asset Purchase Agreement.
NOW, THEREFORE, Purchaser, Seller and the Escrow Agent hereby agree as
follows:
1. Appointment of the Escrow Agent; Deposit of Escrow Shares. Seller
---------------------------------------------------------
and Purchaser hereby constitute and appoint the Escrow Agent as, and the Escrow
Agent hereby agrees to assume and perform the duties of, the escrow agent under
and pursuant to this Agreement. The Escrow Agent acknowledges receipt of an
executed copy of the Asset Purchase Agreement and of a
<PAGE>
certificate or certificates from Purchaser representing 32,787 shares of common
stock, par value $.025 per share, of Parent (such shares being referred to
herein as the "Escrow Shares" and, together with any funds deposited by Seller
-------------
with the Escrow Agent pursuant to Section 3, the "Escrow Fund") as provided in
--------- -----------
Section 1.04(a) of the Asset Purchase Agreement.
2. Holding of the Escrow Shares. The Escrow Agent shall hold the
----------------------------
Escrow Shares in escrow for the benefit of the parties hereto. The Escrow
Shares shall not be subject to lien or attachment by any creditor of any party
hereto and shall be used solely for the purpose set forth in this Agreement.
The Escrow Shares or any proceeds thereof shall not be available to, and shall
not be used by, the Escrow Agent to set off any obligations of either Seller or
Purchaser owing to the Escrow Agent in any capacity.
3. Payments to Escrow Fund.
-----------------------
(a) Not later than two (2) business days following the delivery of
any Escrow Shares to Purchaser pursuant to Sections 6, 7 or 8 hereof, Seller
-------- - - -
shall pay into the Escrow Fund, by wire transfer of immediately available funds
to the account of the Escrow Agent at The Bank & Trust of Puerto Rico, an amount
equal to the value of such Escrow Shares, valued at the Per Share Value.
(b) Any amounts paid by Seller into the Escrow Fund pursuant to
paragraph (a) of this Section 3 and all earnings thereon shall be held by the
---------
Escrow Agent as a trust fund in an account maintained for the purpose, on the
terms and subject to the conditions of this Agreement. Any such amounts (i)
shall not be subject to lien or attachment by any creditor of any party hereto
and shall be used solely for the purpose set forth in this Agreement and (ii)
shall not be available to, and shall not be used by, the Escrow Agent to set off
any obligations of either Seller or Purchaser owing to the Escrow Agent in any
capacity.
(c) All taxes in respect of earnings on the Escrow Fund shall be the
obligation of and shall be paid when due by Seller, who shall indemnify and hold
Purchaser and the Escrow Agent harmless from and against all such taxes.
- 2 -
<PAGE>
(d) The Escrow Agent shall invest and reinvest all cash funds held
from time to time as part of the Escrow Fund in the manner directed by Purchaser
in writing.
4. Dividends and other Distributions. The Escrow Agent shall, upon
---------------------------------
receipt thereof, deposit any dividends or other distributions made in respect of
the Escrow Shares into the account referred to in Section 3(b).
------------
5. Voting. Prior to the Termination Date, the Escrow Agent will vote
------
the Escrow Shares as directed by Seller in writing and will execute any written
consents to stockholder action or proxies as directed in writing by Seller. In
the absence of such written direction, the Escrow Agent shall not vote the
Escrow Shares for any purpose and will not execute any consents to stockholder
action or proxies.
- 3 -
<PAGE>
6. Claims Against the Escrow Fund.
------------------------------
(a) Concurrently with the delivery of an Indemnity Notice to Seller,
Purchaser will deliver to the Escrow Agent a certificate in substantially the
form of Annex I attached hereto (a "Certificate of Instruction"). No
------- --------------------------
Certificate of Instruction may be delivered by Purchaser after the close of
business on the business day immediately preceding the Termination Date. The
Escrow Agent shall give written notice to Seller of its receipt of a Certificate
of Instruction not later than the second business day next following receipt
thereof, together with a copy of such Certificate of Instruction.
(b) If the Escrow Agent (i) shall not, within thirty (30) calendar
days following its receipt of a Certificate of Instruction (the "Objection
---------
Period"), have received from Seller a certificate in substantially the form of
- ------
Annex II attached hereto (an "Objection Certificate") disputing Seller's
- -------- ---------------------
obligation to pay the Owed Amount referred to in such Certificate of
Instruction, or (ii) shall have received such an Objection Certificate within
the Objection Period and shall thereafter have received either (x) a certificate
from Purchaser and Seller substantially in the form of Annex III attached hereto
---------
(a "Resolution Certificate") stating that Purchaser and Seller have agreed that
----------------------
the Owed Amount referred to in such Certificate of Instruction (or a specified
portion thereof) is payable to one or more of the Indemnified Parties or (y) a
copy of a final, nonappealable order of a Board of Arbitration (accompanied by a
certificate of Purchaser substantially in the form of Annex IV attached hereto
--------
(an "Arbitration Certificate")) stating that the Owed Amount referred to in such
-----------------------
Certificate of Instruction (or a specified portion thereof) is payable to one or
more of the Indemnified Parties by Seller, then the Escrow Agent shall, on the
second business day next following (x) the expiration of the Objection Period or
(y) the Escrow Agent's receipt of a Resolution Certificate or an Arbitration
Certificate, as the case may be, pay to Purchaser from the Escrow Fund the Owed
Amount (or, if such Resolution Certificate or Arbitration Certificate specifies
that a lesser amount than such Owed Amount is payable, such lesser amount);
provided that the Escrow Shares, valued at the Per Share Value (as hereinafter
- --------
defined), shall be used to make such payments prior to the use of any funds
contained in the Escrow Fund. For purposes of this Agreement, "Per Share Value"
---------------
shall mean, with respect to each share of Common Stock, the closing market price
per share as quoted on The New York Stock
- 4 -
<PAGE>
Exchange and reported in The Wall Street Journal or The New York Times, as of
the close of business on the last trading day immediately preceding the Closing
Date.
(c) The Escrow Agent shall give written notice to Purchaser of its
receipt of an Objection Certificate not later than the second business day next
following receipt thereof, together with a copy of such Objection Certificate.
The Escrow Agent shall give written notice to Seller of its receipt of an
Arbitration Certificate not later than the second business day next following
receipt thereof, together with a copy of such Arbitration Certificate.
(d) Upon the payment by the Escrow Agent of the Owed Amount referred
to in a Certificate of Instruction, such Certificate of Instruction shall be
deemed canceled. Upon the receipt by the Escrow Agent of a Resolution
Certificate or an Arbitration Certificate and the payment by the Escrow Agent of
the Owed Amount referred to therein, the related Certificate of Instruction
shall be deemed canceled.
(e) Upon Purchaser's determination that it has no claim or has
released its claim with respect to an Owed Amount referred to in a Certificate
of Instruction (or a specified portion thereof), Purchaser will promptly deliver
to the Escrow Agent a certificate substantially in the form of Annex V attached
-------
hereto (a "Purchaser Cancellation Certificate") canceling such Certificate of
----------------------------------
Instruction (or such specified portion thereof, as the case may be), and such
Certificate of Instruction (or portion thereof) shall thereupon be deemed
canceled. The Escrow Agent shall give written notice to Seller of its receipt
of a Purchaser Cancellation Certificate not later than the second business day
next following receipt thereof, together with a copy of such Purchaser
Cancellation Certificate.
(f) Upon receipt of a final nonappealable order of a Board of
Arbitration stating that none of the Owed Amount referred to in a Certificate of
Instruction as to which Seller delivered an Objection Certificate within the
Objection Period is payable to any Indemnified Party by Seller, Seller may
deliver a copy of such order (accompanied by a certificate of Seller
substantially in the form of Annex VI attached hereto (a "Seller Cancellation
-------- -------------------
Certificate")) canceling such Certificate of Instruction, and such Certificate
- -----------
of Instruction shall thereupon be deemed canceled. The Escrow Agent shall give
written notice
- 5 -
<PAGE>
to Purchaser of its receipt of a Seller Cancellation Certificate not later than
the second business day next following receipt thereof, together with a copy of
such Seller Cancellation Certificate.
7. Claims for Purchase Price Adjustments. On the second business
-------------------------------------
day after the receipt by the Escrow Agent of a certificate of Seller and
Purchaser in substantially the form of Annex VII attached hereto (a "Purchase
--------- --------
Price Certificate"), the Escrow Agent shall pay to Purchaser from the Escrow
- -----------------
Fund the amount set forth on the Purchase Price Certificate; provided that the
--------
Escrow Shares, valued at the Per Share Value, shall be used to make such payment
prior to the use of any funds contained in the Escrow Fund.
8. Accounts Receivable Payment. On the second business day after
---------------------------
the receipt by the Escrow Agent of a certificate of Seller and Purchaser in
substantially the form of Annex VIII attached hereto (an "Accounts Receivable
---------- -------------------
Certificate"), the Escrow Agent shall pay to Purchaser from the Escrow Fund the
- -----------
amount set forth on the Accounts Receivable Certificate provided, that the
--------
Escrow Shares, valued at the Per Share Value, shall be used to make such payment
prior to the use of any funds contained in the Escrow Fund.
9. Release of Escrow Fund.
----------------------
The Escrow Agent shall on February 4, 1998 (the "Termination Date")
----------------
(i) deliver to Seller a certificate or certificates evidencing the remaining
number of Escrow Shares, if any, less that number of Escrow Shares as shall
represent (at the Per Share Value) any amounts designated in Certificates of
Instruction received by the Escrow Agent prior to the Termination Date that have
not been canceled in accordance with paragraph (d), (e) or (f) of Section 6 and
---------
(ii) pay over to Seller from the Escrow Fund all amounts that remain in the
Escrow Fund, by wire transfer of immediately available funds to a bank account
of Seller's designation, less the sum of any amounts designated in Certificates
of Instruction received by the Escrow Agent prior to the Termination Date that
have not been canceled in accordance with paragraph (d), (e) or (f) of Section 6
---------
and with respect to which Escrow Shares have not been retained in the Escrow
Fund pursuant to clause (i) of this Section 9. If at any time after the
---------
Termination Date the entire balance remaining in the Escrow Fund exceeds the sum
at that time of the amounts designated in
- 6 -
<PAGE>
Certificates of Instruction received by the Escrow Agent prior to the
Termination Date that have not been canceled in accordance with paragraph (d),
(e) or (f) of Section 6, the Escrow Agent shall promptly pay over to Seller from
---------
the Escrow Fund, by wire transfer of immediately available funds to a bank
account of Seller's designation, the amount of such excess; provided, that the
--------
funds contained in the Escrow Fund shall be used to make such payments prior to
the use of any Escrow Shares. At such time on or following the Termination Date
as all Certificates of Instruction received by the Escrow Agent prior to the
Termination Date have been canceled in accordance with paragraph (d), (e) or (f)
of Section 6, the Escrow Agent shall promptly pay over to Seller the balance in
---------
the Escrow Fund, by delivery of the certificate or certificates evidencing the
remaining number of Escrow Shares, if any, and by wire transfer of immediately
available funds to a bank account of Seller's designation, and this Agreement
(other than Sections 10, 11 and 12) shall automatically terminate.
----------- -- --
10. Duties and Obligations of the Escrow Agent. The duties and
------------------------------------------
obligations of the Escrow Agent shall be limited to and determined solely by the
provisions of this Agreement and the certificates delivered in accordance
herewith, and the Escrow Agent is not charged with knowledge of or any duties or
responsibilities in respect of any other agreement or document. In furtherance
and not in limitation of the foregoing:
(i) the Escrow Agent shall not be liable for any loss of interest
sustained as a result of investments made hereunder in accordance with the
terms hereof, including any liquidation of any investment of the Escrow
Fund prior to its maturity effected in order to make a payment required by
the terms of this Agreement;
(ii) the Escrow Agent shall be fully protected in relying in good
faith upon any written certification, notice, direction, request, waiver,
consent, receipt or other document that the Escrow Agent reasonably
believes to be genuine and duly authorized, executed and delivered;
(iii) the Escrow Agent shall not be liable for any error of judgment,
or for any act done or omitted by it, or for any mistake in fact or law, or
for anything that it may do or refrain from doing in connection herewith;
provided, however, that notwithstanding any other provision in this
-------- -------
- 7 -
<PAGE>
Agreement, the Escrow Agent shall be liable for its willful misconduct or
gross negligence or breach of this Agreement;
(iv) the Escrow Agent may seek the advice of legal counsel selected
with reasonable care in the event of any dispute or question as to the
construction of any of the provisions of this Agreement or its duties
hereunder, and it shall incur no liability and shall be fully protected in
respect of any action taken, omitted or suffered by it in good faith in
accordance with the opinion of such counsel;
(v) in the event that the Escrow Agent shall in any instance, after
seeking the advice of legal counsel pursuant to the immediately preceding
clause, in good faith be uncertain as to its duties or rights hereunder, it
shall be entitled to refrain from taking any action in that instance and
its sole obligation, in addition to those of its duties hereunder as to
which there is no such uncertainty, shall be to keep safely all property
held in the Escrow Fund until it shall be directed otherwise in writing by
each of the parties hereto or by a final, nonappealable order of a court of
competent jurisdiction; provided, however, in the event that the Escrow
-------- -------
Agent has not received such written direction or court order within one
hundred eighty (180) calendar days after requesting the same, it shall have
the right to interplead Purchaser and Seller in any court of competent
jurisdiction and request that such court determine its rights and duties
hereunder; and
(vi) the Escrow Agent may execute any of its powers or
responsibilities hereunder and exercise any rights hereunder either
directly or by or through agents or attorneys selected with reasonable
care, nothing in this Agreement shall be deemed to impose upon the Escrow
Agent any duty to qualify to do business or to act as fiduciary or
otherwise in any jurisdiction other than the Commonwealth of Puerto Rico
and the Escrow Agent shall not be responsible for and shall not be under a
duty to examine into or pass upon the validity, binding effect, execution
or sufficiency of this Agreement or of any agreement amendatory or
supplemental hereto.
11. Cooperation. Purchaser and Seller shall provide to the Escrow
-----------
Agent all instruments and documents within their
- 8 -
<PAGE>
respective powers to provide that are necessary for the Escrow Agent to perform
its duties and responsibilities hereunder.
12. Fees and Expenses; Indemnity. Purchaser and Seller shall each
----------------------------
pay one-half (1/2) of the fees of the Escrow Agent for its services hereunder as
and when billed by the Escrow Agent, and each shall reimburse and indemnify the
Escrow Agent for, and hold it harmless against, one-half (1/2) of any loss,
damages, cost or expense, including but not limited to reasonable attorneys'
fees, reasonably incurred by the Escrow Agent in connection with the Escrow
Agent's performance of its duties and obligations under this Agreement, as well
as the reasonable costs and expenses of defending against any claim or liability
relating to this Agreement; provided that notwithstanding the foregoing, neither
--------
Purchaser nor Seller shall be required to indemnify the Escrow Agent for any
such loss, liability, cost or expense arising as a result of the Escrow Agent's
willful misconduct or gross negligence or breach of this Agreement.
13. Resignation and Removal of the Escrow Agent.
-------------------------------------------
(a) The Escrow Agent may resign as such thirty (30) calendar days
following the giving of prior written notice thereof to Seller and Purchaser.
In addition, the Escrow Agent may be removed and replaced on a date designated
in a written instrument signed by Seller and Purchaser and delivered to the
Escrow Agent. Notwithstanding the foregoing, no such resignation or removal
shall be effective until a successor escrow agent has acknowledged its
appointment as such as provided in paragraph (c) below. In either event, upon
the effective date of such resignation or removal, the Escrow Agent shall
deliver the property comprising the Escrow Fund to such successor escrow agent,
together with such records maintained by the Escrow Agent in connection with its
duties hereunder and other information with respect to the Escrow Fund as such
successor may reasonably request.
(b) If a successor escrow agent shall not have acknowledged its
appointment as such as provided in paragraph (c) below, in the case of a
resignation, prior to the expiration of thirty (30) calendar days following the
date of a notice of resignation or, in the case of a removal, on the date
designated for the Escrow Agent's removal, as the case may be, because Seller
and Purchaser are unable to agree on a successor escrow agent, or for any other
reason, the Escrow Agent may select a
- 9 -
<PAGE>
successor escrow agent and any such resulting appointment shall be binding upon
all of the parties to this Agreement.
(c) Upon written acknowledgment by a successor escrow agent appointed
in accordance with the foregoing provisions of this Section 13 of its agreement
----------
to serve as escrow agent hereunder and the receipt of the property then
comprising the Escrow Fund, the Escrow Agent shall be fully released and
relieved of all duties, responsibilities and obligations under this Agreement,
subject to the proviso contained in clause (iii) of Section 10, and such
----------
successor escrow agent shall for all purposes hereof be the Escrow Agent.
14. Notices. All notices, requests and other communications
-------
hereunder must be in writing and will be deemed to have been duly given if
delivered personally or by facsimile transmission or mailed (first class postage
prepaid) to the parties at the following addresses or facsimile numbers:
If to Purchaser, to:
Graham-Field Express (Puerto Rico), Inc.
c/o Graham-Field Health Products, Inc.
400 Rabro Drive East
Hauppauge, New York 11788
Facsimile No.: (516) 582-5608
Attn: Richard S. Kolodny
with a copy to:
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005
Facsimile No.: (212) 530-5219
Attn: Robert S. Reder, Esq.
If to Seller, to:
VC Medical Distributors, Inc.
P.O. Box 4094
Hato Rey, Puerto Rico
Facsimile No.:
Attn: Vicente Guzman, Jr.
- 10 -
<PAGE>
with a copy to:
Caban & Yunque
Capital Center - Suite 301
Arterial Hostos Num. 3
Hato Rey, Puerto Rico 00918
Facsimile No.:
Attn: Jossie Yunque, Esq.
If to the Escrow Agent, to:
The Bank & Trust of Puerto Rico
Mezzanine, American International Plaza
250 Munoz Rivera Avenue
Hato Rey, Puerto Rico 00918
Facsimile No.: (809) 758-6238
Attn: Jose Vizcarrondo
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section, be deemed given upon receipt, and (iii) if delivered
by mail in the manner described above to the address as provided in this
Section, be deemed given upon receipt (in each case regardless of whether such
notice, request or other communication is received by any other Person to whom a
copy of such notice is to be delivered pursuant to this Section). Any party
from time to time may change its address, facsimile number or other information
for the purpose of notices to that party by giving notice specifying such change
to the other parties hereto.
15. Amendments, etc. This Agreement may be amended or modified, and
----------------
any of the terms hereof may be waived, only by a written instrument duly
executed by or on behalf of Purchaser and Seller and, with respect to any
amendment that would adversely affect the Escrow Agent, the Escrow Agent. No
waiver by any party of any term or condition contained of this Agreement, in any
one or more instances, shall be deemed to be or construed as a waiver of the
same or any other term or condition of this Agreement on any future occasion.
16. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the Commonwealth of Puerto Rico applicable to a
contract executed and performed in
- 11 -
<PAGE>
such State, without giving effect to the conflicts of laws principles thereof.
17. Business Day. For all purposes of this Agreement, the term
------------
"business day" shall mean a day other than Saturday, Sunday or any day on which
banks located in the State of New York or the Commonwealth of Puerto Rico are
authorized or obligated to close.
18. Miscellaneous. This Agreement is binding upon and will inure to
-------------
the benefit of the parties hereto and their respective successors and permitted
assigns. The headings used in this Agreement have been inserted for convenience
of reference only and do not define or limit the provisions hereof. This
Agreement may be executed in any number of counterparts, each of which will be
deemed an original, but all of which together will constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
GRAHAM-FIELD EXPRESS
(PUERTO RICO), INC.
By:/S/ RICHARD S. KOLODNY
----------------------
Name: RICHARD S. KOLODNY
Title:VICE PRESIDENT, GENERAL COUNSEL
VC MEDICAL DISTRIBUTORS, INC.
/S/ VICENTE GUZMAN, JR.
------------------------
THE BANK & TRUST OF PUERTO RICO
By:/S/ JOSE A. VIZCARRONDO
------------------------
Name: JOSE A. VIZCARRONDO
Title:VICE PRESIDENT
- 12 -
<PAGE>
ANNEX I
CERTIFICATE OF INSTRUCTION
to
THE BANK & TRUST OF PUERTO RICO
as Escrow Agent
The undersigned, Graham-Field Express (Puerto Rico), Inc., a Delaware
corporation ("Purchaser"), pursuant to Section 6(a) of the Escrow Agreement
---------
dated as of September 4, 1996 among Purchaser, VC Medical Distributors, Inc.
("Seller"), and you (terms defined in said Escrow Agreement have the same
------
meanings when used herein), hereby:
(a) certifies that (i) Purchaser or another Indemnified Party has
sent to Seller an Indemnity Notice (as such term is defined in the Asset
Purchase Agreement), a copy of which is attached hereto, and (ii) the
amount of $___________ (the "Owed Amount") is payable to the Indemnified
-----------
Parties by Seller pursuant to Section 7.02 of the Asset Purchase Agreement
by reason of the matter described in such Indemnity Notice; and
(b) instructs you to deliver to Purchaser a certificate evidencing
that number of Escrow Shares having a value (calculated pursuant to Section
6(b) of the Escrow Agreement) equal to the Owed Amount and, to the extent
the value of the Escrow Shares remaining in the Escrow Fund is less than
the Owed Amount, pay to Purchaser from the Escrow Fund the balance of the
Owed Amount, by wire transfer of immediately available funds to Purchaser's
account at _________________, __________________, _________, _________
(Account No.:_________), (i) unless you receive an Objection Certificate
from Seller prior to the expiration of the Objection Period, within two
business days following the expiration of the Objection Period, or (ii) if
you receive an Objection Certificate within the Objection Period, within
two business days following your receipt of a Resolution Certificate or an
Arbitration Certificate.
GRAHAM-FIELD EXPRESS
(PUERTO RICO), INC.
By:________________________________
Name:
Title:
Dated:____________, ____
<PAGE>
ANNEX II
OBJECTION CERTIFICATE
to
THE BANK & TRUST OF PUERTO RICO
as Escrow Agent
The undersigned, VC Medical Distributors, Inc. ("Seller"), pursuant to
------
Section 6(b) of the Escrow Agreement dated as of September 4, 1996 among Graham-
Field Express (Puerto Rico), Inc., a Delaware corporation ("Purchaser"), Seller
---------
and you (terms defined in said Escrow Agreement have the same meanings when used
herein), hereby:
(a) disputes that the Owed Amount referred to in the Certificate of
Instruction dated _________, ____ is payable to the Indemnified Parties by
the undersigned pursuant to Section 7.02 of the Asset Purchase Agreement;
(b) certifies that the undersigned has sent to Purchaser a written
statement dated ___________, ____ of the undersigned, a copy of which is
attached hereto, disputing its liability to the Indemnified Parties for the
Owed Amount; and
(c) objects to your making payment to Purchaser as provided in such
Certificate of Instruction.
VC MEDICAL DISTRIBUTORS, INC.
By:____________________________
Name:
Title:
Dated: _____________, ____
<PAGE>
ANNEX III
RESOLUTION CERTIFICATE
to
THE BANK & TRUST OF PUERTO RICO
as Escrow Agent
The undersigned, Graham-Field Express (Puerto Rico), Inc., a Delaware
corporation ("Purchaser"), VC Medical Distributors, Inc. ("Seller"), pursuant to
--------- ------
Section 6(b) of the Escrow Agreement dated as of September 4, 1996 among
Purchaser, Seller and you (terms defined in said Escrow Agreement have the same
meanings when used herein), hereby:
(a) certify that (i) Purchaser and Seller have resolved their dispute
as to the matter described in the Certificate of Instruction dated
__________, ____ and the related Objection Certificate dated ___________,
____ and (ii) the final Owed Amount with respect to the matter described in
such Certificates is $______________;
(b) instruct you to (i) deliver to Purchaser a certificate evidencing
that number of Escrow Shares having a value (calculated pursuant to Section
6(b) of the Escrow Agreement) equal to the Owed Amount referred to in
clause (ii) of paragraph (a) above, and (ii) to the extent the value of the
Escrow Shares remaining in the Escrow Fund is less than such Owed Amount,
pay to Purchaser from the Escrow Fund the balance of such Owed Amount, by
wire transfer of immediately available fund to Purchaser's account at
____________________, _________________, ________, ________ (Account No.:
___________), within two business days of your receipt of this Certificate;
and
(c) agree that the Owed Amount designated in such Certificate of
Instruction, to the extent, if any, it exceeds the Owed Amount referred to
in clause (ii) of paragraph (a) above, shall be deemed not payable to the
Indemnified Parties and such Certificate of Instruction is hereby canceled.
GRAHAM-FIELD EXPRESS
(PUERTO RICO), INC.
By:______________________________
Name:
Title:
VC MEDICAL DISTRIBUTORS, INC.
By:______________________________
Name:
Title:
Dated:______________, ____
<PAGE>
ANNEX IV
ARBITRATION CERTIFICATE
to
THE BANK & TRUST OF PUERTO RICO
as Escrow Agent
The undersigned, Graham-Field Express (Puerto Rico), Inc., a Delaware
corporation ("Purchaser"), pursuant to Section 6(b) of the Escrow Agreement
---------
dated as of September 4, 1996 among Purchaser, VC Medical Distributors, Inc.
("Seller"), and you (terms defined in said Escrow Agreement have the same
------
meanings when used herein), hereby:
(a) certifies that (i) attached hereto is a final, nonappealable
order of a Board of Arbitration resolving the dispute between Purchaser and
Seller as to the matter described in the Certificate of Instruction dated
____________, ____ and the related Objection Certificate dated
____________, ____ and (ii) the final Owed Amount with respect to the
matter described in such Certificates, as provided in such order, is
$______________;
(b) instructs you to (i) deliver to Purchaser a certificate
evidencing that number of Escrow Shares having a value (calculated pursuant
to Section 6(b) of the Escrow Agreement) equal to the Owed Amount referred
to in clause (ii) of paragraph (a) above, and (ii) to the extent the value
of the Escrow Shares remaining in the Escrow Fund is less than such Owed
Amount, pay to Purchaser from the Escrow Fund the balance of such Owed
Amount, by wire transfer of immediately available funds to Purchaser's
account at _____________________, ________________, _______, _______
(Account No.: ____________), within two business days of your receipt of
this Certificate; and
(c) agrees that the Owed Amount designated in such Certificate of
Instruction, to the extent, if any, it exceeds the Owed Amount referred to
in clause (ii) of paragraph (a) above, shall be deemed not payable to the
Indemnified Parties and such Certificate of Instruction is hereby canceled.
GRAHAM-FIELD EXPRESS
(PUERTO RICO), INC.
By:______________________________
Name:
Title:
Dated:______________, ____
<PAGE>
ANNEX V
PURCHASER CANCELLATION CERTIFICATE
to
THE BANK & TRUST OF PUERTO RICO
as Escrow Agent
The undersigned, Graham-Field Express (Puerto Rico), Inc., a Delaware
corporation ("Purchaser"), pursuant to Section 6(e) of the Escrow Agreement
---------
dated as of September 4, 1996 among Purchaser, VC Medical Distributors, Inc.
("Seller"), and you (terms defined in said Escrow Agreement have the same
------
meanings when used herein), hereby:
(a) certifies that (i) it hereby releases its claim against Seller
with respect to [all] [specify portion] of the Owed Amount designated in
the Certificate of Instruction dated _____________, ____ and (ii) as a
result the Owed Amount with respect to such Certificate of Instruction is
$__________; and
(b) agrees that such Certificate of Instruction is, to the extent
released as provided in clause (i) of paragraph (a) above, canceled.
GRAHAM-FIELD EXPRESS
(PUERTO RICO), INC.
By:______________________________
Name:
Title:
Dated:______________, ____
<PAGE>
ANNEX VI
SELLER CANCELLATION CERTIFICATE
to
THE BANK & TRUST OF PUERTO RICO
as Escrow Agent
The undersigned, VC Medical Distributors,Inc. ("Seller"), pursuant to
------
Section 6(f) of the Escrow Agreement dated as of September 4, 1996 among Graham-
Field Express (Puerto Rico), Inc., a Delaware corporation ("Purchaser"), Seller
---------
and you (terms defined in said Escrow Agreement have the same meanings when used
herein), hereby certifies that (i) attached hereto is a final, nonappealable
order of a Board of Arbitration resolving the dispute between Purchaser and
Seller as to the matter described in the Certificate of Instruction dated
____________, ____ and the related Objection Certificate dated ____________,
____ and (ii) as provided in such order, there is no Owed Amount with respect to
the matter described in such Certificates.
VC MEDICAL DISTRIBUTORS, INC.
By:_____________________________
Name:
Title:
Dated:______________, ____
<PAGE>
ANNEX VII
PURCHASE PRICE CERTIFICATE
to
THE BANK & TRUST OF PUERTO RICO
as Escrow Agent
The undersigned, Graham-Field Express (Puerto Rico), Inc., a Delaware
corporation ("Purchaser"), and VC Medical Distributors, Inc. ("Seller"),
--------- ------
pursuant to Section 7 of the Escrow Agreement dated as of September 4, 1996
among Purchaser, Seller and you (terms defined in said Escrow Agreement have the
same meanings when used herein), hereby instructs you to (i) deliver to
Purchaser a certificate evidencing that number of Escrow Shares having a value
(calculated pursuant to Section 6(b) of the Escrow Agreement) equal to $_______,
and (ii) to the extent the value of the Escrow Shares remaining in the Escrow
Fund is less than such amount, pay to Purchaser from the Escrow Fund the balance
of such amount, within two business days of your receipt of this Certificate.
GRAHAM-FIELD EXPRESS
(PUERTO RICO), INC.
By:______________________________
Name:
Title:
VC MEDICAL DISTRIBUTORS, INC.
By:______________________________
Name:
Title:
Dated:______________, ____
<PAGE>
ANNEX VIII
ACCOUNTS RECEIVABLE CERTIFICATE
to
THE BANK & TRUST OF PUERTO RICO
as Escrow Agent
The undersigned, Graham-Field Express (Puerto Rico), Inc., a Delaware
corporation ("Purchaser"), and VC Medical Distributors, Inc. ("Seller"),
--------- ------
pursuant to Section 8 of the Escrow Agreement dated as of September 4, 1996
among Purchaser, Seller and you (terms defined in said Escrow Agreement have the
same meanings when used herein), hereby instructs you to (i) deliver to
Purchaser a certificate evidencing that number of Escrow Shares having a value
(calculated pursuant to Section 6(b) of the Escrow Agreement) equal to $_______,
and (ii) to the extent the value of the Escrow Shares remaining in the Escrow
Fund is less than such amount, pay to Purchaser from the Escrow Fund the balance
of such amount, within two business days of your receipt of this Certificate.
GRAHAM-FIELD EXPRESS
(PUERTO RICO), INC.
By:______________________________
Name:
Title:
VC MEDICAL DISTRIBUTORS, INC.
By:______________________________
Name:
Title:
Dated:______________, ____
EXHIBIT 10(b)
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement"), made as of
September 4, 1996, by and between Graham-Field Express (Puerto Rico), Inc.
(the "Company"), a Delaware corporation having its principal place of business
at 1536 Ganges Street, El Paraiso Industrial Park, Rio Piedras, Puerto Rico
(the "Company"), and Vicente Guzman, Jr., an individual residing at Calle 3 B
21, Quintas, De San Luis, Caguas, Puerto Rico 00725 (the "Executive").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Graham-Field Health Products, Inc. ("GFHP"), the
ultimate parent company of the Company, and certain other parties have entered
into an Asset Purchase Agreement dated as of September 4, 1996 (the "Purchase
Agreement"), pursuant to which the Company has agreed to purchase substantially
all of the assets of V.C. Medical Distributors Inc.;
WHEREAS, the Executive is a shareholder and an employee of
V.C. Medical Distributors Inc. and will derive substantial economic benefits
from the performance of the Purchase Agreement;
<PAGE>
WHEREAS, the Purchase Agreement provides that, as a
condition of closing, the parties hereto enter into this Employment Agreement;
WHEREAS, the Company desires to retain the Executive as its
President to advance the business and interests of the Company on the terms and
conditions set forth herein;
WHEREAS, the Executive desires to provide his services to
the Company in such capacities, on and subject to the terms and conditions
hereof; and
WHEREAS, in order that the Executive may participate in the
growth and performance of ("GFHP"), the ultimate parent company of the Company,
the Company desires to provide the Executive with the opportunity to acquire
options of GFHP as set forth herein;
NOW, THEREFORE, in order to induce the Company to perform
its obligations under the Purchase Agreement, and in consideration of the
promises and mutual covenants set forth herein and other good and valuable
consideration, the parties hereto hereby agree as follows:
1. Employment. Subject to all of the terms and conditions
----------
hereof, the Company does hereby employ the Executive, effective as
-2-
<PAGE>
of September 4, 1996 (the "Effective Date"), for a term commencing on the date
hereof and ending on the date which is five (5) years after the date hereof
(subject to early termination as provided herein) (the "Employment Term"), as
the President of the Company, and the Executive does hereby accept such
employment.
2. Duties of Executive. The Executive shall, during the
-------------------
term of employment hereunder, perform such executive and administrative duties
and functions as may from time to time be appropriate, subject at all times to
the control and direction of the Board of Directors and the Chairman of the
Board and Chief Executive Officer of the Company. The Executive agrees to
devote all of his business time to the business and affairs of the Company. The
Executive agrees to perform his duties hereunder faithfully, diligently and to
the best of his abilities and to refrain from engaging in any other business
activity that does, will or could be deemed to interfere with the performance of
his duties hereunder or does, will or could reasonably be deemed to conflict
with the best interests of the Company. The Executive agrees to accept the
payments to be made to him under this Agreement, and the stock options of GFHP
to be issued to him under this Agreement, as full and complete compensation for
the services
-3-
<PAGE>
required to be performed by, and the covenants of, the Executive under this
Agreement.
3. Compensation.
------------
3.1 Base Salary. The Company agrees to pay the
-----------
Executive an annual base salary at the rate of Eighty Thousand Dollars ($80,000)
per annum, subject to applicable federal, state and local withholding (the "Base
Salary"), payable in substantially equal installments every week or in such
other manner as the Company may generally pay its employees. The Base Salary
may be increased, but not decreased, from time to time; provided, however, that
-------- -------
this Agreement shall not be deemed abrogated or terminated if the Company shall
determine to increase the Base Salary (or any other compensation of the
Executive) for any period of time, or if the Executive shall accept such
increase. The Company agrees to review the Base Salary of the Executive on an
annual basis; but nothing contained herein shall be deemed to obligate the
Company to increase the Base Salary at such time, or at any other time.
Notwithstanding anything contained herein, the Base Salary may not be decreased
by the Company without the consent of the Executive.
3.2 Regular Benefits. The Executive shall be entitled
----------------
to participate in any health insurance, accident
-4-
<PAGE>
insurance, hospitalization insurance, life insurance, pension, or any other
similar plan or benefit afforded by GFHP to its executives generally, if and to
the extent that the Executive is eligible to participate in accordance with the
provisions of any such insurance, plan or benefit generally (such benefits,
collectively, the "Regular Benefits"). Nothing contained herein is intended, or
shall be construed, to require GFHP to institute or retain any Regular Benefit,
or any particular plan, insurance or benefits.
3.3 Bonus Program. In order to provide performance-
-------------
based incentive compensation to the Executive, the Company hereby agrees to pay
the Executive, in addition to the Base Salary, a bonus (the "Cash Bonus") in
respect of each calendar year during the Employment Term, equal to five (5)
percent of the pre-tax profits of the Company. The Company's pre-tax profits
shall be determined by the Board of Directors of the Company (or a subcommittee
thereof appointed for such purpose) based on the unaudited financial statements
of the Company with respect to the each calendar year, which shall be prepared
in accordance with generally accepted accounting principles on a "stand-alone"
basis (i.e., actual costs and expenses of the Company and direct and
----
-5-
<PAGE>
indirect allocable costs and expenses shall be taken into account in the
preparation of the unaudited financial statements on a "stand-alone" basis), and
shall not include any commissions or payments to the Company and/or the
Executive from Transworld Home Healthcare Services. The Board of Directors of
the Company (or a subcommittee thereof appointed for such purpose) shall
determine the extent, if any, to which the Cash Bonus shall have been earned,
which determination shall be made on or before the ninetieth (90th) day (the
--
"Determination Date") following the completion of each applicable calendar year
during the Employment Term. The Cash Bonus, if any, shall be paid to the
Executive on the tenth (10th) business day following the Determination Date (the
--
"Payment Date"). In any event, all matters pertaining to the determination of
the Company's pre-tax profits and the payment of the Cash Bonus to the Executive
hereunder, shall be administered by the Board of Directors of the Company (or a
subcommittee thereof appointed for such purpose) in its reasonable discretion
consistent with the terms hereof, the determination of which shall be final,
conclusive and binding for all purposes. Except as otherwise provided herein,
no Cash Bonus shall be deemed earned or payable with respect to any
-6-
<PAGE>
calendar year during which this Agreement or the Executive's employment by the
Company is terminated for any reason.
3.4 Automobile Allowance. The Company recognizes that
--------------------
the Executive will require the use of an automobile for business purposes.
Therefore, the Company will provide the Executive with an automobile allowance
of $500.00 per month. In addition, the Company will reimburse the Executive for
his reasonable costs associated with routine maintenance relating to the upkeep
of the automobile and gas expenses for the operation of the automobile for
business purposes.
4. Termination and Severance Arrangements.
--------------------------------------
(a) The Executive's employment hereunder may be
terminated under the following circumstances:
(i) The Executive may terminate his employment
hereunder at any time on not less than thirty (30) days' prior written notice to
the Company.
(ii) In the event of the death of or adjudicated
incompetency or adjudicated insanity of the Executive during the Employment
Term, this Agreement and all benefits payable hereunder shall terminate on the
date of death or adjudication of incompetency or adjudicated insanity of the
Executive.
-7-
<PAGE>
(iii) If the Executive, because of illness, injury
or other incapacitating condition, is unable to perform the services required to
be performed by him under this Agreement for a period or periods aggregating
more than forty-five (45) days in any twelve (12) consecutive months or a period
of thirty (30) consecutive days during any twelve (12) month period, then the
Company, in its sole discretion, may terminate this Agreement by giving notice
thereof to the Executive, and this Agreement and all benefits payable hereunder
shall terminate upon the date of such notice.
(iv) The Company may terminate the Executive's
employment at any time for Cause. For purposes of this Agreement, the term
"Cause" shall mean: (A) gross negligence of the Executive in the performance of
his duties, (B) willful neglect of his duties, (C) the Executive's commission of
any felony or any misdemeanor involving violence, drugs, dishonesty or a breach
of trust, (D) any misappropriation of any property to the Company or any of its
"affiliates" (as such term is defined herein) (whether or not a felony or
misdemeanor), or any embezzlement of the Company's or its affiliates' property,
(E) the willful engagement by the Executive in conduct which is injurious to the
Company or
-8-
<PAGE>
any of its affiliates, (F) the Executive's material breach of any of the
covenants contained herein. As used herein, the term "affiliates" shall have
the meaning ascribed to such term in Rule 405 of the Securities Act of 1933, as
amended, and shall include, but not be limited to, GFHP and each of its direct
and indirect subsidiaries.
(b) Upon any termination of the Executive's employment
under Section 4(a) of this Agreement, the Executive shall be entitled to receive
solely all amounts and benefits to be paid or provided by the Company under
Sections 3.1 and 3.2 of this Agreement to the date of such termination;
provided, however, in the event of the termination of the Executive's employment
- -------- -------
under Section 4(a)(ii) or Section 4 (a)(iii), the Executive shall also be
entitled to the Cash Bonus as provided under Section 3.3, which shall be pro-
rated through the date of such termination. In the event the Executive's
employment is terminated by the Company for any reason other than pursuant to
Section 4(a) of this Agreement, the Executive shall be entitled to receive
solely all amounts and benefits to be paid or provided by the Company under
Sections 3.1 and 3.2 of this Agreement through the fifth (5th) anniversary date
--
of the Effective Date.
-9-
<PAGE>
5. Stock Options.
-------------
5.1 Incentive Stock Options. In order to provide the
-----------------------
Executive with the opportunity to participate in the growth of GFHP, GFHP hereby
agrees to grant to the Executive, effective as of the date hereof (the "Grant
Date"), an incentive stock option (such option, the "ISO") within the meaning of
Section 422A of the Internal Revenue Code of 1986, as amended, under the terms
and provisions of GFHP's Incentive Program, as amended (the "Incentive
Program"), to purchase Ten Thousand (10,000) shares of the common stock, par
value $.025 per share (the "Common Stock"), of GFHP at an exercise price equal
to the closing price of the Common Stock as reported on the New York Stock
Exchange Composite Tape on the Grant Date. The ISO shall be exercisable,
subject to the terms set forth in the Incentive Stock Option Agreement (a copy
of which is attached hereto as Exhibit I), which are incorporated herein by
reference.
6. Executive Covenants.
-------------------
6.1 Non-Competition Covenant.
------------------------
(a) In consideration of the payments to be made to the
Executive under this Agreement, the Executive expressly covenants and agrees
that, during the period commencing on the
-10-
<PAGE>
Effective Date and ending on the first year anniversary of the Termination Date
(as hereinafter defined), he will not directly or indirectly, own, manage,
operate, join, control or participate in or be connected with as an officer,
employee, consultant, partner, stockholder, lender, or otherwise, any
Competitor, as defined below, or any subsidiary or affiliate thereof. For
purposes hereof, a "Competitor" shall be deemed to mean any business,
individual, partnership, firm, corporation or organization (other than GFHP or
any direct or indirect subsidiary or affiliate of GFHP (collectively, the "GFHP
Affiliates")) anywhere in the Commonwealth of Puerto Rico which is (i) in
competition with the then-business of the Company or any GFHP Affiliate, (ii)
involved in a business activity of a type not yet engaged in by the Company or
any GFHP Affiliate but with respect to which the Company or any GFHP Affiliate
has made a material commitment at the time of the Termination Date and the
Executive is aware of such commitment, or (iii) involved in the business of the
Company or any GFHP Affiliate as then conducted by any person, firm or
corporation which shall succeed to all or a substantial part of the business of
the Company or any GFHP Affiliate.
-11-
<PAGE>
(b) Nothing in this Agreement is intended, or shall be
construed, to prevent Executive during the term hereof or thereafter from
investing in the stock or other securities listed on a national securities
exchange or traded in the over-the-counter market of any corporation which is at
the time a Competitor provided that Executive and members of his immediate
family shall not, directly or indirectly, hold, beneficially or otherwise, in
the aggregate, more than one percent (1%) of any issue of such stock or other
securities of any one (1) such corporation.
(c) During the period commencing on the date hereof
and ending on the first year anniversary of the Termination
-12-
<PAGE>
Date, the Executive agrees that he will not, directly or indirectly, interfere
with or solicit (i) any of the business or accounts of the Company or any of the
GFHP Affiliates which existed as of the Termination Date or for the twelve (12)
month periods prior and subsequent thereto, or (ii) any prospective customer of
the Company or any GFHP Affiliate whose business the Company or any GFHP
Affiliate is in the process of soliciting at the time of, or had solicited in
the twelve (12) months prior and subsequent to, the Termination Date; and during
the period commencing on the date hereof and ending on the first year
anniversary of the Termination Date, the Executive agrees that he will not,
directly or indirectly, solicit (i) the employment of or hire any employee or
representative of the Company or any of the GFHP Affiliates who was so employed,
or otherwise had a commercial relationship with the Company or any GFHP
Affiliate, on the Termination Date or at any time during the twelve (12) month
periods prior and subsequent thereto, or (ii) in competition with the Company or
any of the GFHP Affiliates, any supplier of the Company or any of the GFHP
Affiliates or induce or request any such person or business entity to curtail or
terminate its commercial or employment relationship with the Company or any of
the GFHP Affiliates.
(d) Notwithstanding the foregoing, this Section 6.1
shall not be deemed to be violated by the Executive by reason of the ownership
by the Executive's immediate family of certain businesses engaged in the sale
and marketing of medical products, including, but not limited to, Vicente Sales
and Service, V.C. Healthcare, and Mid-State Medical, provided the Executive does
not, directly or indirectly, own, manage, operate, join, control or participate
in or be connected with as an officer, employee, consultant, partner,
stockholder or lender or otherwise, with respect to any of such businesses
(except through the laws of
-13-
<PAGE>
intestacy or inheritance, in which case the Executive shall use his best efforts
to divest himself of such businesses within a reasonable period of time).
(e) As used herein, "Termination Date" means the later
to occur of (i) the fifth (5th) anniversary date of the Effective Date of this
--
Agreement, or (ii) the first date as of which the Executive ceases to be engaged
by the Company, or any of the GFHP Affiliates, in any capacity whatsoever,
whether as an employee, consultant, independent contractor, agent or otherwise,
and whether pursuant to a formal or informal, oral or written, agreement,
contract, understanding or otherwise.
6.2 Confidential Information. The Executive expressly
------------------------
covenants and agrees that he will not at any time, whether during or after his
employment by the Company, directly or indirectly, use or permit the use of any
trade secrets, confidential information, or proprietary information (including,
without limitation, customer lists, costing information, technical information,
software techniques, business plans, marketing data, financial information or
similar items) of, or relating to, the Company, or any affiliate of the Company,
in connection with any activity or business, whether for his own account or
otherwise
-14-
<PAGE>
(except solely the business of the Company, if and to the extent that the
Executive is then an employee of the Company) and will not divulge such trade
secrets, confidential information or proprietary information to any person,
firm, corporation or other entity whatsoever. As between the Company and the
Executive, the identity of customers known to the Executive prior to the
Effective Date, the Executive's contacts and relations with individuals and
entities prior to the Effective Date and the Executive's "know-how" shall not be
deemed confidential or proprietary to the Company. Any information which
becomes known to the public without breach by the Executive of any of the terms
hereof or of Executive's common law duties shall not be deemed to be trade
secret or confidential or proprietary information of the Company.
6.3 Ownership by Company. The Executive acknowledges
--------------------
and agrees that all of his work product created, produced or conceived in
connection with his association with the Company shall be deemed work for hire
and shall be deemed owned exclusively by the Company. Without limiting the
generality of the foregoing, the Executive agrees that the Company shall have
and possess all proprietary rights, patent rights, copyright rights and trade
secret rights as may exist in such work product or as which
-15-
<PAGE>
are inherent therein or appurtenant thereto. The Executive agrees to execute
and deliver all documents required by the Company to document or perfect the
Company's proprietary rights in and to the Executive's work product.
6.4 Remedies. In the event of the breach by Executive
--------
of any of the terms and conditions of this Agreement on his part to be performed
hereunder, or in the event of the breach or threatened breach by Executive of
any of the terms and provisions of this Section 6, then the Company shall be
entitled, if it so elects, to institute and prosecute any proceedings in any
court of competent jurisdiction, either in law or equity, for such relief as it
deems appropriate, including, without limiting the generality of the foregoing,
any proceedings to obtain provable damages for any breach of this Agreement, to
enforce the specific performance thereof by Executive or to obtain an injunction
against the commission, threatened commission or continuance of any such breach
or threatened breach without the necessity of proving actual damages or that
damages would be inadequate or of posting a bond. In any such action, if the
Company is successful, in whole or in part, Executive shall further, as an
element of the Company's damages, be liable for the reasonable attorney's fees
and expenses
-16-
<PAGE>
of the Company in the prosecution of such action or proceeding; provided,
however, that if the Company does not prevail, in whole or in part, in any such
action or proceeding, and the matter is not otherwise settled by mutual
agreement of the parties, the Company shall reimburse the Executive for the
reasonable attorneys' fees and expenses of the Executive in defending against
such action or proceeding, as well as any damages, if any. If the Executive
violates the provisions of paragraphs (a), (b) or (c) of Section 6.1, the time
period set forth therein shall be extended until after the date of entry of
final judgment enforcing such provision and the time allowed for appeal has
lapsed (the "Judgment Date") by a period equal to the time elapsed between the
commencement of the breach or threatened breach and the Judgment Date.
6.5 Covenants Non-Exclusive. Each of the Executive
-----------------------
and the Company acknowledges and agrees that the covenants contained in this
Section 6 shall not be deemed exclusive of any common law rights of the Company
and the Executive in connection with the relationships contemplated hereby; and
that each of the Company and the Executive shall have any and all rights as may
be provided by law in connection with the relationships contemplated hereby.
-17-
<PAGE>
7. General.
-------
7.1 Applicable Law. This Agreement shall, in all
--------------
respects, be governed by the laws of the Commonwealth of Puerto Rico.
7.2 Arbitration. The parties to this Agreement agree
-----------
that any dispute relating to this Agreement shall be submitted to arbitration
pursuant to this Section 7.2 which shall be finally and conclusively settled by
the decision of a board of arbitration consisting of three (3) members
(hereinafter sometimes called the "Board of Arbitration") selected as
hereinafter provided. Each of the Executive and the Company shall select one
(1) member and the third member shall be selected by mutual agreement of the
other members, or if the other members fail to reach agreement on a third member
within twenty (20) days after their selection, such third member shall
thereafter be selected by the American Arbitration Association upon application
made to it by the parties for a third member possessing expertise or experience
appropriate to the dispute. The Board of Arbitration shall meet in Miami,
Florida or such other place as a majority of the members of the Board of
Arbitration determines more appropriate, and shall reach and render a decision
in writing (concurred in by a majority
-18-
<PAGE>
of the members of the Board of Arbitration) with respect to the dispute. In
connection with rendering its decision, the Board of Arbitration shall adopt and
follow such rules and procedures as a majority of the members of the Board of
Arbitration deems necessary or appropriate. It is the intent of the parties
hereto that, barring extraordinary circumstances, decisions of the Board of
Arbitration shall be rendered no more than thirty (30) days following
commencement of proceedings with respect thereto. The Board of Arbitration
shall cause its written decision to be delivered to each of the parties. Any
decision made by the Board of Arbitration (either prior to or after the
expiration of such thirty (30) calendar day period) shall be final, binding and
conclusive on each of the parties and entitled to be enforced to the fullest
extent permitted by law and entered in any court of competent jurisdiction.
Each party to any arbitration shall bear its own expense in relation thereto,
including but not limited to such party's attorneys' fees, if any, and the
expenses and fees of the Board of Arbitration shall be shared equally between
each of the parties.
7.3 Survival. Except as otherwise provided herein,
--------
the parties hereto agree that the covenants contained in Section 6
-19-
<PAGE>
hereof shall survive any termination of employment by the Executive and any
termination of this Agreement. In addition, the parties hereto agree that any
compensation or right which shall have accrued to the Executive as of the date
of any termination of employment or termination hereof shall survive any such
termination and shall be paid when due to the extent accrued on the date of such
termination.
7.4 Independent Representation. The Executive
--------------------------
acknowledges that he has had the opportunity to seek independent counsel and tax
advice in connection with the execution of this Agreement, and the Executive
represents and warrants to the Company (a) that he has sought such counsel and
advice as he has deemed appropriate in connection with the execution hereof and
the transactions contemplated hereby; and (b) that he has not relied on any
representation of the Company as to tax matters or as to the consequences of the
execution hereof.
7.5 Notices. Any and all notices required or desired
-------
to be given hereunder by any party shall be in writing and shall be validly
given or made to another party if delivered either personally, by telex,
facsimile transmission, same day delivery service, overnight expedited delivery
service, or if deposited in
-20-
<PAGE>
the United States Mail, certified or registered, postage prepaid, return receipt
requested. If notice is served personally, notice shall be deemed effective
upon receipt. If notice is served by telex or by facsimile transmission, notice
shall be deemed effective upon transmission, provided that such notice is
confirmed in writing by the sender within one day after transmission. If notice
is served by same day delivery service or overnight expedited delivery service,
notice shall be deemed effective the day after it is sent, and if notice is
given by United States mail, notice shall be deemed effective five days after it
is sent. In all instances, notice shall be sent to the parties at the following
addresses:
If to the Company:
Graham-Field Express (Puerto Rico) Inc.
400 Rabro Drive East
Hauppauge, New York 11788
Attention: Mr. Irwin Selinger
Chairman of the Board and
Chief Executive Officer
If to the Executive:
Mr. Vicente Guzman, Jr.
Calle 3 B 21
Quintas, De San Luis
Caguas, Puerto Rico 00725
-21-
<PAGE>
Any party may change its address for the purpose of
receiving notices by a written notice given to the other party.
7.6 Modifications or Amendments. No amendment, change
---------------------------
or modification of this document shall be valid unless in writing and signed by
all of the parties hereto.
7.7 Waiver. No reliance upon or waiver of one or more
------
provisions of this Agreement shall constitute a waiver of any other provisions
hereof.
7.8 Successors and Assigns. All of the terms and
----------------------
provisions contained herein shall inure to the benefit of and shall be binding
upon the parties hereto and their respective heirs, personal representatives,
successors and assigns. However, no party shall voluntarily assign any rights
hereunder, or delegate any duties hereunder, except upon the prior written
consent of the other.
7.9 Separate Counterparts. This document may be
---------------------
executed in one or more separate counterparts, each of which, when so executed,
shall be deemed to be an original. Such counterparts shall, together,
constitute and shall be one and the same instrument.
-22-
<PAGE>
7.10 Headings. The captions appearing at the
--------
commencement of the sections hereof are descriptive only and are for convenience
of reference. Should there be any conflict between any such caption and the
section at the head of which it appears, the substantive provisions of such
section and not such caption shall control and govern in the construction of
this document.
7.11 Further Assurances. Each of the parties hereto
------------------
shall execute and deliver any and all additional papers, documents and other
assurances, and shall do any and all acts and things reasonably necessary in
connection with the performance of their obligations hereunder and to carry out
the intent of the parties hereto.
7.12 Entire Agreement. This Agreement constitutes the
----------------
entire understanding and agreement of the parties with respect to the subject
matter of this Agreement, and any and all prior agreements, understandings or
representations are hereby terminated and canceled in their entirety.
-23-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
GRAHAM-FIELD EXPRESS VICENTE GUZMAN, JR.
(PUERTO RICO), INC.
By:/S/ RICHARD S. KOLODNY /S/ VICENTE GUZMAN, JR.
---------------------- -----------------------
Name: RICHARD S. KOLODNY VICENTE GUZMAN, JR.
Title:VICE PRESIDENT, GENERAL COUNSEL
-24-
FOR IMMEDIATE RELEASE Contacts: Richard S. Kolodny
Vice President,
GRAHAM-FIELD HEALTH PRODUCTS, INC. General Counsel
400 RABRO DRIVE EAST Gary M. Jacobs
Vice President, Finance
HAUPPAUGE, NEW YORK 11788 Chief Financial Officer
(516) 582-5900
GRAHAM-FIELD HEALTH PRODUCTS, INC.
TO ACQUIRE V.C. MEDICAL DISTRIBUTORS INC.
-----------------------------------------
HAUPPAUGE, NEW YORK, June 28, 1996--Graham-Field Health Products, Inc. (NYSE-
GFI), a manufacturer and supplier of healthcare products, announced that it has
entered into a letter of intent to acquire V.C. Medical Distributors Inc., a
wholesale distributor of medical products in Puerto Rico, for a purchase price
of approximately $1.5 million, consisting of cash in the amount of $1,250,000
with the balance payable in shares of common stock of Graham-Field. As
additional consideration, Graham-Field will pay $500,000 to V.C. Medical
Distributors provided the business achieves certain earnings levels during the
one year period following the closing. V.C. Medical Distributors, a privately
owned company, generates revenues of approximately $5 million annually.
The acquisition of V.C. Medical Distributors will be the first step in the
nationwide roll-out of the GF Express program, and will become "GF Express,
Puerto Rico." GF Express, Puerto Rico will provide "same-day" and "next-day"
service to home healthcare dealers of certain strategic home healthcare
products, including, Temco patient aids, Everest & Jennings wheelchairs and
homecare
<PAGE>
beds, adult incontinence products, and nutritional supplements. The principal
of V.C. Medical, Vicente Guzman, Jr., will become President of GF Express,
Puerto Rico. Through GF Express, Puerto Rico, the Company will increase its
revenues and presence in Puerto Rico, as well as expand the line of products
currently offered by V.C. Medical to its customer base consisting of
approximately 200 customers.
The transaction, which is currently anticipated to be completed in July 1996, is
subject to, among other things, due diligence, approval by the Board of
Directors of Graham-Field, the negotiation and execution of definitive
documentation, the receipt of certain corporate and regulatory approvals, and
the satisfaction of other customary terms and conditions.
In late March 1996, the Company introduced "GF Express," in the Metropolitan,
New York area, which offers its customers one of the most personalized service
alternatives in the industry. According to Irwin Selinger, Chairman of the
Board and Chief Executive Officer, "We are very pleased with the results of GF
Express and will continue to expand the GF Express program on a nationwide
basis. The acquisition of V.C. Medical will enable Graham-Field to establish a
GF Express in Puerto Rico under the leadership of Vicente Guzman, Jr., who has
developed a significant customer base and prominent reputation in Puerto Rico.
The acquisition will provide Graham-Field with the opportunity to promote its
proprietary product lines in this territory."
Graham-Field manufactures, markets and distributes more than 22,000 healthcare
products for hospital, physician and home use to approximately 16,000 home
healthcare, physician, hospital supply and pharmaceutical distributors,
retailers and wholesalers.
- 2 -
FOR IMMEDIATE RELEASE Contacts: Richard S. Kolodny
Vice President,
GRAHAM-FIELD HEALTH PRODUCTS, INC. General Counsel
400 RABRO DRIVE EAST Gary M. Jacobs
Vice President, Finance
HAUPPAUGE, NEW YORK 11788 Chief Financial Officer
(516) 582-5900
GRAHAM-FIELD HEALTH PRODUCTS, INC.
ACQUIRES V.C. MEDICAL DISTRIBUTORS INC.
---------------------------------------
HAUPPAUGE, NEW YORK, September 5, 1996--Graham-Field Health Products, Inc.
(NYSE-GFI), a manufacturer and supplier of healthcare products, announced that
it has acquired V.C. Medical Distributors Inc., a wholesale distributor of
medical products in Puerto Rico, for a purchase price of approximately $1.95
million, representing the net book value of V.C. Medical plus approximately
$850,000. The purchase price consisted of cash in the amount of approximately
$1.7 million, with the balance payable in shares of common stock of Graham-Field
into an escrow account. The purchase price is subject to adjustment upon the
final determination of the closing date net book value of V.C. Medical. As
additional consideration, Graham-Field will pay $500,000 to V.C. Medical
provided the business achieves certain earnings levels during the one year
period following the closing. V.C. Medical, a privately owned company,
generates annual revenues of approximately $5 million.
The acquisition of V.C. Medical is the first step in the nationwide roll-out of
the GF Express
<PAGE>
program, and will operate under the name "GF Express, Puerto Rico." GF Express,
Puerto Rico will provide "same-day" and "next-day" service to home healthcare
dealers in Puerto Rico of certain strategic home healthcare products, including,
Temco patient aids, Everest & Jennings wheelchairs and homecare beds, adult
incontinence products, and nutritional supplements. The principal of V.C.
Medical, Vicente Guzman, Jr., has become President of GF Express, Puerto Rico.
Through GF Express, Puerto Rico, the Company will increase its revenues and
presence in Puerto Rico, as well as expand the line of products currently
offered by V.C. Medical to its customer base consisting of approximately 200
customers.
In late March 1996, the Company introduced "GF Express," in the Metropolitan,
New York area, which offers its customers one of the most personalized service
alternatives in the industry. According to Irwin Selinger, Chairman of the
Board and Chief Executive Officer, "Graham-Field is very pleased with the
results of GF Express and will continue to expand the GF Express program on a
nationwide basis. The acquisition of V.C. Medical will enable Graham-Field to
establish a GF Express in Puerto Rico under the leadership of Vicente Guzman,
Jr., who has developed a significant customer base and prominent reputation in
Puerto Rico. The acquisition will provide Graham-Field with the opportunity to
promote its proprietary product lines in this territory."
Graham-Field manufactures, markets and distributes more than 23,000 healthcare
products for hospital, physician and home use to approximately 15,000 home
healthcare, physician, hospital supply and pharmaceutical distributors,
retailers and wholesalers.
- 2 -
