UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1995.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
Commission File No.: 0-10881 NY
GRAHAM-FIELD HEALTH PRODUCTS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 11-2578230
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 Rabro Drive East, Hauppauge, New York 11788
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 582-5900
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, par value $.025 per share New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
Not Applicable
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(Title of Class)
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Sec.229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K [ ].
Based on the closing price on March 15, 1996, the aggregate market value of
voting stock held by non-affiliates of the registrant was approximately
$57,893,940.
As of the close of business on March 15, 1996, the registrant had
14,111,153 shares of common stock outstanding, of $.025 par value each.
DOCUMENTS INCORPORATED BY REFERENCE
Definitive proxy statement to be filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934, incorporated by reference into Part III hereof.
<PAGE>
GRAHAM-FIELD HEALTH PRODUCTS, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1995
PART I
Item 1. Business:
The Company
Graham-Field Health Products, Inc. and its wholly owned subsidiaries
(collectively, the "Company") manufacture, market and distribute medical,
surgical and a broad range of other health care products for hospital, physician
and home use. The Company markets and distributes approximately 20,000 products
under its own brand names and under suppliers' names. The Company's products
are marketed to approximately 16,000 customers, principally hospital, nursing
home, physician and home health care dealers, health care product wholesalers
and retailers, including drug stores, and home-shopping related businesses.
During the five years ended December 31, 1995, the number of products offered by
the Company expanded from approximately 14,000 to approximately 20,000. The
expansion of the number of products offered is primarily the result of an
increase in the number of distributorship agreements with suppliers and acquisi-
tions of other companies and product lines.
The Company's principal products and product lines include sphygmomano-
meters (blood pressure measuring devices), stethoscopes, ECG instruments,
electronic thermometers, infrared heat treatment devices, durable medical
equipment (such as ambulatory aids, bathroom safety equipment and wheelchairs),
adult incontinence products, nutritional supplements, specialty cushions and
mattresses for the treatment and prevention of pressure sores, medicated and
rubber elastic bandages, respiratory equipment and supplies, urologicals, ostomy
products, infection control products, first aid supplies, laboratory supplies,
antiseptics and topical anesthetics and sterile disposable medical products. By
offering a wide range of products from a single source, the Company enables its
customers to reduce their costs associated with purchasing, including transac-
tion, freight and inventory expenses. During the year ended December 31, 1995,
approximately 17% of the Company's revenues were derived from imported products,
approximately 50% from products purchased from domestic sources, and
approximately 33% from products manufactured by the Company. As used herein,
the term "product" means a Company stockkeeping unit.
The Company was organized under the laws of the State of Delaware on April
6, 1981 under the name, Patient Technology, Inc. On May 27, 1988, the Company
changed its name to Graham-Field Health Products, Inc. Except where the context
otherwise requires, the word "Company" as used herein includes all of its
subsidiaries. The Company's executive offices are located at 400 Rabro Drive
East, Hauppauge, New York 11788 and its telephone number is (516) 582-5900.
<PAGE>
Products
The Company manufactures, markets and distributes approximately 20,000
health care products under its own brand names and under suppliers' names. The
Company's products are marketed to approximately 16,000 customers for hospital,
nursing home, physician and home use. For each of the three years during the
period ended December 31, 1995, substantially all of the Company's revenues were
derived from sales of products.
Product lines marketed by the Company include sphygmomanometers (blood
pressure measuring devices), stethoscopes, ECG instruments, electronic thermo-
meters, infrared heat treatment devices, durable medical equipment (such as
ambulatory aids, bathroom safety equipment and wheelchairs), adult incontinence
products, nutritional supplements, specialty cushions and mattresses for the
treatment and prevention of pressure sores, medicated and rubber elastic
bandages, respiratory equipment and supplies, urologicals, ostomy products,
infection control products, first aid supplies, laboratory supplies, antiseptics
and topical anesthetics and sterile disposable medical products.
Sales of the Company's line of sphygmomanometers accounted for 11%, 14% and
12% of the Company's annual revenues during the years ended December 31, 1995,
1994 and 1993, respectively. The Company's line of bathroom safety equipment
accounted for approximately 6% of the Company's 1995 annual revenues, and the
Company's lines of stethoscopes, incontinence products and ambulatory aids each
accounted for approximately 5% of the Company's annual revenues in 1995. No
other product line or product accounted for more than 5% of annual revenues.
Approximately 4%, 4% and 5% of all products offered by the Company during the
years ended December 31, 1995, 1994 and 1993, respectively, accounted for
approximately 80% of annual revenues in each such year. The number of products
marketed by the Company increased from approximately 14,000 in 1990 to approxi-
mately 20,000 in 1995.
Sales and Marketing
The Company markets its products to approximately 16,000 customers,
principally medical/surgical supply dealers and home health care retailers and
wholesalers, which include drug store chains and home-shopping related
businesses primarily within the United States. In addition, the Company has
increased its presence in Central and South America, Canada, Mexico, Europe and
Asia. The Company's domestic sales and marketing strategies are developed on a
market-by-market basis through three primary business units: Medical/Surgical,
Home Healthcare and Consumer. While the Company's sales and marketing
strategies are developed and conducted on a business unit basis, the sale of the
Company's products overlap all business units.
The Medical/Surgical business unit customer base consists of
medical/surgical supply dealers who service hospitals, nursing homes, acute care
facilities, out-patient surgi-centers, physicians and other healthcare
facilities. The Home Healthcare business unit customer base includes durable
medical equipment suppliers, home healthcare equipment suppliers, respiratory
supply dealers, specialty retailers and independent pharmacies. The consumer
business
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unit operates under the name HealthTeam. HealthTeam's customer base includes
retailers who distribute products to the consumer market, including drug store
chains, mass merchandisers, department stores and home-shopping related
businesses. In general, the dealers, wholesalers and retailers to whom the
Company markets its products also sell other medical products, some of which
compete with the Company's products.
The Company's sales force is directed by a sales management team consisting
of an Executive Vice President of Sales and Marketing, a Vice President of
Sales, a Vice President of Corporate Accounts, and regional sales Vice
Presidents who oversee the day-to-day operations of the sales force. The sales
force is not classified along business unit lines, but is divided into three
primary groups. One sales group (the "Professional Force") markets the
Company's products to customers of the Medical/Surgical and Home Healthcare
business units. The Professional Force markets the Company's products through
15 direct, full-time sales employees and 29 independent manufacturers'
representatives. The full-time sales employees of the Professional Force
receive both salary and commission. The independent manufacturers'
representatives work solely on commission. The second sales group (the
"Consumer Group") markets the Company's products to customers of HealthTeam.
The Consumer Group is comprised of 17 groups of independent manufacturers'
representatives. The third sales group (the "International Group") markets the
Company's products to customers located in Central and South America, Canada,
Mexico, Europe and Asia. The International Group is directed by a Vice
President of International Sales, and consists of several in-house, full-time
sales employees, as well as one representative in Taiwan.
The Company's direct sales force presents its Consolidation Advantage
Program ("C.A.P.") to customers as a means of reducing their operating costs
associated with purchasing by consolidating purchases of multiple products. The
Company's sales representatives meet with customers to analyze individual
customer's needs and to demonstrate cost reducing opportunities made possible by
the C.A.P. program. During 1995, the Company introduced a new corporate
campaign to clarify and strengthen the Company's identity, and increase the
market presence of its proprietary product lines. As part of the campaign, the
Company developed a new packaging theme and catalog, which the Company believes
offers its customers the largest selection of healthcare products available from
a single catalog. The "Sundry Times", the Company's monthly direct brochure,
regarded by customers as one of the most useful purchasing tools in the
industry, was redesigned and improved. The Company has also introduced an
aggressive print advertising campaign with both product and image ads designed
to support the new corporate image. In addition, the Company has introduced new
product brochures, an extensive library of product line video tapes, cooperative
advertising programs, and sales promotions to reinforce the Company's on-going
commitment to satisfy the needs of its customers.
During 1995, the Company expanded its C.A.P. program through its
acquisition of National Medical Excess Corp. The Company's National Medical
Excess division markets and distributes used and refurbished medical equipment,
including respiratory and durable medical equipment, and has added new programs
which provide an outlet for the remarketing of the Company's customers' excess
inventory. The National Medical Excess division operates from the
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Company's warehouse and distribution facilities located in Mount Vernon, New
York and Belleville, New Jersey.
Effective as of March 7, 1996, the Company formed a new entity, Graham-
Field Express, Inc., which operates from the Company's distribution and
warehouse facility located in Mount Vernon, New York. Graham-Field Express
provides same-day and next-day service of incontinence products, nutritionals,
patient aids, wound care dressing solutions, and home healthcare products in the
metropolitan New York area. Graham-Field Express enables the Company to compete
more aggressively in the metropolitan New York home healthcare market. The
Company is also in the process of evaluating the expansion of the Graham-Field
Express program in other areas of the United States. The Company is currently
planning the opening of a distribution and warehouse facility in Jacksonville,
Florida, which will provide same-day and next-day service in the southeastern
region of the United States.
During the year ended December 31, 1995, the Company carried a significant
inventory of its products at its automated "paperless" warehouse and
distribution facility in St. Louis, Missouri, which was designed by IBM (the
"St. Louis Facility"), and at warehouse and distribution facilities located in
Hauppauge, New York (the "Hauppauge Facility"), and Placentia, California (the
"California Facility"). See "Properties." As of February 1993, the St. Louis
Facility became the Company's primary distribution facility replacing the
Hauppauge Facility, which is currently operating as a regional distribution
center servicing customers in the northeast region of the United States.
Substantially all of the orders in 1995 were filled out of the St. Louis,
Hauppauge and California facilities. A limited number of products are shipped
directly from several of the Company's suppliers to the customer.
Customers
The Company's products are marketed to principally hospital, nursing home,
physician and home healthcare dealers, healthcare product wholesalers and
retailers including drug stores, and home shopping related businesses. During
1995 and 1994, the Company's product sales to Apria Healthcare Group, Inc.
(formerly Abbey Home Healthcare, which merged with Homedco in June 1995) were
approximately $8.1 million and $10.3 million, respectively, which represented
approximately 8% and 11%, respectively, of the Company's product sales. The
Company's supply agreement with Apria terminated on December 31, 1995. The
Company's sales to Apria generated gross profit margins of approximately 20%,
which is significantly lower than the Company's sales to its other customers
which generate gross profit margins of approximately 33%. Management believes
that it has implemented steps which could positively impact revenues and profits
for 1996, including improved customer service and efficiency levels, the
introduction of new product lines and the expansion of its C.A.P. program.
However, no assurances can be given that such steps will produce sufficient
revenues in 1996 to cover the decrease in revenues to Apria. No other single
customer or buying group accounted for more than 5% of the Company's revenues in
1995.
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<PAGE>
The Company's Medical/Surgical business unit markets and sells its products
to approximately 3,000 medical and surgical supply dealers. The Company
believes that it sells to all significant medical and surgical supply dealers.
The dealers in turn sell the Company's products principally to physicians,
hospitals, nursing homes and other health care facilities.
The Home Healthcare business unit markets and sells its products to
approximately 12,000 customers which consist of durable medical equipment
suppliers, home health care equipment suppliers, respiratory supply dealers,
specialty retailers and independent pharmacies. The Company believes that it
transacts business with substantially all of the significant home health care
dealers in the United States. Consumers who purchase from such customers of the
Company usually do so upon the advice of physicians, hospital discharge
planners, nurses or other professionals.
HealthTeam markets and sells its products to approximately 1,000 retailers,
which in turn sell principally to their consumers. The retailers which
distribute the Company's products to the consumer market consist of drug store
chains, mass merchandisers, department stores, and home shopping related
businesses.
Product Sources
The Company purchases its products from approximately 1,200 domestic and
foreign suppliers. The Company has entered into exclusive and non-exclusive
distribution agreements with a number of its domestic and foreign suppliers.
Under such agreements, suppliers may designate the markets into which the
Company can sell the products and may stipulate minimum annual sales volumes
which are to be achieved by the Company. Most of the distribution agreements
are cancelable by either party upon one to six months' notice. The Company does
not believe that cancellation of any such agreements would have a material
adverse effect on the Company, because comparable products are obtainable from
alternative sources upon acceptable terms.
Approximately 33% of the Company's revenues are derived from products
produced by the Company, and approximately 50% are derived from products and
components purchased from domestic sources. Approximately 17% are derived from
products and components purchased internationally, of which 94% are from the Far
East and 6% from Europe and all other locations.
The Company currently purchases a substantial portion of its sphygmomanome-
ters and stethoscopes from a limited number of suppliers in the Far East. In
addition, the Company sources component parts for sphygmomanometers and
stethoscopes and assembles such products in its Hauppauge Facility.
Principal products produced by the Company are LABTRON(R) stethoscopes and
blood pressure instruments, BUNN(R) respiratory aid products, MEDICOPASTE(R)
medicated bandages, rubber elastic bandages, SURVALENT(R) electronic thermometry
systems, silver nitrate
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<PAGE>
applicators, examination lamps and sterile packages under the MSP(R) label, the
TEMCO(R) product line of patient aids, bathroom safety equipment and patient
room equipment, and Aquatherm specialty cushions and mattresses for the
treatment and prevention of pressure sores. LABTRON(R) stethoscopes and blood
pressure instruments, BUNN(R) respiratory aid products, SURVALENT(R) electronic
thermometry systems and examination lamps are assembled by the Company from
purchased components. MEDICOPASTE(R) medicated bandages are produced by
treating dressings with medicated solutions. Sterilization of sterile packages
is performed for the Company by contract sterilizers. The components and raw
materials used by the Company are available from many sources.
Patents and Trademarks
The Company believes that its business is not materially dependent upon
patent protection. The Company currently holds several United States patents
relating to the TEMCO(R) product line of patient aids and bathroom safety
equipment and certain foreign patents relating to the components of its
SURVALENT(R) electronic thermometry system. Other companies may provide similar
products which may not be covered by the Company's issued patents. In addition,
the Company distributes certain patented products pursuant to licensing
arrangements. In the event a licensing arrangement is terminated, the Company
may not be able to continue to distribute the patented product. The Company
believes that any such termination will not have a material adverse effect on
the business of the Company, because products comparable to those currently
distributed under such licensing arrangements are obtainable from other sources
upon acceptable terms.
The Company has registered several trademarks in the United States,
including, but not limited to, "BUNN," "SURVALENT," "MEDICOPASTE BANDAGE,"
"HEALTHTEAM," "LABTRON," "GRAFCO," "TEMCO" and "TENDERCLOUD."
Government Regulation
The Federal Food, Drug and Cosmetic Act, the Safe Medical Devices Act and
regulations issued or proposed thereunder, provide for regulation by the Federal
Food and Drug Administration ("FDA") of the marketing, manufacturing, labeling,
packaging and distribution of medical devices and drugs, including the Company's
products. Among these regulations are requirements that medical device
manufacturers register with the FDA, list devices manufactured by them and file
various kinds of reports. The FDA's "Good Manufacturing Practice for Medical
Devices" regulation sets forth requirements for, among other things, the
Company's manufacturing process and associated record creation and maintenance,
including tests and sterility.
The Company uses the services of an unaffiliated outside firm to sterilize
its GRAFCO(R) tampons and MSP(R) product line and tests of sterility are
conducted by an unaffiliated laboratory. Records of sterilization and related
tests are kept by the Company. The Company has engaged the services of an
outside consulting firm to monitor the quality control program in force to
ensure that all manufactured products and supplier products comply with
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FDA requirements. Unscheduled FDA inspections of the Company's facilities may
occur from time to time to determine compliance with FDA regulations. Certain
requirements must be met prior to the initial marketing of medical devices.
These range from a minimum obligation of waiting to receive a determination of
substantial equivalence from the FDA before the introduction of a medical device
which the Company has determined is substantially similar to devices already on
the market, to a maximum obligation of complying with the potentially expensive
and time-consuming testing process necessary to obtain FDA approval prior to the
commercial marketing of new medical devices. In addition, the FDA has the
authority to issue performance standards for devices manufactured by the
Company. Should such standards be issued, the Company's products would be
required to conform to them.
To date, the Company has not experienced any significant difficulty or
expense in complying with the requirements imposed on it by the FDA or other
government agencies. The Company believes that the manufacturing and quality
control procedures it employs conform to requirements of the "Good Manufacturing
Practice for Medical Devices" regulation and does not anticipate having to make
any material expenditures as a result of these requirements.
Competition
The Company competes with many other manufacturers and distributors who
offer one or more products competitive with the Company's products; however, the
Company believes that no single competitor serving the Company's markets offers
as broad a product range as the Company. The Company's principal means of
competition are the breadth of its product range, quality, price and speed of
delivery. The C.A.P. program enables the Company to compete by offering
customers reduced operating costs associated with purchasing by consolidating
purchases of multiple products. Many of the Company's competitors have substan-
tially greater financial and other resources than the Company.
Employees
As of March 15, 1996, the Company had 523 employees of which six were
executive officers, 114 were administrative and clerical personnel (of which one
was a part-time employee), 68 were sales, marketing and customer service
personnel (of which two were part-time employees) and 335 were manufacturing and
warehousing personnel (of which 18 were part-time employees).
The Company is a party to two collective bargaining agreements with two
unions. Each of the collective bargaining agreements is for a term of three
years and covers all hourly employees, excluding supervisors, clerical and part-
time employees, in Hauppauge, New York and Passaic, New Jersey. The collective
bargaining agreements for Hauppauge, New York and Passaic, New Jersey expire on
April 12, 1996 and July 1, 1996, respectively.
The Company is in the process of renegotiating its Hauppauge, New York
collective bargaining agreement. However, the negotiations still remain in the
preliminary stages.
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<PAGE>
The Company has never experienced an interruption or curtailment of operations
due to labor controversy, except for a three-day period during the summer of
1993 in which the Company experienced a strike at its Passaic, New Jersey
facility which did not have a material adverse effect on the Company's
operations. The Company considers its employee relations to be satisfactory.
Business Combinations
The Company has had an active acquisition program from its inception.
Among other acquisitions, in 1983 the Company acquired Labtron, Inc. and in 1985
it acquired Graham-Field, Inc., both of which form the core of the Company's
current business.
In 1988, the Company renewed its program of acquiring compatible medical -
surgical supply companies and product lines. On June 30, 1988, the Company
acquired Bristoline, Inc. ("Bristoline"), an importer and distributor of
microscopes and sundry medical instruments to retailers and others. The
purchase price was $775,000, plus additional cash outlays, including payments of
the Bristoline bank loans of approximately $600,000 and subordinated debentures
totaling approximately $300,000.
On March 5, 1990, the Company acquired M.E. Team, Inc., a distributor of
medical and health care products for home use. The acquisition of M.E. Team,
Inc. significantly expanded the Company's sales to retailers, including cable
television home-shopping networks. The purchase price consisted of $2,593,000,
in cash, promissory notes in the aggregate principal amount of $300,000, with a
discounted value of $257,000, and 25,000 shares of the common stock of the
Company valued at $68,750.
In November 1990, the Company acquired certain assets of the John Bunn
Division of Omnicare, Inc., including the BUNN(R) respiratory aid product line.
The cash purchase price consisted of $783,138 for inventory and $850,000 for the
trade name, which is being amortized over forty years.
On May 31, 1991, the Company acquired 90% of the outstanding stock of
Horizon International Health Care, Inc., formerly known as AquaTherm Products
Corporation ("Aquatherm"), a manufacturer and distributor of deodorizers and
pressure control products for the treatment or prevention of decubitus ulcers
(pressure sores). On June 11, 1991, the Company acquired the remaining 10% of
the outstanding stock of Aquatherm. The total cash purchase price for the
outstanding stock of Aquatherm was $2,356,000.
On October 1, 1991, the Company acquired from TEMCO National Corp.
("TEMCO") substantially all of the operating assets (excluding the real estate)
of the TEMCO Healthcare Division for a purchase price consisting of $5,849,000
in cash which is net of certain purchase price adjustments. In connection with
the acquisition, the Company assumed certain liabilities and entered into a
fifteen year lease for TEMCO's manufacturing and warehouse facility located in
Passaic, New Jersey. See "Properties". The operating assets acquired by the
Company
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included substantially all of the assets (excluding the real estate) used by
TEMCO in the business of manufacturing and marketing medical supply products,
including ambulatory aids, bath and shower accessories, geriatric seating units
and patient room assistance and convenience accessories.
On April 27, 1992, the Company acquired certain assets of ConvaTec, a
division of E.R. Squibb & Sons, Inc. ("Bandage"), for a purchase price of
$369,000 in cash. In connection with the acquisition, the Company assumed
certain liabilities of Bandage, and entered into a five-year lease for Bandage's
manufacturing facility located in Central Falls, Rhode Island. See
"Properties." The assets acquired by the Company included substantially all of
the assets used by Bandage in the business of manufacturing elastic bandages.
On May 28, 1992, the Company acquired substantially all of the operating
assets of Diamond Medical Equipment Corp. ("DEC") and National Health Care
Equipment Inc. ("NHC") for a purchase price of $9,306,000 in cash, and the
issuance and delivery to the principal stockholders of DEC and NHC
of 210,176 shares of common stock of the Company. In addition, the Company
repaid certain bank indebtedness of DEC and NHC in the amount of
$3,200,000 and assumed certain liabilities of DEC and NHC. DEC and NHC,
formerly privately-owned companies, are manufacturers of patient aids and
distributors of adult incontinence products, nutritional supplements and other
home healthcare products.
Effective July 1, 1995, the Company acquired substantially all of the
assets and liabilities of National Medical Excess Corp., a distributor of used
and refurbished medical products, including respiratory and durable medical
equipment. The purchase price, including acquisition expenses, was
approximately $723,000 in cash, plus the assumption of certain liabilities.
On March 4, 1996, the Company sold its Gentle Expressions breast pump
product line to The Lumiscope Company, Inc. for a purchase price of $1,000,000,
of which $500,000 was paid in cash with the balance in a secured subordinated
promissory note in the aggregate principal amount of $500,000, payable over 48
months with interest at the prime rate of interest plus 1%. Under the terms of
the transaction, Lumiscope will purchase certain inventory of the Gentle
Expressions breast pump product line over a six-month period, and provide the
Company with a one-year royalty based upon Lumiscope's sales to a certain retail
discount chain. In addition, the Company entered into a supply agreement with
Lumiscope pursuant to which Lumiscope will continue to supply the Gentle
Expressions product line to the Company for resale to the export market and
certain other accounts.
There can be no assurance that any additional acquisitions will be
effected.
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Item 2. Properties:
The Company's executive offices and its northeastern regional distribution
center are located at its Hauppauge Facility. On January 1, 1990, the lease
agreement for the Hauppauge Facility was amended to cover a period of seventeen
years with one ten-year renewal option.
In April 1992, the Company leased its St. Louis Facility for a term of
fifteen years. The St. Louis Facility, which is presently the Company's largest
facility, became operational on October 1, 1992. As of February 1993, the St.
Louis Facility became the Company's primary distribution facility replacing the
Hauppauge Facility which is currently operating as a regional distribution
center servicing customers in the northeastern region of the United States.
The Company's manufacturing operations are conducted in Passaic, New Jersey
and Central Falls, Rhode Island in leased facilities. The Company maintains a
warehouse and distribution facility in Placentia, California, which distributes
a variety of home healthcare products in the western region of the United
States. In addition, the Company maintains a warehouse and distribution facility
in Mount Vernon, New York, which services the operations of Graham-Field Express
and the Company's National Medical Excess division. The Company has also
entered into a short-term lease in Belleville, New Jersey to service the
Company's National Medical Excess division.
The Company believes that its facilities are in good repair and provide
adequate capacity for the near term growth of the Company's business.
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Existing leases are summarized in the following table.
<TABLE><CAPTION>
Lease
Approx. Expiration
Location Sq. Ft. Date Principal Use Annual Rent(1)
- --------------------- -------- ----------- ----------------- -----------
<S> <C> <C> <C> <C> <C>
400 Rabro Drive East 105,000 12/31/06 Corporate Office, $ 934,000 1/01/95 - 12/31/01
Hauppauge, NY Distribution 1,023,000 1/01/02 - 12/31/06
12055 Missouri 144,000 3/31/07 Warehouse, $ 504,300 1/01/95 - 3/31/97
Bottom Road(2) Distribution 561,950 4/01/97 - 3/31/02
St. Louis County, MO 648,400 4/01/02 - 3/31/07
125 South Street 120,000 10/1/06 Manufacturing $ 336,000 1/01/95 - 12/31/99
Passaic, NJ 360,000 1/01/00 - 10/01/06
540-544 S. Melrose
Street 31,000 3/31/97 Warehouse, $ 188,000 1/01/95 - 3/31/97
Placentia, CA Distribution
135 Fell Court(3) 30,000 12/31/06 Warehouse $ 202,500 1/01/95 - 12/31/96
Hauppauge, NY 222,750 1/01/97 - 12/31/01
240,000 1/01/02 - 12/31/06
131 Clay Street 21,467 12/31/97 Manufacturing, $ 67,555 1/01/95 - 12/31/97
Central Falls, RI Distribution
144 East Kingsbridge 48,000 2/28/99 Warehouse, $ 162,000 3/01/96 - 2/28/97
Mount Vernon, NY Distribution 180,000 3/01/97 - 2/28/99
569 Main Street 51,456 7/30/96 Warehouse, $ 159,500 2/07/96 - 7/30/96
Belleville, NJ Distribution
</TABLE>
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(1) Unless otherwise indicated, the annual rent refers to the rent payable by
the Company during each calendar year, except for the Belleville, New
Jersey lease which is for a term of six months. In addition, the Company
is obligated to pay real estate taxes with respect to each facility, except
for the facilities located in St. Louis, Missouri and Mount Vernon, New
York, pursuant to which the Company is obligated to pay a portion of the
real estate taxes based upon incremental increases in real estate taxes
over a base year.
(2) The lease payments for the Company's St. Louis facility for the period
April 1, 1997 through March 31, 2007 are subject to fluctuations in the
consumer price index. In no event shall the base rent exceed the amounts
reflected in the table.
(3) Approximately 3,000 square feet of the Fell Court facility are sublet by
the Company to an unrelated party at an annual rent of $43,000.
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Item 3. Legal Proceedings:
There is no action, proceeding or investigation pending or threatened
which has or may materially affect the condition (financial or otherwise),
business, operations or properties of the Company.
Item 4. Submission of Matters to a Vote of Security Holders:
None.
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters:
(a) The Common Stock of the Company is traded on the New York Stock
Exchange (Symbol: GFI). The following provides the high and low sales prices
for the period from January 1, 1994 through March 15, 1996 as reported on the
New York Stock Exchange.
High Sales Price Low Sales Price
---------------- ---------------
1994
- ----
First Quarter $ 6 1/2 $ 4 3/8
Second Quarter 5 5/8 4 1/8
Third Quarter 5 1/8 3 1/8
Fourth Quarter 4 3/4 2 7/8
1995
- ----
First Quarter $ 4 1/2 $ 3 1/4
Second Quarter 4 1/4 3
Third Quarter 4 5/8 3
Fourth Quarter 4 5/8 3 1/4
1996
- ----
First Quarter, through
March 15, 1996 $ 4 5/8 $ 4 3/8
(b) As of the close of business on March 15, 1996, the number of
holders of record of Common Stock of the Company was 519.
-12-
<PAGE>
(c) The Company has paid no dividends on its shares of Common Stock since
its organization in April 1981. Under the terms of the Note and Warrant
Agreement dated as of March 12, 1992, as amended (the "Note Agreement"), by and
between the Company and John Hancock Mutual Life Insurance Company ("John
Hancock"), the Company is not permitted to declare or pay any dividends (other
than dividends paid in shares of its own stock) or make any distributions to
stockholders or any other restricted payments and restricted investments, as
defined in the Note Agreement, in an amount greater than $2,000,000 plus 50% of
the Company's cumulative consolidated net income after December 31, 1991 (less
100% of losses and less any earnings of a subsidiary which are not distributable
to the Company). As of December 31, 1995, the Company was restricted from
declaring and paying any cash dividends and making any restricted payments and
restricted investments under the terms and provisions of the Note Agreement.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources".
The Company anticipates that for the foreseeable future any earnings will
be retained for use in its business and accordingly, does not anticipate the
payment of cash dividends.
-13-
<PAGE>
Item 6. Selected Financial Data:
<TABLE><CAPTION>
Selected Financial Data
-----------------------
1995 1994 1993 1992 1991
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net Revenues $100,403,000 $ 94,501,000 $ 92,552,000 $ 84,103,000 $57,145,000
============ ============ ============ ============ ===========
Income (loss)
before cumulative effect
of change in accounting
principle $ 738,000 $ (2,356,000) $ (3,398,000) $ 1,244,000 $ 3,956,000
Cumulative effect of change in
accounting principle - - 530,000 - -
-------------- -------------- ------------- -------------- --------------
- --
Net income (loss) $ 738,000 $ (2,356,000) $ (2,868,000) $ 1,244,000 $ 3,956,000
============= ============ ============ =========== ===========
Net income (loss)
per share on a primary basis:
Before cumulative effect of
change in accounting
principle $ .06 $ (.18) $ (.26) $ .10 $ .40
Cumulative effect of change in
accounting principle - - .04 - -
-------------- -------------- ------------- -------------- --------------
Net income (loss) per share on
a primary basis $ .06 $ (.18) $ (.22) $ .10 $ .40
=========== ======== ========= =========== =============
Net income (loss) per share on
a fully-diluted basis:
Before cumulative effect of
change in accounting
principle $ .06 $ (.18) $ (.26) $ .10 $ .39
Cumulative effect of change in
accounting principle - - .04 - -
-------------- -------------- ---------- -------------- --------------
Net income (loss) per share on
a fully-diluted basis $ .06 $ (.18) $ (.22) $ .10 $ .39
=========== ======== ========= =========== =============
Weighted average number of
common and equivalent
shares outstanding:
Primary 13,332,000 12,879,000 12,796,000 12,719,000 9,988,000
============ ============ ============ ============ ===========
Fully-Diluted 13,332,000 12,879,000 12,796,000 12,719,000 10,730,000
============ ============ ============ ============ ===========
</TABLE>
-14-
<PAGE>
Selected Financial Data
-----------------------
<TABLE><CAPTION>
Balance Sheet Data: 1995 1994 1993 1992 1991
------------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Current Assets $53,979,000 $51,078,000 $47,866,000 $50,887,000 $34,528,000
----------- ----------- ----------- ----------- -----------
Current Liabilities $20,216,000 $22,796,000 $18,601,000 $17,309,000 $10,952,000
----------- ----------- ----------- ----------- -----------
Total Assets $99,799,000 $99,494,000 $97,995,000 $97,994,000 $70,390,000
----------- ----------- ----------- ----------- -----------
Long-term debt (including cap-
ital leases due after one year) $ 972,000 $ 1,596,000 $ 2,170,000 $ 1,272,000 $ 3,400,000
----------- ----------- ----------- ----------- -----------
Guaranteed Senior Notes (net
of current maturities) $19,000,000 $20,000,000 $20,000,000 $20,000,000 $ -
----------- ----------- ----------- ----------- -------------
Stockholders' equity
$59,611,000 $55,102,000 $57,224,000 $59,324,000 $ 55,890,000
----------- ----------- ----------- ----------- -------------
</TABLE>
-15-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations:
RESULTS OF OPERATIONS
Operating Revenues
- ------------------
1995 compared to 1994. Operating revenues were $100,113,000 for the year
---------------------
ended December 31, 1995, or 6% higher than the year ended December 31, 1994.
The increase in operating revenues was primarily attributable to improved
service levels, improvements in the Company's distribution network, the
development of new sales and marketing programs and the expansion of the
Company's product lines. During 1995, the Company introduced over 100 new
products including the Temco deluxe four-wheel walkabout, the John Bunn Nebulite
II medication compressor and the Labtron automatic wrist blood pressure monitor.
In addition, revenues also include approximately $935,000, net of elimination of
intercompany sales, attributable to the acquisition of National Medical Excess
Corp., effective as of July 1, 1995.
The revenue increase was achieved despite the decline in sales to Apria of
21% for the year ended December 31, 1995 as compared to the prior year. The
Company's supply agreement with Apria terminated on December 31, 1995. During
1995 and 1994, the Company's product sales to Apria were approximately $8.1
million and $10.3 million, respectively, which represented approximately 8% and
11%, respectively, of the Company's product sales. The Company's sales to Apria
generated gross profit margins of approximately 20%, which is significantly
lower than the Company's sales to its other customers which generate gross
profit margins of approximately 33%. Management believes that the Company has
implemented steps which could positively impact revenues and profits for 1996,
including improved customer service and efficiency levels, the introduction of
new product lines and the expansion of its C.A.P. program. However, no
assurances can be given that such steps will produce sufficient revenues in 1996
to cover the decrease in revenues to Apria.
1994 compared to 1993. Operating revenues were $94,429,000 for the year
---------------------
ended December 31, 1994, or 2% higher than the year ended December 31, 1993.
The increase in revenues reflected the partial recovery of certain revenues
affected by past service and efficiency problems associated with the Company's
reorganization of its distribution network. In addition, the increase was also
attributable to the Company's continued expansion of its product lines resulting
from new and expanded distribution agreements with vendors.
-16-
<PAGE>
Interest and Other Income
- -------------------------
1995 compared to 1994. Interest and other income increased from $72,000 in
---------------------
1994 to $290,000 in 1995. The increase is primarily due to the receipt of
approximately $200,000 relating to an insurance recovery and a favorable
settlement of a contractual dispute.
1994 compared to 1993. Interest and other income increased from $69,000 in
---------------------
1993 to $72,000 in 1994, an increase of 4% due to higher interest rates.
Cost of Revenues
- ----------------
1995 compared to 1994. Cost of revenues as a percentage of operating
---------------------
revenue remained relatively unchanged from the prior year, at 69%. Due to
manufacturing efficiencies and improved purchasing activities, the Company
maintained its gross profit margin despite increased competition.
1994 compared to 1993. Cost of revenues as a percentage of operating
---------------------
revenue decreased to 69% from 71%. The decrease in cost of revenues was
primarily the result of manufacturing efficiencies and improved purchasing
activities during the 1994 period and non-recurring costs of approximately
$921,000 incurred during 1993.
Selling, General and Administrative Expenses
- --------------------------------------------
1995 compared to 1994. Selling, general and administrative expenses
---------------------
decreased $2,576,000 or 8.5% in 1995. As a percentage of operating revenues,
selling, general and administrative expenses decreased to 28% from 32%. The
decrease was primarily due to cost reduction programs, the continued
efficiencies generated by the Company's distribution network and investments in
new business systems, and the non-recurring cost of approximately $1,321,000
recorded in the fourth quarter of 1994.
1994 compared to 1993. Selling, general and administrative expenses
---------------------
increased $465,000 or 2% in 1994. As a percentage of operating revenue,
selling, general and administrative expenses remained at 32%. The increase was
the result of additional depreciation and amortization primarily due to the
Company's investment in new equipment and systems and non-recurring costs of
approximately $1,321,000, which were incurred during the fourth quarter of 1994.
The non-recurring costs incurred were related to the estimated impairment of the
residual value of the Company's investment in a leveraged lease of $500,000
relating to certain changes in market conditions and technological advancements;
an accrual for severance and other employee costs of approximately $370,000
related to employees terminated during the fourth quarter of 1994 and first
quarter of 1995; an accrual for sales and franchise taxes of approximately
$175,000 related to audits conducted by multiple states for the periods 1988
through 1992; and costs of approximately $276,000 related to a terminated
acquisition and a lease arbitration
-17-
<PAGE>
proceeding involving the Company's principal manufacturing facility. Management
believes that such additional costs were non-recurring.
Interest Expense
- ----------------
1995 compared to 1994. Interest expense increased $26,000 or 1%,
---------------------
principally due to an increase in interest rates from the prior year. Interest
expense for the last six months of 1995 decreased compared to the same period in
the prior year due to a decrease in borrowings during the period. The Company
reduced its borrowings as a result of increased earnings, and the net proceeds
of $3,471,000 realized from an offshore private placement of 1,071,655 shares of
common stock completed in September 1995.
1994 compared to 1993. Interest expense increased $260,000 or 11%
---------------------
primarily due to an increase in interest rates in 1994 and an increase in
borrowings used to finance the Company's investment in warehousing equipment and
new systems, and higher accounts receivable and inventory balances to support
the increase in revenues.
Net Income
- ----------
1995 compared to 1994. Income before income taxes was $1,298,000 as
---------------------
compared to a loss before income taxes of $3,303,000 for the prior year. The
increase in income before income taxes is primarily due to the increase in
revenues and the decrease in selling, general and administrative expenses.
Net income was $738,000 as compared to a net loss of $2,356,000 for the
prior year. The Company recorded income tax expense of $560,000 for the year
ended December 31, 1995, as compared to an income tax benefit of $947,000 for
the prior year. As of December 31, 1995, the Company recorded a deferred tax
asset of $3,012,000, primarily comprised of net operating loss carryforwards and
investment, research and development, jobs tax and alternative minimum tax
credits. Based upon the Company's expectation that future taxable income will
be sufficient to utilize the carryforwards prior to December 31, 2009, the
Company has not recorded a valuation allowance on these deferred tax assets,
except for an allowance of $55,000 related to tax assets recorded for acquired
carryforwards. Future taxable income is expected to be derived from the
Company's existing operations and a tax planning strategy which anticipates the
recognition of a taxable gain on the sale of appreciated assets which was
consumated on March 4, 1996. The total deferred tax asset will continue to be
evaluated by management as to its realizability on a quarterly basis. The
amount of the deferred tax asset considered realizable could be reduced in the
near term if estimates of future taxable income during the carryforward period
are reduced. Uncertainties which may impact the future realizability but are
not expected to occur, include a decline in sales and margins resulting from a
possible loss of market share and increased competition.
-18-
<PAGE>
1994 compared to 1993. Loss before income taxes and cumulative effect of
---------------------
change in accounting principle was $3,303,000 for 1994 as compared to $5,028,000
for the prior year. The decrease in the loss before income taxes and cumulative
effect of change in accounting principle is primarily the result of a partial
recovery of certain revenue affected by past service and efficiency problems
associated with the Company's reorganization of its distribution network and the
increase in gross profit margin resulting from manufacturing and purchasing
efficiencies, partially offset by the increase in selling, general and
administrative expenses and interest expenses.
Net loss for 1994 was $2,356,000 as compared to a net loss, after the
cumulative effect of a change in accounting for income taxes recorded in 1993 of
$530,000, of $2,868,000. As permitted by FASB Statement No. 109, "Accounting
for Income Taxes," the Company recognized a deferred tax benefit of $947,000
resulting primarily from future tax benefits expected to be realized from the
utilization of net operating loss carryforwards generated in the 1994 period.
Based upon the Company's tax planning strategy which anticipates the recognition
of a taxable gain on the sale of appreciated assets and the expectation at
December 31, 1994 that future taxable income would exceed approximately
$9,441,000 prior to December 31, 2009, this deferred tax benefit was recorded.
The Company has recorded a valuation allowance of $55,000 related to tax assets
recorded for acquired carryforwards.
The Company's business has not been materially affected by inflation.
Liquidity and Capital Resources
- -------------------------------
The Company had working capital of $33,763,000, $28,282,000 and $29,265,000
at December 31, 1995, 1994 and 1993, respectively. The increase in working
capital for the period ended December 31, 1995 is primarily attributable to the
cash provided by the Company's net income of $738,000, which reflects $3,260,000
of depreciation and amortization expense. In addition, the Company raised
$3,471,000 of additional capital, net of expenses, through an offshore private
placement of 1,071,655 shares of its common stock completed in September, 1995.
The decrease in working capital for the period ended December 31, 1994 is
primarily due to the operating loss, principal payments on long-term debt, and
purchases of property, plant and equipment.
Cash used in operations for the year ended December 31, 1995 was
$3,250,000. The principal reason for the cash used in operations was the
Company's increase in accounts receivable due partially to the increase in
revenue in the fourth quarter of 1995 as compared to the fourth quarter of 1994,
and the reduction of acceptances payables.
-19-
<PAGE>
At December 31, 1995, the Company had an unsecured line-of-credit with a
bank available for letters of credit, acceptances and short-term borrowings.
The total amount available under the line-of-credit is $15,000,000. The line is
available for direct borrowings in an amount of up to $5,000,000, and provides
for commercial letters of credit and bankers' acceptances. Credit availability
under this line is subject to the bank's continuing satisfaction with current
financial information. Although the line-of-credit by its terms expires on June
30, 1996, the Company anticipates that the line-of-credit will be renewed.
Interest on direct borrowings is payable at the bank's prime rate plus 1%,
acceptances are created for a fee of 2-1/2% above the bank's acceptance rate,
and commercial letters of credit have a commission rate of 3/8% per drawing. At
December 31, 1995 and 1994, the Company had direct borrowings of $2,100,000 and
$673,000, respectively, utilized under the line. At December 31, 1995 and 1994,
$5,000,000 and $10,350,000, respectively, had been utilized under acceptances
payable. Open letters of credit at December 31, 1995 relating to vendor
purchases were $1,589,000.
The Company anticipates that the cash flow from operations, together with
the current cash balance, and the anticipated renewal of its bank line of credit
will be sufficient to meet its working capital requirements.
Financing
- ---------
On March 12, 1992, the Company privately sold at par to John Hancock its
8.28% Guaranteed Senior Notes due February 29, 2000, in the aggregate principal
amount of $20,000,000, and five-year warrants to purchase 125,000 shares of the
common stock of the Company at an exercise price of $12.00 per share. During
1993, the Note Agreement was amended to modify the terms of certain financial
covenants and the terms of the warrants issued to John Hancock. The amendment
to the Note Agreement provided for, among other things, an increase in the
number of shares available for issuance under the warrants from 125,000 shares
to 250,000 shares of the common stock of the Company (the "Initial Warrants"), a
reduction in the exercise price of the warrants from $12.00 to $5.50 per share,
and an extension of the expiration date of the warrants to February 29, 2000.
The warrants, which were revalued as of the date of the amendment, have been
valued at $365,000, and are being amortized as additional interest over the
remaining term of the debt. At December 30, 1994, the Note Agreement was
amended to modify the terms of certain financial covenants. In connection with
the amendment, the Company issued to John Hancock additional warrants to
purchase 90,000 shares of the common stock of the Company (the "Additional
Warrants") at an exercise price of $5.25 per share, with an expiration date of
February 29, 2000. The Company valued these warrants at $90,000, which will be
amortized as additional interest over the remaining term of the related debt.
As a result of the offshore private placement of 1,071,655 shares of common
stock in September 1995, additional warrants to purchase 5,336 shares of the
common stock of the Company were issued to John Hancock, and the exercise prices
of the warrants were adjusted
-20-
<PAGE>
from $5.50 per share to $5.42 per share with respect to the Initial Warrants,
and from $5.25 per share to $5.17 per share with respect to the Additional
Warrants.
The Guaranteed Senior Notes are unsecured, guaranteed by the Company's
significant subsidiaries, rank pari passu with all future and current
indebtedness of the Company, and are senior to all existing and future
subordinated indebtedness of the Company. The Note Agreement contains
provisions relating to mandatory and optional redemption, limitations with
respect to the incurrence of debt, liens, transactions with affiliates,
consolidations and mergers, sales of assets and dividends and other
distributions. In addition, the Note Agreement contains certain financial
covenants including the maintenance of consolidated net worth, and fixed charge
and interest expense ratios. Under the terms and provisions of the Note
Agreement, the Company is not permitted to declare or pay any dividends (other
than dividends paid in shares of its common stock) or make any distribution to
stockholders or any other restricted payments and restricted investments, in an
amount greater than $2,000,000 plus 50% of the Company's cumulative consolidated
net income after December 31, 1991 (less 100% of losses). As of December 31,
1995, under the terms and provisions of the Note Agreement, the Company was
restricted from declaring and paying any cash dividends and making any other
restricted payments and restricted investments.
In September 1995, the Company completed an offshore private placement of
1,071,655 shares of its common stock with various European institutional
investors. The net proceeds of $3,471,000 realized from the offering were used
for general corporate purposes.
On March 4, 1996, the Company sold its Gentle Expressions breast pump
product line to The Lumiscope Company, Inc. for a purchase price of $1,000,000,
of which $500,000 was paid in cash with the balance in a secured subordinated
promissory note in the aggregate principal amount of $500,000, payable over 48
months plus interest at the prime rate of interest plus 1%. Under the terms of
the transaction, Lumiscope will purchase certain inventory of the Gentle
Expressions breast pump product line over a six-month period, and provide the
Company with a one-year royalty based upon Lumiscope's sales to a certain retail
discount chain. In addition, the Company entered into a supply agreement with
Lumiscope pursuant to which Lumiscope will continue to supply the Gentle
Expressions product line to the Company for resale to the export market and
certain other accounts.
-21-
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a)(1) and (2),(c) and (d)
LIST OF FINANCIAL STATEMENTS
AND
FINANCIAL STATEMENT SCHEDULE
FINANCIAL STATEMENTS
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULE
YEAR ENDED DECEMBER 31, 1995
GRAHAM-FIELD HEALTH PRODUCTS, INC.
HAUPPAUGE, NEW YORK
<PAGE>
FORM 10-K--ITEM 8, ITEM 14(a)(1) and (2) and (d)
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
The following consolidated financial statements of Graham-Field Health Products,
Inc. and subsidiaries are included in Item 8:
Report of Independent Auditors . . . . . . . . . . . . . . . . . . F-2
Consolidated balance sheets--
December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . F-3
Consolidated statements of operations--
Years ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . F-5
Consolidated statements of stockholders' equity--
Years ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . F-6
Consolidated statements of cash flows--
Years ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . F-7
Notes to consolidated financial statements--
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . F-9
The following consolidated financial statement schedule of Graham-Field Health
Products, Inc. and subsidiaries is included in Item 14(d):
Schedule II--Valuation and qualifying accounts . . . . . . . . . . F-26
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
Graham-Field Health Products, Inc.
We have audited the accompanying consolidated balance sheets of Graham-Field
Health Products, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Graham-
Field Health Products, Inc. and subsidiaries at December 31, 1995 and 1994, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
Melville, New York
March 8, 1996
F-2
<PAGE>
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31
1995 1994
-------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 214,000 $ 121,000
Accounts receivable, less allowance for
doubtful accounts of $1,740,000 and
$1,907,000, respectively 21,936,000 19,173,000
Inventories 29,819,000 30,410,000
Other current assets 1,789,000 1,135,000
Recoverable and prepaid income taxes 221,000 239,000
------------ ------------
TOTAL CURRENT ASSETS 53,979,000 51,078,000
Property, plant and equipment, net 8,120,000 9,245,000
Excess of cost over net assets acquired, net of
accumulated amortization of $7,212,000 and
$6,295,000, respectively 29,291,000 29,531,000
Investment in leveraged lease 487,000 488,000
Deferred tax assets 3,012,000 3,493,000
Other assets 4,910,000 5,659,000
------------ ------------
TOTAL ASSETS $99,799,000 $99,494,000
=========== ===========
See notes to consolidated financial statements.
F-3
<PAGE>
GRAHAM-FIELD HEALTH PRODUCTS, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- (Continued)
December 31
1995 1994
------------ ------------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Note payable to bank $ 2,100,000 $ 673,000
Current maturities of long-term 1,578,000 615,000
debt
Accounts payable 8,750,000 7,901,000
Acceptances payable 5,000,000 10,350,000
Accrued expenses 2,788,000 3,257,000
----------- ------------
TOTAL CURRENT 20,216,000 22,796,000
LIABILITIES
Long-term debt 972,000 1,596,000
Guaranteed Senior Notes 19,000,000 20,000,000
----------- -----------
TOTAL LIABILITIES 40,188,000 44,392,000
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01 per
share:
authorized shares 1,000,000,
none issued
Common stock, par value $.025 per 352,000 323,000
share:
authorized shares 40,000,000,
issued and outstanding
14,082,130 and 12,938,493,
respectively
Additional paid-in capital 66,887,000 63,145,000
(Deficit) (7,628,000) (8,366,000)
------------ ------------
59,611,000 55,102,000
Commitments and contingencies
------------- --------------
TOTAL LIABILITIES AND $99,799,000 $99,494,000
=========== ===========
STOCKHOLDERS' EQUITY
See notes to consolidated financial statements.
F-4
<PAGE>
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE><CAPTION>
Year Ended December 31
1995 1994 1993
------------- -------------- --------------
<S> <C> <C> <C>
Net revenues:
Medical equipment and supplies $100,113,000 $ 94,429,000 $ 92,483,000
Interest and other income 290,000 72,000 69,000
------------- ------------- -------------
100,403,000 94,501,000 92,552,000
Costs and expenses:
Cost of revenues 68,883,000 65,032,000 65,533,000
Selling, general and administrative 27,566,000 30,142,000 29,677,000
Interest expense 2,656,000 2,630,000 2,370,000
------------ ------------ ------------
99,105,000 97,804,000 97,580,000
------------ ------------ ------------
Income (loss) before income taxes (benefit) and
cumulative effect of change in
accounting principle 1,298,000 (3,303,000) (5,028,000)
Income taxes (benefit) 560,000 (947,000) (1,630,000)
------------ ------------ -------------
Income (loss) before cumulative effect of
change in accounting principle 738,000 (2,356,000) (3,398,000)
Cumulative effect of change in accounting
principle - - 530,000
-------------- --------------- ------------
NET INCOME (LOSS) $ 738,000 $ (2,356,000) $ (2,868,000)
============ =========== ============
Net income (loss) per share:
Income (loss) before cumulative effect of change in
accounting principle $ .06 $ (.18) $ (.26)
Cumulative effect of change in accounting
principle - - .04
-------------- -------------- --------------
Net income (loss) per share $ .06 $ (.18) $ (.22)
============== ============== ==============
Weighted average number of common and
common equivalent shares 13,332,000 12,879,000 12,796,000
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE><CAPTION>
Common Stock Additional Treasury Stock
---------------------- Paid-in ----------------------
Total Shares Amount Capital (Deficit) Shares Amount
------------ ---------- --------- ------------ ------------ -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1992 $ 59,324,000 12,852,319 $ 321,000 $ 62,869,000 $ (3,142,000) (123,735) $ (724,000)
Issuance of common stock:
On exercise of stock options 195,000 86,875 2,000 206,000 -- (2,273) (13,000)
Compensation to employee 30,000 5,000 -- 30,000 -- -- --
Tax benefit from exercise of
stock options 12,000 -- -- 12,000 -- -- --
Warrants issued in connection
with debt 365,000 -- -- 365,000 -- -- --
Retirement of Treasury Stock -- (126,008) (3,000) (734,000) -- 126,008 737,000
Cumulative effect of change in
accounting principle 166,000 -- -- 166,000 -- -- --
Net loss (2,868,000) -- -- -- (2,868,000) -- --
------------ ---------- --------- ------------ ------------ -------- ----------
BALANCE, DECEMBER 31, 1993 57,224,000 12,818,186 320,000 62,914,000 (6,010,000) 0 0
Issuance of common stock on
exercise of stock options 192,000 149,250 4,000 314,000 -- (28,943) (126,000)
Tax benefit from exercise of
stock options 42,000 -- -- 42,000 -- -- --
Retirement of Treasury Stock -- (28,943) (1,000) (125,000) -- 28,943 126,000
Net loss (2,356,000) -- -- -- (2,356,000) -- --
------------ ---------- --------- ------------ ------------ -------- ----------
BALANCE, DECEMBER 31, 1994 55,102,000 12,938,493 323,000 63,145,000 (8,366,000) 0 0
Issuance of common stock:
On exercise of stock options 172,000 86,500 2,000 220,000 -- (14,518) (50,000)
Regulation S offering, net 3,471,000 1,071,655 27,000 3,444,000 -- -- --
Tax benefit from exercise of
stock options 38,000 -- -- 38,000 -- -- --
Retirement of Treasury Stock -- (14,518) -- (50,000) -- 14,518 50,000
Warrants issued in connection
with debt 90,000 -- -- 90,000 -- -- --
Net Income 738,000 -- -- -- 738,000 -- --
------------ ---------- --------- ------------ ------------ -------- ----------
BALANCE, DECEMBER 31, 1995 $ 59,611,000 14,082,130 $ 352,000 $ 66,887,000 $ (7,628,000) 0 $0
============ ========== ========= ============ ============ ======== ==========
See notes to consolidated financial statements.
F-6
<PAGE>
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
</TABLE>
<TABLE><CAPTION>
Year Ended December 31
1995 1994 1993
-------------- -------------- ---------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 738,000 $ (2,356,000) $ (2,868,000)
Adjustments to reconcile net income (loss) to
net cash (used in) provided by
operating activities:
Cumulative effect of change in - - (530,000)
accounting principle
Depreciation and amortization 3,260,000 3,448,000 3,056,000
Leveraged lease valuation adjustment - 500,000 -
Deferred income taxes 519,000 (947,000) (1,630,000)
Provisions for losses on accounts receivable 448,000 586,000 1,230,000
Loss on disposal of property, plant and equipment 3,000 - -
Other - 7,000 22,000
Changes in operating assets and
liabilities, net of effects of
acquisition:
Accounts receivable (3,034,000) (3,639,000) 1,920,000
Inventories and other current assets 26,000 (2,625,000) (1,586,000)
Recoverable and prepaid income taxes 18,000 24,000 598,000
Accounts and acceptances payable
and accrued expenses (5,228,000) 3,485,000 2,121,000
---------- ----------- -----------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (3,250,000) (1,517,000) 2,333,000
INVESTING ACTIVITIES
Purchase of short term investments - 1,998,000 (1,998,000)
Purchase of property, plant and equipment (610,000) (1,094,000) (745,000)
Proceeds from the sale
of property, plant, and equipment 19,000 - -
Purchase of certain assets and liabilities of
National Medical Excess Corp., net of
cash acquired (668,000) - -
Start up cost related to the St. Louis
Distribution Center - (171,000) (126,000)
Decrease (increase) in other assets 116,000 (30,000) 95,000
------------- ------------ ------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES $ (1,143,000) $ 703,000 $ (2,774,000)
</TABLE>
F-7
<PAGE>
GRAHAM-FIELD HEALTH PRODUCTS, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (Continued)
<TABLE><CAPTION>
Year Ended December 31
1995 1994 1993
--------------- -------------- --------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Proceeds from note payable to bank
and long-term debt $ 2,100,000 $ 1,673,000 $ 1,500,000
Principal payments on revolving line of
credit, long-term debt and notes payable (1,257,000) (1,495,000) (3,551,000)
Proceeds on exercise of stock options 172,000 192,000 195,000
Proceeds from issuance of
common stock, net 3,471,000 - -
-------------- --------------- --------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 4,486,000 370,000 (1,856,000)
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 93,000 (444,000) (2,297,000)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 121,000 565,000 2,862,000
------------ ------------- ------------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 214,000 $ 121,000 $ 565,000
============ ============ ===========
SUPPLEMENTARY CASH FLOW INFORMATION:
Interest paid $ 2,458,000 $ 2,701,000 $ 2,430,000
============ ============ ===========
Income taxes paid (refunded) $ 74,000 $ 23,000 $ (828,000)
============= ============= ===========
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE>
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business: Graham-Field Health Products, Inc. and its
- -----------------------
subsidiaries (the "Company") manufacture, market and distribute medical,
surgical and a broad range of other health care products for hospital, physician
and home use. The Company markets and distributes approximately 20,000 products
under its own brand names and under suppliers' names. The Company's products
are marketed to approximately 16,000 customers, principally hospital, nursing
home, physician and home health care dealers, health care product wholesalers
and retailers primarily within the United States. In addition, the Company has
increased its presence in Central and South America, Canada, Mexico, Europe and
Asia. Approximately 33% of the Company's revenues are derived from products
produced by the Company, and approximately 50% are derived from products and
components purchased from domestic sources. Approximately 17% are derived from
products and components purchased internationally, of which 94% are from the Far
East and 6% from Europe and all other locations.
Principles of Consolidation: The consolidated financial statements include the
- ---------------------------
accounts of the Company and its subsidiaries, each of which is wholly-owned.
All material intercompany accounts and transactions have been eliminated in
consolidation.
Use of Estimates: The preparation of financial statements in conformity with
- ----------------
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
Cash Equivalents: The Company considers all highly liquid investments with a
- ----------------
maturity of three months or less when purchased to be cash equivalents.
Inventories: Inventories are valued at the lower of cost or market value. Cost
- -----------
is determined principally on the standard cost method for manufactured goods and
on the average cost method for other inventories, each of which approximates
actual cost on the first-in, first-out method.
Property, Plant and Equipment: Property, plant and equipment is recorded at
- -----------------------------
cost, less accumulated depreciation and amortization. Depreciation and
amortization is computed on the straight-line method over the lesser of the
estimated useful lives of the related assets or the lease term, where
appropriate.
F-9
<PAGE>
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Excess of Cost Over Net Assets Acquired: Excess of cost over net assets
- ---------------------------------------
acquired is generally amortized on a straight-line basis over 40 years. The
carrying value of such costs are reviewed by management as to whether the facts
and circumstances indicate that an impairment may have occurred. If this review
indicates that such costs or a portion thereof will not be recoverable, as
determined based on the undiscounted cash flows of the entities acquired over
the remaining amortization period, the carrying value of these costs will be
reduced by the estimated shortfall of cash flows.
Revenue Recognition Policy: The Company recognizes revenue when products are
- --------------------------
shipped, with appropriate provisions for uncollectible accounts and credits for
returns.
Income Taxes: The Company and its subsidiaries file a consolidated Federal
- ------------
income tax return. Effective January 1, 1993, the Company adopted FASB
Statement No. 109, "Accounting for Income Taxes", which superseded FASB
Statement No. 96 (see Notes 2 and 8).
Net Income (Loss) Per Share Information: Net income per common share for 1995
- ---------------------------------------
was computed using the weighted average number of common shares and dilutive
common equivalent shares outstanding during the period. Net loss per common
share for 1994 and 1993 was computed using the weighted average number of common
shares outstanding during the period.
Employee Stock Options: The Company has a stock option program which is more
- ----------------------
fully described in Note 12. The Company accounts for stock option grants in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees",
and, because the exercise price of the options equals the market price of the
underlying common stock of the Company on the date of grant, no compensation
expense is recognized for the stock options.
Concentration of Credit Risk: The Company manufactures and distributes health
- ----------------------------
care products and medical sundries principally to hospitals, health care
distributors and retailers. The Company performs periodic credit evaluations of
its customers' financial condition and generally does not require collateral.
Receivables generally are due within 30 to 90 days. Credit losses relating to
customers have been consistently within management's expectations.
Recently Issued Accounting Standards: In March 1995, the FASB issued Statement
- ------------------------------------
of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".
This standard is effective for the Company's financial statements beginning in
the first quarter of 1996. SFAS No. 121 establishes the accounting for the
impairment of long-lived assets, certain identifiable intangibles and the excess
of cost over net assets acquired, related to those assets to be held and used in
operations, whereby impairment losses are required to be recorded when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets carrying amount. SFAS
No. 121 also addresses the accounting for long-lived assets and certain
identifiable intangibles that are expected to be disposed of. In the opinion of
the Company's management, it is anticipated that the adoption of SFAS No. 121
will not have a material effect on the results of operations or financial
condition of the Company.
F-10
<PAGE>
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which requires adoption of the disclosure provisions no later
than the fourth quarter of 1996. The new standard defines a fair value method
of accounting for the issuance of stock options and other equity instruments.
Under the fair value method, compensation cost is measured at the grant date
based on the fair value of the award and is recognized over the service period,
which is usually the vesting period. Pursuant to SFAS No. 123, companies are
encouraged, but are not required, to adopt the fair value method of accounting
for employee stock-based transactions. Companies are also permitted to continue
to account for such transactions under Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," but would be required to
disclose in a note to the 1996 financial statements proforma net income and per
share amounts as if the Company had applied the new method of accounting. SFAS
No. 123 also requires increased disclosures for stock-based compensation
arrangements. The Company has not yet determined if it will elect to change to
the fair value method or provide the necessary proforma information, nor has it
determined the effect the new standard will have on its operating and per share
results should it elect to make such change.
2. CHANGE IN ACCOUNTING FOR INCOME TAXES
In February 1992, the FASB issued Statement No. 109, "Accounting for Income
Taxes." The Company adopted the provisions of the new standard in its financial
statements for the year ended December 31, 1993. The adoption of Statement No.
109 did not affect the Company's pretax loss from operations for the year ended
December 31, 1993. The cumulative effect as of January 1, 1993 of adopting
Statement No. 109 was a tax benefit of $530,000, or $.04 per share which is net
of allowances of $55,000. This tax benefit is principally attributable to
available net operating loss carryforwards and investment, research and
development, jobs tax and alternative minimum tax credits which can be used to
reduce future tax liabilities.
Additionally, the Company recorded deferred tax assets of approximately $386,000
related to net operating loss carryforwards previously acquired in a prior
acquisition and the exercise of non-qualified stock options and disqualifying
dispositions of incentive stock options which resulted in certain tax benefits
(see Note 12). The effect of recognizing these deferred tax assets under
Statement No. 109 was to reduce other assets by $220,000 and to increase
additional paid-in capital by $166,000.
Under Statement No. 109, the liability method is used in accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities, and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
F-11
<PAGE>
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. ACQUISITION OF BUSINESS
Effective July 1, 1995, the Company acquired substantially all of the assets and
liabilities of National Medical Excess Corp. ("NME"), a distributor of used and
refurbished medical products, including respiratory and durable medical
equipment. The NME acquisition was accounted for under the purchase method of
accounting and accordingly, assets and liabilities were recorded at fair values
at the date of acquisition. Results of operations of NME are included in the
consolidated financial statements of the Company subsequent to that date. The
purchase price, including acquisition expenses, was approximately $723,000 in
cash, plus the assumption of certain liabilities. The excess of cost over the
net assets acquired amounted to approximately $677,000.
4. INVENTORIES
Inventories consist of the following:
December 31
1995 1994
------------ -------------
Raw materials $ 2,871,000 $ 3,112,000
Work-in-process 1,620,000 1,183,000
Finished goods 25,328,000 26,115,000
------------ -------------
$ 29,819,000 $ 30,410,000
============ =============
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
December 31
1995 1994
------------- ------------
Equipment $ 14,399,000 $ 14,177,000
Furniture and fixtures 1,600,000 1,600,000
Leasehold improvements 1,958,000 1,823,000
------------ ------------
17,957,000 17,600,000
Accumulated depreciation and amortization (9,837,000) (8,355,000)
------------- ------------
$ 8,120,000 $ 9,245,000
============= ============
The Company recorded depreciation and amortization expense on the assets
included in property, plant and equipment of $1,617,000, $1,679,000 and
$1,485,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
F-12
<PAGE>
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. INVESTMENT IN LEVERAGED LEASE
The Company is the lessor in a leveraged lease agreement entered into in
December 1983, under which helicopters, having an estimated economic life of at
least 22 years, were leased for a term of 16 years. The Company's equity
investment represented 9% of the purchase price; the remaining 91% was furnished
by third-party financing in the form of long-term debt that provides for no
recourse against the Company and is secured by a first lien on the property. At
the end of the lease term, the equipment is to be returned to the Company. The
residual value was estimated to be 57% of the cost. As a result of certain
market conditions and technological advancements, the Company recorded a charge
in the fourth quarter of 1994 of approximately $500,000, which was included in
selling, general and administrative expenses, to reflect the estimated
impairment of the residual value of the helicopters.
For Federal income tax purposes, the Company receives an investment tax credit,
and has the benefit of tax deductions for depreciation on the entire leased
asset and for interest on the long-term debt. During the early years of the
lease, those deductions exceeded the lease rental income. In the later years of
the lease, rental income will exceed the deductions for Federal income tax
purposes. Accordingly, pursuant to FASB Statement No. 109, this represents a
temporary difference for which the Company has recorded a deferred tax liability
(see Note 8).
The Company's net investment in the leveraged lease is comprised of the
following elements:
December 31
1995 1994
------------- -----------
Rental receivables, net of the principal and
interest on the nonrecourse debt $ 240,000 $ 241,000
Residual value 372,000 372,000
Less: unearned and deferred income (125,000) (125,000)
---------- -----------
Investment in leveraged lease $ 487,000 $ 488,000
========== ===========
7. ACCEPTANCES PAYABLE
At December 31, 1995 and 1994, the Company had an unsecured line-of-credit with
a bank available for letters of credit, acceptances and direct borrowings. The
total amount available under the line-of-credit is $15,000,000 ($20,000,000 at
December 31, 1994). The line was reduced from $20,000,000 to $15,000,000 during
1995 based on the anticipated needs of the Company. The line is available for
direct borrowings in the amount of up to $5,000,000, and provides for commercial
letters of credit and bankers' acceptances. Credit availability under this line
is subject to the bank's continuing satisfaction with current financial
information. The line-of-credit outstanding at December 31, 1995 expires on
June 30, 1996. The Company anticipates that the line-of-credit will be renewed.
F-13
<PAGE>
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. ACCEPTANCES PAYABLE (continued)
Interest on direct borrowings is payable at the bank's prime rate (8.5% at
December 31, 1995) plus 1%, acceptances are created for a fee of 2-1/2% above
the bank's acceptance rate, and commercial letters of credit have a commission
rate of 3/8% per drawing. At December 31, 1995 and 1994, the Company had direct
borrowings of $2,100,000 and $673,000, respectively, utilized under the line.
At December 31, 1995 and 1994, $5,000,000 and $10,350,000, respectively, had
been utilized under acceptances payable. The weighted average interest rate on
the amounts outstanding as of December 31, 1995 and 1994 was 8.6% and 8.7%,
respectively. Open letters of credit at December 31, 1995 relating to vendor
purchases were $1,589,000.
8. INCOME TAXES
Effective January 1, 1993, the Company changed its method of accounting for
income taxes in accordance with the liability method required by FASB Statement
No. 109, "Accounting for Income Taxes" (see Note 2). As permitted under the new
rules, prior years' financial statements were not restated.
The cumulative effect of adopting Statement No. 109 as of January 1, 1993 was a
tax benefit of $530,000. The application of the new income tax rules did not
affect the Company's pretax loss from operations for the year ended December 31,
1993.
At December 31, 1995, the Company had net operating loss carryforwards of
approximately $7,423,000 for income tax purposes which expire primarily in 2008
and 2009, of which approximately $375,000 were acquired in connection with an
acquisition and expire primarily in 2005 and are limited as to use in any
particular year. For financial reporting purposes, a valuation allowance of
$55,000 has been recognized to offset the deferred tax assets related to those
acquired carryforwards. If realized, the tax benefit for those items will be
recorded as a reduction in goodwill. The Company has not provided an additional
valuation allowance against its net deferred tax asset recorded at December 31,
1995 based upon the Company's tax planning strategy (see Note 16), which
anticipates the recognition of a taxable gain on the sale of appreciated assets
and the expectation that future taxable income will be sufficient during the
carryforward period. The amount of the deferred tax asset considered realizable
could be reduced in the near term if estimates of future taxable income during
the carryforward period are reduced.
In addition, at December 31, 1995, the Company had approximately $744,000 (net
of a 35% reduction of investment tax credits as a result of the Tax Reform Act
of 1986) of investment, research and development and jobs tax credits, for
income tax purposes which expire primarily in 1999, and which includes
alternative minimum tax credits of $360,000 which have no expiration date. In
1995, the Company recorded deferred State tax benefits previously not recognized
as a component of the net operating loss carryforwards.
F-14
<PAGE>
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. INCOME TAXES (continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities as of December 31, 1995 and
1994 are as follows:
1995 1994
-------- --------
Deferred Tax Assets:
Net operating loss carryforwards $ 3,043,000 $ 3,035,000
Tax credits 744,000 697,000
Accounts receivable and other reserves 1,275,000 1,082,000
Uniform capitalization 674,000 788,000
Deferred rent 403,000 383,000
Other 5,000 120,000
------------ ------------
6,144,000 6,105,000
Valuation allowance for deferred assets (55,000) (55,000)
------------ ------------
Total deferred tax assets 6,089,000 6,050,000
------------ ------------
Deferred Tax Liabilities:
Tax over book depreciation 1,713,000 1,453,000
Leveraged lease 506,000 495,000
Prepaid expenses 250,000 155,000
Amortization of intangibles 477,000 310,000
Other 131,000 144,000
------------ -----------
Total deferred tax liabilities 3,077,000 2,557,000
----------- -----------
Net deferred tax assets $ 3,012,000 $ 3,493,000
=========== ===========
Significant components of the provision for income taxes are as follows:
1995 1994 1993
---------- --------- ------------
Current:
Federal $ 429,000 $ - $ -
State and local 88,000 - -
Benefit of net operating loss
carryforwards (476,000) - -
----------- ---------- ------------
41,000 - -
Deferred Federal and State 519,000 (947,000) (1,630,000)
----------- ---------- ------------
$ 560,000 $ (947,000) $ (1,630,000)
========== ========== ============
F-15
<PAGE>
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. INCOME TAXES (continued)
The following is a reconciliation of income tax computed at the Federal
statutory rate to the provision for taxes before cumulative effect of change in
accounting principle:
<TABLE><CAPTION>
1995 1994 1993
----------- --------------- ---------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Tax expense (benefit)
computed at statutory rate $ 441,000 34% $(1,123,000) (34%) $(1,710,000) (34%)
Expenses not deductible for
income tax purposes:
Amortization of excess
of cost over net assets
acquired 286,000 22% 239,000 7% 197,000 4%
Other 54,000 4% 46,000 1% (20,000) --
State tax expense (benefit), net of
Federal benefit 91,000 7% (109,000) (3%) (97,000) ( 2%)
Previously unrecognized State
tax benefits (312,000) (24%)
------------------ ----------------- -------------------
$ 560,000 43% $ (947,000) (29%) $(1,630,000) (32%)
================== ================== ====================
</TABLE>
9. LONG-TERM DEBT
Long-term debt consists of the following:
December 31
1995 1994
------------ ------------
Notes payable to International Business
Machines Corp. ("IBM") $ 1,550,000 $ 2,195,000
Other notes payable - 16,000
------------ ------------
1,550,000 2,211,000
Less current maturities 578,000 615,000
------------ ------------
$ 972,000 $ 1,596,000
============ ============
F-16
<PAGE>
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. LONG-TERM DEBT (continued)
In connection with the development of the Company's St. Louis Distribution
Center, the Company entered into an agreement with IBM to provide the computer
hardware and software, and all necessary warehousing machinery and equipment
including installation thereof. This project was primarily financed through IBM
in the form of individual unsecured notes which corresponded to various
components of the project. The total amount financed was approximately
$5,755,000, of which approximately $1,466,000 remains outstanding at December
31, 1995. In March 1993 the Company financed the upgrade of its existing
computer system at a cost of $366,000. In September 1995, such upgrade was
refinanced partially through an operating lease with the balance of $86,000
refinanced with a new note payable, of which approximately $84,000 remains
outstanding at December 31, 1995. The notes payable are summarized below:
December 31
1995 1994
---- ----
Note payable with monthly principal and interest
payments of $6,654 at 8.60% per annum maturing
March 31, 1997 ...................................... $ 102,000 $ 168,000
Note payable with monthly principal and interest
payments of $7,776 at 10.20% per annum maturing
December 31, 1997, refinanced in September 1995 ..... - 249,000
Note payable, related to partial refinancing of an
upgrade, with monthly principal and interest payments
of $1,881 at 11.53% per annum maturing
October 1, 2000 ..................................... 84,000 -
Note payable with monthly principal and interest
payments of $3,270 at 8.0% per annum maturing
July 31, 1998 ....................................... 94,000 125,000
Note payable with monthly principal and interest
payments of $41,417 at 7.68% per annum maturing
September 30, 1998 .................................. 1,270,000 1,653,000
---------- ----------
$1,550,000 $2,195,000
========== ==========
F-17
<PAGE>
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. LONG-TERM DEBT (continued)
The scheduled maturities of the above listed notes are as follows:
Year Ended December 31:
----------------------
1996 $ 578,000
1997 525,000
1998 411,000
1999 19,000
2000 17,000
----------
$1,550,000
==========
10. GUARANTEED SENIOR NOTES
On March 12, 1992, the Company privately sold at par to John Hancock its 8.28%
Guaranteed Senior Notes due February 29, 2000, in the aggregate principal amount
of $20,000,000, and five-year warrants to purchase 125,000 shares of the common
stock of the Company at an exercise price of $12 per share. During 1993, the
Note Agreement was amended to modify the terms of certain financial covenants
and the terms of the warrants issued to John Hancock. The amendment to the Note
Agreement provided for, among other things, an increase in the number of shares
available for issuance under the warrants from 125,000 shares to 250,000 shares
of the common stock of the Company (the "Initial Warrants"), a reduction in the
exercise price of the warrants from $12.00 to $5.50 per share, and an extension
of the expiration date of the warrants to February 29, 2000. The warrants,
which were revalued as of the date of amendment, have been valued at $365,000,
and are being amortized as additional interest over the remaining term of the
debt. At December 30, 1994, the Note Agreement was amended to modify the terms
of certain financial covenants. In connection with the amendment, the Company
issued to John Hancock additional warrants to purchase 90,000 shares of the
common stock of the Company (the "Additional Warrants") at an exercise price of
$5.25 per share, with an expiration date of February 29, 2000. These warrants
were valued at $90,000 and will be amortized as additional interest over the
remaining term of the debt. As a result of an offshore private placement of
1,071,655 shares of common stock in September 1995, additional warrants to
purchase 5,336 shares of the common stock of the Company were issued to John
Hancock and the exercise prices of the warrants were adjusted from $5.50 per
share to $5.42 per share with respect to the Initial Warrants and from $5.25 per
share to $5.17 per share with respect to the Additional Warrants.
The Guaranteed Senior Notes are unsecured, guaranteed by the Company's
significant subsidiaries, rank pari passu with all future and current
indebtedness of the Company, and are senior to all existing and future
subordinated indebtedness of the Company. The Note Agreement, as amended,
contains provisions relating to mandatory and optional redemption, limitations
with respect to the incurrence of debt, liens, transactions with affiliates,
consolidations and mergers, sales of assets and dividends and other
distributions. In addition, the Note Agreement, as amended, contains certain
financial covenants including the maintenance of consolidated net worth, and
fixed charge and interest expense ratios. Under the terms and provisions of the
Note Agreement, as amended, the Company is not permitted to declare or pay any
dividends (other than dividends paid in shares of its common stock) or make any
distribution to stockholders or any other restricted payments and restricted
investments, in an amount greater than $2,000,000 plus 50% of the Company's
cumulative consolidated net income after December 31, 1991 (less 100% of
losses). As of December 31, 1995, under the terms and provisions of the Note
Agreement, as amended, the Company was restricted from declaring and paying any
cash dividends and making any other restricted payments and restricted
investments.
F-18
<PAGE>
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. GUARANTEED SENIOR NOTES (continued)
In connection with the issuance and amendments to the Guaranteed Senior Notes,
issuance costs of approximately $504,000 and $534,000, net of accumulated
amortization of $331,000 and $211,000, respectively, have been included in other
assets at December 31, 1995 and 1994. Such costs will be amortized over the
term of the Guaranteed Senior Notes.
The following is a schedule of maturities:
Year Ended December 31:
- ----------------------
1996 $ 1,000,000
1997 2,000,000
1998 3,000,000
1999 4,000,000
2000 10,000,000
-----------
$20,000,000
===========
On February 29, 1996, the Company paid the $1,000,000 installment on the
Guaranteed Senior Notes in accordance with the terms of the Note Agreement, as
amended.
11. COMMITMENTS AND CONTINGENCIES
Operating Leases
On January 1, 1990, the lease agreement for the Company's Hauppauge facility was
amended to cover a period of seventeen years with one ten-year renewal option.
Under the Hauppauge lease, the Company pays an annual base rent of $804,000 in
1990 escalating to $1,023,000 through the seventeenth year and all related
real estate taxes.
In March 1990, the Company entered into a new lease on its secondary Hauppauge
warehouse facility to cover a period of fifteen years starting on January 1,
1992, with two five-year renewal options. The new lease requires the payment of
an annual base rent of approximately $202,500 in 1992 escalating to $240,000
through the fifteenth year and all related real estate taxes.
In March 1991, the Company entered into a lease agreement for the Company's
California facility for a period of six years, with one five-year renewal
option. The lease requires the payment of an annual base rent of approximately
$172,000 in 1991 escalating to $188,000 through the sixth year and all related
real estate taxes.
F-19
<PAGE>
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. COMMITMENTS AND CONTINGENCIES (continued)
In March 1992, the Company entered into a lease agreement for its St. Louis,
Missouri Distribution Center for a period of fifteen years commencing April 1,
1992. The lease requires the payment of an annual base rents of $468,000 in
the first year escalating to $504,000 through the fifteenth year and all
incremental real estate taxes over a base year of 1992. The escalating
rents may be adjusted by fluctuations in the consumer price index; however, in
no event shall the base rent exceed $562,000 during years six through ten and
$648,000 during the remaining five years.
The lease on the Company's principal manufacturing facility was for a period of
fifteen years commencing October 1, 1991, with an option to purchase the
facility at the lessor's net book value at the end of the fifth, tenth, or
fifteenth year. In May 1995, the Company modified the lease to eliminate the
purchase option, reduce the term to thirteen years with an option to renew for
an additional two year period, and change the annual rent from $360,000 to
$336,000 escalating to $360,000 on January 1, 2000. The lease requires the
Company to pay all related real estate taxes in addition to the annual base
rent.
In March 1996, the Company entered into a lease agreement for office and
warehouse facilities in Mount Vernon, New York for a period of three years. The
lease provides for the payment by the Company of fixed annual rents of $162,000
for the first year escalating to $180,000 for years two and three and all
incremental real estate taxes over the base year. The Company has an option to
renew the lease for an additional three year period at a fixed annual rent of
$180,000.
The Company has recorded rent expense related to these leases on a straight-line
basis. At December 31, 1995 and 1994, $984,000 and $1,036,000, respectively, of
rent expense is accrued in excess of rental payments made.
The Company also leases other facilities and machinery and equipment, including
computer equipment under operating leases with unexpired terms ranging from one
to five years.
As of December 31, 1995, minimal annual rental payments under all noncancellable
operating leases are as follows:
Year Ended December 31:
-----------------------
1996 $ 2,463,000
1997 2,305,000
1998 2,180,000
1999 2,027,000
2000 2,021,000
Thereafter 12,304,000
-----------
$23,300,000
===========
Rent expense for the years ended December 31, 1995, 1994 and 1993 approximated
$2,363,000, $2,527,000, and $2,611,000, respectively.
F-20
<PAGE>
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. COMMITMENTS AND CONTINGENCIES (continued)
Litigation
The Company is a defendant in certain legal actions which arose in the normal
course of business, the outcome of which, in the opinion of management, will not
have a material adverse effect on the Company's financial position.
Collective Bargaining Agreements
The Company is a party to two collective bargaining agreements with two unions.
Each of the collective bargaining agreements is for a term of three years and
covers all hourly employees, excluding supervisors, clerical and part-time
employees, in Hauppauge, New York and Passaic, New Jersey. The collective
bargaining agreements for Hauppauge, New York and Passaic, New Jersey expire on
April 12, 1996 and July 1, 1996, respectively.
The Company is in the process of renegotiating its Hauppauge, New York
collective bargaining agreement. However, the negotiations still remain in the
preliminary stages. The Company has never experienced an interruption or cur-
tailment of operations due to labor controversy, except for a three-day period
during the summer of 1993 in which the Company experienced a strike at its
Passaic, New Jersey facility which did not have a material adverse effect on the
Company's operations. The Company considers its employee relations to be
satisfactory.
12. STOCKHOLDERS' EQUITY
On March 23, 1989, the Company declared, and on July 21, 1989 the stockholders
approved, a dividend distribution to stockholders of record on July 21, 1989 of
one right for each outstanding share of the Company's common stock. Each right
entitles the registered holder to purchase one one-hundredth (l/100) of a share
of Series A Participating Preferred Stock, $.01 par value, at an exercise price
of $8.00. The exercise price payable and the number of Preferred Shares
issuable upon exercise of the rights are subject to adjustment from time to time
to prevent dilution, as defined. The rights become exercisable 10 days after a
public announcement that a person or group of affiliated or associated persons,
as defined, has acquired or obtained the right to acquire beneficial ownership
of 20% or more of the Company's common stock, or 10 days after commencement of a
public announcement of a tender or exchange offer or take-over bid to acquire
beneficial ownership of 20% or more of the Company's common stock, or such later
date as may be determined by the Board of Directors. If a person or group of
affiliates or associated persons shall become the beneficial owner of 20% or
more of the common stock of the Company, other than pursuant to a tender or
exchange offer for all outstanding common shares of the Company that the Board
of Directors of the Company determines to be at a price and on terms that are
fair to holders of shares of common stock of the Company, each holder of a
right, will have the right to receive, upon payment of one quarter (1/4) of
the exercise price, in lieu of Preferred Shares, a number of shares of common
stock of the Company having an aggregate market value equal to one half (1/2)
the exercise price. In the event the Company is acquired in a merger or other
business combination (in which any of the shares of common stock are changed
into or exchanged for other securities or assets) or more than 50% of the assets
or operating income or cash flow of the Company and its subsidiaries are sold or
transferred in one or a series of related transactions, each holder of a right
shall have the right to receive, upon payment of the exercise price, that number
of shares of common stock of the acquiring company which at the time of such
transaction would have a market value equal to two times the exercise price.
The rights, which are nonvoting, expire on July 21, 1999. The rights may be
redeemed by the Company at a price of $.01 per right at any time prior to the
earlier of their expiration date or 10 days after a public announcement that a
person or group of affiliates or associated persons has acquired 20% or more of
the Company's common stock. The rights attach to all shares of common stock,
including treasury shares outstanding at July 21, 1989, and all shares issued
subsequent to July 21, 1989.
F-21
<PAGE>
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. STOCKHOLDERS' EQUITY (continued)
The Series A Participating Preferred Shares are nonredeemable and subordinate to
any other series of the Company's preferred shares, which may at any time be
issued. The Company does not have any Preferred Shares outstanding. The
Preferred Shares may not be issued except upon exercise of the rights.
During 1993, officers of the Company surrendered 2,273 shares of the Company's
common stock with a fair market value of $13,000 in exchange for the exercise of
stock options held by them for 5,000 shares of common stock of the Company at an
exercise price of $2.50 per share. The 2,273 shares received were recorded and
held as treasury stock by the Company. During 1994 and 1995, in similar
transactions, 28,943 and 14,518 shares, respectively, of the Company's common
stock with a fair market value of $126,000 and $50,000, respectively, were
surrendered and recorded as treasury stock in exchange for the exercise of stock
options held for 58,187 and 25,000 shares, respectively, of common stock of the
Company at exercise prices ranging from $2.00 to $2.20 per share.
On March 6, 1993, the Board of Directors of the Company approved the retirement
of all shares of treasury stock held by the Company at December 31, 1992. In
addition, on October 14, 1993, the Board of Directors authorized the retirement
of all shares of treasury stock held by the Company at the end of each
applicable quarter. Accordingly all such shares have been restored as
authorized and unissued shares of common stock.
In September 1995, the Company completed an offshore private placement of
1,071,655 shares of its common stock with various European institutional
investors. The net proceeds of $3,471,000 realized from the offering were used
for general corporate purposes.
The Company has a stock option program which permits the granting of incentive
stock options, nonqualified stock options, stock appreciation rights, restricted
stock grants and restored options. Incentive stock options may be granted at
not less than 100% (110% for owners of more than 10% of the Company's
outstanding common stock) of the fair market value of the Company's common stock
at the date of grant. Stock options outstanding under the program generally
vest and are exercisable at a rate of 50% per annum. Effective as of December
21, 1995, directors' options to purchase 10,000 shares of the common stock of
the Company are granted to eligible directors each January 2, through January
2, 1998, at an exercise price equal to the fair market value of the common stock
at the date of grant. Directors' options are exercisable one-third each year
for three years. Incentive and non-qualified options expire five years from the
date of grant. Directors' options expire ten years from the date of grant.
In 1992, the Company amended its stock option program which authorizes the
issuance of shares or certain rights to acquire shares of the Company's common
stock to directors, officers and other key executives and management employees
of the Company. The amendment increased the maximum number of shares that can
be issued under this program from 900,000 to 1,500,000. In 1995, the Company
amended its stock option program to increase the maximum number of shares that
can be issued under this program from 1,500,000 to 2,100,000.
F-22
<PAGE>
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. STOCKHOLDERS' EQUITY (continued)
Information with respect to options during the three years ended December 31,
1995 is as follows:
Number
of Shares Option Price
--------- ------------
Options outstanding at December 31, 1992 817,761 $ 2.00 - $11.75
Granted
Incentive options 72,000 $ 4.00 - $5.375
Directors' options 40,000 $ 5.75
Nonqualified options 75,000 $ 5.375 - $5.912
Exercised (86,875) $ 2.00 - $ 5.63
Cancelled and Expired (93,000) $ 2.00 - $11.75
---------
Options outstanding at December 31, 1993 824,886 $ 2.00 - $11.75
Granted
Incentive options 144,278 $ 4.125 - $5.913
Directors' options 50,000 $ 4.75 - $5.375
Nonqualified options 29,165 $ 4.125 - $5.913
Exercised (149,250) $ 2.00 - $3.00
Cancelled and Expired (80,700) $ 2.00 - $11.75
---------
Options outstanding December 31,1994 818,379 $ 2.00 - $11.75
Granted
Incentive options 257,432 $ 3.125 - $4.50
Directors' options 91,852 $ 3.375 - $3.875
Exercised (86,500) $ 2.00 - $3.00
Cancelled and Expired (168,518) $ 2.00 - $7.00
--------
Options outstanding at December 31, 1995 912,645 $ 2.00 - $11.75
========
Exercisable at end of year 483,929
========
Shares available for future grants
of options at end of year 530,773
========
Shares reserved for future issuances as of December 31, 1995 are as follows:
Number of Shares
----------------
Stock options 1,443,418
Stock options issued in connection
with an acquisition 50,000
Stock warrants issued to John Hancock
Mutual Life in connection with the
Company's Guaranteed Senior Notes 345,336
---------
1,838,754
=========
F-23
<PAGE>
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. STOCKHOLDER'S EQUITY (continued)
The exercise of non-qualified stock options and disqualifying dispositions of
incentive stock options resulted in Federal and state income tax benefits to the
Company equal to the difference between the market price at the date of exercise
or sale of stock and the exercise price of the option. Accordingly, during
1995, 1994 and 1993, approximately $38,000, $42,000 and $12,000, respectively,
was credited to additional paid in capital.
13. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments as of December 31, 1995, for which it is
practicable to estimate that value:
Cash and cash equivalents: The carrying amounts reported in the accompanying
balance sheets approximate fair value.
Investment in leveraged lease: The carrying amounts reported in the
accompanying balance sheets approximate fair value. Fair value is determined
based on the current value of the underlying assets.
Notes and acceptances payable: The carrying amounts of the Company's borrowings
under its short term line-of-credit facility approximate their fair value.
Long-term debt: The fair values of the Company's long-term debt are estimated
using discounted cash flow analyses, based on the Company's incremental
borrowing rates for similar types of borrowing arrangements. At December 31,
1995, the carrying amount reported approximates fair value.
Guaranteed Senior Notes: The fair value of the Company's Guaranteed Senior
Notes is estimated using a discounted cash flow analysis based on current rates
offered to the Company for debt of the same remaining maturity. At December 31,
1995, the fair value of such debt was approximately $19,200,000.
14. OTHER MATTERS
During the fourth quarter of 1994, the Company recorded non-recurring expenses
of approximately $1,321,000 which were included in selling, general and
administrative expenses at December 31, 1994, of which approximately $612,000
was included in accrued expenses. These non-recurring expenses were related to
the estimated impairment of the residual value related to the Company's
investment in leveraged lease (see Note 6), an accrual for severance and other
employee costs related to employees terminated during the fourth quarter of 1994
and first quarter of 1995, an accrual for sales and franchise taxes related to
in process audits being conducted by multiple states for the periods of 1988
through 1992, and costs related to a terminated acquisition attempt and a lease
arbitration proceeding with respect to the Company's principal manufacturing
facility.
In addition, start up costs incurred for the design and implementation of the
Company's principal distribution facility, which approximated $178,000 and
$279,000, which is net of accumulated amortization of $473,000 and $372,000, and
have been included in other assets at December 31, 1995 and 1994, respectively.
F-24
<PAGE>
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. MAJOR CUSTOMERS
In 1994, the Company derived 11% of its revenues from Apria Healthcare Group,
Inc. (formerly Abbey Home Healthcare, which merged with Homedco in June 1995).
On September 1, 1995, the Company announced that its current supply agreement
with Apria would not be renewed in 1996, and will expire by its terms on
December 31, 1995. During fiscal year 1995 and 1994, the Company's product
sales to Apria were approximately $8.1 million and $10.3 million, respectively,
which represented approximately 8% and 11%, respectively, of the Company's
product sales. The Company's sales to Apria generate gross profit margins of
approximately 20%, which is significantly lower than the Company's sales to its
other customers which generate gross profit margins of approximately 33%. The
Company has implemented steps which could positively impact revenues and profits
for fiscal year 1996, including improved customer service and efficiency levels,
the introduction of new product lines and the further promotion of its
Consolidation Advantage Program (C.A.P.) However, no assurances can be given
that such steps will produce sufficient revenues in 1996 to cover the decrease
in revenues to Apria. No other single customer or buying group accounted for
more 5% of the Company's revenues in 1995.
16. SUBSEQUENT EVENTS
On March 4, 1996, the Company sold its Gentle Expressions breast pump product
line to The Lumiscope Company, Inc. for a purchase price of $1,000,000, of which
$500,000 was paid in cash with the balance in a secured subordinated promissory
note payable over 48 months plus interest at the prime rate of interest plus 1%.
Under the terms of the transaction, Lumiscope will purchase certain inventory of
the Gentle Expressions breast pump product line over a six-month period, and
provide the Company with a one-year royalty based upon Lumiscope's sales to a
certain retail discount chain. In addition, the Company entered into a supply
agreement with Lumiscope pursuant to which Lumiscope will continue to supply the
Company with the Gentle Expressions breast pump product line for resale to the
export market and certain other accounts.
Effective as of March 7, 1996, the Company formed a new entity, Graham-Field
Express, Inc., which operates from the Company's distribution and warehouse
facility located in Mount Vernon, New York. Graham-Field Express provides same-
day and next-day service of incontinence products, nutritionals, patient aids,
wound care dressing solutions, and home healthcare products in the metropolitan
New York area. Graham-Field Express enables the Company to compete more
aggressively in the metropolitan New York home healthcare market.
F-25
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
<TABLE><CAPTION>
==================================================================================================================
COL. A COL. B COL C. COL. D COL. E
ADDITIONS
- ------------------------------------------------------------------------------------------------------------------
1 2
BALANCE AT ADDITIONS OTHER CHANGES-- BALANCE
BEGINNING CHARGED TO COSTS CHARGED TO OTHER ADD (DEDUCT)-- AT END OF
DESCRIPTION OF PERIOD AND EXPENSES ACCOUNTS-DESCRIBE DESCRIBE PERIOD
==================================================================================================================
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1995 $ 1,907,000 $ 448,000 $ 10,000(2) $ (625,000)(1) $ 1,740,000
Year ended December 31, 1994 2,451,000 586,000 (1,130,000)(1) 1,907,000
Year ended December 31, 1993 1,453,000 1,230,000 (232,000)(1) 2,451,000
</TABLE>
(1) Net write-offs of accounts receivable.
(2) Represents an allocation of the purchase price of National Medical Excess,
Corp.
F-26
<PAGE>
Item 8. Financial Statements and Supplementary Data:
The response to this Item is submitted as a separate section of this
Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures:
None.
PART III
Item 10. Directors and Executive Officers of the Registrant:
Executive Officers of the Registrant
The Company's executive officers are elected by, and serve at the
discretion of the Board of Directors. The following table sets forth certain
information concerning the present executive officers of the Company:
Position(s) with Year Became
Name Age Company Executive Officer
- ----------------------- --- --------------------------- -----------------
Irwin Selinger 55 Chairman of the 1981
Board and Chief
Executive Officer
Gary M. Jacobs 38 Vice President - Finance 1992
and Chief Financial Officer
Richard S. Kolodny 37 Vice President, General 1993
Counsel, and Secretary
Peter Winocur 40 Executive Vice President 1996
of Sales and Marketing
Ralph Liguori 50 Executive Vice President 1995
of Operations
Beatrice Scherer 57 Vice President - Administration 1981
Mr. Selinger, a founder and principal stockholder of the Company, has been
the Chairman of the Board and Chief Executive Officer of the Company since April
1981. Mr.
-49-
<PAGE>
Selinger was a founder and the Chief Executive Officer of Surgicot, Inc., a
manufacturer of sterilization indicators, and its predecessor from 1968 to April
1980. In 1979, Surgicot, Inc. was acquired by E. R. Squibb & Sons, Inc., a
subsidiary of Squibb Corporation. From April 1980 to June 1984, Mr. Selinger
was a consultant to E. R. Squibb & Sons, Inc.
Mr. Jacobs has been Vice President-Finance and the Chief Financial Officer
of the Company since August 1992. Since 1979, Mr. Jacobs was employed by the
accounting firm of Ernst & Young LLP, and most recently, held the position of
senior manager.
Mr. Kolodny has been Vice President, General Counsel and Secretary of the
Company since August 1993. From 1990 to 1993, Mr. Kolodny was associated with
the law firm of Carro, Spanbock, Kaster & Cuiffo. Prior to such time, Mr.
Kolodny was associated with the law firm of Shea & Gould.
Mr. Winocur has held various positions with the Company since May 1992, and
has been the Executive Vice President of Sales and Marketing of the Company
since January 1996. Prior to 1992, Mr. Winocur was the founder and President of
National Health Care Equipment, Inc., which was acquired by the Company in May
1992.
Mr. Liguori has been the Executive Vice President of Operations of the
Company since July 1995. From 1990 to 1995, Mr. Liguori was the Group Vice
President of Operations of Del Laboratories, Inc. Prior to such time, Mr.
Liguori was the Senior Vice President of U.S. Operations of Coleco Industries,
Inc.
Ms. Scherer has been Vice President-Administration of the Company since
1985. From 1981 to 1985, Ms. Scherer was Vice-President-Finance for the
Company.
The information to be furnished with respect to the directors of the
Company is incorporated by reference to the Company's definitive proxy statement
to be filed pursuant to Regulation 14A.
Item 11. Executive Compensation:
Incorporated by reference to the Company's definitive proxy statement to be
filed pursuant to Regulation 14A.
Item 12. Security Ownership of Certain Beneficial Owners and Management:
Incorporated by reference to the Company's definitive proxy statement to be
filed pursuant to Regulation 14A.
Item 13. Certain Relationships and Related Transactions:
Incorporated by reference to the Company's definitive proxy statement to be
filed pursuant to Regulation 14A.
-50-
<PAGE>
PART IV
Item 14.
Exhibits, Financial Statements, Schedules and Reports on
Form 8-K.
14(a). Documents filed as part of this Form 10-K:
1. Financial Statements. The following
--------------------
financial statements are included in Part II, Item 8:
Page
----
Report of Independent Auditors F-2
Consolidated Balance Sheets -- December 31, 1995 F-3
and 1994
Consolidated Statements of Operations -- Years
ended December 31, 1995, 1994 and 1993 F-5
Consolidated Statements of Stockholders' Equity --
Years ended December 31, 1995, 1994 and 1993 F-6
Consolidated Statements of Cash Flows -- Years
ended December 31, 1995, 1994 and 1993 F-7
Notes to Consolidated Financial Statements -- F-9
December 31, 1995
2. Financial Statement Schedules. The following
-----------------------------
consolidated financial statement schedule for the
company is included in Part II, Item 14(d):
Schedule VIII--Valuation and Qualifying Accounts F-26
All other schedules for which provision is made in
the applicable accounting regulation of the Securi-
ties and Exchange Commission are not required under
the related instructions or are inapplicable, and
therefore have been omitted.
3. Exhibits filed under Item 601 of Regulation S-K.
------------------------------------------------
(Numbers assigned to the following correlate to
those used in such Item 601; asterixes indicate
that an Exhibit is incorporated by reference).
- -----------------------------------------------
* Incorporated by reference. -51-
<PAGE>
3(a) The Company's Certificate of Incorporation, as *
amended, is incorporated by reference to Exhibit
3(1) to the Company's Registration Statement on
Form S-1 (File No. 33-40442) (the "1991 Registration
Statement").
3(b) The Company's By-Laws, as amended, are incorporated *
by reference as an exhibit to the Company's Current
Report on Form 8-K dated as of July 14, 1995.
10.(a) Employment Agreement dated as of July 8, 1981 *
(the "Selinger Agreement"), between the Company and
Irwin Selinger is incorporated by reference to
Exhibit 10(a) to the Company's Registration
Statement on Form S-18 (File No. 2-80107-NY.) ("S-
18 Registration Statement").
(b) Amendment to the Selinger Agreement dated as *
of July 8, 1981, is incorporated by reference to
Exhibit 10.1 to the 1991 Registration Statement.
(c) Agreement dated June 6, 1988 between the *
Company and Gould Investors, LP with respect to the
sale and leaseback of 400 Rabro Drive, Hauppauge,
NY is incorporated by reference to Exhibit 10(rr)
to the Company's Annual Report on Form 10-K for the
year ended December 31, 1986 (the "1986 10-K").
(d) Second Amendment to Lease, dated January 1, *
1990, between the Company and Gould Investors, L.P.
in incorporated by reference to Exhibit 10(ii) to
the Company's Annual Report on Form 10-K for the
year ended December 31, 1990 (the "1990 10-K").
(e) Lease dated January 1, 1987, between the *
Company and R-Three Investors with respect to the
renting of 30,000 square feet at 135 Fell Court,
Hauppauge, is incorporated by reference to Exhibit
10(tt) to the 1986 10-K.
(f) Lease Extension Agreement, dated March 8, 1990 *
between the Company and R-Three Investors with
respect to the renting of 30,000 square feet at 135
Fell Court, Hauppauge is incorporated by reference
to Exhibit 10(hh) to the 1990 10-K.
(g) Union contract dated April 1, 1993 between *
Graham-Field and Local 966 of International Broth-
erhood of Teamsters with respect to the collective
bargaining agreement at the Hauppauge, New York
facility.
(h) Union Contract dated July 28, 1993 between *
Graham-Field and Local 945 of International
Brotherhood of Teamsters with respect to the
collective bargaining agreement at the Temco, New
Jersey facility.
(i) Purchase Agreement to acquire the outstanding *
stock of Bristoline, Inc. is incorporated by
reference to Exhibit 2 to the Company's Report on
Form 10-Q for the quarter ended June 30, 1988.
(j) Agreement, dated as of January 14, 1989, among *
the Company, the Wendt-Bristol Company and Temco
Home Health Care Products, Inc. is incorporated by
reference to Exhibit 10(ff) to the Company's Annual
Report on Form 10-K for the year ended December 31,
1989 (the "1989 10-K").
(k) Stock Purchase Agreement, dated as of February *
26, 1990 among Graham-Field, Inc., the Company,
John Chambers, E. Bruce Barber and Arthur E. Smith,
is incorporated by reference to Exhibit 2(a) to the
Company's Current Report on Form 8-K dated March 5,
1990.
- -----------------------------------------------
* Incorporated by reference. -52-
<PAGE>
(l) Lease dated October 1, 1990, between Graham- *
Field, Inc., and General American Life Insurance
company with respect to the renting of 31,000
square feet at 540-544 South Melrose Street,
Placentia, CA is incorporated by reference to
Exhibit 10(kk) to the 1990 10-K.
(m) Asset Purchase Agreement, dated November 13, *
1990, between Graham-Field, Inc. and Omnicare, Inc.
for the purchase of trade name and inventory of
John Bunn Company, a division of Omnicare, Inc. is
incorporated by reference to Exhibit 10(ll) to the
1990 10-K.
(n) The Incentive Program is incorporated by *
reference to the Company's Registration Statements
on Form S-8 (File Nos. 33-37179, 33-38656,
33-48860, and 033-60679).
(o) Amendment No. 1 to the Incentive Program is *
incorporated by reference to Exhibit A to the
Company's Proxy Statement dated as of May 10, 1991.
(p) Amendment No. 2 to the Incentive Program is *
incorporated by reference to Exhibit A to the
Company's Proxy Statement dated as of May 14, 1992.
(q) Amendment No. 3 to the Incentive Program dated *
as of January 28, 1993 is incorporated by reference
to Exhibit 10(y) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992 (the
"1992 10-K").
(r) Amendment No. 4 to the Incentive Program dated *
as of June 20, 1995 is incorporated by reference to
the Company's Registration Statement on Form S-8
(File No. 033-60679).
(s) Amendment No. 5 to the Incentive Program dated
as of December 21, 1995.
(t) Agreement and Plan of Merger dated as of May *
9, 1991, by and among Horizon International
Healthcare, Inc., Aquatherm Acquisition Corp.,
Graham-Field, Inc., the Company, Tyler Schueler and
John Shepherd is incorporated by reference to
Exhibit 10 (cc) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1991 (the
"1991 10-K").
(u) Asset Purchase Agreement dated as of August *
30, 1991, by and between TEMCO National Corp. and
Graham-Field, Inc. is incorporated by reference to
Exhibit (c)(1) to the Company's Current Report on
Form 8-K dated as of October 12, 1991.
(v) Lease Agreement dated as of October 1, 1991 *
(the "Temco Lease Agreement"), by and between TEMCO
National Corp. and Graham-Field, Inc. is
incorporated by reference to Exhibit 10(ee) to the
1991 10-K.
(w) Modification of Temco Lease Agreement dated as *
of May 18, 1992, by and between TEMCO National
Corp. and Graham-Field Temco, Inc. is incorporated
by reference to Exhibit 10(dd) to the 1992 10-K.
(x) Amendment No. 2 to Temco Lease Agreement dated
as of April 13, 1994, by and between The Wendt-
Bristol Health Services Corporation and Graham-
Field Temco, Inc.
(y) Amendment No. 3 to Temco Lease Agreement dated
as of May 1, 1995, by and between The Wendt-Bristol
Health Services Corporation and Graham-Field Temco,
Inc.
(z) John Hancock Mutual Life Insurance Note and *
Warrant Agreement dated as of March 12, 1992 is
incorporated by reference to Exhibit 10(ee) to the
1992 10-K.
- -----------------------------------------------
* Incorporated by reference. -53-
<PAGE>
(aa) Amendment dated as of December 31, 1992, to *
the John Hancock Mutual Life Insurance Note and
Warrant Agreement is incorporated by reference to
Exhibit 10(ff) to the 1992 10-K.
(bb) Amendment dated as of June 30, 1993, to the *
John Hancock Mutual Life Insurance Note and Warrant
Agreement is incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993.
(cc) Amendment dated as of December 31, 1993, to *
the John Hancock Mutual Life Insurance Note and
Warrant Agreement.
(dd) Amendment dated as of December 30, 1994, to *
the John Hancock Mutual Life Insurance Note and
Warrant Agreement.
(ee) Lease Agreement dated as of March 23, 1992, *
by and between The Equitable Life Assurance Society
of the United States and Graham-Field, Inc. is
incorporated by reference to Exhibit 10(ff) to the
1991 10-K.
(ff) Asset Purchase Agreement dated as of May 28, *
1993, by and among Graham-Field, Inc., Diamond
Medical Equipment Corp., National Health Care
Equipment, Inc., Harvey Diamond and Peter Winocur
is incorporated by reference to Exhibit (c)(1) to
the Company's Current Report on Form 8-K dated as
of June 5, 1992.
(gg) Asset Purchase Agreement dated as of
September 22, 1995, by and among Graham-Field
Health Products, Inc., National Medical Excess
Corp. and John Wittenberg.
(hh) Asset Purchase Agreement dated as of March 4,
1996, by and between Graham-Field, Inc. and the
Lumiscope Company, Inc.
(ii) Lease Agreement dated as of February 7, 1996,
by and between Graham-Field, Inc. and BMS
Associates.
(jj) Lease Agreement dated as of March 21, 1996,
by and between Graham-Field, Inc. and HIP Realty,
Inc.
- -----------------------------------------------
* Incorporated by reference. -54-
<PAGE>
22. Subsidiaries of the Company:
Labtron Scientific Corporation
(a New York corporation)
Patient Technology, Inc.
(a New York corporation)
Graham-Field Express, Inc.
(a Delaware corporation)
Bristoline, Inc.
(a New York corporation)
Ventilator Corp.
(a New York corporation)
Graham-Field, Inc.
(a New York corporation)
Medisco, Inc.
(a Delaware corporation)
ExNewt, Inc.
(a New York corporation)
M.E. Team, Inc.
(a New Jersey corporation)
Graham-Field Temco, Inc.
(a New Jersey corporation)
AquaTherm Corp.
(a New Jersey corporation)
Health and Medical Techniques, Inc.
(a Connecticut corporation)
Graham-Field Distribution, Inc.
(a Missouri corporation)
Graham-Field Bandage, Inc.
(a Rhode Island corporation)
G.F.E. Healthcare Products Corp.
(a Delaware corporation)
Graham-Field European Distribution
Corporation Limited
(an Ireland corporation)
HealthTeam, Inc.
(a Delaware corporation)
24. Consent of Independent Auditors.
14(b). Reports on Form 8-K. No reports on Form 8-K have been filed during the
-------------------
quarter ended December 31, 1995.
-55-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GRAHAM-FIELD HEALTH PRODUCTS, INC.
By: /s/ Irwin Selinger
-------------------------------------
Irwin Selinger, Chairman of the
Board and Chief Executive Officer
Date: March 29, 1996
Pursuant to the requirements of the Securities Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ Irwin Selinger Chairman of the Board and March 29, 1996
--------------------------------
Irwin Selinger Chief Executive Officer (Pri-
ncipal Executive Officer and
Director)
/s/ Gary M. Jacobs Vice President/Finance and March 29, 1996
-----------------------------
Gary M. Jacobs Chief Financial Officer
(Principal Financial Officer)
/s/ David P. Delaney, Jr. Director March 29, 1996
---------------------------
David P. Delaney
/s/ Dr. Harold Lazarus Director March 29, 1996
---------------------------
Dr. Harold Lazarus
/s/ Louis A. Lubrano Director March 29, 1996
---------------------------
Louis A. Lubrano
/s/ Andrew A. Giordano Director March 29, 1996
-----------------------
Andrew A. Giordano
/s/ Robert Spiegel Director March 29, 1996
-----------------------------
Robert Spiegel
/s/ Marcel Newfield Director March 29, 1996
---------------------------
Marcel Newfield
/s/ Steven D. Levkoff Director March 29, 1996
--------------------------
Steven D. Levkoff
/s/Donald Press Director March 29, 1996
-----------------------------
Donald Press
<PAGE>
EXHIBIT INDEX
-------------
EHXIBIT
NO. DESCRIPTION
-- -----------
3(a) The Company's Certificate of Incorporation, as *
amended, is incorporated by reference to Exhibit
3(1) to the Company's Registration Statement on
Form S-1 (File No. 33-40442) (the "1991 Registration
Statement").
3(b) The Company's By-Laws, as amended, are incorporated *
by reference as an exhibit to the Company's Current
Report on Form 8-K dated as of July 14, 1995.
10.(a) Employment Agreement dated as of July 8, 1981 *
(the "Selinger Agreement"), between the Company and
Irwin Selinger is incorporated by reference to
Exhibit 10(a) to the Company's Registration
Statement on Form S-18 (File No. 2-80107-NY.) ("S-
18 Registration Statement").
(b) Amendment to the Selinger Agreement dated as *
of July 8, 1981, is incorporated by reference to
Exhibit 10.1 to the 1991 Registration Statement.
(c) Agreement dated June 6, 1988 between the *
Company and Gould Investors, LP with respect to the
sale and leaseback of 400 Rabro Drive, Hauppauge,
NY is incorporated by reference to Exhibit 10(rr)
to the Company's Annual Report on Form 10-K for the
year ended December 31, 1986 (the "1986 10-K").
(d) Second Amendment to Lease, dated January 1, *
1990, between the Company and Gould Investors, L.P.
in incorporated by reference to Exhibit 10(ii) to
the Company's Annual Report on Form 10-K for the
year ended December 31, 1990 (the "1990 10-K").
(e) Lease dated January 1, 1987, between the *
Company and R-Three Investors with respect to the
renting of 30,000 square feet at 135 Fell Court,
Hauppauge, is incorporated by reference to Exhibit
10(tt) to the 1986 10-K.
(f) Lease Extension Agreement, dated March 8, 1990 *
between the Company and R-Three Investors with
respect to the renting of 30,000 square feet at 135
Fell Court, Hauppauge is incorporated by reference
to Exhibit 10(hh) to the 1990 10-K.
(g) Union contract dated April 1, 1993 between *
Graham-Field and Local 966 of International Broth-
erhood of Teamsters with respect to the collective
bargaining agreement at the Hauppauge, New York
facility.
(h) Union Contract dated July 28, 1993 between *
Graham-Field and Local 945 of International
Brotherhood of Teamsters with respect to the
collective bargaining agreement at the Temco, New
Jersey facility.
(i) Purchase Agreement to acquire the outstanding *
stock of Bristoline, Inc. is incorporated by
reference to Exhibit 2 to the Company's Report on
Form 10-Q for the quarter ended June 30, 1988.
(j) Agreement, dated as of January 14, 1989, among *
the Company, the Wendt-Bristol Company and Temco
Home Health Care Products, Inc. is incorporated by
reference to Exhibit 10(ff) to the Company's Annual
Report on Form 10-K for the year ended December 31,
1989 (the "1989 10-K").
(k) Stock Purchase Agreement, dated as of February *
26, 1990 among Graham-Field, Inc., the Company,
John Chambers, E. Bruce Barber and Arthur E. Smith,
is incorporated by reference to Exhibit 2(a) to the
Company's Current Report on Form 8-K dated March 5,
1990.
- -----------------------------------------------
* Incorporated by reference.
<PAGE>
EXHIBIT INDEX
-------------
EHXIBIT
NO. DESCRIPTION
-- -----------
(l) Lease dated October 1, 1990, between Graham- *
Field, Inc., and General American Life Insurance
company with respect to the renting of 31,000
square feet at 540-544 South Melrose Street,
Placentia, CA is incorporated by reference to
Exhibit 10(kk) to the 1990 10-K.
(m) Asset Purchase Agreement, dated November 13, *
1990, between Graham-Field, Inc. and Omnicare, Inc.
for the purchase of trade name and inventory of
John Bunn Company, a division of Omnicare, Inc. is
incorporated by reference to Exhibit 10(ll) to the
1990 10-K.
(n) The Incentive Program is incorporated by *
reference to the Company's Registration Statements
on Form S-8 (File Nos. 33-37179, 33-38656,
33-48860, and 033-60679).
(o) Amendment No. 1 to the Incentive Program is *
incorporated by reference to Exhibit A to the
Company's Proxy Statement dated as of May 10, 1991.
(p) Amendment No. 2 to the Incentive Program is *
incorporated by reference to Exhibit A to the
Company's Proxy Statement dated as of May 14, 1992.
(q) Amendment No. 3 to the Incentive Program dated *
as of January 28, 1993 is incorporated by reference
to Exhibit 10(y) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992 (the
"1992 10-K").
(r) Amendment No. 4 to the Incentive Program dated *
as of June 20, 1995 is incorporated by reference to
the Company's Registration Statement on Form S-8
(File No. 033-60679).
(s) Amendment No. 5 to the Incentive Program dated
as of December 21, 1995.
(t) Agreement and Plan of Merger dated as of May *
9, 1991, by and among Horizon International
Healthcare, Inc., Aquatherm Acquisition Corp.,
Graham-Field, Inc., the Company, Tyler Schueler and
John Shepherd is incorporated by reference to
Exhibit 10 (cc) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1991 (the
"1991 10-K").
(u) Asset Purchase Agreement dated as of August *
30, 1991, by and between TEMCO National Corp. and
Graham-Field, Inc. is incorporated by reference to
Exhibit (c)(1) to the Company's Current Report on
Form 8-K dated as of October 12, 1991.
(v) Lease Agreement dated as of October 1, 1991 *
(the "Temco Lease Agreement"), by and between TEMCO
National Corp. and Graham-Field, Inc. is
incorporated by reference to Exhibit 10(ee) to the
1991 10-K.
(w) Modification of Temco Lease Agreement dated as *
of May 18, 1992, by and between TEMCO National
Corp. and Graham-Field Temco, Inc. is incorporated
by reference to Exhibit 10(dd) to the 1992 10-K.
(x) Amendment No. 2 to Temco Lease Agreement dated
as of April 13, 1994, by and between The Wendt-
Bristol Health Services Corporation and Graham-
Field Temco, Inc.
(y) Amendment No. 3 to Temco Lease Agreement dated
as of May 1, 1995, by and between The Wendt-Bristol
Health Services Corporation and Graham-Field Temco,
Inc.
(z) John Hancock Mutual Life Insurance Note and *
Warrant Agreement dated as of March 12, 1992 is
incorporated by reference to Exhibit 10(ee) to the
1992 10-K.
- -----------------------------------------------
* Incorporated by reference.
<PAGE>
EXHIBIT INDEX
-------------
EHXIBIT
NO. DESCRIPTION
-- -----------
(aa) Amendment dated as of December 31, 1992, to *
the John Hancock Mutual Life Insurance Note and
Warrant Agreement is incorporated by reference to
Exhibit 10(ff) to the 1992 10-K.
(bb) Amendment dated as of June 30, 1993, to the *
John Hancock Mutual Life Insurance Note and Warrant
Agreement is incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993.
(cc) Amendment dated as of December 31, 1993, to *
the John Hancock Mutual Life Insurance Note and
Warrant Agreement.
(dd) Amendment dated as of December 30, 1994, to *
the John Hancock Mutual Life Insurance Note and
Warrant Agreement.
(ee) Lease Agreement dated as of March 23, 1992, *
by and between The Equitable Life Assurance Society
of the United States and Graham-Field, Inc. is
incorporated by reference to Exhibit 10(ff) to the
1991 10-K.
(ff) Asset Purchase Agreement dated as of May 28, *
1993, by and among Graham-Field, Inc., Diamond
Medical Equipment Corp., National Health Care
Equipment, Inc., Harvey Diamond and Peter Winocur
is incorporated by reference to Exhibit (c)(1) to
the Company's Current Report on Form 8-K dated as
of June 5, 1992.
(gg) Asset Purchase Agreement dated as of
September 22, 1995, by and among Graham-Field
Health Products, Inc., National Medical Excess
Corp. and John Wittenberg.
(hh) Asset Purchase Agreement dated as of March 4,
1996, by and between Graham-Field, Inc. and the
Lumiscope Company, Inc.
(ii) Lease Agreement dated as of February 7, 1996,
by and between Graham-Field, Inc. and BMS
Associates.
(jj) Lease Agreement dated as of March 21, 1996,
by and between Graham-Field, Inc. and HIP Realty,
Inc.
EXHIBIT 10 (s)
AMENDMENT NO. 5
TO THE
GRAHAM-FIELD HEALTH PRODUCTS, INC.
INCENTIVE PROGRAM
----------------------------------------------------------
Amendment No. 5 dated as of December 21, 1995, to Graham-Field Health
Products, Inc.'s Incentive Program, as amended (the "Incentive Program").
The Incentive Program is hereby amended as follows:
1. Section 8(c) of the Incentive Program is hereby amended to read in its
entirety as follows:
"(c) Grant of Options. For each calendar year following the adoption
----------------
year of this Program, options to purchase Ten Thousand (10,000) shares shall be
automatically granted to eligible directors on January 2 (or if January 2 is not
a business day, on the next succeeding business day) of each year beginning
January 1, and ending December 31 ("Program Year").
EXHIBIT 10 (x)
AMENDMENT NO. 2 TO LEASE AGREEMENT
----------------------------------
This Amendment No. 2 to Lease Agreement is entered into by and between THE
WENDT-BRISTOL HEALTH SERVICES CORPORATION, a Delaware corporation, formerly
known as Temco National Corp., with its principal place of business at Two
Nationwide Plaza, 280 N. High Street, Columbus, Ohio ("Landlord") and Graham-
Field Temco, Inc., a New Jersey corporation with its principal place of business
at 125 South Street, Passaic, New Jersey ("Tenant") and shall be effective on
the last date executed below.
WHEREAS, on October 1, 1991, Landlord and Tenant entered into a certain
Lease Agreement ("Lease") for 120,000 square feet of office and manufacturing
space located at 125 South Street, Passaic, New Jersey ("Premises");
WHEREAS, in May, 1992, Landlord and Tenant entered into a Modification of
Lease Agreement ("Modification") changing the base rental paid by Tenant;
WHEREAS, a dispute has arisen between the parties concerning their
respective rights and duties under the Lease and Modification;
WHEREAS, an action entitled The Wendt-Bristol Health Services Corporation
---------------------------------------------
v. Graham-Field Temco Inc., Graham-Field Health Products Inc. and Graham-Field,
- -------------------------------------------------------------------------------
Inc. (Case No. 94CVH03-1887) (the "Action") was commenced by the Landlord in
- ----
Court of Common Pleas, Franklin County, Ohio;
WHEREAS, the Landlord has agreed to discontinue the Action without
prejudice;
<PAGE>
WHEREAS, notwithstanding the discontinuance of the Action, neither the
Landlord nor the Tenant is hereby relinquishing any of its rights arising prior
to the commencement date of the Action;
WHEREAS, the discontinuance of the Action will not constitute a waiver of
any rights of the Landlord and the Tenant; and
WHEREAS, the parties desire to further clarify their respective rights and
duties under the Lease and Modification.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree to the foregoing
and as follows:
1. Subject to the limitations in Paragraph 2 below, any controversy or
claim arising out of or relating to the Lease or Modification or any breach of
either shall be settled by arbitration in accordance with the Commercial Rules
of the American Arbitration Association ("AAA") and, on the request of any
party, judgment upon any interim or final award rendered by the arbitrators
shall be entered by any court of general jurisdiction in either New York and/or
New Jersey. The parties expressly consent to the exercise of personal
jurisdiction of those courts for the purpose of any action brought to enter
judgment upon any interim or final arbitration award.
2. Tenant's right to commence arbitration shall be expressly conditioned
upon Tenant's rent obligations being current as of the date Tenant commences the
arbitration. Absent an order from the arbitrators, pursuant to the authority
granted to them under Paragraph 5 hereof, modifying, altering or suspending
Tenant's monthly rental obligations, Tenant's right to maintain the
<PAGE>
arbitration shall be conditioned upon Tenant remaining current with all monthly
rental obligations.
3. The arbitration proceedings shall be conducted in Newark, New Jersey.
4. The arbitration shall be held before a panel of three arbitrators
selected from AAA's National Panel of Commercial Arbitrators list. Within ten
(10) days from the commencement of arbitration, Landlord and Tenant shall each
select one person from the list, and the two selected shall select a third
arbitrator from the list. If either party fails to select an arbitrator
within the time provided herein and/or if the arbitrators selected by each of
the parties are unable or fail to agree upon the third arbitrator within ten
(10) days, then AAA shall make such selection. In the event that any portion
of the claim being arbitrated arises from a structural defect,
structural modification, or structural repair of the Premises, then the third
arbitrator to be chosen shall be a licensed engineer principally engaged in the
practice of structural engineering chosen from the AAA Panel of Construction
Industry Arbitrators. The three arbitrators shall select one among them to
serve as chairperson of the panel.
5. The arbitrators shall have the authority to award any remedy or relief
a court of the state of New Jersey could order or grant, including, but not
limited to, specific performance of any obligation created under the Lease or
Modification and/or allowance of pendente lite relief. At anytime following
-------------
commencement of the arbitration, either party shall have the
<PAGE>
option of requesting pendente lite relief in the form of a request that the
-------------
monthly rental obligation be paid to Landlord during the arbitration
proceedings, that the monthly rent be paid into an escrow account, that a
portion of the rent be abated during the arbitration either prospectively or
retroactively or such other interim relief as may be appropriate under the
circumstances. In the event that either party makes a request of the arbitrators
for such relief, the opposing party shall have the opportunity to respond to
this request in writing within ten (10) days after the submission of the initial
request regardless of whether or not all arbitrators have then been selected.
Absent agreement of the parties, this period shall not be extended unless good
cause is shown. The arbitrators shall decide the matter not later than five (5)
days following their selection or ten (10) days following the submission of the
responding party's papers whichever is later. The arbitrators shall have the
power to further modify any interim order, upon the request of either party,
should circumstances warrant same.
6. Within 15 days of the selection of the final arbitrator, an
administrative conference shall be scheduled between the chairperson and counsel
for each party. This administrative conference shall be held substantially in
accordance with Federal Rule of Civil Procedure 16(b). The chairperson shall
have the discretion to hold such further pre-hearing conferences as may be
necessary for the efficient administration of the arbitration, including but not
limited to, consideration of interim relief requested by either party.
<PAGE>
7. The parties shall allow and participate in discovery in accordance
with Rules 26-37, Federal Rules of Civil Procedure. Any unresolved discovery
disputes may be brought to the attention of the chairperson of the arbitration
panel who shall have authority to resolve the dispute.
8. The arbitration award shall be in writing and shall specify the factual
and legal basis for the award. Subject only to vacation, modification, or
correction on the basis set forth in Paragraph 9 below, the decision of the
majority of the arbitrators shall be final.
9. A court of general jurisdiction in New Jersey shall make an order
vacating the award of the arbitrators, upon application of any party to the
arbitration, if:
(a) The award was procured by corruption, fraud or
undue means;
(b) There was evident partiality or corruption on
the part of the arbitrators, or any of them;
(c) The arbitrators were guilty of misconduct in
refusing to hear evidence pertinent and
material to the controversy; or any other
misbehavior by which the rights of any party
have been prejudiced; or
(d) The arbitrators exceeded their powers, or so
imperfectly execute them that a mutual, final
and definite award upon the subject matter
submitted was not made.
A court of general jurisdiction in New Jersey shall make an order modifying or
correcting the award of the arbitrators, upon application of any party to the
arbitration, if:
(a) There was an evident material miscalculation of
figures or an evident material mistake in the
description of any person, thing or property
referred to in the award.
<PAGE>
(b) The arbitrators have awarded upon a matter not
submitted to them, unless it is a matter not
affecting the merits of the decision upon the
matters submitted;
(c) The award is imperfect in matter of form not
affecting the merits of the controversy.
The order shall modify and correct the award, so as to effect the
intent thereof and promote justice between the parties; judgment
shall then be entered in conformity with the court's modification and
correction. Upon entry of any order vacating the award, the court shall remand
the matter, if necessary, for further arbitration consistent with the court's
order.
IN WITNESS WHEREOF, the parties have executed this Amendment.
Signed and acknowledged LANDLORD: THE WENDT-BRISTOL HEALTH
in the presence of: SERVICES CORPORATION, A
Delaware Corporation
/s/ Sandra W. Weber By: /s/
- -------------------------------- -------------------------------
Secretary Its: President
- -------------------------------- -------------------------------
Date: 4-14-94
-------------------------------
TENANT: GRAHAM-FIELD TEMCO, INC.,
A New Jersey Corporation,
/s/ By: /s/ Beatrice Scherer
- -------------------------------- -------------------------------
Vice President Its: Vice President/Administration
- -------------------------------- -------------------------------
Date: 4-13-94
-------------------------------
The Guarantors, undersigned, of Tenant's obligations under the Lease and
Modification each agree to be bound by the foregoing and each agree to
be subject to the foregoing agreement to arbitrate.
<PAGE>
GRAHAM-FIELD HEALTH PRODUCTS, INC.,
A Delaware Corporation
/s/ By: /s/
- --------------------- --------------------------
/s/ Its: President
- --------------------- --------------------------
Date: 4/13/94
--------------------------
GRAHAM-FIELD, INC.,
A New-York Corporation
By: /s/
--------------------------
/s/ Its: President
- --------------------- --------------------------
/s/ Date: 4/13/94
- --------------------- --------------------------
STATE OF OHIO :
ss.
COUNTY OF FRANKLIN :
The foregoing instrument was acknowledged before me this 14th day of
----
April, 1994, by Sheldon A. Gold, of the Wendt-Bristol
--------------- ------------------
Health Services Corporation, a Delaware corporation, for and on behalf of
said corporation.
/s/ Lisa A. Baldridge
--------------------------
Notary Public
Lisa A. Baldridge
State Of Ohio
Exp Date 8-2-96
Notary Public
STATE OF NEW YORK :
-------- ss.
COUNTY OF SUFFOLK :
-------
The foregoing instrument was acknowledged before me this 13th day of
----
April, 1994, by Beatrice Scherer, Vice President of the Graham-Field
---------------- --------------
Temco, Inc., a New Jersey corporation, for and on behalf of said corporation.
/s/ Theresa C. Duffy
--------------------------
Notary Public
Theresa C. Duffy
Notary Public, State of New York
No 5017870 Suffolk County
Commission Expires September 13, '95
---
<PAGE>
STATE OF :
--------- ss.
COUNTY OF :
---------
The foregoing instrument was acknowledged before me this 13th day of
----
April, 1994, by Wayne J. Merdinger, of the Graham-Field
------------------- --------------
Health Products, Inc., a Delaware corporation, for and on behalf of
said corporation.
/s/ Theresa C. Duffy
--------------------------
Notary Public
Theresa C. Duffy
Notary Public, State of New York
No 5017870 Suffolk County
Commission Expires September 13, '95
STATE OF :
--------- ss.
COUNTY OF :
---------
The foregoing instrument was acknowledged before me this 13th day of
----
April, 1994, by Wayne J. Merdinger, of the Graham-Field,
------------------- --------------
Inc., a New York corporation, for and on behalf of
said corporation.
/s/ Theresa C. Duffy
--------------------------
Notary Public
Theresa C. Duffy
Notary Public, State of New York
No 5017870 Suffolk County
Commission Expires September 13, '95
<PAGE>
IN THE COURT OF COMMON PLEAS, FRANKLIN COUNTY, OHIO,
The Wendt-Bristol Health Services :
Corporation,
:
Plaintiff,
: Case No. 94CVH03-1887
v.
: Judge Millard
Graham-Field Temco, Inc., et al.,
:
Defendants.
:
NOTICE OF DISMISSAL WITHOUT PREJUDICE
-------------------------------------
Now comes Plaintiff The Wendt-Bristol Health Services Corporation and hereby
gives notice of the dismissal without prejudice of the above-captioned action
pursuant to Civil Rule
41(A) (1).
Respectfully submitted,
SCHOTTENSTEIN, ZOX & DUNN
A Legal Professional Association
/s/ John C. McDonald
---------------------------------
John C. McDonald (0019256)
Bridgette C. Roman (0040888)
41 S. High Street, Suite 2600
Columbus, Ohio 43215
(614) 221-3211
Attorneys for Plaintiff
The Wendt-Bristol Health
Services Corporation
<PAGE>
CERTIFICATE OF SERVICE
----------------------
The undersigned hereby certifies that a copy of the foregoing was served
upon Ronald Arnett and Peter Eisenberg, Graham-Field Temco, Inc., 125 South
Street, Passaic, New Jersey 07055 and Irwin Selinger, Graham-Field Health
Products, Inc., 400 Rabro Drive, Hauppauge, New York 11788, by regular U.S.
Mail, this 14th day of April, 1994
----
/s/ Bridgette C. Roman
--------------------------
Bridgette C. Roman
EXHIBIT 10 (y)
AMENDMENT NO. 3 TO LEASE AGREEMENT
----------------------------------
This AMENDMENT No. 3 to Lease Agreement, made this 1st day of May 1995,
by and between The Wendt-Bristol Health Services Corporation, a Delaware
corporation, formerly known as Temco National Corp., with its principal place of
business at Two Nationwide Plaza, 280 North High Street, Columbus, Ohio
("Landlord"), and Graham-Field Temco, Inc., a New Jersey corporation with its
principal place of business at 125 South Street, Passaic, New Jersey ("Tenant").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, Landlord and Tenant entered into a certain lease agreement dated
as of October 1, 1991 (the "1991 Lease"), covering certain land in the City of
Passaic County, New Jersey, and all improvements on the land, including a
building aggregating approximately 120,000 square feet;
WHEREAS, Landlord and Tenant entered into a Modification of Lease Agreement
dated as of May 1992 (the "Modification Agreement");
WHEREAS, Landlord and Tenant entered into an Amendment to the Lease dated
as of April 1994 ("Amendment No. 2");
WHEREAS, the 1991 Lease, the Modification Agreement, and Amendment No. 2
are collectively referred to hereinafter as the "Lease";
WHEREAS, a dispute has arisen between the parties concerning their
respective rights and duties under the Lease;
WHEREAS, an arbitration proceeding (the "Arbitration Proceeding") entitled
Graham-Field Temco, Inc. v. Wendt-Bristol Health Services Corporation (f/k/a,
- ---------------------------------------------------------------------
Temco National Corp.) (Case No.
<PAGE>
1811500331 94) was commenced by Tenant on September 23, 1994, in the State of
New Jersey, pursuant to the Rules of the American Arbitration Association;
WHEREAS, Landlord and Tenant wish to conclude the Arbitration Proceeding to
avoid further expenditure of time and resources;
WHEREAS, subject to the execution of this Amendment No. 3, the Tenant has
agreed to discontinue the Arbitration Proceeding with prejudice;
WHEREAS, the parties desire to further clarify their respective rights and
duties under the Lease;
WHEREAS, capitalized terms not otherwise defined herein shall have the
meaning ascribed to such terms in the Lease;
NOW, THEREFORE, for the consideration of the mutual covenants contained
herein and other good and valuable consideration, the adequacy and receipt of
which are hereby acknowledged, the parties hereto do hereby mutually agree-to
amend and modify the Lease as follows:
1. Section 1.02 - Term.
--------------------
The Expiration Date of the Lease shall be December 31, 2004 (the "Initial
Term"); provided, however, Tenant shall have the option (the "Option")
-------- -------
exercisable on or before six (6) months prior to the Expiration Date to renew
the Lease for an additional two (2) year period (the "Option Period") in
accordance with the terms and provisions contained in Section 6 of this
Amendment No. 3.
- 2 -
<PAGE>
2. Section 3.01.A - Fixed Rent.
---------------------------
Effective as of January 1, 1995, the payment of Fixed Rent shall be
adjusted as follows:
Year Monthly Fixed Rent
---- ------------------
January 1, 1995 - December 31, 1995 $28,000 per month
January 1, 1996 - December 31, 1996 $28,000 per month
January 1, 1997 - December 31, 1997 $28,000 per month
January 1, 1998 - December 31, 1998 $28,000 per month
January 1, 1999 - December 31, 1999 $28,000 per month
January 1, 2000 - December 31, 2000 $30,000 per month
January 1, 2001 - December 31, 2001 $30,000 per month
January 1, 2002 - December 31, 2002 $30,000 per month
January 1, 2003 - December 31, 2003 $30,000 per month
January 1, 2004 - December 31, 2004 $30,000 per month
Option Period:
--------------
January 1, 2005 - December 31, 2005 $10,000 per month
January 1, 2006 - December 31, 2006 $10,000 per month
3. Article 10 - Landlord's Option to Sell;
---------------------------------------
Article 26 - Option to Purchase.
--------------------------------
Articles 10 and 26 are hereby deleted in their entirety from the
Lease. Notwithstanding the deletion of Articles 10 and 26, if the Demised
Premises shall be transferred to any transferee or purchaser, Tenant's rights
shall not be terminated thereby; rather any transferee or purchaser of the
Demised Premises agrees to honor the Lease and Tenant's rights thereunder and
the Lease shall continue in full force and effect as a direct lease between
- 3 -
<PAGE>
any transferee or purchaser of the Demised Premises and Tenant, whereupon,
Tenant shall be bound to any such assignee, purchaser or transferee (hereinafter
referred to collectively as "Successor Landlord") under all of the terms,
covenants and conditions of the Lease for the balance of the term thereof
remaining, with the same force and effect as if the Successor Landlord were the
lessor under the Lease with the Lease remaining in full force and effect.
4. Article 8 - Assignment, Subletting.
---------- -----------------------
a. The text of Section 8.01 is hereby deleted in its entirety and
replaced with the following new text: "Without the consent of the Landlord,
Tenant may assign this Lease, or sublet all or any portion of the Demised
Premises, to any one or more subtenants, and permit any one or more licensees
and others to use, occupy or enjoy the same, provided such assignee, licensee or
subtenant (i) develops, uses and occupies the Demised Premises only for lawful
purposes, (ii) such development, use and occupancy of the Demised Premises will
not cause unreasonable harm to the physical structure of the Demised Premises,
and (iii) subject to and conditioned upon the following:
A. Each assignee of Tenant's interest in this Lease or
subtenant shall assume and be deemed to have assumed the
obligations under the Lease and shall be and remain liable
jointly and severally with Tenant for the payment of Rent
accruing thereafter and for the due performance of all of
the terms, covenants, conditions and agreements herein
contained thereafter on Tenant's part to be performed
throughout the term of the Lease and no such assignment or
subletting shall release or discharge the obligations of
Tenant and its Guarantors hereunder. Tenant shall promptly
deliver to Landlord a duplicate original of the instrument
of assignment in form
- 4 -
<PAGE>
reasonably satisfactory to Landlord and such instrument of
assignment shall contain a covenant of assumption by the
assignee or subtenant of all of the obligations aforesaid.
B. If the Demised Premises or any part thereof be sublet or
occupied by any person or persons other than Tenant,
Landlord may, after default by Tenant in payment of Rent,
which continues for thirty (30) days after notice thereof
and for so long as such default continues, or after
termination of the Lease as a result of such
default, collect rent from the subtenant or occupant and
apply the net amount collected to the Rent herein reserved,
but no such collection of Rent shall be deemed a waiver of
the covenants in this Article, nor shall the collection of
Rent be deemed a release of Tenant and its Guarantors from
the full performance by Tenant of all of the terms,
conditions and covenants of this Lease."
b. Section 8.02 is hereby deleted in its entirety and replaced with the
following new "Section 8.02 - Vacate Premises," which provides as follows:
"Notwithstanding anything else contained in the Lease to the contrary, Tenant
may vacate all or a portion of the Demised Premises at any time during the term
of the Lease; it being expressly understood that the act of vacating the Demised
Premises shall not (i) constitute a default under the Lease by Tenant or (ii)
release the Tenant from the full performance of all of the terms, conditions and
covenants of the Lease. In the event Tenant vacates the entire Demised Premises,
Tenant hereby agrees to use its reasonable efforts to secure the Demised
Premises to prevent vandalism and waste."
- 5 -
<PAGE>
5. Article 12. Repairs.
-------------------
The text of Article 12 is hereby deleted in its entirety and replaced with
the following new text:
"a. Throughout the term of this Lease, Tenant agrees, at Tenant's own cost
and expense, to maintain and repair the Tenant's Building and the area
surrounding Tenant's Building including the parking areas, sidewalks and
landscaped areas and to make all repairs and replacements thereto, other than
Structural Repairs(as such term is defined in Exhibit I attached hereto) (the
"Structural Repairs"), roof repairs (e.q., beams, trusses, joists, planks and
----
roofing materials), and repairs to the building systems (HVAC, plumbing, and
electrical systems) (collectively, "Landlord's Repairs"), which shall be the
sole obligation of the Landlord, except as otherwise provided herein.
b. As of the date hereof, each of the Landlord and Tenant acknowledges
that the Demised Premises requires the repairs (collectively, the "Agreed
Repairs") outlined and set forth on that certain T.A. Fitzpatrick Associates
Report dated as of September 29, 1993, as modified and agreed to by Landlord and
Tenant (a copy of which report, as modified and agreed to by Landlord and
Tenant, is attached hereto as Exhibit II).
c. Landlord represents and covenants to Tenant that it shall promptly and
diligently make all of the Agreed Repairs to the Demised Premises in a
reasonable, workman-like and "structurally sound" manner on or before August 1,
1995 (the "Completion Date"). All costs and expenses relating to the Agreed
Repairs shall be the sole obligation of the Landlord, except that (i) Tenant
will contribute Thirty Seven Thousand, Three Hundred Dollars ($37,300) toward
the cost of the Agreed Repairs, provided Landlord completes the Agreed Repairs
in a reasonable, workman-like and "structurally
- 6 -
<PAGE>
sound" manner on or before the Completion Date, and (ii) Tenant will bear all
costs and expenses related to the opening of the Demised Premises at hours other
than during normal business hours, provided that Tenant and Landlord agree to
cooperate with each other with respect to the timing of the Agreed Repairs and,
provided, further, Landlord agrees to make every reasonable effort so that the
- -------- -------
making of the Agreed Repairs will not materially interfere or otherwise
materially disrupt the normal business operations of Tenant. For a period of
eighteen (18) months following the earlier to occur of the Completion Date or
the date the Agreed Repairs are completed by Landlord in a reasonable, workman-
like and "structurally sound" manner, Landlord will be responsible for all
Structural Repairs to the Demised Premises which arise or first become necessary
during such eighteen (18) month period. Thereafter, Tenant will be responsible
for fifty (50) percent of the cost of all Structural Repairs made with the
approval of Tenant up to a maximum dollar limitation on the part of Tenant of
$100,000 (the "Contribution Share"); provided, however, Tenant will not be
-------- -------
required to contribute to the cost of such Structural Repairs until the
Expiration Date, at which time Tenant will pay its Contribution Share of the
Structural Repairs in equal monthly installments over a period of either (x)
twelve (12) months if Tenant does not exercise the Option or (y) twenty-four
(24) months if Tenant exercises the Option.
6. Option to Rent.
--------------
Tenant shall have the Option to renew the Lease on the same terms and
conditions as specified in the Lease, except as to the amount of Fixed Rent, for
the Option Period, provided Tenant shall on or before six (6) months prior to
the Expiration Date, provide Landlord with a written notice of its election to
exercise the Option. The Fixed Rent for the Option Period shall be $10,000 per
month; provided, however, if Tenant fails to exercise the
-------- -------
- 7 -
<PAGE>
Option, Tenant will be obligated to pay $120,000 to Landlord at the rate of
$10,000 per month over a period of twelve (12) months commencing upon the
Expiration Date.
7. ECRA/ISRA.
---------
Effective as of the date hereof, Tenant hereby acknowledges and consents to
Landlord proceeding with the clean-up activities at the Demised Premises (ISRA
Case No. 88557) to "nonresidential clean levels" with environmental deed
restrictions. Notwithstanding Tenant's acknowledgement and consent to Landlord's
clean-up activities, the indemnification provisions contained in the Lease,
including, but not limited to the indemnification provisions contained in
Article 27, shall remain in full force and effect. Subject to the
indemnification provisions contained in the Lease, Tenant hereby agrees that it
will not object, or otherwise assert any claims against Landlord with respect to
Landlord's proposed timetable, as modified from time to time, for the clean-up
of the Demised Premises as provided herein.
8. Future Disputes.
---------------
a. Any dispute or controversy between the Landlord and Tenant involving
the interpretation, construction or application of any terms, covenants or
conditions of the Lease shall, on the request of one party served on the other,
be submitted for resolution by senior executives designated by each party, who
shall attempt to resolve such dispute or controversy in good faith through a
meeting (the "Requested Meeting"). In the event such resolution is not achieved
within twenty (20) business days of such Requested Meeting, such dispute or
controversy shall be submitted to non-binding mediation in accordance with the
terms and provisions contained herein. The Requested Meeting shall take place
at the headquarters of Landlord in Columbus, Ohio or Tenant
- 8 -
<PAGE>
in Hauppauge, New York. The site of the Requested Meeting will alternate with
the first meeting of the first dispute or controversy to be held in Columbus,
Ohio.
b. In the event such dispute or controversy between the Landlord and
Tenant shall not be resolved by the designated senior executives of each party
as provided herein, such dispute or controversy shall be submitted to non-
binding mediation, pursuant to which J.J. Pierson, Esq., President of the
Arbitration Centre, 8 Fox Hunt Road, P.O. Box 604, New Vernon, New Jersey
07976 (Telephone Number: 201-377-9292; Telecopier No.: 201-377-9220) will act as
the sole mediator to resolve the dispute or controversy. In the event J.J.
Pierson, Esq. is unable for any reason to act as the sole mediator, each party
shall appoint one (1) mediator within ten (10) business days after the Other
Party's notice to submit such dispute or controversy to non-binding mediation.
If a party fails to so designate its mediator within said ten (10) business
days, then the mediator designated by the party designating a mediator shall act
as the sole mediator and shall be deemed to be the single, mutually-approved
mediator to resolve the controversy. Each of the Landlord and Tenant will
attempt to resolve such dispute or controversy in good faith through non-binding
mediation. The mediation will be conducted in Newark, New Jersey.
c. In the event any such dispute or controversy between the Landlord and
Tenant shall not be resolved by non-binding mediation as provided herein, then
such dispute, controversy or claim shall be resolved by arbitration in
accordance with the Commercial Rules of the American Arbitration Association,
which shall be conducted in Newark, New Jersey. Except as otherwise provided,
any judgment upon any award rendered by the Arbitrator (as hereinafter defined)
may be entered in any court in New Jersey.
- 9 -
<PAGE>
d. A notice of arbitration shall set out a clear and plain statement of
the matter that the party sending the notice (the "Instituting Party") believes
to be in dispute. The demand (the "Demand") shall reference principal provisions
of the Lease that the Instituting Party views as controlling or out of the
interpretation of which the dispute arises, and shall attach copies of all
pertinent documents and other things then in its possession which the
Instituting Party views as having direct bearing on the relief sought under this
Demand. Discovery shall be limited to the exchange of documents. The parties
will be entitled to present evidence to support or rebut the Demand. Each party
shall appoint one (1) arbitrator within ten (10) business days after the Other
Party's receipt of the Demand. If a party fails to so designate its arbitrator
within said ten (10) business days, then the arbitrator designated by the party
designating an arbitrator shall act as the sole arbitrator and shall be deemed
to be the single, mutually-approved arbitrator to resolve the controversy.
Except as otherwise provided herein, the two (2) arbitrators chosen shall
jointly select one (1) arbitrator (the "Arbitrator") to resolve the dispute
without the two (2) arbitrators chosen by the respective parties.
e. The Arbitrator shall have the authority to award any remedy or relief a
court of general jurisdiction could order or grant, including, but not limited
to, specific performance of any obligation under the Lease and/or interim
relief, preliminary relief or the allowance of pendente lite relief in the form
-------------
of a request that the monthly rental obligation be paid to Landlord during the
arbitration proceeding, that a portion of the rent be paid into an escrow
account, that a portion of the rent be abated during the arbitration either
prospectively or retroactively or such other interim relief as may be
appropriate under the circumstances. In the event that either party makes a
request of the Arbitrator for such relief, the opposing party shall have the
- 10 -
<PAGE>
opportunity to respond to the request in writing ten (10) business days after
the submission of the initial request regardless of whether or not the
Arbitrator has been selected. Absent agreement of the parties, this period shall
not be extended unless good cause is shown. The Arbitrator shall decide the
matter not later than five (5) business days following selection.
f. The Arbitrator shall endeavor to promptly schedule and hold hearings
(on consecutive days if practicable), and shall have authority to award relief
under legal or equitable principles. Nothing contained herein shall impair the
right of a party to seek interim or preliminary relief in a court of competent
jurisdiction before the Arbitrator is selected.
g. Subject to the terms and conditions contained herein, the costs of the
arbitration (including, but not limited to attorney's fees, arbitration fees and
expenses) shall be borne by the losing party or shall be allocated between the
parties in such proportion as the Arbitrator decides. The Arbitrator shall be
permitted to impose a penalty on the Instituting Party in an amount up-to $5,000
if it is determined that such dispute or controversy is groundless and without
any basis in law and fact.
h. The decision of the Arbitrator shall be final, subject only to
vacation, modification or correction on the basis set forth below:
A court of general jurisdiction in New Jersey shall make an order vacating
the award of the Arbitrator, upon application of any party to the arbitration,
if:
(i). The award was procured by corruption, fraud or undue means;
- 11 -
<PAGE>
(ii). There was evident partiality or corruption on the part of the
Arbitrator;
(iii). The Arbitrator was guilty of misconduct in refusing to hear
evidence pertinent and material to the controversy; or any other
misbehavior by which the rights of any party have been
prejudiced; or
(iv). The Arbitrator exceeded its powers, or so imperfectly executed
such powers that a mutual, final and definite award upon the
subject matter submitted was not made.
A court of general jurisdiction in New Jersey shall make an order modifying or
correcting the award of the Arbitrator, upon application of any party to the
arbitration, if
(i). There was evident material miscalculation of figures or an
evident material mistake in the description of any person, thing
or property referred to in the award;
(ii). The Arbitrator has awarded upon a matter not submitted to it,
unless it is a matter not affecting the merits of the decision
upon the matters submitted; or
(iii). The award is imperfect in matter of form not affecting the merits
of the controversy.
The order shall modify and correct the award, so as to effect the intent thereof
and promote justice between the parties; judgment shall then be entered in
conformity with the court's modification and correction. Upon entry of any order
vacating the award, the
- 12 -
<PAGE>
court shall remand the matter, if necessary, for further arbitration consistent
with the court's order.
9. Reaffirmation of Lease.
----------------------
Except as provided herein, all of the terms and provisions of the Lease are
hereby ratified and confirmed and shall remain in full force and effect.
- 13 -
<PAGE>
IN WITNESS WHEREOF, the Landlord and Tenant have caused this Amendment No.
3 to be executed as of the date hereof.
LANDLORD:
WITNESS WENDT-BRISTOL HEALTH
- --------------
SERVICES CORPORATION
/s/ Sandra W. Weber
- ---------------------
SANDRA W. WEBER
/s/ Beth Burns By: /s/ Sheldon A. Gold
- --------------------- ------------------------------
BETH BURNS Name: SHELDON A. GOLD
Title: PRESIDENT
TENANT:
GRAHAM-FIELD TEMCO, INC.
WITNESS By: /s/ Gary M. Jacobs
- --------------------- ---------------------------
Name: Gary M. Jacobs
Title: VP Finance
/s/ Sandra C. Johnson
- ---------------------
SANDRA C. JOHNSON
GUARANTORS:
/s/ Richard S. Kolodny GRAHAM-FIELD HEALTH
- ----------------------
RICHARD S. KOLODNY PRODUCTS, INC.
By: /s/ Gary M. Jacobs
--------------------------
Name: Gary M. Jacobs
Title: VP Finance
GRAHAM-FIELD, INC.
By: /s/ Gary M. Jacobs
--------------------------
Name: Gary M. Jacobs
Title: VP Finance
- 14 -
<PAGE>
STATE OF Ohio
----------
COUNTY OF Franklin
--------------
The foregoing instrument, Lease Amendment No. 3, was acknowledged before me
this 28th day of June , 1995, by Sheldon A. Gold, President, Wendt-Bristol
---- -----------
Health Services Corporation and by witnesses Sandra W. Weber and Beth A. Burns.
/s/ Lisa A. Baldridge
-----------------------------------
Notary Public
My commission expires:
-------------
[Stamp]
Lisa A. Baldridge
State of Ohio
Exp. Date 8-2-96
Notary Public
<PAGE>
STATE OF New York
---------------
COUNTY OF Suffolk
---------------
The foregoing instrument, Lease Amendment No. 3, was acknowledged
before me this 5th day of July, 1995, by Gary M. Jacobs, the Vice President of
Finance and Chief Financial Officer of Graham-Field Temco, Inc. and by witnesses
Richard S. Kolodny and Sandra C. Johnson.
/s/ Theresa C. Duffy
----------------------------------------
Theresa Duffy
[STAMP]
THERESA C. DUFFY
Notary Public, State of New York
No 5017870 Suffolk County
Commission Expires September 13, 95
----
<PAGE>
EXHIBIT I
---------
STRUCTURAL REPAIR DEFINITION
----------------------------
The term "Structural Repairs" shall mean the following items with respect
to the Demised Premises:
A. SUBSURFACE SUPPORT SYSTEMS.
(i). Footings.
(ii). Foundations.
(iii). Subsoil.
B. WALLS.
(i). Foundation walls.
(ii). Bearing walls.
C. CONCRETE FLOOR SLABS.
D. COLUMNS AND POSTS.
E. STRUCTURAL MEMBERS OF BRIDGES AND RAMPS.
F. AREAWAYS AND WELLS.
(i). Floors.
(ii). Walls.
G. FLOOR SYSTEMS.
(i). Beams
(ii). Trusses.
(iii). Joists.
<PAGE>
EXHIBIT II
----------
T.A. FITZPATRICK ASSOCIATES REPORT
----------------------------------
DATED AS OF SEPTEMBER 29, 1993
------------------------------
EXHIBIT II
S T R U C T U R A L S U R V E Y
F O R
G R A H A M - F I E L D T E M C O C O R P .
P A S S A I C M A N U F A C T U R I N G F A C I L I T Y
T. A. FITZPATRICK ASSOCIATES
SEPTEMBER 29, 1993
TF 0028
<PAGE>
The following is a listing of problem locations, in the Temco plant, at 125
South Street, Passaic, NJ., accompanied by a recommended solution. The problems
will be ranked in order of severity, from A to D, with A being most severe, and
D being least.
This listing is to be coordinated with the drawings of the facility, S-1A, S-1B,
S-2 and S-3, as well as photographs of the problem areas.
Drawings S-1A and S-1B, depict the lower level, and are accompanied by photos 1
thru 32.
Drawing S-2 depicts the main level, and is accompanied by photos 33 thru 51.
Drawing S-3 depicts the upper level, and is accompanied by photo 52 thru 72.
Loading calculations and detail design will follow in Phase III of the study.
PROBLEM SOLUTION
------- --------
LOWER LEVEL
1. "C" General water staining in Remove and replace rotted planks.
the area from previous water leaks Clean old water staining and repaint
Several rotted ceiling planks entire area.
against the outside wall. The
remaining planks and timbers are
structurally sound.
2. "C" Several rotted ceiling Remove and replace rotted planks.
planks and ends of planks missing Clean and repaint.
against outside wall.
6. "C" 4" x 6" I rail beam on 4" Clean and pressure grout archway
lally columns supporting main beams crack with epoxy sealer. Reinforce
over cracked archway. Main ceiling ceiling beam with side plates and
beam has heavy check crack. thru bolts.
7. "D" 8" x 10" wood beam on 4" Clean and pressure grout archway
lally columns supporting main beams crack with epoxy sealer.
over cracked archway (as in 6 above)
TF 0029
<PAGE>
2
8. "B" Column cap missing and top Replace column with steel column.
of column damaged. Load bearing on
insufficient eccentric section.
Column checked.
9. "A" Floor plank failed. Replace plank and reinforce.
10. "C" Water staining with several Replace rotted planks.
rotted ceiling planks at outside Remove old paint, clean stains and
corner. repaint entire area.
11. "C" Major water staining with Remove old paint and damaged surface
slight damage to ends of several Provide brace under plank ends and
ceiling planks. Main Beams sound. Repaint entire area.
12. Same as above.
13. "C" Extensive Water damage to Remove and replace damaged roof
planks of flat roof. Joists sound. planks. Reroof entire area.
14. "D" Water staining. Wood sound Repair roof.
15. "B" Heavy check crack in main Reinforce with side plates and thru
ceiling beam. bolts.
18. "B" Weak ceiling planks Replace weakened ceiling planks.
between col lines 31 & 32 and col
lanes Dll & D12.
19. "C" Weak planks have been Provide bracing, under the added
reinforced with added wood members. members, between the main beams.
20. "C" Weak planks have been Provide bracing, under the added
reinforced with added wood members. members, between the main beams.
Short column has been installed Install proper load bearing column
with improper shims to fit. cap.
21 & 22. "D" Column removed and Tighten turnbuckles to provide
beam "trussed" to carry load, with proper tension in bottom chord of
12 x 3 channels both sides. truss.
TF 0030
<PAGE>
3
24. "A" Column D3 - 28 has been Replace with steel column.
substantially weakened due to area
reduction at the base, and severe
checking.
25. "A" No Photo (2) 4" lally Remove entire support structure and
columns supporting one side of a replace with new structural system.
combination of a 12 x 8 steel beam along col line D.
and wood beams, with brick over, in
an unstable condition. The other
side supported by the original brick.
26. "A" Column twisted and column Replace with steel column.
cap shimmed above top of column.
Unstable.
27. "A" 6 x6 WF column supporting Remove and replace with new
main beam off center. Unstable structural system along col line D.
28. "C" 12 x 5 double steel channel Remove and replace with new
over double wood column supporting structural system along col line D.
secondary steel beams above.
29. "A" 6 x 6 WF column supporting Remove and replace with new
main beam at col line 28 is bowed structural system along col line D.
and twisted.
30. "A" 6 x 6 WF column supporting RemoVe and replace with new
main beam at col line 29 is bowed structural system along col line D.
and twisted.
MAIN LEVEL
33. "A" Corbelling of brick column Remove corbelling and section of
supporting main beam at col A-28 is brick coluan and replace with block
cracked and could shear off side of or steel column.
column.
34. "B" Several ceiling planks in Replace cracked ceiling planks.
the area are cracked. Columns have Provide banding reinforcement B.P.or
checking cracks at col lines checked columns.
B-24, 26, & 28, and at col lines
C-20, 21, 24, 26 & 29.
TF 0031
<PAGE>
4
35. "C" Lintel over door shows Replace lintel with cast concrete or
evidence of stress cracking and steel lintel, with concrete block
repair. infill and grout to underside of
beam. This solution covers both
36. "C" Portion of brick lintel over items 35 and 36.
door has been replaced with wooden
header with improper bearing surface.
38. "B" Water damage to ceiling in Replace deteriorated roof planks.
area of col line 25 - F. Main beam Clean and repaint entire area.
is sound. Roof planks deteriorated Reroof as necessary
due to repeated water damage.
39. "B" Water damage to ceiling and Replace deteriorated roof planks.
beam at col line 25 - F2. Main beam Clean and repaint entire area.
is adequate. Roof planks deteriorated. Reroof as necessary.
41. "C" Water damage to ceiling and Replace deteriorated roof planks.
beam at col line 17 - F. Main beam Clean and repaint entire area.
is sound. Roof planks deteriorated. Reroof as necessary.
42. "A" Main 12" roof beams on col Replace main beams and all roofing
line H1, as well as roofing planks planks in entire area. Clean and
between col lines H1 & I1 and 25 & 32 repaint entire area. Reroof entire
deteriorated. area.
43 & 44. Same as above.
47. "C" Several roof planks are Replace deteriorated or cracked
deteriorated and cracked, between planks in area. Clean and repaint.
col lines J1 and K1, along col Reroof.
line 25.
TF 0032
<PAGE>
6
60. "B" Major Check cracks in main Reinforce beam with steel side
l0 x 15 truss beam on col line D1 plates or channel shape bolted thru.
in monitor area
61. "D" Water staining at inter- Clean and paint interior surfaces.
section of main truss and steel beam Repair roof leaks.
at col lines D & 10. Beams sound.
62. "A" Base of column damaged, Replace with steel column.
reduced in section, and shafted on
its base.
63. "A" Base of column damaged, Replace with steel column.
with major crack in column center.
64. "D" Water staining of beams and Replace several deteriorated planks
some damage to roof planks between Clean and paint and repair roof.
col lines C & D, 14 thru 17. Beams
are sound.
67. "B" Column B-24 split at base. Replace with steel column.
68. "C" Water damage to roof planks Provide additional support under
at col line 28 between B & C. planks with 2x12 and brackets.
69. "C" water damage to roof planks Replace rotted planks and reroof.
under sloped slate roof.
70. Same as above
72. "D" Previous water damage. Beam Clean and repaint. Repair roof.
and planks sound.
TF 0034
<PAGE>
ADDENDUM TO FITZPATRICK REPORT OF SEPTEMBER 29, 1993
ITEM NO. 1:
Cracked archway (end of assembly line): already repaired by Lake
Construction.
ITEM NO. 2:
Rolling floors in front of maintenance room and basement; already repaired
by Lake Construction,
ITEM NO. 3:
Ramp to loading dock: already repaired by Lake Construction.
ITEM NO. 4:
Stiffening of three beams with two channels: already completed by Lake
Construction.
ITEM NO. 5:
Installation of roof drains as necessary to alleviate the pooling or
ponding of water on roof.
ITEM NO. 6:
Repair to roof shingles as necessary in order to attempt to stop leaking,
close windows as necessary to stop the leaks underneath the slate roof.
ITEM NO. 7:
Patch roof as necessary on the upper monitor to eliminate leaking: already
repaired by Lake Construction.
ITEM NO. 8:
Repair bricks on the roof and replace coping as necessary.
ITEM NO. 9:
Patching of two sawtooths to prevent leaking.
ITEM NO. 10:
Miscellaneous patching of roof and monitors as necessary to prevent
leaking.
================================================================================
ASSET PURCHASE AGREEMENT
by and among
GRAHAM-FIELD HEALTH PRODUCTS, INC.,
JOHN WITTENBERG,
and
NATIONAL MEDICAL EXCESS CORP.
----------------
September 22, 1995
----------------
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
1. PURCHASE AND SALE OF ASSETS . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Assets to be Purchased . . . . . . . . . . . . . . . . . . . . 1
----------------------
1.2 Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . 3
---------------
1.3 Instruments of Conveyance . . . . . . . . . . . . . . . . . . 3
-------------------------
2. ASSUMPTION OF LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 Assumed Liabilities . . . . . . . . . . . . . . . . . . . . . 4
-------------------
2.2 Excluded Liabilities . . . . . . . . . . . . . . . . . . . . . 4
--------------------
3. PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.1 Amount of Purchase Price . . . . . . . . . . . . . . . . . . . 4
------------------------
3.2 Amount Payable at Closing . . . . . . . . . . . . . . . . . . 4
-------------------------
3.3 Allocation of Purchase Price . . . . . . . . . . . . . . . . . 4
----------------------------
4. CLOSING AND CLOSING DATE . . . . . . . . . . . . . . . . . . . . . . . . 5
5. REPRESENTATIONS AND WARRANTIES OF SELLER AND STOCKHOLDER . . . . . . . . 5
5.1 Organization, Power and Authority . . . . . . . . . . . . . . 5
---------------------------------
5.2 Legal and Authorized Transactions; Authority; No Breach . . . 5
-------------------------------------------------------
5.3 Capitalization; Stockholder . . . . . . . . . . . . . . . . . 6
---------------------------
5.4 Certificate of Incorporation and By-laws . . . . . . . . . . . 6
----------------------------------------
5.5 Liabilities for Taxes; Financial Statements . . . . . . . . . 6
-------------------------------------------
5.6 Absence of Certain Events . . . . . . . . . . . . . . . . . . 8
-------------------------
5.7 Adverse Developments; No Undisclosed Liabilities . . . . . . . 9
------------------------------------------------
5.8 Tangible Property . . . . . . . . . . . . . . . . . . . . . . 9
-----------------
5.9 Government Approval . . . . . . . . . . . . . . . . . . . . . 9
-------------------
5.10 Actions and Proceedings . . . . . . . . . . . . . . . . . . . 10
-----------------------
5.11 Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . . 10
---------
5.12 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 10
---------
5.13 Intangible Property . . . . . . . . . . . . . . . . . . . . . 11
-------------------
5.14 Licenses, Permits and Environmental Matters . . . . . . . . . 11
-------------------------------------------
5.15 Contracts and Commitments . . . . . . . . . . . . . . . . . . 13
-------------------------
5.16 Warranty Claims . . . . . . . . . . . . . . . . . . . . . . . 13
---------------
5.17 Product Liability Claims . . . . . . . . . . . . . . . . . . . 13
------------------------
5.18 Restrictive Agreements . . . . . . . . . . . . . . . . . . . . 13
----------------------
5.19 Loss Contracts . . . . . . . . . . . . . . . . . . . . . . . . 14
--------------
5.20 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . 14
-------------
5.21 Patent, Etc., Indemnification . . . . . . . . . . . . . . . . 14
-----------------------------
5.22 Conflicting Interests . . . . . . . . . . . . . . . . . . . . 14
---------------------
5.23 Customers . . . . . . . . . . . . . . . . . . . . . . . . . . 14
---------
5.24 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 15
---------
5.25 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . 15
--------------------
5.26 No Defaults . . . . . . . . . . . . . . . . . . . . . . . . . 15
-----------
-i-
<PAGE>
Page
----
5.27 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . 16
-------------------
5.28 Employee Relations . . . . . . . . . . . . . . . . . . . . . . 16
------------------
5.29 Employee Contractual Matters . . . . . . . . . . . . . . . . . 16
----------------------------
5.30 Severance Pay . . . . . . . . . . . . . . . . . . . . . . . . 17
-------------
5.31 Vacation Pay . . . . . . . . . . . . . . . . . . . . . . . . . 17
------------
5.32 Employment and Working Conditions . . . . . . . . . . . . . . 17
---------------------------------
5.33 Employee Benefits . . . . . . . . . . . . . . . . . . . . . . 17
-----------------
5.34 Judgments, Orders, Decrees, Etc. . . . . . . . . . . . . . . . 19
--------------------------------
5.35 Certain Business Practices . . . . . . . . . . . . . . . . . . 19
--------------------------
5.36 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . 19
----------
6. REPRESENTATIONS AND WARRANTIES OF THE BUYER . . . . . . . . . . . . . . 20
6.1 Organization, Power and Authority . . . . . . . . . . . . . . 20
---------------------------------
6.2 Legal and Authorized Transactions; Authority; No Breach . . . 20
-------------------------------------------------------
6.3 Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . . 20
---------
6.4 Government Approval . . . . . . . . . . . . . . . . . . . . . 21
-------------------
6.5 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . 21
----------
7. CONDITIONS TO THE OBLIGATIONS OF SELLER AND THE STOCKHOLDER . . . . . . 21
7.1 Representations and Warranties True . . . . . . . . . . . . . 21
-----------------------------------
7.2 Covenants and Agreements Performed . . . . . . . . . . . . . . 21
----------------------------------
7.3 Approval of Counsel to the Seller and the Stockholder . . . . 21
-----------------------------------------------------
7.4 Opinion of Counsel to Buyer . . . . . . . . . . . . . . . . . 22
---------------------------
7.5 Other Documents . . . . . . . . . . . . . . . . . . . . . . . 22
---------------
7.6 No Actions, Suits or Proceedings . . . . . . . . . . . . . . . 22
--------------------------------
7.7 Officers' Certificate . . . . . . . . . . . . . . . . . . . . 22
---------------------
7.8 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
--------
8. CONDITIONS TO THE OBLIGATIONS OF THE BUYER . . . . . . . . . . . . . . . 22
8.1 Representations and Warranties True . . . . . . . . . . . . . 22
-----------------------------------
8.2 Covenants and Agreements Performed . . . . . . . . . . . . . . 23
----------------------------------
8.3 Approval of Counsel to Buyer . . . . . . . . . . . . . . . . . 23
----------------------------
8.4 Opinion of Counsel to Seller and Stockholder . . . . . . . . . 23
--------------------------------------------
8.5 Wittenberg Employment and Non-Competition Agreement . . . . . 23
---------------------------------------------------
8.6 Other Documents . . . . . . . . . . . . . . . . . . . . . . . 23
---------------
8.7 No Actions, Suits or Proceedings . . . . . . . . . . . . . . . 23
--------------------------------
8.8 Material Adverse Change . . . . . . . . . . . . . . . . . . . 23
-----------------------
8.9 Officers' Certificate. . . . . . . . . . . . . . . . . . . . . 23
----------------------
8.10 Satisfactory Due Diligence Review . . . . . . . . . . . . . . 24
---------------------------------
8.11 Assignments . . . . . . . . . . . . . . . . . . . . . . . . . 24
-----------
8.12 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
--------
8.13 Release of U.C.C. Financing Statements . . . . . . . . . . . . 24
--------------------------------------
-ii-
<PAGE>
Page
----
8.14 Mount Vernon Lease . . . . . . . . . . . . . . . . . . . . . . 24
------------------
9. COVENANTS AND AGREEMENTS OF THE PARTIES . . . . . . . . . . . . . . . . 24
9.1 Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . 24
----------------
9.2 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . 25
-----------
9.3 Expenses of Sale . . . . . . . . . . . . . . . . . . . . . . . 25
----------------
9.4 Actions with Respect to Closing . . . . . . . . . . . . . . . 25
-------------------------------
9.5 Access to Records . . . . . . . . . . . . . . . . . . . . . . 25
-----------------
9.6 Litigation Cooperation . . . . . . . . . . . . . . . . . . . . 25
----------------------
9.7 Notice to Sales Tax Authorities . . . . . . . . . . . . . . . 25
-------------------------------
9.8 Payment of Sales Tax . . . . . . . . . . . . . . . . . . . . . 26
--------------------
9.9 Bulk Sales Law . . . . . . . . . . . . . . . . . . . . . . . . 26
--------------
9.10 Closing Prorations: Possession . . . . . . . . . . . . . . . . 26
------------------------------
9.11 Public Statements . . . . . . . . . . . . . . . . . . . . . . 27
-----------------
9.12 Corporate Name Change . . . . . . . . . . . . . . . . . . . . 27
---------------------
10. EMPLOYEE BENEFIT MATTERS . . . . . . . . . . . . . . . . . . . . . . . . 27
10.1 Retained Employees . . . . . . . . . . . . . . . . . . . . . . 27
------------------
10.2 Seller's Indemnification . . . . . . . . . . . . . . . . . . . 28
------------------------
10.3 Buyer's Indemnification . . . . . . . . . . . . . . . . . . . 28
-----------------------
10.4 COBRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
-----
10.5 Payroll Payments . . . . . . . . . . . . . . . . . . . . . . . 28
----------------
11. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
11.1 Indemnification by Seller and the Stockholder . . . . . . . . 28
---------------------------------------------
11.2 Indemnification by Buyer . . . . . . . . . . . . . . . . . . . 29
------------------------
11.3 Notice and Opportunity to Defend . . . . . . . . . . . . . . . 29
--------------------------------
11.4 Survival of Representations and Warranties . . . . . . . . . . 30
------------------------------------------
12. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
12.1 Successors and Assigns . . . . . . . . . . . . . . . . . . . . 30
----------------------
12.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
--------
12.3 Waiver; Remedies . . . . . . . . . . . . . . . . . . . . . . . 31
----------------
12.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . 32
----------------
12.5 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . 32
---------
12.6 Further Assurances . . . . . . . . . . . . . . . . . . . . . . 32
------------------
12.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 32
------------
12.8 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 32
-------------
12.9 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
--------
-iii-
<PAGE>
ASSET PURCHASE AGREEMENT, dated as of September 22, 1995, by and among
Graham-Field Health Products, Inc., a Delaware corporation ("Buyer"), National
Medical Excess Corp. a New York corporation ("Seller"), and John Wittenberg (the
"Stockholder").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Seller is engaged in the business of marketing and distributing a
broad range of new and used respiratory and other medical products;
WHEREAS, the Seller wishes to sell, and Buyer wishes to acquire, all of
Seller's right, title and interest in and to certain assets and properties of
Seller, all upon the terms and subject to the conditions hereinafter set forth;
and
NOW, THEREFORE, the parties hereto, each intending to be contractually
bound, hereby agree as follows:
1. PURCHASE AND SALE OF ASSETS
1.1 Assets to be Purchased. Upon the terms and subject to the conditions
----------------------
set forth in this Agreement, on the Closing Date (as defined in Section 4
hereof), except as provided in Section 1.2 hereof, Seller shall sell, assign,
transfer and convey to Buyer, and Buyer shall purchase, acquire and accept, all
of Seller's right, title and interest in and to the assets of Seller described
below (the "Assets"), which represent all of the assets owned, leased or
otherwise used by Seller to carry on the business of Seller as conducted in the
year ended December 31, 1994, and as currently conducted:
(a) All the tangible personal property and equipment, including
rolling stock, machinery, tools, furniture and trade fixtures, repair materials,
machines, delivery vehicles, and electrical parts and supplies used in the
business of Seller and customarily located at the premises of Seller in Mount
Vernon, New York (the "Premises"), including, but not limited to, the items de-
scribed in Schedule 1.1 (a) attached hereto (collectively, the "Equipment");
(b) All inventory, including work in progress and raw materials,
stores, finished goods, waste inventory, operating supplies, packaging
materials, parts and other similar items related to or used in the business of
Seller on hand, in transit, in warehouse or otherwise owned by Seller
(collectively, the "Inventory") on the Closing Date;
(c) All of Seller's rights in and to all customer lists, dealer
lists, distributors lists, sales representative lists, and advertising
materials, catalogs, and brochures and similar documents used or pertaining to
the business of Seller;
<PAGE>
(d) All office furniture and equipment in the Premises;
(e) All patents, trademarks, service marks, trade names, trade
secrets, inventions, processes, copyrights, applications for any of the
foregoing, special rights and technical know-how owned by Seller and used in the
business of Seller, including, but not limited to, those trademarks and patents
listed in Schedule 1.1(e) attached hereto;
(f) All rights to the corporate name "National Medical Excess Corp."
and all variations thereof;
(g) All designs, procedures, drawings, plans, blue prints, bills of
material, flowsheets, specifications, plan sheets, formulae, parts lists, and
related instruction manuals and description of data used in the business of
Seller;
(h) All art works, mechanicals or stats prepared in connection with
catalogs, marketing materials or similar items relating to the business of
Seller;
(i) All favorable contracts to which Seller is a party and which are
utilized in the conduct of the business of Seller, including, but not limited
to, outstanding purchase and sales contracts, orders or commitments and the
right to receive the benefits of the unperformed portion thereof relating to the
business of Seller;
(j) The goodwill associated with the business of Seller and the
Assets;
(k) All accounts receivable and other rights to receive payment
arising in connection with the business of Seller and in existence on the
Closing Date (the "Accounts Receivable");
(l) All deposits, prepaid assets, prepaid expenses and other similar
assets of Seller to the extent that they are associated with the other assets of
Seller included hereunder in the Assets and to the extent Buyer receives any
pecuniary benefit therefrom, including, but not limited to, the items described
in Schedule 1.1(1) attached hereto (collectively the "Financial Assets");
(m) All leases relating to computer equipment, rolling stock,
delivery vehicles, telephone equipment and other office
-2-
<PAGE>
equipment customarily used at the Premises in connection with the business
associated with the Assets as listed in Schedule 1.1(m) hereto (the "Equipment
Leases");
(n) All books, records, files and computer software relating to the
business of Seller or to the Assets and such other records as Buyer may
reasonably require in order to conduct the business of Seller subsequent to the
Closing Date; and
(o) All right, title and interest of Seller under its month-to-month
lease arrangement (the "Mount Vernon Lease"), relating to the Premises located
on 144 E. Kingsbridge Road, Mt. Vernon, New York 10550, together with all
leasehold improvements located thereon and all security deposits thereunder.
(p) All cash and cash equivalents held by or for the account of
Seller as described on Schedule 1.1(p), and all assets, properties, rights and
claims of Seller, of a type other than those enumerated in subparagraphs (a)
through (o) above, which are used or held primarily for use in the business of
Seller, of every kind and description, wherever located, tangible and
intangible, vested or unvested, contingent or otherwise, as the same shall exist
at the Closing Date, excepting only the Excluded Assets (as defined in Section
1.2 hereof).
1.2 Excluded Assets. Anything in Section 1.1 hereof to the contrary
---------------
notwithstanding, the following shall be excluded from the Assets to be sold,
assigned, transferred and conveyed to Buyer hereunder (collectively, the
"Excluded Assets"): (a) all prepayments for services or property listed on
Schedule 1.2(a) attached hereto, the benefits of which will not be realizable by
Buyer; (b) any loans to stockholders, directors, employees or affiliates of
Seller; (c) any loans to or other receivables from affiliates (as hereinafter
defined) of Seller; (d) any real property owned or leased by Seller and any
security and other leasehold improvements thereon except the Mount Vernon Lease
and related security deposits; (e) the corporate charter, minute book, seal and
stock ledger of Seller. As used in this Agreement, the term "affiliates" shall
have the meaning ascribed thereto in the Securities Exchange Act of 1934 and the
rules and regulations promulgated thereunder.
1.3 Instruments of Conveyance. In order to effectuate the sale,
-------------------------
assignment, transfer and conveyance contemplated by this Section 1, Seller shall
execute and deliver at the Closing (as hereafter defined), dated the Closing
Date, all such general warranty deeds, bills of sale and other documents or
instruments of assignment, transfer or conveyance as Buyer shall deem reasonably
necessary or appropriate to vest in or confirm to Buyer full and complete,
unencumbered title to all of the Assets.
-3-
<PAGE>
2. ASSUMPTION OF LIABILITIES
2.1 Assumed Liabilities. Subject to the terms and conditions of this
-------------------
Agreement, Buyer shall assume on the Closing Date only the liabilities of Seller
set forth in Schedule 2.1 attached hereto (collectively, the "Assumed
Liabilities").
2.2 Excluded Liabilities. Except for the Assumed Liabilities, Buyer shall
--------------------
not assume, or in any way be liable or responsible for, any liabilities of
Seller of any kind, arising out of or in connection with the Assets or business
and operations of Seller, regardless of why or how incurred (collectively, the
"Excluded Liabilities"). Without limiting the generality of the foregoing, Buyer
shall in no event assume or be liable for: (a) any liability or obligation of
Seller for taxes of any nature or type whatsoever; (b) accruals for periods
prior to the Closing Date for insurance, worker's compensation (self-insurance
and excess liability insurance), payroll taxes, repairs and maintenance,
miscellaneous general expenses and any other prepaid expenses to the extent
Buyer will receive no monetary or financial value therefrom; (c) all liabilities
and obligations of Seller relating to product liability claims, whether now or
hereafter asserted, relating to products sold by Seller prior to the Closing
Date; (d) any liability for severance pay, vacation pay or similar obligations
to employees except as provided in Section 11.1 hereof; (e) any claims arising
based on a state of facts existing on or prior to the Closing Date under the
Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act,
the Comprehensive Environmental Response, Compensation and Liability Act, the
Toxic Substances Control Act, or any similar federal, state or local act; (f)
any amounts due to affiliates of Seller; (g) any stockholder loans; (h) any
undisclosed liabilities; (i) any liabilities not incurred in the ordinary course
of the business of Seller; (j) any liabilities arising out of or relating to any
pending or threatened litigation, including the matters set forth in Schedule
5.10 attached hereto.
3. PURCHASE PRICE
3.1 Amount of Purchase Price. The consideration to be paid by Buyer for
------------------------
the Assets (the "Purchase Price") shall be an amount equal to Seven Hundred
Fifty Thousand Dollars ($750,000) (the "Purchase Price"), plus the assumption of
the Assumed Liabilities.
3.2 Amount Payable at Closing. At Closing, Buyer shall deliver the
-------------------------
Purchase Price to Seller by wire transfer of immediately available funds to an
account or accounts designated by the Seller or by check payable to the Seller.
3.3 Allocation of Purchase Price. The Purchase Price shall be allocated
----------------------------
among the Assets in accordance with Schedule 3.3 attached hereto. Buyer and
Seller acknowledge that such allocation
-4-
<PAGE>
fairly reflects the fair market value of the Assets and shall use such
allocation in reporting for tax purposes.
4. CLOSING AND CLOSING DATE
The closing of the purchase and sale of the Assets (the "Closing") shall
take place at the offices of Larry Anderson, Esq., 25 West 45th Street, New
York, New York 10036, at 10:00 A.M., local time, on September 22, 1995, or such
other place, time or date as the parties may mutually agree in writing (such
time and date as the Closing shall occur being referred to herein as the
"Closing Date"). The Closing shall be deemed effective as of July 1, 1995. For
all other purposes of this Agreement and the transactions contemplated hereby,
the Closing and the Closing Date shall have the meaning ascribed to such terms
in the preceding sentence.
5. REPRESENTATIONS AND WARRANTIES
OF SELLER AND STOCKHOLDER
The Seller and the Stockholder, jointly and severally, represent and
warrant to the Buyer as follows:
5.1 Organization, Power and Authority. The Seller is a corporation duly
---------------------------------
organized, validly existing and in good standing under the laws of the state of
its incorporation and has full power and authority to own, lease and operate its
properties, to carry on its business as now being and as heretofore conducted,
and to own and use the Assets. The Seller has the corporate power and authority
to execute and deliver this Agreement and to consummate the transactions and to
perform its obligations contemplated hereby, and is qualified or licensed to do
business and in good standing in each jurisdiction where such qualification or
license is required by the location of the Assets or the nature of its business.
5.2 Legal and Authorized Transactions; Authority; No Breach. The Seller
-------------------------------------------------------
has the full legal right and power and all authority and approvals required to
enter into, execute and deliver this Agreement, and any other agreement or
instrument contemplated by this Agreement, and the consummation of the
transactions contemplated hereby and thereby, have been duly authorized by all
necessary corporate action by the Seller, including without limitation, approval
by its Stockholder. This Agreement and any other agreement or instrument
contemplated hereby, upon execution and delivery by each of the Seller and the
Stockholder (assuming due execution and delivery hereof and thereof by the other
parties hereto and thereto), will constitute the legal, valid and binding
obligation of the Seller and the Stockholder enforceable against each in
accordance with its terms (except as such enforceability may be limited
by applicable bankruptcy, insolvency, moratorium, reorganization or similar laws
from time to time in effect which affect creditors' rights generally and by
legal and equitable limitations on the availability of specific performance and
other equitable remedies against the Seller or the Stockholder under or
-5-
<PAGE>
by virtue of this Agreement or such other agreement or instrument). Neither the
execution and delivery of this Agreement, or any such other agreement or
instrument by the Seller and the Stockholder, nor the consummation of the
transactions contemplated hereby or thereby, will (i) violate any provision of
the Articles of Incorporation or By-laws of Seller, (ii) violate, conflict with
or result in the breach or termination of, or otherwise give any other
contracting party the right to terminate, or constitute a default under the
terms of, or require the consent of any party under (except such consents or
rights of termination as specified in Schedule 5.2 attached hereto), any of the
Contracts or Customer Orders (as such terms are defined in Section 5.15 hereof),
(iii) result in the creation of any lien, charge or encumbrance upon any of the
Assets, (iv) violate any judgment, order, injunction, decree or award of any
court, administrative agency or governmental body against, or binding upon,
Seller, the Stockholder or upon the Assets, or (v) constitute a violation by the
Seller or the Stockholder of any applicable law or regulation of any
jurisdiction as such law or regulation relates to the business of Seller or any
of the Assets.
5.3 Capitalization; Stockholder. The total authorized capital stock of
---------------------------
Seller consists of two hundred (200) shares of common stock, no par value per
share, of which ten (10) shares are issued and outstanding (the "Common Stock").
All of the issued and outstanding shares of the Common Stock have been duly
authorized and validly issued and are fully paid and non-assessable with no
personal liability attaching to the ownership thereof and are owned beneficially
and of record by the Stockholder. There are no subscriptions, options or other
agreements or commitments obligating either Seller or the Stockholder to cause
Seller to issue any shares or securities convertible into shares of the Seller
at the date of this Agreement, and there shall be none on the Closing Date.
5.4 Certificate of Incorporation and By-laws. Attached hereto as Schedule
----------------------------------------
5.4 are true and complete copies of the Certificate of Incorporation and By-laws
of the Seller as in effect on the date hereof, certified by the Secretary of the
Seller in the case of By-laws and by the applicable Secretary of State in the
case of the Certificate of Incorporation.
5.5 Liabilities for Taxes; Financial Statements.
-------------------------------------------
(a) Except with respect to Taxes (as defined below) for which
adequate reserves are included in the Financial Statements or as otherwise set
forth in Schedule 5.5 hereto, the Seller and the Stockholder, where applicable,
have timely paid all federal, state, county, local and foreign taxes, including
without limitation, income taxes, excise taxes, sales taxes, use taxes, gross
receipts
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<PAGE>
taxes, franchise taxes, employment and payroll taxes, withholding taxes,
property taxes, import duties, and all other taxes, levies and charges of any
nature whatsoever and however denominated together with all penalties, additions
to tax, interest, assessment or other damages imposed thereon with respect to
the business of the Seller (collectively, "Tax" or "Taxes") required to be paid
or deposited by the Seller or the Stockholder, as the case may be, through the
date hereof. For purposes of this Section 5.5, timely payment shall be deemed to
include payment in accordance with any available extensions.
(b) The Seller (with respect to Taxes) has filed on or before the
applicable due date (including extensions) all tax returns, reports or
declarations which it or they are required to have filed through the date hereof
and have timely paid all amounts shown as payable thereon, as well as any
deficiencies or other additional amounts subsequently assessed by any taxing
authority with respect to each such tax return, report or declaration. All such
returns, reports or declarations are true, correct and complete in all respects.
(c) The Seller has not waived any statute of limitations in respect
of Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency and the assessment of any additional Tax with respect to periods for
which returns have been filed is not expected.
(d) Except as set forth on Schedule 5.5 hereto, there are no proposed
deficiencies or unresolved claims concerning the Seller's liability for Taxes.
Any proposed deficiency or unresolved claim set forth on Schedule 5.5 hereto is
being contested in good faith by appropriate proceedings for which adequate
reserves have been created, maintained and disclosed in writing to Buyer.
(e) Copies of all federal and state income tax returns (including all
attachments and amendments thereto) of the Seller for all taxable years for
which the limitation periods (including any extensions or waivers thereof)
applicable to deficiencies have not expired have been delivered to Buyer.
(f) For the fiscal years ending December 31, 1993 and December 1994
and for the period commencing on December 31, 1994 and ending on the Closing
Date, the Seller has elected to be treated as an S-Corporation under the
Internal Revenue Code of 1986, as amended (the "Code"), and has made all filings
necessary with appropriate federal, state and local governmental taxing or other
authorities in order to perfect its status as an S-Corporation and has not been
informed by any such taxing authority that such S-Corporation election has not
been accepted. Attached hereto as part of Schedule 5.5 is a copy of the
documents evidencing the
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<PAGE>
perfection of the Seller's status as an S-Corporation. Except as set forth on
Schedule 5.5 hereto, no audit of any tax return of any Stockholder of the Seller
is in progress, and the Stockholder has paid all Taxes due and owing by him or
her for all periods during which the Seller has been treated as an S-
Corporation.
(g) The balance sheet of Seller as at December 31, 1993, December 31,
1994, and June 30, 1995, together with the related statements of operations,
retained earnings and cash flow for the periods then ended, attached hereto as
Schedule 5.5(g) (collectively, the "Financial Statements") (i) are true and
correct in all material respects, (ii) are in accordance with the books and
records of Seller and (iii) present fairly the financial position of Seller for
the periods then ended in conformity with GAAP.
5.6 Absence of Certain Events. Except for this Agreement and as set forth
-------------------------
in Schedule 5.6 attached hereto, since December 31, 1994, the business of Seller
has been conducted solely in the usual and ordinary course. Without limiting the
generality of the foregoing, the Seller has not:
(a) waived any right or rights of substantial value or paid, directly
or indirectly, any liability before such liability became due in accordance with
its terms;
(b) other than in the ordinary and usual course of business, created
any liability (whether absolute or contingent and whether or not currently due
and payable), and has not entered into or assumed any contract, agreement,
arrangement, lease (as lessor or lessee), license or other commitment otherwise
than in the ordinary and usual course of business;
(c) purchased, sold or transferred any of its assets other than in
the ordinary and usual course of its business; granted any security interest or
other lien or encumbrance affecting any of the Assets other than in the ordinary
and usual course of business and in amounts not material; or amended any of the
Contracts or Customer Orders, as such terms are defined below; or
(d) paid or declared a dividend or made a dividend distribution to
its stockholders. Nothing contained herein shall be deemed to preclude the
payment of salary to the Stockholder, provided such salary was paid in the
ordinary course of business and was in an amount consistent with past practices.
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<PAGE>
5.7 Adverse Developments; No Undisclosed Liabilities.
------------------------------------------------
(a) Since December 31, 1994, there has been no material adverse
change, or any event or development which, individually or together with such
other events, could reasonably be expected to result in a material adverse
change, in the business, operations or condition (financial or otherwise) of the
Seller, including, without limitation, in net sales or cost of goods sold or
collection experience relating to accounts receivable; nor has there been since
such date, any damage, destruction or loss, whether covered by insurance or not,
materially or adversely affecting the business, properties or operations of the
Seller.
(b) Except as disclosed in Schedule 5.7(b), there are no liabilities
against, relating to or affecting the business of Seller or any of the Assets,
other than liabilities incurred in the ordinary course of business consistent
with past practice which in the aggregate are not material to the condition of
the business of Seller.
5.8 Tangible Property. Except as set forth on Schedule 5.8 attached
-----------------
hereto, (i) Seller is in possession of and has good and marketable title to all
of the Assets (other than the Equipment Leases and the Mount Vernon Lease which
will be conveyed by assignment with covenant), free and clear of all mortgages,
liens, security interests, pledges, charges and encumbrances of any nature
whatsoever;(ii) Seller is not a party as a debtor, nor has it authorized any
filings under the Uniform Commercial Code as a debtor; (iii) the Inventory is
and on the Closing Date will be in good and merchantable condition, in balance
reasonably determined in relation to the sales of Seller during the year-to-date
period ending on the date of the Closing and is and on the Closing Date will be
useable or salable in the ordinary and usual course of business for the purposes
for which it is intended, and has been carried on the books of account of Seller
in accordance with GAAP; (iv) all of the Assets owned, leased or used by Sellers
are in good operating condition and repair, and are not in violation of any law
or any health, safety or other statute, ordinance, code, rule or regulation.
Seller has made available to Buyer a true and correct copy of Seller's inventory
records as of June 30, 1995 and as of the Closing Date.
5.9 Government Approval. No consent, approval, waiver, order or
-------------------
authorization of, or registration, declaration or filing with, any governmental
authority is required in connection with the execution and delivery of this
Agreement by the Seller or the Stockholder or the consummation by the Seller or
the Stockholder of the transactions contemplated hereby.
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<PAGE>
5.10 Actions and Proceedings. The Seller and the Stockholder are not
-----------------------
subject to any outstanding orders, writs, injunctions or decrees of any court,
governmental agency or arbitration tribunal against, involving or affecting the
Assets, the business, properties or employees of Seller or Seller's right to
enter into, execute and perform this Agreement. Except as set forth in
Schedule 5.10 attached hereto, there are no actions, suits, claims or legal,
administrative or arbitration proceedings or investigations, including any
warranty or product liability claims (whether or not the defense thereof or
liabilities in respect thereof are covered by policies of insurance) relating to
or arising out of the business, properties or employees of Seller pending, or to
the best knowledge of the Seller or the Stockholder, threatened against or
affecting either the Seller or the Stockholder or the Assets.
5.11 Brokerage. No broker, finder or similar agent has been employed by
---------
or on behalf of Seller or the Stockholder and no person or entity with which the
Seller or the Stockholder has had any dealings or communications of any kind is
entitled to any brokerage commission, finder's fee or any similar compensation,
in connection with this Agreement or the transactions contemplated hereby.
5.12 Contracts. Schedule 5.12(a) attached hereto is a true and complete
---------
schedule of all Contracts (as defined below) relating to the operations of
Seller to which the Seller is a party or by which the Seller or any of the
Assets is bound and which involve an obligation or commitment on the part of the
Seller which is more than Ten Thousand Dollars ($10,000) in any instance (or any
group of Contracts with the same supplier or customer or otherwise related
parties exceeding that amount). Schedule 5.12(b) attached hereto is a true and
complete schedule of all unfilled sale orders and commitments from customers
("Customer Orders") as of the day immediately preceding the date hereof to which
the Seller is a party or by which the Seller or any of the Assets is bound and
which involve an obligation or commitment on the part of the Seller which is
more than Ten Thousand Dollars ($10,000) in any instance (or any group of
Customer Orders with the same customer or otherwise related parties exceeding
that amount). All Contracts set forth on Schedule 5.12(a) and all Customer
Orders set forth on Schedule 5.12(b) are valid, binding and in full force and
effect and the Seller is not in default, and no notice of alleged default has
been received by the Seller, under any such Contracts or Customer Orders, no
other party thereto to the best knowledge of the Seller or the Stockholder, is
in default or, to the best knowledge of the Seller or the Stockholder, alleged
to be in default thereunder, and to the best knowledge of the Seller or the
Stockholder there exists no condition or event which, after notice or lapse of
time or both, would constitute a default by any party thereto. Neither the
Seller nor the Stockholder knows or has
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<PAGE>
reason to know of any cancellation, grounds for cancellation or threat to cancel
or not to renew (unrelated to the assignment of the Contracts or Customer Orders
hereunder and other than complaints of customers in the ordinary course of
business which neither Seller nor the Stockholder believes constitutes a serious
threat of cancellation or non-renewal), any Contract or Customer Orders by any
other party thereto. As used in this Agreement, the term "Contracts" shall mean
and include contracts, agreements written or oral, leases (other than for real
estate except the Mount Vernon Lease), bids and purchase and commitments but
shall exclude Customer Orders. True and complete copies of each written Contract
relating to the operations of the Seller have been heretofore made available for
inspection by Buyer.
5.13 Intangible Property. Schedule 1.1 (e) attached hereto sets forth all
-------------------
patents, patent applications, trademarks and service marks (whether registered
or unregistered), trade names, brand names, copyrights and franchises owned or
used by the Seller in or otherwise relating to the business of Seller, all
applications for any of the foregoing, and all permits, grants and licenses or
other rights running to or from the Seller relating to any of the foregoing.
Except as set forth on Schedule 1.1 (e), no patent, trademark, service mark,
trade name, brand name, copyright or franchise not owned by Seller and included
in the Assets is required to conduct the business of Seller in all material
respects. Except as set forth on Schedule 1.1 (e) and Schedule 5.13 attached
hereto, the Seller is the sole and exclusive owner or licensee of all rights set
forth on Schedule 1.1 (e) and, except as set forth on Schedule 1.1 (e) and as
otherwise provided by law, such rights are fully assignable and are free and
clear of any attachments, liens or encumbrances. Schedule 1.1 (e) also contains
a brief description of each trade secret, right or other intellectual property
right material to the business of the Seller. Except as set forth in Schedule
5.13, there are no outstanding or unresolved charges against the Seller relating
to any claim of infringement of any adversely or claimed held invention, patent,
trademark, service mark, trade name, brand name, trade right or intellectual
property right or copyright of any other person, and the Seller (i) has not been
notified of any claim of any other person relating to any of the properties
listed on Schedule 1.1 (e) or to any process or confidential information of the
Seller, or (ii) knows of any basis for any such charge or claim. To the best
knowledge of Seller and the Stockholder, none of the items listed on Schedule
1.1(e) is being infringed by any other person or infringes the intellectual
property rights of any other person.
5.14 Licenses, Permits and Environmental Matters.
-------------------------------------------
(a) Schedule 5.14 attached hereto sets forth all licenses, permits,
consents, authorizations, certifications, orders
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<PAGE>
or approvals of any federal, state, local or foreign governmental or regulatory
bodies that are material to the operations of the Seller or necessary for the
conduct of its business, all of which, to the extent assignable, are included in
the Assets, (collectively, the "Permits"), true and complete copies of which
have been made available to Buyer. Except as set forth on Schedule 5.14, the
Seller has on the date hereof and will have on the Closing Date all such
material or necessary Permits and all such Permits are on the date hereof and
will be on the Closing Date in full force and effect; Seller is not, nor has it
received any notice that is, in default (or with the giving of notice or lapse
of time, or both would be in default) of any Permit; no proceeding is pending
or, to the best knowledge of the Seller or the Stockholder, threatened, and no
claim or demand has been asserted to revoke or limit any Permit; and neither the
execution of this Agreement nor the consummation of the transactions
contemplated hereby will result in any violation or revocation of or limitation
on any Permit except as may result from any change in ownership of the Assets.
(b) The Seller has not caused or permitted, nor does the Seller or
the Stockholder have knowledge of the existence of, any Release (as defined
below) or the threat of Release, of any Regulated Substance (as defined below)
at, on, from or beneath the surface of any real property owned, leased, used or
occupied, including the Premises, by the Seller or any predecessors in interest.
There is no Enforcement Notice (as defined below) in effect, and neither the
Seller nor the Stockholder knows of any facts which might result in the issuance
of any Enforcement Notice to the Seller or any of its predecessors in interest,
relating to or arising out of the ownership, lease, use or occupancy of real
property (including the Premises) by Seller or any of their predecessors in
interest. "Regulated Substance" includes any pollutant, chemical substance,
hazardous waste, toxic substance, hazardous substance or contaminant regulated
under, or defined in, or pursuant to, the Clean Air Act (42 U.S.C. Section 7401,
et seq.), as amended, the Clean Water Act (33 U.S.C. Section 1251, et seq.), as
- -- --- -- ---
amended, the Resource Conservation and Recovery Act (42 U.S.C. Section 6901, et
--
seq.),as amended, the Comprehensive Environmental Response, Compensation and
- ---
Liability Act (42 U.S.C. Section 9601, et seq.),as amended, the Toxic Substances
-- ---
Control Act (15 U.S.C. Section 2601, et seq.),as amended, the New York
-- ---
Environmental Cleanup Responsibility Act and any other federal, state or local
environmental law, ordinance or regulation. "Enforcement Notice" means a
summons, notice, notice of violation, citation, directive, order, claim,
litigation, investigation, judgment, letter or other communication, written or
oral, actual or threatened, from the United States Environmental Protection
Agency, any other federal, state or local agency or authority, any other entity
or any individual, concerning any intentional or unintentional action or
omission resulting or which might result in the
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<PAGE>
release of a Regulated Substance into the "environment", as such term is defined
in 42 U.S.C. Section 9601 (8). Seller has not transported or arranged for the
transportation of any Regulated Substance in connection with the operation of
its business to any location that is (i) listed on the National Priorities List
("NPL") under CERCLA, (ii) listed for possible inclusion on the NPL by the
Environmental Protection Agency in CERCLA 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 its business. "Release" means any releasing, spilling,
leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, disposing or dumping of a Regulated Substance as to contravene any
standards promulgated under or otherwise invoke the jurisdiction of, any of the
above-enumerated statutes.
(c) 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 the Premises which have not been delivered to Buyer prior
to the execution of this Agreement.
5.15 Contracts and Commitments. The Seller has not entered into any
-------------------------
written or oral contracts except (i) as set forth on Schedule 5.12(a), Schedule
5.12(b), Schedule 1.1(m), Schedule 5.29, Schedule 5.33(a), and Schedule 5.33(g)
attached hereto; or (ii) for purchase orders and Customer Orders entered into in
the ordinary course of business, none of which is in excess of Ten Thousand
Dollars ($10,000) over a twelve-month (12) period or which in the aggregate with
similar agreements is in excess of Ten Thousand Dollars ($10,000).
5.16 Warranty Claims. Except as set forth in Schedule 5.16 attached
---------------
hereto, there are no pending claims against the Seller including, without
limitation, any products manufactured or sold thereby, under any warranties,
whether express or implied, by the customers of the Seller nor, to the best
knowledge of the Seller or the Stockholder, does there exist any basis therefor.
5.17 Product Liability Claims. Except as set forth in Schedule 5.17,
------------------------
Schedule 5.12(a), or Schedule 5.12(b) attached hereto, there are, and since the
date of the incorporation of Seller, there have been, no material product
liability claims by customers of the Seller with respect to any products now or
previously manufactured and/or sold by the Seller, nor to the best knowledge of
the Seller or the Stockholder, does there exist any basis therefor.
5.18 Restrictive Agreements. Except as set forth in Schedule 5.18
----------------------
attached hereto, each of the Seller and the Stockholder is not
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<PAGE>
restricted by agreement from carrying on its business as currently conducted
anywhere in the world.
5.19 Loss Contracts. The Seller has not entered into any contract or
--------------
commitment, the performance of which is expected to the best knowledge of the
Stockholder to result after the Closing in a material loss to Buyer.
5.20 Bank Accounts. Schedule 5.20 hereto sets forth the names and
-------------
locations of all banks, trust companies, savings and loan associations and other
financial institutions at which the Seller maintains safe deposit boxes or
accounts of any nature and the names of all persons authorized to draw thereon,
make withdrawals therefrom or have access thereto. The Seller has delivered to
Buyer copies of all records, including all signature or authorization cards,
pertaining to such bank accounts.
5.21 Patent, Etc., Indemnification. Except as set forth in Schedule 5.21
-----------------------------
attached hereto, the Seller does not have any existing material liability for,
and, to the best knowledge of the Seller or the Stockholder, there is no basis
for, any material liability nor has the Seller given any indemnification or paid
any damages (by way of court order or settlement) for patent, trademark, trade
name, trade secret or copyright, or other intellectual property infringement as
to any equipment, materials, goods, merchandise or supplies manufactured,
produced, used or sold by Seller.
5.22 Conflicting Interests. Neither the Seller, the Stockholder nor any
---------------------
director or officer of Seller nor any spouse of such director or officer has any
direct or indirect interest in any competitor, customer, supplier or other
person, firm or corporation which has had any material business relationship or
material transaction with the Seller during the last year, nor is any of the
foregoing a party to, nor the owner of property which is the subject of, any
business arrangement with the Seller, except as disclosed in Schedule 5.22
attached hereto. Nothing contained in this Section 5.22 shall be deemed to apply
to the ownership of stock or other securities listed on a national securities
exchange or traded in the over-the-counter market of any corporation provided
that such ownership (beneficially or otherwise) shall not, directly or
indirectly exceed more than one percent (1%) of any issue of such stock or other
securities of any one (1) corporation.
5.23 Customers. Schedule 5.23 attached hereto sets forth the names and
---------
addresses of each customer of the Seller which individually accounted for more
than one percent (1%) of the gross sales of any product manufactured or
distributed by it during the year ended December 31, 1994 and for the period
January 1, 1995 through the Closing Date. The Seller has not received any notice
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from any customer of products manufactured or distributed by it that such
customer intends to discontinue its relationship with the Seller (other than
complaints of customers in the ordinary course of business which neither the
Seller nor the Stockholder believes constitutes a serious threat of
discontinuance). In addition, the Seller has not received any notice from any
such customer, or any group of any customers which in the aggregate accounted
for more than one percent (1%) of the gross sales of products manufactured or
distributed by Seller during the year ended December 31, 1994 and for the period
January 1, 1995 through the Closing Date, that it or any of them is dissatisfied
with products delivered or services performed or that such customer or group of
customers intends to discontinue the services or purchase of any such products
(other than complaints of customers in the ordinary course of business which
neither Seller nor the Stockholder believes constitutes a serious threat of
discontinuance). The Seller has not received any notice from any source of any
reason why the business of Seller should be adversely affected by the
transactions contemplated by this Agreement.
5.24 Insurance. Attached hereto as Schedule 5.24 is a list of all
---------
policies of insurance covering the Seller and the Assets (specifying the
insurer, amount of coverage, type of insurance, policy number and any pending
claims thereunder). Such policies are in amounts which are believed by the
Seller to be adequate and will be maintained in effect until the Closing, and
provide for coverage that is reasonable and customary for persons engaged in
businesses similar to Seller's business. The Seller has not failed to give any
notice with respect to or present any material claim under any insurance policy
in due and timely fashion. The Seller has not received any notice from or on
behalf of any insurer revoking or terminating any material insurance policy or
increasing in any material respect premiums payable in respect of any material
insurance policy or any notice from or on behalf of any insurer that it intends
to revoke or terminate or will not renew or will materially increase premiums
payable for any material insurance policy.
5.25 Compliance with Laws. Seller has complied with all laws, ordinances,
--------------------
regulations and orders which have application to the Seller, where the failure
to comply would have a material adverse effect on the financial condition or
business of the Seller.
5.26 No Defaults. Except as specifically set forth in Schedule 5.26
-----------
attached hereto, all contracts, agreements, commitments and engagements listed
in Schedule 5.12(a) and Schedule 5.12(b) attached hereto, and all other
contracts, agreements, commitments and engagements relating to the Seller which
are included in the Assets, are valid and in full force and effect, and no
material breach or default (after lapse of time, notice or both)
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<PAGE>
by Seller exists with respect thereto, and neither the Seller nor the
Stockholder has any knowledge of any material breach or default (after lapse of
time, notice or both) by any other party thereto.
5.27 Accounts Receivable. The Seller has delivered to Buyer Schedule 5.27
-------------------
which includes all accounts receivable owed to Seller as of the Closing Date.
Except to the extent collected, all such accounts receivable are, (i) bona fide
---- ----
claims against debtors for sales or services rendered, (ii) subject to no known
defenses, set-offs counterclaims or discounts (other than customary trade terms)
and (iii) collectible in the ordinary course of business consistent with past
practice, less the reserves against collectibility set forth in Schedule 5.27,
which reserves will be in accordance with GAAP, and (iv) legal, valid and
binding obligations of the respective debtors enforceable in accordance with
their terms.
5.28 Employee Relations. Attached hereto as Schedule 5.28 is a true and
------------------
complete payroll roster of all employees of Seller as of the last payroll prior
to the Closing Date showing the (i) rate of pay for each such person entitled to
receive compensation from the Seller and (ii) the amount of prepaid or accrued
vacation or other benefits which each such person is entitled to receive, and
(iii) the amount of severance pay or other compensation benefits which each such
person is or would be entitled to receive upon termination of employment and the
method of calculating the same. No increases in such salaries, bonuses, vacation
allowances, severance benefits, or other employee benefits have been given or
promised as of the date hereof, nor will any such be given or promised as of the
Closing Date, except as disclosed in the payroll roster.
5.29 Employee Contractual Matters. Schedule 5.29 attached hereto lists
----------------------------
all collective bargaining agreements with the labor unions to which the Seller
is a party or otherwise bound, a copy of each of which has been furnished to
Buyer. Except as set forth in Schedule 5.29, there are no discussions,
negotiations, demands or proposals which are pending or have been made
concerning such collective bargaining agreements and there are no pending or
threatened labor disputes, strikes or work stoppages which may affect the Assets
or the business or the operations of the Seller, nor has any such strike or work
stoppage been enjoined by, any order, writ, injunction, or decree of any court
or federal, state or municipal or other governmental agency or instrumentality.
Schedule 5.29 contains a list of all proceedings for the certification or
decertification of collective bargaining representatives of employees of the
Seller indicating the units and the nature and dates of significant events.
Except as set forth in Schedule 5.29, the Seller is not a party to any contract
with any of its employees, consultants, officers, salesmen, sales
representatives, distributors or dealers that is not cancelable by it
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<PAGE>
without penalty or premium on not more than thirty (30) days' notice.
5.30 Severance Pay. The Seller has not promulgated any policy or entered
---------------
into any agreements relating to the payment of severance pay to its employees
whose employment is terminated or suspended, voluntarily or otherwise, except
as indicated in Schedule 5.30 attached hereto.
5.31 Vacation Pay. The Seller has not promulgated any policy or entered
-------------
into any agreements relating to the payment of vacation pay to its employees
or has any obligations to provide them with pay for vacation time, except as
stated in Schedule 5.31 attached hereto.
5.32 Employment and Working Conditions. The Seller has complied in
----------------------------------
all material respects with all applicable laws, rules or regulations relating
to employment, including those relating to equal employment, wages, hours,
collective bargaining and the withholding of taxes and contributions, and,
have complied with the Occupational Safety and Health Act or corrected
matters alleged by governmental authorities to be in non-compliance
therewith. The Seller has not received any notice from governmental
authorities of violation of the Occupational Safety and Health Act which has
not been corrected. The Seller has, and will have at the Closing Date,
withheld all amounts required by law or agreement to be withheld from the
wages or salaries of its employees, and there are no arrearage of wages nor
is there any tax or penalty for failure to comply with the foregoing owed by
it with respect to such employees. There are no controversies existing,
pending, or to the best knowledge of the Seller or the Stockholder threatened
between the Seller and any of its respective employees.
5.33 Employee Benefits.
------------------
(a) The Seller has delivered to Buyer true and complete copies and
summary descriptions of all bonus, pension, multi-employer pension, stock
option, stock purchase, benefit, welfare, profit-sharing, disability,
unemployment, workers compensation insurance, incentive, Internal Revenue
Code Section 501 (c) (9) trust, deferred compensation and other similar
fringe or employee benefit plans, funds, programs or arrangements, written or
oral (collectively, the "Plans") in each of the foregoing cases which cover,
are maintained for the benefit of, or relate to any or all employees, former
employees or retirees of Seller. All such Plans are listed in Schedule
5.33(a) attached hereto.
(b) The Plans comply in all respects with the applicable requirements
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")
and, to the extent applicable,
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meet the requirements of "qualified plans" and "qualified trusts" under
Sections 401 (a) and 501 (a), respectively of the Internal Revenue Code (the
"Code"). None of the Plans is a multi-employer plan within the meaning of
Section 3(37) of ERISA. All required reports and descriptions (including Form
5500 Annual Reports, Summary Annual Reports, and Summary Plan Descriptions)
have been appropriately filed or distributed with respect to each of the
Plans. All amendments to the Plans required to be adopted and executed within
the remedial amendment period described in Section 401 (b) of the Code and
regulations thereunder as a condition of qualification have been or will be
timely adopted and executed.
(c) With respect to the Plans, all applicable contributions for all
periods ending prior to the Closing Date (including the period from the first
day of the then current plan year to the Closing Date) shall be made prior to
the Closing Date by the Seller in accordance with past practice. No
accumulated funding deficiency within the meaning of Section 302 of ERISA or
Section 412 of the Code has been incurred with respect to any of the Plans.
With respect to the Plans (i) there have been no prohibited transactions as
defined in Section 406 of ERISA or Section 4975 of the Code, and (ii) no
actions, suits, or claims with respect to the assets thereof (other than
routine claims for benefits) are pending or threatened and neither the Seller
nor the Stockholder has any knowledge of any facts which would give rise to
or could reasonably be expected to give rise to any such actions, suits or
claims.
(d) With respect to each of the Plans, the Seller has furnished to
Buyer true and complete copies of (i) all Plan documents and all amendments
thereto, (ii) all related trust agreements, insurance contracts or other
funding agreements which implement the Plans and all amendments thereto, and
(iii) the summary plan descriptions of the Plans and all modifications
thereto communicated to employees. As of December 31, 1994, the benefit
commitments (as defined in Section 4001 (a) (16) of ERISA), whether or not
vested, of each of the Plans did not exceed the assets of the Plans. Since
December 31, 1994, Seller has taken no action with respect to the Plans which
would cause an increase in liabilities or a decrease in the assets of the
Plans (other than decisions regarding plan investments). Neither the Seller
nor any of its directors, officers, employees or any other "fiduciary", as
such term is defined in Section 3(21) of ERISA, has any liability for failure
to comply with ERISA or the Code for any action or failure to act in
connection with the administration or investment of the Plans.
(e) The Plans have not been completely, or to the best knowledge of the
Seller or the Stockholder, partially terminated since their establishment and
the Plans have not been the subject of a "reportable event" as that term is
defined in Section 4043 of
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<PAGE>
ERISA as to which notices would be required to be filed with the Pension
Benefit Guaranty Corporation ("PGBC"). No proceeding by PGBC to terminate any
of the Plans pursuant to Subtitle 111 of Title IV or ERISA has been
instituted or threatened, there is no pending or threatened legal action,
proceeding or investigation against or involving any employee pension benefit
plan and, to the best knowledge of the Seller, there is no basis for any such
legal action, proceeding or investigation.
(f) The Seller is in full compliance with the Consolidated Omnibus
Budget Reconciliation Act of 1986 ("COBRA") and all notices required by COBRA
have been timely made by the Seller.
(g) Except as identified in Schedule 5.33(g) attached hereto, the
Seller has not made any commitments to any of its respective retirees or former
employees for any benefits other than the receipt of benefits from the Plans.
5.34 Judgments, Orders, Decrees, Etc. There are no orders, decrees or
--------------------------------
injunctions of any court or arbitrator or any governmental department,
commission, board, agency or instrumentality, domestic or foreign, issued or
threatened specifically against the Seller or with respect to the Assets nor,
to the best knowledge of the Seller or the Stockholder, does there exist a
basis therefor.
5.35 Certain Business Practices. No officer, director or stockholder of
---------------------------
the Seller, or, to the best knowledge of the Seller and the Stockholder, no
employee, agent or other representative of the Seller, or any other person
acting on behalf of the Seller, has, directly or indirectly, since the date
of incorporation of Seller, given or agreed to give any illegal, unethical or
improper gift or similar benefit to any customer, supplier, governmental
employee or other person who is or may be in a position to help or hinder the
Seller or assist the Seller in connection with any actual or proposed
transaction. All payments by or on behalf of the Seller have been duly
recorded and accounted for in its books and records.
5.36 Disclosure. The Assets include all assets and property, other than
-----------
the Excluded Assets, owned, leased or used by the Seller in the conduct of
its business. No representation or warranty by the Seller in this Agreement,
nor any written statement, certificate or Schedule furnished, or to be
furnished, by or on behalf of the Seller or the Stockholder pursuant to this
Agreement, nor any document or certificate delivered to Buyer pursuant to
this Agreement, or in connection with actions contemplated hereby, contains
or shall contain any untrue statement of a material fact, or omits, or shall
omit to state a material fact necessary to make the statements contained
therein, in light of the circumstances under which they are made, not
misleading.
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<PAGE>
6. REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Seller and to the Stockholder as
follows:
6.1 Organization, Power and Authority. The Buyer is a corporation
----------------------------------
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. The Buyer has the corporate power and
authority to execute and deliver this Agreement, and any other agreement or
instrument contemplated by this Agreement, and to consummate the transactions
and to perform its obligations contemplated hereby and thereby.
6.2 Legal and Authorized Transactions; Authority; No Breach. The
--------------------------------------------------------
execution and delivery by the Buyer of this Agreement, and any other
agreement or instrument contemplated by this Agreement, and the consummation
of the transactions contemplated hereby and thereby, have been duly
authorized by all necessary corporate action by the Buyer and does not
require the approval of its shareholders. This Agreement, and any such other
agreement or instrument, upon execution and delivery by the Buyer (and
assuming due execution and delivery hereof and thereof by the other parties
hereto and thereto), will constitute the legal, valid and binding obligation
of the Buyer in each case enforceable against the Buyer, in accordance with
its terms (except as such enforceability may be limited by applicable
bankruptcy, insolvency, moratorium, reorganization or similar laws from time
to time in effect which affect creditors' rights generally and by general
principles of equity, whether such enforceability is considered in a
proceeding in equity or at law). Neither the execution and delivery of this
Agreement, or any such other agreement or instrument by the Buyer, nor the
consummation of the transaction contemplated hereby or thereby, will (i)
violate any provisions of the Articles of Incorporation or By-Laws of the
Buyer, (ii) violate, conflict with or result in the breach or termination of,
or otherwise give any other contracting party the right to terminate, or
constitute a default under the terms of, any mortgage, bond, indenture or
material agreement to which the Buyer is a party or by which the Buyer or any
of its property or assets may be bound or materially affected, (iii) violate
any judgment, order, injunction, decree or award of any court, administrative
agency or governmental body against, or binding upon, the Buyer or upon the
securities, property or business of the Buyer, or (iv) constitute a violation
by the Buyer of any applicable law or regulation of any jurisdiction as such
law or regulation relates to the Buyer or to the property or business of the
Buyer.
6.3 Brokerage. No broker, finder or similar agent has been employed by
----------
or on behalf of the Buyer and no person or entity with which the Buyer has
had any dealings or communications of any kind
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is entitled to any brokerage commission, finder's fee or any similar
compensation, in connection with this Agreement or the transactions
contemplated hereby.
6.4 Government Approval. No consent, approval, waiver, order or
--------------------
authorization of, or registration, declaration or filing with, any
governmental authority is required in connection with the execution and
delivery of this Agreement by the Buyer or the consummation by the Buyer of
the transactions contemplated hereby.
6.5 Disclosure. No representation or warranty by the Buyer in this
-----------
Agreement, nor any written statement, certificate or Schedule furnished, or
to be furnished, by or on behalf of the Buyer pursuant to this Agreement, nor
any document or certificate delivered by the Buyer to the Seller or the
Stockholder pursuant to this Agreement, or in connection with actions
contemplated hereby, contains or shall contain any untrue statement of a
material fact, or omits, or shall omit to state a material fact necessary to
make the statements contained therein, in light of the circumstances under
which they are made, not misleading.
7.CONDITIONS TO THE OBLIGATIONS OF SELLER
AND THE STOCKHOLDER
The obligations of the Seller and the Stockholder to consummate the
transactions contemplated by this Agreement are subject to the fulfillment,
on or before the Closing Date, of the following conditions (subject to the
right of the Seller and the Stockholder to waive any such conditions):
7.1 .Representations and Warranties True. All of the representations and
-------------------------------------
warranties of the Buyer contained in this Agreement or in any written
statement, certificate, schedule or other document delivered pursuant hereto
or in connection with the transactions contemplated hereby shall be true and
correct in all material respects on and as of the Closing Date.
7.2 Covenants and Agreements Performed. The Buyer shall have performed or
-----------------------------------
complied with or delivered all covenants, agreements, conditions or documents
required by this Agreement to be performed, complied with or delivered by the
Buyer prior to or on the Closing Date.
7.3 Approval of Counsel to the Seller and the Stockholder. All actions,
------------------------------------------------------
proceedings, consents, instruments and documents required to be delivered by
the Buyer hereunder or incident to the performance hereof, and all other
matters, shall have been approved as to form and substance by counsel to the
Seller.
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<PAGE>
7.4 Opinion of Counsel to Buyer. The Buyer shall have delivered to Seller
-----------------------------
an opinion, dated the Closing Date, of Richard S. Kolodny, Vice President,
General Counsel to the Buyer, in form and substance reasonably satisfactory
to counsel to the Seller and the Stockholder.
7.5 Other Documents. The Buyer shall have delivered all such certified
----------------
resolutions, certificates, documents or instruments with respect to the Buyer
as counsel to the Seller and the Stockholder may reasonably request prior to
the Closing Date to carry out the intent and purpose of this Agreement.
7.6 No Actions, suits or Proceedings. No action, suit or proceeding shall
---------------------------------
be pending or, to the knowledge of the Seller, the Stockholder, or the Buyer,
threatened, before any court or governmental body by any party other than a
party hereto to restrain or prohibit, or to obtain damages or a discovery
order in respect of, this Agreement or the consummation of the transactions
contemplated hereby.
7.7 Officers' Certificate. Each of Seller and the Stockholder shall have
----------------------
been furnished with a certificate executed on behalf of the Buyer by its
Chairman of the Board and Chief Executive Officer or a Vice President, and
the Secretary, dated the Closing Date, representing and certifying, in such
detail as Seller and the Stockholder may reasonably request, that the
conditions set forth in this Section 7 have been fulfilled at or prior to the
Closing Date, and that the Buyer is not in default under any provision of
this Agreement.
7.8 Consents. All consents necessary for the transfer of the Assets and
---------
the consummation of the transactions contemplated hereunder shall have been
obtained.
8. CONDITIONS TO THE OBLIGATIONS OF THE BUYER
The obligations of the Buyer to consummate the transactions contemplated
by this Agreement are subject to the fulfillment, on or before the Closing
Date, of the following conditions (subject to the right of the Buyer to waive
any such condition):
8.1 Representations and Warranties True. All of the representations and
------------------------------------
warranties of the Seller and the Stockholder contained in this Agreement or
in any written statement, certificate, schedule or other document delivered
pursuant hereto or in connection with the transactions contemplated hereby
shall be true and correct in all material respects on and as of the Closing
Date.
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<PAGE>
8.2 Covenants and Agreements Performed. Each of the Seller and the
----------------------------------
Stockholder shall have performed or complied with or delivered all covenants,
agreements, conditions, financial statements or documents required by this
Agreement to be performed, complied with or delivered by each of the Seller
and the Stockholder prior to or on the Closing Date.
8.3 Approval of Counsel to Buyer. All actions, proceedings, consents,
-----------------------------
instruments and documents required to be delivered by each of the Seller and
the Stockholder hereunder or incident to the performance hereof, and all
other related matters, shall have been approved as to form and substance by
counsel to Buyer.
8.4 Opinion of counsel to Seller and Stockholder. The Seller and the
---------------------------------------------
Stockholder shall have delivered to Buyer an opinion, dated the Closing Date,
of Larry Anderson, Esq. counsel to the Seller and the Stockholder, in form
and substance reasonably satisfactory to counsel to Buyer.
8.5 Wittenberg Employment and Non-Competition Agreement. Wittenberg shall
----------------------------------------------------
have executed and delivered an employment and non-competition agreement with
Buyer in the form attached hereto as Exhibit 8.5.
8.6 Other Documents. The Seller and the Stockholder shall have delivered
-----------------
all such certified resolutions, certificates, documents or instruments with
respect to the Seller and the Stockholder as the Buyer's counsel may
reasonably request prior to the Closing Date to carry out the intent and
purpose of this Agreement.
8.7 No Actions, Suits or Proceedings. No action, suit or proceeding shall
---------------------------------
be pending or, to the knowledge of any of the Seller, the Stockholder or the
Buyer, threatened, before any court or governmental body to restrain or
prohibit, or to obtain damages or a discovery order in respect of, this
Agreement or the consummation of the transactions contemplated hereby or
which has had or may have a materially adverse effect on the operations,
financial condition, business or operations of the Seller.
8.8 Material Adverse Change. There shall have been no material adverse
------------------------
change in the business, condition (financial or otherwise) or operations of
the Seller in the period from the December 31, 1994 to the Closing Date
including, without limitation, in net sales or cost of goods sold.
8.9 Officers' Certificate. The Buyer shall have been furnished with a
----------------------
certificate executed on behalf of the Seller, by its Chairman of the Board,
President, Treasurer or a Vice President, and Secretary or Assistant
Secretary, dated the Closing Date, representing and certifying, in such
detail as the Buyer may
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<PAGE>
reasonably request, to the following: (a) the conditions set forth in this
Section 8 have been fulfilled at or prior to the Closing Date, (b) neither
the Seller nor the Stockholder is in default under any provision of this
Agreement.
8.10 Satisfactory Due Diligence Review. The Board of Directors of the
----------------------------------
Buyer shall have received a reasonably favorable report of Buyer's management
with respect to the investigation by it, counsel and other agents and
representatives of the Buyer, regarding Seller's business condition
(financial, physical, environmental and otherwise), facilities and personnel.
8.11 Assignments. The Seller shall have delivered to Buyer duly executed
------------
assignments of the Patent and Trademarks identified in Schedule 1.1 (e)
attached hereto, in form suitable for recording in the Patent and Trademark
Office.
8.12 Consents. All consents necessary for the transfer of the Assets and
---------
the consummation of the transactions contemplated hereunder, shall have been
obtained.
8.13 Release of U.C.C. Financing Statements. The Seller shall have been
---------------------------------------
released from, and received termination statements with respect to, the
U.C.C. financing statements filed in the State of New York and Westchester
County, New York by Marine Midland Bank, N.A., Roblin 1, 241 Main Street,
Buffalo, New York 14203 (U.C.C. Financing Statement Nos.: 224195 (October 26,
1992) and 92-9499 (October 26, 1992)).
8.14 Mount Vernon Lease. The Buyer shall have been furnished with
-------------------
evidence that the Seller has satisfied all of its obligations under the Mount
Vernon Lease as of the Closing Date, and that the landlord will continue its
current month-to-month lease arrangement with the Buyer.
9. COVENANTS AND AGREEMENTS OF THE PARTIES
9.1 Payment of Taxes. The Seller shall prepare and file all returns
-----------------
required to be filed by it after the date hereof with respect to any tax
relating to the business or operations of the Seller for all periods prior to
the Closing Date, and the Seller shall pay all such taxes, additions,
interest and penalties shown, or required to be shown, on such returns. The
Seller shall pay all penalties or other charges, if any, becoming due with
respect to the late filing of any return required to be filed by it in
accordance with the provisions of this Section 9.1. All taxes relating to the
business and operations of the Seller shall be for the account of Seller
through the Closing Date.
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<PAGE>
9.2 Cooperation. The Seller shall execute at its own expense such
------------
instruments of conveyance and assignment or other instruments or documents as
Buyer may reasonably request in order to more fully vest title to the Assets
in Buyer and to effectuate the purposes and intentions of this Agreement; and
Seller shall otherwise fully cooperate with Buyer for the purpose of
perfecting Buyer's right, title and interest in and to the Assets. Buyer
shall execute at its own expense such instruments of assumption or other
instruments or documents as the Seller may reasonably request in order to
more fully effectuate the purposes of the Agreement with respect to the
Assumed Liabilities.
9.3 Expenses of Sale. The Seller, the Stockholder and the Buyer shall
-----------------
each bear its own direct and indirect expenses incurred in connection with
the negotiation and preparation of this Agreement and the consummation and
performance of the transactions contemplated hereby. All expenses of the
Seller and the Stockholder shall be paid by the Seller and the Stockholder
after the Closing, it being understood that no part of such expenses shall be
included as Assumed Liabilities hereunder.
9.4 Actions with Respect to Closing. Each of the parties hereto (an
--------------------------------
"Initial Party") agrees to use its best efforts to bring about the
satisfaction of the conditions precedent to the obligation of the other party
hereto to effect the Closing (to the extent that such satisfaction is
dependent on the actions on the part of the Initial Party of commission or
omission) and to cause its covenants and agreements contained in this Section
9 and Section 10 hereof to be satisfied and performed hereunder.
9.5 Access to Records. Buyer shall afford to Seller and its
------------------
representatives, the opportunity, upon reasonable advance notice, to examine
and make copies of the books and records of the Seller sold to Buyer
hereunder in connection with the preparation by the Seller of tax and
financial reporting matters and other bona fide business purposes of the
Seller or the Stockholder.
9.6 Litigation Cooperation. If the Seller shall become engaged or
-----------------------
participate at any time in any investigation, claim or litigation with any
third party relating to a period ending on or after the Closing Date, the
Buyer shall cooperate in all reasonable respects with the Seller in
connection therewith, including without limitation making available to the
Seller relevant records and employees of Buyer who may be helpful with
respect to such claim or litigation.
9.7 Notice to Sales Tax Authorities. The Seller shall to the extent
--------------------------------
required by applicable state bulk sales laws (as soon as practicable which
may be later than the 10 day period required by law) notify the state sales
tax or other authorities having
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<PAGE>
jurisdiction of sales tax matters in each state of the proposed sale and
purchase transaction hereunder in accordance with such laws.
9.8 Payment of Sales Tax. Buyer shall at or prior to the time any such
---------------------
tax is due, deliver to the appropriate taxing authority payment of any sales
tax payable in connection with the Assets to be sold and delivered to Buyer
hereunder; and Buyer shall indemnify and hold harmless Seller and the
Stockholder from and against any claim, liability, damage or cost (whether
asserted against Seller, the Stockholder or the Assets) arising from or in
connection with any failure to pay such sales tax.
9.9 Bulk Sales Law. The Seller, the Stockholder and Buyer hereby waive
---------------
compliance with any applicable bulk sales law and any statute relating to
notice to or rights of creditors of the Seller in connection with the
transactions contemplated in this Agreement; provided, however, that Seller
and the Stockholder, jointly and severally, shall indemnify and hold harmless
the Buyer from and against any claim, liability, damage, cost or expense
(whether asserted against Buyer or the Assets) arising from or in connection
with any failure to comply with any such Bulk Sales or similar statutes. The
provisions of Section 11 hereof shall apply to any claim for indemnification
under this Section 9.9.
9.10 Closing Prorations: Possession. All personal property taxes with
-------------------------------
respect to the Assets assessed for and becoming a lien during the tax year
in which the Closing occurs shall be prorated between Buyer and Seller as of
the Closing Date, using, for Closing purposes, the taxes for the preceding
tax year if the taxes for the current year have not been determined;
provided, however, that any such taxes assessed for prior tax years but
- -------------------
payable during the tax year in which the Closing occurs shall be paid by the
Seller; and provided, further, that such taxes not allocated to Buyer and not
-----------------
due and payable on the date of the Closing shall be allowed to Buyer as a
credit on the Purchase Price and Buyer shall be obligated, and hereby
indemnifies the Seller against its failure, to pay such taxes to the extent
of the credit when due and payable. If any such taxes are so prorated based
upon the taxes for the preceding tax year, then, when the taxes for the
current year have been determined, Buyer and Seller shall readjust the amount
of the taxes payable by each thereof with the result that Seller shall pay so
much of taxes as shall be allocable to the period before the Closing Date,
and Buyer shall pay so much of taxes as shall be allocable to the period on
and after the Closing Date. All other liabilities, costs, obligations and
expenses in connection with the conduct of the business of Seller, and/or the
ownership, operation, use and/or occupancy of the Assets (including, but not
limited to, all amounts payable under leases, all utility charges and all
payments under service contracts), shall be prorated between Buyer
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<PAGE>
and Seller as of the Closing Date (all such items for the Closing Date being
allocated to the Buyer); all utility meters shall be read as of the Closing
Date. Except as set forth and described in Schedule 9.10 attached hereto,
Seller shall deliver possession of the Assets to Buyer on the Closing Date.
9.11 Public Statements. Neither the Buyer, the Seller nor the Stockholder
-------------------
shall, without the prior consent of the others, make any public statement,
announcement or release to trade publications or to the press, or make any
statements to any competitor, customer or any third party, with respect to
this Agreement except to the extent that either the Buyer or the Seller are
advised by their counsel that a public statement is required by law and then
only upon prior notice to the other party and except that the Seller may
inform its employees of this Agreement simultaneously with the first public
announcement thereof.
9.12 Corporate Name Change. On the Closing Date, the Stockholder shall
----------------------
cause Seller to change its corporate name (and reflect such name change in
each jurisdiction in which it is qualified to do business) to a name not
including the words "National Medical Excess Corp." or any trade name used by
Seller or any word or words or trade names as to be likely to be confused
therewith, and, from and after the Closing, Seller shall not use in its
corporate name or otherwise any word or words or expressions so closely
resembling such word or expressions so closely resembling such word or trade
name as to be likely confused therewith.
10. EMPLOYEE BENEFIT MATTERS
10.1 Retained Employees. Upon execution of this Agreement, Buyer shall
-------------------
designate those of Seller's employees to whom Buyer desires to offer
employment and those employees who accept such offer shall be referred to as
"Retained Employees". It is agreed that Buyer will not advise Seller's
employees who have been so designated until the Closing Date or such earlier
date as shall be agreed upon by the parties hereto. The Seller shall pay or
accrue its employees' wages, salaries, social security taxes, unemployment
compensation taxes, worker's compensation taxes and other unemployment
compensation taxes and other payroll taxes, and fringe and other benefits,
through the Closing Date. The Buyer shall be responsible for and shall pay
all costs attributable to all Retained Employees after the Closing Date, and
on or before the Closing Date, Buyer may elect to be responsible for and to
pay accrued personal days, and vacation and sick pay identified on Schedule
5.28 attached hereto due to the Retained Employees, provided that if Buyer so
elects, then the amounts attributable thereto shall be deemed Assumed
Liabilities specifically assumed by Buyer. Buyer shall indemnify and hold the
Seller harmless from all liability and obligations resulting from the failure
of Buyer to
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<PAGE>
make any of the payments so specifically assumed hereunder. 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
Buyer because of the consummation of the transactions contemplated by this
Agreement.
10.2 Seller's Indemnification. Except with respect to liabilities and
-------------------------
obligations relating to Retained Employees arising after the Closing Date as
provided in Section 10.1 hereof, unless specifically assumed by Buyer, the
Seller shall retain and shall defend and hold Buyer harmless from all
liability and obligations, including, without limitation, liability and
obligations for all wages, salary, termination pay, severance pay, sick pay
or vacation pay, any unemployment benefits, any pension plan or welfare plan
benefits and any other benefits, to which any employees of the Seller are
entitled.
10.3 Buyer's Indemnification. Buyer shall make direct payments of the
------------------------
amounts described in Schedule 5.28 attached hereto to the Retained Employees
entitled to such payments as and when such amounts become due and payable if
Buyer, on or prior to the Closing Date, shall elect in writing to make such
payments. Buyer shall indemnify and hold the Seller harmless from any and all
claims or liabilities arising from or related to, the failure of Buyer to
make such payments, but only to the extent of the payments not made by Buyer
plus any penalties arising from the failure of Buyer to make such payments.
10.4 COBRA. The Seller shall satisfy obligations for continuation health
------
care coverage for all of their employees other than Retained Employees under
COBRA, to the extent such obligations may be imposed upon the Seller under
such COBRA events occurring prior to Closing.
10.5 Payroll Payments. The Seller shall make the payroll payments and
-----------------
all related payroll tax payments due for all periods prior to the Closing
Date for all Retained Employees. The Seller shall prepare and timely file W-2
Forms in respect of all of its employees, including Retained Employees, which
forms shall reflect all amounts paid by Sellers to such employees through the
Closing Date.
11. INDEMNIFICATION
11.1 Indemnification by Seller and the Stockholder. Each of Seller and
----------------------------------------------
the Stockholder, jointly and severally, agrees to indemnify, defend and hold
the Buyer harmless from and against any and all losses, liabilities, damages,
fines, fees or deficiencies (including, without limitation, interest,
penalties, court costs and reasonable attorneys' fees and disbursements or
other expenses
-28-
<PAGE>
of litigation or other proceedings, or any claim, default or assessment)
(collectively, "Indemnifiable Amounts") suffered, incurred, or sustained by
the Buyer, or to which the Buyer becomes subject, resulting from, arising out
of or relating to (i) any inaccuracy in, any misrepresentation, breach of
warranty, or any failure to perform, any covenant or agreement of Seller or
the Stockholder contained in this Agreement, (ii) any Excluded Liability,
including without limitation, any liability arising in connection with the
Assets or operations of the Seller, which shall have accrued or arisen on or
prior to the Closing Date, including, without limitation, liability for any
foreign, federal, state or local tax of any kind, whether arising by reason
of the transfer and sale of the Assets or by reason of the existence or
operations of the Seller prior to the Closing Date (other than sales tax as
provided in Section 9.13 hereof and any expenses of sale to be borne by Buyer
pursuant to Section 9.8 hereof), including payroll taxes (collectively,
"Taxes") or which liability shall relate solely to any cause, matter or thing
occurring in connection with the Seller's operations prior to the Closing
Date, including, without limitation, in respect of any salary, bonus, stock
option, stock purchase, pension, profit sharing, wages or other compensation
of any kind owed by the Seller to its employees for services rendered on or
prior to the Closing Date except as included in any Assumed Liabilities
(collectively, "Employee Entitlements") Notwithstanding the foregoing, the
Stockholder shall not be obligated to indemnify, defend and hold the Buyer
harmless from and against any Indemnifiable Amount suffered, incurred, or
sustained by the Buyer, or to which the Buyer becomes subject, resulting from,
arising out of or relating to any product liability arising in connection with
the Assets or operations of the Seller which shall have accrued or arisen on or
prior to the Closing Date.
11.2 Indemnification by Buyer. The Buyer agrees to indemnify, defend and
-------------------------
hold the Seller and the Stockholder harmless from and against any and all
loss, liability, damage or deficiency (including, without limitation,
interest, penalties and reasonable attorneys' fees and disbursements)
(collectively, "Indemnifiable Amounts") based upon, arising out of or
otherwise in respect of (i) any inaccuracy in, any breach of or any failure
to perform, any representation, warranty, covenant or agreement of Buyer
contained in this Agreement, or (ii) any Assumed Liability.
11.3 .Notice and opportunity. to Defend. Promptly after the receipt by
-----------------------------------
the Buyer, the Seller or the Stockholder of notice of any action, claim or
potential claim (any of which is hereinafter individually referred to as a
"Circumstance") which could give rise to a right to indemnification under
this Agreement, such party (the "Indemnified Party") shall give prompt
written notice to the party or parties who may become obligated to provide
indemnification hereunder (the "Indemnifying Party"). Such notice shall
specify in
<PAGE>
reasonable detail the basis and amount, if ascertainable, of any claim that
would be based upon the Circumstance. The failure to give such notice
promptly shall relieve the Indemnifying Party of its indemnification
obligations under this Agreement, unless the Indemnified Party establishes
that the Indemnifying Party either had knowledge of the Circumstance or was
not prejudiced by the failure to give notice of the Circumstance. The
Indemnifying Party shall have the right, at its option, to compromise or
defend the claim, at its own expense and by its own counsel, and otherwise
control any such matter involving the asserted liability of the Indemnified
Party, provided that any such compromise or control shall be subject to
obtaining the prior written consent of the Indemnified Party which shall not
be unreasonably withheld. An Indemnifying Party shall not be liable for any
costs of settlement incurred without the written consent of the Indemnifying
Party. If any Indemnifying Party undertakes to compromise or defend or
remediate any asserted liability, it shall promptly notify the Indemnified
Party of its intention to do so, and the Indemnified Party agrees to
cooperate fully with the Indemnifying Party and its counsel in the compromise
of or defense against any such asserted liability. All costs and expenses
incurred in connection with such cooperation shall be borne by the
Indemnifying Party, provided such costs and expenses have been previously
approved by the Indemnifying Party. In any event, the Indemnified Party
shall have the right at its own expense to participate in the defense of an
asserted liability.
11.4 Survival of Representations and Warranties. Regardless of any
-------------------------------------------
investigation at any time made by or on behalf of any party hereto or of any
information any party hereto may have in respect thereof and notwithstanding
anything to the contrary contained herein, the representations, warranties
and covenants of the Seller, the Stockholder and the Buyer contained in this
Agreement or in any instrument (including exhibits and schedules attached
hereto) delivered by the Seller or the Stockholder shall survive the Closing.
12. MISCELLANEOUS
12.1 Successors and Assigns. 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. Subject to the preceding sentence, this Agreement is binding
upon and inures to the benefit of the parties hereto and their respective
successors and assigns.
12.2 Notices. All notices or other communications required or permitted
--------
to be given hereunder shall be in writing and shall be deemed to have been
duly given if delivered by hand, prepaid telex,
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<PAGE>
cable or telegram and confirmed in writing, or mailed first class, postage
prepaid, by registered or certified mail, return receipt requested (notices
sent by facsimile, telex, cable or telegram shall be deemed to have been
given on the date sent and mailed notices shall be deemed to have been given
three days following the deposit thereof with the United States Post Office)
as follows:
(a) If to the Seller and Stockholder, as follows:
National Medical Excess Corp.
144 E. Kingsbridge Road
Mt. Vernon, New York 10550
Tel. No.: (914) 665-2777
Telecopier No.: (914) 665-2101
with a copy to:
Larry Anderson, Esq.
Counselor at Law
25 West 45th Street
New York, New York 10036
Tel. No.: (212) 221-4702
Telecopier No.: (212) 764-2477
(b) If to the Buyer, as follows:
Graham-Field Health Products, Inc.
400 Rabro Drive East
Hauppauge, New York 11788
Attention: Irwin Selinger, Chairman of the
Board and Chief Executive Officer
Tel. No.: (516) 582-5900
Telecopier No.: (516) 582-5608
with a copy to:
Richard S. Kolodny
Vice President, General Counsel
Graham-Field Health Products,
Inc. 400 Rabro Drive East
Hauppauge, New York 11788
Tel. No.: (516) 582-5900
Telecopier No.: (516) 582-5608
or in any case to such other address or addresses as hereafter shall be
furnished as provided in this Section 12.2 by either of the parties hereto to
the other party hereto.
12.3 Waiver; Remedies. No delay on the part of Seller, the Stockholder or
-----------------
the Buyer in exercising any right, power or
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<PAGE>
privilege hereunder shall operate as a waiver thereof, nor shall any waiver
on the part of Seller, the Stockholder or the Buyer of any right, power or
privilege hereunder operate as a waiver of any other right, power or
privilege hereunder, nor shall any single or partial exercise of any right,
power or privilege hereunder preclude any other or further exercise of any
other right, power or privilege hereunder. The rights and remedies herein
provided are cumulative and are not exclusive of any rights or remedies which
the parties hereto may otherwise have at law or in equity.
12.4 Entire Agreement. This Agreement constitutes the entire agreement
------------------
between the parties with respect to the subject matter hereof and supersedes
all prior agreements or understandings of the parties relating thereto.
12.5 Amendment. This Agreement may be modified or amended only by written
----------
agreement of the parties hereto.
12.6 Further Assurances. The Seller and the Stockholder shall, at the
-------------------
request of the Buyer, at any time and from time to time following the Closing
hereunder execute and deliver to the Buyer all such further instruments and
take all such further action as may be reasonably necessary or appropriate in
order more effectively to sell, assign, transfer, and convey to Buyer, or to
perfect or record Buyer's title to or interest in the Assets or otherwise to
confirm or carry out the provisions of this Agreement.
12.7 Counterparts. This Agreement may be executed in any number of
-------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute a single instrument.
12.8 Governing Law. This Agreement shall be governed and construed in
--------------
accordance with the laws of the State of New York applicable to contracts
made and to be performed entirely within the State of New York.
12.9 Captions. All section titles or captions contained in this
---------
Agreement, in any Schedule referred to herein or in any Exhibit annexed
hereto, and the Table of Contents to this Agreement are for convenience only,
shall not be deemed a part of this Agreement and shall not affect the meaning
or interpretation of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the day and year first above written.
GRAHAM-FIELD HEALTH
PRODUCTS, INC.
By: /s/
----------------------
Name:
Title: Vice President
NATIONAL MEDICAL EXCESS CORP.
By: /s/
--------------------------
Name:
Title:
STOCKHOLDER OF
NATIONAL MEDICAL EXCESS CORP.
/s/ John Wittenberg
- -------------------------------
John Wittenberg
EXHIBIT 10 (hh)
================================================================================
ASSET PURCHASE AGREEMENT
DATED MARCH 4, 1996
BY AND BETWEEN
THE LUMISCOPE COMPANY, INC.
AND
GRAHAM-FIELD, INC.
================================================================================
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
AGREEMENT made this 4th day of March 1996, by and between The Lumiscope
Company, Inc., a corporation organized under the laws of the State of New York,
having an address at 400 Raritan Center Parkway, Edison, New Jersey 08837
("Lumiscope"), and Graham-Field, Inc., a corporation organized under the laws of
the State of New York, having an address at 400 Rabro Drive East, Hauppauge, New
York 11788 ("GFI").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, GFI is engaged in the business of marketing, selling and
distributing breast pumps and related accessories comprising the Gentle
Expressions(R) Product Line; and
WHEREAS, Lumiscope desires to purchase from GFI and GFI desires to sell to
Lumiscope the assets comprising the Gentle Expressions(R) Product Line upon the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. PURCHASE AND SALE OF THE GENTLE EXPRESSIONS ASSETS
- -----------------------------------------------------
1.1 THE ASSETS. Subject to the terms and conditions hereinafter set
-----------
forth, in consideration of the Purchase Price set forth in section 3.1 hereof,
GFI agrees to sell to Lumiscope and Lumiscope agrees to purchase from GFI, on
the Closing Date, as defined in section 8.1 hereof, all of the following
described assets currently being used exclusively in the Gentle Expressions(R)
Product Line (collectively, the "Assets") free and clear of any liabilities,
obligations, adverse claims, security interests, liens and encumbrances:
1.1.1 EQUIPMENT. The tools and molds, wherever located, exclusively
---------
related to the Gentle Expressions Product Line, which are owned by GFI and are
more particularly listed, along with its location, on Schedule 1.1.1 hereto (the
"Equipment").
1.1.2 INVENTORY. Subject to the provisions of section 2.2 hereof, a
---------
six (6) month supply of new finished, assembled goods, packaging and artwork,
which are free from defect and saleable in the ordinary course of business,
wherever located, exclusively related to the Gentle Expressions Product Line,
limited to the SKUs listed on Schedule 1.1.2 hereto (the "Inventory"). As used
in this paragraph, a six (6) month supply of an SKU shall mean
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<PAGE>
one-half (1/2) of the net amount of such SKU sold by GFI during the period
January 1, 1995 through December 31, 1995.
1.1.3 ADVERTISING MATERIALS; CATALOGS. All advertising materials,
--------------------------------
catalogs and brochures exclusively related to the Gentle Expressions Product
Line set forth on Schedule 1.1.3.
1.1.4 CUSTOMER, DEALER AND DISTRIBUTOR LISTS. All customer lists,
---------------------------------------
correspondence, dealer lists and distributor lists exclusively related to the
Gentle Expressions Product Line. All such customers, dealers and distributors,
other than Baxter and the export accounts listed on Schedule 5.1, are set forth
on Schedule 1.1.4 hereto (the "Customer List").
1.1.5 CONTRACT RIGHTS. Certain contracts selected by Lumiscope to
----------------
which GFI is a party and which are exclusively related to the Gentle Expressions
Product Line including, but not limited to, contracts related to customers,
manufacturer representatives, suppliers and distributors, purchase orders,
marketing or manufacturing arrangements (the "Contracts"). The Gentle
Expressions Contracts are more specifically set forth on Schedule 1.1.5 hereto
and exclude contracts with Baxter and the export accounts set forth on Schedule
5.1 hereof.
1.1.6 PERMITS. All permits, licenses, approvals, and authorizations
--------
by governmental or regulatory authorities or bodies, including FDA Form 510K
product filings and specifications owned by GFI or any affiliate of GFI,
exclusively related to the Gentle Expressions Product Line, excluding those
permits relating to Jex products, as listed on Schedule 1.1.6 hereto (the
"Permits").
1.1.7 BOOKS AND RECORDS. All books, records, files and computer
------------------
reports exclusively related to the Gentle Expressions Product Line, and such
other records as Lumiscope shall reasonably require in order to conduct the
Gentle Expressions Product Line, as set forth on Schedule 1.1.7 (the "Books").
1.1.8 PATENTS AND TRADEMARKS. All of GFI's right, title and interest
-----------------------
in and to, the trademark "Gentle Expressions", and any service marks,
tradenames, trade secrets, processes, copyrights, patents, applications for the
foregoing, special rights and technical know-how owned by GFI and exclusively
related to the Gentle Expressions Product Line, including, but not limited to,
the items listed on Schedule 1.1.8 hereto.
1.1.9 MISCELLANEOUS. All designs, products, drawings, plans,
--------------
blueprints, bills of materials, flowsheets, specifications, plan sheets,
formulas, instruction manuals and device master records owned by or licensed to
GFI or any affiliate of GFI, exclusively related to the Gentle Expressions
Product Line.
1.1.10 EXCLUDED ASSETS. The following shall be excluded from the
---------------
assets to be sold, assigned, transferred and conveyed to
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<PAGE>
Lumiscope hereunder (collectively, the "Excluded Assets"): (a) all prepayments
for services or property, the benefits of which will not be realizable by
Lumiscope; (b) all policies of insurance; (c) all prepaid insurance premiums;
(d) all deferred and prepaid charges, sums and fees; (e) the trade name,
corporate name and trademark "HealthTeam" or any derivation thereof and the
"HealthTeam" logo (except that GFI hereby grants to Lumiscope the right to use
such name and logo to the extent it appears on any Equipment or Inventory sold
to Lumiscope under this Agreement); and (f) any books, records, or other data
relating to GFI's ownership or operation of the Gentle Expressions Product Line
proprietary to GFI or required by applicable law to be retained by GFI.
2. LIMITATIONS ON THE PURCHASE OF ASSETS AND INVENTORY
- ------------------------------------------------------
2.1 NO ASSUMPTION OF LIABILITIES. Lumiscope is acquiring the Assets
----------------------------
hereunder, without any assumption of the debts, obligations, liabilities, or
commitments of GFI, including but not limited to rebates, advertising programs
or customer commitments, relating to the Gentle Expressions Product Line,
whether fixed or contingent, or whether known or unknown, arising or relating to
Gentle Expressions products sold prior to the Closing Date, except to the extent
expressly provided on Schedule 2.1.
2.2 INVENTORY. Notwithstanding any other provision in this Agreement, the
---------
Inventory shall be purchased by Lumiscope from time to time over the six month
period commencing on the Closing Date, in quantities to be determined by
Lumiscope. To the extent that Lumiscope purchases less than one-sixth (1/6) of
the Inventory before the end of any one of the six months immediately following
the Closing Date (net of any returns which reduce such obligation pursuant to
Section 5.2 of this Agreement) (on an aggregate basis giving effect to purchases
and returns following the Closing Date up to a period of 150 days), Lumiscope
shall pay interest at one percent (1%) above the prime rate announced from time
to time by Chemical Bank (the "Prime Rate") in the amount of such unpurchased
Inventory until purchased. The purchase price for the Inventory shall be the
net cost of such Inventory to GFI as reflected on its books and records of
February 27, 1996 (landed cost), F.O.B. Hauppauge, New York and shall be payable
to GFI by Lumiscope within ten (10) days after shipment.
3. PURCHASE PRICE
--------------
3.1 CONSIDERATION FOR ASSETS. Lumiscope shall pay GFI for the Assets
------------------------
(other than Inventory) and the Non-Competition Agreement under Section 5.2,
allocated as set forth on Schedule 3.1, the sum of One Million Dollars
($1,000,000.00), payable as follows:
(a) On the Closing Date, payable by certified check or wire transfer,
the sum of Five Hundred Thousand Dollars ($500,000.00); and
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<PAGE>
(b) The balance of Five Hundred Thousand Dollars ($500,000.00) shall
be payable pursuant to a promissory note (the "Note") providing for interest at
the rate of one percent (1%) above the Prime Rate, and be payable in forty-eight
(48) equal consecutive monthly payments of $10,416.66, plus interest, commencing
April 1, 1996. Lumiscope will have the right to setoff against the principal
and interest due under the Note, up to the sum of (i) $50,000 plus (ii) the
amount of all valid claims for Walgreen advertising, promotions and returns
under Section 5.4 of this Agreement (the "Setoff Amount"), any valid claims for
(x) returns of Non-Salable Inventory (hereinafter defined) pursuant to Section
5.2 of this Agreement, (y) Walgreen advertising allowances pursuant to Section
5.4 of this Agreement, and (z) for indemnification pursuant to Section 9.2.2 of
this Agreement, subject, however, to Section 9.4 of this Agreement, other than
for claims under clauses (x) and (y); however, the Setoff Amount shall not be a
limit on GFI's obligation under Sections 5.2, 5.4 and 9.2.2 of this Agreement.
The Note will be secured and subordinated subject to a subordination agreement
between GFI and UJB to be entered into at Closing and will be in the form of
Exhibit 3.1 to this Agreement.
3.2 ROYALTY FOR SALES TO TARGET.
---------------------------
(a) Lumiscope shall pay to GFI pursuant to a secured, subordinated
promissory note in the form of Exhibit 3.2 (the "Target Note") as a royalty on
sales of Gentle Expressions products to Target Stores ("Target") one hundred
twenty percent (120%) of the gross profit of net sales (defined as gross sales
less any rebates, discounts and uncollectible accounts (i.e., more than 120 days
past due; provided that if such account is later collected, Lumiscope will pay
the 120% of gross profit to GFI in accordance with this Section 3.2)) by
Lumiscope to Target over the twelve (12) month period commencing on Lumiscope's
first shipment to Target (the "First Shipment Date") computed in accordance with
generally accepted accounting practices (GAAP) (which for this purpose will
treat the cost of customized packaging within cost of goods sold) ("Gross
Profit"), payable as follows:
(i) eighty percent (80%) of Gross Profit, sixty (60) days after
the product is invoiced to Target; and
(ii) the balance of forty percent (40%) of Gross Profit, in eight
(8) equal quarterly installments commencing on the first anniversary of the
First Shipment Date. Such amount shall accrue interest commencing on the date
the corresponding eighty percent (80%) is due to GFI at the rate of one percent
(1%) above the Prime Rate. Such interest shall be payable in full on the first
anniversary of the First Shipment Date. This aggregate amount of the forty
percent (40%) of Gross Profit shall continue to accrue interest at the rate of
one percent (1%) above the Prime Rate. Each quarterly payment shall consist of
principal and accrued interest.
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<PAGE>
(b) Notwithstanding anything to the contrary in this Agreement, GFI
agrees to make a shipment to Target on or about March 7, 1996.
(c) Nothing in this Agreement obligates Lumiscope to accept any
orders from Target; provided, however, that Lumiscope must have a good faith
business reason based on general industry standards for the sale of medical
products not to accept any such orders during the twelve (12) months following
the First Shipment Date.
4. PURPOSELY OMITTED.
- ---------------------
5. ADDITIONAL TRANSACTIONS
- --------------------------
5.1 SUPPLY AGREEMENT. Pursuant to a supply agreement in form and
----------------
substance as set forth on Exhibit 5.1 hereto ("Supply Agreement"), Lumiscope
-------
shall sell "Gentle Expressions" products and related items to GFI from time to
time for resale solely to Baxter and the export accounts listed on Schedule 5.1
hereof and any other export accounts based upon purchase orders from GFI to be
delivered no less than ninety (90) days prior to the date requested for delivery
in any such purchase order. The price for each product purchased by GFI from
Lumiscope shall be the then prevailing landed cost incurred by Lumiscope for
such product plus twenty percent (20%) of such cost, F.O.B. Edison, New Jersey.
Payment of all amounts due to Lumiscope from GFI for the purchase of any
products shall be made within thirty (30) days of the receipt by GFI of any such
product. As part of the Supply Agreement, a limited license of the "Gentle
Expressions" trademark shall be provided to GFI such that GFI shall have the
right to use the name and logo "Gentle Expressions" solely in the sale of any
product provided under this section.
5.2 RETURNS. Following the Closing Date, Lumiscope will honor returns
-------
from GFI's customers for inventory sales of the SKU's listed on Schedule 1.1.2
prior to the Closing Date, in accordance with Lumiscope's customary return
policy. Lumiscope will retain any of such inventory which is good and salable
and unopened (meaning the seal is not broken) in its original packages by
Lumiscope ("Salable Inventory") and Lumiscope's obligation to purchase inventory
under Sections 1.1.2 and 2.2 will be reduced by the volume of such Salable
Inventory accepted by Lumiscope within 150 days following the Closing Date
(provided that if GFI had less than a six-month supply of such SKU on the
Closing Date, there will be no reduction of Lumiscope's obligation until such
supply plus the returns of Salable Inventory of that SKU exceeds a six-month
supply), for which Lumiscope will pay GFI (landed cost) pursuant to Section 2.2
to the extent GFI has an outstanding receivable from such customer, which GFI
will credit for the return. Lumiscope will return to GFI any such inventory
which is returned to Lumiscope within 150 days following the Closing Date and
which is not Salable Inventory ("Non-Salable Inventory") for credit in
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<PAGE>
amount equal to GFI's selling price to the customer that returned the inventory.
Such credit shall be paid as a setoff against the Note, although the Setoff
Amount under the Note shall not limit GFI's obligations hereunder. Beginning
150 days after the Closing Date, Lumiscope will continue to accept returns of
both Salable Inventory and Non-Salable Inventory, and shall be responsible for
all costs associated therewith.
5.3 NONCOMPETITION AGREEMENT. At the Closing, Lumiscope and GFI shall
------------------------
enter into a noncompetition agreement (the "Non-Competition Agreement") in the
form of Exhibit 5.3 whereby GFI and its subsidiaries agree for a period of five
(5) years from the Closing Date not to compete with Lumiscope in the manufacture
or sale of breast pumps, including all products currently in the Gentle
Expression Product Line, except for the Baxter account and any export accounts,
including those listed on Schedule 5.1.
5.4 WALGREEN ALLOWANCE. GFI has from time to time billed Walgreen an
------------------
upcharge amount with respect to sales of breast pumps, as a result of which GFI
creates a liability to Walgreen in the form of an advertising, promotional and
return allowance. Lumiscope agrees to honor such allowance subsequent to the
Closing Date with respect to sales made by GFI prior to the Closing Date, and
GFI agrees to reimburse Lumiscope for the amount of such allowance. Lumiscope
may exercise its setoff rights under the Note in satisfaction of GFI's
obligations under this Section 5.4.
6. - REPRESENTATIONS AND WARRANTIES OF LUMISCOPE
- ------------------------------------------------
to induce GFI to enter into this agreement and to perform their obligations
hereunder, Lumiscope represents and warrants to GFI the following:
6.1 ORGANIZATION AND QUALIFICATION. Lumiscope is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
New York and has the requisite corporate power and authority to own, operate and
lease its properties and assets and to carry on its business as it is now being
conducted. Copies of the Certificate of Incorporation and By-Laws of Lumiscope
will be delivered to GFI prior to Closing and are accurate and complete as of
the date hereof and Lumiscope is not in default in the performance, observation
or fulfillment of either its Certificate of Incorporation or of its By-Laws.
6.2 AUTHORITY RELATIVE TO AGREEMENTS.
--------------------------------
6.2.1 Lumiscope has the requisite capacity, power and authority to
enter into this Agreement and all agreements, instruments, and certificates
contemplated to be executed by Lumiscope pursuant to this Agreement
(collectively "the "Lumiscope Documents") and to perform its obligations
hereunder and thereunder. The execution and delivery of this Agreement and each
of the Lumiscope Documents by Lumiscope and the consummation by
-6-
<PAGE>
Lumiscope of the transactions contemplated hereby and thereby have been duly
authorized by the Board of Directors of Lumiscope. No consent of any
stockholder of Lumiscope is required for Lumiscope to enter into this Agreement
or the Lumiscope Documents. This Agreement and each of the Lumiscope Documents
have been duly executed and delivered by Lumiscope, and assuming due authoriza-
tion, execution and delivery by GFI, constitutes a valid and binding obligation
of Lumiscope enforceable against it in accordance with its terms, subject to
applicable bankruptcy and insolvency laws and similar laws affecting creditors'
rights, and subject as to enforceability to general principles of equity,
regardless of whether enforcement is sought at law or in equity.
6.2.2 Neither the execution and delivery of this Agreement and each
of the Lumiscope Documents by Lumiscope nor the consummation of the transactions
contemplated hereby or thereby nor compliance by it with any of the provisions
hereof or thereof will:
(a) require the consent, approval, authorization or other order
of any individual, sole proprietorship, partnership, joint venture, trust,
unincorporated association, corporation, institution, governmental or regulatory
body or agency, any court or arbitrator, public benefit organization or other
entity (individually, a "Person") except for such consents as have been obtained
as of the date hereof;
(b) violate, conflict with, or result in a breach of any
provision of, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, or result in the termination
of, or acceleration under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of
Lumiscope under any of the terms, conditions or provisions of (x) Lumiscope's
charter or by-laws or (y) any contract, agreement, note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument or
obligation to which Lumiscope is a party or to which it or any of its properties
or assets may be subject; or
(c) violate any judgment, ruling, law, order, writ, injunction,
decree, statute, rule or regulation applicable to Lumiscope or any of its
properties or assets.
6.2.3 No notice to, filing with, or authorization, consent or
approval of, any Person is necessary for the consummation by Lumiscope of the
transactions contemplated by this Agreement and each of the Lumiscope Documents,
except where failures to give such notice, make such filings, or obtain
authorizations, consents or approvals would, in the aggregate, not have a
material adverse effect on the business, assets, properties, results of
operations, financial condition or prospects of Lumiscope taken as a whole.
-7-
<PAGE>
6.3 BROKERS. No broker, finder or investment banker is entitled to any
-------
brokerage, finder's or other fee or commission in connection with the
transactions contemplated herein based upon arrangements made by or on behalf of
Lumiscope.
7. - REPRESENTATIONS AND WARRANTIES OF GFI
- ------------------------------------------
To induce Lumiscope to enter into this agreement and to perform its
obligations hereunder, GFI represents and warrants to Lumiscope the following:
7.1 ORGANIZATION AND QUALIFICATION. GFI is a corporation duly organized,
------------------------------
validly existing and in good standing under the laws of the State of New York
and has the requisite corporate power and authority to own, operate and lease
its properties and assets and to carry on its businesses as it is now being
conducted. Copies of the Certificate of Incorporation and By-Laws of GFI were
delivered to Lumiscope prior to Closing and are accurate and complete as of the
date hereof and GFI is not in default in the performance, observation or
fulfillment of either its Certificate of Incorporation or of its By-Laws.
7.2 SUBSIDIARIES. Healthteam, Inc. and M.E. Team, Inc. are wholly-owned
------------
subsidiaries of GFI, are inactive and own no assets, except that M.E. Team, Inc.
owns two of the patents listed on Schedule 1.1.8 (the "M.E. Team Patents").
7.3 AUTHORITY RELATIVE TO AGREEMENTS.
--------------------------------
7.3.1 GFI has the requisite capacity, power and authority to enter
into this Agreement and all agreements, instruments, and certificates
contemplated by this Agreement to be executed by GFI (collectively the "GFI
Documents") and to perform its obligations hereunder and thereunder. The
execution and delivery of this Agreement and thereunder by GFI and the consumma-
tion by GFI of the transactions contemplated hereby and thereby have been duly
authorized by the Board of Directors of GFI. The approval of the stockholders
of GFI is not required. This Agreement and each of the GFI Documents have been
duly executed and delivered by GFI and, assuming due authorization, execution
and delivery by Lumiscope, constitutes a valid and binding obligation of GFI
enforceable against it in accordance with its terms, subject to applicable
bankruptcy and insolvency laws and similar laws affecting creditors' rights, and
subject as to enforceability to general principles of equity, regardless of
whether enforcement is sought at law or in equity.
7.3.2 Neither the execution and delivery of this Agreement by GFI and
the GFI Documents nor the consummation of the transactions contemplated hereby
or thereby nor compliance by it with any of the provisions hereof or thereof
will:
-8-
<PAGE>
(a) require the consent, approval, authorization or other order
of any Person;
(b) violate, conflict with, or result in a breach of any
provision of, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, or result in the termination
of, or acceleration under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of GFI
under any of the terms, conditions or provisions of (x) GFI's charter or by-laws
or (y) any contract, agreement, note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation to which GFI is a
party or to which it or any of its properties or assets may be subject; or
(c) violate any judgment, ruling, law, order, writ, injunction,
decree, statute, rule or regulation applicable to GFI or any of its properties
or assets.
7.3.3 No notice to, filing with, or authorization, consent or
approval of, any Person is necessary for the consummation by GFI of the
transactions contemplated by this Agreement and each of the GFI documents,
except where failures to give such notice, make such filings, or obtain
authorizations, consents or approvals would, in the aggregate, not have a
material adverse effect on the business, assets, properties, results of opera-
tions, financial condition or prospects of GFI taken as a whole.
7.4 LITIGATION; COMPLIANCE AND REQUIREMENTS OF LAW.
----------------------------------------------
7.4.1 Except as set forth on Schedule 7.4.1, there is no action or
proceeding or investigation pending or, to the best knowledge of GFI, threatened
against or involving GFI (or any of their officers and directors involving
business or affairs of GFI), or any properties or rights of GFI, which if
adversely determined would, individually or in the aggregate, have a material
adverse effect on the Gentle Expressions Product Line or the Gentle Expressions
Assets, or would prevent or delay the consummation of the transactions
contemplated herein, nor is GFI subject to any order, writ, injunction or decree
which would have such effect.
7.4.2 GFI has conducted its business so as to comply with all
applicable Requirements of Law relating to or affecting the operations, conduct
or ownership of the Assets, the failure to comply with which would, individually
or in the aggregate, have a material adverse effect on the Gentle Expressions
Product Line or the Assets. "Requirement of Law" shall mean (i) the charters or
by-laws or other organizational or governing documents of, or (ii) any statute,
law, treaty, rule, regulation or ordinance (including, without limitation,
environmental, pollution control, labor, antitrust, zoning and occupational
health and safety regulations) or any judgment, decree, injunction, order or
determination of any arbitrator or of any court or other governmental or
regulatory
-9-
<PAGE>
authority or agency, whether federal, state or local, domestic or foreign,
applicable to GFI.
7.4.3 There are no judgments, injunctions, orders or decrees
binding upon GFI which relate to the Assets or the Gentle Expressions Product
Line.
7.5 TITLE TO ASSETS; ENCUMBRANCES. GFI or, with respect to the M.E. Team
-----------------------------
Patents, M.E. Team, Inc., has good and marketable title to all of the Assets, in
each case, free and clear of all security interests, liens, encumbrances,
mortgages, pledges, equities, charges, assessments, easements, covenants,
restrictions, reservations, defects in title or other burdens (collectively,
"Claims"). None of the Assets are leased by GFI from a third party. All
Equipment used in the Gentle Expressions Product Line is owned by GFI and is
being sold or conveyed to Lumiscope pursuant to this Agreement, and all of the
Gentle Expressions Equipment is actually used by GFI in the operation of the
Gentle Expressions Product Line. GFI will convey to Lumiscope at Closing good
and marketable title to all the Assets, free and clear of the claims of any
third party.
7.6 CONDITION OF ASSETS.
-------------------
7.6.1 INVENTORY. All Inventory to be purchased by Lumiscope shall be
---------
free from defect and saleable in the ordinary course of business and shall
conform in all material respects to all applicable laws, rules, regulations,
restrictions and requirements of all governmental authorities having
jurisdiction thereof, including, without limitation, those pertaining to safety
and health.
7.6.2 EQUIPMENT. All Equipment is in good operating condition and
----------
repair, subject to normal wear and tear, and GFI has not received written notice
that same does not conform in any material respect with any applicable laws,
ordinances, rules, regulations, restrictions and requirements of any
governmental authorities having jurisdiction thereof, including, without
limitation, those pertaining to building, safety, fire and health.
7.7 COMPLIANCE WITH LAWS AND REGULATIONS. GFI has no franchise agreements
------------------------------------
and there are no permits necessary or required for Lumiscope to conduct the
business relating to the Gentle Expressions Product Line and to use the Assets,
except for the permits set forth on Schedule 2.1.6 hereto and except for
permits, the absence of which would not have material adverse effect on
Lumiscope's operation of such business. Such permits have been validly issued
and are in good standing and full force and effect. Complete, true and correct
copies of all such permits have been delivered to Lumiscope. GFI has filed all
reports or other documents required to be filed with all applicable governmental
bodies or agencies. GFI has not received any written notice with respect to the
Assets from any such governmental bodies or agencies
-10-
<PAGE>
or any insurance or inspection entities or any fire rating bureau (i) that any
of the Assets or business procedures or practices that relate to the Assets fail
to comply in any material respect with any applicable law, ordinance, regulation
or other requirement of any such body or bureau, or (ii) requiring any work,
repairs or construction.
7.7.1 NO CHANGES. Since December 31, 1995 there has not been any
----------
material adverse change in the business, including sales volumes, of the Gentle
Expressions Product Line.
7.8 TRADE NAMES. GFI owns the names listed on Schedule 1.1.8. No Person
-----------
has asserted any claim with respect to the use of any of the names, and GFI
knows of no valid basis for such a claim. To the best knowledge of GFI, the use
of the names does not infringe on the rights of any Person. To the best
knowledge of GFI, there are no infringements by any Person of the names.
7.9 PRODUCTS LIABILITY. Except as set forth in Schedule 7.9 attached
------------------
hereto, there are, and during the past five years there have been, no material
product liability claims by customers of GFI with respect to any Gentle
Expressions products now or previously sold by GFI, nor to the knowledge of GFI,
does there exist, or during the past five years (5) has there existed, any basis
therefor.
7.10 BROKERS. No broker, finder or investment banker is entitled to any
-------
brokerage, finder's or other fee or commission in connection with the
transactions contemplated herein based upon arrangements made by or on behalf of
GFI.
7.11 PATENTS AND TRADEMARKS. Except as disclosed in Schedule 2.1.8, all
----------------------
patents and trademarks are owned by GFI or M.E. Team, Inc. free and clear of any
and all licenses, liens, claims, pledges, encumbrances, charges, agreements,
options, or other arrangements or restrictions of any kind, and no licenses for
the use of any such patents and trademarks have been granted to any third
parties. No patents or trademarks owned or used by GFI or M.E. Team, Inc. are
subject to any outstanding order, degree, writ, judgment, stipulation, or
injunction. To the best knowledge of GFI the use of such patents and trademarks
and the Gentle Expressions Product Line as now conducted do not infringe in any
material way on or conflict with any registered patent, trademark, tradename,
copyright, license, or other rights, or invention, of any person. There is no
written demand by any Person pertaining to, or any proceedings, which have been
instituted or are pending or, to the best of GFI's knowledge, threatened with
respect to (i) the exclusive rights of GFI with respect to such patents and
trademarks, (ii) the right of GFI to use such patents and trademarks, (iii) any
alleged infringement or unlawful use of any of the patents and trademarks or
(iv) any alleged infringement or unlawful use by GFI with respect to the Gentle
Expressions Product Line of any registered trademark, tradename, copyright,
patent, license,
-11-
<PAGE>
formula, or trade secret owned by some Person or entity other than GFI.
7.12 CONTRACTS. The Contracts listed on Schedule 1.1.5 represent all of
---------
the material contracts, contract rights, sale and purchase orders and agreements
respecting the Gentle Expressions Product Line of which GFI is a party or by
which GFI or any of the Assets may be bound. GFI has delivered to Lumiscope
complete, true and correct copies of all of the Contracts. Except as set forth
on Schedule 1.1.5, all Contracts are valid and in full force and effect and, to
the best knowledge of GFI, neither GFI nor any other party thereto is in default
in any material respect under any of the terms of the Contracts. Neither the
execution and delivery of this Agreement nor the consummation of any of the
transactions contemplated hereby, nor compliance with the terms and provisions
hereof, will result in the creation or imposition of any lien upon any of the
Assets, or conflict in any way with the provisions of, or result in a breach of,
or termination of, or a default or acceleration of, any obligation thereunder.
None of the Contracts requires the consent of any person to permit the
consummation of the transactions contemplated by this Agreement, except as set
forth on Schedule 1.1.5, which consent(s) shall be duly obtained by GFI prior to
the Closing.
8. - THE CLOSING
- ----------------
8.1 CLOSING; CLOSING DATE. The closing of the transactions contemplated
---------------------
herein (the "Closing") shall be held at the offices of Greenbaum, Rowe, Smith,
Ravin & Davis, 99 Wood Avenue South, Iselin, New Jersey on the date hereof (the
"Closing Date").
8.2 TRANSACTIONS AT CLOSING. At the Closing, the following transactions
-----------------------
shall occur, all of which shall be deemed to occur simultaneously:
8.2.1 Lumiscope shall deliver or cause to be delivered to GFI, each
in form reasonably satisfactory to GFI and its counsel:
(a) the Purchase Price, including the Note and the Target Note,
as set forth in Section 3 hereof;
(b) the Non-Competition Agreement between Lumiscope and GFI;
(c) the Supply Agreement;
(d) a Certificate of Good Standing from the Secretary of State
of New York with respect to Lumiscope;
(e) a certified copy of the resolutions of the directors of
Lumiscope authorizing the execution, delivery and
-12-
<PAGE>
performance of this Agreement and the Lumiscope Documents and the transactions
contemplated herein and therein;
(f) a Closing Statement;
(g) the opinion of Greenbaum, Rowe, Smith, Ravin & Davis, in a
form satisfactory to GFI and its counsel; and
(h) the opinion of Stein & Garr, counsel to Allen J. Beeber, in
a form satisfactory to GFI and its counsel.
(i) such other documents as may be necessary to complete the
transaction contemplated by this Agreement.
8.2.2 GFI shall deliver or cause to be delivered to Lumiscope each in
form reasonably satisfactory to Lumiscope and its counsel:
(a) A Bill of Sale conveying and transferring to Lumiscope the
Assets;
(b) the Non-Competition Agreement between Lumiscope and GFI;
(c) the Supply Agreement;
(d) an Assignment and Assumption Agreement with respect to the
Gentle Expressions Contracts;
(e) a certificate of insurance naming Lumiscope an additional
insured on GFI's product liability insurance;
(f) a Certificate of Good Standing from the Secretary of State
of New York with respect to GFI;
(g) a certified copy of the resolutions of the directors of GFI
authorizing the execution, delivery and performance of this Agreement and the
GFI Documents and the transactions contemplated herein and therein;
(h) a Closing Statement, including the calculation of the Gentle
Expressions Inventory purchase price;
(i) the opinion of GFI's counsel in a form reasonably
satisfactory to Lumiscope and Greenbaum, Rowe, Smith, Ravin & Davis; and
(j) such other documents as may be necessary to complete the
transaction contemplated by this Agreement.
-13-
<PAGE>
9. INDEMNIFICATION
- ------------------
9.1 SURVIVAL. All representations made in this Agreement shall survive
--------
the Closing for two (2) years, notwithstanding any assumption to the contrary
implied by law.
9.2 INDEMNIFICATION.
---------------
9.2.1 BY LUMISCOPE. Lumiscope hereby agrees to indemnify GFI
------------
against, and agrees to pay and hold harmless GFI for all liabilities,
obligations, losses, damages, penalties, claims, actions, suits, judgments,
settlements, out-of-pocket costs, expenses and disbursements (including
reasonable costs of investigation, and reasonable attorney's, accountant's, and
expert witnesses' fees), of whatsoever kind and nature that are imposed on or
incurred by GFI as a consequence of or in connection with (a) any
misrepresentation by Lumiscope herein, (b) any of Lumiscope's liabilities
arising from Lumiscope's operation of the Gentle Expressions Product Line after
the Closing Date, and including the liabilities assumed pursuant to Section 2.1,
(c) any breach by Lumiscope of a warranty contained herein, or (d) any failure
by Lumiscope to perform any agreement or covenant of Lumiscope contained herein
or in the Lumiscope Documents.
9.2.2 BY GFI. GFI hereby agrees to indemnify Lumiscope against,
------
and agree to pay and hold harmless Lumiscope for all liabilities, obligations,
losses, damages, penalties, claims, actions, suits, judgments, settlements, out-
of-pocket costs, expenses and disbursements (including reasonable costs of
investigation, and reasonable attorney's, accountant's, and expert witnesses'
fees), of whatsoever kind and nature that are imposed on or incurred by
Lumiscope as a consequence of or in connection with (a) any misrepresentation by
GFI herein, (b) any of GFI's liabilities, known or unknown, liquidated or
unliquidated, not expressly assumed by Lumiscope hereunder, (c) any breach by
GFI of a warranty contained herein, or (d) any failure by GFI to perform any
agreement or covenant of GFI contained herein or in the GFI Documents.
9.3 DETERMINATION OF DAMAGES AND RELATED MATTERS. In calculating any
---------------------------------------------
amount payable to Lumiscope pursuant to Paragraph 9.2.2 or payable to GFI
pursuant to Paragraph 9.2.1, GFI or Lumiscope, as the case may be, shall receive
credit for (i) any tax benefit allowable as a result of the claim giving rise to
the indemnification, and (ii) any insurance recoveries (exclusive of product
liability insurance under policies owned by the indemnified party). However,
the indemnity shall include interest at the Prime Rate from the date a valid
claim is made pursuant to Section 9.5 until paid. Except as specifically set
forth in this Agreement, neither party (including its representatives) has made,
or shall have liability for, any representation or warranty, express or implied,
in connection with the transactions contemplated by this
-14-
<PAGE>
Agreement, including in the case of GFI and its representatives any represen-
tation or warranty, express or implied, as to the accuracy or completeness of
any information regarding the Assets and the Gentle Expressions Product Line.
Lumiscope acknowledges and agrees that Lumiscope and its representatives have
the experience and knowledge to evaluate the business, financial condition,
assets and liabilities of the Gentle Expressions Product Line, and that
Lumiscope and its representatives have had access to the information and
documents referred to in this Agreement as Lumiscope and its representatives
requested to see and/or review, that Lumiscope and its representatives have had
a full opportunity to meet with appropriate management and employees of GFI to
discuss the Assets and the Gentle Expressions Product Line; and that, in
determining to acquire the Assets and Gentle Expressions Product Line, Lumiscope
has made its own investigation into, and based thereon Lumiscope has formed an
independent judgment concerning, the Assets and the Gentle Expressions Product
Line.
9.4 LIMITATION ON INDEMNIFICATION LIABILITIES. The indemnifications
------------------------------------------
contained in Paragraph 9.2 hereof shall not be effective until the aggregate
dollar amount of all damages indemnified against by the applicable indemnifying
party exceeds $20,000. To the extent the indemnification does then become
effective, the indemnifying party shall be responsible only for $10,000 of such
$20,000 and for all amounts above $20,000. This paragraph does not apply to
claims for returns of Non-Salable Inventory under Section 5.2 or the Walgreen
advertising allowance under Section 5.4.
9.5 NOTICE OF INDEMNIFICATION. In the event any legal proceeding shall be
--------------------------
threatened or instituted or any claim or demand shall be asserted by any person
in respect of which payment may be sought by one party hereto from the other
party under the provisions of Section 9.2 or for breach of any of the
provisions of this Section 9.2 or for breach of any of the representations and
warranties set forth herein, the party seeking indemnification (the
"Indemnitee") shall promptly cause written notice of the assertion of any such
claim of which it has knowledge which is covered by this indemnity to be
forwarded to the other party (the "Indemnitor" which notice must be received by
the Indemnitor prior to the expiration of two years after the Closing Date. By
notice of a claim by reason of any of the representations, warranties or
covenants contained in this Agreement shall state specifically the
representation, warranty or covenant with respect to which the claim is made,
the facts giving rise to an alleged basis for the claim, and the amount of the
liability asserted against the Indemnitor by reason of the claim.
9.6 INDEMNIFICATION PROCEDURE FOR THIRD-PARTY CLAIMS. As otherwise
-------------------------------------------------
provided herein, in the event of the initiation of any legal proceeding against
an Indemnitee by a third party, the Indemnitor shall have the absolute right
after the receipt of notice, at its option and at its own expense, to be
represented by
-15-
<PAGE>
counsel of its choice, and if the Indemnitor agrees in writing to be bound by
and to promptly pay the full amount of any final judgment from which no further
appeal may be taken, to defend against, negotiate, settle (but only with the
consent of the Indemnitee, which consent shall not be unreasonably withheld, in
the case of any settlement that provides for any relief other than the payment
of monetary damages or that provides for the payment of monetary damages as to
which the Indemnitee Party will not be indemnified in full by reason of Section
9.2), or otherwise deal with any proceeding, claim, or demand which relates to
any loss, liability or damage Indemnified against hereunder; provided, however,
------------------
that the Indemnitee may participate in any such proceeding with counsel of its
choice and at its own expense. The parties hereto agree to cooperate fully with
each other in connection with the defense, negotIation or settlement or any such
legal proceeding, claim or demand. To the extent the Indemnitor elects not to
defend such proceeding, claim or demand, and the Indemnitee defends against or
otherwise deals with any such proceeding, claim or demand, the Indemnitee may
retain counsel, at the expense of the Indemnitor, and control the defense of
such proceeding. If the Indemnitee shall settle any such proceeding without the
consent of the Indemnitor, which consent shall not be unreasonably withheld, the
Indemnitee shall thereafter have no claim against the Indemnitor under this
Article 9 with respect to any loss, liability, claim, obligation, damage and
expense occasioned by such settlement.
10. MISCELLANEOUS
- -----------------
10.1 NOTICES. All notices and other communications hereunder shall be in
-------
writing and shall be deemed to have been duly given if delivered personally or
sent by (a) certified mail, return receipt requested, (b) reputable overnight
delivery service, or (c) telecopier, to the parties at the following addresses
or at such other addresses as shall be specified by the parties by like notice:
If to GFI: 400 Rabro Drive East
Hauppauge, New York 11788
telecopier: (516) 582-5608
With a copy to: Richard S. Kolodny, Esq.
Vice President, General Counsel
Graham-Field, Inc.
400 Rabro Drive East
Hauppauge, New York 11788
telecopier: (516) 582-5608
-16-
<PAGE>
If to Lumiscope: Mr. Allen J. Beeber
The Lumiscope Company, Inc.
400 Raritan Center Parkway
Edison, New Jersey 07095
telecopier: (908) 225-7047
With a copy to: Greenbaum, Rowe, Smith,
Ravin & Davis
Metro Corporate Campus I
99 Wood Avenue South
P.O. Box 5600
Woodbridge, New Jersey 07095
Attention: W. Raymond Felton, Esq.
telecopier: (908) 549-1881
10.2 GENDER AND NUMBER. In all references herein to any parties, persons,
-----------------
entities or corporations, the use of any particular gender, or the plural or
singular number is intended to include the appropriate gender and number as the
text of the within Agreement may require.
10.3 SEPARABILITY. The invalidity or unenforceability of any provision of
------------
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
10.4 CAPTIONS. The captions used herein are inserted for convenience of
--------
reference only and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement.
10.5 PARTIES IN INTEREST. This Agreement shall be binding upon and inure
-------------------
solely to the benefit of the parties hereto and their successors and permitted
assigns, if any, and nothing in this Agreement, express or implied, is intended
to confer upon any other Person any right or remedies of any nature whatsoever
under or by reason of this Agreement.
10.6 FURTHER ASSURANCES. From time to time after the Closing Date, at the
-------------------
reasonable request of Lumiscope and without further consideration, GFI shall
execute and deliver such further instruments of sale, assignment, assumption,
transfer and conveyance and take such further action as Lumiscope may reasonably
request in order to vest in Lumiscope and put Lumiscope in possession of the
Assets and to transfer to Lumiscope any contracts and rights of GFI relating to
the Assets and assure to Lumiscope the benefits thereof, and, at the reasonable
request of GFI, to give effect to Lumiscope's assumption of the Assumed
Liabilities. In addition, from and after the Closing Date, Lumiscope shall use
its reasonable efforts to aid GFI in the collection of its accounts receivable
arising from the sale of Gentle Expressions products prior to the
-17-
<PAGE>
Closing Date; provided, however, Lumiscope shall not be required to suspend
-------- -------
deliveries to any customer in connection with its efforts to assist in the
collection of the accounts receivable or take any legal action against the
obligor thereunder.
10.7 JOINT POST-CLOSING COVENANT OF GFI AND LUMISCOPE. GFI and Lumiscope
-------------------------------------------------
jointly covenant and agree that, from and after the Closing Date, (GFI and
Lumiscope will provide, to the extent possible, substantiation of transactions
and to make available and furnish appropriate documents and personnel in
connection with any action, suit, proceeding, investigation or audit of the
other relating to (a) the preparation and audit of GFI's and Lumiscope's tax
returns for all periods up to and including the closing Date, and (b) any audit
of Lumiscope and/or GFI with respect to the sales, transfer and similar taxes
imposed by the laws of any state, in each case relating to the transactions
contemplated by this Agreement.
10.8 BOOKS AND RECORDS; PERSONNEL. For a period of seven years after the
-----------------------------
Closing Date (or such longer period as may be required by any governmental body
or ongoing legal proceeding):
(a) Neither party shall dispose of or destroy any of the business
records and files of or relating to the Assets which are in its possession. If
either party wishes to dispose of or destroy such records and files after that
time, it shall first give 30 days prior written notice to the other party and
the other party shall have the right, at its option and expense, upon prior
written notice within such 30 day period, to take possession of the records and
files within 60 days after the date of such notice.
(b) Each party shall allow the other and its representatives access
to all business records and files relating to the Assets which are in its
possession during regular business hours and upon reasonable notice at such
party's principal place of business or at any location where such records are
stored, and each party shall have the right, at its own expense, to make copies
of any such records and files, provided, however, that any such access or
------------------
copying shall be had or done in such a manner so as not to interfere with the
normal conduct of such party's business or operations.
(c) Each party shall make available to the other, upon written
request and at such other party's expense, its personnel to assist the other
party in locating and obtaining records and files maintained by it in
anticipation of, or preparation far, existing or future litigation, arbitration,
administrative proceeding, tax return preparation or other matters in which it
or any of its affiliates is involved and which is related to the Gentle
Expressions Assets.
10.9 TRANSFER TAXES. GFI shall pay all transfer and documentary taxes and
---------------
fees imposed with respect to instruments of
-18-
<PAGE>
conveyance in the transaction contemplated hereby and Lumiscope shall pay all
sales, use, gains, excise and other transfer or similar taxes on the transfer of
the Assets contemplated hereunder. Lumiscope or GFI, as the case may be, shall
execute and deliver to the other at the Closing any certificates or other
documents as the other may reasonably request to perfect any exemption from any
such transfer, documentary, sales, gains, excise or use tax.
10.10 EXPENSES. Each of the parties hereto shall bear its own expenses
---------
(including, without limitation, fees and disbursements of its counsel,
accountants and other experts), incurred by it in connection with the
preparation, negotiation, execution, delivery and performance of this Agreement,
each of the other documents and instruments executed in connection with or
contemplated by this Agreement and the consummation of the transactions
contemplated hereby and thereby.
10.11 SCHEDULES AND EXHIBITS. All Schedules and Exhibits annexed hereto
----------------------
are hereby incorporated by reference into, and made a part of, this Agreement.
10.12 NUMBER OF DAYS. In computing the number of days for purposes of
--------------
this Agreement, all days shall be counted, including Saturdays, Sundays and
holidays; provided, however, that if the final day of any time period falls on a
Saturday, Sunday, or holiday, then the final day shall be deemed to be the next
day which is not a Saturday, Sunday or holiday.
10.13 AMENDMENT. This Agreement may not be amended except by an
---------
instrument signed in writing on behalf of each of the parties hereto.
10.14 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
----------------
between the parties hereto and supersedes all other Agreements, written and
oral, among the parties or any of them with respect to the subject matter
hereof.
10.15 GOVERNING LAW. This Agreement shall be governed in all respects,
-------------
including validity, interpretation and effect, by the laws of the State of New
York, without giving effect to the principles of conflicts of laws thereof.
10.16 COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts all of which shall together constitute one and the same instrument.
10.17. PUBLIC DISCLOSURE. Lumiscope acknowledges that GFI must make a
-----------------
public announcement of the transactions contemplated by this Agreement and file
a copy of this Agreement and any ancillary agreements with the Security and
Exchange Commission on Form 8-K.
-19-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this agreement as of
the date first above written.
THE LUMISCOPE COMPANY, INC.
By: /s/ Allen J. Beeber
-------------------------------------
Allen J. Beeber
President
GRAHAM-FIELD, INC.
By: /s/ Gary M. Jacobs
-------------------------------------
Gary M. Jacobs
Vice President and Chief
Financial Officer
-20-
EXHIBIT 10 (ii)
LEASE AGREEMENT BY
AND BETWEEN
BMS ASSOCIATES
(LESSOR)
AND
GRAHAM-FIELD, INC.
(LESSEE)
DATED: February 7, 1996
<PAGE>
THIS LEASE, made this 7th day of February, 1996, between BMS ASSOCIATES,
a partnership of the State of New Jersey, whose mailing address is P.O. Box
603, New York, New York 10024 (hereinafter called "Lessor") and GRAHAM-FIELD,
INC., a corporation of the State of New York, whose mailing address is 400
Rabro Drive, Hauppauge, New York 11788 (hereinafter called "Lessee").
REFERENCE PAGE
BASIC LEASE PROVISIONS AND DEFINITIONS
In addition to other terms elsewhere defined in this Lease, the following
terms whenever used in this Lease should have only the meanings set forth
in this section, unless such meanings are expressly modified, limited or
expanded elsewhere herein.
1. "Additional Rent" shall mean, all sums in addition to Basic Rent
payable by Lessee to Lessor pursuant to the provisions of this Lease.
2. "Broker" shall mean, Grubb & Ellis.
3. "Commencement Date" is February 7, 1996.
4. "Demised Premises" or "Premises" shall mean, 51,459.13 square
feet of space at 525 Main Street, Belleville, New Jersey as shown on Schedule
"A" attached hereto.
5. "Basic Rent" shall mean, the minimum amount payable as follows:
Yearly Rate: $159,523.30
Monthly Installment: $ 13,293.61
6. "Permitted Use" shall be for distributing, marketing, selling
and repackaging of medical surgical supplies and other health care products
and, provided the consent of Lessor is obtained which consent shall not be
unreasonably withheld, any other lawful use.
7. "Term" shall mean five (5) months and twenty-three (23) days from
the Commencement Date unless extended pursuant to the option contained in
paragraph 52 hereof.
<PAGE>
8. "Termination Date" shall be July 31, 1996.
9. "Building" shall mean, 525 Main Street, Belleville, New
Jersey.
10. "Building Area" shall mean, the Building, other buildings, land
and improvements which comprise the property commonly known as 525 Main Street,
Belleville, New Jersey, as shown on Schedule A-1.
11. "Lessee's Percentage" shall mean: 25.68%, subject to adjustment
as set forth in Paragraph 36B.
The following Exhibits attached to this Lease are incorporated herein and
made a part hereof.
Schedule A . . . . . . . Premises
Schedule A-1 . . . . . . Building Area
<PAGE>
For and in consideration of the covenants herein contained, and
upon the terms and conditions herein set forth, Lessor and Lessee
agree as follows:
1. DESCRIPTION. Lessor hereby leases to Lessee, and Lessee
hereby hires from Lessor, the Demised Premises as defined on the
Reference Page (hereinafter call "Demised Premises" or "Premises")
as shown on the plan or plans, initialed by the parties hereto, marked
Schedule "A" attached hereto and made part of this Lease in the
Building as defined on the Reference Page which is situated on that
certain parcel of land (hereinafter called "Building Area") as described
on the Reference Page, together with the right to use in common with
other tenants the Building common driveway. Lessee's occupancy of the
Demised Premises shall include a minimum of fifteen (15) spaces. Lessor
shall not be responsible for any damage or theft of any vehicle in
the parking area and shall not be required to keep parking spaces
clear of unauthorized vehicles or to otherwise supervise the use of
the parking area.
2. TERM. The Premises are leased for the Term to commence on the
Commencement Date and to end at 12:00 midnight on the Termination Date,
all as defined on the Reference Page. The Term of this Lease with respect
to the Interior Space shall end on the date specified in a notice made by
either party in accordance with Paragraph 56 hereof.
3. BASIC RENT.
A. The Lessee shall pay to the Lessor during the Term
basic rent as defined on the Reference Page (hereinafter "Basic Rent")
payable in such coin or currency of the United States of America as at
the time of payment shall be legal tender for the payment of public and
private debts. The Basic Rent shall accrue at the Yearly Rate as
defined on the Reference Page and shall be payable in advance on the
first day of each calendar month during the Term at the Monthly Installments
as defined on the Reference Page, each, except that a proportionately lesser
sum may be paid for the first and last months of the Term of this Lease if
the Term commences on a day other than the first day of the month, in
accordance with the provisions of this Lease herein set forth.
Lessor acknowledges receipt from Lessee of the Lessee's
check, subject to collection, for Basic Rent for the month of February, 1996.
Except as expressly provided herein to the contrary, Lessee shall pay Basic
Rent, and any "Additional Rent" as hereinafter
<PAGE>
provided, to Lessor at Lessor's above stated address, or at such other place
as Lessor may designate in writing, without demand and without counterclaim,
deduction or setoff. Additional Rent as used in this Lease shall mean any
charges, costs, expenses, additional rent or other monies payable by Lessee
hereunder.
B. The Basic Rent and Additional Rent shall be paid to
Landlord without notice or demand and without abatement, deduction
or setoff.
4. USE AND OCCUPANCY. Lessee shall use and occupy the Premises only
for the Permitted Use as defined on the Reference Page.
5. CARE AND REPAIR OF PREMISES.
A. (i) Throughout the Term of this Lease, Lessee, at its sole
cost and expense, shall perform normal maintenance and repair of the Demised
Premises, including, but not limited to, plumbing, sprinklers, electrical
systems, doors, dock levellers, interior painting, parking area, driveways and
fences, all alleyways and passageways and the sidewalks, curbs, lawns and vaults
adjoining the same and shall keep the same in good order and condition, except
for reasonable wear and tear after the last necessary repair, replacement,
restoration or renewal made by Lessee pursuant to its obligations hereunder,
and make all necessary repairs thereto, interior and exterior, ordinary and
extraordinary, and foreseen and unforeseen. All repairs made by Lessee shall
be made in a workmanlike fashion; (ii) Lessee's responsibility pursuant to this
Paragraph 5A and for maintaining the Heating System pursuant to Paragraph 5(F)
shall be limited to $750 during the Term and $750 during the Renewal Term
($1,500 overall) if the Renewal Option is exercised.
B. Lessee shall put, keep and maintain all portions of the
Demised Premises and the lawns, alleyways, parking area, driveways and
passageways adjoining the same in a clean and orderly condition, free of dirt,
rubbish, snow, ice and unlawful obstructions.
C. The Lessor shall make, at its own cost and expense, all
necessary repairs to the roof, structure and foundation of the Premises, unless
the exterior of the said Premises or the roof, structure or foundation have been
damaged by the Lessee, its agents, servants or employees, in which event the
Lessee, at its own cost and expense, shall make the necessary repairs and shall
perform all other repairs of the Premises which are not the responsibility of
Lessee pursuant to paragraph 5A above.
D. Lessee shall not, during the Term hereof, commit any act or
omission to act (i.e. leaving doors open) which would allow the
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sprinkler and plumbing systems to freeze.
E. Not later than the last day of the term, Lessee shall, at
Lessee's expense, remove all Lessee's personal property and those improvements
made by Lessee which have not become the property of Lessor, including trade
fixtures, cabinetwork, movable paneling, partitions and the like; repair all
injury done by or in connection with the installation or removal of said
property and improvements; and surrender the Premises in as good condition
as they were at the beginning of the term, reasonable wear and damage by
fire, the elements, casualty, or other cause not due to the misuse
or neglect by Lessee, Lessee's agents, servants, visitors or licensees
excepted. All other property of Lessee remaining on the Premises after the
last day of the term of this Lease shall be conclusively deemed abandoned and
may be removed by Lessor, and Lessee shall reimburse Lessor for the cost of
such removal, if Lessee fails to remove same within five (5) days written
notice from Lessor. Lessor may have any such property store at Lessee's risk
and expense.
F. The Premises and the adjacent premises in the Building share
one heating system ("Heating System"). The Lessee shall pay as Additional Rent,
53.27% of the cost of utilities consumed by the Heating System and 53.27% of
the cost of normal maintenance and repair of the Heating System. All payments
made by the Lessee pursuant to this paragraph 5F shall be Additional Rent and
shall be paid by Lessee within ten (10) days of demand. Lessor shall cause
copies of the utility bills for operation of the Heating System to be
provided to Lessee.
6. ALTERATIONS, ADDITIONS OR IMPROVEMENTS. No alterations, additions
or improvements shall be made, and no climate regulating, air conditioning,
cooling, heating or sprinkler systems, television or radio antennas, heavy
equipment, apparatus and fixtures, shall be installed in or attached to the
leased Premises without the written consent of the Lessor which shall not
be unreasonably withheld. Unless otherwise provided herein, all such
alterations, additions or improvements and systems, when made, installed in or
attached to-the said Premises, except movable trade fixtures, shall belong to
and become the property of the Lessor and shall be surrendered with the
Premises and as part thereof upon the expiration or sooner termination of this
Lease, without hindrance, molestation or injury. Lessee shall have and retain
the ownership of and title to all decorations, removable installations,
furnishings, business equipment, and fixtures from time to time furnished and
installed by Lessee, at the Lessee's sole expense, all of which Lessee shall
remove at any time during the term of this Lease, or any renewal or extension
thereof, provided that Lessee shall at Lessee's expense fully repair any and
all damage to
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the Demised Premises caused by any such removal.
7. ACTIVITIES INCREASING FIRE INSURANCE RATES. Lessee shall not do or
suffer anything to be done on the Premises which will increase the rate of
fire insurance on the Premises or Building, it being understood for purposes
of this Paragraph 7 that Lessee shall not be responsible for any increase in
insurance premiums as a result of using the Premises for distributing,
marketing, selling and repackaging medical surgical supplies and other health
care products.
8. ASSIGNMENT AND SUBLEASE.
A. Lessee may not assign this Lease or sublet all or a part of the
Premises without the written consent of Lessor which consent shall not be
unreasonably withheld. Lessee agrees that no such assignment or subletting
shall be effective unless and until Lessee gives Lessor written notice thereof,
together with a true copy of the assignment or of the sublease.
Notwithstanding the foregoing, Lessee may sublet the Premises or any portion
thereof to an affiliated company of Lessee.
B. Lessee shall not encumber the Lease without the prior written
consent of Lessor.
C. Any permitted subletting or assignment hereunder by Lessee shall
not result in Lessee being released or discharged from any liability under this
Lease. An assignee shall agree in writing to comply with and be bound by all the
terms, covenants, conditions, provisions and agreements of this Lease. The
sub-tenant shall agree in writing that the sublease is subordinate and subject
to this Lease. Lessee shall deliver to Lessor, promptly after execution, an
executed copy of each sublease or assignment and an agreement of said compliance
by each sublease or assignee.
D. The Lessee and each assignee shall promptly pay to Lessor any
consideration received for any assignment and in the event of a sublease, all
of the rent, as and when received, in excess of the rent required to be paid
by Lessee for the area sublet, computed on the basis of an average square
foot rent for the gross square footage Lessee has leased.
E. Lessor's consent to any sale, assignment, encumbrance,
subletting, occupation, liens or other transfers of this Lease, shall not
release Lessee from any of Lessee's obligations hereunder or be deemed to be
a consent to any subsequent of such occurrence. Any sale, assignment,
encumbrance, subletting, occupation, lien or other transfers of this Lease which
does not comply with the provisions of this paragraph 8 shall be void and
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shall be a default hereunder.
F. Lessee acknowledges that its sole remedy with respect to any
assertion that Lessor's failure to consent to any sublet or assignment is in
breach of this Lease shall be the remedy of specific performance, and Lessee
shall have no other claim or cause of action against Lessor as a result of
Lessor's actions in refusing to consent thereto.
9. COMPLIANCE WITH LAW.
A. The Lessee covenants and agrees that upon acceptance and
occupancy of the Premises, it will during the lease term, promptly, at
Lessee's cost and expense, execute and comply with all material statutes,
ordinances, rules, orders, regulations and requirements of the Federal, State
and Municipal governments and of any and all their instrumentalities,
departments and bureaus, applicable to the Premises.
B. The Lessee covenants and agrees, at its own cost and expense,
to comply with such regulations or requests as may be required by the fire or
liability insurance carriers providing insurance for the Premises, and will
further comply with such other requirements that may be promulgated by the
Board of Fire Underwriters, in connection with the use and occupancy by the
Lessee of the Premises in the conduct of its business.
C. The Lessee covenants and agrees that it will not commit any
nuisance, nor permit the emission of any objectionable sound, noise or odors
which would be violative of any applicable governmental rule or regulation or
would per se create a nuisance. The Lessee further covenants and agrees that
it will handle and dispose of all rubbish, garbage and waste in connection
with the Lessee's operations in the Premises in accordance with reasonable
regulations established by the Lessor from time to time in order to keep the
Premises in an orderly condition and in order to avoid unreasonable emission
of dirt, fumes, odors or debris which may constitute a nuisance or induce
pests or vermin.
D. In case the Lessee shall fail or neglect to comply with the
aforesaid statutes, ordinances, rules, orders, regulations and requirements or
any of them, or in case the Lessee shall neglect or fail to make any necessary
repairs, then the Lessor or the Lessor's agents may after thirty (30) days'
notice unless such compliance or repair is of a nature that cannot be
completed within thirty (30) days provided Lessee is diligently prosecuting
such repair (except for emergency repairs, which may be made immediately)
enter the Premises and make said repairs and comply
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with any and all of the said statutes, ordinances, rules, orders, regulations
or requirements, at the cost and expense of the Lessee and in case of the
Lessee's failure to pay therefor, the said cost and expense shall be added to
the next month's rent and be due and payable as such. This provision is in
addition to the right of Lessor to terminate this Lease by reason of any
default on the part of Lessee, subject to the rights of Lessee as hereinabove
mentioned in the manner as in this Lease otherwise provided.
E. Lessor represents to Lessee that, as of the date hereof, it
has no knowledge that the Premises are in violation of any laws, orders,
ordinances and regulations of federal, state, county and municipal authorities
having jurisdiction thereof.
10. DAMAGES TO BUILDING.
A. In case of any damage to or destruction of any portion of the
Building of which the Premises is a part by fire or other casualty occurring
during the term of this Lease (or previous thereto), which shall render one-
third (1/3) or more of the Premises untenantable or unfit for occupancy (the
foregoing shall be called "Total Destruction") then, and in such event,
the term hereby created shall, at the option of either party, upon written
notice to the other by certified mail, return receipt requested, within
fifteen (15) days of such fire or casualty, cease and become null and void
from the date of such Total Destruction. In such event the Lessee shall
immediately surrender the Premises and the Lessee's interest in said Lease,
to the Lessor, and the Lessee shall only pay rent to the time of such Total
Destruction in which event, the Lessor may re-enter and re-possess the
Premises thus discharged from this Lease and may remove all parties
therefrom. However, in the event of Total Destruction of the Premises as
hereinbefore defined, if neither party shall elect not to cancel this Lease
within fifteen (15) day period hereinabove provided, the Lessor shall
thereupon repair and restore the Demised Premises with reasonable speed and
dispatch, and the rent shall be abated after said damage or while the repairs
and restorations are being made.
B. In the event of any other casualty which shall not be
tantamount to Total Destruction the Lessor shall repair and restore the Demised
Premises with reasonable speed and dispatch, and the rent shall be abated
proportionately.
C. In the event of such fire or casualty as above provided
wherein the Lessor shall rebuild, the Lessee agrees, at its cost and expense, to
forthwith remove any and all of its equipment, fixtures, stock and personal
property as the same may be required to permit Lessor to expedite rebuilding
and/or repair. In any event,
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the Lessee shall assume at its sole risk the responsibility for damage or
security with respect to such fixtures and equipment in the event the
Building Area where the same may be located has been damaged so that the said
Building Area is not secure.
D. The Lessee agrees that the said Lessor's agents, and
other representatives, shall have the right to enter into and upon the
Premises, or any part thereof, at all reasonable hours for the purpose of
examining the same upon reasonable advance notice of not less than twenty-
four (24) hours (except in the event of emergency), or making such repairs or
alterations therein as may be necessary for the safety and preservation
thereof, or to repair and maintain the common utilities without unduly or
unreasonably disturbing the operations of the Lessee (except in the event of
emergency).
11. EMINENT DOMAIN. If Lessee's use of the Premises is materially
adversely affected due to the taking by eminent domain of the Premises or any
part thereof or any estate therein, then in such event, this Lease shall
terminate on the date when title vests pursuant to such taking. The Basic
Rent, and any Additional Rent, shall be apportioned as of said termination
date and any Basic or Additional Rent paid for any period beyond said date
shall be repaid to Lessee. Lessee shall not be entitled to any part of the
award for such taking or any payment in lieu thereof, but Lessee may file
separate claim, including but not limited to, for any taking of fixtures and
improvements owned by Lessee which have not become the Lessor's property,
and for moving expense, provided the same shall in no way affect or diminish
Lessor's award. In the event of a partial taking which does not effect a
termination of this Lease but does deprive Lessee of the use of a
portion of the Premises there shall either be an abatement or an equitable
reduction of the Basic Rent, and an equitable adjustment reducing the
Additional Rent on the period for which and the extent to which the Premises
so taken are not reasonably usable for the purpose for which they are leased
hereunder.
12. INSOLVENCY OF LESSEE. Either (a) the appointment of a receiver to
take possession of all or substantially all of the assets of Lessee, or (b) a
general assignment by Lessee for the benefit of creditors, or (c) any action
taken or suffered by Lessee under any insolvency or bankruptcy act, shall
constitute a default of this Lease by Lessee, and Lessor may terminate this
Lease forthwith and, upon notice of such termination, Lessee's right to
possession of the Premises shall cease, and Lessee shall then quit and
surrender the Premises to Lessor but Lessee shall remain liable as
hereinafter provided in Paragraph 14 hereof.
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13. LESSOR'S REMEDIES ON DEFAULT.
A. Each of the following shall be deemed a default by Lessee and
a breach of the Lease:
(i) The payment of the Basic Rent or Additional Rent
herein reserved or any part thereof is not paid within ten (10) days of when the
same is due and payable as in this Lease required.
(ii) A default in the performance of any other covenant
or condition of this Lease on the part of the Lessee to be performed for a
period of thirty (30) days after notice (it being intended in connection with
a default not susceptible of being cured with due diligence within said thirty
(30) day period that the time of Lessee within which to cure the same shall be
extended for such periods as may be necessary to complete the same with all due
diligence).
(iii) A breach of Paragraph 12 hereof.
B. In case of any such default under subparagraph 13(A), at any
time following the expiration of the respective grace periods above mentioned,
Lessor may serve a notice upon the Lessee electing to terminate this Lease
upon a specified date set forth therein and this Lease shall then expire on
the date so specified as if that date had been originally fixed as the
expiration date of the term herein granted.
C. In case this Lease shall be terminated as hereinbefore
provided, or by summary proceedings or otherwise, Lessor or its agents may,
immediately or any time thereafter, re-enter and resume possession of the
Premises or such part thereof, and remove all persons and property therefrom,
either by summary proceedings or any damages therefor. No re-entry by Lessor
shall be deemed an acceptance of or surrender of this Lease.
D. In case this Lease shall be terminated as herein provided, or
by summary proceedings or otherwise, Lessor may, in its own name and in its own
behalf, relet the whole or any portion of the Premises, for any period equal
to or greater or less than the remainder of the then current terms, for any
sum which it may deem reasonable, to any tenant which it may deem suitable
and satisfactory and in connection with any such lease Lessor may make such
changes in the character of the improvements on the Premises as Lessor may
determine to be appropriate or helpful in effecting such lease and may grant
concessions or free rent. Lessor shall not in any event be required to pay
Lessee any surplus of any sums received by Lessor on
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a reletting of the Premises in excess of the rent reserved in this Lease.
14. DEFICIENCY. In any case where Lessor has recovered possession of
the Premises by reason of Lessee's default, Lessor may, at Lessor's option,
occupy the Premises or cause the Premises to be redecorated, altered,
divided, consolidated with other adjoining premises, or otherwise changed or
prepared for reletting, and may relet the Premises or any part thereof as
agent of Lessee or otherwise, for a term or terms to expire prior to, at the
same time as, or subsequent to the original expiration date of this Lease, at
Lessor's option, and receive the rent therefor. Rent so received shall be
applied first to the payment of such expenses as Lessor may have reasonably
incurred in connection with the recovery of possession, cleaning the
Premises and removing Lessee's property from the Premises, compliance with
ISRA (as hereinafter defined) or preparing for reletting, and the reletting,
including brokerage and reasonable attorney's fees, and then to the payment
of damages in amounts equal to the rent hereunder and to the costs and
expenses of performance of the other covenants of Lessee as herein provided.
Lessee agrees, in any such case, whether or not Lessor has relet, to pay to
Lessor damages equal to the Basic Rent and other sums herein agreed to be
paid by Lessee, less the net proceeds of the reletting, if any, as
ascertained from time to time and the same shall be payable by Lessee on the
several rent days above specified. Lessee shall not be entitled to any surplus
accruing as a result of any such reletting. In reletting the Premises as
aforesaid, Lessor may grant rent concessions, and Lessee shall not be credited
therewith. No such reletting shall constitute a surrender and acceptance or
be deemed evidence thereof.
Alternately, in any case where Lessor has recovered possession of the
Premises by reason of Lessee's default, Lessor may, at Lessor's option, and at
any time thereafter, and without notice or other action by Lessor, and without
prejudice to any other rights or remedies it might have hereunder or at law or
equity, become entitled to recover from Lessee, as damages for such breach, to
the date of re-entry, expiration and/or dispossession, an amount equal to the
difference between the Basic Rent and Additional Rent reserved in this Lease
from the date of such default to the date of expiration of the original term
demised and the then fair and reasonable rental value of the Premises for the
same period. Said damages shall become due and payable to Lessor immediately
upon such breach of this Lease and without regard to whether this Lease be
terminated or not, and if this Lease be terminated, without regard to the
manner in which it is terminated. In the computation of such damages, the
difference between any installments of rent (Basic and Additional) thereafter
becoming due and the fair and reasonable rental value of
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the Premises for the period for which such installment was payable shall be
discounted to the date of such default at the rate of not more than four (4%)
percent per annum.
Lessee hereby waives all right of redemption to which Lessee or any person under
Lessee might be entitled by any law now or hereafter in force.
Lessor's remedies hereunder are in addition to any remedy allowed by
law.
15. SUBORDINATION OF LEASE.
This Lease shall be subject and subordinate to any underlying leases and to
any mortgage and/or trust deed which may now or hereafter affect the real
property of which the Premises form a part, and also to all renewals,
modifications, consolidations and replacements of said underlying leases and
said mortgage and/or trust deed. Although no instrument or act on the part of
Lessee shall be necessary to effectuate such subordination, Lessee will,
nevertheless, execute and deliver such further instruments confirming such
subordination of this Lease as may be desired by the holders of said mortgage
and trust deeds or by any of the lessors under such underlying leases. If any
underlying lease to which this Lease is subject terminates, Lessee shall, on
timely request, attorn to the owner of the reversion. Lessor represents to
Lessee that the Building Area is encumbered by one mortgage held by First
Fidelity Bank, N.A. ("Mortgage") and that the Mortgage is in good standing and
not in default. Should this Lease be terminated prior to the Termination Date as
a result of a foreclosure of a mortgage on the Building Area, Lessor shall be
responsible for reimbursing Lessee the cost incurred by Lessee for moving
expenses to alternate space within the Essex County, New Jersey area.
16. RIGHT TO CURE LESSEE'S BREACH. If Lessee breaches any covenant or
condition of this Lease, and fails to cure same in the time period specified in
paragraph 13 hereof (except that no notice need be given in case of emergency),
Lessor may cure such breach at the expense of Lessee and the reasonable amount
of all reasonable expenses, including attorney's fees, incurred by Lessor in so
doing shall be deemed Additional Rent payable on demand; provided, however, that
this provision shall not impose any obligation upon Lessor to cure such default.
17. CONSTRUCTION LIENS. Lessee shall, within thirty (30) days after notice
from Lessor, discharge or satisfy by bonding or otherwise any construction liens
for services, materials or labor claimed to have been furnished to the Premises
on Lessee's behalf.
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18. RIGHT TO INSPECT AND REPAIR. Lessor may enter the Premises but shall
not be obligated to do so (except as required by any specific provision of this
Lease) at any reasonable time on reasonable notice to Lessee during business
hours (except that no notice need be given in case of emergency) for the purpose
of inspection or the making of such repairs, replacements or additions in, to,
on or about the Premises or the Building required to be made by Lessor pursuant
to this Lease. Lessee agrees to allow Lessor's insurance inspectors access to
the Premises on reasonable notice to Lessee for the purpose of inspection.
Lessee shall have no claims or cause of action against Lessor by reason thereof.
In no event shall Lessee have any claim against Lessor for interruption to
Lessee's business, however occurring, unless Lessor is negligent.
19. INSURANCE.
A. Lessee, at its sole cost and expense, shall maintain:
(i) For the mutual benefit of Lessor and Lessee, general public liability
insurance against claims for bodily injury, death or property damage, occurring
upon, in or about the Demised Premises, or the elevators or any escalators, and
on, in or about the adjoining loading docks, driveways, parking area, sidewalks
and passageways (including, without limitation, personal injury, death or
property damage resulting directly or indirectly from any change, alteration,
improvement or repair thereof) for at least $1,000,000 for any one accident and
$1,000,000 for injury to any one individual and $500,000 for damage to property
and in such greater or lesser limits as may be determined pursuant to Section
19(E) hereof;
(ii) Such other insurance and in such amounts as may, from time to time, be
reasonably required by Lessor against other insurable hazards which at the time
are customarily insured against in the case of premises similarly situated in
the Township of Belleville, New Jersey, to the type of building, its
construction, use and occupancy.
B. All insurance provided for in this Article shall be effected under
valid and enforceable policies issued by insurers of recognized responsibility.
Upon the execution of this Lease, and thereafter not less than fifteen (15) days
prior to the expiration dates of the expiring policies theretofore furnished
pursuant to this Article, originals of the policies (or, in the case of general
public liability insurance, certificates of the insurers) bearing notations
evidencing the payment of premiums or accompanied by other evidence satisfactory
to Lessor of such payment, shall be delivered by Lessee to Lessor, except that
whenever this Lease or any renewal thereof shall be
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mortgaged, such policies of insurance may be lodged with a first mortgagee until
the mortgage debt shall be paid or the Term of the Lease and any renewals
thereof shall sooner end and certificates of such policies shall meanwhile be
delivered to Lessor.
C. Except with respect to the insurance required by Paragraph 19(A)(i)
hereof, neither Lessor nor Lessee shall take out separate insurance concurrent
in form or contributing in the event of loss with that required in this Article
to be furnished by, or which may reasonably be required to be furnished by
Lessee unless Lessor and Lessee are included therein as the insured, with loss
payable as in this Lease provided. Each party shall immediately notify the other
of the placing of any such separate insurance and shall cause the same to be
delivered as in Paragraph 19(B) hereof required.
D. (i) All policies of insurance provided for in Paragraphs 19(A) hereof
shall name Lessor and Lessee as the insured as their respective interests may
appear, and also, any fee mortgagee, when requested, as the interest of any such
mortgagee may appear, by standard mortgagee clause. In case of such damage or
destruction, the loss shall be adjusted with the insurance companies by Lessor
and any fee mortgagee, and the proceeds of any such insurance, as so adjusted,
shall be payable in accordance with directions of Lessor's mortgagee.
(ii) All such policies shall provide that the loss, if any, thereunder
shall be adjusted and paid as hereinabove provided. Each such policy shall
contain a provision that no act or omission of Lessee or any sublessee shall
affect or limit the obligation of the insurance company so to pay the amount of
any loss sustained.
E. Lessor may reasonably require Lessee to increase the amount of
liability insurance provided for in Paragraph 19(A)(i) should circumstances
change so that such increased amounts are required for properties similar to
the Premises.
20. INTERRUPTION OF SERVICES OR USE. Interruption or curtailment of any
service maintained in the Building or use of the Premises shall not entitle
Lessee to any claim against Lessor or to any abatement in rent; provided,
however, should use of the Premises or any material service be interrupted or
curtailed so as to materially interfere with Lessee's use of the Premises for
three (3) consecutive business days and should Lessor fail to cure such
interruption or curtailment within two (2) business days of written notice by
Lessee, Lessee may within ten (10) days of such notice to Lessor terminate this
Lease.
21. UTILITIES.
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A. The Lessee shall pay, as Additional Rent, each month, the Lessee's
Percentage of all the rents or charges for electricity, gas, water, the ADT
Alarm service for the sprinkler, serving the Building and Building Area used by
the Lessee which are or may be assessed or imposed upon the Building.
B. Lessee covenants and agrees that at all times its use of electric
current shall never exceed the capacity of existing feeders to the Building or
the risers or wiring installation.
C. Subject to the provision of Paragraph 20, Lessor shall not be liable
in any way to Lessee for any loss, damage or expense which Lessee may sustain or
incur as a result of any failure, defect or change in the quantity or character
of electrical energy nor for any interruption in supply of any utility serving
the Premises.
22. LESSEE'S ESTOPPEL. Lessee shall, from time to time, on not less than
ten (10) days prior written request by Lessor, execute, acknowledge and deliver
to the Lessor a written statement certifying that the Lease is unmodified and in
full force and effect, or that the Lease is in full force and effect as modified
and listing the instruments of modification, the dates to which the rents and
charges have been paid and, to the best of the Lessee's knowledge, whether or
not the Lessor is in default hereunder, and if so, specifying the nature of the
default. It is intended that any such statement delivered pursuant to this
Paragraph 22 may be relied on by a prospective purchaser of Lessor's interest or
mortgagee of Lessor's interest or assignee of any mortgage of Lessor's interest.
23. CONDITION OF PREMISES. Neither the Lessor nor its agents have made any
representations with respect to the Premises, or the land upon which the
Building is erected, except as expressly set forth herein, and no rights,
easements or licenses are acquired by Lessee by implication or otherwise, except
as expressly set forth in the provisions of this Lease. The Lessee accepts the
Premises in their existing condition. In no event shall the Lessor be liable for
any defect in such property or for any limitation on its use, except as
expressly set forth herein.
24. WAIVER OF TRIAL BY JURY. To the extent such waiver is permitted by law,
the parties waive trial by jury in any action or proceeding brought in
connection with this Lease or the Premises.
25. LATE CHARGE.
A. Lessee recognizes that late payment of any rent or
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other sum due hereunder will result in administrative expense to Lessor, the
extent of which additional expense is extremely difficult and economically
impractical to ascertain. Lessee therefore agrees that if rent or any other sum
is due and payable pursuant to this Lease, and such amount remains due and
unpaid ten (10) days after said amount is due, such amount shall be increased by
a late charge in an amount equal to five (5%) percent of the amount overdue. The
amount of the late charge to be paid by Lessee shall be reassessed and added to
Lessee's obligation for each successive monthly period until paid.
B. In addition to the late charge specified in Subparagraph 25A above,
the Lessee shall pay interest at the rate of twenty (20%) percent per annum to
the Lessor on any amounts which are more than sixty (60) days past due.
C. The provisions of this Paragraph 25 in no way relieves Lessee of the
obligation to pay rent or other payments on or before the date on which they are
due, nor do the terms of this Paragraph 25 in any way affect Lessor's remedies
pursuant to Paragraph 13 in the event said rent or other payment is unpaid after
date due.
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26. NO OTHER REPRESENTATIONS. No representations or promises shall be
binding on the parties herreto except those representations and prmises
contained herein or in some future writing signed by the party mawriting signed
promise(s).
27. QUIET ENJOYMENT. Lessor covenants that if, and so long as, Lessee pays
the Basic Rent, and any Additional Rent as herein provided, and performs the
covenants hereof, Lessor shall do nothing to interfere with Lessee's right to
peaceable and quietly have, hold and enjoy the Premises for the term herein
mentioned, subject to the provisions of this Lease.
28. INDEMNITY. Lessee shall indemnify and save harmless Lessor and its
agents against and from (a) any and all claims arising from any negligent or
otherwise wrongful act or omission of Lessee or any of its subtenants, invitees
or licensees or its or their employees, agents or contractors, and (b) all
costs, expenses and liabilities incurred in or in connection with each such
claim or action or proceeding. Should any such claim or action or proceeding be
brought against Lessor by reason of any such claim, Lessee, upon notice from
Lessor, shall resist and defend such claim or action or proceeding.
29. PARAGRAPH HEADINGS. The paragraph headings in this Lease and position
of its provisions are intended for convenience only and shall not be taken into
consideration in any construction or interpretation of this Lease or any of its
provisions.
30. APPLICABILITY TO HEIRS AND ASSIGNS. The provisions of this Lease shall
apply to, bind and inure to the benefit of Lessor and Lessee, and their
respective heirs, successors, legal representatives and assigns. It is
understood that the term "Lessor" as used in this Lease means only the owner, a
mortgagee in possession or an underlying lessee of the Premises, so that in the
event of any sale of the Premises or of any such lease thereof, or if a
mortgagee shall take possession of the Premises, the Lessor named herein shall
be and hereby is entirely freed and relieved of all covenants and obligations of
Lessor hereunder accruing thereafter, and it shall be deemed without further
agreement that the purchaser, the underlying lessee of the Premises, or the
mortgagee in possession, has assumed and agreed to carry out any and all
covenants and obligations of Lessor hereunder.
31. LESSOR'S LIABILITY FOR LOSS OF PROPERTY. Lessor shall not be liable for
any loss of property or damages from any cause whatsoever, including, but not
limited to, a failure to perform
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its obligations pursuant to Paragraph 5(C) hereof, theft or burglary from the
Premises, and Lessee covenants and agrees to make no claim for any such loss at
any time. The sole liability of Lessor pursuant to Paragraph 5(C) shall be to
make the repairs referred to therein.
32. PARTIAL INVALIDITY. If any of the provisions of this Lease, or the
application thereof, to any person or circumstance, shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such provision or provisions to persons or circumstances other than those as to
whom or which it is held invalid or unenforceable, shall not be affected
thereby, and every provision of this Lease shall be valid and enforceable to the
fullest extent permitted by law.
33. BROKER. The parties represent and warrant to one another that the
Broker, as defined on the Reference Page, is the sole broker with whom the
parties have negotiated in bringing about this Lease and the parties agree to
indemnify and hold one another harmless from any and all claims of other brokers
and expenses in connection therewith arising out of or in connection with the
negotiation of or the entering into this Lease by Lessor and Lessee. Lessor
shall pay any commission due the Broker pursuant to a separate agreement and
agrees to indemnify and hold Lessee harmless in connection with any claims by
Broker for a commission regarding this Lease.
34. PERSONAL LIABILITY. Notwithstanding anything to the contrary provided
in this Lease, it is specifically understood and agreed, such agreement being a
primary consideration for the execution of this Lease by Lessor, that there
shall be absolutely no personal liability on the part of Lessor, its partners,
their heirs, successors, assigns or any mortgagee in possession (for the
purposes of this paragraph, collectively referred to as "Lessor"), with respect
to any of the terms, covenants and conditions of this Lease, and that Lessee
shall look solely to the Demised Premises, the land and improvements thereon and
the Lessor's equity therein, if any, for the satisfaction of each and every
remedy of Lessee in the event of any breach by Lessor of any of the terms,
covenants and conditions of this Lease to be performed by Lessor, such
exculpation of liability to be absolute and without any exceptions whatsoever.
35. NO OPTION. The submission of this Lease Agreement for examination does
not constitute a reservation of or offer to lease or option for the Premises,
and this Lease Agreement becomes effective as Lease Agreement only upon
execution and delivery thereof by Lessor and Lessee.
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<PAGE>
36. DEFINITIONS.
A. Force Majeure. Force Majeure shall mean and include those
------------- -------------
situations beyond Lessor's control, including by way of example and not by way
of limitation, failure of federal, state or municipal officials to issue
necessary permits or licenses, acts of God, accidents, repairs, strikes,
shortages of labor, supplies or materials, or inclement weather or where
applicable, the passage of time while waiting for an adjustment of insurance
proceeds.
B. Lessee's Percentage. Lessee's Percentage wherever that phrase is
-------------------
used, shall be as defined on the Reference Page, which the parties agree
reflects and will be continually adjusted to reflect the ratio of gross square
feet of the area rented to Lessee (including an allocable share of all common
facilities) as compared with the total number of gross square feet of the entire
Building (or additional Buildings that may be constructed within the Building
Area). Lessor shall have the right to make changes or revisions in the Building
so as to provide additional leasing area. Lessor shall also have the right to
construct additional buildings in the Building Area for such purposes as Lessor
may deem appropriate, and subdivide the lands for that purpose if necessary, and
upon so doing, the Building Area shall become the subdivided lot on which the
Building in which the Demised Premises is located.
37. NOTICES. Any notice by either party to the other shall be in writing
and shall be deemed to have been duly given only if delivered personally or sent
by registered mail or certified mail in a postpaid envelope addressed, if to
Lessee, at Lessee's address set forth above; if to Lessor, at Lessor's address
as set forth above; or, to either at such other address as Lessee or Lessor,
respectively, may designate in writing. Notice shall be deemed to have been duly
given, if delivered personally, on delivery thereof, and if mailed, upon the
delivery to a branch of United States Postal Service or delivery to a recognized
overnight delivery providing a receipt of delivery.
38. ACCORD AND SATISFACTION. No payment by Lessee or receipt by Lessor of a
lesser amount than the Basic Rent and Additional Rent payable hereunder shall be
deemed to be other than a payment on account of the earliest stipulated Basic
Rent and Additional Rent, nor shall any endorsement or statement on any check or
any letter accompanying any check or payment for Basic Rent or Additional Rent
be deemed an accord and satisfaction, and Lessor may accept such check or
payment without prejudice to Lessor's right to recover the balance of such Basic
Rent and Additional Rent or pursue any other remedy provided herein or by law.
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<PAGE>
39. EFFECT OF WAIVER. No failure by Lessor to insist upon the strict
performance of any covenant, agreement, term or condition of this Lease, or to
exercise any right or remedy consequent upon a breach thereof, and no acceptance
of full or partial rent during the continuance of any such breach, shall
constitute a waiver of any such breach or of such covenant, agreement, term or
condition. No consent or waiver, express or implied, by Lessor to or of any
breach of any covenant, condition or duty of Lessee shall be construed as a
consent or waiver to or of any other breach of the same or any other covenant,
condition or duty, unless in writing signed by Lessor.
40. RIGHT TO EXHIBIT. Lessee agrees to permit the Lessor and the Lessor's
agents, employees or other representatives to show the Premises to persons
wishing to rent the same and Lessee agrees that the Lessor or the Lessor's
agents, employees or other representatives shall have the right to place notices
on the front of the Premises or any part thereof offering the Premises for rent
and the Lessor hereby agrees to permit the same to remain there without
hindrance or molestation, provided same does not unreasonably interfere with the
conduct of Lessee's business. Lessee agrees to permit the Lessor and Lessor's
agents, employees or representatives to show the Premises to prospective
purchasers or mortgagees at any time during the term hereof. Lessor shall use
its best efforts to minimize interference with Lessee's use and enjoyment of the
Premises during any such entries of the Premises.
41. CORPORATE AUTHORITY. The undersigned officers and representatives of
the corporation executing this Lease on behalf of the corporation represent and
warrant that they are officers of the corporation with authority to execute this
Lease on behalf of the corporation.
42. DAMAGE. In case of the destruction of or the damage of any kind
whatsoever to the Premises, caused by the carelessness, negligence or improper
conduct on the part of the Lessee or the Lessee's agents, employees, guests,
licensees, invitees, subtenants, assignees, or successors, the Lessee shall
repair the said damage or replace or restore any destroyed parts of the Premises
as speedily as possible at Lessee's own cost and expense.
43. SIGNS. The Lessee shall not place nor allow to be placed any signs of
any kind whatsoever upon, in or about the said Premises, except of a design and
structure and in or at such places as may be indicated and consented to by the
Lessor in writing, which consent shall not be unreasonably withheld, conditioned
or delayed. In case the Lessor or the Lessor's agents, employees or
representatives shall deem it necessary to remove any such signs in
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<PAGE>
order to paint or make any repairs, alterations or improvements in or upon said
Premises or any part thereof, they may be so removed, but shall be replaced at
the Lessor's expense when the said repairs, alterations or improvements shall
have been completed. Any signs permitted by the Lessor shall at all times
conform with all municipal ordinances or other laws and regulations applicable
thereto.
44. MISCELLANEOUS.
A. Lessee shall not be entitled to exercise any other option granted to
it by this Lease at any time when Lessee is in default in the performance or
observance of any of the covenants, agreements, terms, provisions or conditions
on its part to be performed or observed beyond the applicable grace period
provided in this Lease.
B. This Lease shall be governed by and construed under the laws of the
State of New Jersey.
45. ENVIRONMENTAL MATTERS.
A. Lessee shall, on or before the Termination Date, deliver to Lessor
evidence of its compliance with the New Jersey Industrial Site Recovery Act.
(N.J.S.A. 13:1K-6 et seq.) ("ISRA"). In the event that the Lessee fails to
- -------- ------
deliver such evidence to the Lessor on or before the Termination Date, then, and
in such event and for every month or portion of month thereafter, the obligation
of the Lessee to pay Basic Rent and other charges pursuant to this Lease shall
be extended one (1) month beyond the Termination Date; provided that the Lessee
shall have no right to occupy the Premises after the Termination Date and this
Lease shall otherwise expire on the Termination Date in accordance with its
terms. As used in this Lease, ISRA compliance shall include applications for
determinations of non-applicability by the New Jersey Department of
Environmental Protection.
B. The Lessee agrees to defend, indemnify and hold harmless the Lessor
from and against any and all losses and costs and expenses of litigation
incurred by the Lessor arising out of or in any way connected with the
application of the New Jersey Spill Compensation and Control Act
(N.J.S.A. 58:10-23 et seq.), ISRA, the Comprehensive Environmental Response
------- ------
Compensation Liability Act of 1980 (Pub. L. No. 96-510, 94th Stat. 2767, 1980),
the New Jersey Air Pollution Control Act (N.J.S.A. 26:2C-1 et seq.), the
------- ------
Resource Consumer Recovery Act (42 U.S.C. 6901 et seq., the Clear Air Act
------
(42 U.S.C. 7401 et seq.) and any similar state or federal statutes
----- ------
(collectively, "Environmental Laws") to the Demised Premises or any part thereof
by reason of the acts or omissions to act of Lessee, Lessee's subtenants,
agents, licensees, invitees and employees. The Lessee covenants and agrees
to take all
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<PAGE>
necessary steps in order to prevent any liens pursuant to the Environmental Laws
from attaching to the Demised Premises.
C. Lessee shall not cause or permit to exist as a result of an
intentional or unintentional action or omission on its part, its agents or
invitees, a releasing, spilling, leaking, pumping, admitting, pouring, emptying
or dumping of a "hazardous substance", as such term is defined in N.J.S.A.
-------
58:10-23.11(b)(k) into or onto the Premises or the Building Area.
D. Lessee's use and any subtenant's use of the Demised Premises during
the term of this Lease will not involve the illegal generation, illegal
manufacture, illegal refining, illegal transport, illegal treatment, illegal
storage, illegal handling or illegal disposing of "hazardous waste" or
"hazardous substances", as those terms are defined in the New Jersey Spill
Compensation and Control Act. In the event the Lessee or any subtenant shall
breach this provision or in any way conduct its operation on the Demised
Premises or permit the Demised Premises to be used and maintained so as to
subject to the Lessee or any subtenant of the Demised Premises to a claim or
violation, the Lessee shall immediately remedy and fully cure such condition,
at its own cost and expense, or cause such condition to be cured and shall
defend, indemnify and save harmless the Lessor from any and all damages,
remedial orders, judgments or decrees and all costs and expenses related
thereto or arising therefrom, including, but not limited to, attorneys' and
consultants' fees, cleanup, removal and restoration costs and
loss rentals.
E. Lessor hereby represents and warrants that there are no clean- up
activities that are presently ongoing at the Premises arising out of or in any
way connected with the application of any of the Environmental Laws [subject to
asbestos investigation]; Lessor hereby agrees to defend, indemnify and hold
harmless the Lessee from and against any and all loss, expense, cost,
liabilities, penalties, fines or damages arising from Lessor's or any
predecessor in interest's failure to perform, observe or comply with any and all
provisions of the Environmental Laws. Lessor has no knowledge of the existence
of any "Release" (as hereinafter defined) or the threat of any Release of any
"hazardous substance" at, on, from or beneath the surface of the Premises.
Lessor's liability shall include, but not be limited to Releases resulting from
or arising out of any state of facts or conditions, known or unknown, existing
on or prior to the Commencement Date of this Lease. Lessor further represents
and warrants that there is no "Enforcement Notice" (as hereinafter defined) in
effect relating to the Premises, and Lessor does not know of any facts which
might result in the issuance of any Enforcement Notice to Lessor or any of its
predecessors in interest, relating to or arising out of the ownership or
occupancy of the Premises. As used herein, "Enforcement
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<PAGE>
Notice" means a summons, notice of violation, citation, directive, order, claim,
litigation, investigation, judgment, letter or other communication, written or
oral, actual or threatened from the Environmental Protection Agency, any other
federal, state or local agency or authority, concerning any intentional or
unintentional action or omission resulting or which might result in the Release
of a hazardous substance. As used herein, "Release" means any releasing,
spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, disposing or dumping of a hazardous substance of such
magnitude as to contravene any standards promulgated under, or otherwise invoke
the jurisdiction of, any of the above environmental laws.
46. AMENDMENTS REQUIRED BY LENDER. If in connection with obtaining
financing for the Premises, a bank, insurance company or other recognized
institutional lender shall request reasonable modifications in this Lease as a
condition to such financing, Lessee will not unreasonably withhold, delay or
defer its consent thereto, provided that such modifications do not increase the
obligations of Lessee hereunder or materially decrease the obligations of Lessor
hereunder or materially adversely impact upon Lessee's rights, remedies, use,
enjoyment, occupancy, ingress or egress of and to the Premises nor its business
in general. In addition thereto, Lessee shall furnish to any such mortgagee or
proposed mortgagee copies of Lessee's latest financial statements, if any, duly
certified by an independent certified public accounts, or if no such certified
statement is available, then such statements shall be certified by the president
of Lessee. If Lessee has no such statements, Lessee shall provide such alternate
financial information as may reasonably be required by the mortgagee or proposed
mortgagee.
47. MUTUAL WAIVER OF SUBROGATION AND RELEASE. Lessor shall insure the
Building of which the Demised Premises are a part, and Lessee shall insure the
Demised Premises and its fixtures and contents against fire and other causes
included in standard extended coverage by policies which shall include a waiver
by the insurer of all right of subrogation against Lessor or Lessee in
connection with any loss or damage thereby insured against. The Lessor hereby
releases the Lessee, and the Lessee hereby releases the Lessor, and their
respective officers, agents, partners, employees, invitees, servants, insurers
or anyone claiming by, through or under each of them, from any and all claims or
demands for damage, loss, expenses or injury to the Premises, the Building, the
Building Area, as well as the furnishings, the fixtures, equipment, inventory or
other property of either the Lessor or the Lessee or their respective officers,
agents, partners, employees, servants, or invitees, in, about or upon the
Premises, the Building or the Building Area caused by or resulting from perils,
events or happenings of every kind or nature whatsoever, even
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<PAGE>
though such damage or destruction maybe due to active and affirmative negligence
or breach of duty on the part of the Lessor or the Lessee or their respective
officers, agents, partners, employees, invitees and servants.
48. LEASE COMMENCEMENT. Notwithstanding anything contained to the contrary,
if Lessor for any reason whatsoever, cannot deliver possession of the Premises
to the Lessee at the commencement of the agreed term as set forth in paragraph
2, this Lease shall not be void or voidable, nor shall Lessor be liable to let
Lessee for any loss or damage resulting therefrom, but in that event, the Lease
Term shall be for the full term as specified about to commence from and after
the date Lessor shall have delivered possession of the Premises to Lessee
(herein the "Commencement Date") and to terminate, at the end of Term specified
in Paragraph 7 of the Reference Page, and if requested by Lessor, the Lessor and
Lessee shall by writing signed by the parties, ratify and confirm said
commencement and termination dates.
49. ATTORNMENT. Lessee shall, if requested by a mortgagee of the Premises
at any time, or in the event of any proceedings brought for the foreclosure of,
in the event of exercise of the power of sale under any mortgage made by the
Lessor covering the Premises, attorn to the purchaser upon any such foreclosure
or sale and recognize such purchaser as the Lessor under this Lease.
50. HOLDOVER BY LESSEE. In the event Lessee remains in possession of the
Premises after the expiration of the tenancy created hereunder and without the
execution of a new lease, Lessee, at the option of Lessor, shall be deemed to be
occupying said Premises as a tenant from month-to-month at a monthly rental
equal to two (2) times the sum of (i) the monthly installment of Basic Rent
payable during the last month of the Lease Term, (ii) one sixth (1/6th) of the
Additional Rent payable for the Lease Term or Renewal Term, as applicable,
subject to all the other conditions, provisions and obligations of this Lease
insofar as the same are applicable to a month-to-month tenancy.
51. FLAMMABLE SUBSTANCES. Lessee shall not store, or permit the storage of,
flammable or hazardous substances at the Premises.
52. RENEWAL OPTION.
A. Subject to the provisions of Paragraph 52(B) below, Lessee shall have
the option to renew ("Renewal Option") this Lease for an additional term of six
(6) months ("Renewal Term"), which Renewal Term shall commence upon the next day
following the Termination Date. The terms, covenants and conditions during the
Term of this Lease defined on the Reference Page shall be projected and carried
over into
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<PAGE>
the Renewal Term, except as specifically set forth below:
The Basic Rent shall be THREE DOLLARS AND FIFTY CENTS ($3.50) per
square foot as follows:
(i) Yearly Rate . . . . . . . $180,106.96
(ii) Monthly Rate . . . . . . $ 15,008.91
B. Lessee's Renewal Option will be conditioned upon and subject to each
of the following:
(a) Lessee shall notify Lessor, in writing, of the exercise of its Renewal
Option at least forty-five (45) days prior to the Termination Date, time being
of the essence.
(b) At the time Lessor receives Lessee's notice as provided in Subparagraph
(a) above, and at the Termination Date, Lessee shall not be in default of the
terms and provisions of this Lease, and Lessee shall not have subleased any
portion of the Demised Premises.
(c) Lessee shall have no further renewal option other than the Renewal
Option.
(d) This Renewal Option shall be deemed personal to the Lessee and may not
be assigned without the express consent of the Lessor.
(e) Lessor shall have no obligation to do any work or perform any services
for the Renewal Term with respect to the Demised Premises, which Lessee agrees
to accept in its then "as is" condition, provided subject to Lessee's
obligations pursuant to Paragraph 5A, the sprinkler, electrical and heating
systems servicing the Demised Premises shall be in working order on the
Commencement Date of the Renewal Term.
53. LESSOR'S WORK
A. Lessor, within thirty (30) days of the Commencement Date, shall at its
sole cost and expense repair the men's room and women's room in the Demised
Premises so that three (3) water closets in each are functioning properly.
B. Lessor shall, as soon as weather permits, repair the roof of the
Demised Premises so as to fix the existing leaks.
C. Subject to the repairs referred to in Subparagraph A above, Lessor
represents that on the Commencement Date the sprinkler,
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<PAGE>
electrical systems servicing the Demised Premises shall be in working order.
Landlord will promptly have the heating system repaired.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals the day and year first above written.
BMS ASSOCIATES
By: /s/ Stephen Rosen
--------------------
STEPHEN ROSEN,
Managing Partner
GRAHAM-FIELD, INC.
LESSEE
By: /S/
--------------------
/S/
President, General Counsel
<PAGE>
SCHEDULE A
[Premises]
<PAGE>
SCHEDULE A-1
[Building Area]
<PAGE>
SCHEDULE A
[Detailed Premises]
<PAGE>
SCHEDULE A-1
[Detailed Premises]
<PAGE>
SCHEDULE A
[Artwork]
EXHIBIT 10.(jj)
THIS INDENTURE, made this 21st day of March, 1996, between HIP REALTY,
INC., a New York corporation having its principal office at c/o Diamond, 19
Clubhouse Lane, Scarsdale, New York 10583 (hereinafter called "Lessor") and
GRAHAM-FIELD, Inc. a New York Corporation with an office at 400 Rabro Drive
East, Hauppauge, New York, 11788 (hereinafter called "Lessee").
W I T N E S S E T H
Lessor hereby Leases to the Lessee, and the Lessee hereby hires from
the Lessor, the entire parcel of land with the buildings and improvements
thereon, known as 144 East Kingsbridge Road, Mt.Vernon, New York, a legal
description of which is attached hereto as Schedule "A" ("demised premises").
TO HAVE AND TO HOLD for a term commencing on March 1, 1996 and ending
on February 28, 1999 ("termination date",unless sooner terminated) at the fixed
annual rental stated in Exhibit "A" attached, payable as provided for herein,
for use as any Lawful purpose. The Lessor shall receive the annual fixed rental
free from and any and all set-offs and deductions except as otherwise provided
in this lease.
This letting is made upon the terms, covenants and conditions
that follow, namely:
ART. 1
RENT PAYMENTS; ADDITIONAL RENT; LATE PAYMENTS
1.01. The Lessee will pay to the Lessor the rent herein reserved on a
monthly basis on the first day of each month, and all other sums that may become
due or be payable by the Lessee
<PAGE>
hereunder, at the time and in the manner herein provided. All of such other sums
so to be paid may, at the Lessor's option, be deemed to be additional rent to be
added to any fixed rent then due or thereafter falling due, and in the event of
non-payment, the Lessor shall have all the rights and remedies herein provided
for in the case of the non-payment of rent or of a breach of condition.
1.02. If Lessee shall fail to pay within ten (10) days after it
becomes due any installment or payment of rent or additional rent, Lessee
shall be required to pay a late charge of $.02 for each $1.00 which remains so
unpaid. Such late charge is intended to compensate Lessor for additional
expenses incurred by Lessor in processing such late payments. Nothing herein
shall be intended to violate any applicable law, code or regulation, and in all
instances all such charges shall be automatically reduced to any maximum
applicable legal rate or charge. Such charge shall be imposed monthly for each
late payment.
ART. 2
REPAIRS
2.01. The demised premises shall be kept in good order and repair by
the Lessee at the Lessee's sole cost and expense; and the Lessee shall make all
general repairs and replacements, ordinary as well as extraordinary, foreseen
and unforeseen, or otherwise, which may be necessary or required in or about the
same so that at all times the said buildings and improvements shall be in
good order, condition and repair, reasonable wear and tear excepted.
<PAGE>
2.02 However the Lessor agrees to:
(a) deliver the HVAC, plumbing, electrical, heating and other
mechanical systems to Lessee in working order; and the roof free of leaks.
(b) make all structural repairs and replacements to the demised
premises and make any required roof repair to the demised premises.
ART. 3
COMPLIANCE WITH LAWS
3.01. Throughout the term of this lease, the Lessee shall, at its own
cost and expense, promptly observe and comply with all laws, orders,
regulations, rules, ordinances, special zoning conditions, and requirements of
the Federal, State, County and local Governments, and each of them, and of any
and all of its or their administrative departments, bureaus, officials, and of
the local fire insurance rating organization, and of all insurance companies
writing policies covering the said demised premises or any part or parts
thereof, in all material respects, whether such laws, orders, regulations, rules
or requirements relate to repairs, changes or alterations incident to or as the
result of any use or occupation of the premises, and whether the same now are in
force, or that may, at any time in the future, be enacted or directed; and the
Lessee shall pay all costs, expenses, claims, fines, penalties and damages that
may in any manner arise out of or be imposed because of the failure of the
Lessee to comply with these covenants. To the extent that the premises presently
do not comply with these said provisions, the Lessee need not comply and in any
event Lessee need not make capital improvements or structural alterations to the
premises in order to comply, in which case such
<PAGE>
improvements or alterations shall be made by Lessor at Lessor's sole cost and
expense, unless Lessee's manner of use of the premises caused the violation of
said provisions; in which case Lessee shall comply.
3.02. The Lessee, after notice to the Lessor, may, by appropriate
proceedings conducted promptly at its own expense, in its name or (whenever
necessary) the Lessor's name, contest in good faith the validity or enforcement
of any such law, ordinance, governmental rule, regulation, requirement or order,
and may defer compliance therewith provided that (a) such non-compliance shall
not constitute a crime on the part of the Lessor, and (b) the Lessee shall
diligently prosecute such contest to final determination by a court, department
or governmental authority or body having final jurisdiction. The Lessor agrees
to cooperate reasonably with the Lessee, and to execute any documents or
pleadings reasonably required, for the purpose of any such contest, provided
that the Lessee shall discharge any expense or liability of the Lessor in
connection therewith.
ART. 4
SURRENDER AT END OF TERM
4.01. The Lessee will surrender and deliver up the demised premises
and the buildings and improvements thereon, including, but not limited to,
hoists, pipes, plumbing, electric wires, and fixtures used in connection with
the operation of the premises (but not movable trade fixtures and equipment of
occupants in possession of the premises) at the expiration of the term of this
lease or sooner termination of the term, in its present repair and
<PAGE>
condition, reasonable wear and tear and damage by fire or other casualty thereof
excepted, to which end the Lessee herein specifically contracts under penalty of
forfeiture and damage.
ART. 5
MECHANICS' LIENS
5.01. Lessee shall have no power to subject the demised premises or
Lessor's interest in the premises to any mechanics' or other liens. If any
mechanics' or other liens or order for the payment of money shall be filed
against the demised premises or any building or improvement thereon by reason of
or arising out of any labor or material furnished or alleged to have been
furnished or to be furnished to or for the Lessee at the demised premises, or
for or by reason of any change, alteration or addition or the cost or expense
thereof or any contract relating thereto, the Lessee shall cause the same to be
canceled and discharged of record, by bond or otherwise as allowed by law at the
expense of the Lessee, within thirty (30) days after written demand therefor,
and shall also defend on behalf of the Lessor at the Lessee's sole cost and
expense, any action, suit or proceeding which may be brought thereon or for the
enforcement of such liens, lien or orders, and the Lessee will pay any damages
and satisfy and discharge any judgment entered therein and save harmless the
Lessor from any claim or damage resulting herefrom. Failure to comply with this
Article shall privilege Lessor to avail itself of the remedies in Article 14
upon the expiration of said demand, without any additional notice under said
Article.
<PAGE>
ART. 6
INSPECTION BY LESSOR
6.01. Lessee shall permit the Lessor and Lessor's agent to enter the
premises, at reasonable hours, with reasonable prior notice and accompanied by a
representative of Lessee to examine same.
ART. 7
SNOW & ICE REMOVAL, REFUSE, LANDSCAPING & UTILITIES
7.01. The Lessee, shall provide for and pay for the
cost and expense for removing snow and ice from the demised premises. Lessee
shall also provide for and pay the cost of any additional expenses due to
keeping all walkways, sides and rear, and parking area free of debris. Lessee
shall provide for and pay for refuse removal,landscaping and any and all
utilities.
ART. 8
INDEMNIFICATION OF LESSOR
8.01. The Lessee shall keep, save and hold harmless the Lessor from
any and all damages and liability for anything and everything whatsoever arising
from or out of the occupancy by or under the Lessee, the Lessee's agents or
servants, and from any loss or damage arising from any fault or negligence by
the Lessee or any failure on the Lessee's part to comply with any of the
covenants, terms and conditions herein contained. However, excepting
herefrom any damage or losses by fire or casualty of other risk covered or
coverable by a standard policy of all risk casualty insurance.
<PAGE>
ART. 9
CASUALTY INSURANCE; RESTORATION
9.01. If Lessee's use causes an increase in lessor's casualty
insurance then Lessee shall pay to Lessor the cost and expense, as additional
rent, of such additional premium. Lessor agrees to at all times insure and keep
insured, at Lessor's sole cost and expense, in responsible insurance companies
authorized to do business in the state where the demised premises are located,
the building on the demised premises, and. all alterations, extensions, and
improvements thereto and replacements thereof, against loss or damage by fire
and the risks contemplated within the extended coverage endorsement(as such
endorsement in the broadest form may customarily be written in said state from
time to time) and against such other risks as are customarily maintained by
owners of commercial buildings in Westchester county, or as shall be required by
any institutional lender holding a mortgage superior to this lease affecting the
Lessor's interest in the premises pursuant to the terms of said mortgage, in
such amounts as are customarily maintained by owners of commercial buildings in
Westchester county, or as may be required by the holder of such mortgage
pursuant to the terms thereof, but in no event in an amount less than one
hundred per cent (100%) of the replacement cost, from time to time, of the
building and improvements. All policies of fire and other insurance as
aforesaid shall be for the benefit of, and with loss payable to, the Lessor, and
any institutional lender holding a mortgage on Lessor's interest in the premises
superior to this lease, as their interests may appear. The interest of any such
mortgagee shall be covered by the customary mortgage endorsement employed in
said state.
<PAGE>
9.02. (a) If the demised premises or any part thereof shall be damaged
by fire or other casualty, Lessee shall give immediate notice thereof to Lessor
and this lease shall continue in full force and effect except as hereinafter set
forth.
(b) If the demised premises are partially damaged or rendered
partially unusable by fire or other casualty, the damages thereto shall be
repaired by and at the expense of Lessor and the rent, until twenty days after
such repair shall be substantially completed, shall be apportioned from the day
following the casualty according to the part of the premises which is usable.
(c) If the demised premises are totally or substantially damaged or
rendered wholly unusable by fire or other casualty, then the rent shall be
proportionately paid up to the time of the casualty and thenceforth shall cease
until the date when the premises shall have been repaired and restored by
Lessor, subject to Lessor's right to elect not to restore the same as
hereinafter provided. If the demised premises are totally or substantially
damaged or rendered wholly or substantially unusable by fire or other casualty,
Lessee may terminate this Lease upon notice to Lessor giving within twenty days
of such fire or other casualty.
(d) If the demised premises are rendered wholly unusable or if the
building shall be so damaged that Lessor shall decide to demolish it or to
rebuild it, then, in any of such events, Lessor may elect to terminate this
lease by written notice to Lessee given within 90 days after such fire or
casualty specifying a date for the expiration of the lease, which date shall not
be more than 60 days after the giving of such notice, and upon the date
specified in such notice the term of this lease shall expire as fully and
completely as if such date were the date set forth above for the termination of
this lease and Lessee shall
<PAGE>
forthwith quit, surrender and vacate the premises without prejudice however, to
Lessor's rights and remedies against Lessee under the lease provisions in effect
prior to such termination, and any rent owing shall be paid up to such date and
any payments of rent made by Lessee which were on account of any period
subsequent to such date shall be returned to Lessee. Unless Lessor shall serve a
termination notice as provided for herein, Lessor shall make the repairs and
restorations under the conditions of (b) and (c) hereof, with all reasonable
expedition subject to delays due to adjustment of insurance claims, labor
troubles and causes beyond Lessor's control. After any such casualty, Lessee
shall cooperate with Lessor's restoration by removing from the premises as
promptly as reasonably possible, all of Lessee's salvageable inventory and
movable equipment, furniture, and other property. Lessee's liability for rent
shall resume thirty (30) days after written notice from Lessor that the premises
are substantially ready for Lessee's occupancy.
(e) Each party shall look first to any insurance in its favor before
making any claim against the other party for recovery for loss or damage
resulting from fire or other casualty, and to the extent that such insurance is
in force and collectible and to the extent permitted by law, Lessor and Lessee
each hereby releases and waives all right of recovery against the other or any
one claiming through or under each of them by way of subrogation or otherwise.
The foregoing release and waiver shall be in force only
<PAGE>
if both releasors' insurance policies contain a clause providing that such a
release or waiver shall not invalidate the insurance and also, provided that
such a policy can be obtained without additional premiums. Lessee
acknowledges that Lessor will not carry insurance on Lessee's furniture and/or
furnishings or any fixtures or equipment, improvements, or appurtenances
removable by Lessee and agrees that Lessor will not be obligated to repair any
damage thereto or replace the same.
(f) Lessee hereby waives the provisions of Section 227 of the Real
Property Law and agrees that the provisions of this article shall govern and
control in lieu thereof.
ART. 10
CONDEMNATION
10.01. If any person or corporation, municipal, public, private or otherwise
shall at any time during the term hereby demised lawfully condemn and by reason
thereof acquire title to Lessor's interest in the demised premises,in or by
condemnation proceedings in pursuance of law, general, special or otherwise, the
Lessor shall be entitled to and shall, except as hereinafter provided, receive
any award that may be made, including the award, if any, to the Lessee for the
value of the unexpired term of this lease, and the Lessee shall assign and
hereby does assign and transfer to Lessor any award that may be so made to
Lessee for any damages to the term of years hereby demised. Such assignment
shall not include any award for taking of or damage to the trade
fixtures of Lessee, or its subtenants.
<PAGE>
10.02. In the event of a taking by condemnation as aforesaid, this
lease (except as hereinafter provided) shall nevertheless continue, but the
annual rental to be paid by the Lessee herein shall thereafter be reduced by a
sum equal to the amount of net rental multiplied by the square footage taken
from Lessee.
10.03. Should such taking of a portion of the building on the demised
premises result in a loss of 33-1/3% of the non-parking floor area of the
demised premises, or if in the Lessee's reasonable judgment the premises become
not suitable for Lessee's use then Lessee, at its option, upon thirty (30) days
notice in writing to Lessor, given at any time within sixty (60) days after the
vesting of title in the condemnor, may cancel and terminate this lease.
ART. 11
CURING LESSEE'S DEFAULTS
11.01. Should Lessee fail to perform any of the terms of this lease on
its part to be performed, except the payment of rent and additional rent herein,
within thirty (30)days after the giving of written notice to Lessee the Lessor
may perform the same and add any such sum or sums paid or expended in such
performance to any rent then due or thereafter falling due hereunder with like
effect as if an original part of such installment, and such sum or sums shall be
and become additional rental. It is further agreed that the thirty-day notice
provided by this Section is the same thirty-day notice provided by subdivision
(b) of Section 14.01 and not an additional one.
<PAGE>
ART. 12
MORTGAGING; ASSIGNMENT; SUBLETTING
12.01. Lessee may not mortgage this lease in whole or in part without
the prior written consent of the Lessor.
12.02. Lessee may not sublet portions, the whole or substantially the
whole of the demised premises without the prior written consent of the Lessor,
which consent shall not be unreasonably withheld provided, however, that Lessee
may sublet all or any portion of the demised premises to a parent, subsidiary or
affiliate of Lessee or an entity resulting from merger or without Lessor's
consolidation of Lessee with another entity, without Lessor's consent. All
subleases made by the Lessee shall be, and are hereby, assigned to the Lessor
with the privilege, however, on the part of the Lessee to collect the rents and
charges under such subleases so long as Lessee is not in default under the
within lease. In no event may Lessee collect any advance rent for a period
beyond a current month,and Lessee covenants not to make any such advance
collections of rent. Such assignment does not hereby impose any liability on
Lessor in respect to the landlord's obligations under such leases; and no such
liability shall arise unless and until Lessor resumes possession of the
premises. Lessee agrees that any such sublease made by Lessee will contain a
provision in substance calling attention to the assignment of the sublease as
above set forth and the prohibition against the collection of advance rent
beyond the period above set forth, and also the limitation of Lessor's
liability under the assignment as above stated. Lessee further agrees that it
will execute such further instruments and assurances in confirmation of the
foregoing
<PAGE>
assignment of subleases as may be reasonably required by Lessor. Lessee
further agrees that each sublease made by Lessee will contain a provision
in substance that if there be any termination whatever of the within lease
between the Lessor and the Lessee, then the subtenant, at the request of the
Lessor, will attorn to the Lessor and the sublease shall not continue in effect
with the Lessor, however, in any event, the Lessor may be bound under the
sublease only by privity of estate.
12.03. Lessee may not assign this lease without the prior written
consent of the Lessor, which consent shall not be unreasonably withheld
provided, however, that Lessee may assign all or any portion of the demised
premises to a parent, subsidiary or affiliate of Lessee or an entity resulting
from merger, or consolidation of Lessee with another entity, without Lessor's
consent. Any consent shall be on condition that no assignment shall have any
validity unless the assignee shall, by instrument in form sufficient for
recording, assume all agreements, undertakings and covenants on the Lessee's
part to be performed and a duplicate original of such assumption agreement is
delivered to the Lessor within ten (10) days before the making of the
assignment. Upon compliance with the foregoing condition as to assignment, but
not otherwise, the Lessee shall not be released and discharged from any and all
liability under this lease accrued from and after the date of the assignment.
12.04. Lessee shall pay the Lessor fifty percent (50%) of any monies
received from subletting and/or assignment including but not limited to rental
in excess of that which Lessee is paying to Lessor after deduction for
subletting and/or assignment expense actually paid for by Leasee. Lessee shall
pay
<PAGE>
Lessor's reasonable attorneys fees for review and/or preparation of subletting
and/or assignment documents.
12.05 Should Lessor not respond to Lessee's written request for
consent, pursuant to this Article 12, within 20 days of Lessee sending Lessor
notice, then on the expiration oB.P. the twentieth (20th) day said consent
shall be deemed given by Lessor.
ART. 13
TAXES
13.0l. If in any year during the term of this Lease or any renewal,
extension or modification thereof, real estate taxes (as hereinafter defined)
shall be increased over and above Lessor's base tax year.(as hereinafter
defined). Lessee covenants and agrees to pay 100 per cent of the increase in
taxes as determined by the formula, as hereinafter set forth, as additional
rental, on the later of (i) thirty days following receipt of "Lessor's
Statement" or (ii) ten days prior to the date on which the real estate taxes are
payable to the taxing authority.
a) The term "real estate taxes" shall be deemed to mean all taxes and
assessments, special or otherwise assessed upon or with respect to the ownership
of and/or all other taxable interest in the land and improvements thereon of
which the demised premises are part, imposed by Federal, State or local
governmental authority or any other taxing authority having jurisdiction over
Landlord's Tax lot or lots, but shall not include income, intangible, franchise,
capital stock, estate or inheritance taxes, or taxes based upon the receipt of
rentals (unless) the same shall be in lieu of "real estate taxes" as herein
defined by
<PAGE>
whatever name the taxing authority may be designated). The demised premises are
fully assessed and not subject to any tax abatements or credits.
b) Lessee shall pay 100 per cent of any tax increase over taxes levied
for the years:
County and City: January 1, 1996 to December 31, 1996
School tax: July 1, 1995 to June 30, 1996
c) "Lessor's Statement" shall be that written statement, accompanied
by a copy of the applicable real estate tax invoice which, Lessor may at any
time deliver to Lessee containing a computation of the increase above Lessor's
basic tax liability and the amount of Lessee's proportionate share thereof.
d) In addition to any increase by reason of the foregoing, the Lessee
shall pay as additional rent to the Lessor in any tax year, any increase in such
taxes solely due to the improvements made or performed by Lessee. Such increases
are to be paid in full by Lessee without any apportionment.
ART. 14
DEFAULTS
14.01. Each of the following shall be deemed a default by Lessee and
a breach of this lease, namely:
(a) A failure on the part of Lessee to pay any installment of rent
or to pay any additional rent, which failure persists after the expiration of
ten days after the demand therefore.
(b) A failure on the part of Lessee to observe or perform any of
the other terms, covenants or conditions of this lease on the part of Lessee to
be observed and performed, which
<PAGE>
failure persists after the expiration of thirty (30) days from the date Lessor
gives notice to Lessee calling attention to the existence of such failure, but,
if the matter that is the subject of the notice is of such a nature that it
cannot be reasonably corrected within thirty (30) days, then no default shall be
deemed to have occurred if Lessee promptly, ,upon the receipt of the notice,
commences the curing of the default and diligently prosecutes the same to
completion.
(c) The adjudication of Lessee in bankruptcy; the taking by Lessee of
the benefit of any other insolvency act or procedure, which term includes any
form of proceeding for reorganization or arrangement or rearrangement under the
National Bankruptcy Act as well as an assignment for the benefit of creditors;
or the appointment of a receiver for Lessee and such receiver remains
undischarged for ninety (90) days.
14.02. In the event of any default by Lessee as hereinabove provided
in this Article, Lessor at any time thereafter may, at its option, give Lessee
five (5) days written notice of intention to end the term of this lease and
thereupon at the expiration of said five (5) days the term of this lease shall
expire as fully and completely as if that date were the date herein definitely
fixed for the expiration of the term and Lessee will then quit and surrender the
demised premises to Lessor, but Lessee shall remain liable as hereinafter
provided.
14.03. If the notice provided for in Section 1 shall have been given
and the term shall expire as aforesaid, or if shall be taken from Lessee as a
result of any execution against Lessee in any proceeding in which the Lessee
<PAGE>
shall have no appeal or further appeal, then Lessor may without notice re-enter
the demised premises and dispossess Lessee by summary proceedings or otherwise,
and Lessee or other occupant or occupants of the demised premises will remove
their effects and hold the premises as if this lease had not been made, and
Lessee hereby waives the service of notice of intention to re-enter or to
institute legal proceedings to that end.
14.04. In case of any default, re-entry, expiration or dispossess by
summary proceedings or otherwise, (a) rent shall become due thereupon and be
paid up to the time of such re-entry, dispossess or expiration, together with
such reasonable expenses as Lessor may incur for reasonable legal expenses and
attorneys' fees, including those incident to the recovery of possession,
brokerage and putting the demised premises in good order, or for preparing the
same for re-rental; (b) Lessor may relet the premises or any part or parts
thereof, either in the name of Lessor or otherwise, for a term or terms which
may at Lessor's option be less than or exceed the period which would otherwise
have constituted the balance of the term of this lease and may grant concessions
or free rent without thereby in any way affecting Lessee's liability for the
rental payable hereunder for the period of concession or free rent; and (c)
Lessee shall also pay Lessor as liquidated damages for the failure of Lessee to
observe and perform said Lessee's covenants herein contained any deficiency
between the rent hereby reserved to be paid and the net amount, if any, of the
rents collected by reason of the reletting of the demised premises for each
month of the period which would otherwise have constituted the balance of the
term of this lease. In computing such liquidated damages there shall be added
to the said deficiency such reasonable
<PAGE>
expenses as Lessor may incur in connection with the recovery of possession of
the premises and reletting, such as, but not limited to, reasonable legal
expenses,attorneys' fees, brokerage, for keeping the demised premises in good
order and for preparing the same for reletting. Any such liquidated damages
shall be paid in monthly installments by Lessee on the rent day specified in
this lease and any suit brought to collect the amount of the deficiency for any
month shall not prejudice in any way the rights of Lessor to collect the
deficiency for any subsequent month by a similar action or proceeding. Lessor
at Lessor's option may make such alterations and decorations in the demised
premises as Lessor in Lessor's sole judgment considers advisable and necessary
for the purpose of reletting the demised premises; and the making of such
alterations or decorations shall not operate or be construed to release Lessee
from liability as aforesaid. Lessor shall in no event be liable and Lessee's
liability shall not be affected or diminished in any way whatsoever for failure
to relet the demised premises, or in the event that the demised premises are
relet, for failure to collect the rent thereof under such reletting. Lessor,
however shall use commercially reasonable efforts to relet the demised premises.
In the event of a breach or threatened breach by Lessee of any of the covenants
or provisions hereof, Lessor shall have the right of injunction and the right to
invoke any remedy allowed at law or in equity as if re-entry, summary dispossess
proceedings or other remedies were not herein provided for. Mention in this
lease of any particular remedy shall not preclude Lessor from any other remedy,
in law or in equity.
<PAGE>
14.05. If Lessor shall enter into and repossess the premises by reason
of the default of Lessee in the performance of any of the terms, covenants or
conditions herein contained, then Lessee hereby covenants and agrees that Lessee
will not claim the right to redeem or re-enter the said premises or restore the
operation of this instrument, and Lessee hereby waives the right to such
redemption and reentrance under any present or future law, and does hereby
further, for any party claiming through or under Lessee, expressly waive its
right, if any, to make payment of any sum or sums of rent, or otherwise, of
which Lessee shall have made default under any of the covenants of this lease,
and to claim any subrogation to the rights of Lessee under these presents, or
any of the covenants thereof, by reason of such payment.
14.06. Any action taken by Lessor under this Article shall not operate
as a waiver of any right which Landlord would otherwise have against Lessee for
rent hereby reserved or otherwise, and Lessee shall remain responsible to Lessor
for any loss and damage suffered by Landlord by reason of Lessee's default or
breach. The words "re-enter" and "re-entry" as used in this lease are not
restricted to their technical legal meaning.
14.07. With respect to any Litigation arising out of this lease,
Lessee hereby expressly waives the right to a trial by jury and the right to
file any countersuit or cross claim against Lessor.
ART. 15
NO REINSTATEMENT
15.01. No receipt of monies by the Lessor from the Lessee after the
termination or cancellation of this lease, in any lawful manner, shall
reinstate, continue or extend the term
<PAGE>
of this lease, or affect any notice theretofore given to the Lessee, or operate
as a waiver of the right of the Lessor to enforce the payment of fixed or
additional rent or rents then due, or thereafter falling due, or operate as a
waiver of the right of the Lessor to recover possession of the demised premises
by proper suit, action, proceeding or remedy; it being agreed that, after the
service of notice to terminate or cancel this lease, or the commencement of
suit, action or summary proceedings, or any other remedy, or after a final order
or judgment for the possession of the said demised premises, the Lessor may
demand, receive and collect any monies due, or thereafter falling due, without
in any manner affecting such notice, proceeding, suit, action, order or
judgment; and any and all such monies collected shall be deemed to be payments
on account of the use and occupation or the Lessee's liability hereunder.
15.02. The failure of the Lessee or Lessor to enforce any agreement,
condition, covenant or term, by reason of the breach by the Lessee or Lessor ,
after notice had, shall not be deemed to void or affect the right of the Lessee
or Lessor to enforce the same agreement, condition, covenant or term on the
occasion of a subsequent default or breach. (See also Article 22.)
ART. 16
SUBORDINATION
16.01. This lease shall be subject and subordinate to any and all
institutional mortgages which may now or hereafter affect the Lessor's interest
in the real property of which the demised premises form a part, and of all
renewals, modifications,
<PAGE>
consolidations, replacements and extensions thereof. This clause shall be self-
operative and no further instruments of subordination shall be required. In
confirmation of such subordination Lessee shall execute promptly any certificate
that Lessor may reasonably request. (For definition of institutional mortgage,
see Article 29.)
16.02. The foregoing subordination as it pertains to institutional
mortgages existing or hereafter made (which term includes any agreement
modifying any institutional mortgage now in existence or hereafter made) is
conditioned upon the agreement of the institutional mortgagee, to be delivered
by it to Lessee, wherein the mortgagee agrees in substance that so long as
Lessee is not in default beyond the lapse of any applicable notices and grace
periods: (i) the Lessee will not be disturbed in Lessee's possession by any
holder of the mortgage; (ii) Lessee will not be joined in any action or
proceeding to foreclose the mortgage by any holder thereof; and (iii) casualty
insurance proceeds and condemnation awards to which the holder of the mortgage
is entitled under the terms of the mortgage will be applied toward restoration
of the premises consistent with the provisions of Articles 9 and 10 hereof,
respectively, and be disbursed as provided for by these Articles. The giving of
any such agreement by the mortgagee may be conditioned by it on the reciprocal
agreement by the Lessee to attorn to the holder of the mortgage should it become
vested with the Lessor's interest in the premises.
16.03. If in connection with the procurement, continuation or renewal
of any financing for which the real property of which the demised premises form
a part or the interest
<PAGE>
of the Lessee therein under a ground or underlying lease affecting said real
property represents collateral or security in whole or in part,an institutional
lender shall request reasonable modifications of this lease as a condition of
such financing, Lessee shall not withhold its consent thereto provided that such
modifications do not affect any rights of Lessee or obligations of Lessor other
than to a deminimus extent and in no event raises rent or additional rent or
changes the lease term or option term under this lease.
ART. 17
QUIET ENJOYMENT
17.01. Lessee, upon paying the rent and performing the other terms,
provisions and covenants of this lease on Lessee's part to be performed, shall
and may, at all times during the term of this lease, peaceably and quietly have,
hold and enjoy the said demised premises free of molestation by the Lessor.
ART. 18
SUCCESSORS AND ASSIGNS
18.01. The covenants and agreements contained in this lease inure to
the benefit of and are binding upon the parties hereto, their successors and
assigns, but this Article does not modify the provisions governing assignment,
as elsewhere provided for in this lease. (See Art. 12.)
ART. 19
LIABILITY INSURANCE
19.01 Lessee shall provide for and pay the cost and expense, to carry
general liability insurance for the benefit of
<PAGE>
Lessor hereunder in responsible insurance companies indemnifying Lessor against
claims for personal injuries sustained in or about the demised premises, the
sidewalks adjacent thereto, in an amount not less than Two Million Dollars
($2,000,000.00) for injuries or death to one person and Three Million Dollars
($3,000,000.00) for injuries or death arising out of the same accident where
more than one person is involved, and for not less than Five Hundred Thousand
dollars ($500,000.00) in respect to property damage. The public liability
insurance shall extend to any sidewalks, elevators or exterior signs.
ART. 20
ALTERATIONS
20.01. Lessee may make nonstructural alterations to the inside of the
premises, without prior consent of the Lessor. Structural alterations or the
placing of any signs may be made only with the prior approval in writing of
Lessor, which shall not be unreasonably withheld, but subject nevertheless to
all other provisions of Article 3 and 5 hereof. Alterations shall not commence
until such time and lessee exhibits to lessor a building permit and appropriate
insurances, as so deemed by lessor, naming lessor as an additional insured.
ART. 21
NOTICES
21.01. All notices to the parties shall be addressed to them at the
respective addresses herein first given for them,or to such other address, of
which either of them, as the case may be, shall notify the other in the manner
herein stated for giving
<PAGE>
notice. The notice must be given by either, overnight mail or certified mail,
return receipt requested, or by registered mail, return receipt requested. In
the case of certified mail, return receipt requested or registered mail, return
receipt requested, the service of the notice shall be deemed complete upon 3
days after its postmark. In the case of overnight mail, the service of the
notice shall be deemed completed the next day after mailing overnight.
ART. 22
NO WAIVER
22.01. The failure of the Lessor or Lessee to insist in any one or
more instances upon a strict performance of any of the covenants of this lease,
or to exercise any option herein contained, shall not be construed as a waiver
of or relinquishment for the future of the performance of such covenant, or the
right to exercise such option, but the same shall continue and remain in full
force and effect. The receipt by the Lessor of annual or additional rent, with
knowledge of the breach of any covenant hereof, shall not be deemed a waiver of
such breach, and no waiver by the Lessor of any provision hereof shall be deemed
to have been made unless expressed in writing and signed by the Lessor.
22.02. The receipt by the Lessor of any installment of the annual rent
hereunder or any of said additional rent shall not be a waiver of any annual or
additional rent then due.
<PAGE>
ART. 23
REMEDIES CUMULATIVE
23.01. All the rights and remedies herein given to the Lessor for the
recovery of the demised premises because of the default by the Lessee in the
payment of any sums which may be payable pursuant to the terms of this lease, or
upon the breach of any of the terms thereof, or the right to reenter and take
possession of the demised premises upon the happening of any of the defaults or
breaches of any said covenants, or the right to maintain any action for rent or
damages and all other rights and remedies allowed at law or in equity, are
hereby reserved and conferred upon the Lessor as distinct, separate and
cumulative remedies, and no one of them, whether exercised by the Lessor or not,
shall be deemed to be in exclusion of any of the others.
ART. 24
ENTIRE AGREEMENT
24.01. This lease contains the entire agreement between the parties,
and any agreement hereafter made shall not operate to change, modify, or
discharge this lease in whole or in part unless such agreement is in writing and
signed by the party sought to be charged therewith.
ART. 25
NO REPRESENTATIONS
25.01. The Lessee is fully familiar with the physical condition of the
demised premises, the building, improvements, fixtures and equipment thereof,
and Lessee takes the demised premises in their "as is" condition. The Lessor
has made
<PAGE>
no representations whatsoever in connection with the conditions of the demised
premises or of the buildings, improvements, fixtures or equipment thereof, and
the Lessor shall not be liable for any latent or patent defects therein.
ART. 26
ESTOPPEL CERTIFICATE
26.01. The parties hereto agree at the time and from time to time upon
not less than twenty (20) days prior written request by the other, to
execute, acknowledge and deliver to the other a statement in writing certifying
that this lease is unmodified and in full force and effect (or if there have
been modifications that the same is in full force and effect as modified and
stating the modifications), and the dates to which the rent and other charges
have been paid in advance, if any,. Such statement delivered pursuant to this
Article may be relied upon by prospective purchasers of Lessor's interest or
mortgagees of Lessor's interest or assignee of any mortgage upon Lessor's
interest in the demised premises.
ART. 27
DEFAULT BY LANDLORD, LANDLORD'S LIMITATION OF LIABILITY
27.01. In the event of any act or omission of Lessor which would
give Lessee the right, immediately or after lapse of a period of time, to
cancel or terminate this Lease, or to claim a partial or total eviction or
constructive eviction, Lessee shall not exercise such right (i) until it has
given written notice of such act or omission to the holder of each mortgage
and the lessor of each ground or underlying lease which may now or hereafter
<PAGE>
affect the real property of which the Demised Premises form a part, at such
address, if any, as may previously have been furnished to Lessee for such
purpose in writing, and (ii) unless such act or omission shall be one which is
not capable of being remedied by Lessor or such mortgage holder within a
reasonable period of time, until a reasonable period for remedying such act or
omission shall have elapsed following the giving of such notice and following
the time when such holder or lessor shall have become entitled under such
mortgage or lease, as time case may be, to remedy the same (which reasonable
period shall in no event be less than the period to which Lessor would be
entitled under this Lease or otherwise, after similar notice, to effect such
remedy), provided such holder or lessor shall with due diligence give Lessee
written notice of intention to, and shall with due diligence commence and
continue to, remedy such act or omission.
27.02. Each and every term, covenant, condition and provision of this
Lease is hereby made specifically subject to the provisions of this Article
"27". Supplementing the definition of the term "Lessor" as used in this Lease,
which is set forth in Article "29" hereof, any conveyance of fee title of the
land and building of which the demised premises form a part, and any conveyance
of a lease of said building or of said land and building, including but not
limited to any such conveyance by operation of law or order of a court having
jurisdiction, shall be deemed a "sale" thereof within the meaning of said
definition. The term "Lessee" as used in this Article "27" means Lessee named
herein, and any successor, subtenant or assignee of Lessee, so that Lessee named
herein and any successor, subtenant or assignee thereof, upon any assignment or
sublease hereof by any such Lessee,
<PAGE>
whether or not such assignment or sublease has been effected in conformance
with Article "12" hereof, shall be bound by the provisions of this Article "27".
Notwithstanding anything to the contrary provided in this Lease or otherwise
provided by or available at law or in equity, the liability of Lessor for
monetary damages of any nature arising hereunder or in respect hereto shall be
limited to Lessor's interest in the land and building comprising the demised
premises, and Shall in no event extend further, whether or not Lessor then be an
individual, joint venture, tenancy in common, firm, corporation or partnership,
general or limited or otherwise, and there shall be absolutely no personal
liability in excess of any such interest in said land and building on the part
of the members of any firm, partnership or joint venture or other unincorporated
Lessor with respect to any of the terms, covenants or conditions of this Lease.
In the event of a breach or default by Lessor, in respect of any of its
obligations under this Lease, or otherwise relating to the tenancy or use of the
demised premises by Lessee or to this Lease, Lessee shall look solely to the
then equity of the then Lessor in said land and building comprising the demised
premises for the satisfaction of each and every remedy of Lessee, such
exculpation of personal and additional liability which is in excess of any such
interest in the land and building comprising the demised premises being absolute
and without any exception whatsoever.
<PAGE>
ART. 28
DEPOSIT
28.01. Lessee has deposited with Lessor the sum of $30,000.00; which
represents the last two months rental herein.
ART. 29
CERTAIN DEFINITIONS
29.01. The following terms shall have the meanings below described
when used in this lease, namely:
(a) The term "Lessor" as used in this lease means only the owner
of the current interest of the Lessor in the demised premises or, as the case
may be, the successor thereto from time to time. In the event of any transfer at
any time of the interest of the Lessor, the transferror shall be and in hereby
entirely freed and relieved of all covenants and obligations of the Lessor
hereunder, and it shall be deemed and construed without further agreement
between the parties or their respective successors in interest or between the
parties and the transferee that the transferee of the Lessor's interest has
assumed and agreed to carry out any and all covenants and obligations of the
Lessor hereunder.
(b) The term "Institutional Lender" means any one of the following
while and so long as it is the holder of a mortgage on Lessor's interest in the
real property, namely: a bank, trust company and insurance company; also any
pension, retirement or welfare fund or other nonprofit organization where the
investment policy and financial condition of such fund or organization is
subject to the supervision of the state agency in the state where the demised
premises are situate that has
<PAGE>
supervision of banks or, as the case may be, supervision of insurance companies.
(c) An "Institutional Mortgage" is a mortgage on the interest of
Lessor in the real property held by an institutional Lender.
ART. 30
OPTION TO RENEW
30. Lessee shall be granted one (1) three year option to renew this
lease at a fix annual rental each year equal to $180,000.00 payable monthly at
$15,000.00 a month. The option shall be exercised by lessee only if Lessee is
not in default beyond the applicable notice and grace periods of any of the
terms and conditions contained in this lease. Lessee shall notify Lessor 120
days prior to the expiration of the current lease term of its intention to
exercise its option to renew. Failure of lessee to so notify Lessor shall cause
the option to expire and this lease to terminate on the termination date.
ART. 31
HAZARDOUS WASTES
Lessee may not store any hazardous wastes, hazardous substances, or
any products which may create environmental contamination on or near the demised
premises, except in a safe and secure manner, and as permitted by all applicable
laws. Lessee hereby indemnifies and holds harmless Lessor against any third
party claims, actions or proceedings concerning any environmental contamination
to the demised premises or adjacent areas caused by or on behalf of Lessee, its
employees, agents, licensees,
<PAGE>
customers, invitees or guests. Lessee further agrees to recompense Lessor for
any damage or loss including reasonable attorney fees arising out of any
environmental contamination to the demised premises or adjacent areas caused by
or on behalf of Lessee, its employees, agents, licensees, customers, invitees or
guests. Lessor represents that it has no knowledge of any existing violations of
environmental laws which would affect the demised premises. Lessor shall defend
indemnify and hold Lessee harmless against any losses, costs and expenses
incurred by Lessee as a result of any claims which may be made against Lessee
relating to any existing violation thereof or violations hereinafter caused by
Lessor.
ART. 32
BROKERAGE CLAUSE
Both the Lessee and Lessor represent and warrant that No broker
brought about this Lease, and that neither Lessee nor Lessor consulted with any
broker with regard to this transaction and that no broker negotiated this
transaction. Lessee and Lessor agree that they will hold one another harmless
and indemnify the other in the event any claim for a brokerage commission is
presented by any broker or firm claiming to have acted at the behest of the
indemnifying party. The parties further agree that this hold harmless and
indemnification shall include, but not be limited to, reimbursement to the other
of the other's reasonable legal fees, cost and disbursements in the defense of
any action brought for a breach of this warranty.
<PAGE>
ART. 33
NON-DISTURBANCE INDEMNITY
Lessor shall indemnify Lessee from and against any losses, costs
and/or expenses of any kind or nature arising out of a disturbance of Lessee's
tenancy hereto by any mortgage holder of the demised premises. Lessor represents
the current mortgage or mortgages on the demised premises are in good standing
and not in default.
IN WITNESS WHEREOF, the parties have executed these presents as of
the day and year first above written.
HIP Realty, Inc.
By: /s/
----------------------
Lessor
Graham-Field, Inc.
BY: /s/
---------------------
General Council
Lessee
<PAGE>
EXHIBIT "A"
TERM YEARLY MONTHLY
---- ------ -------
3/1/96-2/28/1997 $162,000.00 $13,500.00
3/1/97-2/28/1999 $180,000.00 $15,000.00
1. The fixed rental for March, 1996 shall be $0.00.
<PAGE>
SCHEDULE A
The premises in which the Insured has the estate or Interest covered by
this policy
All that certain plot, piece or parcel of land with the buildings and
improvements thereon erected, situate, lying and being in City of Mount Vernon,
County of Westchester and State of New York, bounded and described as follows:
BEGINNING at a point on the southerly side of Kingsbridge Road where
the same is intersected by the westerly line of land now or formerly belonging
to Academy Knitted Fabrics Corp. and distance as measured along said southerly
sid of Kingsbridge Road 165.46 feet westerly from the westerly end of a curve
having a radius of 30 feet and a length of arc of 39.81 feet connecting said
southerly side of Kingsbridge Road and the westerly side of South Third Avenue;
RUNNING thence along the westerly line of said land now or formerly of
Academy Knitted Fabric Corp. South 4 degrees 13 minutes 19 seconds West 192.46
feet to the division line between the cites of Mount Vernon and New York.
THENCE along said division line, south 75 degrees 11 minutes 40
seconds west 18.70 feet and north 68 degrees 39 minutes 36.4 seconds west 255.25
feet;
THENCE north 25 degrees 11 minutes 17 seconds east 132.98 feet to the
southerly side of Kindgsbridge Road;
THENCE along said southerly side of Kingsbridge Road easterly on a
curve to the left having a radius of 311 feet a distance of 21.62 feet and south
85 degrees 46 minutes 41 seconds east 192.45 feet to the point or place of
BEGINNING.
EXHIBIT 24
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Forms S-8, No. 33-37179, No. 33-38656, No. 33-48860, No. 33-60679, and Post-
Effective Amendment No. 1 to Registration Statements on Form S-8 (No. 33-37179
and No. 33-38656)) pertaining to the Incentive Program, as amended, of Graham-
Field Health Products, Inc. and the Registration Statement on Form S-3
(No. 3-57066) of our report dated March 8, 1996 with respect to the consolidated
financial statements and schedule of Graham-Field Health Products, Inc. included
in the Annual Report (Form 10-K) for the year ended December 31, 1995.
ERNST & YOUNG LLP
Melville, New York
March 28, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1995 AND THE CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 AS INCLUDED IN THE FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 214
<SECURITIES> 0
<RECEIVABLES> 21,936
<ALLOWANCES> 0
<INVENTORY> 29,819
<CURRENT-ASSETS> 53,979
<PP&E> 8,120
<DEPRECIATION> 0
<TOTAL-ASSETS> 99,799
<CURRENT-LIABILITIES> 20,216
<BONDS> 19,972
0
0
<COMMON> 352
<OTHER-SE> 59,259
<TOTAL-LIABILITY-AND-EQUITY> 99,799
<SALES> 100,113
<TOTAL-REVENUES> 100,403
<CGS> 68,883
<TOTAL-COSTS> 68,883
<OTHER-EXPENSES> 27,566
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,656
<INCOME-PRETAX> 1,298
<INCOME-TAX> 560
<INCOME-CONTINUING> 738
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 738
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
