As filed with the Securities and Exchange Commission on October 18, 1996
Registration No. 333-______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
GRAHAM-FIELD HEALTH PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
--------------
Delaware 5047 11-2578230
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Identification
Organization) Number) Number)
--------------
400 Rabro Drive East
Hauppauge, New York 11788
(516) 582-5900
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
Richard S. Kolodny, Esq.
Vice President, General Counsel and Secretary
400 Rabro Drive East
Hauppauge, New York 11788
(516) 582-5900
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
Copies to:
Robert S. Reder, Esq. John P. Denneen, Esq.
Milbank, Tweed, Hadley & McCloy Bryan Cave LLP
1 Chase Manhattan Plaza One Metropolitan Square
New York, New York 10005 211 North Broadway, Suite 3600
Telephone (212) 530-5680 St. Louis, Missouri 63102
Telephone (314) 259-2265
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement is declared effective and the
effective time of the merger (the "Merger") of E&J Acquisition Corp.
("Acquisition Corp."), a wholly-owned subsidiary of Graham-Field Health
Products, Inc. ("Graham-Field" or "Registrant"), with and into Everest &
Jennings International Ltd. ("E&J") pursuant to the Amended and Restated
Agreement and Plan of Merger, dated as of September 3, 1996 and amended as of
October 1, 1996 (the "Merger Agreement"), by and among Graham-Field, E&J, BIL
(Far East Holdings) Limited (together with its affiliates, "BIL") and
Acquisition Corp., as described in the enclosed Joint Proxy Statement/Prospectus
included as Part I of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. |_|
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CALCULATION OF REGISTRATION FEE
(see following page)
--------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=========================================================================================================
Title of Each Class of Proposed Maximum Proposed Maximum
Securities Amount to Offering Price Aggregate Offering Amount of
to be Registered(1) be Registered(3) Per Unit Price(4) Registration Fee(5)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par
value $.025 per share,
together with
Preferred Share
Purchase Rights(2)..... 8,905,691 N/A $62,648,961 $15,162
=========================================================================================================
</TABLE>
(1) This Registration Statement relates to the maximum number of shares of
common stock, par value $.025 per share, of Graham-Field ("Graham-Field
Common Stock") issuable (a) to holders of shares of common stock, par value
$.10, of E&J ("E&J Common Stock") in the Merger, (b) to BIL in exchange for
the delivery of funds to Graham-Field by BIL of an amount equal to the
amount of indebtedness owing by E&J to Hong Kong and Shanghai Banking
Corporation Limited subject to a maximum of $25 million (the "HSBC Debt
Payment"), and (c) upon the conversion of shares of Series B Cumulative
Convertible Preferred Stock, par value $.01 per share, of Graham-Field (the
"Series B Preferred Stock") and shares of Series C Cumulative Convertible
Preferred Stock, par value $.01 per share, of Graham-Field (the "Series C
Preferred Stock") being issued to BIL pursuant to the Merger Agreement in
connection with the Merger.
(2) Each share of Graham-Field Common Stock includes one Preferred Share
Purchase Right. Preferred Share Purchase Rights are attached to and trade
with the Graham-Field Common Stock. The value attributable to such rights,
if any, is reflected in the market price of Graham-Field Common Stock.
(3) Based on the sum of (a) the product of (i) 7,277,521, the maximum number of
shares of E&J Common Stock that will be outstanding immediately prior to
the Merger (assuming the exercise of all vested options) and (ii) .35, the
maximum Conversion Number (as defined in the Merger Agreement), which
represents the maximum number of shares of Graham-Field Common Stock that
may be issued to the holders of E&J Common Stock pursuant to the Merger
Agreement; (b) $25 million, the maximum amount of the HSBC Debt Payment,
divided by $13.00, which represents the maximum number of shares of
Graham-Field Common Stock that may be issued to BIL in connection with the
HSBC Debt Payment; and (c) the maximum number of shares of Graham-Field
Common Stock issuable upon conversion of the Series B Preferred Stock and
the Series C Preferred Stock.
(4) Pursuant to Rules 457(c) and 457(f)(1) of the Securities Act of 1933, as
amended, and solely for the purpose of calculating the registration fee,
the proposed maximum aggregate offering price is based on the sum of (a)
the product of (i) 7,277,521, the maximum number of shares of E&J Common
Stock that will be outstanding immediately prior to the Merger (assuming
the exercise of all vested options), and (ii) $2.6563, the average of the
high and low prices of E&J Common Stock as reported on the American Stock
Exchange Composite Transactions Tape on October 15, 1996; (b) the product
of (i) 1,923,076, the maximum number of shares of Graham-Field Common Stock
issuable to BIL in connection with the HSBC Debt Payment, and (ii) $6.8125,
the average of the high and low prices of Graham-Field Common Stock as
reported on the New York Stock Exchange Composite Transactions Tape on
October 15, 1996; (c) the product of (i) 3,935,483, the maximum number of
shares of Graham-Field Common Stock issuable upon conversion of the Series
B Preferred Stock, and (ii) $6.8125, the average of the high and low prices
of Graham-Field Common Stock as reported on the New York Stock Exchange
Composite Transactions Tape on October 15, 1996; and (d) the product of (i)
500,000, the maximum number of shares of Graham-Field Common Stock issuable
upon conversion of the Series C Preferred Stock, and (ii) $6.8125, the
average of the high and low prices of Graham-Field Common Stock as reported
on the New York Stock Exchange Composite Transactions Tape on October 15,
1996.
(5) In accordance with Rule 457(b) of the Securities Act of 1933, as amended,
the amount of the registration fee was reduced by $3,821, which is the
amount of the fee paid to the Securities and Exchange Commission on
September 20, 1996 in connection with the confidential filing of the
Preliminary Joint Proxy Statement/Prospectus included as Part I of this
Registration Statement.
<PAGE>
GRAHAM-FIELD HEALTH PRODUCTS, INC.
Cross-Reference Sheet
for
Registration Statement on Form S-4 and Prospectus
Location in Joint Proxy
Form S-4 Item Number and Caption Statement/Prospectus
- -------------------------------- --------------------
A. Information About the Transaction
1. Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus...................... Facing Page of the Registration
Statement; Cross-Reference Sheet;
Cover Page of Joint Proxy
Statement/Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus....... TABLE OF CONTENTS; AVAILABLE
INFORMATION; INCORPORATION OF
DOCUMENTS BY REFERENCE
3. Risk Factors, Ratio of Earnings to
Fixed Charges and Other
Information..................... SUMMARY -- Risk Factors; SUMMARY
FINANCIAL INFORMATION -- Comparative
Per Share Data; SUMMARY FINANCIAL
INFORMATION -- Comparative Market
Price Data; RISK FACTORS
4. Terms of the Transaction.......... SUMMARY -- The Merger; THE MERGER;
DESCRIPTION OF GRAHAM-FIELD CAPITAL
STOCK; COMPARISON OF STOCKHOLDER
RIGHTS
5. Pro Forma Financial Information... SUMMARY -- Summary Unaudited Pro
Forma Combined Condensed Financial
Information; UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL
INFORMATION
6. Material Contacts With the Company
Being Acquired.................. SUMMARY -- The Merger; THE MERGER --
Background of the Merger; THE MERGER
-- Conflicts of Interest
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters....... Not Applicable
8. Interests of Named Experts and
Counsel......................... THE MERGER -- Opinions of Financial
Advisors; LEGAL MATTERS; EXPERTS
9. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities................. Not Applicable
B. Information About the Registrant
10. Information with Respect to S-3
Registrants..................... INCORPORATION OF DOCUMENTS BY
REFERENCE
11. Incorporation of Certain
Information by Reference........ INCORPORATION OF DOCUMENTS BY
REFERENCE; DESCRIPTION OF
GRAHAM-FIELD CAPITAL STOCK
<PAGE>
Location in Joint Proxy
Form S-4 Item Number and Caption Statement/Prospectus
- -------------------------------- --------------------
12. Information With Respect to S-2
or S-3 Registrants.............. Not Applicable
13. Incorporation of Certain
Information by Reference........ Not Applicable
14. Information with Respect to
Registrants Other Than S-2 or
S-3 Registrants................. Not Applicable
C. Information About the Company Being Acquired
15. Information With Respect to S-3
Companies....................... Not Applicable
16. Information With Respect to S-2
or S-3 Companies................ Not Applicable
17. Information With Respect to
Companies Other Than S-2 or
S-3 Companies................... SUMMARY FINANCIAL INFORMATION --
Summary Historical Financial
Information of E&J; SUMMARY
FINANCIAL INFORMATION -- Comparative
Market Price Data; MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OF E&J; CERTAIN INFORMATION
CONCERNING E&J; AUDITED CONSOLIDATED
FINANCIAL STATEMENTS OF E&J;
UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS OF E&J
D. Voting and Management Information
18. Information if Proxies, Consents
or Authorizations are to be
Solicited....................... INCORPORATION OF DOCUMENTS BY
REFERENCE; SUMMARY -- The Meetings;
MEETINGS, VOTING AND PROXIES; THE
MERGER -- Conflicts of Interest; THE
MERGER -- Absence of Appraisal
Rights; CERTAIN INFORMATION
CONCERNING E&J; STOCKHOLDER
PROPOSALS FOR 1997 ANNUAL MEETINGS
19. Information if Proxies, Consents
or Authorizations are not to be
Solicited or in an Exchange
Offer........................... Not Applicable
<PAGE>
GRAHAM-FIELD HEALTH PRODUCTS, INC.
400 Rabro Drive East
Hauppauge, New York 11788
October 22, 1996
Dear Fellow Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Graham-Field Health Products, Inc. to be held on Wednesday, November 27, 1996 at
The Chase Manhattan Bank, 13th Floor (the Auditorium), 55 Water Street, New
York, New York. The Special Meeting will start at 9:00 a.m., local time.
At this important meeting, you will be asked to vote upon the approval of
the issuance of shares of Graham-Field stock pursuant to an Amended and Restated
Agreement and Plan of Merger providing for the merger of a wholly-owned
subsidiary of Graham-Field into Everest & Jennings International Ltd. Upon the
effectiveness of the merger, Everest & Jennings will become a wholly-owned
subsidiary of Graham-Field and the holders of Everest & Jennings common stock
will receive .35 shares of Graham-Field common stock in exchange for each share
of Everest & Jennings common stock owned by them. This exchange ratio will be
reduced to the extent necessary to cause the value of the Graham-Field stock
issued in exchange for each share of Everest & Jennings stock not to exceed
$5.50.
As is more fully described in the attached Joint Proxy
Statement/Prospectus, Everest & Jennings' majority stockholder, BIL (Far East
Holdings) Limited, an affiliate of Brierley Investments Limited, a New Zealand
investment holding company, will receive at the closing of the merger additional
shares of Graham-Field common and convertible preferred stock in exchange for
$35 million in cash ($25 million of which will be used to retire Everest &
Jennings bank debt) and debt and preferred stock of Everest & Jennings held by
BIL. As a result, BIL will own shares of common and preferred stock of
Graham-Field representing approximately 36% of the total voting power of all
outstanding Graham-Field shares. BIL will initially be entitled to nominate two
directors to the Graham-Field Board, and has agreed to certain standstill,
voting and transfer restrictions with respect to its shares of Graham-Field
stock.
The strategic combination of Graham-Field and Everest & Jennings will
create a company with approximately $200 million of revenues, positioning
Graham-Field as one of the leading manufacturers of durable medical products in
the United States and providing us with a world-class manufacturing operation
for the wheelchair product line. The merger will unite Everest & Jennings'
manufacturing operations and rehabilitation product lines with Graham-Field's
distribution network and advanced technology systems, to provide penetration in
both the homecare and rehabilitation markets with a greater level of service and
efficiency, as well as a broader portfolio of products. In addition, the Everest
& Jennings name, a symbol of quality for more than 50 years, will permit
Graham-Field to introduce its Temco home healthcare product line, as well as its
other self-manufactured product lines, into the rehabilitation marketplace, a
virtually untapped marketplace for Graham-Field in the past.
AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND
UNANIMOUSLY CONCLUDED THAT THE TERMS OF THE MERGER ARE FAIR TO AND IN THE BEST
INTERESTS OF GRAHAM-FIELD AND ITS STOCKHOLDERS. ACCORDINGLY, YOUR BOARD
UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE ISSUANCE OF GRAHAM FIELD
SHARES IN THE MERGER.
In addition, at the Special Meeting you will be asked to vote on a proposal
to amend Graham-Field's Certificate of Incorporation to increase the number of
authorized shares of common stock from
<PAGE>
40 million to 60 million, several other proposed amendments to the Certificate
of Incorporation intended to enhance Graham-Field's classified board structure,
and a proposal to adopt an amendment to Graham-Field's Incentive Program to
increase the number of shares available for grants under the Program by 900,000.
The proposals to increase the number of authorized shares of common stock and
the number of shares available under the Incentive Program will not be effected,
even if approved at the Special Meeting, if the Everest & Jennings merger is not
consummated for any reason. These proposals are also described in detail in the
attached Joint Proxy Statement/Prospectus.
For the merger to become effective, the proposals described above must be
approved by the stockholders of Graham-Field at the Special Meeting. For that
reason, it is very important that your shares be represented at the Special
Meeting, whether or not you are able to attend in person. Accordingly, you are
urged to vote FOR the merger and the other proposals by marking, signing, dating
and returning the accompanying proxy in the enclosed envelope. Your vote is
important no matter how many shares you own.
Thank you for your continued support.
On behalf of the
Board of Directors,
Irwin Selinger
Chairman of the Board and
Chief Executive Officer
2
<PAGE>
GRAHAM-FIELD HEALTH PRODUCTS, INC.
400 Rabro Drive East
Hauppauge, New York 11788
(516) 582-5900
--------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS To Be Held On
November 27, 1996
--------------
To the Stockholders of GRAHAM-FIELD HEALTH PRODUCTS, INC.:
A Special Meeting of the Stockholders (together with any adjournments or
postponements thereof, the "Graham-Field Special Meeting") of Graham-Field
Health Products, Inc., a Delaware corporation ("Graham-Field"), will be held at
The Chase Manhattan Bank, 13th Floor (the Auditorium), 55 Water Street, New
York, New York on Wednesday, November 27, 1996, commencing at 9:00 a.m., local
time, for the following purposes, as more fully described in the accompanying
Joint Proxy Statement/Prospectus:
1. To approve the issuance of shares of capital stock of Graham-Field
pursuant to an Amended and Restated Agreement and Plan of Merger dated as of
September 3, 1996 and amended as of October 1, 1996 (the "Merger Agreement"), by
and among Graham-Field, E&J Acquisition Corp., a wholly-owned subsidiary of
Graham-Field ("Acquisition Corp."), Everest & Jennings International Ltd.
("E&J"), and BIL (Far East Holdings) Limited, the majority stockholder of E&J
("BIL"), which provides for the merger of Acquisition Corp. with and into E&J
(the "Merger") and the following issuances of capital stock of Graham-Field
(together, the "Share Issuances"):
(a) .35 shares of common stock, par value $.025 per share, of
Graham-Field ("Graham-Field Common Stock") will be issued in the Merger in
exchange for each outstanding share of common stock of E&J, subject to
reduction as more fully described in the accompanying Joint Proxy
Statement/Prospectus;
(b) additional shares of Graham-Field Common Stock having a value not
to exceed $25 million will be issued to BIL for cash, the proceeds of which
will be contributed by Graham-Field to E&J upon the effectiveness of the
Merger and used to repay certain indebtedness of E&J;
(c) up to $61 million stated value of a new Series B Cumulative
Convertible Preferred Stock of Graham-Field will be issued to BIL in
exchange for certain indebtedness of E&J owing to BIL and preferred stock
of E&J owned by BIL; and
(d) $10 million stated value of a new Series C Cumulative Convertible
Preferred Stock of Graham-Field will be issued to BIL for cash, the
proceeds of which will be available for general corporate purposes.
2. To adopt an amendment to Article FOURTH of the Certificate of
Incorporation of Graham-Field (the "Certificate of Incorporation") to increase
the number of authorized shares of Graham-Field Common Stock from 40,000,000
shares to 60,000,000 shares (the "Stock Amendment").
3. To adopt an amendment to Article NINTH of the Certificate of
Incorporation to require that stockholder action be taken at an annual meeting
of stockholders or at a special meeting of stockholders and prohibit stockholder
action by written consent.
4. To adopt an amendment to Article ELEVENTH of the Certificate of
Incorporation to, among other things, provide that directors be removed only for
cause and only with the approval of the holders
<PAGE>
of at least 50% of the voting power of Graham-Field entitled to vote generally
in the election of directors.
5. To adopt an amendment to Article TWELFTH of the Certificate of
Incorporation to provide that the stockholder vote required to alter, amend, or
repeal certain provisions of the Graham-Field Bylaws, or to adopt any provision
inconsistent therewith, shall be 80% of the voting power of Graham-Field
entitled to vote generally in the election of directors (together with the
proposed amendments to Articles NINTH and ELEVENTH, the "Stockholder Action
Amendments").
6. To approve an amendment to the Graham-Field Incentive Program to
increase the maximum number of shares of Graham-Field Common Stock available
under the Incentive Program by 900,000 shares (the "Incentive Program
Amendment").
7. To consider and vote on such other matters as may properly be presented
incident to the conduct of the Graham-Field Special Meeting.
THE BOARD OF DIRECTORS OF GRAHAM-FIELD HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND UNANIMOUSLY CONCLUDED
THAT THE TERMS OF THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF
GRAHAM-FIELD AND ITS STOCKHOLDERS. ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS
THAT YOU VOTE FOR APPROVAL OF THE ISSUANCE OF GRAHAM-FIELD SHARES IN THE MERGER.
THE BOARD ALSO UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF THE
OTHER PROPOSALS LISTED ABOVE.
Pursuant to the Merger Agreement, approval of the Stock Amendment and the
Incentive Program Amendment is a condition to Graham-Field's obligation to
consummate the Merger. If any of the Stockholder Action Amendments is approved
by stockholders at the Graham-Field Special Meeting, such amendment will be
effected regardless of whether any of the other proposed amendments to the
Certificate of Incorporation or any other matter on which a vote is taken at the
Graham-Field Special Meeting is approved or the Merger is consummated. However,
in the event that the Merger is not consummated for any reason, the Stock
Amendment and Incentive Program Amendment will not be effected, even if approved
by the stockholders at the Graham-Field Special Meeting.
Holders of record of Graham-Field Common Stock at the close of business on
October 11, 1996, which is the record date for the Graham-Field Special Meeting,
are entitled to receive notice of and to vote at the Graham-Field Special
Meeting.
All stockholders are cordially invited to attend the Graham-Field Special
Meeting in person. Whether or not you plan to attend the Graham-Field Special
Meeting, please complete, sign, date and return the enclosed Proxy to ensure
that your shares are represented at the Graham-Field Special Meeting.
Stockholders who attend the Graham-Field Special Meeting may revoke their
proxies and vote their shares in person, if they desire to do so.
By Order of the Board of Directors
Richard S. Kolodny
Vice President, General Counsel and
Secretary
Hauppauge, New York
October 22, 1996
THE PROMPT RETURN OF PROXIES WILL SAVE GRAHAM-FIELD THE EXPENSE OF FURTHER
REQUESTS FOR PROXIES IN ORDER TO ENSURE A QUORUM. A SELF-ADDRESSED ENVELOPE IS
ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED WITHIN THE
UNITED STATES.
2
<PAGE>
EVEREST & JENNINGS INTERNATIONAL LTD.
4203 Earth City Expressway
Earth City, Missouri 63045
October 22, 1996
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Everest & Jennings International Ltd. to be held on Wednesday, November 27, 1996
at the St. Regis Hotel, 2 East 55th Street, New York, New York. The Special
Meeting will start at 9:00 a.m., local time.
At this important meeting, you will be asked to vote upon the adoption of
an Amended and Restated Agreement and Plan of Merger providing for the merger of
a wholly-owned subsidiary of Graham-Field Health Products, Inc. into Everest &
Jennings. Upon the effectiveness of the merger, Everest & Jennings will become a
wholly-owned subsidiary of Graham-Field and the holders of Everest & Jennings
common stock will receive .35 shares of Graham-Field common stock in exchange
for each share of Everest & Jennings common stock owned by them. This exchange
ratio will be reduced to the extent necessary to cause the value of the
Graham-Field stock issued in exchange for each share of Everest & Jennings stock
not to exceed $5.50.
As is more fully described in the attached Joint Proxy
Statement/Prospectus, Everest & Jennings' majority stockholder, BIL (Far East
Holdings) Limited, an affiliate of Brierley Investments Limited, a New Zealand
investment holding company, will receive at the closing of the merger additional
shares of Graham-Field common and convertible preferred stock in exchange for
$35 million in cash ($25 million of which will be used to retire Everest &
Jennings bank debt) and debt and preferred stock of Everest & Jennings held by
BIL. As a result, BIL will own shares of common and preferred stock of
Graham-Field representing approximately 36% of the total voting power of all
outstanding Graham-Field shares. BIL will initially be entitled to nominate two
directors to the Graham-Field Board, and has agreed to certain standstill,
voting and transfer restrictions with respect to its shares of Graham-Field
stock.
The strategic combination of Graham-Field and Everest & Jennings will unite
Everest & Jennings' manufacturing operations and rehabilitation product lines
with Graham-Field's distribution network and advanced technology systems, to
provide penetration in both the homecare and rehabilitation markets with a
greater level of service and efficiency, as well as a broader portfolio of
products. The combined company will have approximately $200 million of revenues.
AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND
UNANIMOUSLY CONCLUDED THAT THE TERMS OF THE MERGER ARE FAIR TO AND IN THE BEST
INTERESTS OF THE STOCKHOLDERS OF EVEREST & JENNINGS OTHER THAN BIL. ACCORDINGLY,
YOUR BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR ADOPTION OF THE MERGER AGREEMENT.
It is very important that your shares be represented at the Special
Meeting, whether or not you are able to attend in person. Accordingly, you are
urged to vote FOR adoption of the Merger Agreement by marking, signing, dating
and returning the accompanying proxy in the enclosed envelope. Your vote is
important no matter how many shares you own.
Thank you for your continued support.
Cordially,
Rodney F. Price
Chairman of the Board
Bevil J. Hogg
President and Chief Executive Officer
<PAGE>
EVEREST & JENNINGS INTERNATIONAL LTD.
4203 Earth City Expressway
Earth City, Missouri 63045
(314) 512-7251
--------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS To Be Held on
November 27, 1996
--------------
To the Stockholders of
Everest & Jennings International Ltd.:
A Special Meeting of the Stockholders (together with any adjournments or
postponements thereof, the "E&J Special Meeting") of Everest & Jennings
International Ltd., a Delaware corporation ("E&J"), will be held at the St.
Regis Hotel, 2 East 55th Street, New York, New York, on Wednesday, November 27,
1996, commencing at 9:00 a.m., local time, for the following purposes as more
fully described in the accompanying Joint Proxy Statement/Prospectus:
1. To consider and vote upon a proposal to adopt an Amended and
Restated Agreement and Plan of Merger dated as of September 3, 1996 and
amended as of October 1, 1996 by and among Graham-Field Health Products,
Inc. ("Graham-Field"), E&J Acquisition Corp., a wholly-owned subsidiary of
Graham-Field ("Acquisition Corp."), BIL (Far East Holdings) Limited, the
majority stockholder of E&J ("BIL"), and E&J, which provides for the merger
of Acquisition Corp. with and into E&J (the "Merger"), whereby E&J will
become a wholly-owned subsidiary of Graham-Field and the holders of common
stock, par value $.10 per share, of E&J ("E&J Common Stock") will be
entitled to receive, in exchange for each share of E&J Common Stock, .35
shares of Graham-Field common stock, subject to reduction as described more
fully in the accompanying Joint Proxy Statement/Prospectus, and additional
issuances to BIL of (i) up to 1,923,076 shares of Graham-Field Common Stock
for up to $25 million, (ii) up to $61 million stated value of a new Series
B Cumulative Convertible Preferred Stock of Graham-Field in exchange for
the indebtedness of E&J owing to BIL and the Preferred Stock of E&J owned
by BIL, (iii) $10 million stated value of a new Series C Cumulative
Convertible Preferred Stock of Graham-Field for $10 million and (iv) a $4
million 7.7% Subordinated Note of Graham-Field due April 1, 2001 in
exchange for a $4 million short-term promissory note of Graham-Field; and
2. To consider and vote on such other matters as may properly be
presented incident to the conduct of the E&J Special Meeting or any
adjournment or postponement thereof.
THE BOARD OF DIRECTORS OF E&J HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED THEREBY AND UNANIMOUSLY CONCLUDED THAT THE
TERMS OF THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF
E&J OTHER THAN BIL. ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE
FOR ADOPTION OF THE MERGER AGREEMENT.
Holders of record of E&J Common Stock and E&J Preferred Stock at the close
of business on October 11, 1996, which is the record date for the E&J Special
Meeting, are entitled to receive notice of and to vote at the E&J Special
Meeting.
All stockholders are cordially invited to attend the E&J Special Meeting in
person. Whether or not you plan to attend the E&J Special Meeting, please
complete, sign, date and return the enclosed Proxy to ensure that your shares
are represented at the E&J Special Meeting. Stockholders who attend the
<PAGE>
E&J Special Meeting may revoke their proxies and vote their shares in person, if
they should desire to do so.
By Order of the Board of Directors
Timothy W. Evans
Senior Vice President, Chief
Financial Officer and Secretary
Earth City, Missouri
October 22, 1996
BIL OWNS A SUFFICIENT NUMBER OF SHARES OF CAPITAL STOCK OF E&J TO ASSURE
ADOPTION OF THE MERGER AGREEMENT AND HAS GRANTED TO GRAHAM-FIELD AN IRREVOCABLE
PROXY TO VOTE SUCH SHARES IN FAVOR OF THE MERGER, THEREBY ASSURING THAT
GRAHAM-FIELD WILL HAVE THE ABILITY TO APPROVE THE MERGER WITHOUT THE AFFIRMATIVE
VOTE OF ANY OTHER STOCKHOLDER OF E&J.
2
<PAGE>
JOINT PROXY STATEMENT
OF
GRAHAM-FIELD HEALTH PRODUCTS, INC.
AND
EVEREST & JENNINGS INTERNATIONAL LTD.
FOR MEETINGS OF THEIR RESPECTIVE
STOCKHOLDERS TO BE HELD
ON NOVEMBER 27, 1996
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GRAHAM-FIELD HEALTH PRODUCTS, INC.
PROSPECTUS
--------------
This Joint Proxy Statement/Prospectus relates to the proposed merger (the
"Merger") of E&J Acquisition Corp. ("Acquisition Corp."), a Delaware corporation
wholly owned by Graham-Field Health Products, Inc., a Delaware corporation
("Graham-Field"), with and into Everest & Jennings International Ltd., a
Delaware corporation ("E&J"), pursuant to the Amended and Restated Agreement and
Plan of Merger dated as of September 3, 1996 and amended as of October 1, 1996
by and among Graham-Field, Acquisition Corp., BIL (Far East Holdings) Limited, a
Hong Kong corporation and the majority stockholder of E&J ("BIL"), and E&J (the
"Merger Agreement"), and is being furnished to the stockholders of Graham-Field
in connection with the solicitation of proxies by Graham-Field's Board of
Directors (the "Graham-Field Board") for use at the Special Meeting of
Graham-Field stockholders (the "Graham-Field Special Meeting") to be held on
November 27, 1996 at The Chase Manhattan Bank, 13th Floor (the Auditorium), 55
Water Street, New York, New York, and any adjournment or postponement thereof.
This Joint Proxy Statement/Prospectus is also being furnished to the
stockholders of E&J in connection with the solicitation of proxies by E&J's
Board of Directors (the "E&J Board") for use at the Special Meeting of E&J
stockholders (the "E&J Special Meeting") to be held on November 27, 1996 at the
St. Regis Hotel, 2 East 55th Street, New York, New York, and at any adjournment
or postponement thereof. BIL owns a sufficient number of shares of capital stock
of E&J to assure adoption of the Merger Agreement and has granted to
Graham-Field an irrevocable proxy to vote such shares in favor of the Merger,
thereby assuring that Graham-Field will have the ability to approve the Merger
without the affirmative vote of any other stockholder of E&J.
The Merger Agreement provides that, at the time the Merger becomes
effective, holders of common stock, par value $.10 per share, of E&J ("E&J
Common Stock") will have the right to receive in the Merger, in exchange for
each of their issued and outstanding shares of E&J Common Stock, .35 (the
"Conversion Number") of a fully paid and nonassessable share of common stock,
par value $.025 per share, of Graham-Field ("Graham-Field Common Stock"),
including the corresponding percentage of a right to purchase shares of Series A
Junior Participating Preferred Stock of Graham-Field (see "COMPARISON OF
STOCKHOLDER RIGHTS -- Rights Agreement"). The Conversion Number is subject to
reduction to the extent necessary so that the value of each fraction of a share
of Graham-Field Common Stock issued in exchange for each share of E&J Common
Stock does not exceed $5.50 (see "THE MERGER -- Conversion of E&J Shares in the
Merger"). Cash will be paid in lieu of fractional shares. The Merger Agreement
also provides that, at the time the Merger becomes effective:
(i) Graham-Field will issue to BIL for cash additional shares of
Graham-Field Common Stock having a value not to exceed $25 million, the
proceeds of which will be contributed by Graham-Field to E&J upon the
effectiveness of the Merger and used to repay certain indebtedness of E&J;
(ii) Graham-Field will issue to BIL up to $61 million stated value of
a new Series B Cumulative Convertible Preferred Stock, par value $.01 per
share, of Graham-Field
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(the "Graham-Field Series B Preferred Stock"), in exchange for certain
indebtedness of E&J owing to BIL and preferred stock of E&J owned by BIL;
and
(iii) Graham-Field will issue to BIL for cash $10 million stated value
of a new Series C Cumulative Convertible Preferred Stock, par value $.01
per share, of Graham-Field (the "Graham-Field Series C Preferred Stock"),
the proceeds of which will be available for general corporate purposes.
The consummation of the Merger is subject, among other things, to (i) the
approval by Graham-Field stockholders of the issuances of Graham-Field Common
Stock, Graham-Field Series B Preferred Stock and Graham-Field Series C Preferred
Stock contemplated by the Merger Agreement and (ii) the approval by E&J
stockholders of the Merger Agreement.
At the Graham-Field Special Meeting, Graham-Field stockholders also will be
asked to adopt amendments (x) to Graham-Field's Certificate of Incorporation, as
amended (the "Graham-Field Charter"), to increase the number of authorized
shares of Graham-Field Common Stock from 40 million to 60 million (the "Stock
Amendment") and to, among other things, limit the ability of Graham-Field
stockholders to take action by written consent in lieu of a meeting (the
"Stockholder Action Amendments"), and (y) to Graham-Field's Incentive Program to
increase the maximum number of shares of Graham-Field Common Stock available
thereunder by 900,000 (the "Incentive Program Amendment"). See "AMENDMENTS TO
THE GRAHAM-FIELD CERTIFICATE OF INCORPORATION" and "AMENDMENT TO THE
GRAHAM-FIELD INCENTIVE PROGRAM". Pursuant to the Merger Agreement, approval of
the Stock Amendment and the Incentive Program Amendment is a condition to
Graham-Field's obligation to consummate the Merger. If any of the Stockholder
Action Amendments is approved by stockholders at the Graham-Field Special
Meeting, such amendment will be effected regardless of whether any of the other
proposed amendments to the Graham-Field Charter or any other matter on which a
vote is taken at the Graham-Field Special Meeting is approved or the Merger is
consummated. However, in the event that the Merger is not consummated for any
reason, the Stock Amendment and the Incentive Program Amendment will not be
effected, even if approved by the stockholders at the Graham-Field Special
Meeting.
This Joint Proxy Statement/Prospectus also constitutes a prospectus of
Graham-Field, filed as part of a Registration Statement on Form S-4 (the
"Registration Statement") with the Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to up to (i) 2,547,132 shares of Graham-Field Common Stock to be issued
in exchange for shares of E&J Common Stock pursuant to the Merger Agreement as
described above, (ii) 1,923,076 shares of Graham-Field Common Stock to be issued
to BIL in exchange for cash, the proceeds of which will be contributed by
Graham-Field to E&J upon the effectiveness of the Merger and used to repay
certain indebtedness of E&J, and (iii) 4,435,483 shares of Graham-Field Common
Stock to be issued upon conversion of the Graham-Field Series B Preferred Stock
and the Graham-Field Series C Preferred Stock to be issued to BIL pursuant to
the Merger Agreement.
See "RISK FACTORS" for certain information that should be considered by
both Graham-Field and E&J stockholders.
See "SUMMARY FINANCIAL INFORMATION -- Comparative Market Price Data" for
information relating to recent trading prices of Graham-Field Common Stock and
E&J Common Stock.
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to the stockholders of Graham-Field and E&J on or about
October 22, 1996.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS JOINT PROXY STATEMENT/
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
--------------
The date of this Joint Proxy Statement/Prospectus is October 22, 1996.
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TABLE OF CONTENTS
Page
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AVAILABLE INFORMATION ..................................................... 5
INCORPORATION OF DOCUMENTS BY REFERENCE ................................... 5
SUMMARY ................................................................... 7
The Companies ........................................................... 7
Risk Factors ............................................................ 8
The Meetings ............................................................ 9
The Merger .............................................................. 11
SUMMARY FINANCIAL INFORMATION ............................................. 18
Summary Historical Financial Information of Graham-Field ................ 18
Summary Historical Financial Information of E&J ......................... 20
Summary Unaudited Pro Forma Combined Condensed Financial
Information ........................................................... 21
Comparative Per Share Data .............................................. 22
Comparative Market Price Data ........................................... 23
RISK FACTORS .............................................................. 25
Risk Factors Relating to Graham-Field ................................... 25
Risk Factors Relating to E&J ............................................ 26
Risk Factors Relating to the Merger ..................................... 28
MEETINGS, VOTING AND PROXIES .............................................. 30
Introduction ............................................................ 30
Graham-Field Special Meeting ............................................ 30
E&J Special Meeting ..................................................... 31
Proxy Solicitation ...................................................... 32
THE MERGER ................................................................ 33
Background of the Merger ................................................ 33
Reasons for the Merger; Recommendations of the Boards
of Directors .......................................................... 36
Opinions of Financial Advisors .......................................... 39
Conflicts of Interest ................................................... 49
Conversion of E&J Shares in the Merger .................................. 50
Other Closing Deliveries ................................................ 51
Fractional Shares ....................................................... 53
Exchange of Certificates in the Merger .................................. 53
Certain Terms of the Merger Agreement ................................... 54
Stockholder Agreement ................................................... 60
Registration Rights Agreement ........................................... 62
Certain Litigation ...................................................... 62
Regulatory Matters ...................................................... 63
Graham-Field Financing Arrangements ..................................... 63
Conduct of E&J's Business After the Merger .............................. 64
NYSE Listing ............................................................ 64
Certain Federal Income Tax Consequences ................................. 64
Accounting Treatment .................................................... 65
Absence of Appraisal Rights ............................................. 65
Federal Securities Law Consequences ..................................... 65
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
INFORMATION ............................................................. 66
CERTAIN INFORMATION CONCERNING GRAHAM-FIELD ............................... 75
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF E&J ........................................ 76
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Page
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CERTAIN INFORMATION CONCERNING E&J ....................................... 84
Business of E&J ........................................................ 84
Legal Proceedings ...................................................... 88
E&J Directors .......................................................... 88
E&J Executive Officers ................................................. 89
Security Ownership of Certain Beneficial Owners and Management ......... 90
Executive Compensation ................................................. 91
Stock Options .......................................................... 92
Certain Transactions ................................................... 93
Section 16(a) Beneficial Ownership Reporting Compliance ................ 95
DESCRIPTION OF GRAHAM-FIELD CAPITAL STOCK ................................ 96
COMPARISON OF STOCKHOLDER RIGHTS ......................................... 97
AMENDMENTS TO THE GRAHAM-FIELD CERTIFICATE OF INCORPORATION .............. 101
Proposal to Increase Authorized Shares of Common Stock ................. 101
Proposals Relating to Stockholder Action and Related Matters ........... 103
AMENDMENT TO THE GRAHAM-FIELD INCENTIVE PROGRAM .......................... 108
STOCKHOLDER PROPOSALS FOR 1997 ANNUAL MEETINGS ........................... 112
LEGAL MATTERS ............................................................ 112
EXPERTS .................................................................. 112
INDEX TO FINANCIAL STATEMENTS ............................................ F-1
ANNEX A Amended and Restated Agreement and Plan of Merger
ANNEX B Amended and Restated Stockholder Agreement
ANNEX C Registration Rights Agreement
ANNEX D Graham-Field Series B Preferred Stock Certificate of Designations
ANNEX E Graham-Field Series C Preferred Stock Certificate of Designations
ANNEX F Opinion of Jefferies & Company, Inc.
ANNEX G Opinion of Vector Securities International, Inc.
ANNEX H Proposed Graham-Field Charter Amendments
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AVAILABLE INFORMATION
Each of Graham-Field and E&J is subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
accordingly files reports, proxy statements and other information with the SEC.
Such reports, proxy statements and other information filed with the SEC are
available for inspection and copying at the public reference facilities
maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's Regional Offices located at
Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois
60661-2511 and at 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of such documents may also be obtained from the Public Reference Room of
the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The SEC maintains a Web site (http://www.sec.gov.) that
contains reports, proxy and information statements and other information filed
electronically by Graham-Field and E&J with the SEC through its Electronic Data
Gathering, Analysis and Retrieval (EDGAR) System. The Graham-Field Common Stock
is listed on the New York Stock Exchange (the "NYSE"), and as such, the periodic
reports, proxy statements and other information filed by Graham-Field with the
SEC can be inspected at the offices of the NYSE, 20 Broad Street, New York, New
York 10005. The E&J Common Stock is listed on the American Stock Exchange, and
as such, the periodic reports, proxy statements and other information filed by
E&J with the SEC can be inspected at the offices of the American Stock Exchange,
86 Trinity Place, New York, New York 10006.
This Joint Proxy Statement/Prospectus does not contain all the information
set forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the SEC. The Registration
Statement, including any amendments, schedules and exhibits thereto, is
available for inspection and copying as set forth above. Statements contained or
incorporated by reference in this Joint Proxy Statement/Prospectus as to the
contents of any contract or other document filed as an exhibit to the
Registration Statement or otherwise filed with the SEC are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document so filed, each such statement being qualified in all respects by
such reference.
INCORPORATION OF DOCUMENTS BY REFERENCE
This Joint Proxy Statement/Prospectus incorporates by reference documents
relating to Graham-Field which are not presented herein or delivered herewith.
Documents relating to Graham-Field (other than exhibits to such documents unless
such exhibits are specifically incorporated by reference) are available to any
person, including any beneficial owner, to whom this Joint Proxy
Statement/Prospectus is delivered, on written or oral request, without charge,
from Graham-Field Health Products, Inc., 400 Rabro Drive East, Hauppauge, New
York 11788, Attention: Richard S. Kolodny, Secretary, telephone: (516) 582-5900.
In order to ensure timely delivery of the documents, any such request should be
made by November 20, 1996.
The following documents heretofore filed by Graham-Field pursuant to the
Exchange Act are incorporated by reference herein:
1. Annual Report on Form 10-K for the year ended December 31, 1995;
2. Quarterly Reports on Form 10-Q for the quarters ended March 31,
1996 and June 30, 1996, as amended; and
3. Current Reports on Form 8-K reporting events on September 3, 1996
and September 4, 1996.
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All reports and other documents filed by Graham-Field with the SEC pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof
and prior to the date of the Graham-Field Special Meeting shall be deemed to be
incorporated by reference herein and shall be a part hereof from the dates of
filing of such reports and other documents. Any statement contained in a
document incorporated or deemed incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Joint Proxy
Statement/Prospectus to the extent that a statement contained herein, or in any
other subsequently filed document which also is incorporated or deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Joint Proxy Statement/Prospectus.
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No person has been authorized to give any information or to make any
representation other than those contained in this Joint Proxy
Statement/Prospectus, and if given or made, such information or representation
should not be relied upon as having been authorized by either Graham-Field or
E&J. This Joint Proxy Statement/Prospectus does not constitute an offer to sell,
or a solicitation of an offer to purchase, the securities offered by this Joint
Proxy Statement/Prospectus, or the solicitation of a proxy, in any jurisdiction,
to or from any person to whom or from whom it is unlawful to make such offer,
solicitation of an offer or proxy solicitation in such jurisdiction. Neither the
delivery of this Joint Proxy Statement/Prospectus nor any distribution of
securities pursuant to this Joint Proxy Statement/Prospectus shall, under any
circumstances, create an implication that there has been no change in the
information set forth herein since the date of this Joint Proxy
Statement/Prospectus.
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All information herein with respect to Graham-Field has been furnished by
Graham-Field, and all information herein with respect to E&J has been furnished
by E&J.
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SUMMARY
The following is a summary of certain matters discussed elsewhere in this
Joint Proxy Statement/Prospectus. This summary sets forth all material elements
of such matters but does not purport to be complete and is qualified in its
entirety by reference to the more detailed information appearing in this Joint
Proxy Statement/Prospectus and the Annexes hereto. Stockholders are urged to
read this Joint Proxy Statement/Prospectus and the Annexes hereto in their
entirety. As used herein, unless the context otherwise clearly requires, the
term "Graham-Field" refers to Graham-Field Health Products, Inc. and its
consolidated subsidiaries, the term "E&J" refers to Everest & Jennings
International Ltd. and its consolidated subsidiaries and the term "BIL" refers
to Brierley Investments Limited and its affiliated companies, including BIL (Far
East Holdings) Limited.
Certain of the information contained in this Joint Proxy
Statement/Prospectus may constitute forward-looking statements, including
statements as to the benefits and synergies expected to be realized as a result
of the Merger and as to future financial performance and the analyses used by
the financial advisors to Graham-Field and E&J. See "THE MERGER -- Reasons for
the Merger; Recommendations of the Boards of Directors" and " -- Opinions of
Financial Advisors." There are a number of important factors that could cause
actual results to differ materially from those indicated by such forward-looking
statements. Such factors include those set forth in this Joint Proxy
Statement/Prospectus under the heading "RISK FACTORS."
The Companies
Graham-Field
Graham-Field and its wholly-owned subsidiaries manufacture, market and
distribute medical, surgical and a broad range of other health care products for
hospital, physician and home use. Graham-Field markets and distributes
approximately 23,000 products under its own brand names and under suppliers'
names. Products are marketed to approximately 15,000 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. Graham-Field has expanded the number of products it offers
during the past five years, primarily through an increase in the number of
distributorship agreements with suppliers as well as acquisitions of other
companies and product lines. On September 4, 1996, Graham-Field acquired V.C.
Medical Distributors, Inc. ("V.C. Medical"), a distributor of home healthcare
products in Puerto Rico with annual revenues of approximately $5 million (the
"V.C. Medical Acquisition").
Graham-Field's principal product lines include sphygmomanometers (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.
On September 13, 1996, Graham-Field and E&J entered into an agreement
pursuant to which Graham-Field has been named as E&J's exclusive sales
representative with respect to the sale of home healthcare beds and standard
commodity wheelchairs in specified territories where E&J does not currently have
a sales representative. The letter agreement will terminate on the earlier to
occur of the Merger or the termination of the Merger Agreement in accordance
with its terms.
The mailing address of the principal executive offices of Graham-Field is
400 Rabro Drive East, Hauppauge, New York 11788, and its telephone number at
that address is (516) 582-5900. See "CERTAIN INFORMATION CONCERNING
GRAHAM-FIELD."
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Acquisition Corp.
Acquisition Corp. is a wholly-owned subsidiary of Graham-Field organized to
effect the Merger. The mailing address of the principal executive office of
Acquisition Corp. is 400 Rabro Drive East, Hauppauge, New York 11788, and its
telephone number at that address is (516) 582-5900.
Everest & Jennings
Through its subsidiaries, E&J manufactures wheelchairs for both the
rehabilitation and homecare markets and distributes homecare beds. E&J is one of
the larger manufacturers of wheelchairs in the United States and, through its
Canadian and Mexican subsidiaries, holds a material portion of the North
American market share. E&J develops, designs, manufactures and markets
state-of-the-art wheelchairs, including ultra-lightweight wheelchairs in its
Vision product line. E&J also distributes homecare beds generally utilizing the
same homecare dealer network which is used to distribute homecare wheelchairs.
E&J markets its products to non-exclusive dealers and national accounts, who in
turn sell the products to the final consumers. The mailing address of the
principal executive offices of E&J is 4203 Earth City Expressway, Earth City,
Missouri 63045, and its telephone number at that address is (314) 512-7000. See
"CERTAIN INFORMATION CONCERNING E&J."
BIL
BIL (Far East Holdings) Limited is owned by Brierley Investments Limited, a
New Zealand investment holding company with interests in public and private
corporations throughout the world. BIL owns 5,779,935 shares of E&J Common
Stock, representing approximately 80% of the outstanding shares of E&J Common
Stock, and all of the outstanding shares of Series A Convertible Preferred
Stock, par value $.01 per share, of E&J ("E&J Series A Preferred Stock"), Series
B Convertible Preferred Stock, par value $.01 per share, of E&J ("E&J Series B
Preferred Stock"), and Series C Convertible Preferred Stock, par value $.01 per
share, of E&J ("E&J Series C Preferred Stock" and, together with the E&J Series
A Preferred Stock and the E&J Series B Preferred Stock, the "E&J Preferred
Stock"). See "CERTAIN INFORMATION CONCERNING E&J -- Business of E&J -- General
Development of Business and E&J Strategy" and "-- Security Ownership of Certain
Beneficial Owners and Management."
Risk Factors
The Merger involves various risks that should be considered by stockholders
of Graham-Field and E&J before submitting a proxy for, or voting in person at,
the Graham-Field Special Meeting or the E&J Special Meeting, including:
(a) with respect to Graham-Field, that (i) the medical device industry
is characterized by intense competition and rapidly developing technology,
is subject to regulation by the Federal Food and Drug Administration and
relies on the establishment and maintenance of patent protection for
proprietary technologies, products and processes, (ii) the success of
Graham-Field is dependent upon the continued services and management of its
Chief Executive Officer, Irwin Selinger, and other executive officers,
(iii) Graham-Field's sales and collection of receivables are dependent upon
governmental and private insurer reimbursement policies, which are subject
to modifications at any time, and (iv) Graham-Field has not declared a
dividend on the Graham-Field Common Stock since its organization and is
subject to limitations on its ability to declare and pay dividends with
respect to the Graham-Field Common Stock pursuant to its credit
arrangements (see "RISK FACTORS -- Risk Factors Relating to Graham-Field");
(b) with respect to E&J, that (i) since 1989 E&J has incurred
substantial restructuring expenses and recurring operating losses (which
net losses totalled $7.8 million during the twelve
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months ended June 30, 1996) and, at June 30, 1996, had a net capital
deficiency totalling $27.9 million with the result that there is
substantial doubt about E&J's ability as an independent company to continue
as a going concern, (ii) there is no assurance that E&J will successfully
emerge from or complete its restructuring activities, that E&J's ongoing
rationalization and outsourcing programs will be successfully implemented
or that any of the expected savings will be realized, (iii) BIL has
beneficial ownership of approximately 86% of the voting securities of E&J,
which makes it difficult for a third party to acquire control of E&J
without the consent of BIL and may discourage third parties from making an
acquisition proposal or seeking to acquire control of E&J, (iv) E&J's
business is heavily dependent on its maintenance of two key supplier
contracts, which are subject to termination under certain circumstances,
(v) the medical device industry is characterized by intense competition and
rapidly developing technology, is subject to regulation by the Federal Food
and Drug Administration, relies on the establishment and maintenance of
patent protection for proprietary technologies, products and processes, and
is dependent upon governmental and private insurer reimbursement policies
in connection with sales and the collection of receivables, which are
subject to modifications at any time, (vi) significant product liability
claims have been made against E&J and there can be no assurance that E&J's
product liability insurance coverage will be adequate to protect E&J from
any liabilities it may incur, and (vii) E&J has not declared a dividend on
the E&J Common Stock since 1989 (see "RISK FACTORS -- Risk Factors Relating
to E&J"); and
(c) with respect to the Merger, that (i) there can be no assurance
that Graham-Field will be able to successfully integrate, develop and
operate the E&J businesses following the Merger or that the significant
synergies and cost efficiencies which Graham-Field expects to achieve
through the operation of E&J as part of a combined entity with Graham-Field
will be achieved, (ii) there can be no assurance that the combined entities
will have adequate resources to support their capital requirements, (iii)
the issuance of Graham-Field capital stock pursuant to the Merger Agreement
will dilute the voting rights of existing holders of Graham-Field Common
Stock, (iv) the issuance of Graham-Field capital stock to BIL pursuant to
the Merger Agreement, which will represent approximately 36% of the voting
power of Graham-Field capital stock outstanding after the Merger, will make
it more difficult for a third party to acquire control of Graham-Field
without the consent of BIL and may discourage third parties from making an
acquisition proposal or seeking to acquire control of Graham-Field, (v)
certain conflicts of interest with respect to the Merger were considered by
the Graham-Field Board in recommending the Merger to its stockholders and
approving the Merger Agreement, (vi) the Conversion Number is expressed in
the Merger Agreement as a fixed ratio and will be adjusted in the event of
certain increases, but not decreases, in the market price of Graham-Field
Common Stock prior to the effective time of the Merger and (vii) there can
be no assurance that Graham-Field will obtain the necessary consent of one
of its creditors to the Merger or arrange for a refinancing of such
indebtedness (see "RISK FACTORS -- Risk Factors Relating to the Merger").
The Meetings
Graham-Field Special Meeting
The Graham-Field Special Meeting will be held on Wednesday, November 27,
1996, at The Chase Manhattan Bank, 13th Floor (the Auditorium), 55 Water Street,
New York, New York, commencing at 9:00 a.m., local time, and at any adjournment
or postponement thereof. The holders of record of shares of Graham-Field Common
Stock at the close of business on October 11, 1996 (the "Graham-Field Record
Date") are entitled to notice of and to vote at the Graham-Field Special
Meeting.
At the Graham-Field Special Meeting, Graham-Field stockholders will be
asked to consider and vote on the following:
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(1) a proposal to approve the issuances of Graham-Field Common Stock,
Graham-Field Series B Preferred Stock and Graham-Field Series C Preferred
Stock contemplated by the Merger Agreement (the "Share Issuances");
(2) a proposal to amend Article FOURTH of the Graham-Field Charter to
increase the total number of authorized shares of Graham-Field Common Stock
from 40,000,000 shares to 60,000,000 shares (the "Stock Amendment");
(3) a proposal to amend Article NINTH of the Graham-Field Charter to
require that stockholder action be taken at an annual meeting of
stockholders or at a special meeting of stockholders and prohibit
stockholder action by written consent;
(4) a proposal to amend Article ELEVENTH of the Graham-Field Charter
to provide that directors be removed only for cause and only with the
approval of the holders of at least 50% of the voting power of Graham-Field
entitled to vote generally in the election of directors;
(5) a proposal to amend Article TWELFTH of the Graham-Field Charter to
provide that the stockholder vote required to alter, amend, or repeal
certain related provisions of the Graham-Field Bylaws, or to adopt any
provision inconsistent therewith, shall be 80% of the voting power of
Graham-Field entitled to vote generally in the election of directors
(together with the proposals described in clauses 3 and 4 above, the
"Stockholder Action Amendments");
(6) a proposal to amend Graham-Field's Incentive Program to increase
the maximum number of shares of Graham-Field Common Stock available
thereunder by 900,000 shares (the "Incentive Program Amendment"); and
(7) such other matters as may properly be presented incident to the
conduct of the Graham-Field Special Meeting.
Approval of the Share Issuances by Graham-Field stockholders is required by
the rules of the NYSE for corporations, such as Graham-Field, whose shares are
listed for trading thereon.
Each share of Graham-Field Common Stock will be entitled to one vote on the
proposals described above. The affirmative vote of a majority of the votes cast
at the Graham-Field Special Meeting is required to approve the Share Issuances
and the Incentive Program Amendment. The affirmative vote of a majority of the
outstanding shares of Graham-Field Common Stock is required to adopt the Stock
Amendment and each of the Stockholder Action Amendments. Abstentions will have
the effect of a vote against each of the Share Issuances, the Stock Amendment,
the Stockholder Action Amendments and the Incentive Program Amendment. Broker
non-votes will have no effect in determining whether the Share Issuances or the
Incentive Plan Amendment has received the requisite number of affirmative votes
by Graham-Field stockholders, but will have the effect of a vote against the
Stock Amendment and the Stockholder Action Amendments.
The directors and executive officers of Graham-Field and their affiliates
own approximately 8.8% of the shares of Graham-Field Common Stock entitled to
vote at the Graham-Field Special Meeting. The directors and executive officers
of Graham-Field have indicated their intention to vote such shares FOR the
adoption of each of the above-mentioned proposals.
Pursuant to the Merger Agreement, approval of the Stock Amendment and the
Incentive Program Amendment is a condition to Graham-Field's obligation to
consummate the Merger. If any of the Stockholder Action Amendments is approved
by stockholders at the Graham-Field Special Meeting, such amendment will be
effected regardless of whether any of the other Stockholder Action Amendments or
any other matter on which a vote is taken at the Graham-Field Special Meeting is
approved or the Merger is consummated. However, in the event that the Merger is
not consummated for any reason, the Stock
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Amendment and the Incentive Program Amendment will not be effected, even if
approved by the stockholders at the Graham-Field Special Meeting.
See "MEETINGS, VOTING AND PROXIES -- Graham-Field Special Meeting."
E&J Special Meeting
The E&J Special Meeting will be held on Wednesday, November 27, 1996, at
the St. Regis Hotel, 2 East 55th Street, New York, New York, commencing at 9:00
a.m., local time, and at any adjournment or postponement thereof. The holders of
record of shares of E&J Common Stock and E&J Preferred Stock at the close of
business on October 11, 1996 (the "E&J Record Date") are entitled to notice of
and to vote at the E&J Special Meeting. The purpose of the E&J Special Meeting
is to consider and vote upon a proposal to adopt the Merger Agreement and such
other matters as may be properly presented incident to the conduct of the E&J
Special Meeting.
Each share of E&J Common Stock will be entitled to one vote and each share
of E&J Preferred Stock will be entitled to one-tenth of a vote on the proposal
to adopt the Merger Agreement at the E&J Special Meeting. The holders of E&J
Common Stock and E&J Preferred Stock will vote together as a single class on the
proposal. The affirmative vote of the holders of shares of E&J Common Stock and
E&J Preferred Stock representing a majority of the total number of votes
entitled to be cast by the holders of all outstanding shares of E&J Common Stock
and E&J Preferred Stock at the E&J Special Meeting is required to adopt the
Merger Agreement. Abstentions and broker non-votes will have the effect of a
vote against approval of the Merger Agreement.
BIL owns a sufficient number of shares of E&J Common Stock and E&J
Preferred Stock to assure adoption of the Merger Agreement at the E&J Special
Meeting and has granted to Graham-Field an irrevocable proxy to vote such shares
in favor of the Merger, thereby assuring that Graham-Field will have the ability
to approve the Merger without the affirmative vote of any other stockholder of
E&J.
See "MEETINGS, VOTING AND PROXIES -- E&J Special Meeting," "THE MERGER --
Stockholder Agreement" and "CERTAIN INFORMATION CONCERNING E&J -- Security
Ownership of Certain Beneficial Owners and Management."
The Merger
General
If the Share Issuances are approved by the requisite vote of Graham-Field
stockholders at the Graham-Field Special Meeting, the Merger Agreement is
approved by the requisite vote of E&J stockholders at the E&J Special Meeting
and the other conditions to the Merger are satisfied or waived (where
permissible), the Merger will be consummated and become effective at the time at
which a Certificate of Merger meeting the requirements of Section 251 of the
General Corporation Law of the State of Delaware (the "DGCL") shall be delivered
to the Secretary of State of Delaware for filing (the time of such filing being
the "Effective Time" and the day of such filing being the "Effective Date"). It
is expected that the Effective Time will be promptly following completion of the
Graham-Field Special Meeting and the E&J Special Meeting. At the Effective Time,
Acquisition Corp. will be merged with and into E&J and E&J will survive the
Merger as a wholly-owned subsidiary of Graham-Field.
Conversion of E&J Shares in the Merger; Exchange of Certificates
In the Merger, each issued and outstanding share of E&J Common Stock will
be converted into the right to receive .35 (the "Conversion Number") of a fully
paid and nonassessable share of Graham-Field Common Stock (the "Merger
Consideration Per Share"), including the corresponding percentage of a right to
purchase shares of Series A Junior Participating Preferred Stock, par value $.01
per share,
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11
<PAGE>
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of Graham-Field (see "COMPARISON OF STOCKHOLDER RIGHTS -- Rights Agreement").
Notwithstanding the foregoing, the Conversion Number will be reduced to the
extent necessary to cause the fair market value of the Merger Consideration Per
Share, based on the average closing sales price for the Graham-Field Common
Stock for the ten trading days ending on the fifth trading day prior to the
Effective Date, to equal $5.50. See "THE MERGER -- Conversion of E&J Shares in
the Merger."
Upon consummation of the Merger, all outstanding shares of E&J Common Stock
will cease to be outstanding and will be converted into the right to receive
shares of Graham-Field Common Stock, without interest, in accordance with the
terms of the Merger Agreement. Fractional shares of Graham-Field Common Stock
will not be issued in connection with the Merger and such fractional share
interests will not entitle the owner thereof to vote or to any rights of a
stockholder of Graham-Field. Pursuant to the Merger Agreement, such fractional
shares will be aggregated and sold by an exchange agent, as agent for the
holders of E&J Common Stock (the "Exchange Agent"), at the then prevailing
prices on the NYSE. The net proceeds of such sales will be held by the Exchange
Agent in a trust for the holders of E&J Common Stock and distributed
proportionately to such holders. See "THE MERGER -- Fractional Shares."
Each issued and outstanding share of each series of E&J Preferred Stock
will continue to be an issued and outstanding share of each such series of E&J
Preferred Stock and, as described below, will either be exchanged by BIL for
shares of Graham-Field Series B Preferred Stock or contributed to the capital of
E&J. See "THE MERGER -- Conversion of E&J Shares in the Merger."
Other Closing Deliveries
The Merger Agreement also provides for the following deliveries to be made
simultaneously with the closing of the Merger:
(i) In exchange for the delivery by wire transfer of immediately
available funds from BIL to Graham-Field in an amount equal to the
aggregate amount of principal, interest and prepayment penalties or
premiums, if any, that would be required to be paid by E&J to the Hong Kong
and Shanghai Banking Corporation Limited ("HSBC") in order to pay off and
discharge in full all indebtedness (other than any indebtedness relating to
letters of credit issued by HSBC for E&J) owing by E&J to HSBC (the "HSBC
Indebtedness") on and as of the closing date of the Merger (the "HSBC Debt
Payment"), Graham-Field will deliver to BIL a certificate representing a
number of shares of Graham-Field Common Stock (disregarding fractions)
equal to the amount determined by dividing the amount of the HSBC Debt
Payment by the greater of (x) $13.00 and (y) the fair market value of each
share of Graham-Field Common Stock, based on the ten-day average closing
sales price described above; provided that the HSBC Debt Payment cannot
exceed $25 million. Upon the effectiveness of the Merger, Graham-Field will
contribute the proceeds of such stock issuance to E&J, which will in turn
use such funds to repay the indebtedness owing to HSBC. Pursuant to the
Merger Agreement, BIL has agreed to make such payments to HSBC prior to the
Effective Time as shall be necessary to cause the HSBC Debt Payment not to
exceed $25 million. Accordingly, immediately following the Effective Time,
E&J will have no HSBC Indebtedness outstanding.
(ii) Graham-Field will deliver to BIL a certificate representing
shares of Graham-Field Series B Preferred Stock having an aggregate stated
value equal to the lesser of (A) the sum of the amount of outstanding
indebtedness of E&J owing to BIL (the "BIL Debt") and the aggregate
liquidation value (including aggregate unpaid dividends) of the E&J
Preferred Stock; and (B) $61 million, in exchange for the delivery by BIL
to Graham-Field of:
(x) an instrument evidencing the transfer of outstanding BIL Debt
in an aggregate principal amount which, together with accrued interest
thereon, does not exceed the
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12
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Appraised Value (as defined in the Merger Agreement) of such shares of
Graham-Field Series B Preferred Stock; and
(y) certificates representing shares of E&J Preferred Stock having
an aggregate liquidation value which does not exceed the result obtained
by subtracting (I) the aggregate unpaid principal of and accrued
interest on the BIL Debt referred to in clause (x) above from (II) the
Appraised Value of such shares of Graham-Field Series B Preferred Stock.
Pursuant to the Merger Agreement, BIL has agreed to contribute shares
of E&J Preferred Stock and BIL Debt to E&J prior to the Effective Time to
the extent necessary so that Graham-Field will not be required to issue
shares of Graham-Field Series B Preferred Stock having an aggregate stated
value exceeding $61 million. Accordingly, immediately following the
Effective Time, E&J will have no outstanding indebtedness to BIL, and BIL
will not own any shares of E&J Preferred Stock.
(iii) In exchange for the delivery by wire transfer of immediately
available funds from BIL to Graham-Field in the amount of $10 million,
Graham-Field will deliver to BIL a certificate representing shares of
Graham-Field Series C Preferred Stock having an aggregate stated value
equal to $10 million. The proceeds of this stock issuance will be available
to Graham-Field for general corporate purposes.
(iv) In exchange for the delivery by BIL to Graham-Field of the
Unsecured Promissory Note dated July 18, 1996 evidencing the loan by BIL to
Graham-Field of $4 million, Graham-Field will deliver to BIL an unsecured
subordinated $4 million promissory note bearing interest at the effective
rate of 7.7% per annum and maturing on April 1, 2001.
See "THE MERGER -- Other Closing Deliveries."
Background of the Merger
Representatives of Graham-Field, E&J and BIL began discussions of the
potential acquisition of E&J by Graham-Field in February 1996. These discussions
continued throughout the spring and summer. The parties entered into a
confidentiality agreement in March, and publicly announced an agreement in
principle for the proposed acquisition on June 17, 1996. Following completion of
Graham-Field's due diligence investigation and further negotiations, the parties
announced a revised agreement in principle on August 14, 1996. The signing of
the Merger Agreement and related documentation was publicly announced on
September 3, 1996 following approval of the Merger and the related documentation
by the Graham-Field and E&J Boards and the issuance of written fairness opinions
by their respective financial advisors. For a further description of the
negotiations leading up to the execution of the Merger Agreement and related
matters, see "THE MERGER -- Background of the Merger."
Recommendations of the Boards of Directors
THE GRAHAM-FIELD BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED THEREBY AND HAS UNANIMOUSLY CONCLUDED THAT ITS
TERMS ARE FAIR TO AND IN THE BEST INTERESTS OF GRAHAM-FIELD AND ITS
STOCKHOLDERS. THE GRAHAM-FIELD BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
APPROVAL OF THE SHARE ISSUANCES.
For a discussion of the factors considered by the Graham-Field Board in
reaching its decision, see "THE MERGER -- Reasons for the Merger;
Recommendations of the Boards of Directors -- Graham-Field."
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13
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THE E&J BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY AND HAS UNANIMOUSLY CONCLUDED THAT THE TERMS
OF THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF E&J
OTHER THAN BIL. THE E&J BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE ADOPTION OF
THE MERGER AGREEMENT.
For a discussion of the factors considered by the E&J Board in reaching its
decision, see "THE MERGER -- Reasons for the Merger; Recommendations of the
Boards of Directors -- E&J."
Stockholders should be aware that BIL and certain members of the E&J Board
and management have certain interests in the Merger that may conflict with and
are in addition to those of other E&J stockholders. See "THE MERGER -- Conflicts
of Interest."
Opinions of Financial Advisors
Graham-Field has retained Jefferies & Company, Inc. ("Jefferies") to render
a fairness opinion in connection with the Merger. Jefferies delivered its
written opinion to the Graham-Field Board, dated September 3, 1996, stating
that, at the time of such opinion, the consideration to be paid by Graham-Field
pursuant to the Merger Agreement is fair to Graham-Field stockholders from a
financial point of view. A copy of Jefferies' opinion, which sets forth the
assumptions made, matters considered and limits on the review undertaken, is
attached hereto as Annex F and should be read by Graham-Field stockholders
carefully in its entirety. See "THE MERGER -- Opinions of Financial Advisors --
Jefferies."
E&J has retained Vector Securities International, Inc. ("Vector") to render
a fairness opinion in connection with the Merger. Vector delivered its written
opinion to the E&J Board, dated August 29, 1996, stating that, at the time of
such opinion, the consideration to be received by the holders of E&J Common
Stock in the Merger is fair to such stockholders from a financial point of view.
A copy of Vector's opinion, which sets forth the assumptions made, matters
considered and limits on the review undertaken, is attached hereto as Annex G
and should be read by E&J stockholders carefully in its entirety. See "THE
MERGER -- Opinions of Financial Advisors -- Vector."
Conflicts of Interest
In considering the recommendation of the E&J Board with respect to the
Merger Agreement and the transactions contemplated thereby, stockholders should
be aware that BIL and certain members of the E&J Board and management have
certain interests with respect to the Merger that may conflict with and are in
addition to the interests of the other stockholders of E&J, including the
following:
(i) BIL is the majority stockholder of E&J and two members of the E&J
Board are affiliated with BIL. BIL has granted Graham-Field an irrevocable
proxy to vote its shares in favor of the Merger at the E&J Special Meeting.
(ii) As a result of the transactions contemplated by the Merger
Agreement, BIL will become the largest stockholder and a creditor of
Graham-Field, owning shares representing approximately 36% of the voting
power of all outstanding shares of Graham-Field capital stock. In that
connection, BIL has entered into the Stockholder Agreement and the
Registration Rights Agreement with Graham-Field.
(iii) Pursuant to the Stockholder Agreement, upon consummation of the
Merger, BIL will initially be entitled to designate two members of the
Graham-Field Board, one of whom, Rodney F. Price, will also serve as a
member of the Executive Committee of the Graham-Field Board.
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(iv) BIL and E&J have engaged in certain transactions in the past,
including an October 4, 1996 sale of receivables by E&J to BIL, the cash
proceeds of which will be used by E&J to fund operations prior to the
Effective Time.
(v) The Merger Agreement contains customary provisions with respect to
the continuation of existing indemnification rights in favor of directors
and officers of E&J and its subsidiaries. The Merger Agreement also
contains customary provisions regarding the continuation of directors' and
officers' liability insurance.
(vi) Graham-Field has agreed to provide E&J employees with benefits
reasonably comparable to those currently provided at least until the first
anniversary of the Effective Time.
(vii) The Merger Agreement provides that each holder of options to
purchase shares of E&J Common Stock outstanding at the Effective Time will
receive substitute options under Graham-Field's Incentive Program.
(viii) E&J has entered into severance arrangements with several senior
managers providing for severance payments and continuation of certain
benefits in the event that their employment is involuntarily terminated
without cause prior to the first anniversary of the Effective Time.
For more complete information relating to the matters discussed in the
preceding paragraphs, see "THE MERGER -- Conflicts of Interest."
Certain Terms of the Merger Agreement
The Merger Agreement contains customary representations and warranties of
the parties, none of which survive the consummation of the Merger, as well as
customary covenants regarding the conduct of the respective businesses of
Graham-Field and E&J prior to the Effective Time. See "THE MERGER -- Certain
Terms of the Merger Agreement -- Representations and Warranties", "-- Conduct of
Business of E&J Pending the Merger" and "-- Conduct of Business of Graham-Field
Pending the Merger." Each party's obligation to consummate the Merger is subject
to the satisfaction of customary conditions prior to the Effective Time as set
forth in the Merger Agreement, including but not limited to, approval of the
Share Issuances, the Stock Amendment and the Incentive Program Amendment by
Graham-Field stockholders, approval of the Merger Agreement by E&J stockholders,
the receipt of necessary regulatory consents, absence of certain litigation and
freedom from any legal restraint to the Merger, the accuracy of representations
and warranties and performance of covenants contained therein and, in the case
of Graham-Field's obligations, the obtaining by Graham-Field of certain real
property title search reports with respect to E&J's Canadian and Mexican
facilities and a product liability insurance policy covering claims relating to
products manufactured or sold by E&J prior to the Effective Time (up to $400,000
of the cost of which is to be reimbursed by BIL) and the receipt of evidence
satisfactory to Graham-Field that E&J owns 100% of the stock of its Canadian and
Mexican subsidiaries. See "THE MERGER -- Certain Terms of the Merger Agreement
- -- Conditions Precedent to the Merger."
The Merger Agreement also contains provisions under which E&J has agreed to
refrain from soliciting or encouraging certain proposals to acquire E&J. See
"THE MERGER -- Certain Terms of the Merger Agreement -- No Solicitation."
The Merger Agreement may be terminated before the consummation of the
Merger by either Graham-Field, BIL or E&J under various circumstances, including
the failure to consummate the Merger on or before December 31, 1996. See "THE
MERGER -- Certain Terms of the Merger Agreement -- Termination."
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Stockholder Agreement
To induce Graham-Field to enter into the Merger Agreement, BIL entered into
a Stockholder Agreement dated as of September 3, 1996 (as subsequently amended,
the "Stockholder Agreement") with Graham-Field and Irwin Selinger, the Chairman
of the Board and Chief Executive Officer of Graham-Field, pursuant to which,
among other things, BIL has agreed to vote its shares of E&J capital stock to
approve the Merger Agreement and in favor of the Merger and has granted
Graham-Field an irrevocable proxy to vote its shares accordingly at the E&J
Special Meeting. BIL also has agreed in the Stockholder Agreement (a) to grant
Graham-Field a right of first refusal with respect to certain sales of
Graham-Field securities acquired by BIL pursuant to the Merger Agreement, (b) to
indemnify Graham-Field against certain existing actions and proceedings to which
E&J and its subsidiaries are parties, and (c) so long as BIL owns securities
representing at least 5% of the voting power of the outstanding capital stock of
Graham-Field, not to (i) acquire additional shares of Graham-Field Common Stock
without the consent of the Graham-Field Board, which consent will not be
unreasonably withheld, (ii) seek to acquire ownership of Graham-Field, (iii)
engage in any solicitation of proxies with respect to Graham-Field or (iv)
otherwise seek or propose to acquire control of the Graham-Field Board. Pursuant
to the Stockholder Agreement, BIL will have the right to designate two members
of the Graham-Field Board (subject to reduction if BIL reduces its ownership of
Graham-Field stock below specified levels), and will have the right to
participate on a pro rata basis in certain future stock issuances by
Graham-Field. The Stockholder Agreement will automatically terminate upon a
termination of the Merger Agreement in accordance with its terms or upon a
change of control of the Graham-Field Board. See "THE MERGER -- Stockholder
Agreement."
Registration Rights Agreement
As a condition to BIL's willingness to vote its shares of E&J capital stock
in favor of the Merger, to enter into the Stockholder Agreement and to acquire
shares of Graham-Field stock pursuant to the Merger Agreement, Graham-Field has
entered into a registration rights agreement with BIL (the "Registration Rights
Agreement"). Pursuant to the Registration Rights Agreement, BIL and certain of
its transferees will have the right to require Graham-Field to register the sale
of shares of Graham-Field Common Stock acquired by BIL in accordance with the
Merger Agreement and Stockholder Agreement, and to participate in other
registrations initiated by Graham-Field. Pursuant to the Registration Rights
Agreement, Graham-Field will pay the expenses of such registrations; however,
BIL will be responsible for underwriting discounts and commissions. See "THE
MERGER -- Registration Rights Agreement."
Certain Litigation
A class action lawsuit was filed in the Delaware Chancery Court on June 19,
1996 following public announcement on June 17, 1996 of the original agreement in
principle between Graham-Field and E&J. The lawsuit seeks to challenge the
proposed transaction on several grounds primarily relating to the allegations
that BIL and the directors of E&J breached their respective fiduciary duties by
not exercising independent business judgment, that Graham-Field aided and
abetted such breaches and that BIL would receive more value than that which
would be received by the other stockholders of E&J. Each of the directors of
E&J, E&J, BIL and Graham-Field were named as defendants. See "THE MERGER --
Certain Litigation."
Regulatory Matters
On September 9, 1996 and September 10, 1996, notification and report forms
were filed under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), with respect to the Merger Agreement and the
transactions contemplated thereby by Graham-Field and E&J, respectively. Early
termination of the waiting period under the HSR Act was granted on October 4,
1996.
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Graham-Field and E&J are not aware of any other material regulatory consents,
approvals or filings required for the consummation of the Merger or the other
transactions contemplated by the Merger Agreement. See "THE MERGER -- Regulatory
Matters."
Graham-Field Financing Arrangements
Graham-Field will need to obtain the consent of John Hancock Mutual Life
Insurance Company ("John Hancock") under the terms of its Note and Warrant
Agreement dated as of March 12, 1992, as amended (the "Note and Warrant
Agreement"), in order to consummate the Merger. Graham-Field is currently in
discussions with John Hancock to obtain such consent, as well as with several
potential bank lenders with a view to the possible refinancing of the John
Hancock indebtedness. While Graham-Field believes that it will be successful in
either obtaining such consent or in refinancing the John Hancock indebtedness,
no assurances as to either event can be provided. See "THE MERGER --
Graham-Field Financing Arrangements."
Conduct of E&J's Business After the Merger
E&J will survive the Merger as a wholly-owned subsidiary of Graham-Field.
E&J's manufacturing operations will report to Graham-Field's Executive Vice
President of Operations. Graham-Field intends to integrate certain E&J business
units with those of Graham-Field, while leaving others to operate independently.
See "THE MERGER -- Conduct of E&J's Business After the Merger."
NYSE Listing
Pursuant to the Merger Agreement, Graham-Field has agreed to use its best
efforts to cause the shares of Graham-Field Common Stock to be issued pursuant
to the Merger Agreement to be listed for trading on the NYSE. Such authorization
for listing is a condition to the obligations of Graham-Field and E&J to
consummate the Merger. See "THE MERGER -- NYSE Listing."
Certain Federal Income Tax Consequences
E&J has received an opinion from Bryan Cave LLP to the effect that the
Merger will qualify as a reorganization under the Internal Revenue Code of 1986,
as amended (the "Code"), and as a result, holders of E&J Common Stock will
recognize no gain or loss in the Merger on the receipt of shares of Graham-Field
Common Stock in exchange for their shares of E&J Common Stock, except to the
extent that they receive cash in lieu of a fractional share. See "THE MERGER --
Certain Federal Income Tax Consequences."
All E&J stockholders should read carefully the discussion in "THE MERGER --
Certain Federal Income Tax Consequences" and are urged to consult their own tax
advisors as to specific consequences to them of the Merger under federal, state,
local or any other applicable tax laws.
Accounting Treatment
The Merger will be accounted for as a "purchase", as such term is used
under generally accepted accounting principles. See "THE MERGER -- Accounting
Treatment."
Absence of Appraisal Rights
Under Delaware law, neither holders of shares of E&J Common Stock nor
holders of shares of Graham-Field Common Stock will have appraisal rights with
respect to the Merger.
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SUMMARY FINANCIAL INFORMATION
The information below sets forth summary financial information and summary
unaudited pro forma financial information. The financial information has been
derived from the audited financial statements of Graham-Field and E&J for each
of the five years in the period ended December 31, 1995 and the unaudited
financial statements of Graham-Field and E&J for the six month periods ended
June 30, 1996 and 1995. The following summary financial information should be
read in conjunction with the related historical financial statements and notes
thereto of Graham-Field incorporated by reference herein and of E&J included
herein. See "AVAILABLE INFORMATION," "INCORPORATION OF DOCUMENTS BY REFERENCE,"
"UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION," "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF E&J"
AND "INDEX TO FINANCIAL STATEMENTS."
Summary Historical Financial Information of Graham-Field
The summary historical financial information of Graham-Field set forth
below has been derived from, and should be read in conjunction with, the audited
financial statements of Graham-Field for each of the five years in the period
ended December 31, 1995, and the unaudited financial statements for the six
month periods ended June 30, 1996 and 1995. The summary financial data set forth
below for the six months ended June 30, 1996 and 1995 are derived from unaudited
financial statements which, in the opinion of Graham-Field management, contain
adjustments necessary for the fair presentation of this information. Results for
the six months ended June 30, 1996 are not necessarily indicative of the results
that may be expected for any other interim period or for the year as a whole.
See "AVAILABLE INFORMATION" and "INCORPORATION OF DOCUMENTS BY REFERENCE."
Graham-Field Historical
<TABLE>
<CAPTION>
Six Months Ended Year Ended December 31,
-------------------- -----------------------------------------------------
June 30, June 30,
1996(1) 1995 1995(2) 1994 1993(3) 1992(4) 1991(5)
--------- --------- --------- --------- --------- --------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues........................................ $ 56,976 $ 48,834 $ 100,403 $ 94,501 $ 92,552 $ 84,103 $ 57,145
Income (loss) before cumulative effect of change in
accounting principle.............................. $ 1,325 $ 105 $ 738 $ (2,356) $ (3,398) $ 1,244 $ 3,956
Cumulative effect of change in accounting
principle......................................... -- -- -- -- 530 -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)................................... $ 1,325 $ 105 $ 738 $ (2,356) $ (2,868) $ 1,244 $ 3,956
========= ========= ========= ========= ========= ========= =========
BALANCE SHEET DATA:
Total assets........................................ $ 105,018 $ 93,946 $ 99,799 $ 99,494 $ 97,995 $ 97,994 $ 70,390
Working capital..................................... 35,279 28,761 33,763 28,282 29,265 33,578 23,576
Total long-term liabilities, excluding current
portion........................................... 17,704 20,301 19,972 21,596 22,170 21,272 3,400
Stockholders' equity................................ 61,274 55,469 59,611 55,102 57,224 59,324 55,890
PER COMMON SHARE DATA:
PRIMARY:
Before cumulative effect of change in accounting
principle......................................... $ .09 $ .01 $ .06 $ (.18) $ (.26) $ .10 $ .40
Cumulative effect of change in accounting
principle......................................... -- -- -- -- .04 -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)................................... $ .09 $ .01 $ .06 $ (.18) $ (.22) $ .10 $ .40
========= ========= ========= ========= ========= ========= =========
FULLY DILUTED:
Before cumulative effect of change in accounting
principle......................................... $ .09 $ .01 $ .06 $ (.18) $ (.26) $ .10 $ .39
Cumulative effect of change in accounting
principle........................................... -- -- -- -- .04 -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)................................... $ .09 $ .01 $ .06 $ (.18) $ (.22) $ .10 $ .39
========= ========= ========= ========= ========= ========= =========
Book value (6)...................................... $ 4.32 $ 4.26 $ 4.23 $ 4.26 $ 4.46 $ 4.66 $ 4.49
Common dividends declared........................... -- -- -- -- -- -- --
</TABLE>
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- ----------
(1) In March 1996, Graham-Field sold its Gentle Expressions(R) breast pump
product line, and recorded a gain of $360,000.
(2) Effective July 1, 1995, Graham-Field acquired substantially all of the
assets and liabilities of National Medical Excess Corp. The acquisition was
accounted for under the purchase method of accounting and, accordingly, the
results of operations are included in the consolidated financial statements
of Graham-Field subsequent to that date. The purchase price, including
acquisition expenses, was approximately $723,000 in cash, plus the
assumption of certain liabilities.
(3) In February 1992, the FASB issued Statement No. 109, "Accounting for Income
Taxes." Graham-Field adopted the provisions of the new standard in its
financial statements effective January 1, 1993. The adoption of Statement
No. 109 did not affect Graham-Field'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.
(4) On May 28, 1992, Graham-Field acquired substantially all of the operating
assets of Diamond Medical Equipment Corp. and National Health Care
Equipment Inc. The purchase price consisted of $9,306,000 in cash and the
issuance of 210,176 shares of Graham-Field Common Stock. In addition,
Graham-Field repaid certain bank indebtedness in the amount of $3,200,000
and assumed certain liabilities. The acquisition was accounted for as a
purchase and, accordingly, the results of operations are included in the
consolidated financial statements of Graham-Field subsequent to that date.
On April 27, 1992, Graham-Field acquired certain assets and liabilities of
the Bandage Division of ConvaTec, a division of E.R. Squibb & Sons, Inc.,
for $369,000.
(5) On May 31, 1991, Graham-Field acquired 90% of the outstanding stock of
Horizon International Health Care, Inc., formerly known as AquaTherm
Products Corporation. On June 11, 1991, the remaining 10% of the
outstanding stock was acquired. The purchase price was $2,356,000 in cash.
In addition, Graham-Field issued an aggregate of 50,000 options to the
former principal owners to purchase Graham-Field Common Stock at an option
price of $6.375 per share, representing the fair market value at that time.
The acquisition was accounted for as a purchase and, accordingly, the
results of operations are included in the consolidated financial statements
of Graham-Field subsequent to that date. On October 1, 1991, Graham-Field
acquired substantially all of the operating assets of Temco National
Corporation's Healthcare Division for a purchase price of $5,849,000 in
cash, which is net of certain purchase price adjustments. The acquisition
was accounted for as a purchase and, accordingly, the results of operations
are included in the consolidated financial statements of Graham-Field
subsequent to that date.
(6) Book value per share was calculated by dividing stockholders' equity at the
end of each respective period by the number of common shares outstanding at
the end of each such period.
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19
<PAGE>
- --------------------------------------------------------------------------------
Summary Historical Financial Information of E&J
The summary historical financial information of E&J set forth below has
been derived from, and should be read in conjunction with, the audited financial
statements of E&J for each of the five years in the period ended December 31,
1995 and the unaudited financial statements for the six month periods ended June
30, 1996 and 1995. The summary financial data set forth below for the six months
ended June 30, 1996 and 1995 are derived from unaudited financial statements
which, in the opinion of E&J management, contain all adjustments necessary for
the fair presentation of this information. Results for the six months ended June
30, 1996 are not necessarily indicative of the results that may be expected for
any other interim period or for the year as a whole. See "INDEX TO FINANCIAL
STATEMENTS."
E&J Historical
<TABLE>
<CAPTION>
Six Months Ended Year Ended December 31,
-------------------- --------------------------------------------------------------
June 30, June 30,
1996 1995 1995(1) 1994(1)(2) 1993(2)(3)(4) 1992(4)(5)(6) 1991(4)(5)
--------- --------- --------- ---------- ------------- ------------- ----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues..................................... $ 34,293 $ 36,962 $ 74,627 $ 79,438 $ 94,459 $ 107,115 $ 118,924
Net loss..................................... (4,413) (2,030) (5,452) (9,759) (55,697) (18,912) (17,064)
BALANCE SHEET DATA:
Total assets................................. $ 46,909 $ 49,655 $ 48,230 $ 61,569 $ 57,515 $ 69,459 $ 82,921
Working capital (deficit).................... 12,129 4,424 10,179 25 (6,755) (47,324) (11,881)
Total long-term liabilities, excluding
current portion............................ 48,211 33,214 43,603 25,186 8,827 3,961 29,204
Stockholders' deficit........................ (27,915) (18,602) (23,132) (16,181) (7,008) (30,798) (21,453)
PER COMMON SHARE DATA:(7)
Net (loss)................................... $ (.61) $ (.28) $ (.75) $ (1.35) $ (59.61) $ (20.68) $ (18.66)
Book value(8)................................ (8.67) (7.20) (7.97) (6.86) (5.46) (46.24) (23.46)
Common dividends declared.................... -- -- -- -- -- -- --
</TABLE>
- ----------
(1) Revenues of the Smith & Davis hospital and nursing home bed and
institutional casegoods business (the "Institutional Business") and related
costs were included in the consolidated results of operations of E&J in
years prior to 1994. At December 31, 1993, the related assets of the
Institutional Business were classified as held for sale and the results of
its operations for 1994 through the sale date in 1995 were aggregated and
charged to accrued restructuring expenses in the consolidated balance
sheet. By agreement dated February 15, 1995, E&J sold the Institutional
Business effective April 4, 1995.
(2) As of September 30, 1993, E&J and certain subsidiaries and BIL entered into
a Debt Conversion Agreement to provide for the conversion (the "Debt
Conversion Transaction") of approximately $75 million in principal and
accrued, unpaid interest (the "Converted BIL Debt") owed by E&J to BIL.
Pursuant to the Debt Conversion Transaction, E&J issued to BIL a
Convertible Promissory Note--Common Stock (the "Common Stock Note") in the
initial principal amount of $45 million and a Convertible Promissory
Note--Preferred Stock (the "Preferred Stock Note") in the original
principal amount of $20 million. The Common Stock Note was subsequently
increased to $55 million pursuant to a transfer of $10 million from a
Revolving Promissory Note to the Common Stock Note. The Common Stock Note
was converted into 55 million shares of E&J Common Stock (without giving
effect to the one-for-ten reverse stock split described in Note (7) below)
and the Preferred Stock Note was converted into 20 million shares of E&J
Series C Preferred Stock on January 12, 1994.
(3) 1993 results include $9,764,000 of in-process research and development
expense related to the acquisition of Medical Composite Technology, Inc. by
E&J.
(4) E&J recorded $15,104,000 as a restructuring charge in 1993 for the
consolidation of manufacturing and distribution facilities in the United
States and Canada and for the sale or other disposition of the
Institutional Business. E&J recorded a $5,150,000 restructuring charge in
1992 to provide for additional costs associated with the consolidation of
its domestic manufacturing and corporate headquarters, including the
closure and relocation of the E&J principal domestic wheelchair
manufacturing operation and international headquarters from California to
Missouri. In 1991, E&J recorded a restructuring charge of $18,524,000 for
this purpose.
(5) Effective January 1, 1991, the European subsidiaries of E&J were designated
as subsidiaries held for sale. Accordingly, their results of operations
have been reflected on the equity method in 1991. During 1992, E&J
completed the sale of these subsidiaries.
(6) During 1992, E&J resolved certain disputed issues with the California
Franchise Tax Board for the years 1975 through 1983. As a result of
agreements reached, assessments including related accrued interest in the
aggregate amount of $1.8 million were withdrawn and credited to the income
tax provision.
(7) On June 4, 1996, E&J's stockholders approved a one-for-ten reverse stock
split, effective June 6, 1996. The par value of one share of E&J Common
Stock was changed from $.01 to $.10 as a result of the stock split. All
references in the historical summary financial statements of E&J to E&J
Common Stock, average number of shares outstanding and per share amounts
have been restated to reflect the reverse stock split.
(8) Book value per share was calculated by dividing stockholders' deficit
(excluding preferred stock equity) at the end of each respective period by
the number of common shares outstanding at the end of each such period.
- --------------------------------------------------------------------------------
20
<PAGE>
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Summary Unaudited Pro Forma Combined Condensed Financial Information
The summary unaudited pro forma combined condensed financial information
set forth below combines the historical balance sheets and statements of
operations of Graham-Field and E&J, after giving effect to the Merger and the
V.C. Medical Acquisition. Such unaudited pro forma combined condensed financial
information assumes the Merger and the V.C. Medical Acquisition have been
completed on June 30, 1996, in the case of balance sheet information, and
January 1, 1995, in the case of the statement of operations information. The
Merger is accounted for under the purchase method of accounting. The pro forma
adjustments are described in the notes to the unaudited pro forma combined
condensed financial information included in this Joint Proxy
Statement/Prospectus and stockholders are urged to read such notes carefully.
The summary unaudited pro forma combined condensed financial information does
not reflect potential cost savings associated with E&J's on-going
rationalization of its production facilities located in the United States,
Canada and Mexico, and the increased outsourcing of products and product
components (E&J has estimated that, based on certain assumptions, such savings
could total approximately $4.0 million per year before taxes; however, there is
no assurance that E&J's rationalization and outsourcing programs will be
successfully implemented or that any of the expected savings will be realized).
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF E&J." In addition, the summary unaudited pro forma combined
condensed financial information does not reflect any potential synergistic
benefits and enhancements relating to the elimination of duplicate distribution
and manufacturing centers and the reduction in general and administrative
expenses of the combined entity anticipated by Graham-Field's management as a
result of the Merger. See "THE MERGER -- Reasons for the Merger; Recommendations
of the Boards of Directors" and "-- Opinions of Financial Advisors." The summary
unaudited pro forma combined condensed financial information is presented for
informational purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred had the Merger been
consummated on the dates for which the Merger is being given effect, nor is it
indicative of future operating results or financial position. See "UNAUDITED PRO
FORMA COMBINED CONDENSED FINANCIAL INFORMATION."
Graham-Field and E&J Pro Forma Combined
<TABLE>
<CAPTION>
As of and For For the Fiscal
the Six Months Year Ended
Ended June 30, 1996 December 31, 1995
------------------- -----------------
(In thousands, except per share amounts)
<S> <C> <C>
INCOME STATEMENT DATA:
Net revenue........................................ $ 91,924 $ 172,353
Net loss........................................... (837) (2,840)
BALANCE SHEET DATA:
Total assets....................................... $ 207,620
Working capital.................................... 53,574
Long-term liabilities, excluding current portion... 25,132
Stockholders' equity............................... 132,649
PER SHARE DATA:
Net loss........................................... $ (.07) $ (.22)
Book value [a]..................................... 5.12
</TABLE>
- ----------
(a) Book value per share was calculated by dividing pro forma stockholders'
equity at June 30, 1996 (excluding preferred stock equity) by the pro forma
number of common shares outstanding at the end of the period.
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21
<PAGE>
- --------------------------------------------------------------------------------
Comparative Per Share Data
The following table sets forth certain per share data of Graham-Field and
E&J on both historical and pro forma combined bases and on an equivalent pro
forma basis for E&J. The historical data as of June 30, 1996 and for the six
months then ended, the E&J equivalent per share data and the pro forma combined
amounts for all periods presented below are unaudited. The equivalent per share
data for E&J has been determined assuming the conversion ratio of .35 shares of
Graham-Field Common Stock for each share of E&J Common Stock. This table should
be read in conjunction with the historical financial statements and pro forma
financial information, and the related notes thereto, incorporated by reference
or appearing elsewhere herein. See "AVAILABLE INFORMATION," "INCORPORATION OF
DOCUMENTS BY REFERENCE," "UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
INFORMATION" and "INDEX TO FINANCIAL STATEMENTS." Unaudited pro forma combined
and equivalent pro forma per share data reflects the combined results of
Graham-Field and E&J, after giving effect to the Merger and the V.C. Medical
Acquisition, as if such transactions had occurred on June 30, 1996, in the case
of book value data, and on January 1, 1995, in the case of operating data. The
pro forma data does not reflect potential cost savings associated with E&J's
ongoing rationalization of production facilities and increased outsourcing of
products and product components (see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF E&J") or potential synergistic
benefits and enhancements anticipated by Graham-Field's management as a result
of the Merger (see "THE MERGER -- Reasons for the Merger; Recommendations of the
Boards of Directors and "-- Opinions of Financial Advisors"). The unaudited pro
forma financial data is presented for informational purposes only, and is not
necessarily indicative of the operating results or financial position that would
have occurred had the Merger and other transactions presented in the unaudited
pro forma combined condensed financial information been completed on the dates
indicated nor is it indicative of future operating results or financial
position.
Comparative Per Share Data
As of and
For the Six As of and
Months Ended For the Year Ended
June 30, 1996 December 31, 1995
------------- ------------------
GRAHAM-FIELD:
Net income (loss) per common share
Historical............................. $ .09 $ .06
Pro forma.............................. (.07) (.22)
Dividends per common share
Historical............................. -- --
Book value per common share
Historical............................. 4.32 4.23
Pro forma.............................. 5.12
E&J:
Loss per common share
Historical............................. (.61) (.75)
Pro forma equivalent (a)............... (.02) (.08)
Dividends per common share
Historical............................. -- --
Book value per common share
Historical............................. (8.67) (7.97)
Pro forma equivalent (a)............... 1.79
- ----------
(a) The pro forma equivalent is calculated by multiplying .35, the Conversion
Number assuming no reduction as a result of changes in the market price of
Graham-Field Common Stock (see "THE MERGER -- Conversion of E&J Shares in
the Merger"), by Graham-Field's pro forma net loss per common share and
book value per common share as of and for the respective periods.
- --------------------------------------------------------------------------------
22
<PAGE>
- --------------------------------------------------------------------------------
Comparative Market Price Data
Graham-Field Common Stock is listed for trading on the NYSE under the
symbol "GFI". E&J Common Stock is listed for trading on the American Stock
Exchange under the symbol "EJ".
The table below sets forth, for the calendar quarters indicated, the range
of high and low sale prices per share of Graham-Field Common Stock, as reported
on the NYSE Composite Transactions Tape, and E&J Common Stock, as reported on
the American Stock Exchange Composite Transactions Tape.
Graham-Field E&J
Common Stock Common Stock(a)
---------------- -----------------
High Low High Low
------- ------- -------- -------
1994:
First Quarter.............................. $ 6.500 $ 4.375 $ 14.375 $ 6.250
Second Quarter............................. 5.625 4.125 11.875 8.750
Third Quarter.............................. 5.125 3.125 10.000 6.250
Fourth Quarter............................. 4.750 2.875 8.125 4.375
1995:
First Quarter.............................. $ 4.500 $ 3.250 $ 6.875 $ 4.375
Second Quarter............................. 4.250 3.000 6.875 5.000
Third Quarter.............................. 4.625 3.000 10.000 5.000
Fourth Quarter............................. 4.625 3.250 9.375 4.375
1996:
First Quarter.............................. $ 4.625 $ 4.375 $ 6.875 $ 3.125
Second Quarter............................. 9.875 4.250 7.500 4.125
Third Quarter.............................. 9.125 6.500 4.125 2.500
Fourth Quarter (through October 15, 1996).. 7.125 6.750 2.750 2.500
- ----------
(a) E&J Common Stock price information reflects the one-for-ten reverse stock
split, which became effective on June 6, 1996.
On June 14, 1996, the last full trading day prior to the public
announcement of the initial agreement in principle between Graham-Field and E&J,
the closing price per share of (i) Graham-Field Common Stock was $9.00 and (ii)
E&J Common Stock was $4.875.
On August 13, 1996, the last full trading day prior to the public
announcement of the revised agreement in principle between Graham-Field and E&J,
the closing price per share of (i) Graham-Field Common Stock was $8.00 and (ii)
E&J Common Stock was $3.25.
On August 30, 1996, the last full trading day prior to the public
announcement of the execution and delivery of the Merger Agreement, the closing
price per share of (i) Graham-Field Common Stock was $8.00 and (ii) E&J Common
Stock was $2.625 (or $2.80 on an equivalent per share basis, calculated on the
basis that the Conversion Number will be .35).
On October 15, 1996, the most recent date for which it was practicable to
obtain market price data prior to the printing of this Joint Proxy
Statement/Prospectus, the closing price per share of (i) Graham-Field Common
Stock was $6.875 and (ii) E&J Common Stock was $2.625 (or $2.406 on an
equivalent per share basis, calculated on the basis that the Conversion Number
will be .35). Graham-Field and E&J stockholders are urged to obtain current
market quotations for the Graham-Field Common Stock and the E&J Common Stock. No
assurance can be given as to the market price of Graham-Field Common Stock or
E&J Common Stock at the Effective Time. Because the Conversion Number is fixed
in the Merger Agreement and neither Graham-Field nor E&J has the right to
terminate the Merger Agreement based on changes in the market price of either
party's stock, the market value of the shares of Graham-Field Common Stock that
holders of E&J Common Stock receive in the Merger
- --------------------------------------------------------------------------------
23
<PAGE>
- --------------------------------------------------------------------------------
may vary significantly from the prices shown above. Moreover, as is discussed
under "THE MERGER -- Conversion of E&J Shares in the Merger," the Conversion
Number will be reduced to the extent necessary to cause the fair market value of
the fractional share of Graham-Field Common Stock issued in exchange for each
share of E&J Common Stock not to exceed $5.50.
Graham-Field has not declared a cash dividend on the Graham-Field Common
Stock since its inception and E&J has not declared a cash dividend on the E&J
Common Stock since 1989. Graham-Field 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 and Warrant Agreement, in an amount greater
than $2,000,000 plus 50% of Graham-Field'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 Graham-Field). As of June 30, 1996,
Graham-Field 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 and Warrant Agreement. Graham-Field 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 on the
Graham-Field Common Stock.
- --------------------------------------------------------------------------------
24
<PAGE>
RISK FACTORS
Risk Factors Relating to Graham-Field
Competition. The medical device industry is characterized by intense
competition. Many of Graham-Field's competitors have substantially greater
capital resources than Graham-Field. There can be no assurance that competitors
of Graham-Field will not succeed in developing or marketing products which are
more effective or efficient than those marketed by Graham-Field. Such
developments may render Graham-Field's products obsolete or noncompetitive.
Accordingly, Graham-Field's success is dependent in part upon its ability to
respond quickly to both medical and technological changes through the
development and introduction of new products. Given that product development
involves a high degree of risk, there can be no assurance that Graham-Field's
new product development efforts will result in commercially successful products.
Governmental Regulation. The Federal Food, Drug and Cosmetic Act, the Safe
Medical Devices Act and the regulations issued 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. Accordingly, the FDA requires that Graham-Field register, list and file
various reports with respect to the medical devices it manufactures. The FDA
sets requirements for the manufacturing process including certain testing
procedures and sterilization records. The FDA also has the authority to issue
performance standards for devices manufactured by Graham-Field, which it has not
done to date. In the event that such performance standards were issued,
Graham-Field products would be required to conform, which could result in
significant additional expenditures for Graham-Field. There can be no assurance
that changes to current regulations or additional regulations imposed by the FDA
will not have an adverse impact on Graham-Field's business and financial
condition in the future. See "CERTAIN INFORMATION CONCERNING GRAHAM-FIELD."
Reliance on Patents and Proprietary Technology. Graham-Field's
profitability depends in part on its ability to establish and maintain patent
protection for its proprietary technologies, products and processes, and the
preservation of its trade secrets. In addition, Graham-Field must operate
without infringing upon the proprietary rights of other parties. There can be no
assurance that any United States or international patents issued or licensed to
Graham-Field will not be successfully challenged, invalidated or circumvented,
or that patents will be issued in respect of patent applications to which
Graham-Field currently holds rights. Although Graham-Field is not aware of any
claim by third parties that any of its products or technology infringe upon any
patents or proprietary rights of such parties, there can be no assurance that
Graham-Field will not be subject to such claims in the future. The defense and
prosecution of patent claims is costly and time consuming, regardless of an
outcome favorable to Graham-Field, and can result in the diversion of
substantial financial and managerial resources away from Graham-Field's primary
business activities. Additionally, adverse outcomes of such claims could have a
material adverse effect on Graham-Field's business and financial condition.
Dependence on and Need for Key Personnel. Due to the specialized nature of
its business, Graham-Field is dependent upon the continued services and
management of its Chief Executive Officer, Irwin Selinger, and other executive
officers. If Mr. Selinger or any of such other executive officers were to leave
Graham-Field, operating results could be adversely affected. In addition,
Graham-Field's continued growth is dependent upon its ability to attract and
retain skilled employees. There can be no assurance that Graham-Field will be
successful in recruiting and retaining personnel of the requisite calibre or of
the requisite quantity to enable Graham-Field to conduct its business as
planned.
Reimbursement of Health Care Costs. In certain cases, the ability of
Graham-Field's customers to pay for the products supplied by Graham-Field
depends upon governmental and private insurer reimbursement policies.
Consequently, those policies have a direct impact on the level of Graham-Field's
sales and its ability to collect receivables on a timely basis. Accordingly,
there can be no
25
<PAGE>
assurance that a significant adverse change in such reimbursement policies will
not affect Graham-Field's business and financial condition.
Absence of Dividend Payments. Graham-Field has not declared or paid a
dividend on the Graham-Field Common Stock since the organization of Graham-Field
in April 1981. In addition, as of June 30, 1996, Graham-Field was restricted
from declaring and paying any cash dividends under applicable debt covenants
under the Note and Warrant Agreement and Graham-Field 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. See "SUMMARY
FINANCIAL INFORMATION -- Comparative Market Price Data."
Risk Factors Relating to E&J
Historical and Anticipated Future Losses. Since 1989 E&J has incurred
significant financial and operating losses in a continuing effort to restructure
its operations with the objective of improving its competitive position within
the durable medical equipment industry and maximizing stockholder value.
Restructuring activities have included asset sales, significant reductions in
headcount, plant closures and consolidations, product line rationalizations,
debt to equity conversions and outsourcing of manufacturing operations. Despite
these efforts, E&J has experienced recurring operating losses (which net losses
totalled $7.8 million in the twelve months ended June 30, 1996) and, at June 30,
1996, E&J had a net capital deficiency totalling $27.9 million. E&J's revenues
and operating results have also been negatively impacted by ongoing price
competition. E&J's future profitability is dependent upon improvement in the
markets for its products, reduction of both its production and operating costs
through the rationalization and streamlining of manufacturing facilities in the
United States, Canada and Mexico, an increase in outsourcing of product and
product components, a reduction of lead times and shipping delays which
negatively impact consumer confidence and an increase in order rates to
reestablish lost market share; however, there is no assurance that E&J will
successfully emerge from or complete its restructuring activities, that E&J's
ongoing rationalization and outsourcing programs will be successfully
implemented or that any of the expected savings will be realized. As a result,
there is substantial doubt about E&J's ability as an independent company to
continue as a going concern. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF E&J" and "CERTAIN INFORMATION
CONCERNING E&J -- Business of E&J -- General Development of Business and E&J
Strategy."
Controlling Stockholder. BIL is the majority stockholder of E&J, and has
beneficial ownership of approximately 86% of the voting securities of E&J. (See
"CERTAIN INFORMATION CONCERNING E&J -- Security Ownership of Certain Beneficial
Owners and Management"). BIL, therefore, has control of all matters requiring
approval of the E&J stockholders, including the election of directors and the
approval of mergers or other business combination transactions. Such
concentrated ownership makes it difficult for a third party to acquire control
of E&J without the consent of BIL and may discourage third parties from making
an acquisition proposal or seeking to acquire control of E&J. As described under
"THE MERGER -- Stockholder Agreement," BIL has granted Graham-Field an
irrevocable proxy to vote its shares of E&J stock in favor of the Merger.
Dependence on Key Supply Contracts. E&J's business is heavily dependent on
its maintenance of two key supply contracts. E&J obtains homecare beds for
distribution solely pursuant to a supply agreement with Healthtech Products,
Inc., a wholly-owned subsidiary of Invacare Corporation (which is a major
competitor of E&J). This homecare bed supply contract may be terminated by E&J
upon at least six months' prior written notice, by the supplier upon at least 24
months' prior written notice and by either party in the case of a material
breach. Invacare and E&J have agreed in principle that the supply contract will
be terminated effective October 15, 1997 and that Invacare will continue to
supply homecare beds until that date in accordance with the terms of the
existing contract. Although E&J believes that it will be able to secure a
suitable supply agreement with another manufacturer upon the
26
<PAGE>
termination of the Invacare arrangements, there can be no assurance that
arrangements as favorable as the current supply contract will be obtainable. E&J
obtains the majority of its wheelchairs and wheelchair components pursuant to a
supply agreement with P.T. Dharma Polimetal, an Indonesian manufacturer. The
term of this agreement extends until December 31, 1997, and on January 1, 1998
and each January 1 thereafter shall be automatically extended for one additional
year unless E&J elects not to extend or E&J has failed to order at least 50% of
the contractually specified minimums and the manufacturer elects to terminate.
If the supply agreement with P.T. Dharma Polimetal is terminated, there can be
no assurance that E&J will be able to enter into a suitable supply agreement
with another manufacturer.
Risks Associated with Development and Introduction of New Products; Rapid
Technological Change; Competition. E&J's future growth and profitability are
dependent upon its ability to develop, introduce and market products which keep
pace with the rapid technological development of the medical devices industry.
Many of E&J's competitors have substantially greater capital resources to devote
to research and development, manufacturing development and marketing efforts.
There is no assurance that more expedient development of products by competitors
will not render E&J's technology or products obsolete and noncompetitive. There
is a high degree of risk associated with product development and E&J's success
going forward is dependent upon new product development efforts which will
result in commercially successful products.
Governmental Regulation. The operations of E&J are subject to the same
regulatory scheme and requirements as those to which Graham-Field is subject as
described above.
Reliance on Patents and Proprietary Technology. E&J's profitability depends
in part on its ability to establish and maintain patent protection for its
proprietary technologies, products and processes, and the preservation of its
trade secrets. In addition, E&J must operate without infringing upon the
proprietary rights of other parties. There can be no assurance that any United
States or international patents issued or licensed to E&J will not be
successfully challenged, invalidated or circumvented, or that patents will be
issued in respect of patent applications to which E&J currently holds rights.
Although E&J is not aware of any claim by third parties that any of its products
or technology infringe upon any patents or proprietary rights of such parties,
there can be no assurance that E&J will not be subject to such claims in the
future. The defense and prosecution of patent claims is costly and time
consuming, regardless of an outcome favorable to E&J, and can result in the
diversion of substantial financial and managerial resources away from E&J's
primary business activities. Additionally, adverse outcomes of such claims could
have a material adverse effect on E&J's business and financial condition.
Reimbursement of Health Care Costs. In certain cases, the ability of E&J's
customers to pay for the products supplied by E&J depends upon governmental and
private insurer reimbursement policies. Consequently, those policies have a
direct impact on the level of E&J's sales and its ability to collect receivables
on a timely basis. Accordingly, there can be no assurance that a significant
adverse change in such reimbursement policies will not affect E&J's business and
financial condition.
Product Liability. Significant product liability claims have been made
against E&J in the past and although E&J currently maintains product liability
insurance, there can be no assurance that such coverage will be adequate to
protect E&J from liabilities it may incur. Product liability insurance is
expensive and there can be no assurance that E&J will be able to continue to
obtain and maintain insurance at acceptable rates, if at all. Potential losses
from any possible future liability claims and the effect which product liability
litigation may have on the reputation and marketability of E&J's products may
have a material adverse effect on E&J's business and financial condition.
On July 15, 1996, a verdict was rendered against Smith & Davis
Manufacturing Company, a wholly-owned subsidiary of E&J ("Smith & Davis"), in a
New Mexico state court in the amount of $550,000 actual damages and $4 million
punitive damages. Smith & Davis intends to appeal this verdict, but there can be
no assurance that Smith & Davis will be successful on appeal. This lawsuit was
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instituted by the children and surviving heirs and personal representatives of a
nursing home patient who died after her head became pinned between a bed rail
allegedly manufactured by Smith & Davis and her bed. The suit alleged that the
bed rail was defective and unsafe for its intended purpose, that Smith & Davis
was negligent in designing, manufacturing, testing and marketing such bed rails
and that the negligence of the nursing home was the proximate cause of the
decedent's death. The nursing home reached a settlement with the plaintiffs
prior to trial. Smith & Davis has product liability insurance coverage which
provides $1 million per occurrence coverage in excess of a $250,000 self-insured
retention and $5 million of umbrella coverage. In addition, this lawsuit is
covered by the indemnity to be provided to Graham-Field by BIL pursuant to the
Stockholder Agreement (see "THE MERGER -- Stockholder
Agreement--Indemnification"), and any uninsured punitive damage award arising
from this lawsuit will reduce the principal amount of the note to be delivered
by Graham-Field to BIL evidencing the BIL Subordinated Loan (see "THE MERGER --
Other Closing Deliveries -- Exchange of Unsecured Promissory Note for a
Long-Term Unsecured Subordinated Promissory Note").
Absence of Dividend Payments. E&J has not declared or paid a dividend on
the E&J Common Stock since 1989, and does not anticipate the payment of cash
dividends in the future. See "SUMMARY FINANCIAL INFORMATION -- Comparative
Market Price Data."
Risk Factors Relating to the Merger
Integration of Businesses. The Merger involves the integration of two
companies that have previously operated independently. There can be no assurance
that Graham-Field will not encounter difficulties integrating the operations of
E&J into the operations of Graham-Field. Any delays or unexpected costs incurred
in connection with such integration could have an adverse effect on the combined
entities' business, operating results or financial condition. Among the
considerations of the Graham-Field and E&J Boards in connection with their
respective approvals of the Merger Agreement were the significant synergies,
cost savings and economies of scale expected to be achieved through the
operation of E&J as part of a combined entity with Graham-Field (see "THE MERGER
- -- Reasons for the Merger; Recommendations of the Boards of Directors" and "--
Opinions of Financial Advisors"). There can be no assurance that such synergies
or increased efficiencies will be achieved.
Future Capital Requirements. The combined entities will require capital to
finance E&J's continuing operating losses and investment in research and
development and to support E&J's existing operations. There can be no assurance
that the combined entities will have adequate resources, or be able to obtain
financing on acceptable terms, to support the aggregate capital requirements of
the combined entities.
Dilution of Voting Power. The Merger Agreement contemplates the issuance of
up to 4,470,208 shares of Graham-Field Common Stock, up to 6,100 shares of
Graham-Field Series B Preferred Stock convertible into up to 3,935,483 shares of
Graham-Field Common Stock and 1,000 shares of Graham-Field Series C Preferred
Stock convertible into 500,000 shares of Graham-Field Common Stock. The
Graham-Field Series B Preferred Stock and Graham-Field Series C Preferred Stock
will vote on an as-converted basis with the Graham-Field Common Stock. As a
result, Graham-Field will issue shares pursuant to the Merger Agreement
representing approximately 38% of the voting power of the Graham-Field capital
stock outstanding after giving effect to the Merger (see "THE MERGER --
Conversion of E&J Shares in the Merger" and "-- Other Closing Deliveries").
Consequently, the issuances of the Graham-Field stock in the Merger as
contemplated by the Merger Agreement will dilute the voting rights of existing
holders of Graham-Field Common Stock. Moreover, holders of the Graham-Field
Series B Preferred Stock and Graham-Field Series C Preferred Stock will be
entitled to receive dividends and liquidating distributions prior to the payment
of such dividends or distributions on the Graham-Field Common Stock.
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Diminished Ability to Sell Graham-Field; Anti-Takeover Effect. Based on the
number of shares of Graham-Field Common Stock, Graham-Field Series B Preferred
Stock and Graham-Field Series C Preferred Stock to be issued to BIL pursuant to
the Merger Agreement, at the Effective Time, BIL will control approximately 36%
of the voting power of the Graham-Field capital stock then outstanding. This
will make it more difficult for a third party to acquire control of Graham-Field
without the consent of BIL and therefore may discourage third parties from
making an acquisition proposal or seeking to acquire control of Graham-Field. In
connection with the Merger, Graham-Field, BIL and Irwin Selinger have entered
into the Stockholder Agreement, pursuant to which BIL is entitled to designate
two members of the Graham-Field Board and which governs, among other things, the
voting, acquisition and disposition of Graham-Field capital stock held by BIL.
See "THE MERGER -- Stockholder Agreement."
Conflicts of Interest. In considering the recommendation of the Merger by
the E&J Board (see "THE MERGER -- Reasons for the Merger; Recommendations of the
Boards of Directors -- E&J"), stockholders should be aware of the existence of
certain conflicts of interest with respect to the Merger on the part of BIL and
certain members of the E&J Board and management (see "THE MERGER -- Conflicts of
Interest"). Such interests, together with other relevant factors, were
considered by the E&J Board in recommending the Merger to its stockholders and
approving the Merger Agreement.
Exchange Ratio Subject to Adjustment Relative to Stock Price. The
Conversion Number is expressed in the Merger Agreement as a ratio pursuant to
which each share of E&J Common Stock will be exchanged for .35 of a fully paid
and nonassessable share of Graham-Field Common Stock. However, the Merger
Agreement provides that the Conversion Number is subject to reduction to the
extent necessary to cause the fair market value of the fraction of a share of
Graham-Field Common Stock issuable in the Merger in exchange for each share of
E&J Common Stock, based on the average closing sales price for the Graham-Field
Common Stock for the ten trading days ending on the fifth trading day prior to
the Effective Date, to equal $5.50. No similar adjustment is called for if the
Conversion Number would yield a value per share of E&J Common Stock less than
$5.50. See "THE MERGER -- Conversion of E&J Shares in the Merger."
Consent of John Hancock. Consummation of the Merger is dependent upon the
consent of John Hancock under the terms and provisions of the Note and Warrant
Agreement. Graham-Field is currently in discussions with potential bank lenders
with respect to the possibility of refinancing its indebtedness to John Hancock.
There can be no assurances that Graham-Field will be able to secure the consent
of John Hancock or a suitable refinancing arrangement with respect to the John
Hancock indebtedness. See "THE MERGER -- Graham-Field Financing Arrangements."
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MEETINGS, VOTING AND PROXIES
Introduction
This Joint Proxy Statement/Prospectus is being furnished to (i) the holders
of Graham-Field Common Stock in connection with the solicitation of proxies by
the Graham-Field Board from the holders of Graham-Field Common Stock for use at
the Graham-Field Special Meeting, and (ii) the holders of E&J Common Stock and
E&J Preferred Stock in connection with the solicitation of proxies by the E&J
Board from the holders of E&J Common Stock and E&J Preferred Stock for use at
the E&J Special Meeting, in each case to consider and vote upon a proposal to
approve the transactions contemplated by the Merger Agreement and for the other
purposes set forth in the respective notices of meetings.
Graham-Field Special Meeting
Purpose of Graham-Field Special Meeting. At the Graham-Field Special
Meeting, Graham-Field stockholders will be asked to consider and vote on
proposals to approve the Share Issuances, the Stock Amendment, the Stockholder
Action Amendments and the Incentive Program Amendment and on such other matters
as may properly be presented for the consideration of Graham-Field stockholders.
It is the intention of the proxy holders to take action with respect to any such
other matters as shall be in accordance with their best judgment. Approval of
the Share Issuances by Graham-Field stockholders is required by the rules of the
NYSE for corporations, such as Graham-Field, whose shares are listed for trading
thereon.
Board of Directors Recommendations. The Graham-Field Board has unanimously
approved the Merger Agreement and the transactions contemplated thereby and
unanimously recommends that Graham-Field stockholders vote FOR approval of the
Share Issuances, the Stock Amendment, the Stockholder Action Amendments and the
Incentive Program Amendment.
Date, Place and Time; Record Date. The Graham-Field Special Meeting is
scheduled to be held on Wednesday, November 27, 1996, commencing at 9:00 a.m.,
local time, at The Chase Manhattan Bank, 13th Floor (the Auditorium), 55 Water
Street, New York, New York. The Graham-Field Board has fixed the close of
business on October 11, 1996 as the Graham-Field Record Date. As of the close of
business on the Graham-Field Record Date, 14,209,895 shares of Graham-Field
Common Stock were issued and outstanding and entitled to vote at the
Graham-Field Special Meeting.
Voting Rights. Each holder of record of Graham-Field Common Stock on the
Graham-Field Record Date will be entitled to one vote on each of the proposals
listed above. The holders of a majority of the shares of Graham-Field Common
Stock outstanding and entitled to vote must be present in person or represented
by proxy at the Graham-Field Special Meeting in order for a quorum to be
present. The affirmative vote of a majority of the votes cast at the
Graham-Field Special Meeting is required to approve the Share Issuances and the
Incentive Program Amendment. The affirmative vote of a majority of the
outstanding shares of Graham-Field Common Stock is required to approve the Stock
Amendment and each of the Stockholder Action Amendments. Abstentions will have
the effect of a vote against each of the Share Issuances, the Stock Amendment,
the Stockholder Action Amendments and the Incentive Program Amendment. Broker
non-votes will have no effect in determining whether the Share Issuances or the
Incentive Plan Amendment has received the requisite number of affirmative votes
by Graham-Field stockholders, but will have the effect of a vote against the
Stock Amendment and the Stockholder Action Amendments.
The directors and executive officers of Graham-Field, together with their
affiliates as a group, own beneficially (excluding unexercised options)
approximately 8.8% of the outstanding shares of Graham-Field Common Stock
entitled to vote at the Graham-Field Special Meeting. The directors and
executive
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officers of Graham-Field have indicated their intention to vote such shares FOR
the adoption of each of the above-listed proposals.
Proxies. All shares of Graham-Field Common Stock which are represented by a
properly executed proxy received prior to or at the Graham-Field Special Meeting
will, unless such proxies have been revoked, be voted in accordance with the
instructions indicated in such proxies. If no instructions are indicated on a
properly executed Graham-Field proxy, such shares will be voted FOR each of the
Share Issuances, the Stock Amendment, the Stockholder Action Amendments and the
Incentive Program Amendment. A Graham-Field stockholder may revoke a proxy at
any time prior to the Graham-Field Special Meeting by delivering to the
Secretary of Graham-Field a notice of revocation bearing a later date, by
delivering a duly executed proxy bearing a later date or by attending such
meeting and voting in person.
The Graham-Field Special Meeting may be adjourned to another date and/or
place for any proper purpose (including, without limitation, for the purpose of
soliciting additional proxies).
Pursuant to the Merger Agreement, approval of the Stock Amendment and the
Incentive Program Amendment is a condition to Graham-Field's obligation to
consummate the Merger. If any of the Stockholder Action Amendments is approved
by stockholders at the Graham-Field Special Meeting, such amendment will be
effected regardless of whether any of the other Stockholder Action Amendments or
any other matter on which a vote is taken at the Graham-Field Special Meeting is
approved or the Merger is consummated. However, in the event that the Merger is
not consummated for any reason, the Stock Amendment and the Incentive Program
Amendment will not be effected, even if approved by the stockholders at the
Graham-Field Special Meeting.
E&J Special Meeting
Purpose of E&J Special Meeting. The purpose of the E&J Special Meeting is
to consider and vote upon a proposal to adopt the Merger Agreement, and such
other matters as may properly be presented incident to the conduct of the E&J
Special Meeting. It is the intention of the proxy holders to take action with
respect to any such other matters as shall be in accordance with their best
judgment.
Board of Directors Recommendation. The E&J Board has unanimously approved
the Merger Agreement and the transactions contemplated thereby and has
unanimously concluded that the terms of the Merger are fair to and in the best
interests of the stockholders of E&J other than BIL and unanimously recommends
that the E&J stockholders vote FOR the adoption of the Merger Agreement.
Stockholders should be aware that BIL and certain members of the E&J Board and
management have certain interests in the Merger that may conflict with and are
in addition to those of E&J stockholders. See "THE MERGER -- Conflicts of
Interest."
Date, Place and Time; Record Date. The E&J Special Meeting is scheduled to
be held on Wednesday, November 27, 1996, commencing at 9:00 a.m., local time, at
the St. Regis Hotel, 2 East 55th Street, New York, New York. The E&J Board has
fixed the close of business on October 11, 1996 as the E&J Record Date. Only
holders of record of E&J Common Stock and E&J Preferred Stock on the E&J Record
Date will be entitled to notice of and to vote at the E&J Special Meeting. As of
the close of business on the E&J Record Date, 7,196,565 shares of E&J Common
Stock were issued and outstanding and entitled to vote at the E&J Special
Meeting and 28,654,179 shares of E&J Preferred Stock were issued and outstanding
and entitled to vote at the E&J Special Meeting.
Voting Rights. Each holder of record of E&J Common Stock on the E&J Record
Date is entitled to cast one vote per share on each matter submitted to a vote
at the E&J Special Meeting. BIL, as the holder of record of the E&J Preferred
Stock, is entitled to cast one-tenth of a vote per share on each matter
submitted to a vote at the E&J Special Meeting. The holders of E&J Common Stock
and E&J Preferred Stock will vote together as a single class. The holders of
shares of E&J Common Stock and
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E&J Preferred Stock representing a majority of the total number of votes
entitled to be cast by the holders of all outstanding shares of E&J Common Stock
and E&J Preferred Stock must be present in person or represented by proxy at the
E&J Special Meeting in order for a quorum to be present. The affirmative vote of
the holders of shares of E&J Common Stock and E&J Preferred Stock representing a
majority of the total number of votes entitled to be cast by the holders of all
outstanding shares of E&J Common Stock and E&J Preferred Stock at the E&J
Special Meeting is required to approve the Merger Agreement. Abstentions and
broker non-votes will have the effect of a vote against approval of the Merger
Agreement. BIL owns a sufficient number of shares of E&J Common Stock and E&J
Preferred Stock to assure adoption of the Merger Agreement at the E&J Special
Meeting and has granted to Graham-Field an irrevocable proxy to vote such shares
in favor of the Merger, thereby assuring that Graham-Field will have the ability
to approve the Merger without the affirmative vote of any other stockholder of
E&J.
Proxies. All shares of E&J Common Stock which are represented by a properly
executed proxy received prior to or at the E&J Special Meeting will, unless such
proxies have been revoked, be voted in accordance with the instructions
indicated in such proxies. If no instructions are indicated on a properly
executed E&J proxy, such shares will be voted FOR the proposal to adopt the
Merger Agreement. An E&J stockholder may revoke a proxy at any time prior to the
E&J Special Meeting by delivering to the Secretary of E&J a notice of revocation
bearing a later date, by delivering a duly executed proxy bearing a later date
or by attending such meeting and voting in person.
The E&J Special Meeting may be adjourned to another date and/or place for
any proper purpose (including, without limitation, for the purpose of soliciting
additional proxies).
Proxy Solicitation
In addition to soliciting proxies by mail, proxies may also be solicited by
the respective directors, officers and employees of Graham-Field and E&J (who
will receive no additional compensation therefor in addition to their regular
salaries and fees) by telephone, telegram, facsimile transmission or other
electronic communication methods or in person. All expenses of soliciting
proxies from Graham-Field stockholders will be borne by Graham-Field. All
expenses of soliciting proxies from E&J stockholders will be borne by E&J.
Banks, brokerage firms and other custodians who hold shares of Graham-Field
Common Stock or E&J Common Stock in their name or custody or in the name of
nominees for others will be reimbursed by Graham-Field or E&J, as the case may
be, for their reasonable expenses incurred in forwarding proxy solicitation
materials to those persons for whom they hold such shares. In addition,
Graham-Field has retained Georgeson & Company Inc. to aid in the solicitation of
proxies in connection with the Graham-Field Special Meeting. The fee of such
firm is $8,000, plus reimbursement for reasonable out-of-pocket expenses.
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THE MERGER
The description of the Merger Agreement set forth below is a summary of the
material terms of the Merger Agreement, which is attached as Annex A to this
Joint Proxy Statement/Prospectus and is incorporated by reference herein. Such
summary does not purport to be complete and is qualified in its entirety by
reference to the Merger Agreement.
Background of the Merger
E&J has for a number of years incurred substantial financial losses in a
continuing effort to restructure its operations with the objective of improving
its competitive position within the durable medical equipment industry and
maximizing stockholder value. Restructuring activities have included asset
sales, significant reductions in headcount, plant closures and consolidations,
product line rationalizations, debt to equity conversions and outsourcing of
manufacturing operations.
Since 1993, BIL has exchanged approximately $75 million in principal and
accrued unpaid interest owed to it by E&J for 55 million shares of E&J Common
Stock (without giving effect to the one-for-ten reverse stock split effected on
June 6, 1996) and 20 million shares of E&J Series C Preferred Stock. BIL and its
affiliates have also (1) advanced E&J an additional $21.2 million ($3.5 million
of accrued unpaid interest was owing to BIL at June 30, 1996 on those advances),
(2) guaranteed payment of the HSBC Indebtedness under which E&J has received
cash advances of $25 million and letters of credit totalling $6 million, and (3)
subordinated the payment of its loans to the HSBC Indebtedness.
Despite these measures, E&J has incurred continuing losses (which net
losses totalled $7.8 million during the twelve months ended June 30, 1996) and,
at June 30, 1996, had a net capital deficiency totalling $27.9 million. These
adverse financial results have been reflected in the depressed market prices of
the E&J Common Stock.
As part of E&J's efforts to explore various restructuring alternatives, in
September 1994 Mr. Rodney F. Price, Chairman of E&J and Managing Director of
BIL, met with Mr. Irwin Selinger, the Chairman of the Board and Chief Executive
Officer of Graham-Field, to discuss a proposed transaction between Graham-Field
and E&J. The initial discussions with respect to the proposed transaction
contemplated that Graham-Field would acquire several E&J product lines,
including the related trademarks, in exchange for shares of Graham-Field Common
Stock. Graham-Field also would have acquired a license to use the E&J trademark,
and an interest in an Indonesian partnership which controlled the plating
operations for the E&J standard commodity wheelchair product line. After
extensive negotiations and due diligence during the last quarter of 1994, E&J
decided in January 1995 to terminate discussions because of the unfavorable
short-term effects of the proposed transaction on the overhead absorption at
E&J's manufacturing facilities, as well as the potential confusion in the
marketplace relating to the licensing of the E&J trademark to Graham-Field.
Thereafter, E&J's management and the E&J Board continued its consideration
of the long-term prospects for E&J and the healthcare industry, and the means by
which E&J could return to profitability and be best positioned to meet
anticipated challenges ahead. Management adopted the view that E&J would need to
integrate and rationalize its manufacturing and distribution operations, reduce
its costs of manufacturing and fund significant investments in new products to
become profitable and compete successfully against healthcare companies with
greater resources. Management also determined that one or more alliances with
other healthcare companies would be necessary to improve E&J's long-term
prospects, but no specific form of alliance or strategic partner was considered.
Management concluded that a combination with another major healthcare company
appeared to be the best alternative in order to achieve E&J's objectives
because, unlike the other alternatives considered, it would immediately satisfy
E&J's objective of improving its competitive position within the healthcare
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industry. The E&J Board authorized management to make preliminary inquiries of
major healthcare companies to determine their level of interest in pursuing a
possible business combination.
During the latter part of February 1996, E&J's management contacted
Graham-Field and one other company to determine if either company might have an
interest in acquiring E&J. E&J entered into confidentiality agreements with each
company pursuant to which E&J provided to each company, on a confidential basis,
certain non-public information concerning its businesses, operations and
prospects. The discussions with the other company did not result in any proposal
to acquire E&J. On April 23, 1996, Mr. Selinger, Gary M. Jacobs, the Vice
President and Chief Financial Officer of Graham-Field, and Kenneth T. Coviello,
the Vice President of Home Healthcare for Graham-Field, met with Mr. Price,
Bevil J. Hogg, the President and Chief Executive Officer of E&J, Timothy W.
Evans, the Senior Vice President and Chief Financial Officer of E&J, and Sandra
Baylis, a director of E&J, to discuss the respective business strategies of the
companies. Based on such discussions and the potential benefits and synergies
that could be derived from the business combination between Graham-Field and
E&J, the parties agreed to conduct further discussions.
During the first week of June 1996, Mr. Selinger presented an initial offer
to Mr. Price, and the parties commenced negotiations regarding the proposed
business combination. The parties reached an agreement in principle for a merger
in which each E&J stockholder would receive one share of Graham-Field Common
Stock for each four shares of E&J Common Stock, plus $2 in cash for each share
of E&J Common Stock, or a total of approximately 1.8 million shares of
Graham-Field Common Stock and $14.4 million; provided that the aggregate value
of the consideration to be issued in exchange for each share of E&J Common Stock
would not exceed $5.00. As part of the proposed business combination, Mr.
Selinger and Mr. Price also agreed to arrangements concerning the retirement of
E&J's indebtedness to HSBC and to BIL, as well as the E&J Preferred Stock owned
by BIL, on terms substantially similar to those contained in the Merger
Agreement (see "THE MERGER -- Other Closing Deliveries"). The agreement in
principle also contemplated that BIL would indemnify Graham-Field for any losses
in excess of E&J's reserves which might arise out of the litigations described
in E&J's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996.
The Graham-Field and E&J Boards approved the terms of the agreement in
principle on June 13, 1996 and June 16, 1996, respectively, and authorized their
respective managements to enter into a Memorandum of Agreement and a
Confidentiality and Standstill Agreement between E&J and BIL embodying the terms
of the parties' agreement in principle. Under the terms of this agreement, each
of E&J and BIL agreed not to solicit any indications of interest or engage in
any competing business combination, except as expressly authorized by
Graham-Field, until August 15, 1996. The agreement in principle was subject to
the negotiation and execution of definitive agreements, the approval thereof by
the Graham-Field and E&J Boards and obtaining the requisite approvals of the
companies' stockholders. Graham-Field and E&J issued press releases announcing
the terms of their agreement in principle on June 17, 1996. Thereafter,
Graham-Field and E&J conducted mutual due diligence, including a review of each
other's business plans, manufacturing and distribution facilities, environmental
and regulatory affairs, information and computer systems, financial budgets and
capital requirements.
Following such board meetings, the E&J Board retained Vector as its
independent financial advisor to render an opinion as to the fairness of the
consideration to be received by holders of E&J Common Stock pursuant to
Graham-Field's merger proposal (see "THE MERGER -- Opinions of Financial
Advisors -- Vector"), and the Graham-Field Board retained Jefferies to render an
opinion with respect to the fairness, from a financial point of view, to the
common stockholders of Graham-Field of the consideration to be paid by
Graham-Field pursuant to its merger proposal (see "THE MERGER -- Opinions of
Financial Advisors -- Jefferies").
On June 18, 1996, a class action complaint was filed in the Court of
Chancery in New Castle County, Delaware with respect to the proposed acquisition
of E&J by Graham-Field, naming as
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defendants E&J, its directors, BIL and Graham-Field. See "THE MERGER -- Certain
Litigation." To date, no responsive pleading has been filed by any of the
defendants and no discovery has been taken.
On July 9, 1996, Mr. Selinger contacted Mr. Price to discuss Graham-Field's
short-term capital requirements. In particular, Mr. Selinger informed Mr. Price
that Graham-Field was in the process of acquiring V.C. Medical, a wholesaler and
distributor of medical products in Puerto Rico. After such discussions, Mr.
Selinger and Mr. Price agreed that BIL would provide $4 million of financing to
Graham-Field to fund the V.C. Medical Acquisition and Graham-Field's short-term
capital requirements. On July 18, 1996, BIL provided Graham-Field with a $4
million loan (the "BIL Loan") at an annual effective rate of 8.8% pursuant to an
unsecured promissory note dated as of July 18, 1996 (the "Unsecured BIL Note").
Under the terms of the Unsecured BIL Note, all outstanding principal and accrued
interest under the BIL Loan was required to be paid to BIL upon the earlier to
occur of 45 days after the date of the completion of the proposed business
combination, 45 days after termination of the negotiations relating to the
proposed business combination or July 18, 1997.
Negotiation of various aspects of the proposed transaction by
representatives of Graham-Field and E&J continued from mid-June 1996 through
September 3, 1996. These negotiations focused on various aspects of the draft
documentation for the transaction, including the appropriate exchange ratio,
limitations relating to the merger consideration, the indemnification
obligations of BIL with respect to certain environmental and other legal
proceedings and product liability claims to which E&J is a party, the pending
class action lawsuit, the amount of E&J indebtedness to be discharged by BIL
prior to the closing, the terms and provisions of a subordinated note to be
issued to BIL in substitution of the BIL Loan and the terms of the preferred
stock to be issued to BIL. In addition, numerous discussions occurred between
Mr. Selinger and Mr. Price concerning the terms and provisions of a proposed
stockholder agreement between Graham-Field, BIL and Mr. Selinger, including but
not limited to, BIL's representation on the Graham-Field Board, BIL's standstill
obligations, Graham-Field's right of first refusal with respect to sales by BIL
of its Graham-Field stock, the preemptive rights and registration rights to be
provided to BIL and termination provisions.
On August 4, 1996, Mr. Selinger advised Mr. Price that, due primarily to
concerns which had developed during Graham-Field's due diligence process about
E&J's continuing operating losses and various risks and exposures perceived by
Graham-Field, Graham-Field was prepared to withdraw from the proposed
transaction unless E&J and BIL agreed to a revision of the financial terms
contained in the agreement in principle. Mr. Selinger proposed an adjustment of
the terms of the merger consideration to provide that each 3.5 shares of E&J
Common Stock would be converted into one share of Graham-Field Common Stock and
to eliminate the cash component of the merger consideration. In addition, Mr.
Selinger proposed that BIL purchase $10 million in additional equity of
Graham-Field.
On August 5, 1996, the Graham-Field Board met to consider the revised
merger proposal and the proposed documentation for the transaction. Members of
Graham-Field's senior management and representatives of Jefferies made
presentations to the Graham-Field Board and discussed with the Graham-Field
Board their views and analyses of various aspects of the proposed business
combination. The Graham-Field Board reviewed and considered, among other things,
the background of the proposed business combination, the risks associated with
the proposed transaction, the due diligence findings, Graham-Field's strategic
alternatives, the financial and valuation analyses of the proposed business
combination, the terms of the draft documentation and the oral opinion of
Jefferies to the effect that the merger consideration to be paid was fair to the
stockholders of Graham-Field from a financial point of view. At this meeting,
the Graham-Field Board authorized management to continue negotiations with E&J.
On August 9, 1996, representatives of the two companies met to finalize the
terms of the merger consideration and to adjust the exchange ratio discussed at
the August 4 meeting to 2.857, subject to a limitation of $5.50 per share of E&J
Common Stock. Under the revised terms, BIL agreed to purchase,
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simultaneously with the closing of the proposed business combination, $10
million of Graham-Field Series C Preferred Stock ranking pari passu with the
Graham-Field Series B Preferred Stock and to convert the Unsecured BIL Note into
a subordinated long-term loan pursuant to which the principal would be due and
payable on April 1, 2001, with interest at an effective rate of 7.7% per annum
(the "BIL Subordinated Loan"). In addition, BIL agreed to contribute $400,000
towards the cost of product liability insurance for the benefit of Graham-Field
providing coverage of all losses arising out of previously uninsured occurrences
relating to products manufactured or sold by E&J or any of its subsidiaries
prior to the Effective Time, and to indemnify the combined entity against
certain product liability exposures.
On August 12, 1996, the Graham-Field Board was reconvened to consider the
final modifications to the proposed transaction. After consideration of the
revised terms and oral assurances from Jefferies that it continued to be
prepared to render its fairness opinion, the Graham-Field Board unanimously
determined that, subject to the receipt of Jefferies' written fairness opinion
and the final negotiation of definitive documentation satisfactory to the
officers of Graham-Field, the proposed transactions are fair to and in the best
interests of Graham-Field and its stockholders.
On August 13, 1996, the E&J Board approved the revised terms discussed by
representatives of the two companies on August 9. Following such approval, E&J,
BIL and Graham-Field entered into a revised agreement in principle embodying
such terms agreed upon at the August 9 meeting. The revised agreement in
principle was also subject to negotiation and execution of definitive agreements
satisfactory to the E&J and Graham-Field Boards and to obtaining the requisite
approvals of the companies' stockholders. Graham-Field and E&J issued press
releases on August 14, 1996 announcing their revised agreement in principle.
In connection with the negotiation of the definitive merger documentation,
Vector issued its formal written opinion and the E&J Board unanimously approved
the Merger and the transactions contemplated thereby on August 29, 1996.
Thereafter, Jefferies issued its formal written fairness opinion to the
Graham-Field Board, the definitive Merger documentation was executed and
delivered by the parties and BIL executed and delivered to Graham-Field an
irrevocable proxy to vote BIL's shares of E&J Common Stock and E&J Preferred
Stock in favor of the Merger. On September 3, 1996, Graham-Field and E&J issued
press releases announcing the final terms of the Merger and the signing of the
agreements.
On September 13, 1996, Graham-Field and E&J entered into a letter agreement
pursuant to which Graham-Field will serve as E&J's exclusive sales
representative in connection with the sale of home healthcare beds and standard
commodity wheelchairs in specified territories where E&J does not currently have
a sales representative. See "CERTAIN INFORMATION CONCERNING GRAHAM-FIELD."
Reasons for the Merger; Recommendations of the Boards of Directors
Graham-Field. The Graham-Field Board has unanimously determined that the
terms of the Merger Agreement and the transactions contemplated thereby are fair
to, and in the best interests of, Graham-Field and its stockholders. In reaching
its decision to recommend and approve the Merger Agreement, the Graham-Field
Board consulted with management, as well as its financial, accounting and legal
advisors, and considered, among other things, the following factors in reaching
its conclusion to unanimously approve the Merger Agreement and the transactions
contemplated thereby:
(i) the judgment, advice and analyses of Graham-Field management;
(ii) the opinion of Jefferies that the consideration to be paid by
Graham-Field pursuant to the Merger Agreement is fair to the stockholders of
Graham-Field from a financial point of view;
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(iii) the respective financial condition, results of operations and cash
flows of Graham-Field and E&J, both on a historical and a prospective basis,
including the potential realization by E&J of substantial cost savings from the
rationalization of its distribution functions and the integration and
consolidation of its manufacturing operations;
(iv) historical market prices and trading information with respect to
Graham-Field Common Stock and E&J Common Stock;
(v) the fact that the Merger will help further several strategic objectives
of Graham-Field, including enhancing Graham-Field's Consolidation Advantage
Program, making Graham-Field one of the leading manufacturers of durable medical
equipment and increasing Graham-Field's presence in the home healthcare market;
(vi) the strategic benefits that can be derived from the combination of
Graham-Field and E&J, which the Graham-Field Board expects to position the
combined company as a significant competitor in the healthcare industry and
enable Graham-Field to compete more effectively in the marketplace, including
the belief that (A) the uniting of E&J's manufacturing operations and
rehabilitation product lines with Graham-Field's distribution network and
advanced technology systems will provide Graham-Field with greater penetration
in both the home healthcare and rehabilitation markets with a greater level of
service and efficiency as well as a broader portfolio of products, (B) the use
of the E&J name, a symbol of quality for more than 50 years, will enable
Graham-Field to introduce its Temco home healthcare product line, as well as its
other self-manufactured product lines, into the rehabilitation market place, (C)
Graham-Field's ability to control both the manufacturing and distribution of the
wheelchair product line will strengthen Graham-Field's manufacturing operations
and research and development capabilities, and (D) through E&J's Canadian and
Mexican facilities, Graham-Field will be able to increase its presence in the
Canadian and Mexican marketplace;
(vii) the significant synergies, cost savings and economies of scale which
the Graham-Field Board expects to be achieved through the operation of E&J as
part of a combined entity with Graham-Field, including the elimination of
duplicate distribution and manufacturing facilities, the elimination of all but
up to $8.6 million of E&J debt, planned expense reductions associated with
personnel and manufacturing overhead reductions at E&J's Earth City Plant in St.
Louis, Missouri, and the elimination of goodwill amortization associated with
certain prior acquisitions by E&J;
(viii) the determination by the Graham-Field Board that, based on its
review of management's financial analysis, the issuance of Graham-Field Common
Stock as contemplated by the Merger Agreement will not result in dilution to
Graham-Field's earnings per share in 1996 on a pro forma basis in view of the
increased revenues to be derived by Graham-Field from the Merger;
(ix) the determination that the risks associated with the Merger as
described under "RISK FACTORS" are outweighed by the potential benefits to be
achieved by Graham-Field from the consummation of the Merger;
(x) the terms and conditions of the Merger Agreement, including the $5.50
per share cap on the value of the shares of Graham-Field Common Stock to be
issued in exchange for each share of E&J Common Stock in the Merger, the
agreement of BIL to limit the amount of E&J indebtedness and E&J Preferred Stock
to be outstanding at the Effective Time and the fact that E&J is not entitled to
terminate the Merger Agreement in the event of a competing third-party offer;
and
(xi) the terms and conditions of the Stockholder Agreement, including BIL's
agreement, and its grant to Graham-Field of an irrevocable proxy to vote its
shares of E&J Common Stock and E&J Preferred Stock in favor of the Merger, BIL's
standstill obligations thereunder, the transfer restrictions with respect to the
shares of Graham-Field Common Stock and Preferred Stock to be acquired by BIL
pursuant to the Merger Agreement, BIL's agreement to provide certain indemnities
in respect of certain
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pending E&J environmental and other liability matters and BIL's agreement to
reimburse Graham-Field for up to $400,000 of the costs incurred by Graham-Field
in obtaining a product liability insurance policy providing coverage of certain
losses relating to products manufactured or sold by E&J or any of its
subsidiaries prior to the Effective Time.
After considering all of the foregoing factors, the Graham-Field Board
concluded that a combination with E&J, on the terms set forth in the Merger
Agreement and the related documentation, is in the best interests of
Graham-Field and its stockholders. Due to the wide variety of factors considered
in conjunction with its evaluation of the Merger, the Graham-Field Board did not
find it practicable to, and did not, quantify or otherwise attempt to assign
relative weights to the specific factors in rendering its determination. The
Graham-Field Board did not conduct an independent financial analysis in arriving
at its conclusion, but relied upon the financial analysis conducted by
management.
THE GRAHAM-FIELD BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF
GRAHAM-FIELD VOTE "FOR" APPROVAL OF THE SHARE ISSUANCES.
E&J. On August 29, 1996, the E&J Board unanimously determined that the
transactions contemplated by the Merger Agreement are fair to and in the best
interests of the stockholders of E&J other than BIL, approved such transactions
and resolved to recommend that the stockholders of E&J approve the Merger
Agreement and the Merger.
In arriving at its unanimous recommendation and determining that the
transactions contemplated by the Merger Agreement are fair to and in the best
interests of the stockholders of E&J other than BIL, the principal factors
considered by the E&J Board were the following:
(i) the business and operations of E&J, including its continuing poor
results and ongoing price competition which was negatively impacting
revenues and operating results and the significant uncertainties that E&J
could successfully emerge from or complete its restructuring activities and
survive as an independent going concern;
(ii) the belief that there were strategic benefits which could be
obtained by combining E&J's manufacturing operations with Graham-Field's
distribution network and advanced technology systems;
(iii) the current and historical market prices and trading volume of
the shares of E&J Common Stock and Graham-Field Common Stock and the belief
that the Graham-Field proposal presented an opportunity for E&J's
stockholders to realize future equity appreciation based on the E&J Board's
perception of the more favorable prospects of the combined entity, which
the E&J directors believed should be able to provide quality products with
service and efficiency better than that which E&J is achieving at present;
(iv) the fact that no other offer had been submitted to acquire E&J;
(v) the opinion of Vector that the consideration to be received by the
holders of E&J Common Stock pursuant to the Merger is fair to such
stockholders from a financial point of view;
(vi) the terms and conditions of the Merger Agreement and related
agreements and the likelihood that the conditions to the Merger would be
satisfied; and
(vii) the willingness of management and BIL to support the Merger.
Due to the wide variety of the factors considered in conjunction with its
evaluation of the Merger, the E&J Board did not find it practicable to, and did
not, quantify or otherwise attempt to assign relative weights to any specific
factors in making its determination.
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ACCORDINGLY, THE E&J BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF
E&J VOTE "FOR" APPROVAL OF THE PROPOSAL TO ADOPT THE MERGER AGREEMENT.
STOCKHOLDERS SHOULD BE AWARE THAT BIL AND CERTAIN MEMBERS OF THE E&J BOARD AND
MANAGEMENT HAVE CERTAIN INTERESTS IN THE MERGER THAT MAY CONFLICT WITH AND ARE
IN ADDITION TO THOSE OF OTHER E&J STOCKHOLDERS. SEE "THE MERGER -- CONFLICTS OF
INTEREST."
Opinions of Financial Advisors
Jefferies
Pursuant to an engagement letter dated July 2, 1996 (the "Jefferies
Engagement Letter"), Graham-Field retained Jefferies to render an opinion with
respect to the fairness, from a financial point of view, to the common
stockholders of Graham-Field of the consideration to be paid by Graham-Field in
connection with the acquisition of E&J. Jefferies was selected on the basis of
its qualifications, expertise and reputation, including the fact that Jefferies,
as part of its nationally recognized investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive bidding,
secondary distributions of listed and unlisted securities, private placements
and valuation for corporate and other purposes.
On September 3, 1996, Jefferies delivered its written opinion to the
Graham-Field Board that the aggregate consideration to be paid by Graham-Field
for E&J was fair to the common stockholders of Graham-Field, from a financial
point of view, as of that date. The amount of such consideration was determined
pursuant to negotiations between Graham-Field and E&J and Jefferies did not
participate in such negotiations. No limitations were imposed by Graham-Field on
Jefferies with respect to the investigations made or procedures followed in
rendering its opinion.
The full text of Jefferies' opinion to the Graham-Field Board is attached
hereto as Annex F and is incorporated herein by reference. The following summary
of Jefferies' opinion is qualified in its entirety by reference to the full text
of the opinion. Jefferies' opinion is directed to the Graham-Field Board and
does not constitute a recommendation to any stockholder of Graham-Field or E&J
as to how such stockholder should vote with respect to the Merger. In furnishing
its opinion, Jefferies did not admit that it is an expert within the meaning of
the term "expert" as used in the Securities Act, or that its opinion constitutes
a report or valuation within the meaning of Section 11 of the Securities Act,
and statements to such effect are included in the text of Jefferies' written
opinion.
In connection with its opinion, Jefferies, among other things: (i) reviewed
certain publicly available financial and other data with respect to Graham-Field
and E&J, including the consolidated financial statements for recent years and
interim periods to June 30, 1996, and certain other relevant financial and
operating data made available to Jefferies from published sources and from the
internal records of Graham-Field and E&J; (ii) reviewed the Merger Agreement
signed on September 3, 1996 and provided to Jefferies by Graham-Field; (iii)
reviewed certain historical market prices and trading volumes of Graham-Field
Common Stock and E&J Common Stock as reported on the NYSE and the American Stock
Exchange, respectively; (iv) compared Graham-Field and E&J from a financial
point of view with certain other companies in the health care devices and
medical supplies industry that Jefferies deemed to be relevant; (v) considered
the financial terms, to the extent publicly available, of selected recent
business combinations of companies in the health care devices and medical
supplies industry that Jefferies deemed to be comparable, in whole or in part,
to the Merger, (vi) reviewed and discussed with representatives of the
management of Graham-Field and E&J certain information of a business and
financial nature regarding Graham-Field and E&J, furnished to Jefferies by them;
(vii) reviewed and discussed with representatives of the management of
Graham-Field and E&J financial forecasts, including cash flow, gross margin and
sales projections, and related assumptions of E&J,
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provided to Jefferies by Graham-Field management; (viii) participated in
discussions among representatives of Graham-Field, E&J and their respective
financial and legal advisors; and (ix) performed such other analyses and
examinations as Jefferies deemed appropriate.
In connection with its review, Jefferies assumed and relied upon the
accuracy and completeness of the foregoing information and did not assume any
responsibility for independent verification of such information. With respect to
the financial forecasts provided to it as described above, Jefferies assumed for
purposes of its opinion that such forecasts had been reasonably prepared on
bases reflecting the best available estimates and good faith judgments of the
respective managements of Graham-Field and E&J at the time of preparation as to
the future financial performance of Graham-Field and E&J, and that each such
company will perform in accordance with such projections. For purposes of its
opinion and with the agreement of management of Graham-Field, Jefferies adjusted
the financial forecasts for Graham-Field and E&J provided to Jefferies by the
management of Graham-Field to reflect more conservative assumptions regarding
future results of operations. Such forecasts were based upon numerous variables
and assumptions that are inherently uncertain, including, without limitation,
factors related to general economic and competitive conditions. Accordingly,
actual results could vary significantly from those set forth in such forecasts.
Jefferies has assumed no liability for such forecasts. Jefferies also assumed
that there had been no material changes in Graham-Field's or E&J's assets,
financial condition, results of operations, business or prospects since the
respective dates of their last financial statements made available to Jefferies.
Jefferies relied on advice of counsel and independent accountants to
Graham-Field as to all legal and financial reporting matters with respect to
Graham-Field, the Merger and the Merger Agreement. In addition, Jefferies did
not assume responsibility for making an independent evaluation, appraisal or
physical inspection of the assets or individual properties of Graham-Field or
E&J, nor was Jefferies furnished with any such appraisals. Finally, Jefferies'
opinion is based on economic, monetary and market and other conditions as in
effect on, and the information made available to Jefferies as of, the date of
its opinion.
Jefferies further assumed, with the consent of the Graham-Field Board, that
the conditions to the consummation of the Merger set forth in the Merger
Agreement will be satisfied.
Set forth below is a brief summary of the analyses performed by Jefferies
in connection with its opinion to the Graham-Field Board:
Valuation of Securities Issued. As part of its review and analysis,
Jefferies evaluated the non-Graham-Field Common Stock components to be issued by
Graham-Field which include (i) the BIL Subordinated Loan with an effective
coupon of 7.7% and a face value of $4,000,000, (ii) up to $61,000,000 of
Graham-Field Series B Preferred Stock, and (iii) $10,000,000 of Graham-Field
Series C Preferred Stock. Jefferies' analysis consisted of evaluating the terms
of each security issued and comparing the terms to comparable securities.
Jefferies analyzed the terms of the BIL Subordinated Loan, including the
effective coupon of 7.7%, the proposed financial covenants, the term of
approximately four and one-half years and the face amount. Jefferies considered
the projected financial condition of Graham-Field subsequent to the Merger,
which was compared to companies of similar financial condition. Jefferies
observed that the yield to maturity of comparable securities issued by
comparable companies would approximate 12% or greater per annum. Jefferies
discounted the interest and principal payments that would be received by a
holder of the BIL Subordinated Loan at the rate of 12% which resulted in a
present value of approximately $3.38 million.
Jefferies analyzed the terms of the Graham-Field Series B Preferred Stock.
Jefferies observed that because the Graham-Field Series B Preferred Stock is
convertible into Graham-Field Common Stock, it would be valued on the basis of
the value of the Graham-Field Common Stock plus the effect of the 1.5% per annum
dividend payable in cash or Graham-Field Common Stock. Jefferies also observed
that the greatest, and most conservative, valuation of the Graham-Field Series B
Preferred Stock would
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occur if it was assumed that it was converted by its terms at the end of five
years into 3,935,484 shares of Graham-Field Common Stock. Under this assumption,
at a price of $7.00 per share of Graham-Field Common Stock, the Graham-Field
Series B Preferred Stock would be valued at $27.55 million before the inclusion
of dividends. Jefferies observed that a security ranking junior to the BIL
Subordinated Loan would be discounted at a rate higher than the discount rate
used for the BIL Subordinated Loan, or a rate greater than 12%. Jefferies chose
to use 12% because it would result in a higher, more conservative valuation than
if a rate greater than 12% was used. Jefferies discounted the dividend payments
to be made over the five year period by 12%, which equalled approximately $3.4
million. The sum of the Graham-Field Series B Preferred Stock and the dividend
payments totalled $30.95 million compared to the face value of the Graham-Field
Series B Preferred Stock of approximately $61.0 million.
Jefferies analyzed the terms of the Graham-Field Series C Preferred Stock.
By its terms, Graham-Field has the option to convert the Graham-Field Series C
Preferred Stock into Graham-Field Common Stock or redeem it at its liquidation
preference, at the end of five years. Jefferies assumed that Graham-Field would
choose to convert the Graham-Field Series C Preferred Stock into 500,000 shares
of Graham-Field Common Stock, which would be the least costly option for
Graham-Field. Under this assumption, at $7.00 per share of Graham-Field Common
Stock, the Graham-Field Series C Preferred Stock would be valued at $3.5
million. Jefferies observed that a security ranking junior to the BIL
Subordinated Loan would be discounted at a rate higher than the discount rate
used for the BIL Subordinated Loan, or a rate greater than 12%. Jefferies chose
to use 12% because it would result in a higher, more conservative valuation than
if a rate greater than 12% was used. Jefferies discounted the dividend payments
to be made over the five year period by 12%, which equalled approximately $.56
million. The sum of the Graham-Field Series C Preferred Stock and the dividend
payments totalled approximately $4.06 million compared to the face value of the
Graham-Field Series C Preferred Stock of approximately $10.0 million.
Using a price of $7.00 for Graham-Field Common Stock, Jefferies observed
that the non-Graham-Field Common Stock consideration being issued by
Graham-Field consisting of the BIL Subordinated Loan, the Graham-Field Series B
Preferred Stock and the Graham-Field Series C Preferred Stock equalled
approximately $38.39 million which, combined with the value of the Graham-Field
Common Stock consideration of approximately $31.15 million and the face value of
indebtedness being assumed by Graham-Field as a result of the Merger of
approximately $7.6 million plus such other indebtedness as permitted under the
terms of the Merger Agreement in an amount not to exceed $1.0 million, less the
proceeds received from the Unsecured BIL Note of $4.0 million and the
Graham-Field Series C Preferred Stock of $10.0 million, totalled approximately
$63.14 million.
Discounted Cash Flow Analysis. Jefferies applied a discounted cash flow
analysis to E&J financial forecasts for 1996, 1997 and 1998, prepared by
Graham-Field and E&J's management teams (the "Financial Projections") and
provided to Jefferies. Neither Graham-Field nor E&J provided Jefferies with any
financial forecasts for periods beyond 1998. The Financial Projections were
prepared by Graham-Field to reflect E&J on a stand-alone basis with certain cost
reductions taken by E&J's management in effect ("E&J Base with Cost Downs") and
with incremental cost reductions and other benefits projected to occur as a
result of the Merger ("E&J with Merger Benefits"). Jefferies also adjusted the
Financial Projections by using more conservative assumptions in reducing the
anticipated cost reductions and other benefits projected to be realized as a
result of the Merger ("E&J with Reduced Merger Benefits").
In conducting its discounted cash flow analysis, Jefferies first calculated
the estimated future streams of free cash flows that E&J with Reduced Merger
Benefits would produce through the year 1998. Jefferies then estimated the total
enterprise value (defined as the sum of market value of equity plus total debt
less cash) of E&J with Reduced Merger Benefits at the end of 1998 by applying
multiples ranging from 7.0x to 11.0x to projected EBITDA in 1998 utilizing E&J
with Reduced Merger
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Benefits. Finally, Jefferies discounted such cash flow streams and total
enterprise value to present values using discount rates ranging from 14.5% to
19.5%, chosen to reflect different assumptions regarding the cost of capital.
This analysis indicated a range of total enterprise value of E&J with Reduced
Merger Benefits of $65.5 million to $108.4 million. By contrast, the
consideration to be provided by Graham-Field in the Merger, based on the
Conversion Number and a Graham-Field Common Stock price of $7.00, equals
approximately $63.14 million.
Comparable Company Analysis. Using public and other available information,
Jefferies calculated the imputed total enterprise value of E&J for each of the
E&J Base with Cost Downs, E&J with Merger Benefits and E&J with Reduced Merger
Benefits, in each case based on the multiples of estimated 1996 revenue, EBITDA
and EBIT at which six publicly traded specialized medical device manufacturers,
excluding the highest and lowest values for each, were trading on August 14,
1996. The August 14, 1996 stock prices of the comparable companies yielded the
following lowest and highest multiples: 1.4x and 1.9x estimated 1996 revenues;
8.8x and 14.4x estimated 1996 EBITDA; and 10.4x and 16.9x estimated 1996 EBIT.
Jefferies applied the foregoing highest and lowest multiples to the analogous
forecasted 1996 statistics for each of the E&J projections. This analysis
indicated an imputed total enterprise value of E&J of between $80.5 million and
$120.8 million based on E&J with Reduced Merger Benefits. By contrast, the
consideration to be provided by Graham-Field in the Merger, based on the
Conversion Number and a Graham-Field Common Stock price of $7.00, equals
approximately $63.14 million.
Comparable Transactions Analysis. Jefferies reviewed the consideration paid
in the following eight transactions of medical device manufacturers that
Jefferies believed were comparable and for which there was sufficient public
data available that were announced since July, 1995 (target/acquiror): AMSCO
International, Inc./Steris Corporation; Healthdyne, Inc./Tokos Medical
Corporation; Sterile Concepts Holdings, Inc./Maxxim Medical, Inc.; MDT
Corporation/Getinge Industries; Infrasonics, Inc./Nellcor Puritan-Bennett; Osbon
Medical Systems, Ltd./Uro-Health Systems, Inc.; White Knight Healthcare,
Inc./Isolyer Co., Inc.; and Orthopedic Technology, Inc./Depuy, Inc. Jefferies
analyzed the consideration paid in such transactions as a multiple of the target
companies' revenue, EBITDA and EBIT for the latest twelve months ("LTM"). Such
analysis yielded trimmed mean (defined as the mean value excluding the highest
and lowest values) multiplies of 1.4x LTM revenue, 14.0x LTM EBITDA and 26.8x
LTM EBIT. Jefferies applied the foregoing median multiples to the analogous
forecasted 1996 statistics for E&J based on E&J with Reduced Merger Benefits.
The foregoing process yielded a range of imputed total enterprise values of E&J
of between $64.2 million and $242.6 million. By contrast, the consideration to
be provided by Graham-Field in the Merger, based on the Conversion Number and a
Graham-Field Common Stock price of $7.00, equals approximately $63.14 million.
No other company or transaction used in the comparable transactions
analysis as a comparison is identical to E&J or the Merger. Accordingly, an
analysis of the results of the foregoing is not mathematical; rather, it
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the companies and other factors that
could affect the public trading value of the companies to which E&J and the
Merger are being compared.
Earnings Per Share Analysis. Jefferies analyzed the effects of the Merger
on the earnings per share of the combined company by comparing Graham-Field on a
stand-alone basis to Graham-Field on a pro forma basis. Jefferies compared
Graham-Field on a stand-alone basis to Graham-Field combined with E&J with
Merger Benefits, and Graham-Field combined with E&J with Reduced Merger
Benefits. For the purpose of calculating earnings per share, it was assumed that
the Graham-Field Series B Preferred Stock and the Graham-Field Series C
Preferred Stock were converted into Graham-Field Common Stock. Based on these
analyses, Jefferies observed that the projected earnings per share for
Graham-Field combined with E&J with Merger Benefits exceeded the earnings per
share for Graham-Field on a stand-alone basis in 1996 and 1997 and were lower in
1998. Jefferies observed that
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the projected earnings per share for Graham-Field combined with E&J with Reduced
Merger Benefits were lower in 1996, 1997 and 1998 than Graham-Field on a
stand-alone basis.
The summary set forth above does not purport to be a complete description
of the presentation by Jefferies to the Graham-Field Board or of the analyses
performed by Jefferies. The preparation of a fairness opinion necessarily is not
susceptible to partial analysis or summary description. Jefferies believes that
its analyses and the summary set forth above must be considered as a whole and
that selecting portions of its analyses and of the factors considered, without
considering all analyses and factors, would create an incomplete view of the
process underlying the analyses set forth in its presentation to the
Graham-Field Board. In addition, Jefferies may have given various analyses more
or less weight than other analyses, and may have deemed various assumptions more
or less probable than other assumptions, so that the ranges of valuations
resulting from any particular analysis described above should not be taken to be
Jefferies' view of the actual value of E&J.
In performing its analyses, Jefferies made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Graham-Field and E&J. The
analyses performed by Jefferies are not necessarily indicative of actual values
or actual future results, which may be significantly more or less favorable than
those suggested by such analyses. Such analyses were prepared solely as part of
Jefferies' analysis of the fairness of the Merger to the stockholders of
Graham-Field and were provided to the Graham-Field Board in connection with the
delivery of Jefferies' opinion. The analyses do not purport to be appraisals or
to reflect the prices at which a company might actually be sold or the prices at
which any securities may trade at any time in the future. Jefferies used in its
analyses various projections of future performance prepared by the managements
of Graham-Field and E&J. The projections are based on numerous variables and
assumptions which are inherently unpredictable and must be considered not
certain of occurrence as projected. Accordingly, actual results could vary
significantly from those set forth in such projections.
As described above, Jefferies' opinion and presentation to the Graham-Field
Board were among the many factors taken into consideration by the Graham-Field
Board in making its determination to approve, and to recommend that its
stockholders approve, the Merger. Consequently, Jefferies' methods of analysis
described above should not be viewed as determinative of the Graham-Field
Board's or Graham-Field management's opinion with respect to the value of either
Graham-Field or E&J, or of whether the Graham-Field Board or Graham-Field
management would have been willing to agree to different consideration.
Fees and Expenses. Pursuant to the Jefferies Engagement Letter,
Graham-Field engaged Jefferies to render an opinion with respect to the fairness
from a financial point of view of the consideration to be paid by Graham-Field
in connection with the acquisition of E&J. The Jefferies Engagement Letter
provides for Graham-Field to pay Jefferies a fee of $400,000, $75,000 of which
was paid upon signing the Jefferies Engagement Letter with the remaining
$325,000 paid upon delivery of Jefferies' opinion. The fee is not conditioned on
the outcome of Jefferies' opinion or whether or not such opinion was deemed to
be favorable for any party's purposes. The Jefferies Engagement Letter also
calls for Graham-Field to reimburse Jefferies for its reasonable out-of-pocket
expenses. Pursuant to a separate letter agreement, Graham-Field has agreed to
indemnify Jefferies, its affiliates, and their respective partners, directors,
officers, agents, consultants, employees and controlling persons against certain
liabilities, including liabilities under the federal securities laws.
Jefferies has not in the past performed investment banking services for
Graham-Field or E&J.
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Vector
On August 29, 1996, Vector delivered its oral opinion, which opinion was
confirmed in a written opinion dated as of August 29, 1996, to the E&J Board of
Directors to the effect that, as of such date, and subject to the assumptions
made, factors considered and limits of review undertaken as set forth in such
opinion, the consideration to be received by E&J's common stockholders in the
Merger was fair to such holders from a financial point of view. References
herein to the "Vector Opinion" refer to the written opinion of Vector dated as
of August 29, 1996.
The full text of the Vector Opinion, which sets forth the assumptions made,
factors considered and certain limits on the review undertaken by Vector, is
attached as Annex G to this Joint Proxy Statement/Prospectus and is incorporated
herein by reference. E&J stockholders are urged to read such opinion in its
entirety. The summary of the Vector Opinion set forth in this Joint Proxy
Statement/Prospectus is qualified in its entirety by reference to the full text
of the Vector Opinion. The Vector Opinion was directed to the E&J Board in
connection with and for the purposes of their evaluation of the proposed Merger
and did not constitute a recommendation to the E&J Board of Directors with
respect to the approval of the proposed Merger nor does it constitute a
recommendation to any E&J stockholder as to how such stockholder should vote at
the E&J Special Meeting.
In arriving at the Vector Opinion, Vector, among other things: (i) reviewed
the financial terms of the Merger as set forth in the August 26, 1996 draft of
the Merger Agreement; (ii) held discussions with the senior management of E&J
and Graham-Field concerning the business, operations, and prospects of E&J and
Graham-Field as well as other matters Vector believed relevant to its inquiry;
(iii) reviewed certain business and financial information of E&J and
Graham-Field, including certain financial projections of E&J prepared by the
management of E&J, certain financial projections of Graham-Field prepared by the
management of Graham-Field, and certain financial projections of E&J and
Graham-Field on a combined basis, including estimates of synergies, prepared by
Graham-Field in conjunction with E&J; (iv) reviewed certain documents filed by
E&J and Graham-Field with the SEC pursuant to the Exchange Act; (v) reviewed the
price and trading history of the E&J Common Stock and the Graham-Field Common
Stock; (vi) compared certain financial and securities data of E&J and
Graham-Field to the data of publicly-traded companies which Vector deemed
comparable; (vii) compared the financial terms of the Merger to those of other
transactions which Vector deemed comparable; and (viii) performed such other
studies, analyses, investigations, and inquiries as Vector deemed appropriate.
The amount of consideration to be paid to E&J's common stockholders
pursuant to the Merger Agreement was determined through negotiations between
E&J, BIL and Graham-Field. Vector was not asked to recommend, and did not
recommend, such consideration. Vector was not requested or authorized to
solicit, and did not solicit, potential purchasers of E&J. In connection with
rendering the Vector Opinion, Vector neither attempted independently to verify
nor assumed any responsibility for independent verification of any information
publicly available or supplied or otherwise made available to it regarding E&J
and Graham-Field, and Vector assumed and relied on such information being
accurate and complete in all respects. Vector did not make or obtain, or assume
any responsibility for making or obtaining, any independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of E&J or
Graham-Field. With respect to the financial projections of E&J and Graham-Field
referred to above, Vector assumed that they have been reasonably prepared on
bases reflecting the best available estimates and judgments of the management of
E&J and Graham-Field as to the future financial performance of E&J and
Graham-Field, respectively, and that E&J and Graham-Field will perform
substantially in accordance with such projections. Vector assumed no
responsibility for and expresses no view as to such forecasts or the assumptions
under which they were prepared. In rendering the Vector Opinion, Vector assumed
that obtaining any necessary regulatory approvals will not have an adverse
effect. The Vector Opinion is based upon general economic, market, monetary and
other
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conditions as they existed and could be evaluated, and the information made
available to it, as of August 29, 1996.
The summary set forth below does not purport to be a complete description
of the analyses performed by Vector in arriving at the Vector Opinion. The
preparation of a fairness opinion involves various determinations as to the most
appropriate and relevant methods of financial and comparative analysis and the
application of those methods to the particular circumstances, and therefore such
an opinion is not readily susceptible to summary description. Furthermore, in
arriving at its opinion, Vector did not attribute any particular weight to any
analysis or factor considered by it, but rather made qualitative judgments as to
the significance and relevance of each analysis and factor. Accordingly, Vector
believes that its analyses must be considered as a whole and that considering
any portions of such analyses and of the factors considered, without considering
all analyses and factors, could create a misleading or incomplete view of the
process underlying the Vector Opinion. No company or transaction used as a
comparison in the analyses described below is identical to E&J or Graham-Field
or the proposed Merger and such analyses necessarily involve complex
considerations concerning the differences in financial and operating
characteristics of the companies that could affect the public trading or
acquisition values of companies concerned. In its analyses, Vector made numerous
assumptions with respect to E&J, Graham-Field and industry performance, as well
as general business, economic, market and financial conditions and other
matters, many of which are beyond the control of E&J or Graham-Field and involve
the application of complex methodologies and educated judgment. Any estimates
contained in these analyses are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than as set forth therein. In addition, analyses relating to the value
of businesses do not purport to be appraisals or to reflect the prices at which
businesses may actually be sold. Because such analyses are inherently subject to
uncertainty, being based upon numerous factors or events beyond the control of
the parties or their respective advisors, neither E&J, Graham-Field, Vector nor
any other person assumes responsibility for their accuracy. Vector expresses no
opinion as to the price at which Graham-Field Common Stock will trade following
the Merger or at any other time.
The following is a summary of the material financial and comparative
analyses performed by Vector in arriving at its August 29, 1996 opinion.
Valuation of Consideration
Based on Graham-Field's closing stock price as of August 27, 1996 of $7.375
per share, the value of the consideration to be received by the E&J common
stockholders as of such date would have equaled $2.581 per share of E&J Common
Stock ($7.375 multiplied by the exchange ratio of 0.35).
Valuation of E&J/Graham-Field
In valuing E&J and Graham-Field, Vector conducted several different
analyses, including the following: (i) a balance sheet analysis; (ii) a
discounted cash flow analysis; (iii) a comparable publicly-traded companies
analysis; (iv) a comparable merger and acquisition transactions analysis; (v) a
pro forma combined entity analysis; and (vi) a contribution analysis.
Balance Sheet Analysis. Vector analyzed the most current consolidated
balance sheet of E&J, dated as of June 30, 1996, and noted the following: (i)
E&J's cash balance was $12,000; (ii) working capital was $16.3 million; (iii)
debt was $52.3 million; (iv) the liquidation preference over the E&J Common
Stock of E&J's outstanding preferred stock was $34.5 million; and (v) the excess
of total liabilities over total assets resulted in stockholders' equity of
negative $27.9 million.
Discounted Cash Flow Analysis. Using a discounted cash-flow ("DCF")
methodology, Vector arrived at a range of implied equity values for each of E&J
and Graham-Field by adding the present
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value of the estimated (a) after-tax cash flows that E&J and Graham-Field could
produce (i) through 1999 with respect to E&J and (ii) through 1998 with respect
to Graham-Field, under various assumptions, if each of E&J and Graham-Field were
to perform on a stand-alone basis (without giving effect to the Merger) in
accordance with the management projections provided by E&J and Graham-Field and
(b) terminal values of E&J at the end of 1999 and Graham-Field at the end of
1998 based on multiples of terminal year operating income. Vector also analyzed
the effect on valuation of Graham-Field by using more conservative revenue
growth assumptions than were included in the projections provided by
Graham-Field management. As part of the DCF analysis, Vector used (i) discount
rates ranging from 15% to 25% and (ii) a range of operating income multiples
from 12.0x to 16.0x. Vector calculated the equity value of E&J Common Stock and
Graham-Field Common Stock by subtracting "net debt" (defined as the principal
amount of debt plus the liquidation preference of preferred stock less cash) at
June 30, 1996 from the sum of the present values calculated above. This DCF
analysis resulted in an implied equity value of E&J Common Stock which is
negative and an implied equity value range of Graham-Field Common Stock of $5.83
to $14.89 per share.
Comparable Publicly-Traded Companies Analysis. Using publicly available
information, Vector reviewed and compared selected financial and securities data
of certain publicly-traded companies engaged in businesses considered by Vector
to be comparable to E&J and Graham-Field for the purpose of its analysis. Vector
included the following companies in its review: Apria Healthcare Group, Inc.;
Fuqua Enterprises, Inc.; Invacare Corporation; Cybex International, Inc.; and
Sunrise Medical, Inc. (collectively, the "Comparable Companies"). For each of
the Comparable Companies, Vector calculated, among other things, (i) current
market capitalization as a multiple of latest twelve months' ("LTM") net income;
(ii) current stock price as a multiple of both current fiscal year estimated
earnings per share ("EPS") and next fiscal year estimated EPS; (iii) adjusted
market capitalization (defined as market capitalization plus the book value of
debt and preferred stock less cash and cash equivalents) as a multiple of LTM
revenue; (iv) adjusted market capitalization as a multiple of earnings before
interest and taxes ("EBIT"); (v) adjusted market capitalization as a multiple of
earnings before interest, taxes, depreciation and amortization ("EBITDA"); and
(vi) the ratio of the LTM price-to-earnings ratio to the five-year projected EPS
growth rate. The current fiscal year and next fiscal year EPS estimates and the
five-year projected EPS growth rate estimates were based on the mean of
publicly-available earnings estimates made by research analysts as provided by
Zacks Investment Research, Inc.
The multiples resulting from the Comparable Companies analysis were as
follows: (i) current market capitalization to LTM net income ranged from 12.6x
to 26.3x; (ii) current stock price to current fiscal year estimated EPS ranged
from 12.8x to 24.2x, and current stock price to next fiscal year estimated EPS
ranged from 10.3x to 20.5x; (iii) adjusted market capitalization to LTM revenue
ranged from 0.6x to 1.8x; (iv) adjusted market capitalization to EBIT ranged
from 12.5x to 22.2x; (v) adjusted market capitalization to EBITDA ranged from
6.5x to 13.2x; and (vi) the ratio of LTM price-to-earnings ratio to five-year
projected EPS growth rate ranged from 0.7x to 1.6x.
Vector then applied these multiples to similar financial and securities
data for E&J and Graham-Field. Since E&J has incurred and, based on management
estimates, is expected to continue to incur operating, pretax and net losses as
well as generate negative cash flow during the periods analyzed, only the
multiple of adjusted market capitalization to LTM revenues provided a meaningful
basis of comparative valuation for E&J. This analysis indicated an implied range
of equity values for E&J Common Stock of $0.00 to $5.79 per share and $2.70 to
$12.19 per share for Graham-Field Common Stock. Vector also noted, based on
E&J's LTM revenue of $72.0 million, that the value of Graham-Field's offer (the
amount paid by Graham-Field for E&J Common Stock and E&J Preferred Stock plus
the value of certain assumed indebtedness, less cash), calculated as of August
27, 1996, represents a multiple of 0.9x to E&J's LTM revenue.
Comparable Merger and Acquisition Transactions Analysis. Using publicly
available information, Vector analyzed certain transaction multiples from
selected mergers and acquisitions occurring
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since 1992 involving durable medical equipment companies which Vector deemed
similar to the Merger (collectively, the "Comparable Merger and Acquisition
Transactions") to derive an implied value range for E&J Common Stock. In
particular, Vector reviewed the following transactions: Sunrise Medical Inc.'s
acquisition of Sopur GmbH; Invacare Corporation's acquisition of Cofipar SA
(Poirier Group SA); Sunrise Medical Inc.'s acquisition of DeVilbiss Health Care;
Huntleigh Technology's acquisition of Nesbit Evans Group; and Fuqua Enterprises,
Inc's acquisition of the LUMEX Division of Lumex, Inc. For each of the
Comparable Merger and Acquisition Transactions, Vector calculated, among other
things, (i) the total imputed value of the transaction consideration ("Imputed
Value") plus debt assumed, less cash ("Adjusted Imputed Value") as a multiple of
LTM revenue, LTM EBIT and LTM EBITDA and (ii) the Imputed Value as a multiple of
LTM net income and LTM tangible book value.
The multiples resulting from the Comparable Merger and Acquisition
Transactions analysis were as follows: (i) Adjusted Imputed Value to LTM
revenue, LTM EBIT and LTM EBITDA ranged from 0.5x to 1.7x, 8.5x to 24.4x and
7.3x to 9.7x, respectively, and (ii) Imputed Value to LTM net income and LTM
tangible book value ranged from 13.4x to 24.5x and 1.8x to 13.2x, respectively.
Since E&J has incurred and, based on management estimates, is expected to
continue to incur operating, pretax and net losses as well as generate negative
cash flow during the periods analyzed, only the multiple of Adjusted Imputed
Value to LTM revenue provided a meaningful basis of comparative valuation for
E&J. This analysis indicated a range of implied equity values for the E&J Common
Stock of $0.00 to $4.95 per share.
Analysis of Stock Trading History. Vector reviewed and analyzed the recent
stock price performance of E&J Common Stock and Graham-Field Common Stock as
compared to the Standard & Poor's 400 (the "S&P 400"), an index of the
Comparable Companies, and each other. During the twelve, six and three-month
periods preceding August 27, 1996, (i) the index of S&P 400 companies increased
22.9%, 6.4% and 0.4% respectively; (ii) the index of Comparable Companies
decreased 4.2%, increased 4.6% and decreased 12.0%, respectively; (iii) the
trading price of Graham-Field Common Stock increased 73.5%, 90.3% and decreased
1.7%, respectively; and (iv) the trading price of E&J Common Stock decreased
75.3%, 40.0% and 47.5%, respectively. Vector also noted that during the same
periods preceding 30 days prior to the initial public announcement of the
proposed Merger, the trading price of E&J Common Stock decreased 30.0%, 36.4%
and remained unchanged, respectively.
Pro Forma Combined Entity Analysis. Vector also conducted a pro forma
combined entity DCF analysis and comparable company analysis using pro forma
combined financial information based on the projections prepared by the
respective managements of E&J and Graham-Field, giving effect to various
synergies/cost savings (as projected by Graham-Field management in conjunction
with E&J management) resulting from the Merger.
Vector derived implied values for the common stock of the combined entity
using a DCF methodology. To arrive at such values, Vector added the estimated
present value of the (i) after-tax cash flows that the pro forma combined entity
could provide through 1998 and (ii) terminal values of the pro forma combined
entity at the end of 1998 based on multiples of 1998 operating income, if each
of E&J and Graham-Field were to perform in accordance with the stand-alone
projections provided by the respective managements of E&J and Graham-Field under
various assumptions. Vector also analyzed the effect on valuation of the pro
forma combined entity by using more conservative assumptions relating to revenue
growth as well as a fifty percent reduction in management estimated cost
reductions and other benefits projected to be realized in the Merger. Vector
assumed the same discount rates and operating income multiples as were used in
the E&J and Graham-Field stand-alone DCF analyses. Vector calculated the equity
value of the pro forma combined entity by subtracting estimated net debt as of
the projected closing date from the sum of the present values calculated above.
This DCF analysis resulted in a median implied equity value range for the common
stock of the pro forma combined entity of $8.52 to $12.73 per share. Vector
noted that applying the exchange ratio of 0.35 to these values
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resulted in an implied equity value range of the common stock of the pro forma
combined entity to a holder of E&J Common Stock of $2.98 to $4.69 per share,
respectively.
Vector also applied the multiples of adjusted market capitalization to LTM
revenue, EBIT and EBITDA and the multiple of market capitalization to LTM net
income derived from the Comparable Companies analysis described above to certain
projected financial data for 1996 (assuming that the Merger occurred on January
1, 1996) and 1998 (assuming that the Merger occurred on November 1, 1996) of the
pro forma combined entity and calculated the present value as of August 27, 1996
of the resulting values. This analysis resulted in a median implied value for
the common stock of the pro forma combined entity of $6.90 per share based on
1996 financial data and $9.69 per share based on 1998 financial data. Vector
noted that applying the exchange ratio of 0.35 to these values resulted in
implied equity values of the common stock of the pro forma combined entity to a
holder of E&J Common Stock of $2.41 to $3.39 per share, respectively.
Contribution Analysis. Vector analyzed the pro forma contribution of each
of E&J and Graham-Field to the combined company based on projections and
financial statements prepared by the respective managements of E&J and
Graham-Field. The analysis did not take into account any potential synergies or
cost savings that might be realized after the Merger nor any impact to the
financial statements of the pro forma combined entity resulting from the
accounting for the Merger. This analysis indicated that for the LTM period ended
June 30, 1996, E&J's relative contribution to the financial results of the
combined company would be 40% of revenues, 30% of gross profit, 0% of operating
income, 0% of net income, 31% of total assets, and 0% of stockholders' equity.
Vector noted that on a primary and fully-diluted basis, E&J's common
stockholders would own approximately 24% and 39% (36% if the Graham-Field Series
B and Series C Preferred Stock is converted at $20.00 per share rather than
$15.50 per share), respectively, of the outstanding number of shares of common
stock of the combined entity.
Other Analysis. Vector noted that the value of the Merger Consideration Per
Share payable to holders of E&J Common Stock represented a 41% discount to the
trading price of E&J Common Stock 30 days prior to the public announcement of
the proposed Merger. Due to a number of factors, including, but not limited to,
(i) a review of management's non-public projections indicating (a) that E&J is
expected to continue to incur operating, pre-tax and net losses as well as
generate negative cash flow for at least the next two years, and (b) that there
was substantial doubt as to whether E&J could continue as a going concern
without third party financing, (ii) the significant uncertainty as to whether
third party financing sufficient to fund operating losses and working capital
requirements could be obtained on acceptable terms or at all, (iii) the future
prospects of E&J in light of industry consolidation, competitive pressures and
insurance reimbursement trends, (iv) the lack of trading volume or liquidity of
the E&J Common Stock and (v) the quantitative analyses conducted by it, Vector
concluded that the current trading price of E&J Common Stock did not reflect the
per share value of E&J for the purposes of a stock-for-stock merger.
Vector is an internationally recognized investment banking firm regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions and other purposes. The E&J Board of Directors selected
Vector on the basis of its expertise.
Pursuant to the engagement letter between Vector and E&J, E&J will pay to
Vector for its services a fee of $300,000. E&J has also agreed to reimburse
Vector for its reasonable expenses, including attorneys' fees, and to indemnify
Vector for certain liabilities arising in connection with rendering the Vector
Opinion. In addition, BIL, in connection with Vector's engagement with E&J to
render a fairness opinion regarding the Merger, has agreed to release Vector
from any liability to BIL which may result from its engagement.
Vector is a full service securities firm and in the course of its normal
trading activities may from time to time effect transactions and hold positions
in securities of E&J and/or Graham-Field. Vector
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has performed investment banking services for E&J in the past and has received
customary compensation for such services.
Conflicts of Interest
In considering the recommendation of the E&J Board with respect to the
Merger Agreement and the transactions contemplated thereby, stockholders should
be aware that BIL and certain members of the E&J Board and management have
certain interests with respect to the Merger that may conflict with and are in
addition to the interests of the other stockholders of E&J, including:
Irrevocable Proxy. BIL is the majority stockholder of E&J (see "CERTAIN
INFORMATION CONCERNING E&J -- Security Ownership of Certain Beneficial Owners
and Management") and two members of the E&J Board are affiliated with BIL (see
"CERTAIN INFORMATION CONCERNING E&J -- E&J Directors"). BIL has granted
Graham-Field an irrevocable proxy to vote its shares of E&J capital stock in
favor of the Merger at the E&J Special Meeting, thereby assuring that
Graham-Field will have the ability to approve the Merger Agreement at the E&J
Special Meeting without the affirmative vote of any other E&J stockholder.
BIL's Interest in Graham-Field. As is described under "THE MERGER -- Other
Closing Deliveries," in addition to the receipt of shares of Graham-Field Common
Stock in exchange for its shares of E&J Common Stock in the Merger, BIL will
acquire additional shares of Graham-Field Common Stock, Graham-Field Series B
Preferred Stock and Graham-Field Series C Preferred Stock and an unsecured
subordinated promissory note of Graham-Field at the Effective Time. As a result,
upon the effectiveness of the Merger, BIL will be the largest stockholder and a
creditor of Graham-Field, owning shares representing approximately 36% of the
voting power of all outstanding shares of Graham-Field capital stock. In that
connection, BIL has entered into the Stockholder Agreement and the Registration
Rights Agreement with Graham-Field (see "THE MERGER -- Stockholder Agreement"
and "-- Registration Rights Agreement").
BIL Nominees as Directors. Pursuant to the Stockholder Agreement, BIL will
initially have the right to designate two individuals as directors of
Graham-Field, one of whom will be Rodney F. Price. Mr. Price will also serve as
a member of the Executive Committee of the Graham-Field Board. Mr. Price is
Chairman of the E&J Board and Managing Director of BIL. See "CERTAIN INFORMATION
CONCERNING E&J -- E&J Directors."
BIL Transactions with E&J. BIL has engaged in certain transactions with E&J
in the past, and on October 4, 1996 purchased an aggregate of $2,432,392 of
customer and other notes receivables from E&J for a cash payment of $2,314,000
(95.2% of face value), which receivables have been outstanding for some time.
E&J expects to use the cash proceeds of these asset sales to fund its operations
during the interim period prior to the Effective Time. See "CERTAIN INFORMATION
CONCERNING E&J -- Certain Transactions."
Indemnification and Insurance. The Merger Agreement contains customary
provisions with respect to the continuation of existing indemnification rights
in favor of directors and officers of E&J and its subsidiaries. The Merger
Agreement also contains customary provisions regarding the continuation of
directors' and officers' liability insurance. See "THE MERGER -- Certain Terms
of the Merger Agreement -- Indemnification; Insurance."
Continuation of Employee Benefits. Graham-Field has agreed in the Merger
Agreement that, at least until the first anniversary of the Effective Time or
until E&J's employee benefit plans and arrangements are integrated with
Graham-Field's employee benefit plans and arrangements, whichever is earlier,
Graham-Field will provide employees of E&J and its subsidiaries with employee
benefit plans and arrangements which are reasonably comparable in the aggregate
to those provided by E&J and its
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subsidiaries at the time of the signing of the Merger Agreement, except for such
changes as are necessary to comply with, or respond to, changes in applicable
laws.
E&J Stock Options. The Merger Agreement provides that each holder of
options to purchase shares of E&J Common Stock outstanding at the Effective Time
will receive, in substitution therefor, options under Graham-Field's Incentive
Program to purchase a number of shares of Graham-Field Common Stock equal to the
product (rounded down to the nearest whole share) of (x) the number of shares of
E&J Common Stock issuable upon exercise of such options and (y) the Conversion
Number, and having a per share option exercise price equal to the closing sales
price of Graham-Field Common Stock on the trading day immediately prior to the
Effective Time. It is expected that E&J options that are "in the money" will be
exercised prior to the Effective Time. For further information concerning the
number and value of options held by E&J executive officers, see "CERTAIN
INFORMATION CONCERNING E&J -- Stock Options."
E&J Severance Arrangements. E&J has arrangements with its chief executive
officer, its chief financial officer and approximately twenty-five other
management employees which provide for severance compensation and benefits in
the event of the involuntary termination of their employment as a result of the
Merger.
Pursuant to a letter agreement dated January 25, 1994, E&J agreed to pay
Mr. Bevil J. Hogg, President and Chief Executive Officer and a director of E&J,
upon termination without cause, a total of six months' salary and benefits and
reimbursement for his costs of relocation (including an income tax gross-up).
Mr. Hogg has agreed with Graham-Field that, in lieu of receiving such severance
benefits, Mr. Hogg will continue as the President and Chief Executive Officer of
E&J following the Effective Time until March 31, 1997 in order to facilitate an
orderly management transition. Thereafter, Mr. Hogg will serve as a consultant
to E&J for a six-month period, for which he will continue to receive his current
salary and benefits plus a one-time payment of $100,000 (grossed-up in respect
of income taxes) for expenses associated with his ceasing to be President and
Chief Executive Officer of E&J. Mr. Hogg and BIL have an understanding that BIL
will also provide Mr. Hogg with certain severance benefits in an amount not yet
determined.
The E&J Board adopted a severance plan on June 4, 1996 for the benefit of
seven senior executives of E&J, including Mr. Timothy W. Evans, Senior Vice
President, Secretary and Chief Financial Officer of E&J. This plan provides for
the payment of six months' salary plus $30,000 and continuation of benefits in
the event of termination as a result of the Merger at any time prior to the
first anniversary of the Effective Time. BIL has also agreed to provide Mr.
Evans with additional severance compensation. E&J has notified Mr. Evans that
his employment will be terminated as a result of the Merger on a date to be
specified by E&J upon at least 30 days prior notice and Mr. Evans has agreed to
continue his employment for a reasonable period in order to facilitate an
orderly management transition.
E&J has estimated that E&J's costs for the foregoing severance benefits in
the event of the termination of the employment of all of the covered executives
would total approximately $1.3 million.
Conversion of E&J Shares in the Merger
If the Share Issuances are approved by the requisite vote of Graham-Field
stockholders at the Graham-Field Special Meeting, the Merger Agreement is
approved by the requisite vote of E&J stockholders at the E&J Special Meeting
and the other conditions to the Merger are satisfied or waived (where
permissible), the Merger will be consummated and become effective at the time at
which a Certificate of Merger meeting the requirements of Section 251 of the
DGCL is delivered to the Secretary of State of Delaware for filing. It is
expected that the Effective Time will be promptly following completion of the
Graham-Field Special Meeting and the E&J Special Meeting. At the Effective Time,
Acquisition Corp. will be merged with and into E&J, which will survive the
Merger as a wholly-owned subsidiary of Graham-Field.
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At the Effective Time, all outstanding shares of E&J Common Stock will
cease to be outstanding, and subject to the terms, conditions and procedures set
forth in the Merger Agreement, shares of E&J Common Stock will be converted into
the right to receive the Merger Consideration Per Share. Notwithstanding the
foregoing, if the Fair Market Value (as defined below) of the Merger
Consideration Per Share exceeds $5.50, the Conversion Number will be reduced to
the extent necessary to cause the Fair Market Value of the Merger Consideration
Per Share to equal $5.50. Pursuant to the Merger Agreement, (A) the "Fair Market
Value" of each share of Graham-Field Common Stock means the arithmetic average
of the Sales Prices (as defined below) on each of the ten consecutive Trading
Days (as defined below) ending on and including the fifth Trading Day before the
Effective Date; (B) "Sales Price" means, on any Trading Day, the closing sales
price of a share of Graham-Field Common Stock reported on the NYSE Composite
Tape on such day; and (C) "Trading Day" means any day on which securities are
traded on the NYSE.
Each issued and outstanding share of E&J Preferred Stock shall continue to
be an issued and outstanding share of each such series of E&J Preferred Stock
following the Effective Time. All outstanding shares of E&J Preferred Stock are
owned by BIL and, as described below, will thereafter either be exchanged by BIL
for shares of Graham-Field Series B Preferred Stock or contributed to the
capital of E&J.
Other Closing Deliveries
The Merger Agreement also provides for the following deliveries to be made
simultaneously with the closing of the Merger.
Issuance of Graham-Field Common Stock in Exchange for the HSBC
Indebtedness. In exchange for the delivery by wire transfer of immediately
available funds from BIL to Graham-Field in an amount equal to the HSBC Debt
Payment, Graham-Field will deliver to BIL a certificate representing a number of
shares of Graham-Field Common Stock (disregarding fractions) equal to the amount
determined by dividing the amount of the HSBC Debt Payment by the greater of (x)
$13.00 and (y) the Fair Market Value of each share of Graham-Field Common Stock;
provided that the HSBC Debt Payment will in no event exceed $25 million. Upon
the effectiveness of the Merger, Graham-Field will contribute the proceeds of
such issuance to E&J, which in turn will use such funds to repay the HSBC
Indebtedness, and shall cause HSBC to release BIL from its guarantee of the HSBC
Indebtedness. Pursuant to the Merger Agreement, BIL has agreed to make such
payments to HSBC as shall be necessary to cause the HSBC Debt Payment not to
exceed $25 million on and as of the Effective Date. Accordingly, immediately
following the Effective Time, E&J will have no HSBC Indebtedness outstanding.
Issuance of Graham-Field Series B Preferred Stock in Exchange for BIL Debt
and E&J Preferred Stock. Graham-Field will deliver to BIL a certificate
representing shares of Graham-Field Series B Preferred Stock having an aggregate
stated value equal to the lesser of (A) the sum of the amount of BIL Debt and
the aggregate liquidation value of the E&J Preferred Stock and (b) $61 million,
in exchange for the delivery by BIL to Graham-Field of:
(x) an instrument evidencing the transfer to Graham-Field of BIL Debt
in an aggregate principal amount which, together with accrued interest
thereon, does not exceed the Appraised Value (as defined below) of such
shares of Graham-Field Series B Preferred Stock; and
(y) certificates representing shares of E&J Preferred Stock having an
aggregate liquidation value which does not exceed the result obtained by
subtracting (I) the aggregate unpaid principal of and accrued interest on
the BIL Debt referred to in clause (x) above from (II) the Appraised Value
of such shares of Graham-Field Series B Preferred Stock.
"Appraised Value" is defined in the Merger Agreement as the fair market value as
of the Effective Date of each share of Graham-Field Series B Preferred Stock as
determined by and set forth in a written
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report of an investment banking or valuation firm designated by Graham-Field and
reasonably acceptable to BIL delivered to Graham-Field and BIL at least five
days prior to the Effective Date; provided that the Appraised Value of such
shares will not exceed their aggregate stated value. In the event that the sum
of the liquidation value of the E&J Preferred Stock and the unpaid principal of
and accrued interest on the BIL Debt held by BIL on the Effective Date exceeds
the Appraised Value of the Graham-Field Series B Preferred Stock to be issued to
BIL, then immediately prior to the Effective Time, BIL has agreed in the Merger
Agreement to contribute to the capital of E&J, first, any shares of E&J
Preferred Stock and, second, any BIL Debt representing such excess amount.
Accordingly, immediately following the Effective Time, E&J will have no
outstanding indebtedness to BIL, and BIL will not own any shares of E&J
Preferred Stock.
The Graham-Field Series B Preferred Stock will be entitled to a dividend of
1.5% per annum payable quarterly, payable in cash or, at the option of
Graham-Field, in shares of Graham-Field Common Stock. The Graham-Field Series B
Preferred Stock will vote on an as-converted basis as a single class with the
Graham-Field Common Stock and the Graham-Field Series C Preferred Stock, will
not be subject to redemption and will be convertible (x) at the option of the
holder thereof, at a conversion price of $20 per share (or, in the case of
certain dividend payment defaults, at a conversion price of $15.50 per share),
(y) at the option of Graham-Field, at a conversion price equal to current
trading prices (subject to a minimum conversion price of $15.50 and a maximum
conversion price of $20 per share) and (z) automatically on the fifth
anniversary of the date of issuance at a conversion price of $15.50 per share.
Such conversion prices are subject to certain antidilution adjustments. The
Graham-Field Series B Preferred Stock will have a liquidation preference ranking
senior to the Graham-Field Common Stock and on a parity with the Graham-Field
Series C Preferred Stock. The Graham-Field Series B Preferred Stock will not
have preemptive rights, although BIL will have certain rights to purchase
additional shares of Graham-Field stock pursuant to the Stockholder Agreement
(see "THE MERGER -- Stockholder Agreement -- Preemptive Right"). The form of the
Certificate of Designations of the Graham-Field Series B Preferred Stock,
setting forth the terms thereof, is attached as Annex D to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference. The foregoing
summary is qualified in its entirety by reference to such Certificate of
Designations.
Issuance of Graham-Field Series C Preferred Stock. In exchange for the
delivery by wire transfer of immediately available funds from BIL to
Graham-Field in the amount of $10 million, Graham-Field will deliver to BIL a
certificate representing shares of Graham-Field Series C Preferred Stock having
an aggregate stated value equal to $10 million. The proceeds of this stock
issuance will be available to Graham-Field for general corporate purposes.
The Graham-Field Series C Preferred Stock will be entitled to a dividend of
1.5% per annum payable quarterly, payable in cash or, at the option of
Graham-Field, in shares of Graham-Field Common Stock. The Graham-Field Series C
Preferred Stock will vote on an as-converted basis as a single class with the
Graham-Field Common Stock and the Graham-Field Series B Preferred Stock, will be
subject to redemption as a whole at the option of Graham-Field on the fifth
anniversary of the date of issuance at stated value plus accrued and unpaid
dividends (regardless of whether there are dividend payment defaults) and, if
not so redeemed, will be converted automatically on the fifth anniversary of the
date of issuance at a conversion price of $20 per share, subject to certain
antidilution adjustments. The Graham-Field Series C Preferred Stock will have a
liquidation preference ranking senior to the Graham-Field Common Stock and on a
parity with Graham-Field Series B Preferred Stock. The Graham-Field Series C
Preferred Stock will not have preemptive rights, although BIL will have certain
rights to purchase additional shares of Graham-Field stock pursuant to the
Stockholder Agreement (see "THE MERGER -- Stockholder Agreement -- Preemptive
Right"). The form of the Certificate of Designations of the Graham-Field Series
C Preferred Stock, setting forth the terms thereof, is attached as Annex E to
this Joint Proxy Statement/Prospectus and is incorporated herein by reference.
The foregoing summary is qualified in its entirety by reference to such
Certificate of Designations.
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Exchange of Unsecured Promissory Note for a Long-Term Unsecured
Subordinated Promissory Note. In exchange for the delivery by BIL to
Graham-Field of the Unsecured BIL Note evidencing the BIL Loan, Graham-Field
will deliver to BIL a new note evidencing the BIL Subordinated Loan reflecting
the terms set forth in Exhibit C to the Merger Agreement (including that the
principal amount thereof will be reduced to the extent that any punitive damages
paid by E&J or any of its subsidiaries as a result of any product liability
actions involving a death prior to the Effective Time are not reimbursed
pursuant to any insurance policies) and such other terms not inconsistent
therewith as are customary for subordinated indebtedness, including covenants of
Graham-Field (which shall in no event be more onerous to Graham-Field than
covenants contained in Graham-Field's senior indebtedness) and events of
default, as Graham-Field and BIL shall mutually agree; provided that if BIL and
Graham-Field cannot agree on the terms of such note, the Unsecured BIL Note will
remain outstanding in accordance with its terms.
Fractional Shares
Fractional shares of Graham-Field Common Stock will not be issued in
connection with the Merger and such fractional share interests will not entitle
the owner thereof to vote or to any rights of a stockholder of Graham-Field.
Pursuant to the Merger Agreement, such fractional shares will be aggregated and
sold by the Exchange Agent, at the then prevailing prices on the NYSE. The net
proceeds of such sales will be held by the Exchange Agent in a trust for the
holders of E&J Common Stock (the "Common Stock Trust") and distributed
proportionately to such holders. The Exchange Agent will determine the portion
of the Common Stock Trust to which each holder of E&J Common Stock shall be
entitled, if any, by multiplying the amount of the aggregate net proceeds
comprising the Common Stock Trust by a fraction, the numerator of which is the
amount of the fractional share interest to which such holder of E&J Common Stock
is entitled and the denominator of which is the aggregate amount of fractional
share interests to which all holders of E&J Common Stock are entitled. As soon
as practicable after the determination of the amount of cash, if any, to be paid
to holders of E&J Common Stock in lieu of any fractional share interests, the
Exchange Agent will make available such amounts to such holders of E&J Common
Stock. Graham-Field will pay all commissions, transfer taxes and other
out-of-pocket transaction costs, including the expenses and compensation of the
Exchange Agent, incurred in connection with the sale of the fractional shares.
In addition, Graham-Field will pay the Exchange Agent's compensation and
expenses in connection with such sale.
Exchange of Certificates in the Merger
Promptly after the Effective Time, the Exchange Agent will mail to each
holder of record of certificates which immediately prior to the Effective Time
represented outstanding shares of E&J Common Stock (the "E&J Certificates")
whose shares are converted into the right to receive the Merger Consideration
Per Share a letter of transmittal advising such holder of the terms of the
exchange effected by the Merger and the procedure to be used for the surrender
of the E&J Certificates in exchange for the Merger Consideration Per Share that
such holder has the right to receive pursuant to the Merger Agreement. E&J
stockholders are requested not to surrender their E&J Certificates for exchange
until after the Effective Time when the transmittal form and instructions are
received. Shares of Graham-Field Common Stock and cash payments shall be
delivered to such holder as promptly as practicable after proper delivery of the
applicable E&J Certificates and letters of transmittal to the Exchange Agent.
At and after the Effective Time and until surrendered as provided above,
E&J Certificates will be deemed to represent, for all purposes, only the right
to receive certificates representing the number of whole shares of Graham-Field
Common Stock into which the shares of E&J Common Stock formerly represented by
such E&J Certificates were converted in the Merger, and the holders of E&J
Certificates will not be entitled to receive dividends or other distributions
from Graham-Field until such E&J Certificates are so surrendered. Upon surrender
as provided above, E&J Certificates will be cancelled.
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Certain Terms of the Merger Agreement
Representations and Warranties. The Merger Agreement contains various
customary representations and warranties of the parties, none of which will
survive the consummation of the Merger, made as of the date of the Merger
Agreement and to be made as of the Effective Date, including, among other
things, representations (A) from all parties relating to (i) each party's
organization and similar corporate matters, (ii) the authorization, execution,
delivery, performance and enforceability of the Merger Agreement and the
transactions contemplated thereby, (iii) the governmental or regulatory consents
or approvals required to enter into the Merger Agreement and to consummate the
transactions contemplated thereby, and (iv) the absence of pending or threatened
legal proceedings; (B) from Graham-Field and E&J relating to (i) each of
Graham-Field and E&J's capital structure, (ii) the absence of any violation of
corporate documents or applicable law in connection with entering into the
Merger Agreement, (iii) certain documents and reports filed by Graham-Field and
E&J with the SEC and the accuracy of the information contained therein, (iv) the
absence of certain changes or events having a material adverse effect on each
company and its subsidiaries taken as a whole, (v) the absence of undisclosed
liabilities, (vi) the accuracy of the information each party has supplied with
respect to the filings required with the SEC in order to consummate the Merger
and the transactions contemplated by the Merger Agreement, (vii) certain tax
matters, (viii) matters concerning benefit plans of E&J and Graham-Field and
their subsidiaries, (ix) certain environmental matters, (x) matters concerning
patents, copyrights, trademarks and other intellectual property rights, (xi) the
stockholder vote required to approve the transactions contemplated by the Merger
Agreement, (xii) certain matters concerning contracts and agreements of each
company and its subsidiaries, and (xiii) the inapplicability of Section 203 of
the DGCL to the Merger Agreement or any of the transactions or agreements
contemplated thereby; and (C) from Graham-Field to the effect that the
consummation of the transactions contemplated by the Merger Agreement and the
Stockholder Agreement will not result in a "Stock Acquisition Date," a "Flip-In
Event" or a "Separation Date" under Graham-Field's Rights Agreement (see
"COMPARISON OF STOCKHOLDER RIGHTS -- Rights Agreement"), and that Graham-Field
has taken all necessary actions so that neither BIL nor any affiliate of BIL
will be deemed an "Acquiring Person" (as defined in the Rights Agreement) as a
result of its ownership or acquisition of shares of Graham-Field Common Stock,
Graham-Field Series B Preferred Stock or Graham-Field Series C Preferred Stock
pursuant to the terms of the Merger Agreement or the Stockholder Agreement.
Conduct of Business of E&J Pending the Merger. Pursuant to the terms of the
Merger Agreement, E&J has agreed that prior to the Effective Time, unless
otherwise consented to by Graham-Field, it will, and will cause its subsidiaries
to (unless expressly provided for in the Merger Agreement): (i) conduct their
respective businesses only in the ordinary course consistent with past practice
and (ii) use all commercially reasonable efforts to preserve intact in all
material respects their present business organizations and reputation, keep
available the services of their key officers and employees, maintain their
assets and properties in good working order and condition (ordinary wear and
tear excepted), maintain insurance on their tangible assets and businesses in
such amounts and against such risks and losses as in effect on the date of the
Merger Agreement, preserve their relationships with customers and suppliers and
others having significant business dealings with them, make all required
payments under E&J's benefit plans and comply in all material respects with all
laws and orders of all applicable governmental or regulatory authorities.
E&J has further agreed that, unless otherwise consented to by Graham-Field,
prior to the Effective Time it will not, and will not permit any of its
subsidiaries to, except as otherwise expressly contemplated or permitted by the
Merger Agreement: (i) amend or propose to amend its certificate of incorporation
or bylaws; (ii) declare, set aside or pay any dividends on or make other
distributions in respect of any of its capital stock, except for the declaration
and payment of dividends by a wholly owned subsidiary solely to its parent
corporation; (iii) split, combine, reclassify or take similar action
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with respect to any of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock; (iv) adopt a plan of complete or partial
liquidation or resolutions providing for or authorizing such liquidation or a
dissolution, recapitalization or other similar reorganization; (v) directly or
indirectly redeem, repurchase or otherwise acquire any shares of its capital
stock or any option with respect thereto; (vi) issue, deliver or sell, or
authorize or propose the issuance, delivery or sale of, any shares of its
capital stock or any option with respect thereto (other than the issuance of E&J
Common Stock pursuant to options outstanding on the date of the Merger Agreement
under E&J option plans and in accordance with their present terms, and the
issuance by a wholly owned subsidiary of its capital stock to its parent
corporation), or modify or amend any right of any holder of outstanding shares
of capital stock or options with respect thereto; (vii) acquire (by merging or
consolidating with, or by purchasing a substantial equity interest in or a
substantial portion of the assets of, or by any other manner) any business or
any corporation, partnership, association or other business organization or
division thereof or otherwise acquire or agree to acquire any assets other than
in the ordinary course of its business consistent with past practice which are
material, individually or in the aggregate, to E&J and its subsidiaries taken as
a whole; (viii) other than in the ordinary course of its business consistent
with past practice, sell, lease, grant any security interest in or otherwise
dispose of or encumber any material amount of its assets or properties; (ix)
except to the extent required by applicable law, regulation or generally
accepted accounting principles, permit any material change in any pricing,
marketing, purchasing, investment, accounting, financial reporting, inventory,
credit, allowance or tax practice or policy or any method of calculating any bad
debt, contingency or other reserve for accounting, financial reporting or tax
purposes or make any material tax election or settle or compromise any material
income tax liability with any governmental or regulatory authority; (x) incur
(which shall not be deemed to include entering into credit agreements, lines of
credit or similar arrangements until borrowings are made under such
arrangements) any indebtedness for borrowed money or guarantee any such
indebtedness other than the HSBC Indebtedness and the BIL Debt and other
additional indebtedness in an aggregate amount not to exceed $1 million;
provided that after giving effect to the incurrence of such additional
indebtedness, the net worth of E&J as of the Effective Time is equal to or
greater than the net worth of E&J as of June 30, 1996 as set forth in E&J's Form
10-Q for the period ended June 30, 1996; provided further that such additional
indebtedness is incurred solely in the ordinary course of E&J's business and
used solely for the purchase of working capital assets; and provided further
that for purposes of calculating the net worth of E&J as of the Effective Time,
the following items shall not be given any effect: (I) any transactions
contemplated or required pursuant to the Merger Agreement, including but not
limited to, contributions to capital, contributions of debt and the discharge of
the HSBC Indebtedness and the BIL Debt, unless such transactions were previously
given effect to as of June 30, 1996, and (II) extraordinary accounting reserves
taken by E&J, provided that any such reserves not required by generally accepted
accounting principles shall be subject to Graham-Field's prior consent, which
shall not be unreasonably withheld; (xi) voluntarily purchase, cancel, prepay or
otherwise provide for a complete or partial discharge in advance of a scheduled
repayment date with respect to, or waive any right under, any indebtedness for
borrowed money other than in the ordinary course of its business consistent with
past practice; (xii) enter into, adopt, amend in any material respect (except as
may be required by applicable law) or terminate any employee benefit plan of E&J
or any of its subsidiaries or other agreement, arrangement, plan or policy
between such party and one or more of its directors, officers or employees, or,
except for normal increases in the ordinary course of business consistent with
past practice that, in the aggregate, do not result in a material increase in
benefits or compensation expense to E&J and its subsidiaries taken as a whole,
increase in any manner the compensation or fringe benefits of any director,
officer or employee, or pay any benefit not required by any plan or arrangement
in effect as of the date of the Merger Agreement; (xiii) enter into any contract
or amend or modify any existing contract, or engage in any new transaction
outside the ordinary course of business consistent with past practice or not on
an arm's-length basis, with any affiliate of E&J or any of its subsidiaries;
(xiv) make any capital expenditures or commitments for additions to plant,
property or equipment constituting capital assets; (xv) make any change in the
lines
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of business in which it participates or is engaged; or (xvi) enter into any
contract, commitment or arrangement to do or engage in any of the foregoing.
On October 4, 1996, BIL purchased an aggregate of $2,432,392 of customer
and other notes receivable from E&J for a cash payment of $2,314,000 (95.2% of
face value), which receivables have been outstanding for some time. E&J expects
to use the cash proceeds of these asset sales to fund its operations during the
interim period prior to the Effective Time.
Conduct of Business of Graham-Field Pending the Merger. Pursuant to the
terms of the Merger Agreement, Graham-Field has agreed that prior to the
Effective Time, unless otherwise consented to by E&J, it will, and will cause
its subsidiaries to (unless expressly provided for in the Merger Agreement): (i)
conduct their respective businesses only in the ordinary course consistent with
past practice; (ii) use all commercially reasonable efforts to preserve intact
in all material respects their present business organizations and reputation;
(iii) keep available the services of their key officers and employees; (iv)
maintain their assets and properties in good working order and condition
(ordinary wear and tear excepted); (v) maintain insurance on their tangible
assets and businesses in such amounts and against such risks and losses as in
effect on the date of the Merger Agreement; (vi) preserve their relationships
with customers and suppliers and others having significant business dealings
with them; and (vii) comply in all material respects with all laws and orders of
all applicable governmental or regulatory authorities.
Graham-Field has further agreed that, unless otherwise consented to by E&J,
prior to the Effective Time it will not, and will not permit any of its
subsidiaries to, except as expressly contemplated or permitted by the Merger
Agreement: (i) amend or propose to amend its certificate of incorporation or
bylaws, except for the Stock Amendment and the Stockholder Action Amendments;
(ii) declare, set aside or pay any dividends on or make other distributions in
respect of any of its capital stock, except for the declaration and payment of
dividends by a wholly owned subsidiary solely to its parent corporation; (iii)
split, combine, reclassify or take similar action with respect to any of its
capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock; (iv) adopt a plan of complete or partial liquidation or
resolutions providing for or authorizing such liquidation or a dissolution,
restructuring, recapitalization or other similar reorganization; (v) directly or
indirectly redeem, repurchase or otherwise acquire any shares of its capital
stock or any option with respect thereto; (vi) issue, deliver or sell, or
authorize or propose the issuance, delivery or sale of, any shares of its
capital stock or any option with respect thereto (other than the issuance of
Graham-Field Common Stock pursuant to options outstanding on the date of the
Merger Agreement under the Graham-Field option plans and in accordance with
their present terms, the issuance of options pursuant to the Graham-Field option
plans in each case in accordance with their present terms and the issuance of
shares of Graham-Field Common Stock upon exercise of such options, the issuance
by a wholly owned subsidiary of its capital stock to its parent corporation, the
issuance of rights to purchase shares of Series A Junior Participating Preferred
Stock of Graham-Field pursuant to the Rights Agreement, and the related
reservation of such Series A Junior Participating Preferred Stock in accordance
with the terms of such Rights Agreement (see "COMPARISON OF STOCKHOLDER RIGHTS
- -- Rights Agreement"), and the issuance of Graham-Field Common Stock,
Graham-Field Series B Preferred Stock or Graham-Field Series C Preferred Stock
or options with respect thereto in connection with a transaction involving the
acquisition of assets or a business of any person), or modify or amend any right
of any holder of outstanding shares of capital stock or options with respect
thereto; or (vii) enter into any contract, commitment or arrangement to do or
engage in any of the foregoing.
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Indemnification; Insurance. The Merger Agreement provides that from and
after the Effective Time, E&J shall indemnify the present and former officers
and directors of E&J (collectively, the "Indemnified Parties") against all
losses arising out of actions or omissions occurring at or prior to the
Effective Time (including, without limitation, the transactions contemplated by
the Merger Agreement) to the full extent permitted or required under the DGCL
(and shall also advance expenses as incurred to the fullest extent permitted
under the DGCL, provided that the person to whom expenses are advanced provides
the undertaking to repay such advances contemplated by Section 145(e) of the
DGCL). In addition, Graham-Field agreed to guarantee the performance by E&J of
its indemnification obligations described in the preceding sentence with respect
to any Claim (as defined below) with respect to the transactions contemplated by
the Merger Agreement, provided such Indemnified Party and its affiliates is not
a party benefitted by the Claim indemnified. Pursuant to the Merger Agreement,
Graham-Field has agreed that all rights to indemnification, including provisions
relating to advances of expenses incurred in defense of any claim, action, suit,
proceeding or investigation (a "Claim") existing in favor of the Indemnified
Parties as provided in E&J's certificate of incorporation or by-laws, as in
effect on the date of the Merger Agreement, with respect to matters occurring
through the Effective Time, shall survive the Merger, and shall continue for a
period of not less than six years from the Effective Time; provided, however,
that all rights to indemnification in respect of any Claim asserted or made
within such period shall continue until the disposition of any such Claim.
Without limiting the foregoing, in the event any Claim is brought against
any Indemnified Party (whether arising before or after the Effective Time) after
the Effective Time (i) the Indemnified Parties may retain counsel satisfactory
to them and E&J, (ii) E&J shall pay all reasonable fees and expenses of such
counsel for the Indemnified Parties promptly as statements therefor are
received, and (iii) E&J will use all reasonable efforts to assist in the
vigorous defense of any such matter, provided that E&J shall not be liable for
any settlement of any Claim effected without its written consent, which consent
shall not be unreasonably withheld or delayed. The Indemnified Parties as a
group may retain only one firm to represent them with respect to such matter
unless there is, under applicable standards of professional conduct, a conflict
on any significant issue between the positions of any two or more Indemnified
Parties.
In addition, E&J shall use its best efforts to cause to be maintained in
effect for not less than two years after the Effective Time the current policies
of directors' and officers' liability insurance and fiduciary liability
insurance maintained by E&J with respect to matters occurring prior to the
Effective Time; provided that (i) E&J may substitute therefor policies of
substantially the same coverage containing terms and conditions which are
substantially the same for the Indemnified Parties to the extent reasonably
available and (ii) in no event shall E&J be obligated to expend in order to
maintain or procure insurance coverage pursuant to this paragraph any amount per
annum more than 120% in excess of the aggregate premiums currently payable by
E&J and its subsidiaries for such purpose.
Mexican Subsidiary. As of the date of the Merger Agreement, E&J indirectly
owned approximately 80% of the capital stock of Everest & Jennings de Mexico,
S.A. de C.V. (the "Mexican Subsidiary"). Pursuant to the Merger Agreement, E&J
has agreed to purchase prior to the Effective Time the 20% stake owned by E&J.
E&J is in the process of negotiating the purchase of the remaining shares of the
Mexican Subsidiary from its owner, an employee of the Mexican Subsidiary. Under
the terms of the proposed stock purchase agreement, $50,000 will be paid upon
closing and $450,000 will be payable on the third anniversary of the closing,
provided that seller continues to work for the Mexican Subsidiary during such
three-year period. In addition, as additional consideration, certain
indebtedness owed to the Mexican Subsidiary from the seller will be released and
discharged by E&J and an annual payment of $25,000 will be payable to the seller
over the three-year period, provided seller continues to work for the Mexican
Subsidiary. Graham-Field will agree to guaranty all obligations of E&J under the
proposed stock purchase agreement.
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Benefit Arrangements. For a period of one year following the Effective
Time, or until E&J's employee benefit plans are integrated with Graham-Field's
employee benefit plans, whichever is earlier, Graham-Field has agreed to provide
employee benefit plans for the employees of E&J that are reasonably comparable
in the aggregate to E&J's employee benefit plans currently in effect, except for
such changes as are necessary to comply with, or respond to, changes in
applicable laws.
E&J Option Plans. E&J has agreed to use its best efforts to cause holders
of options outstanding under E&J's employee stock option plans at the Effective
Time, whether vested or unvested, to enter into an agreement with E&J and
Graham-Field providing that, at the Effective Time, each E&J option will be
cancelled and, in exchange therefor, Graham-Field will issue to such holder a
new option under Graham-Field's Incentive Program to purchase a number of shares
of Graham-Field Common Stock equal to the product of (i) the number of shares of
E&J Common Stock issuable upon exercise of the E&J stock option immediately
prior to the Effective Time and (ii) the Conversion Number, and having an option
exercise price per share of Graham-Field Common Stock equal to the Sales Price
on the Trading Day immediately prior to the Effective Time. It is expected that
E&J options that are currently "in the money" will be exercised prior to the
Effective Time. See "THE MERGER -- Conflicts of Interest."
No Solicitation. E&J has agreed in the Merger Agreement that, prior to the
Effective Time, (a) neither it nor any of its subsidiaries shall, and it shall
cause their respective officers, directors, employees, legal, investment banking
and financial advisors, accountants and any other agents or representatives
(collectively, "Representatives"), not to, initiate, solicit or encourage,
directly or indirectly, any inquiries or the making or implementation of any
proposal or offer (including, without limitation, any proposal or offer to its
stockholders) with respect to a merger, consolidation or other business
combination including E&J or any of its subsidiaries or any acquisition or
similar transaction (including, without limitation, a tender or exchange offer)
involving the purchase of all or any significant portion of the assets of E&J
and its subsidiaries taken as a whole, or any outstanding shares of E&J Common
Stock or shares of the capital stock of any subsidiary of E&J (any such proposal
or offer being an "Alternative Proposal"), or engage in any negotiations
concerning, or provide any confidential information or data to, or have any
discussions or enter into any agreements, arrangements or understandings,
whether written or oral, with any person or group relating to an Alternative
Proposal (excluding the transactions contemplated by the Merger Agreement), or
otherwise facilitate any effort or attempt to make or implement an Alternative
Proposal; (b) it will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties with respect to any of
the foregoing, and it will take the necessary steps to inform such parties of
its obligations with respect to the solicitation of Alternative Proposals; and
(c) it will notify Graham-Field immediately if any such inquiries, proposals or
offers are received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated or continued with, it or
any of such persons.
Conditions Precedent to the Merger. In addition to the approval of the
Share Issuances by the stockholders of Graham-Field and the approval and
adoption of the Merger Agreement and the terms of the Merger by the stockholders
of E&J, the obligations of Graham-Field and E&J to effect the Merger are subject
to the fulfillment or waiver of certain conditions specified in the Merger
Agreement, including, among others: (i) the adoption of the Stock Amendment and
the Incentive Program Amendment by the stockholders of Graham-Field; (ii) the
continuing accuracy of the representations and warranties of the respective
parties contained in the Merger Agreement; (iii) the performance and compliance
in all material respects by the respective parties of all obligations under the
Merger Agreement required to be performed on or prior to the consummation of the
Merger; (iv) the receipt of certain material consents, approvals and waivers
from governmental authorities and third parties; (v) the absence of any
injunction or other order by any federal or state court preventing consummation
of the Merger; and (vi) the absence of any suit challenging the legality of the
consummation of, or otherwise arising out of, the Merger Agreement, other than
litigation pending on the date of the Merger
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Agreement (see "THE MERGER -- Certain Litigation"). Furthermore, the obligation
of E&J to effect the Merger is subject to BIL receiving evidence of HSBC's
release of BIL from all guarantees of the HSBC Indebtedness, the HSBC letter of
credit facility and all letters of credit issued to secure obligations of E&J
and its subsidiaries.
In addition to the foregoing conditions, the obligation of Graham-Field to
effect the Merger is subject to the fulfillment or waiver of additional
conditions specified in the Merger Agreement, including: (i) the receipt of
title search reports demonstrating that E&J and its subsidiaries have good and
marketable title to each parcel of real property located in Mexico and Canada on
which its manufacturing facilities are located, free and clear of all liens;
(ii) the receipt of evidence that the HSBC Indebtedness will be discharged in
full and that HSBC will release all security interests granted by E&J or any of
its subsidiaries in respect of the HSBC Indebtedness upon payment by E&J of up
to $25 million; (iii) the receipt of satisfactory evidence that E&J owns 100% of
the capital stock of the Mexican Subsidiary and Everest & Jennings Canadian
Limited, a wholly-owned Canadian subsidiary of E&J; (iv) Graham-Field's
acquisition of a product liability insurance policy providing for reimbursement
of all losses incurred by E&J or any of its subsidiaries incident to any claim
relating to products manufactured or sold by E&J or any of its subsidiaries
prior to the Effective Time, and the reimbursement by BIL of Graham-Field for up
to $400,000 of the costs incurred in obtaining such policy; (v) the receipt of
any required consents from the Pension Benefit Guaranty Corporation to the
consummation of the Merger and the other transactions contemplated by the Merger
Agreement.
Termination. The Merger Agreement may be terminated at any time prior to
the Effective Time (a) by mutual written consent of the parties; (b) by either
Graham-Field or E&J if (i) the Merger shall have not occurred on or before
December 31, 1996 and such failure does not result from any breach by the
terminating party of any obligation under the Merger Agreement, (ii) the
requisite vote of the stockholders of either Graham-Field at the Graham-Field
Special Meeting or E&J at the E&J Special Meeting shall not have been obtained,
or (iii) any court of competent jurisdiction or other competent governmental or
regulatory authority shall have issued an order making illegal or otherwise
prohibiting the Merger and such order shall have become final and
non-appealable; (c) by Graham-Field, if there has been any material breach of
any representation, warranty, covenant or agreement on the part of E&J or BIL in
the Merger Agreement or (in the case of BIL) the Stockholder Agreement, which
breach is not curable or, if curable, has not been cured within thirty days
following the receipt by E&J or BIL, as the case may be, of notice of such
breach from Graham-Field; or (d) by E&J or BIL, if there has been a material
breach of any representation, warranty, covenant or agreement on the part of
Graham-Field set forth in the Merger Agreement, which breach is not curable or,
if curable, has not been cured within thirty days following the receipt by
Graham-Field of notice of such breach from E&J or BIL.
Amendment; Waiver. The Merger Agreement may be amended, supplemented or
modified by action taken by or on behalf of the respective boards of directors
of the parties thereto at any time prior to the Effective Time, whether prior to
or after the approval of the stockholders of E&J and Graham-Field has been
obtained, but after such adoption and approval only to the extent permitted by
applicable law.
At any time prior to the Effective Time, any of the parties to the Merger
Agreement may to the extent permitted by applicable law: (i) extend the time for
the performance of any of the obligations or other acts of the other parties
thereto; (ii) waive any inaccuracies in the representations and warranties of
the other parties thereto or in any document delivered pursuant to the Merger
Agreement; or (iii) waive compliance with any of the covenants, agreements or
conditions of the other parties contained in the Merger Agreement.
Expenses. The Merger Agreement provides that each party thereto will pay
its own expenses in connection with the Merger.
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Stockholder Agreement
Simultaneous with the execution of the Merger Agreement, Graham-Field, BIL
and Irwin Selinger, the Chairman and Chief Executive Officer of Graham-Field,
entered into the Stockholder Agreement. The following is a summary of the
material provisions of the Stockholder Agreement, which is attached as Annex B
to this Joint Proxy Statement/Prospectus and is incorporated herein by
reference. Such summary does not purport to be complete and is qualified in its
entirety by reference to the Stockholder Agreement.
Irrevocable Proxy. Pursuant to the Stockholder Agreement and simultaneously
with the execution thereof, BIL executed and delivered to Graham-Field an
Irrevocable Proxy to vote BIL's shares of E&J Common Stock and E&J Preferred
Stock in favor of the Merger Agreement and the Merger at the E&J Special
Meeting. BIL owns a sufficient number of shares of E&J Common Stock and E&J
Preferred Stock to assure the adoption of the Merger Agreement, thereby assuring
that Graham-Field will have the ability to approve the Merger without the
affirmative vote of any other stockholder of E&J.
Board Representation. Pursuant to the Stockholder Agreement, at the
Effective Time, BIL will have the right to designate two members of the
Graham-Field Board (subject to reduction if BIL reduces its ownership of
Graham-Field stock below specified levels). For so long as BIL has one director
on the Graham-Field Board, one BIL director shall be designated as a member of
the Executive Committee of the Graham-Field Board.
Right of First Refusal. So long as BIL and its affiliates own securities
representing at least 5% of the voting power of the outstanding capital stock of
Graham-Field, BIL has agreed to grant Graham-Field a right of first refusal with
respect to sales of any Graham-Field securities other than: (i) a transfer of
any Graham-Field securities to any BIL affiliate who simultaneously with such
transfer agrees in writing to be bound by the provisions of the Stockholder
Agreement as though an original signatory thereto, (ii) a sale through an
underwritten public offering registered under the Securities Act effected in
accordance with the provisions of the Registration Rights Agreement, (iii) a
sale pursuant to Rule 144(f) promulgated under the Securities Act provided that,
until such time as BIL beneficially owns voting securities of Graham-Field
representing less than 5% of the voting power of all voting securities of
Graham-Field, any Rule 144(f) sales shall be subject to the volume limitations
set forth in Rule 144(e) (regardless of whether such volume limitations are
applicable to such sale), (iv) pursuant to a merger or consolidation of
Graham-Field or a recapitalization of any Graham-Field securities, (v) pursuant
to a self-tender or exchange offer by Graham-Field or a third party tender offer
recommended by the Graham-Field Board, or (vi) a cash sale effected in
accordance with Graham-Field's right of first refusal; provided that in the case
of and as a condition to any cash sale to a person who, after giving effect to
such purchase, would own at least 5% of the voting power of the outstanding
capital stock of Graham-Field, such person shall simultaneously with such
purchase and sale agree in writing to be bound by the right of first refusal,
the limitation on acquisitions of Graham-Field securities and the standstill
provisions described below contained in the Stockholder Agreement. Graham-Field
may not assign its right of first refusal without the consent of BIL, which
consent shall not be unreasonably withheld or delayed; provided that any such
assignees agree in writing to purchase any of the offered securities not being
purchased by Graham-Field in accordance with its right of first refusal.
Limitation on Right to Purchase Additional Graham-Field Securities. So long
as BIL and its affiliates own securities representing at least 5% of the voting
power of the outstanding capital stock of Graham-Field, BIL has agreed that
neither BIL nor any of its affiliates will acquire additional shares of
Graham-Field stock without the consent of the Graham-Field Board, which consent
shall not be unreasonably withheld, except (i) pursuant to the Merger Agreement
or upon conversion of the Graham-Field Series B Preferred Stock and the
Graham-Field Series C Preferred Stock, (ii) pursuant to stock dividends, stock
splits or other distributions or offerings made available to Graham-Field
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stockholders generally, (iii) pursuant to plans established by Graham-Field for
members of the Graham-Field Board or (iv) pursuant to BIL's preemptive rights.
Preemptive Right. So long as BIL and its affiliates own securities
representing at least 15% of the voting power of the outstanding capital stock
of Graham-Field, Graham-Field has agreed not to issue any securities before
offering BIL the right to participate proportionately in such issuance.
Notwithstanding the foregoing, BIL's preemptive right set forth above shall not
apply to any Graham-Field securities issued (i) pursuant to the Warrant, dated
as of March 12, 1992, as amended, by and between Graham-Field and John Hancock
Mutual Life Insurance Company, (ii) in connection with a merger, acquisition or
other business combination transaction approved by the Graham-Field Board, (iii)
in connection with any stock option or other employee benefit plans and programs
of Graham-Field approved by the Graham-Field Board, or (iv) in connection with
any private debt financing in which Graham-Field securities to be issued
represent less than 2% of the voting power of the outstanding capital stock of
Graham-Field.
Standstill Provisions. BIL has agreed that following the Effective Time and
thereafter until such time as BIL and its affiliates own securities representing
less than 5% of the voting power of the outstanding capital stock of
Graham-Field, neither BIL nor any of its affiliates will directly or indirectly
seek to acquire ownership of Graham-Field, engage in any solicitation of proxies
with respect to Graham-Field or otherwise seek or propose to acquire control of
the Graham-Field Board.
Indemnification. Pursuant to the Stockholder Agreement, BIL agreed that
following the Effective Time it will indemnify Graham-Field against certain
existing actions and proceedings to which E&J and its subsidiaries are parties
as set forth in Schedule II of the Stockholder Agreement which is attached as
Annex B to this Joint Proxy Statement/Prospectus; provided that BIL has no
obligation to indemnify Graham-Field unless and until the amount of losses in
respect of such indemnified proceedings exceeds, in the aggregate, the
applicable amounts reserved for on the books and records of E&J with respect to
such proceedings.
No Solicitation. Pursuant to the Stockholder Agreement, BIL agreed that
prior to the Effective Time it shall not, and it shall use its best efforts to
cause its affiliates and representatives not to, initiate, solicit or encourage
an Alternative Proposal, or engage in any negotiations concerning, or provide
any confidential information to, or have any discussions or enter into any
agreements or understandings with, any person or group relating to an
Alternative Proposal (excluding the transactions contemplated by the Merger
Agreement), or otherwise facilitate any effort or attempt to make or implement
an Alternative Proposal.
Termination. The Stockholder Agreement will automatically terminate upon a
termination of the Merger Agreement in accordance with its terms or upon a
change of control of the Graham-Field Board; provided that BIL's indemnity
obligation will survive any termination of the Stockholder Agreement pursuant to
a change of control of the Graham-Field Board.
Amendment. Pursuant to the Stockholder Agreement, in the event that (i) any
person becomes the owner of securities representing more than 15% but less than
100% of the voting power of the outstanding capital stock of Graham-Field with
the approval of the Graham-Field Board and (ii) the restrictions imposed by
Graham-Field on the activities of such person are less onerous than those
imposed on BIL and its affiliates under the Stockholder Agreement, then the
Stockholder Agreement will be revised to provide comparable restrictions which
are identical to the restrictions imposed on such person.
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Registration Rights Agreement
Simultaneous with the Merger Agreement, Graham-Field entered into the
Registration Rights Agreement with BIL. The following is a summary of material
provisions of the Registration Rights Agreement, which is attached as Annex C to
this Joint Proxy Statement/Prospectus and is incorporated herein by reference.
Such summary does not purport to be complete and is qualified in its entirety by
reference to the Registration Rights Agreement.
The Registration Rights Agreement contains customary terms and conditions
and provides, among other things, that BIL and certain of its transferees will
have the right to require Graham-Field to register under the Securities Act
Registrable Securities (as defined below) in up to three demand registrations
and three incidental ("piggyback") registrations. "Registrable Securities" is
defined in the Registration Rights Agreement as (i) the Shares (as defined
below) and (ii) any additional shares of Graham-Field Common Stock issued or
distributed by way of a dividend, stock split or other distribution in respect
of the Shares, or acquired by way of any rights offering or similar offering
made in respect of the Shares. "Shares" is defined in the Stockholder Agreement
as, collectively, (i) the shares of Graham-Field Common Stock received by BIL or
any of its affiliates pursuant to the Merger Agreement, (ii) any shares of
Graham-Field Common Stock obtained by BIL or any of its affiliates upon
conversion of the shares of Graham-Field Series B Preferred Stock or the
Graham-Field Series C Preferred Stock received by BIL or any of its affiliates
pursuant to the Merger Agreement or as a dividend in respect of such shares of
Graham-Field Series B Preferred Stock or Graham-Field Series C Preferred Stock
and (iii) any shares of Graham-Field Common Stock purchased by BIL or any of its
affiliates in accordance with the Stockholder Agreement. As to any particular
Registrable Securities, once issued such securities shall cease to be
Registrable Securities when (i) a registration statement with respect to the
sale of such securities shall have become effective under the Securities Act and
such securities shall have been disposed of in accordance with such registration
statement, (ii) they shall have been distributed to the public pursuant to Rule
144 or all Registrable Securities then owned by BIL and its affiliates can be
sold in any three-month period pursuant to Rule 144, (iii) they are transferred
to or become owned by a person other than BIL or any of its affiliates (other
than a permitted assignee as described in the next paragraph) or (iv) they shall
have ceased to be outstanding.
Graham-Field has agreed in the Registration Rights Agreement to pay all
registration expenses in connection with each registration of Registrable
Securities pursuant to the Registration Rights Agreement, except for
underwriting discounts and commissions. Graham-Field has also agreed in the
Registration Rights Agreement to customary indemnification and contribution
protections to selling holders of Registrable Securities under the federal
securities laws and otherwise. BIL may assign its rights under the Registration
Rights Agreement to certain transferees of its Graham-Field shares who have
agreed to be bound by certain provisions of the Stockholder Agreement (see "THE
MERGER -- Stockholder Agreement -- Right of First Refusal"). The Registration
Rights Agreement will automatically terminate upon a termination of the Merger
Agreement.
Certain Litigation
On June 19, 1996, a class action lawsuit (the "Class Action") was filed on
behalf of all stockholders of E&J (other than the Defendants named below) in the
Delaware Court of Chancery, following announcement on June 17, 1996 of the
original agreement in principle between Graham-Field and E&J (the
"Announcement"). See "THE MERGER -- Background of the Merger." The Class Action
names as defendants the directors of E&J, E&J, BIL and Graham-Field (the
"Defendants"). The Class Action challenges the transactions contemplated by the
original agreement in principle, alleging, among other things, that (i) such
transactions were an attempt to eliminate the public stockholders of E&J at an
unfair price, given the reverse stock split of the E&J Common and Preferred
Stock, effective June 5, 1996, the reduction in trading value of E&J Common
Stock immediately following the Announcement and the increase in the trading
value of Graham-Field Common Stock immediately following the Announcement, (ii)
BIL will receive more value for its holdings in E&J than E&J minority
stockholders, (iii) the public stockholders will not be adequately compensated
for the potential earnings of E&J,
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(iv) BIL and the directors of E&J breached or aided and abetted the breach of
fiduciary duties owed to the stockholders (other than the Defendants) by not
exercising independent business judgment and having conflicts of interest, and
(v) Graham-Field aided and abetted and induced breaches of fiduciary duties by
other Defendants by offering incentives to members of management, either in the
form of continued employment or monetary compensation and perquisites, in
exchange for their approval of the Merger. The Class Action seeks to
preliminarily and permanently enjoin the consummation of the Merger or, if
consummated, to rescind such Merger or award rescissionary damages if it cannot
be set aside, and also prays for an award of compensatory damages. The
Defendants believe that they have valid defenses to the Class Action's
allegations of wrongdoing, and intend to vigorously defend the lawsuit. It is
not a condition to the obligations of Graham-Field or E&J to consummate the
Merger that the Class Action not be pending at the Effective Time.
Regulatory Matters
Antitrust. Under the Hart-Scott-Rodino Antitrust Improvements Act of l976,
as amended (the "HSR Act") and the rules promulgated thereunder by the Federal
Trade Commission (the "FTC"), the Merger and the other transactions contemplated
by the Merger Agreement may not be consummated until notifications have been
given and certain information has been furnished to the FTC and the Antitrust
Division of the Department of Justice (the "Antitrust Division") and the
applicable waiting period has expired or been terminated. On September 9, 1996
and September 10, 1996, notification and report forms were filed by Graham-Field
and E&J, respectively, under the HSR Act with the FTC and the Antitrust Division
with respect to the Merger Agreement and the transactions contemplated thereby.
Early termination of the waiting period under the HSR Act was granted on October
4, 1996.
At any time before or after consummation of the Merger, notwithstanding
that the waiting period under the HSR Act has expired or been terminated, the
Antitrust Division, the FTC or any state could take such action under applicable
antitrust laws as it deems necessary or desirable in the public interest. Such
action could include seeking to enjoin the consummation of the Merger or seeking
divestiture of substantial assets of Graham-Field or E&J. Private parties may
also seek to take legal action under applicable antitrust laws under certain
circumstances.
General. Graham-Field and E&J are not aware of any other material
regulatory consents, approvals or filings required for the consummation of the
Merger or the other transactions contemplated by the Merger Agreement.
Graham-Field Financing Arrangements
Graham-Field will be required to obtain the consent of John Hancock under
the terms and provisions of the Note and Warrant Agreement in order to
consummate the Merger. Graham-Field believes that it will be able to obtain the
consent of John Hancock, however, no assurances can be provided that such
consent will be obtained. Graham-Field is presently in discussions with its
primary bank, The Chase Manhattan Bank, as well as with other banks to refinance
and/or increase its credit lines, including the possibility of refinancing the
indebtedness with John Hancock, but no assurances can be provided that such
refinancing will be available. In the event Graham-Field prepays the John
Hancock indebtedness, a make-whole amount will be required to be paid to John
Hancock. Under the terms of the Note and Warrant Agreement, the make-whole
amount shall mean at any time with respect to any prepayment or payment (whether
on account of acceleration or otherwise) of the notes, to the extent that the
treasury yield plus 50 basis points at such time is lower than 8.28% per annum,
the excess of (a) the present value of the principal and interest payments on
and in respect of the notes being prepaid or paid, as the case may be, that
would otherwise become due and payable (without giving effect to such prepayment
or payment) (including the final payment on the maturity date of the notes),
discounted at a rate which is equal to the treasury yield plus 50 basis points,
over (b) the principal amount of the notes being prepaid or paid, as the case
may be, at par. To the extent that the treasury yield plus 50 basis points at
the time of such prepayment or payment is equal to or higher than 8.28% per
annum, the make-whole amount shall be zero.
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Conduct of E&J's Business After the Merger
E&J will survive the Merger as a wholly-owned subsidiary of Graham-Field.
Each of the Vice Presidents of E&J's manufacturing operations will report
directly to Graham-Field's Executive Vice President of Operations. The home
healthcare and medical/surgical business units of E&J will become
fully-integrated with Graham-Field's business units, and the rehabilitation
business unit of E&J will continue to operate as a separate business unit. The
independent sales representatives serving E&J's Canadian and Mexican facilities
are expected to continue to represent E&J in such geographical regions, as well
as represent Graham-Field's products in such geographical regions. Each of the
manufacturing facilities of the combined entity will operate through
Graham-Field's distribution network.
NYSE Listing
Pursuant to the Merger Agreement, Graham-Field has agreed to use its best
efforts to cause the shares of Graham-Field Common Stock to be issued (i)
pursuant to the Merger Agreement, (ii) upon conversion of or as a dividend on
the Graham-Field Series B Preferred Stock and the Graham-Field Series C
Preferred Stock and (iii) upon exercise of any options to purchase shares of
Graham-Field Common Stock granted in substitution for options to purchase shares
of E&J Common Stock, to be listed for trading on the NYSE. Such authorization
for listing is a condition to the obligations of Graham-Field and E&J to
consummate the Merger.
Certain Federal Income Tax Consequences
The following discussion is based upon the Code, the applicable Treasury
Department regulations thereunder, judicial authority and current administrative
rulings and practice as of the date hereof and states the opinion of Bryan Cave
LLP, special counsel to E&J, regarding the matters discussed. The following
discussion does not address (i) certain federal income tax consequences
applicable to special classes of taxpayers including, without limitation,
foreign corporations, tax exempt entities and persons who acquired E&J Common
Stock pursuant to the exercise of an employee option or otherwise as
compensation or (ii) the consequences of the Merger under state, local or
foreign law.
Consequences of the Merger
The Merger will qualify as a "reorganization" within the meaning of either
or both of Section 368(a)(1)(B) and Section 368 (a)(1)(A) and (a)(2)(E) of the
Code. As a result, E&J stockholders will recognize no gain or loss in the Merger
on the receipt of shares of Graham-Field Common Stock in exchange for their
shares of E&J Common Stock, except to the extent that they receive cash in lieu
of a fractional share of Graham-Field Common Stock. As to cash received in lieu
of fractional shares, E&J stockholders will recognize gain to the extent they
receive cash in excess of their tax basis in their share of E&J Common Stock
allocated to such Graham-Field fractional share. Any capital gain E&J
stockholders recognize on the receipt of cash in lieu of fractional shares of
Graham-Field Common Stock will be capital gain if the share of E&J Common Stock
exchanged therefor was a capital asset in their hands, and that capital gain
will be long-term if the shares of E&J Common Stock were held for more than one
year; otherwise that gain will be short-term capital gain.
The holding period of E&J stockholders in their shares of E&J Common Stock
will be added to their holding period for the shares of Graham-Field Common
Stock they receive in the Merger.
Consequences of Holding Graham-Field Common Stock
Generally, former E&J stockholders that are corporations will be entitled
to the 70 percent dividends received deduction as provided for in Section 243 of
the Code in respect of dividends paid on shares of Graham-Field Common Stock
unless and to the extent their shares of E&J Common Stock exchanged therefor
were "debt-financed portfolio stock" within the meaning of Section 246A of the
Code. In the case of dividends paid on shares of Graham-Field Common Stock to a
non-U.S. stockholder, a 30% U.S. withholding tax will be subtracted from the
dividends paid unless the
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stockholder provides Graham-Field with the proper forms that evidence that
stockholder's right to a reduced rate of withholding tax under the provisions of
an applicable income tax treaty with the United States.
THE DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY. IT
DOES NOT ADDRESS THE STATE, LOCAL OR FOREIGN TAX ASPECTS OF THE MERGER. THE
DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE CODE, EXISTING AND
PROPOSED TREASURY REGULATIONS THEREUNDER AND CURRENT ADMINISTRATIVE RULINGS AND
COURT DECISIONS. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE AND ANY SUCH CHANGE
COULD AFFECT THE CONTINUING VALIDITY OF THE DISCUSSION.
EACH E&J STOCKHOLDER SHOULD CONSULT ITS OWN TAX ADVISOR AS TO THE SPECIFIC
TAX CONSEQUENCES OF THE MERGER TO THE HOLDER, INCLUDING THE APPLICATION AND
EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
Accounting Treatment
The Merger will be accounted for as a "purchase", as such term is used
under generally accepted accounting principles. Accordingly, from and after the
Effective Date, E&J's consolidated results of operations will be included in
Graham-Field's consolidated results of operations. For purposes of preparing
Graham-Field's consolidated financial statements, Graham-Field will establish a
new accounting basis for E&J's assets and liabilities based upon the fair values
thereof and Graham-Field's purchase price, including the direct costs of the
acquisition. A final determination of required purchase price and related
accounting adjustments and of the fair value of the assets and liabilities of
E&J has not yet been made. Accordingly, the purchase accounting adjustments made
in connection with the development of the unaudited combined condensed pro forma
financial information appearing elsewhere in this Joint Proxy
Statement/Prospectus are preliminary and have been made solely for purposes of
developing such pro forma consolidated financial information to comply with
disclosure requirements of the SEC. Although the final aggregate purchase price
and purchase allocation are likely to differ, the pro forma consolidated
financial information reflects management's best estimate based upon currently
available information.
Absence of Appraisal Rights
Under Delaware law, neither holders of shares of E&J Common Stock nor
holders of shares of Graham-Field Common Stock will have appraisal rights with
respect to the Merger.
Federal Securities Law Consequences
All shares of Graham-Field Common Stock to be received by E&J stockholders
in the Merger will be freely transferable, except that shares of Graham-Field
Common Stock received by persons who are deemed to be "affiliates" (as such term
is defined under the Securities Act) of E&J prior to the Merger may be resold by
them only in transactions permitted by the resale provisions of Rule 145
promulgated under the Securities Act (or Rule 144 in the case of such persons
who become affiliates of Graham-Field) or as otherwise permitted under the
Securities Act. Persons who may be deemed to be affiliates of Graham-Field or
E&J generally include individuals or entities that control, are controlled by,
or are under common control with, such party and may include certain officers
and directors of such party as well as principal stockholders of such party. The
Merger Agreement requires E&J to use its best efforts to cause each of its
affiliates to execute a written agreement to the effect that such affiliate will
not offer or sell or otherwise dispose of any of the shares of Graham-Field
Common Stock issued to such affiliate in or pursuant to the Merger in violation
of the Securities Act or the rules and regulations promulgated by the SEC
thereunder.
Pursuant to the Registration Rights Agreement, Graham-Field has granted
certain registration rights to BIL with respect to shares of Graham-Field Common
Stock that BIL acquires pursuant to the Merger Agreement or the Stockholder
Agreement or upon conversion or as a dividend on the Graham-Field Series B
Preferred Stock and the Graham-Field Series C Preferred Stock. See "THE MERGER
- -- Registration Rights Agreement." Graham-Field will not be required to provide
similar registration rights to any other E&J stockholder.
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UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma combined condensed financial statements
combine the historical balance sheets and statements of operations of
Graham-Field and E&J after giving effect to the Merger and the V.C. Medical
Acquisition. The unaudited pro forma combined condensed balance sheet as of June
30, 1996 gives effect to the Merger and the V.C. Medical Acquisition, as if such
transactions had occurred on June 30, 1996. The unaudited pro forma combined
condensed statements of operations for the six months ended June 30, 1996 and
the twelve months ended December 31, 1995 give effect to the Merger and the V.C.
Medical Acquisition as if such transactions had occurred on January 1, 1995. The
pro forma adjustments account for the Merger as a purchase and are based upon
the assumptions set forth in the notes hereto. The pro forma adjustments are
preliminary estimates based on available information and certain assumptions
that Graham-Field's management believes are reasonable. The unaudited pro forma
combined condensed financial information does not reflect potential cost savings
associated with E&J's on-going rationalization of its production facilities
located in the United States, Canada, and Mexico, and the increased outsourcing
of products and product components (E&J has estimated that, based on certain
assumptions, such savings could total approximately $4.0 million per year before
taxes; however, there is no assurance that E&J's rationalization and outsourcing
programs will be successfully implemented or that any of the expected savings
will be realized). See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF E&J." In addition, the unaudited pro
forma combined condensed financial information does not give effect to any
potential synergistic benefits and enhancements relating to the elimination of
duplicate distribution and manufacturing centers and the reduction in general
and administrative expenses of the combined entity anticipated by Graham-Field's
management as a result of the Merger. See "THE MERGER -- Reasons for the Merger;
Recommendations of the Boards of Directors" and "-- Opinions of Financial
Advisors."
The following unaudited pro forma combined condensed financial information
has been prepared from, and should be read in conjunction with, the historical
financial statements and related notes of Graham-Field and E&J incorporated by
reference or included herein. See "AVAILABLE INFORMATION," "INCORPORATION OF
DOCUMENTS BY REFERENCE" and "INDEX TO FINANCIAL STATEMENTS." The following
information is not necessarily indicative of the financial position or operating
results that would have occurred had the Merger been consummated on the date, or
at the beginning of the periods, for which the Merger is being given effect, nor
is it necessarily indicative of future operating results or financial position.
Instead, it reflects actual historical results of the combined companies without
benefit of savings or other efficiencies that are expected to be achieved.
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Unaudited Pro Forma Combined Condensed Balance Sheet
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
As of June 30, 1996
---------------------------------------------------------------------
Historical Pro Forma
-------------------------- -----------------------------------------
Acquisition
Graham-Field E&J Adjustment Adjustments Combined
------------- ----------- ----------- ------------ ----------
Note 1 Note 3
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................... $ 397 $ 12 $ 101 $ 10,000[d] $ 10,510
Accounts receivable--net.................... 26,965 16,614 882 (3,435)[e] 41,026
Notes receivable............................ -- 1,642 -- -- 1,642
Inventories................................. 31,549 19,823 282 (4,509)[e] 47,145
Other current assets........................ 2,162 651 31 -- 2,844
Recoverable and prepaid income taxes........ 246 -- -- -- 246
----------- ----------- --------- ---------- ----------
TOTAL CURRENT ASSETS........................ 61,319 38,742 1,296 2,056 103,413
Property, plant & equipment--net............ 7,755 7,188 19 -- 14,962
Excess of cost over net assets
acquired--net............................... 28,485 248 985 51,337[h,j] 81,055
Notes receivable............................ -- 509 -- -- 509
Other assets................................ 5,531 222 -- -- 5,753
Deferred tax asset.......................... 1,928 -- -- -- 1,928
----------- ----------- --------- ---------- ----------
TOTAL ASSETS................................ $ 105,018 $ 46,909 $ 2,300 $ 53,393 $ 207,620
=========== =========== ========= ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to bank........................ $ 1,100 $ -- $ 45 $ -- $ 1,145
Current maturities of long-term debt and
Guaranteed Senior Notes..................... 2,591 4,142 -- -- 6,733
Accounts Payable............................ 8,382 7,119 71 -- 15,572
Acceptances Payable......................... 11,500 -- 1,704 (4,000)[i] 9,204
Accrued expenses............................ 2,467 11,427 66 2,783[a,b,c] 16,743
Accrued interest--BIL....................... -- 3,483 -- (3,483)[a] --
Accrued restructuring....................... -- 442 -- -- 442
----------- ----------- --------- ---------- ----------
TOTAL CURRENT LIABILITIES................... 26,040 26,613 1,886 (4,700) 49,839
LONG-TERM DEBT.............................. 704 27,010 14 (24,240)[b] 3,488
LONG-TERM DEBT--BIL......................... -- 21,103 -- (17,103)[a,i] 4,000
GUARANTEED SENIOR NOTES..................... 17,000 -- -- -- 17,000
OTHER LONG-TERM LIABILITIES................. -- 98 150 396[j] 644
----------- ----------- --------- ---------- ----------
TOTAL LIABILITIES........................... 43,744 74,824 2,050 (45,647) 74,971
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred Stock............................. -- 34,492 -- (34,492)[a] --
Series B Preferred Stock.................... -- -- -- 32,974[a] 32,974
Series C Preferred Stock.................... -- -- -- 4,380[d] 4,380
Common Stock................................ 354 719 1 (608)[f] 466
Additional paid-in capital.................. 67,317 105,608 249 (71,948)[f] 101,226
(Deficit)................................... (6,303) (168,734) -- 168,734[g,h] (6,303)
----------- ----------- --------- ---------- ----------
Sub-total................................... 61,368 (27,915) 250 99,040 132,743
Notes receivable from sale of shares........ (94) -- -- -- (94)
----------- ----------- --------- ---------- ----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT)........ 61,274 (27,915) 250 99,040 132,649
----------- ----------- --------- ---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY...................................... $ 105,018 $ 46,909 $ 2,300 $ 53,393 $ 207,620
=========== =========== ========= ========== =========
</TABLE>
The accompanying notes are an integral part of these pro forma
combined condensed financial statements.
67
<PAGE>
Notes to the Unaudited Pro Forma
Combined Condensed Balance Sheet
As of June 30, 1996
(Unaudited)
Note 1: Acquisition Adjustment
The acquisition adjustment reflects the pro forma balance sheet of the V.C.
Medical Acquisition, as if such acquisition occurred at June 30, 1996. This
acquisition was accounted for as a purchase.
Note 2: Purchase Price Summary and Related Allocation of Merger
A summary of the estimated purchase price and related allocation is as
follows:
Amounts in
Thousands
----------
Purchase Price:
Issuance of .35 shares of Graham-Field Common Stock for each
share of E&J Common Stock (a) ................................. $ 19,245
Issuance of 1,901,308 shares of Graham-Field Common Stock to
BIL (b) ....................................................... 14,526
Issuance of Graham-Field Series B Preferred Stock to BIL (c) .... 32,974
Issuance of Graham-Field Series C Preferred Stock to BIL (d) .... 4,380
Fees and expenses related to the Merger, including severance .... 4,100
--------
Total Purchase Price ............................................ $ 75,225
========
Allocation (based on estimated fair values):
Cash (e) ........................................................ $ 10,012
Accounts and notes receivable, net .............................. 15,330
Inventory ....................................................... 15,314
Property, Plant & Equipment, net ................................ 7,188
Other assets .................................................... 873
Debt and capital leases ......................................... (7,010)
Accounts payable, accrued expenses and other .................... (17,621)
Excess of Purchase Price over net assets acquired ............... 51,139
--------
$ 75,225
========
- ----------
(a) As of June 30, 1996, there were 7,196,565 shares of E&J Common Stock
outstanding (not including shares underlying vested stock options), which
are to be exchanged into shares of Graham-Field Common Stock at a ratio of
.35 shares of Graham-Field Common Stock for each share of E&J Common Stock
(subject to reduction as provided in the Merger Agreement; see "THE MERGER
-- Conversion of E&J Shares in the Merger"), or a total of approximately
2,518,920 shares of Graham-Field Common Stock. For this purpose, the
Graham-Field Common Stock is valued at $7.64 per share, which represents
the average closing sales price of the Graham-Field Common Stock for the
period three business days immediately prior to and three business days
immediately after the announcement on September 3, 1996 of the execution of
the Merger Agreement.
(b) In exchange for the delivery of cash by BIL in an amount equal to the HSBC
Indebtedness, Graham-Field will issue shares of Graham-Field Common Stock
equal to the amount determined by dividing the amount of the HSBC Debt
Payment by the greater of (x) $13 and (y) the fair market value of each
share of Graham-Field Common Stock based on a ten-day average closing sales
price, provided that the HSBC Debt Payment cannot exceed $25 million. As of
June 30, 1996, the HSBC Debt Payment would be $24,717,000, which would
result in the issuance of 1,901,308 shares of Graham-Field Common Stock. In
the event the HSBC Debt Payment is $25
68
<PAGE>
Notes to the Unaudited Pro Forma
Combined Condensed Balance Sheet--(Continued)
As of June 30, 1996
(Unaudited)
Note 2: Purchase Price Summary and Related Allocation of Merger--(Continued)
million as of the Effective Time, 1,923,076 shares of Graham-Field Common
Stock would be issued to BIL, resulting in a $168,000 increase in the
purchase price. For this purpose, the Graham-Field Common Stock is valued
at $7.64 per share, which represents the average closing sales price of the
Graham-Field Common Stock for the period three business days immediately
prior to and three business days immediately after the announcement on
September 3, 1996 of the signing of the Merger Agreement. The proceeds will
be used to repay the HSBC Indebtedness. See "THE MERGER -- Other Closing
Deliveries -- Issuance of Graham-Field Common Stock in Exchange for the
HSBC Indebtedness."
(c) As of June 30, 1996, the BIL Debt was $24,586,000 and the liquidation value
of the E&J Preferred Stock was $35,382,000 (including unpaid accrued
dividends of $890,000). In exchange for the BIL Debt and E&J Preferred
Stock, Graham-Field will issue shares of Graham-Field Series B Preferred
Stock having an aggregate Appraised Value (as defined in the Merger
Agreement) equal to the sum of the amount of the BIL Debt and the
liquidation value of the E&J Preferred Stock, provided that Graham-Field
shall not be required to issue a number of shares of Graham-Field Series B
Preferred Stock having an aggregate stated value exceeding $61 million. See
"THE MERGER -- Other Closing Deliveries -- Issuance of Graham-Field Series
B Preferred Stock in Exchange for BIL Debt and E&J Preferred Stock."
Assuming the Merger occurred as of June 30, 1996, the estimated fair value
of the Graham-Field Series B Preferred Stock would be approximately
$32,974,000.
(d) The issuance of the Graham-Field Series C Preferred Stock is recorded at
estimated fair value. The proceeds will be used for general corporate
purposes. See "THE MERGER -- Other Closing Deliveries -- Issuance of
Graham-Field Series C Preferred Stock."
(e) Includes $10,000,000 of cash to be received upon issuance of the
Graham-Field Series C Preferred Stock. See "THE MERGER -- Other Closing
Deliveries -- Issuance of Graham-Field Series C Preferred Stock."
Note 3: Pro Forma Adjustments:
(a) Adjustments to eliminate the BIL Debt ($24,586,000) and the E&J
Preferred Stock, including accrued unpaid dividends of $890,000 ($35,382,000),
in exchange for approximately $60 million stated value of Graham-Field Series B
Preferred Stock with an estimated fair market value of $32,974,000.
(b) Adjustment to record the HSBC Debt Payment.
(c) Adjustment for acquisition costs of approximately $4,100,000,
including, but not limited to, investment banking fees, legal fees, accounting
and tax fees, due diligence expenses and severance arrangements.
(d) Adjustment to record the issuance of Graham-Field Series C Preferred
Stock in the amount of $10 million, with an estimated fair market value of
$4,380,000.
(e) Adjustment to reflect the estimated net realizable value of the
accounts receivable and inventory of E&J based on Graham-Field's accounting
policies and operational plans.
(f) Adjustment to record the issuance of Graham-Field Common Stock as part
of the Merger and to eliminate the preacquisition E&J equity.
(g) Adjustment to record the elimination of the preacquisition E&J deficit
as part of Merger.
69
<PAGE>
Notes to the Unaudited Pro Forma
Combined Condensed Balance Sheet--(Continued)
As of June 30, 1996
(Unaudited)
Note 3: Pro Forma Adjustments:--(Continued)
(h) Adjustment to record the excess of the estimated purchase price over
net assets acquired resulting from the Merger of $51,139,000, and the
elimination of E&J goodwill of $248,000.
(i) Adjustment to record the proceeds of the BIL Subordinated Loan due
April, 2001 from BIL and the use of these proceeds to reduce acceptances
payable.
(j) Adjustment to reflect the purchase by E&J of the 20% minority interest
in E&J's Mexican subsidiary for $50,000 in cash, which is reflected as an
accrued expense, and a note in the principal amount of $450,000 due in three
years. The excess of the cost over the net assets of the minority interest in
E&J's Mexican subsidiary has been reflected as additional goodwill of E&J
($446,000).
70
<PAGE>
Unaudited Pro Forma Combined Condensed Statement of Operations
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30, 1996
-----------------------------------------------------------
Historical Pro Forma (Note 2)
-------------------- -------------------------------------
Acquisition
Graham- E&J Adjustments Adjustments
Field Note 1 Note 3 Note 4 Combined
--------- --------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Product Revenue.............................. $ 56,511 $ 34,293 $ 2,492 $ (1,837)[e] $ 91,459
Interest and other income.................... 465 -- -- -- 465
--------- --------- ---------- -------- ---------
56,976 34,293 2,492 (1,837) 91,924
--------- --------- ---------- -------- ---------
Costs and expenses:
Cost of revenue.............................. 38,383 27,108 1,906 (1,684)[e] 65,713
Selling, general & administrative............ 14,943 9,353 234 698[a] 25,228
Interest expense............................. 1,241 2,224 70 (1,809)[b] 1,726
--------- --------- ---------- -------- ---------
54,567 38,685 2,210 (2,795) 92,667
--------- --------- ---------- -------- ---------
Income (loss) before income taxes.............. 2,409 (4,392) 282 958 (743)
Income taxes................................... 1,084 21 126 (1,137)[c] 94
--------- --------- ---------- -------- ---------
Net income (loss).............................. $ 1,325 $ (4,413) $ 156 $ 2,095 $ (837)
========= ========= ========== ======== =========
Net income (loss) per common share[d].......... $ .09 $ (.61) -- -- $ (.07)
========= ========= ========== ======== =========
Weighted average number of common and common
equivalent shares[d]........................... 14,364 7,224 33 4,420 18,560
========= ========= ========== ======== =========
</TABLE>
The accompanying notes are an integral part of these pro forma
combined condensed financial statements.
71
<PAGE>
Unaudited Pro Forma Combined Condensed Statement of Operations
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Twelve Months Ended December 31, 1995
----------------------------------------------------------------
Historical Pro Forma (Note 2)
---------------------- ----------------------------------------
Acquisition
Graham- E&J Adjustments Adjustments
Field Note 1 Note 3 Note 4 Combined
----------- --------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Revenues:
Product Revenue.......................... $ 100,113 $ 74,627 $ 3,508 $ (6,207)[e] $ 172,041
Interest and other income................ 290 -- 22 -- 312
----------- --------- ---------- ---------- ----------
100,403 74,627 3,530 (6,207) 172,353
----------- --------- ---------- ---------- ----------
Costs and expenses:
Cost of revenue.......................... 68,883 58,597 2,682 (5,880)[e] 124,282
Selling, general & administrative........ 27,566 17,656 418 1,397[a] 47,037
Interest expense......................... 2,656 3,730 136 (2,655)[b] 3,867
----------- --------- ---------- ---------- ----------
99,105 79,983 3,236 (7,138) (175,186)
----------- --------- ---------- ---------- ----------
Income (loss) before income taxes.......... 1,298 (5,356) 294 931 (2,833)
Income taxes............................... 560 96 132 (781)[c] 7
----------- --------- ---------- ---------- ----------
Net income (loss).......................... $ 738 $ (5,452) $ 162 $ 1,712 $ (2,840)
=========== ========= ========== ========== ==========
Net income (loss) per common share[d]...... $ .06 $ (.75) -- -- $ (.22)
=========== ========= ========== ========== ==========
Weighted average number of common and
common equivalent shares[d].............. 13,332 7,228 33 4,420 17,748
=========== ========= ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these pro forma
combined condensed financial statements.
72
<PAGE>
Notes to the Unaudited Pro Forma
Combined Condensed Statements of Operations
For the Six Months Ended June 30, 1996
and the Twelve Months Ended December 31, 1995
Note 1: E&J Restructuring
E&J's 1995 and 1996 revenues and operating results have been negatively
impacted by ongoing price competition. Long lead times and shipping delays due
to start-up inefficiencies in manufacturing operations adversely impacted
customer confidence. Management of E&J continues to address the rationalization
of its production facilities in the United States, Canada and Mexico and the
increased outsourcing of products and product components, the effects of which
are expected to lower production costs. Productivity at E&J's primary domestic
manufacturing facility was negatively impacted during the fourth quarter of 1995
as a result of a WARN Act Notice issued pursuant to the layoff of 30% of the
work force at that facility. These layoffs, which were completed during the
first quarter of 1996, were a result of the transfer of workload to lower-cost
facilities and the continued manufacturing rationalization. On May 22, 1996, E&J
issued a second WARN Act Notice and announced a substantial workforce reduction
at its primary domestic wheelchair manufacturing facility. Such reductions will
be substantially completed during the third quarter of 1996. When complete,
United States operations will be limited to distribution, certain custom
manufacturing and light assembly. A severance reserve of approximately $400,000
has been included in E&J's results of operations for the six month period ended
June 30, 1996. E&J's management anticipates recording additional restructuring
expenses during the third quarter of 1996 when the workforce reduction is
substantially complete. Additional production relocation and facility
rationalizations are planned during 1996 which are designed to improve E&J's
cost structure. E&J has estimated that, based on certain assumptions, such
savings could total approximately $4.0 million per year before taxes; however,
there is no assurance that E&J's rationalization and outsourcing programs will
be successfully implemented or that any of the expected savings will be
realized. Such potential savings are not reflected in the pro forma statements
of operations for the year ended December 31, 1995 and six months ended June 30,
1996. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF E&J."
Note 2: Synergies and Enhancements
As a result of the Merger, Graham-Field expects that the combined entity
will be able to achieve significant cost savings and economies of scale.
Graham-Field has plans to eliminate certain duplicate distribution and
manufacturing centers and make reductions in general and administrative expenses
where duplicate functions are being performed. In addition, Graham-Field
anticipates that certain enhancements will be achieved as a result of the
Merger, including an improvement in the gross profit margin associated with the
sale of wheelchairs, an increase in sales of the Temco Home Healthcare products
due to the "bundling effect" with E&J products and improved Temco gross profit
margins to be derived from the rationalization and integration of the
manufacturing functions of the combined companies. There is no assurance that
such cost savings and enhancements will be achieved and accordingly they are not
included in the pro forma statements of operations for the year ended December
31, 1995 and six months ended June 30, 1996. See "THE MERGER -- Reasons for the
Merger; Recommendations of the Boards of Directors" and "-- Opinions of
Financial Advisors."
Note 3: Acquisition Adjustment
The acquisition adjustment reflects the pro forma results of the V.C.
Medical Acquisition, as if such acquisition occurred on January 1, 1995. This
acquisition was accounted for as a purchase.
73
<PAGE>
Notes to the Unaudited Pro Forma
Combined Condensed Statements of Operations--(Continued)
For the Six Months Ended June 30, 1996
and the Twelve Months Ended December 31, 1995
Note 4: Pro Forma Adjustments
(a) Adjustment to record additional amortization of goodwill, created from
the Merger, of $51,139,000 over a 30 year life ($1,705,000 per annum), net of a
reduction in goodwill amortization previously recorded by E&J, which is being
eliminated, of $154,000 and $308,000 for the six months ended June 30, 1996 and
the twelve months ended December 31, 1995, respectively.
(b) Adjustment to reduce interest expense relating to the HSBC Indebtedness
and BIL Debt, which indebtedness is being eliminated as part of the Merger.
(c) Adjustment to reflect the income tax provision that would be required
based upon the pro forma results of the combined entity.
(d) The pro forma net loss per common share has been calculated by assuming
the payment of a dividend of 1.5% on both the Graham-Field Series B and Series C
Preferred Stock in the aggregate amount of $525,000 and $1,050,000 for the six
month period ended June 30, 1996 and the twelve month period ended December 31,
1995, respectively. It was assumed that this dividend was paid in cash; however,
at Graham-Field's option the dividend can be paid in Graham-Field Common Stock.
Conversion of the preferred stock was not assumed since the result would have
been antidilutive.
The weighted average number of shares was computed using the weighted
number of shares of Graham-Field Common Stock outstanding, including 32,727
shares issued by Graham-Field in connection with the V.C. Medical Acquisition,
as if the shares were outstanding for the entire period. Common stock
equivalents included in the Graham-Field historical weighted average number of
shares would be antidilutive in the pro forma combined condensed statements of
operations and therefore are excluded.
(e) Adjustment to reflect the elimination of intercompany sales between
Graham-Field and E&J.
74
<PAGE>
CERTAIN INFORMATION CONCERNING GRAHAM-FIELD
Graham-Field and its wholly-owned subsidiaries manufacture, market and
distribute medical, surgical and a broad range of other health care products for
hospital, physician and home use. Graham-Field markets and distributes
approximately 23,000 products under both Graham-Field brand names as well as
suppliers' names. Products are marketed to approximately 15,000 customers,
principally medical/surgical supply dealers and home health care retailers and
wholesalers located primarily within the United States. In addition,
Graham-Field maintains a presence in the Central and South American, Canadian,
Mexican, European and Asian markets.
On September 4, 1996, Graham-Field completed the V.C. Medical Acquisition,
for a purchase price consisting of $1,703,829 in cash and 32,787 shares of
Graham-Field Common Stock. V.C. Medical is a distributor of home healthcare
products in Puerto Rico, with annual revenues of approximately $5 million.
On September 13, 1996, Graham-Field and E&J entered into a letter agreement
pursuant to which Graham-Field has been named E&J's exclusive sales
representative for the sale of home healthcare beds and standard commodity
wheelchairs in the following territories where E&J does not currently have a
sales representative: Northwest Territory -- Washington, Oregon, California,
Arizona and Nevada; Southwest Territory -- Texas, Oklahoma, Arkansas, Colorado
and Mississippi; and Northeast Territory -- Massachusetts, Maine, Connecticut,
Vermont and Rhode Island. Graham-Field has the option to place orders directly
with E&J or with third party suppliers. In the case of orders placed with E&J,
Graham-Field will be entitled to a commission equal to 3% of the net sales
price. The letter agreement will terminate on the earlier of the Effective Time
or the termination of the Merger Agreement in accordance with its terms.
Graham-Field's domestic sales and marketing strategies are developed on a
market-by-market basis through three primary business units: Medical/Surgical
unit, Home Healthcare unit and Consumer unit. The Medical/Surgical unit markets
and sells products to approximately 3,000 medical and surgical supply dealers.
The Home Healthcare unit markets and sells products to approximately 11,000
customers, including durable medical equipment suppliers, home health care
equipment suppliers, respiratory supply dealers, specialty retailers and
independent pharmacies. Graham-Field management believes that through its
Medical/Surgical and Home Healthcare business units, Graham-Field transacts
business with substantially all of the significant medical and surgical supply
dealers and home health care dealers in the United States. The Consumer unit
markets and sells Graham-Field products to approximately 1,000 retailers,
including drug store chains, mass merchandisers, department stores and home
shopping-related businesses.
Graham-Field purchases products from approximately 1,200 domestic and
foreign suppliers. Graham-Field has entered into exclusive and non-exclusive
distribution agreements with a number of domestic and foreign suppliers,
pursuant to which suppliers may designate the markets into which Graham-Field
may sell the products and impose stipulations with respect to minimum annual
sales volumes for Graham-Field. Although many of the distribution agreements are
cancelable by either party upon one to six months' notice, Graham-Field
management is confident that in the event of cancellation, comparable products
are available from alternative sources on acceptable terms.
Graham-Field 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 components of its SURVALENT(R) electronic
thermometry system. In addition, Graham-Field distributes certain patented
products pursuant to licensing agreements and has several registered trademarks
in the United States, including, but not limited to, "BUNN(R)", "SURVALENT(R)",
"MEDICOPASTE BANDAGE(R)", "HEALTHTEAM(R)", "LABTRON(R)", "GRAFCO(R)",
"TEMCO(R)", and "TENDERCLOUD(R)".
75
<PAGE>
The Federal Food, Drug and Cosmetic Act, the Safe Medical Devices Act and
regulations issued or proposed thereunder, provide for regulation by the FDA of
the marketing, manufacturing, labeling, packaging and distribution of medical
devices and drugs, including Graham-Field's products. Among these regulations
are requirements that medical device manufacturers register with the FDA, list
devices manufactured and file various reports. The FDA's "Good Manufacturing
Practice for Medical Devices" regulation sets forth requirements for, among
other things, Graham-Field's manufacturing process and the maintenance of
records, including those with respect to tests and sterility.
Graham-Field has not experienced any significant difficulty or expense in
complying with the requirements imposed by the FDA or any other governmental
agency. An outside consulting firm has been retained to monitor Graham-Field's
quality control program to ensure that all manufactured and supplier products
comply with FDA requirements. Additionally, the FDA has the authority to issue
performance standards for devices manufactured by Graham-Field, which has not
been done to date. Should such standards be issued, Graham-Field's products
would be required to conform.
Graham-Field competes with many other manufacturers and distributors,
however, Graham-Field management believes that no single competitor serving
Graham-Field's markets offers as broad a product range as Graham-Field.
Graham-Field concentrates its competitive strategies on breath of product lines,
quality, price and expedient delivery.
Graham-Field's executive offices and its northeastern regional distribution
center are located in Hauppauge, New York. Graham-Field's primary distribution
facility is located in St. Louis, Missouri. Manufacturing operations are
conducted in Passaic, New Jersey and Central Falls, Rhode Island. Warehouse and
distribution facilities are maintained in Placentia, California, Mount Vernon,
New York, Belleville, New Jersey, Jacksonville, Florida and Puerto Rico.
See "AVAILABLE INFORMATION" AND "INCORPORATION OF DOCUMENTS BY REFERENCE."
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF E&J
The following discussion should be read in conjunction with the audited
consolidated financial statements and notes thereto of E&J for the three years
ended December 31, 1995 and the unaudited consolidated financial statements and
notes thereto of E&J for the six month periods ended June 30, 1996 and 1995
included elsewhere in this Joint Proxy Statement/Prospectus. See "INDEX TO
FINANCIAL STATEMENTS."
General
In recent years, E&J has undergone an extensive restructuring of its
operations with the objective of improving its competitive position within the
durable medical equipment industry. The restructuring was designed to reduce
costs and eliminate excess manufacturing capacity. Asset sales were undertaken
to generate cash to partially finance restructuring activities and reduce debt
levels. Credit facilities were modified or expanded as needed to partially fund
the overall restructuring, in addition to contributing to the funding of E&J's
operations.
In early 1992 E&J announced its intention to consolidate its domestic
wheelchair manufacturing operations and corporate headquarters by relocating its
California-based manufacturing and corporate offices to Missouri by the end of
1992. This decision was made to further reduce costs through the consolidation
of administrative and support functions with existing operations in Missouri.
The relocation from California was begun in the second quarter of 1992, and,
except for data processing
76
<PAGE>
operations, was largely completed by the end of 1992. In October 1993, E&J
transferred its data processing operations from California to Missouri, which
represented the final step in E&J's relocation.
As a result of the relocation, E&J experienced major start-up problems in
wheelchair production and manufacturing delays and inefficiencies attributable
generally to the commencement of relocated manufacturing operations and
specifically to the need to train a large number of new employees. These
start-up problems impacted most severely E&J's high margin rehab wheelchair
products, and the resulting reduction in sales and cash flow hindered E&J's
ability to keep vendor payments current and to otherwise implement corrective
measures quickly and effectively.
Shipment delays caused a substantial build-up in back-ordered power and
rehab wheelchair products in the second half of 1992 and the first half of 1993,
which E&J reduced over time. Customer confidence and frustration resulting from
such delays combined to increase the order cancellation rate and to decrease the
incoming order rate, particularly for the affected wheelchairs. As a result,
orders and market share decreased, and manufacturing activity generally shifted
disproportionately to lower margin commodity wheelchairs. Incoming orders,
product backlog and timely shipments were improved during the second half of
1993, with continued improvement during 1994 and 1995. However, E&J believes
order rates, margins and market share must continue to improve and customer
confidence must be further restored and reinforced if E&J is to generate the
cash flow necessary to fund its operations on a continuing basis and to achieve
profitability. Additionally, certain production rationalizations are in process
relative to E&J's manufacturing facilities in the United States, Canada and
Mexico, which are designed to improve operating efficiencies and cost structure
by reducing duplicate overhead costs. E&J is also in the process of implementing
a program of increased outsourcing of products and product components. E&J has
estimated that, based on certain assumptions, the savings from these steps could
total approximately $4.0 million per year before taxes; however, there is no
assurance that E&J's rationalization and outsourcing programs will be
successfully implemented or that any of the expected savings will be realized.
Production and delivery of all of E&J's homecare bed products were
unaffected by the production problems that occurred in the relocation of the
wheelchair manufacturing facility to St. Louis. E&J has continued to deliver
homecare bed products in a timely manner and management believes that market
share can be maintained in these product lines. The sale of the Institutional
Business (as defined below) has not adversely affected homecare bed sales.
Effective in the fourth quarter of 1993, E&J adopted a plan to dispose of
Smith & Davis' hospital and nursing home bed and institutional casegoods
businesses (the "Institutional Business") and recorded a reserve of $13 million
to write down the assets of the Institutional Business to their estimated net
realizable values and for the estimated operating losses during the phase out
period and the estimated costs of disposition. See Note 2 -- Restructuring
Expenses, and Note 4 -- Assets Held for Sale, of the Notes to the Audited
Consolidated Financial Statements of E&J included elsewhere in this Joint Proxy
Statement/Prospectus. By Agreement dated February 15, 1995, E&J sold the
Institutional Business effective April 4, 1995.
In the domestic market, E&J's durable medical equipment products are sold
primarily through homecare and medical equipment dealers, as well as national
accounts. Consumers and dealers are reimbursed through federal, state and
private insurer reimbursement programs. E&J recognizes the need to counteract
the impact of cutbacks in such programs on its results of operations and cash
flow through the benefits of a reduced cost structure and by targeting new
market segments.
During 1995, 1994 and 1993, E&J required approximately $2.6 million (net),
$13.7 million and $45.8 million, respectively, of additional financing from BIL
to fund its operating requirements and accrued restructuring expenses, and the
amount of outstanding advances owing to BIL at June 30, 1996
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<PAGE>
totaled $21.1 million plus accrued and unpaid interest of $3.5 million. See Note
6 -- Debt Restructuring and Conversion and Note 7 -- Debt, of the Notes to the
Audited Consolidated Financial Statements of E&J included elsewhere in this
Joint Proxy Statement/Prospectus.
In 1994, based on predominant industry practice, E&J changed its method of
classification of shipping and distribution costs in the statement of
operations. Such costs are now presented in cost of sales versus operating
expenses in prior years. For purposes of the following discussion of results of
operations, affected amounts for all years have been reclassified to conform to
the current year's classification.
Results of Operations
Revenues
Substantially all of E&J's revenues for each of the periods indicated were
from products manufactured in North America.
Six Months Ended June 30, 1996 versus June 30, 1995
First half 1996 revenues of $34.3 million decreased $2.7 million, or 7%,
from 1995. First half revenues during 1996 for E&J's domestic operations
decreased $2.6 million from 1995's revenue levels. The decline in domestic sales
is attributable to the loss of distributor sales and the sale, effective August
9, 1995, of E&J's oxygen concentrator product line, which contributed $0.9
million revenue during the first half of 1995.
First half 1996 revenues in E&J's Canadian and Mexican subsidiaries were
consistent with 1995 levels.
1995 versus 1994
Revenues in 1995 decreased $4.8 million, or 6%, versus 1994, primarily due
to increased price competition related to the increased market penetration of
managed care organizations and price constraints established by the U.S.
Government for Medicare reimbursement. Wheelchair sales were adversely affected
by competition as E&J's competitors attempted to maximize market share.
1994 versus 1993
Revenues in 1994 declined $15 million, or 16%, versus 1993, due primarily
to the exclusion of the Institutional Business.
Revenues of the Institutional Business and related costs were included in
the consolidated results of operations of E&J in 1993 but not 1994 or 1995, as
the related assets were classified as held for sale at December 31, 1993, and
the 1994 and 1995 results of operations were aggregated and charged against
accrued restructuring expenses for purposes of the consolidated financial
statements. If the 1994 revenues of the Institutional Business ($21.2 million)
had been included in the consolidated results for 1994, revenues would have been
increased by $6.2 million or 7%. 1993 wheelchair sales and operations were
negatively impacted by the relocation of E&J's primary domestic manufacturing
facility from California to Missouri. Delivery delays caused by the 1992 move
have decreased and lead times have now been brought more in line with historical
levels.
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Operating Results
Six Months Ended June 30, 1996 versus June 30, 1995
The following table summarizes operating results of E&J for the six months
ended June 30, 1996 and 1995 (dollars in millions):
Six Months Ended June 30,
----------------------------------------------
1996 1995
---------------------- ----------------------
Amount % Amount %
----------- --------- ----------- ---------
Revenues....................... $ 34.3 100 $ 37.0 100
Cost of sales.................. 27.1 79 28.4 77
----------- --------- ----------- ---------
Gross profit................... 7.2 21 8.6 23
Operating expenses............. 9.4 27 8.8 24
----------- --------- ----------- ---------
Operating loss................. (2.2) (6) (0.2) (1)
Interest expense............... 2.2 6 1.8 4
----------- --------- ----------- ---------
Loss before income taxes....... (4.4) (12) (2.0) (5)
Income tax provisions.......... -- -- -- --
----------- --------- ----------- ---------
Net loss....................... $ (4.4) (12) $ (2.0) (5)
========== ========= ========== =========
First half 1996 revenues of $34.3 million decreased $2.7 million, or 7%,
from 1995. First half revenues during 1996 for E&J's domestic operations
decreased $2.6 million from 1995's revenue levels. The decline in domestic sales
is attributable to the loss of distributor sales and the sale, effective August
9, 1995, of E&J's oxygen concentrator product line, which contributed $0.9
million revenue during the first half of 1995.
First half 1996 revenues in E&J's Canadian and Mexican subsidiaries were
consistent with 1995 levels.
Total E&J first half gross profit decreased $1.4 million from $8.6 million
in 1995 to $7.2 million in 1996. As a percentage of sales, margins decreased
from 23% during 1995 to 21% during 1996, due primarily to discounting related to
price competition, poor efficiency at E&J's primary domestic wheelchair facility
and the recording of a $0.4 million severance reserve during 1996 as a result of
a substantial workforce reduction at E&J's primary domestic wheelchair
manufacturing facility. Such reduction will be substantially completed during
the third quarter of 1996. When complete, U.S. operations will be limited to
distribution, certain custom manufacturing and light assembly. E&J anticipates
recording additional restructuring expenses during the third quarter 1996 when
the workforce reduction is substantially complete. Additional production
relocation and facility rationalizations are planned during 1996 intended to
improve E&J's cost structure.
Total E&J first half operating expenses increased $0.6 million from $8.8
million in 1995 to $9.4 million in 1996. Research and development spending was
$0.4 million during 1996 compared to spending of $0.6 million during 1995.
Interest expense of $2.2 million in the first half of 1996 increased from
the comparable period in the prior year due to increases in the average
outstanding debt during the period.
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For the periods indicated, the following table summarizes operating results
of E&J (dollars in millions):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1995 1994 1993
--------------- --------------- ----------------
Amount % Amount % Amount %
-------- ------ ------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Revenues...................................... $ 74.6 100 $ 79.4 100 $ 94.5 100
Cost of sales................................. 58.6 79 65.8 83 83.8 89
------- --- ------- --- ------- ---
Gross profit.................................. 16.0 21 13.6 17 10.7 11
Operating expenses............................ 17.6 23 20.8 26 46.0 48
------- --- ------- --- ------- ---
Operating loss before restructuring expenses.. (1.6) (2) (7.3) (9) (35.3) (37)
Restructuring expenses........................ -- -- -- -- 15.1 16
------- --- ------- --- ------- ---
Operating loss................................ (1.6) (2) (7.3) (9) (50.4) (53)
Interest expense, BIL......................... (1.7) (2) (0.9) (1) (2.6) (3)
Interest expense, other....................... (2.1) (3) (1.7) (2) (2.5) (3)
------- --- ------- --- ------- ---
Loss before income taxes...................... (5.4) (7) (9.9) (12) (55.5) (59)
Income tax provisions (benefits).............. 0.1 -- (0.1) -- .2 --
------- --- ------- --- ------- ---
Net loss...................................... $ (5.5) (7) $ (9.8) (12) $ (55.7) (59)
======= === ======= === ======= ===
</TABLE>
1995 versus 1994
1995 revenues decreased $4.8 million or 6% to $74.6 million from $79.4
million in 1994. Wheelchair and accessory sales of $59.7 million in 1995
decreased $4.0 million or 6% from 1994. Price pressure brought on by
competition, managed care and government cutbacks negatively impacted domestic
sales. The decrease is due primarily to discounting in the marketplace.
Sales of Smith & Davis homecare beds in 1995 increased $1.1 million or 12%
from 1994. 1995 sales of Smith & Davis oxygen concentrators and other products
decreased $1.9 million as this product line was discontinued and sold in August
1995.
Total E&J gross profit increased $2.4 million or 18% from $13.6 million in
1994 to $16.0 million in 1995. The increase in gross profit reflects improved
manufacturing efficiency and positive results of E&J's program to outsource
manufacturing to lower cost facilities, offset in part by continued price
competition in the markets for E&J's wheelchairs and bed products. Productivity
at E&J's primary domestic manufacturing facility was negatively impacted during
the fourth quarter of 1995 as a result of a WARN act notice issued pursuant to
the layoff of 30% of the work force at that facility. These layoffs, which were
completed during the first quarter of 1996, were a result of the transfer of
workload to lower-cost facilities and E&J's continued manufacturing
rationalization.
Operating expenses decreased $3.2 million from $20.8 million in 1994 to
$17.6 million in 1995. This decrease is primarily due to continued cost
containment and favorable changes in insurance rates and claims.
Interest expense increased to $3.8 million in 1995 from $2.6 million in
1994 due to increased borrowings during 1995. See Note 6 -- Debt Restructuring
and Conversion, and Note 7 -- Debt, of the Notes to the Audited Consolidated
Financial Statements of E&J included elsewhere in this Joint Proxy
Statement/Prospectus.
1994 versus 1993
Wheelchair and accessory sales of $65.7 million in 1994 increased $3.9
million or 6% from 1993. The 1992 relocation of E&J's primary domestic
manufacturing facility from California to Missouri and the related production
and delivery problems negatively affected sales during 1993. Shipments during
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1993 were further negatively impacted by complications arising out of a major
computer system implementation which occurred in October, 1993. The majority of
the problems associated with the computer system conversion have since been
rectified. The domestic wheelchair order rate demonstrated improvement
throughout 1994 as operations in Missouri stabilized.
Sales of Smith & Davis homecare beds of $10.7 million in 1994 decreased
$0.7 million or 6% from 1993 due primarily to increased competition and price
erosion. Sales of the Institutional Business for 1993 approximated $17 million.
This business was not included in the E&J's consolidated results of operations
for 1994 or 1995, as discussed above.
Total E&J gross profit increased $2.9 million or 27% from $10.7 million in
1993 to $13.6 million in 1994. The increase in gross profit reflected
manufacturing efficiencies experienced in the wheelchair operations as
operations stabilized subsequent to the 1992 relocation of wheelchair
manufacturing to Missouri. Gross profit was adversely affected during the fourth
quarter of 1994 by a $3.0 million charge to reserves for product liability,
workers' compensation claims and inventory cost adjustments. As a percentage of
sales, gross profit increased from 11% in 1993 to 17% in 1994.
Operating expenses decreased $25.2 million from $46.0 million in 1993 to
$20.8 million in 1994. This decrease is primarily due to a $9.7 million charge
relating to in-process research and development expenses (selling expenses)
recorded during 1993 pursuant to E&J's acquisition of Medical Composite
Technology, Inc., a $2.0 million charge recorded during 1993 for anticipated
costs of environmental remediation, and a $2.4 million charge recorded during
1993 for severance obligations and other cost reductions implemented during
1994. Additionally, during 1994 $1.7 million was charged to restructuring
reserves relating to General and Administrative expenses allocated to the
Institutional Business. Restructuring expenses recorded during 1993 of $15.1
million primarily relate to losses anticipated on the disposition of the
Institutional Business.
Interest expense decreased to $2.6 million in 1994 from $5.1 million in
1993 due primarily to the fourth quarter 1993 conversion of $75 million of debt
and accrued interest to equity. See Note 6 -- Debt Restructuring and Conversion,
of the Notes to the Audited Consolidated Financial Statements of E&J included
elsewhere in this Joint Proxy Statement/Prospectus.
Liquidity and Capital Resources
E&J's primary sources of liquidity are cash provided from operations,
borrowings from BIL and affiliates, proceeds from notes received in the 1995
sales of the E&J Institutional and Oxycon businesses and cash on hand. At June
30, 1996, E&J had $12,000 in cash, and at December 31, 1995 E&J had $117,000 in
cash. At June 30, 1996, total debt of $52.3 million was $4.4 million higher than
the $47.9 million in debt at December 31, 1995. During 1994 and 1995, BIL
advanced E&J an additional $13.7 million and $5.6 million, respectively, which
was used to fund operating losses and previously accrued restructuring expenses.
The increase in debt during 1996 is due to increased borrowings from HSBC of
approximately $5.5 million, offset by repayments of foreign borrowings. E&J
received $1.8 million in April 1996 from the payment of a note receivable, which
was used to reduce debt. See Note 6 -- Debt, of the Notes to the Unaudited
Consolidated Financial Statements of E&J included elsewhere in this Joint Proxy
Statement/Prospectus. The $5.5 million borrowed from HSBC during 1996 was used
to fund E&J's operations. This facility was fully utilized at July 31, 1996.
In December 1995, HSBC and E&J's wholly-owned subsidiary, E&J Inc., agreed
to amend the Revolving Credit Agreement originally entered into on September 30,
1992 and extend its term through September, 1997. The HSBC facility, as amended,
provides up to $6 million of letter of credit availability and cash advances of
up to $25 million to E&J Inc. Advances under the Revolving Credit Agreement bear
interest at the prime rate plus 0.25%, as announced by Marine Midland Bank N.A.,
from time to time, and are guaranteed by Brierley Investments Limited, an
affiliate of BIL. Repayment of existing debt with BIL is subordinated to the
HSBC debt.
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<PAGE>
On December 21, 1995, $3 million of the increased credit facility was
utilized to repay an advance from BIL made earlier in 1995. As of June 30, 1996,
$24.7 million of the $25 million available for cash advances from HSBC had been
utilized.
At June 30, 1996, December 31, 1995 and December 31, 1994, under the debt
agreements with BIL and HSBC, E&J was obligated to repay the following amounts
at the various dates listed below.
<TABLE>
<CAPTION>
6/30/96 12/31/95 12/31/94
Balance Balance Balance
Debt Agreement $ millions $ millions $ millions Repayment Date
- -------------- ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
Long-Term Note to BIL................ 21.1 21.1 18.5 September 30, 1997
Accrued, unpaid interest due BIL..... 3.5 2.6 1.0
HSBC Revolving Credit Agreement (1).. 24.2 18.7 10.0 September 30, 1997
------- -------- --------
TOTAL................................ $ 48.8 $ 42.4 $ 29.5
======= ======== ========
</TABLE>
- ----------
(1) Excludes approximately $5.8 million, $5.7 million and $5.1 million
committed with respect to outstanding letters of credit at June 30, 1996,
December 31, 1995 and December 31, 1994, respectively.
There can be no assurance that E&J's operations will produce positive cash
flow in sufficient amounts or that E&J will be able to secure additional
borrowings or make asset sales that will enable it to make its debt payments
when due.
E&J entered into a debt conversion agreement as of September 30, 1993 with
BIL whereby $75 million of the indebtedness due BIL was restructured by the
issuance of a Common Stock Note and a Preferred Stock Note. The balance of the
BIL indebtedness ($6.8 million) which was not converted into the Common Stock
Note and the Preferred Stock Note was treated as advances under E&J's revolving
promissory note with BIL. See Note 6 -- Debt Restructuring and Conversion, of
the Notes to the Audited Consolidated Financial Statements of E&J included
elsewhere in this Joint Proxy Statement/Prospectus.
BIL agreed, upon stockholder approval of the debt conversion transaction
and related recapitalization proposals, to advance to E&J Inc. an additional $10
million. Such advance by BIL to E&J Inc. resulted in an increase in the
principal amount of the Common Stock Note from $45 million to $55 million and a
decrease in the balance of BIL's revolving promissory note to $4.8 million
effective as of December 31, 1993.
BIL has provided E&J a credit facility which allows advances of up to $21.1
million. At June 30, 1996 and December 31, 1995 this facility has been fully
utilized. The BIL credit facility has been extended to September 30, 1997, bears
interest at the rate of 8% per annum, and is secured by a lien on and security
interest in all of the assets of E&J and E&J, Inc., a wholly-owned subsidiary of
E&J. As of June 30, 1996, $3.5 million of accrued, unpaid interest was due to
BIL under the BIL credit facility.
In July 1991, E&J obtained a three-year $13 million secured credit line for
its Smith & Davis subsidiary which is secured by substantially all of the
subsidiary's assets. In February, 1993 this credit line was amended to increase
the availability of funding to E&J and reduce the borrowing costs thereunder.
The cash proceeds from the sale of the Institutional Business of approximately
$4.5 million were used to reduce this debt. The balance due under this credit
line was repaid in December 1995 utilizing funds advanced from HSBC. E&J's
Canadian subsidiary has existing credit facilities in the aggregate of $5.5
million, of which $4.3 million was borrowed as of June 30, 1996. During June,
1994 E&J's Mexican subsidiary obtained a credit facility in the aggregate of
$1.0 million, on which $.6 million was borrowed as of June 30, 1996.
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Pursuant to an Asset Purchase Agreement dated February 15, 1995, E&J sold
the Smith & Davis Institutional Business effective April 4, 1995. The proceeds
consisted of approximately $4.5 million in cash (which was used to repay debt),
$2.7 million in assumption of liabilities, and notes valued at approximately
$2.1 million; $0.2 million of such notes were repaid in 1995 with the remainder
repaid on April 2, 1996.
At June 30, 1996, E&J owed $29.5 million to banks and other commercial
lenders, $1.7 million under capitalized lease obligations, and $24.6 million
(including unpaid accrued interest) to BIL.
E&J's revenues and operating results since 1994 have been negatively
impacted by ongoing price competition, liquidity constraints and loss of market
share due to the relocation of E&J's primary domestic wheelchair manufacturing
facility from California to Missouri. As described above, management is
implementing plans to address the rationalization of E&J's production facilities
and the increased outsourcing of products and product components, the effects of
which are intended to lower E&J's production costs.
Management believes that E&J's domestic and international manufacturing
capacity is sufficient to meet anticipated demand for the foreseeable future.
Capital expenditures of approximately $1.3 million are projected for 1996 (of
which $.7 million has been recorded through June 30, 1996) versus actual
expenditures of $.8 million in 1995. The Mexican peso has resulted in lower
manufacturing costs for E&J's Mexico subsidiary.
No dividends on the E&J Common Stock were paid in either 1995 or 1994 or
have been paid during 1996. Management does not currently anticipate paying cash
dividends on the E&J Common Stock in the foreseeable future. The determination
of future cash dividends to be declared and paid on the E&J Common Stock, if
any, will depend upon E&J's financial condition, earnings and cash flow from
operations, the level of its capital expenditures, its future business prospects
and other factors that the E&J Board deems relevant. E&J is currently prohibited
from paying cash dividends on the E&J Common Stock under covenants contained in
the debt agreements with its principal lenders.
The consolidated financial statements of E&J included elsewhere in this
Joint Proxy Statement/Prospectus have been prepared under the going concern
concept. The going concern concept anticipates an entity will continue in its
present form and, accordingly, uses the historical cost basis to prepare
financial statements. E&J has incurred substantial restructuring expenses and
recurring operating losses and has a net capital deficiency at June 30, 1996. No
assurance can be made that E&J will successfully emerge from or complete its
restructuring activities, that E&J's ongoing rationalization and outsourcing
programs will be successfully implemented or that any of the expected savings
will be realized. As a result, there is substantial doubt about E&J's ability as
an independent company to continue as a going concern.
Net Operating Loss Carryforwards
E&J and certain subsidiaries file consolidated federal income and combined
state tax returns. For federal income tax purposes, as of December 31, 1995, E&J
has net operating loss (NOL) carryforwards of approximately $143 million and tax
credit carryforwards of approximately $1 million that expire in 1997 through
2010. In accordance with the Internal Revenue Code, when certain changes in
ownership of E&J occur, utilization of NOL carryforwards is limited. E&J has
determined that there has been a change in ownership due to the various debt and
equity transactions consummated with BIL as described in Note 7 -- Debt, of the
Notes to the Audited Consolidated Financial Statements of E&J contained
elsewhere in this Joint Proxy Statement/Prospectus. As a result, approximately
$88.5 million of E&J's NOL carryforwards are subject to an annual limitation of
approximately $3 million. If the full amount of that limitation is not used in
any year, the amount not used increases the allowable limit in the subsequent
year.
In addition, there are approximately $7 million and $6 million,
respectively, of preacquisition NOL carryforwards generated by Smith & Davis and
MCT with expiration dates through 2004. Annual utilization of these NOLs is
limited to $0.6 million for Smith & Davis and $0.5 million for MCT to reduce
each entity's future contribution to consolidated taxable income.
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<PAGE>
CERTAIN INFORMATION CONCERNING E&J
Business of E&J
General Development of Business and E&J Strategy
Through its subsidiaries, E&J manufactures wheelchairs and distributes
homecare beds. Effective in the fourth quarter of 1993, E&J adopted a plan to
dispose of its hospital and nursing home bed and institutional casegoods
businesses (the "Institutional Business") of its wholly-owned subsidiary, Smith
& Davis Manufacturing Company ("Smith & Davis"), and recorded a reserve of $13
million to write down the assets of the Institutional Business to their
estimated net realizable values and for the estimated operating losses during
the phase out period and the estimated costs of disposition. See Note 2 --
Restructuring Expenses, and Note 4 -- Assets Held for Sale, of the Notes to the
Audited Consolidated Financial Statements of E&J included elsewhere in this
Joint Proxy Statement/ Prospectus. Pursuant to an Asset Purchase Agreement dated
February 15, 1995, E&J sold its Institutional Business effective April 4, 1995.
In connection with the sale of the Institutional Business, E&J entered into an
agreement with the purchaser to supply E&J's requirements for homecare bed
products. Smith & Davis also held a small position in the oxygen therapy market
which E&J sold effective August 9, 1995.
E&J is one of the larger manufacturers of wheelchairs in the United States
and, with its Canadian and Mexican subsidiaries, holds a material share of the
North American market.
Since 1989 E&J has incurred substantial financial losses in a continuing
effort to restructure its operations with the objective of improving its
competitive position within the durable medical equipment industry.
Restructuring activities to date have included asset sales, significant
reductions in headcount, salaries and fringe benefits, plant closures and
consolidations, product line rationalizations, debt to equity conversions and
outsourcing of manufacturing operations. In 1992 E&J relocated its corporate
headquarters and principal wheelchair manufacturing operations from California
to Missouri. The relocation facilitated the consolidation of corporate offices
and other key administrative, sales/marketing and technical functions with
existing E&J operations in the St. Louis area. In October 1993, E&J transferred
its data processing operations from California to Missouri, which represented
the final step in E&J's relocation. In April 1995, E&J sold the Institutional
Business of its Smith & Davis subsidiary. The process of lowering costs is
ongoing as E&J intends to increase the outsourcing of product parts and
components and further consolidate its manufacturing and distribution
facilities. E&J is striving to become a low cost producer with respect to all of
its products, while maintaining its reputation for quality products.
Background
E&J is a Delaware corporation, formed in 1987 by the reincorporation of
Everest & Jennings International, a California corporation formed in 1967 for
the purpose of acquiring and holding all of the stock of Everest & Jennings,
Inc. and the stock of certain subsidiary companies. Everest & Jennings, Inc.,
E&J's principal subsidiary, was formed in 1946 through the incorporation of a
partnership originally established in 1932 by Herbert A. Everest and Harry C.
Jennings, Sr. Messrs. Everest and Jennings pioneered the design and production
of folding wheelchairs.
E&J had its initial public offering of E&J Common Stock in 1968. The E&J
Common Stock was traded on the NASDAQ National Market System until 1980 when the
E&J Common Stock became listed on the American Stock Exchange.
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In a series of transactions since 1991, BIL has acquired control of E&J
through the acquisition, on a fully diluted basis, of approximately 85.54% of
the voting securities of E&J. As of August 31, 1996, BIL beneficially owned the
following securities of E&J:
Class Number of Shares Percent
- ----- ---------------- -------
Common Stock............................ 5,779,935 80%
Series A Preferred Stock................ 7,867,842 100%
Series B Preferred Stock................ 786,357 100%
Series C Preferred Stock................ 20,000,000 100%
Each share of E&J Series A, B and C Preferred Stock is convertible into
one-tenth of a share of E&J Common Stock and is entitled to vote with the E&J
Common Stock on an as converted basis. See Note 6 -- Debt Restructuring and
Conversion, Note 7 -- Debt and Note 10 -- Common and Preferred Stock, of the
Notes to the Audited Consolidated Financial Statements of E&J included elsewhere
in this Joint Proxy Statement/Prospectus.
E&J's principal subsidiaries include Everest & Jennings, Inc. located in
St. Louis County, Missouri; Everest & Jennings Canadian Limited located in
Toronto, Canada; and Everest & Jennings de Mexico, S.A. de C.V. located in
Guadalajara, Mexico. Each of E&J's subsidiaries manufactures wheelchairs and
wheelchair parts. E&J has continued to sell homecare beds after the sale of the
Institutional Business. E&J owned a 30% interest in a joint venture in Indonesia
which it sold in January 1996. The sale did not have a material impact on the
consolidated financial statements. An affiliate of the joint venture partner
supplies wheelchair parts and components to E&J for assembly into finished
products in the United States.
Industry Overview
All of E&J's products can be characterized as durable medical equipment.
Third party reimbursement through private or government insurance programs and
managed care programs impact a significant component of E&J's business. The
market for and the pricing of wheelchairs and beds is influenced by such
programs. As a result, reductions or cutbacks in Medicare, state reimbursement
or private insurance programs for the purchase or rental of durable medical
equipment may adversely affect E&J's business. However, E&J's business is
favorably impacted by medical progress in rehabilitating the seriously injured
and disabled and by the demographics of longer life spans.
Wheelchairs
E&J designs, manufactures and markets wheelchairs in North America. The
wheelchair market is divided into two primary categories -- rehabilitation and
homecare.
The rehabilitation market is characterized by individual needs, ongoing
product innovation and government reimbursement levels. Rehabilitation products
are more sophisticated, command higher prices and support a higher price margin
structure. Most rehabilitation chairs are sold through a core group of 400
"Rehab" dealers working in conjunction with therapists who prescribe the
products for end users.
The homecare market is characterized by lower priced, commodity products
and includes significant institutional sales. Typically, end users are
geriatrics, those temporary disabled or individuals with limited access to
funding. E&J's homecare chairs are sold directly through approximately 4,000
homecare dealers as well as selected distributors.
E&J develops, designs, manufactures and markets state-of-the-art
wheelchairs including ultra-lightweight wheelchairs in E&J's Vision product
line. E&J continues to invest in the development of its rehabilitation
wheelchair lines, both power and manual, with primary focus on products that are
well matched to user needs and reimbursement levels and are easier to
manufacture and support.
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Market Information -- Management estimates that the aggregate domestic
wheelchair market approximates $350 million with the total North American market
slightly larger at approximately $425 million. E&J believes it has a material
share of these combined markets.
Competition -- E&J, Invacare Corporation and Sunrise Medical Inc. are the
primary competitors in the wheelchair business. In addition, there are a range
of smaller competitors. Competition for sales of wheelchairs is intense and is
based on a number of factors including quality, reliability, price, financing
programs, delivery and service. E&J believes its products' quality, reputation
and recent technological advances are favorable factors in competing with other
manufacturers.
Homecare Beds
Homecare beds generally are sold to the same homecare dealer network that
purchases homecare wheelchairs. A patient who is discharged from a hospital or
other institution may rent a homecare bed to aid in their recovery. Accordingly,
dealers primarily retain homecare beds in a rental fleet.
Market Information -- Management estimates that the aggregate domestic
market for homecare beds is approximately $60 million. E&J believes it has a
material share of the domestic homecare bed market.
Competition -- E&J, Invacare Corporation, Sunrise Medical, Inc. and Fuqua
Enterprises, Inc. are the largest suppliers of homecare beds to the industry.
Competition for sales of homecare beds is intense and is based primarily on
price.
International Operations
The Canadian market is served through E&J's Canadian subsidiary, while the
Central and South American markets are served through Everest & Jennings de
Mexico. E&J has not placed great emphasis on expanding its markets beyond North
America. Substantially all export sales of E&J's products manufactured in the
United States are denominated in United States dollars although such sales are
immaterial to consolidated revenues.
Sales and Distribution
E&J's homecare products are marketed in the United States and Canada by
approximately 4,000 non-exclusive dealers and national accounts who, in turn,
sell the products to consumers. The support and servicing of these dealers and
national accounts are the responsibility of E&J's trained sales staff operating
within the United States and Canada. E&J also uses manufacturer's
representatives and distributors in selected geographic areas and market
segments as appropriate. E&J also sells directly to United States and Canadian
government agencies. In Mexico, E&J's products are marketed through its own
dealer network systems as well as through independent non-exclusive dealers. No
dealer or distributor domestically or internationally represents more than 10%
of E&J's total sales.
E&J's rehab sales representatives conduct training activities for the
benefit of its dealers and their personnel and for physical and occupational
therapists. This training is primarily concerned with the features and benefits
of E&J's rehab products, and the training also covers the proper fitting and use
of wheelchairs and related equipment. E&J advertises in trade publications and
its representatives attend trade shows and similar conventions as a method of
displaying product lines to doctors, therapists and others.
Finished goods inventories are maintained in several public warehouses
strategically located throughout the United States. E&J manufactures its basic
homecare products for stock and maintains inventories at such warehouses and its
St. Louis manufacturing facility for sale; however, a substantial portion of
E&J's rehab wheelchair products are built-to-order and are not maintained as
stock.
86
<PAGE>
Raw Materials
E&J purchases a variety of raw materials and components, and has entered
into supply agreements to purchase certain of these items from single suppliers.
A change in suppliers could cause a delay in manufacturing; however, E&J
believes that numerous alternative supply sources are available for all such
materials.
Product Development, Engineering and Patents
E&J continuously seeks to improve the quality, performance and reliability
of its products to enhance its competitive position in its industry and to
develop new products to meet the needs of its customer base. E&J has a design
staff and research and development organization, the Everest & Jennings Design
Center, in northern California. This center is responsible for new product
design for E&J. During the years ended December 31, 1995, 1994 and 1993, E&J
spent $1.1 million, $1.9 million and $10.8 million, respectively, on E&J
sponsored research and development activities.
Employees
As of August 31, 1996, E&J had 605 full-time and full-time equivalent
employees, comprised of 423 in manufacturing, 7 in research and development, 112
in sales and customer service and 63 in general and administrative functions. A
total of 236 of E&J's employees located in Missouri, Canada and Mexico are
covered by collective bargaining agreements. E&J considers its labor relations
to be satisfactory.
Financial Information
E&J's operations consist of the manufacture and sale of durable medical
equipment. The percentage of E&J's consolidated revenues contributed by each
class of similar products which accounted for ten percent or more of such
consolidated revenues in any of the last three years is as follows:
Years Ended December 31
------------------------------------
1995 1994 1993
---------- ---------- ----------
Wheelchairs......................... 80% 80% 65%
Institutional beds and furniture.... -0-% -0-% 18%
Homecare beds....................... 14% 11% 12%
Properties
E&J owns or leases manufacturing facilities located in the United States,
Canada and Mexico. E&J believes that these facilities are generally adequate for
its operations and are in reasonably good operating condition.
Owned Leased
----- ------
(Square footage)
Everest & Jennings, Inc.: St. Louis, Missouri........... -- 178,000
Other locations......................................... -- 2,500
Smith & Davis Manufacturing Co.......................... 65,570 --
Everest & Jennings Canadian Ltd.: Toronto, Canada....... 67,000 8,775
Everest & Jennings de Mexico S.A. de C.V.: Guadalajara,
Mexico................................................ 63,000 --
Other locations......................................... -- 18,281
------- -------
195,570 207,556
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<PAGE>
Legal Proceedings
E&J and its subsidiaries are parties to various lawsuits and other
proceedings, including a stockholder class action which seeks unspecified
damages for alleged non-disclosure and misrepresentation concerning E&J in
violation of federal securities laws, various environmental lawsuits and
proceedings and various product liability and other lawsuits and proceedings
arising out of E&J's businesses. Although the ultimate outcome of these actions
cannot be determined with certainty at this time, E&J has provided for those
actions deemed by management to be most likely of potential adverse disposition.
Although further liabilities of indeterminate amounts may be imposed against
E&J, after considering the relevant facts and the opinions of outside counsel,
it is the opinion of management of E&J that the ultimate resolution of such
lawsuits and proceedings will not in the aggregate have a material adverse
effect on E&J's consolidated financial position or results of operations.
As described above under "THE MERGER -- Certain Litigation", various
stockholders have instituted a class action lawsuit against E&J and certain
other defendants in connection with the transactions contemplated by the Merger
Agreement.
See Note 13 -- Contingent Liabilities, of the Notes to the Audited
Consolidated Financial Statements of E&J and Note 10 -- Contingent Liabilities,
of the Notes to the Unaudited June 30, 1996 Consolidated Financial Statements of
E&J, included elsewhere in this Joint Proxy Statement/Prospectus for a
description of certain pending lawsuits and proceedings.
E&J Directors
The following table sets forth the ages of and positions and offices
presently held by each director of E&J, and the year that each director began
serving as an E&J director:
Served as
Director
Name Age Position Since
- ---- --- -------- -----
Sandra L. Baylis.... 48 Director 1994
Bevil J. Hogg....... 48 President and Chief Executive
Officer and Director 1994
Rodney F. Price..... 52 Chairman of the Board 1994
Robert C. Sherburne. 75 Director 1982
Charles D. Yie...... 37 Director 1994
The principal occupations during the past five years of each of E&J's
directors are as follows:
Sandra L. Baylis. Executive Assistant, Brierley Investments Ltd., an
Australian investment holding company, since 1993; Executive Assistant, Pioneer
International Ltd., a producer of building construction materials, from 1990 to
1993.
Bevil J. Hogg. President and Chief Executive Officer of E&J since January
21, 1994; Executive Vice President of E&J from January 14, 1994 to January 20,
1994; Chief Executive Officer of Medical Composite Technology, Inc., a
wheelchair designer and manufacturer, from December 16, 1992 to January 13,
1994; Chief Executive Officer of Cycle Composite, Inc., a bicycle manufacturer,
from 1986 to December 1992.
Rodney F. Price. Chairman of the Board of E&J since May 23, 1994; Director,
Brierley Investments Limited, a New Zealand investment holding company, since
1993; Managing Director and Chief Executive Officer, Pioneer International Ltd.,
a producer of building construction materials, from 1990 to 1993; Managing
Director and Chief Executive Officer, Industrial Equity Limited (IEL) from 1986
to 1989; Chairman, Australis Media Ltd. As discussed above, Mr. Price will
become a director of Graham-Field and a member of the Executive Committee at the
Effective Time.
88
<PAGE>
Robert C. Sherburne. Private investor; Chairman of Zac Industries, a
manufacturer of computer peripheral components, from February 1985 to June 1990;
Director of Zero Corp. from 1975 to 1992; Director of Golden Systems Inc.
Charles D. Yie. General Partner of Ampersand Specialty Materials Ventures
Limited Partnership, a venture capital investment company, since 1989; Principal
from 1987 to 1989. Director of Aseco Corporation.
The E&J Board has two standing committees: an Audit Committee and a
Compensation Committee.
The Audit Committee has responsibility for recommending to the E&J Board a
firm of independent accountants to audit E&J's accounts, for reviewing the scope
and results of audits, for reviewing both the auditors' recommendations to
management and the response of management to such recommendations and for
reviewing the adequacy of internal financial and accounting controls. During
1995, the Audit Committee met three times. The members of the Audit Committee
are Rodney F. Price, Robert C. Sherburne and Charles D. Yie.
The Compensation Committee is responsible for developing and implementing
E&J's executive compensation program and determining on an annual basis the
nature and amount of compensation to be paid to the President and Chief
Executive Officer and to the other executive officers of E&J. The Compensation
Committee did not meet during 1995. The members of the Compensation Committee
are Sandra L. Baylis, Rodney F. Price and Charles D. Yie.
During 1995, there were eight E&J Board meetings. All current directors
attended more than 75% of the meetings of the E&J Board and of the E&J Board
committees on which they served.
The ad hoc Nominating Committee, which consists of the full E&J Board,
considers as potential director nominees persons recommended by stockholders.
Stockholder recommendations should, where possible, include a brief description
of the potential nominee's business background for the last five years and a
list of other publicly held companies of which the potential nominee is a
director.
No non-management directors received compensation for attendance at either
E&J Board or committee meetings during 1995, other than reimbursement for
expenses in connection with attending such meetings.
E&J Executive Officers
The executive officers of E&J and their ages and positions held in E&J are
as follows:
Name Age Position
- ---- --- --------
Bevil J. Hogg.... 48 President and Chief Executive Officer
Timothy W. Evans. 45 Senior Vice President, Chief Financial Officer and
Secretary
Wim Van Voorst... 44 President, Chief Executive Officer, Chief Operating
Officer and Chief Financial Officer of Everest &
Jennings Canadian Limited
The principal occupations during the past five years of each executive
officer of E&J are as follows:
Bevil J. Hogg. President and Chief Executive Officer of E&J since January
21, 1994; Executive Vice President of E&J from January 14, 1994 to January 20,
1994; Chief Executive Officer of Medical Composite Technology, Inc., a
wheelchair designer and manufacturer, from December 16, 1992 to January 13,
1994; Chief Executive Officer of Cycle Composite, Inc., a bicycle manufacturer,
from 1986 to December, 1992.
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<PAGE>
Timothy W. Evans. Senior Vice President of E&J since July 25, 1995; Vice
President, Chief Financial Officer and Secretary of E&J since September 20,
1994; Corporate Controller from June, 1993 to September 20, 1994. Prior to
joining E&J, Mr. Evans was Director, Corporate Development and Group Controller
of Chromalloy America Corporation, a large diversified company.
Wim Van Voorst. President and Chief Executive Officer since July 1996,
Chief Operating Officer since March 1996 and Chief Financial Officer since June
1995, Everest & Jennings Canadian Limited; Chief Financial Officer of S.A.
Armstrong Limited, a multinational manufacturer of pumps, valves and heat
exchangers, from 1992 to 1995; Finance Director of Colgate-Palmolive India
Limited, a manufacturer of toothpaste and soap, from 1988 to 1992.
Security Ownership of Certain Beneficial Owners and Management
The stockholder shown in the following table is the only stockholder known
to E&J to have owned beneficially, as of August 31, 1996, at least 5% of any
class or series of E&J's voting stock.
<TABLE>
<CAPTION>
Shares of
Shares of Shares of Series C
Shares of Series A Series B Preferred
Common Stock Preferred Stock Preferred Stock Stock
Beneficially Beneficially Beneficially Beneficially
Owned(1)(2) Owned(2) Owned(2) Owned(2)
------------------ ------------------ ----------------- -------------
Number Number Number Number
Name and Address of of of of of
Beneficial Owner Shares Percent Shares Percent Shares Percent Shares Percent
- ---------------------------------- --------- ------- --------- ------- -------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BIL (Far East Holdings) Limited,
2306 Jardine House,
#1 Connaught Place Central,
Hong Kong 5,779,935 80% 7,867,842 100% 786,357 100% 20,000,000 100%
</TABLE>
- ----------
(1) The percentage of ownership of E&J Common Stock is based on the 7,196,565
shares of E&J Common Stock actually outstanding as of August 31, 1996. The
following shares are not included: 786,784 shares issuable on conversion of
outstanding shares of E&J Series A Preferred Stock, all of which are owned
by BIL; 78,635 shares issuable on conversion of outstanding shares of E&J
Series B Preferred Stock, all of which are owned by BIL; and 2,000,000
shares issuable on conversion of outstanding shares of E&J Series C
Preferred Stock, all of which are owned by BIL.
(2) Each outstanding share of E&J Series A Preferred Stock, E&J Series B
Preferred Stock and E&J Series C Preferred Stock is entitled to one-tenth
of a vote and each outstanding share of E&J Common Stock is entitled to one
vote. The holders of the E&J Series A Preferred Stock, E&J Series B
Preferred Stock, E&J Series C Preferred Stock and E&J Common Stock vote
together as a single class on all matters submitted to a stockholder vote
(including the election of directors) other than a matter with respect to
which any such class would be entitled under applicable law to vote
separately. Accordingly, the shares owned by BIL represent 86% of the
aggregate voting power of all outstanding shares of E&J Common Stock and
E&J Preferred Stock.
As described under "THE MERGER -- Stockholder Agreement," BIL has granted
to Graham-Field an irrevocable proxy to vote its shares of E&J Common Stock and
E&J Preferred Stock in favor of the Merger at the E&J Special Meeting.
The following table sets forth, as of August 31, 1996, the beneficial
ownership by each of E&J's directors and those executive officers named in the
Summary Compensation Table appearing below and all directors and executive
officers as a group. Except as otherwise indicated, the stockholders listed in
the table have sole voting and investment power with respect to the shares
indicated. The number of shares shown includes shares, if any, held beneficially
or of record by each person's spouse; voting and investment power of the shares
also may by shared by spouses.
90
<PAGE>
<TABLE>
<CAPTION>
Shares of Shares of Series C
Shares of Series A Series B Preferred
Common Stock Preferred Stock Preferred Stock Stock
Beneficially Beneficially Beneficially Beneficially
Owned(1) Owned(1) Owned(1) Owned(1)
---------------------- ---------------------- ---------------------- ----------
Number Number Number Number
Name of of of of of
Beneficial Owner Shares Percent Shares Percent Shares Percent Shares Percent
- ------------------------------------- --------- --------- --------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sandra L. Baylis..................... 0 * 0 * 0 * 0 *
Bevil J. Hogg........................ 73,224(2) * 0 * 0 * 0 *
Rodney F. Price...................... 5,779,935(3) 80% 7,867,842 100% 786,357 100% 20,000,000 100%
Robert C. Sherburne.................. 50(4) * 0 * 0 * 0 *
Charles D. Yie....................... 308,197(6) 4% 0 * 0 * 0 *
Timothy W. Evans..................... 4,100(7) * 0 * 0 * 0 *
Angelo A. Conti...................... 0(8) * 0 * 0 * 0 *
Robert B. Senn....................... 0 * 0 * 0 * 0 *
John G. Cowan........................ 6,315(9) * 0 * 0 * 0 *
Directors and Executive Officers
as a group (10 persons)............ 6,171,821 10) 84% 7,867,842 100% 786,357 100% 20,000,000 100%
</TABLE>
- ----------
* The percentage of shares beneficially owned does not exceed 1% of the
outstanding shares of the applicable class.
(1) See Notes (1) and (2) to the previous stock ownership table.
(2) Includes presently exercisable options for 52,459 shares, but does not
include options for 60,000 shares which vest upon a change of control of
E&J.
(3) Consists entirely of shares of stock beneficially owned by BIL which Mr.
Price may be deemed to own beneficially because he is a director of BIL.
(4) Does not include options for 5,000 shares which vest upon a change of
control of E&J.
(5) Includes 263,197 shares of stock beneficially owned by Ampersand Specialty
Materials Ventures Limited Partnership which Mr. Yie may be deemed to own
beneficially because he is a director of Ampersand Specialty Materials
Ventures Limited Partnership.
(6) Does not include options for 5,000 shares which vest upon a change of
control of E&J.
(7) Includes presently exercisable options for 2,100 shares, but does not
include options for 15,000 shares which vest upon a change of control of
E&J.
(8) Does not include options for 15,000 shares which vest upon a change of
control of E&J.
(9) Includes presently exercisable options for 6,250 shares, but does not
include options for 25,000 shares which vest upon a change of control of
E&J.
(10) Includes presently exercisable options for 60,809 shares, but does not
include options for 130,000 shares which vest upon a change of control of
E&J.
Executive Compensation
The following Summary Compensation Table shows, for the years ended
December 31, 1993, 1994 and 1995, the cash compensation paid by E&J as well as
certain other compensation paid or accrued for those years to the Chief
Executive Officer, the other three current executive officers and one former
executive officer whose salary and bonus exceeded $100,000 during the year ended
December 31, 1995 for services rendered in all capacities:
91
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
----------------------------------------------
Annual Compensation Awards
--------------------------------------- ----------------------- Payouts
Other Restricted -------- All
Annual Stock Options/ LTIP Other
Name and Salary Bonus Compensation Award(s) SARs Payouts Compensation
Principal Position Year ($) ($) ($) ($) $ ($) ($)
- -------------------------------------------- ---- --------- ------- ------------- ------------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Bevil J. Hogg
President and Chief Executive Officer of
E&J (1) ................................ 1995 223,000 0 0 0 0 0 0
1994 211,666 0 0 0 100,000 0 58,679(2)
1993 -- -- -- -- -- -- --
Timothy W. Evans
Senior Vice President and Chief Financial
Officer of E&J (3)........................ 1995 116,613 0 0 0 7,500 0 0
1994 100,000 0 0 0 7,500 0 135(4)
1993 -- -- -- -- -- -- --
Angelo A. Conti (5)
Senior Vice President, Operations of E&J.. 1995 116,063 0 0 0 7,500 0 45,291(6)
1994 52,083 0 0 0 7,500 0 19,943(6)
1993 -- -- -- -- -- -- --
Robert B. Senn (7)
Executive Vice President, Sales and
Marketing of E&J........................ 1995 161,884 0 0 0 0 0 11,023(8)
1994 53,246 0 0 0 0 0 75,742(8)
1993 -- -- -- -- -- -- --
John G. Cowan (9)
President of Everest & Jennings Canadian
Limited..................................... 1995 120,066 0 0 0 0 0 0
1994 118,260 0 0 0 25,000 0 0
1993 121,500 0 0 0 0 0 0
</TABLE>
- ----------
(1) Hired on January 14, 1995. For a description of Mr. Hogg's transitional
employment and consulting arrangements in connection with the Merger, see
"THE MERGER -- Conflicts of Interest -- E&J Severance Arrangements."
(2) Represents relocation expense in connection with his hiring including
$10,680 tax gross-up on relocation expenses.
(3) Promoted to executive officer on September 20, 1994; he was employed by E&J
on June 1, 1993. For a description of Mr. Evans' severance arrangements in
connection with the Merger, see "THE MERGER -- Conflicts of Interest -- E&J
Severance Arrangements."
(4) Represents E&J's matching contribution under the 401K Plan.
(5) Hired on June 16, 1994. Mr. Conti voluntarily resigned from E&J effective
as of August 31, 1996. In connection with his resignation, Mr. Conti
entered into a Separation Agreement, Offer of Compromise and Mutual Release
with E&J whereby Mr. Conti agreed that he would not be entitled to any
wages or benefits after such date. E&J, however, agreed to pay Mr. Conti a
consulting fee of $30,000 for a three month period and severance pay of six
months' salary ($63,250). In addition, Mr. Conti will receive healthcare
benefits for nine months and thereafter will be entitled to continue his
benefits for an additional 18 months in accordance with the Consolidated
Omnibus Budget Reconciliation Act.
(6) Represents relocation expense in connection with his hiring including
$22,809 tax gross-up on relocation expenses.
(7) Hired on September 12, 1994; resigned December 1, 1995.
(8) Represents relocation expense in connection with his hiring including
$41,172 tax gross-up on relocation expenses.
(9) Retired on June 30, 1996.
Except as set forth in the table above under "All Other Compensation", E&J
has not included in the table above the value of incidental personal perquisites
furnished by E&J to its executive officers since such incidental personal value
did not exceed the lesser of $50,000 or 10% of the total of annual salary and
bonus reported for the named executive officers in the table above.
E&J entered into severance arrangements with several employees in
anticipation of the signing of the Merger Agreement. See "THE MERGER --
Conflicts of Interest -- E&J Severance Arrangements."
Stock Options
The following table contains information concerning grants of stock options
to the named executive officers for 1995. The exercise price for all of the
grants of stock options was the fair market value on the date of the grant.
92
<PAGE>
OPTION GRANTS DURING THE
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Potential Realizable
Individual Grants Value at Assumed
--------------------------------------------------------------- Annual Rates of
% of Total Stock Price
Options Appreciation
Options Granted to Exercise or for Option Term (2)
Granted (1) Employees in Base Price (1) Expiration --------------------
Name # 1995 ($/Sh) Date 5% ($) 10% ($)
- ------------------------------- ------------- ----------------- ----------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Bevil J. Hogg.................. -- -- -- -- -- --
Timothy W. Evans............... 7,500 7% 8.50 11/1/99 12,604 57,832
Angelo C. Conti................ 7,500 7% 8.50 11/1/99 12,604 57,832
John G. Cowan.................. -- -- -- -- -- --
Robert B. Senn................. -- -- -- -- -- --
</TABLE>
- ----------
(1) Adjusted for one-for-ten reverse stock split, which became effective on
June 6, 1996.
(2) The dollar amounts under the 5% and 10% columns in the Option Grants table
are the result of calculations required by rules of the Securities and
Exchange Commission and, therefore, are not intended to forecast possible
future appreciation of the stock price of the E&J Common Stock. Although
permitted by SEC rules, E&J did not use an alternative formula or model to
compute a grant date valuation because, given E&J's recent financial
performance, E&J is not aware of any formula which will determine with any
reasonable degree of accuracy a present value based on future unknown or
volatile factors. Amounts shown reflect the difference between the
appreciation and the exercise price.
The following table sets forth information with respect to the named
executive officers regarding the value of their unexercised options held as of
December 31, 1995. No options were exercised during 1995.
AGGREGATED OPTION VALUES AT DECEMBER 31, 1995
Number of Unexercised Value of Unexercised
Options at In-the-Money Options
December 31, 1995 (1) at December 31, 1995
(#) ($)
-------------------------- -----------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
Bevil J. Hogg........ 52,458 60,000 54,107 0
Timothy W. Evans..... 1,400 15,700 0 0
Angelo C. Conti...... 0 15,000 0 0
John G. Cowan........ 6,250 25,000 0 0
Robert B. Senn....... 0 0 0 0
- ----------
(1) Adjusted for one-for-ten reverse stock split, which became effective on
June 6, 1996.
Certain Transactions
Principal Terms of E&J Series A Preferred Stock. The principal terms of the
E&J Series A Preferred Stock are as follows: Dividends -- the E&J Series A
Preferred Stock bears 9% cumulative dividends mandatorily payable (subject to
applicable law) at the end of each quarter of E&J, in cash, or, at the option of
E&J, in kind, as additional E&J Series A Preferred Stock ("In-Kind Dividend
Stock"); Conversion -- each share of E&J Series A Preferred Stock is convertible
into one-tenth of a share of E&J Common Stock, subject to anti-dilution
provisions; Registration Rights -- the E&J Series A Preferred Stock has
registration rights as follows with respect to E&J Common Stock issued upon
conversion: (a) the holders of the greater of (i) 2,761,112 shares of E&J Series
A Preferred Stock or (ii) 50% or more of the sum of (x) the number of shares of
E&J Series A Preferred Stock or (ii) 50% or more of the sum of (x) the number of
shares of E&J Series A Preferred Stock then outstanding plus (y) the E&J Common
Stock, which both were issued on conversion of E&J Series A Preferred Stock by
BIL and are still held by BIL, may make a one time demand that E&J register the
distribution of such
93
<PAGE>
E&J Common Stock; and (b) the holders of such E&J Common Stock have the right to
request that the distribution of such E&J Common Stock be included in any
registration statement under the Securities Act filed by E&J (with the exception
of certain stock option, merger and exchange registration statements); Voting
Rights -- each share of E&J Series A Preferred Stock is entitled to one-tenth of
a vote and the right (except as limited by applicable law) to vote together with
the E&J Common Stock; Redemption -- the E&J Series A Preferred Stock is
redeemable at E&J's option from and after April 27, 1999 at a per share
redemption price equal to (i) for all shares, except the In-Kind Dividend Stock,
$1.67458437 per share, and (ii) for the In-Kind Dividend Stock an amount equal
to 150% of the "market price" of the E&J Common Stock as of the redemption date;
Sinking Fund -- there is no sinking fund requirement for redemption of the E&J
Series A Preferred Stock; and Liquidation Preference -- the E&J Series A
Preferred Stock has a liquidation preference per share equal to $1.67458437.
Except to the extent E&J is restricted under applicable law from so doing, the
terms of the E&J Series A Preferred Stock do not restrict E&J from repurchasing
or redeeming the E&J Series A Preferred Stock while there is an arrearage in the
payment of dividends.
During the year ended December 31, 1995, BIL received 649,638 shares of E&J
Series A Preferred Stock as In-Kind Dividend Stock and interest on debt
securities totaling $1,087,874.
Principal Terms of E&J Series B Preferred Stock. The principal terms of the
E&J Series B Preferred Stock include the following: Dividends -- the E&J Series
B Preferred Stock has the same right to dividends and distributions as the E&J
Common Stock; Conversion -- each shares of E&J Series B Preferred Stock is
convertible into one-tenth of a share of E&J Common Stock, subject to
anti-dilution provisions; Registration Rights -- there are registration rights
as follows with respect to E&J Common Stock issued upon conversion of E&J Series
B Preferred Stock and E&J Common Stock: (a) the holders of the greater of (i)
384,575 shares of E&J Series B Preferred Stock or (ii) 50% or more of the sum of
(x) the number of E&J Series B Preferred Stock then outstanding plus (y) the E&J
Common Stock, which both were issued on conversion of E&J Series B Preferred
Stock by BIL and are still held by BIL, may make a one-time demand that E&J
register the distribution of the such E&J Common Stock; and (b) the holders of
such E&J Common Stock have the right to request that the distribution of such
E&J Common Stock be included in any registration statement under the Securities
Act filed by E&J (with the exception of certain stock option, merger and
exchange registration statements); Voting Rights -- each share of E&J Series B
Preferred Stock is entitled to one-tenth of a vote and the right (except as
limited by applicable law) to vote together with the E&J Common Stock;
Redemption -- E&J, at its option, may redeem the E&J Series B Preferred Stock at
any time prior to April 27, 1999 at a per share redemption price (the "Series B
Redemption Price") equal to the quotient of (a) the aggregate amount of interest
forgiven pursuant to the Amended Credit Agreement, pursuant to which BIL
acquired Security Pacific National Bank's interest in the $31,000,000 Amended
and Restated Promissory Note issued August 30, 1991 between E&J, Everest &
Jennings, Inc. and Security Pacific National Bank, divided by (b) 786,357
shares; Sinking Fund -- there is no sinking fund requirement for redemption of
the E&J Series B Preferred Stock; and Liquidation Preference -- the E&J Series B
Preferred Stock has a liquidation preference per share equal to the Series B
Redemption Price plus accrued, unpaid dividends, if any. Except to the extent
E&J is restricted under applicable law from so doing, the terms of the E&J
Series B Preferred Stock will not restrict E&J from repurchasing or redeeming
the E&J Series B Preferred Stock while there is an arrearage in the payment of
dividends.
Principal Terms of E&J Series C Preferred Stock. The principal terms of the
E&J Series C Preferred Stock are as follows: Dividends -- 7% cumulative
dividends mandatorily payable (subject to applicable law), commencing after E&J
achieves two consecutive quarters of operating profit, accruing as of the first
day of such quarters, and payable on the first business day of each April,
commencing with the first April following the end of the year in which the
second of the consecutive quarters occurs and payable in kind, in shares of E&J
Common Stock ("In-Kind Dividend Stock"), at the option of E&J; Conversion --
each share of E&J Series C Preferred Stock is convertible into one-tenth of a
share of E&J Common Stock, subject to anti-dilution provisions; Registration
Rights -- as contained in the
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<PAGE>
Registration Rights Agreement, and as follows with respect to shares of E&J
Common Stock issuable upon conversion of E&J Series C Preferred Stock: (a) the
holder may make a one-time demand that E&J register distribution of shares of
E&J Common Stock for not less than 500,000 shares; and (b) the holder has the
right to request that the distribution of its shares of E&J Common Stock be
included in any registration statement under the Securities Act filed by E&J;
Sinking Fund -- none; Redemption -- none; Preemptive Rights -- none; Voting
Rights -- each share of E&J Series C Preferred Stock is entitled to one-tenth of
a vote and the right (except as limited by applicable law) to vote together with
the E&J Common Stock; and Liquidation Preference -- a liquidation preference per
share equal to $1.00.
Guarantee of Certain Indebtedness. In December 1995, HSBC and Everest &
Jennings, Inc. agreed to amend the Revolving Credit Agreement originally entered
into on September 30, 1992 and extend its term through September, 1997. The HSBC
facility, as amended, provides up to $6 million of letter of credit availability
and cash advances of up to $25 million to Everest & Jennings, Inc. Advances
under the Revolving Credit Agreement bear interest at the prime rate plus 0.25%,
as announced by Marine Midland Bank N.A. from time to time (8.5% at December 31,
1995), and are guaranteed by Brierley Investments Limited, an affiliate of BIL.
Repayment of existing debt with BIL is subordinated to the HSBC debt, and
Brierley Investments Limited, an affiliate of BIL, guaranteed its repayment.
Lease Transaction. An affiliate of BIL, Steego Corporation ("Steego"), is
leasing to E&J the computer system and the telephone system which are located at
E&J's facilities in St. Louis. Steego has entered in to a back-to-back lease
arrangement for such systems with Sentry Financial Corporation, which is not
affiliated with either BIL or Steego.
Receivables Purchase. On October 4, 1996, BIL purchased an aggregate of
$2,432,392 of customer and other notes receivable from E&J for a cash payment of
$2,314,000 (95.2% of face value), which receivables have been outstanding for
some time. E&J expects to use the cash proceeds of these asset sales to fund its
operations during the interim period prior to the Effective Time.
Indirect Interests. Rodney F. Price, a director of E&J, is also a director
of BIL. As a result, Mr. Price may be deemed to have an indirect interest in the
foregoing transactions with BIL.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires E&J's directors and executive
officers, and persons who own more than ten percent of a registered class of
E&J's equity securities, to file with the SEC and the American Stock Exchange
initial reports of ownership and reports of changes in ownership of E&J Common
Stock and other equity securities of E&J. Executive officers, directors and
greater than ten-percent stockholders are required by SEC regulation to furnish
E&J with copies of all Section 16(a) forms they file.
To E&J's knowledge, based solely on review of the copies of such reports
furnished to E&J and written representations that no other reports were
required, during the year ended December 31, 1995 all Section 16(a) filing
requirements applicable to its executive officers, directors and greater than
ten-percent beneficial owners were complied with.
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DESCRIPTION OF GRAHAM-FIELD CAPITAL STOCK
The authorized capital stock of Graham-Field currently consists of
40,000,000 shares of Graham-Field Common Stock and 1,000,000 shares of preferred
stock, par value $.01 per share (the "Graham-Field Preferred Stock"). If the
proposal described under "AMENDMENTS TO THE GRAHAM-FIELD CERTIFICATE OF
INCORPORATION -- Proposal to Increase Authorized Shares of Common Stock" is
adopted by Graham-Field stockholders at the Graham-Field Special Meeting, the
number of authorized shares of Graham-Field Common Stock will be increased to
60,000,000 shares.
Holders of Graham-Field Common Stock are entitled to one vote per share on
all matters submitted to a vote of stockholders of Graham-Field and to receive
dividends when, as and if declared by the Graham-Field Board from funds legally
available therefor. Upon liquidation of Graham-Field, holders of Graham-Field
Common Stock are entitled to share ratably in any assets available for
distribution to stockholders after payment of all obligations of Graham-Field
and priority payments to any senior class of capital stock. Holders of
Graham-Field Common Stock do not have cumulative voting rights or preemptive,
subscription, redemption or conversion rights.
The Graham-Field Board has the authority, without action by the
stockholders, to issue shares of Graham-Field Preferred Stock in one or more
series and, within certain limitations, to determine the dividend rights,
dividend rate, rights and terms of redemption, liquidation preferences, sinking
fund terms, conversion and voting rights of any series of Graham-Field Preferred
Stock, the number of shares constituting any such series, the designation
thereof and price therefore. As is described below under "COMPARISON OF
STOCKHOLDER RIGHTS -- Rights Agreement," the Graham-Field Board has reserved
300,000 shares of Series A Junior Participating Preferred Stock for issuance
upon the exercise of rights granted under its stockholder rights plan. In
addition, as is described above under "THE MERGER -- Other Closing Deliveries,"
the Graham-Field Board has authorized the issuance of up to 61,000 shares of
Graham-Field Series B Preferred Stock and 10,000 shares of Graham-Field Series C
Preferred Stock to BIL at the Effective Time pursuant to the terms of the Merger
Agreement.
The DGCL, the Graham-Field Charter, the Graham-Field Bylaws and the Rights
Agreement (as defined below under "COMPARISON OF STOCKHOLDER RIGHTS -- Rights
Agreement") contain provisions that could discourage or make more difficult a
change of control of Graham-Field. Such provisions are designed to protect the
stockholders of Graham-Field against coercive, unfair or inadequate tender
offers and other abusive takeover tactics and to encourage any person
contemplating a business combination with Graham-Field to negotiate with the
Graham-Field Board for the fair and equitable treatment of all stockholders of
Graham-Field. Such provisions of the Graham-Field Charter and Bylaws, as well as
certain amendments thereto adopted by the Graham-Field Board, subject to
stockholder approval at the Graham-Field Special Meeting, are described under
"AMENDMENTS TO THE GRAHAM-FIELD CERTIFICATE OF INCORPORATION -- Proposals
Relating to Stockholder Action and Related Matters." Graham-Field's Rights
Agreement is described under "COMPARISON OF STOCKHOLDER RIGHTS -- Rights
Agreement."
Section 203 of the DGCL prohibits generally a public Delaware corporation,
including Graham-Field, from engaging in a Business Combination with an
Interested Stockholder for a period of three years after the date of the
transaction in which an Interested Stockholder became such, unless: (i) the
board of directors of such corporation approved, prior to the date such
Interested Stockholder became such, either such Business Combination or such
transaction; (ii) upon consummation of such transaction, such Interested
Stockholder owns at least 85% of the voting shares of such corporation
(excluding specified shares); or (iii) such Business Combination is approved by
the board of directors of such corporation and authorized by the affirmative
vote (at an annual or special meeting and not by written consent) of at least 66
2/3% of the outstanding voting shares of such corporation (excluding shares held
by such Interested Stockholder). A "Business Combination" includes (i) mergers,
consolidations and sales or other dispositions of 10% or more of the assets of a
corporation to or with an Interested
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Stockholder, (ii) certain transactions resulting in the issuance or transfer to
an Interested Stockholder of any stock of such corporation or its subsidiaries
and (iii) other transactions resulting in a disproportionate financial benefit
to an Interested Stockholder. An "Interested Stockholder" is a person who,
together with its affiliates and associates, owns (or within a three-year period
did own) 15% or more of a corporation's stock entitled to vote generally in the
election of directors.
COMPARISON OF STOCKHOLDER RIGHTS
General
Both E&J and Graham-Field are incorporated in the State of Delaware. The
rights of E&J stockholders are governed by the laws of the State of Delaware and
by E&J's Certificate of Incorporation, as amended (the "E&J Charter"), and E&J's
Bylaws (the "E&J Bylaws"). Upon consummation of the Merger, E&J stockholders who
become holders of Graham-Field Common Stock will continue to have their rights
governed by the laws of the State of Delaware and governed by the Graham-Field
Charter and the Graham-Field Bylaws.
The following is a summary of certain material differences that exist
between the rights of E&J stockholders and Graham-Field stockholders. This
summary includes all material elements of the provisions discussed but is not
intended to be relied upon as an exhaustive list or a detailed description of
such provisions, and is qualified in its entirety by the E&J Charter and the E&J
Bylaws and the Graham-Field Charter and the Graham-Field Bylaws. In addition,
the Graham-Field Board has adopted, subject to stockholder approval at the
Graham-Field Special Meeting, several amendments to the Graham-Field Charter
which will modify certain of the descriptions below. See "AMENDMENTS TO THE
GRAHAM-FIELD CERTIFICATE OF INCORPORATION."
Special Stockholder Meetings
E&J. The E&J Bylaws provide that holders of shares entitled to cast not
less than 10% of the votes at a meeting may call a special stockholders'
meeting.
Graham-Field. The Graham-Field Bylaws provide that a special stockholders'
meeting may be called at any time by the Chief Executive Officer or by the
Secretary at the written request of a majority of the Board of Directors.
Consent of Stockholders in Lieu of Meeting
E&J. The E&J Bylaws provide that stockholder action may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and valid.
Graham-Field. The Graham-Field Bylaws provide that stockholder action may
be taken without a meeting if such action is authorized by the written consent
of the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted. The
Graham-Field Board has adopted an amendment to the Graham-Field Charter which,
subject to stockholder approval, would prohibit stockholder action by written
consent. See "AMENDMENTS TO THE GRAHAM-FIELD CERTIFICATE OF INCORPORATION --
Proposals Relating to Stockholder Action and Related Matters."
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Board of Directors
Graham-Field. The Graham-Field Bylaws provide for a classified board of
directors, consisting of three or more directors as fixed by a majority of the
Graham-Field Board from time to time. The Graham-Field Board is divided into
three classes, whereby directors are elected to serve for three year terms with
a different class standing for election each year. The Graham-Field Bylaws
provide that directors shall be elected by the vote of stockholders holding of
record in the aggregate at least a plurality of the shares present in person or
by proxy and entitled to vote at the annual stockholder meeting. Except as
provided in the Graham-Field Charter, any director may be removed for cause, at
any time, by the affirmative vote of a majority of the votes of the issued and
outstanding stock entitled to vote for the election of directors at a special
meeting of the stockholders called and held for that purpose.
E&J. The E&J Bylaws do not provide for a classified board of directors.
Accordingly, each director stands for election each year and, accordingly,
directors may be removed, with or without cause, by a vote of the holders of a
majority of the outstanding shares of E&J Common Stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. The E&J Bylaws provide that a plurality of the votes cast at the annual
stockholder meeting is necessary to elect directors.
Cumulative Voting
E&J. The E&J Charter provides for cumulative voting in the election of
directors if at least one stockholder has given notice prior to the applicable
annual meeting of stockholders of an intention to cumulate votes. If such notice
is given, then all stockholders may cumulate their votes for director
candidates. To cumulate votes, a stockholder may cast as many votes as there are
directors multiplied by the number of shares owned by such stockholder. These
votes may be cast all for one candidate or may be distributed among the
candidates at the discretion of the stockholder.
Graham-Field. The Graham-Field Charter does not provide for cumulative
voting in the election of directors. Accordingly, each stockholder is entitled
to cast votes in favor of or withhold votes from each director candidate in an
amount equal to the number of shares owned by such stockholder.
Rights Agreement
Graham-Field. On August 12, 1996, the Graham-Field Board declared a
dividend of one preferred share purchase right (a "Right") for each outstanding
share of Graham-Field Common Stock. The dividend was paid on September 17, 1996
(the "Record Date") to the stockholders of record on that date. Each Right
entitles the registered holder to purchase from Graham-Field one one-hundredth
of a share of Series A Junior Participating Preferred Stock, par value $.01 per
share, of Graham-Field (the "Graham-Field Series A Preferred Stock") at a price
of $35.00 per one one-hundredth of a share of Graham-Field Series A Preferred
Stock (the "Purchase Price"), subject to adjustment. The description and terms
of the Rights are set forth in a Rights Agreement dated as of September 3, 1996
(the "Rights Agreement") between Graham-Field and American Stock Transfer &
Trust Company, as Rights Agent (the "Rights Agent").
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons have acquired (an
"Acquiring Person") beneficial ownership of 15% or more of the outstanding
shares of capital stock of Graham-Field entitled generally to vote in the
election of directors ("Voting Shares") or (ii) 10 business days (or such later
date as may be determined by action of the Graham-Field Board prior to such time
as any person or group of affiliated persons becomes an Acquiring Person)
following the commencement of, or announcement of an intention to make, a tender
offer or exchange offer the consummation of which would result in a person or
group becoming an Acquiring Person (the earlier of such dates being called the
"Distribution Date"), the
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Rights will be evidenced, with respect to any of the Graham-Field Common Stock
certificates outstanding as of the Record Date, by such certificate with a copy
of the Summary of Rights which is attached to the Rights Agreement as Exhibit C
(the "Summary of Rights") attached thereto. Notwithstanding the foregoing, BIL
will not be an Acquiring Person by virtue of its ownership of any Voting Shares
acquired in accordance with the Merger Agreement or the Stockholder Agreement
(the "BIL Voting Shares"), but BIL will become an Acquiring Person if it
acquires any Voting Shares other than BIL Voting Shares or shares distributed
generally to the holders of any series or class of capital stock of
Graham-Field. In addition, the Merger and the other transactions contemplated by
the Merger Agreement and the Stockholder Agreement are exempted from the
provisions of the Rights Agreement. "BIL Voting Shares" is defined in the Rights
Agreement as (i) any Voting Shares owned by BIL which were acquired by BIL in
accordance with the Merger Agreement or the Stockholder Agreement, and (ii) any
shares of Graham-Field Common Stock issued by Graham-Field to BIL upon
conversion of or as a dividend on the shares referred to in clause (i) above.
The Rights Agreement provides that, until the Distribution Date (or earlier
redemption or expiration of the Rights), the Rights will be transferred with and
only with the Graham-Field Common Stock. Until the Distribution Date (or earlier
redemption or expiration of the Rights), new Graham-Field Common Stock
certificates issued after the Record Date upon transfer or new issuance of
Graham-Field Common Stock will contain a notation incorporating the Rights
Agreement by reference. Until the Distribution Date (or earlier redemption or
expiration of the Rights), the surrender for transfer of any certificates for
Graham-Field Common Stock outstanding as of the Record Date, even without such
notation or a copy of the Summary of Rights being attached thereto, will also
constitute the transfer of the Rights associated with the Graham-Field Common
Stock represented by such certificate. As soon as practicable following the
Distribution Date, separate certificates evidencing the Rights ("Right
Certificates") will be mailed to holders of record of Graham-Field Common Stock
as of the close of business on the Distribution Date and such separate Right
Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights will
expire on September 3, 2006 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Rights are earlier redeemed or
exchanged by Graham-Field, in each case, as described below.
The Purchase Price payable, and the number of shares of Graham-Field Series
A Preferred Stock or other securities issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Graham-Field Series A Preferred Stock, (ii) upon the grant to holders of the
Graham-Field Series A Preferred Stock of certain rights or warrants to subscribe
for or purchase Graham-Field Series A Preferred Stock at a price, or securities
convertible into Graham-Field Series A Preferred Stock with a conversion price,
less than the then-current market price of the Graham-Field Series A Preferred
Stock or (iii) upon the distribution to holders of the Graham-Field Series A
Preferred Stock of evidences of indebtedness or assets (excluding regular
periodic cash dividends paid out of earnings or retained earnings or dividends
payable in shares of Graham-Field Series A Preferred Stock) or of subscription
rights or warrants (other than those referred to above).
The number of outstanding Rights and the number of one one-hundredths of a
share of Graham-Field Series A Preferred Stock issuable upon exercise of each
Right are also subject to adjustment in the event of a stock split of the
Graham-Field Common Stock or a stock dividend on the Graham-Field Common Stock
payable in shares of Graham-Field Common Stock, subdivisions, consolidations or
combinations of Graham-Field Common Stock occurring, in any such case, prior to
the Distribution Date.
Shares of Graham-Field Series A Preferred Stock purchasable upon exercise
of the Rights will not be redeemable. Each share of Graham-Field Series A
Preferred Stock will be entitled to a minimum
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preferential quarterly dividend payment of $1 per share but will be entitled to
an aggregate dividend of 100 times the dividend declared per share of
Graham-Field Common Stock. In the event of liquidation of Graham-Field, the
holders of the Graham-Field Series A Preferred Stock will be entitled to a
minimum preferential liquidation payment of $100 per share but will be entitled
to an aggregate payment of 100 times the payment made per share of Graham-Field
Common Stock. Each share of Graham-Field Series A Preferred Stock will have 100
votes, voting together with the Graham-Field Common Stock. Finally, in the event
of any merger, consolidation or other transaction in which shares of
Graham-Field Common Stock are exchanged, each share of Graham-Field Series A
Preferred Stock will be entitled to receive 100 times the amount received per
share of Graham-Field Common Stock. These rights are protected by customary
antidilution provisions.
Because of the nature of the Graham-Field Series A Preferred Stock's
dividend, liquidation and voting rights, the value of the one one-hundredth
interest in a share of Graham-Field Series A Preferred Stock purchasable upon
exercise of each Right should approximate the value of one share of Graham-Field
Common Stock.
In the event that Graham-Field is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power are sold after a person or group has become an Acquiring Person, proper
provision will be made so that each holder of a Right will thereafter have the
right to receive, upon the exercise thereof at the then current Purchase Price,
that number of shares of common stock of the acquiring company which at the time
of such transaction will have a market value of two times the Purchase Price.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, the Rights Agreement provides that proper provision
shall be made so that each holder of a Right, other than Rights beneficially
owned by the Acquiring Person (which will thereafter be void), will thereafter
have the right to receive (subject to adjustment) upon exercise that number of
shares of Graham-Field Common Stock having a market value of two times the
Purchase Price. At any time after any person or group becomes an Acquiring
Person and prior to the acquisition by such person or group of 50% or more of
the outstanding shares of Graham-Field Common Stock, the Graham-Field Board may
exchange the Rights (other than Rights owned by such person or group, which will
have become void), in whole or in part, at an exchange ratio of one share of
Graham-Field Common Stock, or one one-hundredth of a share of Graham-Field
Series A Preferred Stock (or of a share of a class or series of Graham-Field
Preferred Stock having equivalent rights, preferences and privileges), per Right
(subject to adjustment).
The Rights Agreement provides that none of the directors or officers of
Graham-Field shall be deemed to beneficially own any Voting Shares owned by any
other director or officer solely by virtue of such persons acting in their
capacities as such, including in connection with the formulation and publication
of the Graham-Field Board's recommendation of its position, and actions taken in
furtherance thereof, with respect to an acquisition proposal relating to
Graham-Field or a tender or exchange offer for the Graham-Field Common Stock.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares of Graham-Field Series A Preferred
Stock will be issued (other than fractions which are integral multiples of one
one-hundredth of a share of Graham-Field Series A Preferred Stock, which may, at
the election of Graham-Field, be evidenced by depositary receipts) and in lieu
thereof, an adjustment in cash will be made based on the market price of the
Graham-Field Series A Preferred Stock on the last trading day prior to the date
of exercise.
At any time prior to a person or group becoming an Acquiring Person, the
Graham-Field Board may redeem the Rights in whole, but not in part, at a price
of $.01 per Right (the "Redemption Price"). The redemption of the Rights may be
made effective at such time on such basis with such conditions as
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the Graham-Field Board in its sole discretion may establish. Immediately upon
any redemption of the Rights in accordance with this paragraph, the right to
exercise the Rights will terminate and the only right of the holder of the
Rights will be to receive the Redemption Price.
The terms of the Rights may be amended by the Graham-Field Board without
the consent of the holders of the Rights, including an amendment to (a) lower
certain thresholds described above to not less than the greater of (i) any
percentage greater than the largest percentage of the outstanding Voting Shares
then known to Graham-Field to be beneficially owned by any person or group of
affiliated or associated persons and (ii) 10%, (b) fix a Final Expiration Date
later than September 3, 2006, (c) reduce the Redemption Price, (d) increase the
Purchase Price, or (e) in the event the Merger Agreement is terminated in
accordance with its terms without the Merger having been consummated, delete
reference to BIL and the Merger, as the Graham-Field Board shall deem
appropriate, except that from and after such time as any person or group of
affiliated or associated persons becomes an Acquiring Person no such amendment
may adversely affect the interests of the holders of the Rights (other than the
Acquiring Person and its affiliates and associates).
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of Graham-Field, including, without limitation, the
right to vote or to receive dividends.
As long as the Rights are attached to the Graham-Field Common Stock,
Graham-Field will issue one Right with each new share of Graham-Field Common
Stock so that all such shares will have Rights attached. The Graham-Field Board
has reserved for issuance upon exercise of the Rights 300,000 shares of
Graham-Field Series A Preferred Stock.
E&J. E&J does not have a similar stockholder rights plan.
AMENDMENTS TO THE GRAHAM-FIELD
CERTIFICATE OF INCORPORATION
Subject to stockholder approval, the Graham-Field Board has adopted several
amendments to the first paragraph of Article FOURTH and to Articles NINTH,
ELEVENTH and TWELFTH of the Graham-Field Charter. The text of the first
paragraph of Article FOURTH and of Articles NINTH, ELEVENTH and TWELFTH of the
Graham-Field Charter, as so amended, are set forth in their entirety in Annex H
to this Joint Proxy Statement/Prospectus and are described below.
Proposal to Increase Authorized Shares of Common Stock
The proposed amendment to the first paragraph of Article FOURTH will
increase the number of authorized shares of Graham-Field Common Stock from
40,000,000 to 60,000,000 shares (the "Stock Amendment"). The Graham-Field
Charter also authorizes the issuance of 1,000,000 shares of Preferred Stock, par
value $.01 per share (the "Graham-Field Preferred Stock"). Stockholders are not
being asked to approve an increase in the number of authorized shares of
Graham-Field Preferred Stock at the Graham-Field Special Meeting.
As of September 11, 1996, 14,209,895 shares of Graham-Field Common Stock
were issued and outstanding and a balance of 25,790,105 authorized but unissued
shares remained available for issuance without further action by the
stockholders. On that date, 1,350,113 shares were reserved for issuance upon the
exercise of stock options granted or which may be granted under Graham-Field's
Incentive Program and 345,336 shares were reserved for issuance upon exercise of
warrants issued to John Hancock Mutual Life Insurance Company (the "John Hancock
Warrants"). Pursuant to the Merger Agreement, at the Effective Time,
Graham-Field will issue an additional 4,470,208 shares of Graham-Field Common
Stock and will have reserved an additional 4,435,483 shares of Graham-Field
Common Stock for issuance upon conversion of or as a dividend on the
Graham-Field Series B Preferred Stock and the Graham-Field Series C Preferred
Stock.
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Accordingly, after giving effect to the transactions contemplated by the
Merger Agreement, there are only 16,912,623 authorized, unissued and unreserved
shares of Graham-Field Common Stock. If the Stock Amendment is approved at the
Graham-Field Special Meeting, there will be 36,912,623 authorized, unissued and
unreserved shares of Graham-Field Common Stock. The additional shares would have
the same voting and other rights as the presently authorized shares of
Graham-Field Common Stock. Except as provided in the Stockholder Agreement in
respect to BIL (see "THE MERGER -- Stockholder Agreement"), the holders of
Graham-Field Common Stock have no preemptive rights to subscribe for any
additional stock of Graham-Field that may be issued.
The adoption of the Stock Amendment will more than restore the authorized
and unissued shares reserved for issuance in connection with the issuance and
reservation of Graham-Field Common Stock contemplated by the Merger Agreement.
The Graham-Field Board believes it is desirable to have the additional
authorized shares of Graham-Field Common Stock available for possible future
financing and acquisition transactions, stock dividends or splits and other
general corporate purposes. The additional shares could be used for any proper
corporate purpose approved by the Graham-Field Board. Having such additional
authorized shares available for issuance in the future would give Graham-Field
greater flexibility and allow shares of Graham-Field Common Stock to be issued
without the expense and delay of a special stockholders' meeting. Except for the
issuance of shares of Graham-Field Common Stock contemplated by the Merger
Agreement, upon conversion of or as a dividend on the Graham-Field Series B
Preferred Stock and the Graham-Field Series C Preferred Stock, and pursuant to
the Incentive Program and upon exercise of the John Hancock warrants, there are
no agreements, arrangements, plans, understandings or pending negotiations
regarding the issuance of the unissued and unreserved shares of Graham-Field
Common Stock. The unissued and unreserved shares of Graham-Field Common Stock
and Graham-Field Preferred Stock can be issued without further stockholder
approval except as required by the DGCL and the rules of the NYSE, on which the
Graham-Field Common Stock is listed. The NYSE currently requires stockholder
approval as a prerequisite to listing shares in several instances, including
acquisition transactions but not including public offerings for cash, where the
present or potential issuance of shares could result in an increase in the
number of shares of Graham-Field Common Stock outstanding of at least 20%.
The authorized but unissued shares of Graham-Field Common Stock, as well as
the presently authorized Graham-Field Preferred Stock, could be used by
incumbent management to make more difficult a change in control of Graham-Field.
Under certain circumstances, such shares could be used to create voting
impediments or to frustrate persons seeking to effect a takeover or otherwise
gain control of Graham-Field. Such shares could be privately placed with
purchasers who might side with the Graham-Field Board in opposing a hostile
takeover bid. The Stock Amendment also might be considered as having the effect
of discouraging an attempt by another person or entity, through the acquisition
of a substantial number of shares of Graham-Field Common Stock, to acquire
control of Graham-Field with a view to imposing a merger, sale of all or any
part of Graham-Field's assets or a similar transaction, regardless of whether
such transaction may or may not be in the best interest of all the stockholders,
since the issuance of new shares could be used to dilute the stock ownership of
a person or entity seeking to obtain control of Graham-Field. Furthermore,
although the Graham-Field Board presently has no intention of doing so, shares
of authorized but unissued Graham-Field Common Stock or Preferred Stock could
(within the limits imposed by applicable law and the rules of the NYSE) be
issued to a holder who would thereby have sufficient voting power to assure, if
the other proposed amendments to the Graham-Field Charter described below are
adopted, that any proposal to alter the composition of the incumbent
Graham-Field Board, or to alter, amend or repeal any of the provisions that will
be added to the Graham-Field Charter if such amendments are adopted at the
Graham-Field Special Meeting, would not receive the 80% stockholder vote
required therefor by such amendments.
THE GRAHAM-FIELD BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF THE
STOCK AMENDMENT.
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In the event that the Merger is not consummated for any reason, the Stock
Amendment will not be effected, even if approved by the stockholders at the
Graham-Field Special Meeting. Approval of the Stock Amendment at the
Graham-Field Special Meeting is a condition to Graham-Field's obligation under
the Merger Agreement to consummate the Merger.
Proposals Relating to Stockholder Action and Related Matters
General
In conjunction with its consideration of the Merger and the transactions
contemplated by the Merger Agreement and the Stockholder Agreement, the
Graham-Field Board determined that it was appropriate to consider whether the
Graham-Field Charter and Bylaws adequately protect Graham-Field against hostile
third-party takeover activity. The Graham-Field Charter currently provides for
the classification of the Graham-Field Board into three classes elected to
three-year terms on a staggered basis. The classification of directors makes it
more difficult to change the over-all composition of the Graham-Field Board
because at least two stockholders' meetings, instead of one, is required for
stockholders to effect a change in a majority of the Graham-Field Board.
However, the Graham-Field Board has determined that the Graham-Field Charter
should be amended in several respects, subject to stockholder approval, to make
it more difficult for the classified board provision, as well as certain
provisions of the Graham-Field Bylaws, to be amended or repealed, and thereby
enhance the benefits of the classified board structure to Graham-Field and its
stockholders. Concurrently, as described under "COMPARISON OF STOCKHOLDER RIGHTS
- -- Rights Agreement," the Graham-Field Board adopted a new stockholder rights
plan.
The proposed amendments to Articles NINTH, ELEVENTH and TWELFTH of the
Graham-Field Charter (the "Stockholder Action Amendments"), each of which will
be voted on as a separate proposal, would (1) require that stockholder action be
taken at an annual meeting of stockholders or a special meeting of stockholders,
which may be called only by the Chief Executive Officer or by resolution of the
Graham-Field Board, and prohibit stockholder action by written consent (Article
NINTH); (2) provide that the number of directors of Graham-Field shall be fixed
by the Graham-Field Bylaws and may be increased or decreased from time to time
in such manner as may be prescribed in the Bylaws, require that advance notice
of stockholder nominations and proposals be given in the manner provided for in
the Bylaws and provide that directors may be removed only for cause and only
with the approval of the holders of at least 50% of the voting power of the then
outstanding shares of capital stock of Graham-Field entitled to vote generally
in the election of directors ("Voting Stock"), voting together as a single class
(Article ELEVENTH); and (3) provide that the stockholder vote required to alter,
amend or repeal certain provisions of the Graham-Field Bylaws, or to adopt any
provision inconsistent therewith, shall be 80% of the Voting Stock, voting
together as a single class (Article TWELFTH). Each of such Articles, as so
amended, would also provide that the stockholder vote required to alter, amend
or repeal any provision of such Articles, or to adopt any provision inconsistent
therewith, shall be 80% of the Voting Stock, voting together as a single class.
As more fully discussed below, the Graham-Field Board believes that the
various elements of the Stockholder Action Amendments would, if adopted,
together with the existing classified board structure, effectively reduce the
possibility that a third party could effect a sudden or surprise change in
majority control of the Graham-Field Board by making it more time-consuming to
gain control of the Graham-Field Board without the support of the incumbent
directors. Neither the classified board structure nor the Stockholder Action
Amendments are intended to impede a transaction that is approved by the
Graham-Field Board or in which all stockholders are offered substantially the
same price for their shares. However, the classified board structure, as
enhanced by the adoption of the Stockholder Action Amendments, may have
significant effects on the ability of stockholders of Graham-Field to acquire
and exercise control, to change the composition of the incumbent Graham-Field
Board and to benefit from certain transactions which are opposed by the
incumbent Graham-Field Board even
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though they may be favored by a majority of the stockholders. Accordingly,
Graham-Field Stockholders are urged to read carefully the following sections of
this Joint Proxy Statement/Prospectus, which summarize the Stockholder Action
Amendments, before voting on the Stockholder Action Amendments.
Description of the Proposed Amendments
Article NINTH -- Certain Stockholder Actions. Pursuant to the DGCL, unless
otherwise provided in a corporation's certificate of incorporation, any action
required or permitted to be taken by stockholders may be taken without a meeting
and without a stockholder vote if a written consent setting forth the action to
be taken is signed by the holders of shares of outstanding stock having the
requisite number of votes that would be necessary to authorize such action at a
meeting of stockholders. The Graham-Field Charter does not currently otherwise
provide, and Section 11 of Article I of the Graham-Field Bylaws currently
provides for stockholder action by written consent. Proposed Article NINTH of
the Graham-Field Charter would require that stockholder action be taken at an
annual meeting of stockholders or at a special meeting of stockholders called by
the Chief Executive Officer of Graham-Field or pursuant to a resolution adopted
by the Graham-Field Board and would prohibit stockholder action by written
consent. As is currently provided in Section 2 of Article I of the Graham-Field
Bylaws, stockholders would not be permitted to call a special meeting of
stockholders or to require that the Graham-Field Board call a special meeting.
The provisions prohibiting stockholder action by written consent would give
all Graham-Field stockholders the opportunity to participate in determining any
proposed action and would prevent the holders of a majority of the Voting Stock
from using the written consent procedure to take stockholder action without
affording all stockholders an opportunity to participate. Moreover, a
stockholder could not force stockholder consideration of a proposal over the
opposition of the Graham-Field Board by calling a special meeting of
stockholders prior to such time as the Graham-Field Board or the Chief Executive
Officer believed such consideration to be appropriate. On the other hand, this
amendment will prevent stockholders controlling a majority of the voting power
of Graham-Field from taking legitimate action over the objection of the
Graham-Field Board or a minority of stockholders other than at an annual meeting
of stockholders at which the proposal is submitted to stockholders in accordance
with the advance notice provisions of the Graham-Field Bylaws described below.
The proposed amendments to Article NINTH also would require that any
alteration, amendment or repeal of Article NINTH, or the adoption of any
provision inconsistent therewith, be approved by a vote of the holders of at
least 80% of the Voting Stock, voting together as a single class. Under the
DGCL, amendments to a corporation's certificate of incorporation generally
require the approval of the board of directors and of the holders of a majority
of the outstanding stock entitled to vote thereon. However, the DGCL permits
corporations to include provisions in their certificates of incorporation which
require a greater vote than the vote otherwise required by law for specified
corporate actions. The requirement of an increased stockholder vote to amend
Article NINTH is designed to prevent stockholders controlling less than 80% of
the Voting Stock from avoiding the requirements of Article NINTH by simply
repealing them.
Article ELEVENTH -- Removal of Directors; Fixing the Number of Directors;
and Advance Notice of Stockholder Proposals. Currently, Section 12 of Article II
of the Graham-Field Bylaws provides that directors may be removed only for cause
and the vote required for such removal (which is the same as the minimum vote
required by the DGCL) is a majority of the Voting Stock. Section 2 of Article II
of the Bylaws provides that the number of directors shall be at least three and
that the exact number shall be fixed by the Graham-Field Board. Section 12 of
Article I and Section 2(d) of Article II of the Bylaws provide that stockholders
wishing to nominate individuals for election as directors or to submit proposals
for stockholder action must, in the case of annual meetings of stockholders,
give Graham-Field at least 120 days notice of any such nominations or proposals
and, in the case of special
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meetings of stockholders, give Graham-Field notice of any such nominations or
proposals not more than seven days following public announcement of the date of
any such special meeting.
The proposed amendments to Article ELEVENTH would retain the classified
board structure currently found in the Graham-Field Charter, while incorporating
the Bylaw provision as to removal of directors and providing that the fixing of
the number of directors and the making of stockholder nominations and proposals
must be done in accordance with the applicable Bylaw provisions. Under the DGCL,
stockholders can amend a corporation's bylaws on their own initiative, but an
amendment to the corporation's certificate of incorporation requires a board of
directors' recommendation prior to the stockholders acting on such an amendment.
Accordingly, the inclusion of the provision as to removal of directors in the
Graham-Field Charter will require that the Graham-Field Board must first
determine to amend such provision before stockholders have an opportunity to act
on such a proposal. Stockholders will no longer be able to amend the procedures
for removal on their own initiative. However, the proposed amendments to Article
ELEVENTH will not otherwise alter the purpose or effect of the Bylaw provisions
described in the immediately preceding paragraph.
The foregoing Bylaw provisions have the effect of precluding the holders of
50% or less of the Voting Stock from removing incumbent directors with cause,
and totally preclude stockholders from removing incumbent directors without
cause. This makes it more difficult for a third party to remove incumbent
directors and simultaneously gain control of the Graham-Field Board by filling
the vacancies created by removal with its own nominees. Moreover, the provisions
giving the Graham-Field Board the exclusive right to fix the number of directors
and providing that newly-created directorships are to be filled only by the
Graham-Field Board prevent those seeking majority representation on the Graham-
Field Board from obtaining such representation simply by enlarging the
Graham-Field Board and filling the new directorships created thereby with their
own nominees. Accordingly, these Bylaw provisions limit the ability of
stockholders controlling a majority of the voting power from taking certain
actions designed to change the composition of the Graham-Field Board, whether or
not such change is warranted. These provisions also may have the effect of
discouraging accumulations of stock or unsolicited bids by stockholders
interested in effecting a change of control of Graham-Field.
As is the case with the proposed amendments to Article NINTH, the proposed
amendments to Article ELEVENTH also would require that any alteration, amendment
or repeal of Article ELEVENTH, or the adoption of any provision inconsistent
therewith, be approved by a vote of the holders of at least 80% of the Voting
Stock, voting together as a single class.
Article TWELFTH -- Increased Stockholder Vote for Certain Bylaw Amendments.
Under proposed Article TWELFTH of the Graham-Field Charter, certain specified
provisions of the Graham-Field Bylaws may not be altered, amended or repealed,
nor may any provision inconsistent therewith be adopted, without the concurrence
of the holders of at least 80% of the Voting Stock. The Bylaw provisions to
which this supermajority vote requirement will apply are Section 2 of Article I,
which provides that only the Chief Executive Officer and the Graham-Field Board
may call a special meeting of stockholders; Section 12 of Article I, which
requires advance notice of stockholder proposals; Section 2 of Article II, which
provides for the classification of the Graham-Field Board, the fixing of the
number of directors by the Graham-Field Board and advance notice of stockholder
nominations of directors; Section 11 of Article II, which gives the Graham-Field
Board the exclusive right to fill vacancies on the Graham-Field Board; and
Article XI, which sets forth the voting requirements for amendments to the
Bylaws. Proposed Article TWELFTH will not limit or restrict the ability of the
Graham-Field Board to alter, amend or repeal such provisions of the Bylaws, or
adopt provisions inconsistent therewith, in the future without the requirement
of stockholder approval. The power of a board of directors to alter, amend or
repeal a bylaw which is expressly adopted or amended by the stockholders in the
future is unclear under the DGCL.
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As is the case with the proposed amendments to Articles NINTH and ELEVENTH,
the proposed amendments to Article TWELFTH also would require that any
alteration, amendment or repeal of Article TWELFTH, or the adoption of any
provision inconsistent therewith, be approved by a vote of the holders of at
least 80% of the Voting Stock, voting together as a single class.
Purpose and Effects of the Proposed Amendments
The purpose of the classified board structure, as enhanced by the
Stockholder Action Amendments, is to discourage certain types of transactions
which involve an actual or threatened change of control of Graham-Field. The
amendments are not being proposed in response to any specific effort of which
Graham-Field is aware to obtain control of Graham-Field. The classified board
structure is designed to make it more difficult and time-consuming to change
majority control of the Graham-Field Board and thus to reduce the vulnerability
of Graham-Field to an unsolicited proposal for the takeover of Graham-Field that
does not contemplate the acquisition of all of Graham-Field's outstanding
shares, or an unsolicited proposal for the restructuring or sale of all or part
of Graham-Field. While the Graham-Field Board recognizes that such takeovers
might in some circumstances be beneficial to stockholders, the Graham-Field
Board believes that, as a general rule, they are not in the best interests of
Graham-Field and its stockholders insofar as they do not permit the Graham-Field
Board to negotiate with any potential acquiror from the strongest possible
position.
The Graham-Field Board believes that the imminent threat of removal of
incumbent directors and Graham-Field's management in such situations would
severely curtail their ability to negotiate effectively with such purchasers.
The Graham-Field Board and management would be deprived of the time and
information necessary to evaluate the takeover proposal, to study alternative
proposals and to help ensure that the best price is obtained in any transaction
involving Graham-Field which may ultimately be undertaken. The classified board
structure, as enhanced by the Stockholder Action Amendments, will help ensure
that the Graham-Field Board, if confronted by a proposal from a third party
which has acquired a significant block of Graham-Field Common Stock, will have
sufficient time to review the proposal and appropriate alternatives.
Takeovers or changes in the Graham-Field Board or management of
Graham-Field which are proposed and effected without prior consultation and
negotiation are not necessarily detrimental to Graham-Field and its
stockholders. Moreover, the classified board structure, as enhanced by the
Stockholder Action Amendments, make more difficult or discourage a proxy contest
or the assumption of control by a holder of a substantial block of Graham-Field
stock or the removal of the incumbent Graham-Field Board and could thus increase
the likelihood that incumbent directors will retain their positions. In
addition, since these provisions are designed to discourage accumulations of
large blocks of Graham-Field stock by purchasers whose objective may be to have
such stock repurchased by Graham-Field at a premium, these provisions could tend
to reduce temporary fluctuations in the market price of Graham-Field Common
Stock that could result from accumulations of large blocks of stock.
Accordingly, stockholders could be deprived of certain opportunities to sell
their stock at a temporarily higher market price. However, the Graham-Field
Board believes that the benefits of seeking to protect its ability to exercise
its discretion to negotiate with or to resist the proponent of an unfriendly or
unsolicited proposal to take over or restructure Graham-Field, and to seek out
appropriate alternatives, if desirable, outweigh these disadvantages.
At each of the 1994, 1995 and 1996 Annual Meetings of Stockholders of
Graham-Field, 83%, 78% and 85%, respectively, of the total shares of
Graham-Field Common Stock eligible to vote were voted at such meetings. After
giving effect to the transactions contemplated by the Merger Agreement, current
officers and directors will own shares of Graham-Field Common Stock representing
approximately 5.4% of the outstanding Voting Stock and BIL will own shares of
Graham-Field Common Stock, Graham-Field Series B Preferred Stock and
Graham-Field Series C Preferred Stock representing approximately 36% of the
outstanding Voting Stock. BIL has agreed in the Stockholder Agreement to vote
its shares in
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accordance with the recommendation of the Graham-Field Board in connection with
any proposal submitted to a vote of stockholders by any other stockholder of
Graham-Field. Accordingly, as long as officers and directors and BIL own such a
significant percentage of the outstanding Voting Stock, there will be little
likelihood of ever obtaining the requisite 80% vote to remove a director or to
alter, amend or repeal, or adopt any provision inconsistent with, the provisions
of the Graham-Field Charter or Bylaws discussed above if any such provision is
not supported by the Graham-Field Board.
Moreover, while it is impossible to predict with any degree of certainty
what impact adoption of the Stockholder Action Amendments will have on the
potential realizable value of a stockholder's investment in Graham-Field,
particularly in light of the myriad of factors that can and will impact value,
the Graham-Field Board does not believe that implementation of these proposals
ultimately will negatively impact stockholder value. It is conceivable that
adoption of the Stockholder Action Amendments will discourage potential
acquirors from launching certain types of unsolicited transactions aimed at
taking control of Graham-Field, thereby denying stockholders the opportunity to
sell their shares, potentially at a premium to current market prices, to these
potential bidders. However, the Graham-Field Board has taken note of the fact
that many large U.S. public corporations have adopted similar classified board
structures, and that these have not deterred acquisitions of these corporations
through negotiated transactions. In fact, as discussed above, the purpose of the
classified board structure and the enhancements included in the Stockholder
Action Amendments is to encourage those who seek control of Graham-Field to
negotiate a transaction with the Graham-Field Board, thereby giving the Graham-
Field Board an opportunity to resist abusive takeover tactics that might permit
a change of control that does not offer value to stockholders and to structure a
transaction in which all stockholders are permitted to participate. In this way,
the Graham-Field Board believes that the classified board structure and the
adoption of the Stockholder Action Amendments may ultimately enhance the
potential realizable value of a stockholder's investment.
The Graham-Field Charter and Bylaws contain at present no other provisions
intended by Graham-Field to have or, to the knowledge of the Graham-Field Board,
having an antitakeover effect. The Graham-Field Board has no current intention
of soliciting a stockholder vote on any other proposals which could have such an
effect. Graham-Field does have authorized 692,900 unissued shares of
Graham-Field Preferred Stock (after giving effect to the issuance of the
Graham-Field Series B Preferred Stock and the Graham-Field Series C Preferred
Stock to BIL) and, if the Stock Amendment is adopted at the Graham-Field Special
Meeting, 36,912,623 unissued and unreserved shares of Graham-Field Common Stock
which could be issued without stockholder approval, except as required by
applicable law or the rules of the NYSE. Although the Graham-Field Board
presently has no intention of doing so, these shares could be issued (subject to
applicable law and the rules of the NYSE) in certain amounts or to certain
holders or, in the case of the Graham-Field Preferred Stock, in a manner (e.g.,
by giving them disproportionate or class voting rights), which could have the
effect of discouraging takeover attempts and making it more difficult to obtain
the vote required for approval of matters submitted to stockholders of
Graham-Field.
Adoption of the Stockholder Action Amendments will not affect the listing
of the Graham-Field Common Stock on the NYSE.
THE GRAHAM-FIELD BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" EACH OF THE
STOCKHOLDER ACTION AMENDMENTS.
If any of the Stockholder Action Amendments is approved by stockholders at
the Graham-Field Special Meeting, such amendment will be effected regardless of
whether any of the other Stockholder Action Amendments or any other matter on
which a vote is taken at the Graham-Field Special Meeting is approved or the
Merger is consummated. Approval of the Stockholder Action Amendments at the
Graham-Field Special Meeting is not a condition to Graham-Field's obligation
under the Merger Agreement to consummate the Merger.
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AMENDMENT TO THE GRAHAM-FIELD INCENTIVE PROGRAM
Graham-Field's Incentive Program (the "Incentive Program"), which was
approved by the stockholders and became effective on July 21, 1989, and
thereafter amended on June 8, 1990, June 7, 1991, June 11, 1992 and March 21,
1995, respectively, is intended to provide the Graham-Field Board flexibility to
adapt the compensation of key employees in a changing business environment by
making available many types of awards, greater latitude as to the measurements
of performance, and allowing for certain awards to be contingent on the
achievement of business objectives and/or continued employment.
The Graham-Field Board has approved an amendment to the Incentive Program
to increase by 900,000 shares the aggregate number of shares of Graham-Field
Common Stock issuable under the Incentive Program from 2,100,000 to 3,000,000
(the "Incentive Program Amendment"). The terms of the Incentive Program provide
that any increase in the number of shares reserved for issuance requires action
on the part of the stockholders of Graham-Field. Management believes that in
view of the options to be awarded to employees of E&J upon the effectiveness of
the Merger in substitution for their E&J options (see "THE MERGER -- Conflicts
of Interest"), the goals of the Incentive Program will be better served if
additional shares are reserved under the Incentive Program; and, accordingly,
proposes that the stockholders approve the Incentive Program Amendment.
Types of Awards
The Incentive Program permits the granting of any or all of the following
types of awards: (1) stock options, including incentive stock options ("ISOs"),
(2) stock appreciation rights ("SARs"), in tandem with stock options or
freestanding, (3) restricted stock, (4) directors' options to be issued pursuant
to a prescribed formula, and (5) restored options.
Shares Subject to Incentive Program
As of September 11, 1996, 24,938 shares remained available for future
grants under the Incentive Program. After giving effect to (i) the proposed
amendment to the Incentive Program to increase the aggregate number of shares
available for issuance under the Incentive Program by 900,000, (ii) the issuance
of shares of Graham-Field Common Stock pursuant to the Merger Agreement and
(iii) the grant of substitute options to E&J employees, the number of shares of
Graham-Field Common Stock underlying outstanding stock options under the
Incentive Program and the additional shares available for issuance under the
Incentive Program will represent approximately 7.4% of the issued and
outstanding shares of Graham-Field Common Stock on a fully-diluted basis.
Eligibility for Participation
In addition to employee directors and officers of Graham-Field, all
employees of Graham-Field are eligible for selection for participation under the
Incentive Program; in addition, the outside directors of Graham-Field who are
not employees are eligible to participate solely in the non-discretionary
Directors' Options (as defined below) portion of the Incentive Program. The
selection of participants from among employees and officers is entirely within
the discretion of the Compensation Committee of the Graham-Field Board (the
"Committee"). All members of the Committee are directors who are not officers or
employees and, therefore, are not eligible for awards under the discretionary
portions of the Incentive Program. It is not possible at the present time to
indicate the number, names or positions of employees who may be selected for
future participation, except outside directors who will be awarded Directors'
Options, or the extent of their participation within the Incentive Program's
limitations, since no determination has been made with respect to these matters.
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Administration and Amendment of Incentive Program
The Incentive Program is administered by the Committee, except as noted
below, which has the exclusive right, except as noted below, to interpret its
provisions and to promulgate, amend and rescind rules and regulations for its
administration. The Graham-Field Board is authorized to amend the Incentive
Program, except in certain situations which would increase the maximum number of
shares of Graham-Field Common Stock subject to the Incentive Program, change the
manner of determining the minimum option prices, increase the periods during
which options may be granted or exercised, or change the employees or class of
employees eligible to receive options thereunder.
Subject to the limitations in the Incentive Program described below, the
Committee has as one of its responsibilities the annual determination of the
aggregate extent to which shares of Graham-Field Common Stock or their
equivalent may be awarded and bonuses may be granted to all participants in
relation to the then-current year. The Committee has the further authority and
responsibility for consenting to or disapproving any election of a participant
to receive cash in whole or partial settlement of the exercise of an SAR.
Incentive Program Termination Date
The Incentive Program will terminate on the tenth anniversary of its
effective date, unless terminated earlier by the Graham-Field Board or unless
extended by the Graham-Field Board, after which time no incentive award grants
may be authorized under the Incentive Program.
Stock Options
The employees to whom options are granted, the number of shares of
Graham-Field Common Stock to be included in each option, the exercise price per
share and the term of the option will be determined by the Committee. Options
are exercisable at such time or times as determined by the Committee, but no
Incentive Stock Option ("ISO") will be exercisable after the expiration of ten
years from the date the option is granted. The fair market value of shares with
respect to which ISOs are first exercisable in any one year as to any
participant may not exceed $100,000. An option for additional shares, if any,
which the granting authority may grant to an employee who in the same year has
been granted the maximum permissible ISOs, would be in the form of a
non-qualified stock option not intended to qualify as an ISO. Payment of the
exercise price of a stock option will be made in cash, shares or other
consideration in accordance with the terms of the Incentive Program and any
applicable rules of the granting authority and valued at fair market value on
the date of exercise.
Options may be granted under the Incentive Program which do not qualify for
special tax treatment under Section 422A of the Code. The grant of such a stock
option does not result in taxable income to the recipient. Recipients who
exercise such an option will recognize ordinary income in an amount equal to the
difference between the option price and the fair market value of the shares.
Graham-Field is not entitled to an income tax deduction with respect to the
grant of such an option or the sale of stock acquired pursuant thereto.
Graham-Field is permitted a deduction equal to the amount of the ordinary income
the recipient is required to recognize as a result of the exercise of such an
option provided applicable withholding requirements are met.
In the case of ISOs, although no compensation income is realized upon
exercise, the excess of the fair market value on the date of exercise over the
option price is treated by the recipient as an item of tax preference for
alternative minimum tax purposes. Graham-Field is not entitled to an income tax
deduction with respect to ISOs.
Stock Appreciation Rights (SARs)
An SAR may be granted freestanding or in tandem with new options or
previously granted options. Upon exercise, an SAR permits the holder to receive
a number of shares having an aggregate value
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equal to any excess of the fair market value of the shares of Graham-Field
Common Stock subject to the SAR over the grant price of the SAR. If the SAR was
granted in tandem with a stock option, upon exercise of the SAR the option for
the shares for which the SAR is exercised is surrendered. SARs granted under the
Incentive Program may be settled in cash or shares of Graham-Field Common Stock
at the discretion of the Committee. In the case of optionees who are employee
directors or officers, any such cash election will be permitted only in
compliance with the applicable rule of the SEC.
The Incentive Program allows for the continuation of this practice so that
the SAR may be deemed to have been exercised at the close of business on the
business day preceding the expiration of the SAR or related option when such SAR
has positive value and the expiration would have been caused by the passage of
ten years from the date of grant, five years from normal termination, or any
earlier period specified by the grant.
In the case of SARs granted either freestanding or in tandem with an
option, Graham-Field is of the opinion that the employee will not realize any
compensation income at the time of grant. However, the fair market value of
stock or cash delivered pursuant to the exercise of such SARs will be treated as
compensation income taxable to the employee at the time of exercise, and
Graham-Field will be entitled to a deduction under the Code at the time and
equal to the amount of compensation income that is realized by the employee.
Restricted Stock
The Incentive Program allows awards of restricted stock, either at no cost
to the recipient or for such cost as specified by the grant. Restricted stock
may not be disposed of by the recipient until the restrictions specified in the
award expire. The recipient will have, with respect to restricted stock, all of
the rights of a stockholder of Graham-Field, including the right to vote the
shares, and the right to receive any cash dividends, unless otherwise specified
by the grant. Unless waived in whole or in part by the Committee, if employment
of a holder of record of restricted stock terminates but does not terminate
normally, all shares of restricted stock then held and still subject to
restriction will be forfeited by such holder and reacquired by Graham-Field.
In the case of restricted stock, Graham-Field is of the opinion that the
recipient will realize compensation income in an amount equal to the fair market
value of such stock less any amount paid for such stock at a time when the
recipient's rights with respect to such stock are no longer subject to a
substantial risk of forfeiture, unless the recipient otherwise elects pursuant
to a special election provided in the Code. Dividends paid to the recipient
during a period of restriction will be taxable as compensation income unless the
election referred to in the preceding sentence has been made. Graham-Field is
also of the opinion that it will be entitled to a deduction under the Code at
the time and equal to the amount of compensation income that is realized by the
recipient provided applicable withholding requirements are met.
Directors' Options
The Incentive Program allows awards of options to directors ("Directors'
Options") who are neither employees nor officers of Graham-Field or any of its
subsidiaries. All administrative powers of the Committee with respect to
Directors' Options may be exercised, in the discretion of the Graham-Field
Board, by an Alternate Committee composed of two or more persons not eligible to
receive Directors' Options.
At present, Directors' Options are granted automatically as of January 2
each year that the Incentive Program is in effect to each qualified director.
Each Directors' Option entitles the qualifying director to whom it is granted to
purchase 10,000 shares of Graham-Field Common Stock at an option price equal to
the fair market value of the Graham-Field Common Stock on the date of grant.
Directors' Options vest at the rate of one-third (1/3) of each grant annually.
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Restored Options
The Incentive Program permits Graham-Field to grant "Restored Options" to a
participant in the Incentive Program who has previously been granted stock
options, and who has satisfied the exercise price of an option, or the tax
obligation incurred as a result of the exercise of an option, with previously-
acquired shares of Graham-Field Common Stock.
The Incentive Program permits Graham-Field to include a "Restored Option"
feature in option agreements entered into between the participant and
Graham-Field. This feature enables a participant who exercises an option by
exchanging (either actually or constructively) previously-acquired Graham-Field
Common Stock to receive a new option, exercisable at the then market value, for
the same number of shares as were exchanged in payment. In addition, to the
extent that shares are withheld by Graham-Field in a stock-for-stock exercise in
satisfaction of a participant's tax obligations, Graham-Field, at its
discretion, may issue a new option equal to the number of shares so withheld
which are exercisable at the then fair market value of a share of Graham-Field
Common Stock. Thus, the participant may make a stock-for-stock exercise without
necessarily suffering dilution in his ownership of the Graham-Field Common
Stock. At the same time, the participant will be able to participate fully in
any future appreciation in the Graham-Field Common Stock, as if the original
option had been exercised for cash.
A Restored Option will have terms substantially similar to the original
option, except that it will have an exercise price equal to the fair market
value of a share of Graham-Field Common Stock on the date the Restored Option is
granted.
There are no federal income tax consequences to either the participant or
Graham-Field upon the grant of a Restored Option. When a Restored Option is
exercised for cash, the participant is taxed on the difference between the
option price and the market value of the stock received. Graham-Field's tax
deduction equals the compensation income recognized by the participant. When a
participant exercises a Restored Option by using previously acquired
Graham-Field Common Stock, it is treated as a two-part transaction for federal
income tax purposes: part tax-free exchange and part taxable exercise. To the
extent the fair market value of the shares surrendered equals the fair market
value of the shares received on exercise, no taxable gain is recognized, and the
tax basis in the acquired shares is equal to the tax basis the participant had
in the surrendered shares. The fair market value of the shares of Graham-Field
Common Stock received in the exchange in excess of the fair market value of the
shares surrendered is subject to taxation, and would have a tax basis equal to
the amount the participant includes in income. Graham-Field's tax deduction
equals the taxable income recognized by the participant.
Adjustments
In the event of any stock split, stock dividend or other relevant change in
capitalization, appropriate adjustment will be made in the number of shares and
the purchase price per share, if any, under any outstanding awards granted under
the Incentive Program and in determining whether a particular award may
thereafter be granted.
Additional General Provisions
No termination, suspension, modification or amendment of the Incentive
Program may adversely affect the rights of any recipient without his consent.
The Incentive Program also authorizes the Committee to amend the terms of
any outstanding award to secure compliance with applicable law, or so long as
such amendment comports with the Incentive Program, with the consent of the
participant. The Committee may adopt rules concerning the withholding of taxes
payable by the participant.
111
<PAGE>
THE GRAHAM-FIELD BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF THE
INCENTIVE PROGRAM AMENDMENT.
In the event that the Merger is not consummated for any reason, the
Incentive Program Amendment will not be effected, even if approved by the
stockholders at the Graham-Field Special Meeting. Approval of the Incentive
Program Amendment at the Graham-Field Special Meeting is a condition to Graham-
Field's obligation under the Merger Agreement to consummate the Merger.
STOCKHOLDER PROPOSALS FOR 1997 ANNUAL MEETINGS
Pursuant to Rule 14a-8 under the Exchange Act, stockholders may present
proper proposals for inclusion in Graham-Field's proxy statement for
consideration at the 1997 annual meeting of its stockholders by submitting their
proposals to Graham-Field in a timely manner. In order to be so included for the
1997 Annual Meeting, stockholder proposals must be received by Graham-Field no
later than January 14, 1997, and must otherwise comply with the requirements of
Rule 14a-8.
Pursuant to Graham-Field's Bylaws, any stockholder entitled to vote for the
election of directors may nominate persons for election as directors only if
written notice of such stockholder's intent to make such nomination is given
either by personal delivery or by the United States mail, postage prepaid, to
the Secretary of Graham-Field not later than one hundred twenty (120) days in
advance of Graham-Field's annual meeting of stockholders.
All notices of proposals by stockholders, whether or not to be included in
Graham-Field's proxy materials, should be sent to the attention of the Secretary
of Graham-Field at 400 Rabro Drive East, Hauppauge, New York 11788.
If the Merger is not consummated prior to the 1997 Annual Meeting of
Stockholders of E&J, in order to be included in the proxy materials for such
meeting, stockholder proposals must be received by E&J no later than January 5,
1997.
LEGAL MATTERS
The legality of the securities of Graham-Field to be issued pursuant to the
Merger Agreement is being passed upon for Graham-Field by Milbank, Tweed, Hadley
& McCloy.
Certain tax matters in connection with the Merger are being passed upon for
E&J by Bryan Cave LLP.
EXPERTS
The consolidated financial statements and schedule of Graham-Field
appearing in Graham-Field's Annual Report (Form 10-K) for the year ended
December 31, 1995, have been audited by Ernst & Young LLP, independent auditors,
as set forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements and schedule are incorporated
herein by reference in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
The audited consolidated financial statements of E&J included in this Joint
Proxy Statement/Prospectus have been audited by Price Waterhouse LLP,
independent public accountants, as indicated in their report with respect
thereto which appears elsewhere herein, and are included herein in reliance upon
the authority of said firm as experts in accounting and auditing.
Representatives of Ernst & Young LLP and Price Waterhouse LLP are expected
to be present at the Graham-Field Special Meeting and the E&J Special Meeting,
respectively, and will have the opportunity to make a statement if they desire
and will be available to respond to appropriate questions.
112
<PAGE>
INDEX TO FINANCIAL STATEMENTS
EVEREST & JENNINGS INTERNATIONAL LTD.
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Accountants ...................................... F-2
Consolidated Statements of Operations for the years ended December
31, 1995, 1994 and 1993 .............................................. F-3
Consolidated Balance Sheets as of December 31, 1995 and 1994 ........... F-4
Consolidated Statements of Stockholders' Deficit for the three-year
period ended December 31, 1995 ....................................... F-6
Consolidated Statements of Cash Flows for the years ended December
31, 1995, 1994 and 1993 .............................................. F-9
Notes to Consolidated Financial Statements ............................. F-11
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Statements of Operations for the six months ended
June 30, 1996 and 1995 ............................................... F-30
Consolidated Balance Sheets as of June 30, 1996 and December 31, 1995 .. F-31
Consolidated Statement of Stockholders' Deficit for the six months
ended June 30, 1996 .................................................. F-33
Consolidated Statements of Cash Flows for the six months ended
June 30, 1996 and 1995 ............................................... F-34
Notes to Unaudited Consolidated Financial Statements ................... F-35
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors and Stockholders
of Everest & Jennings International Ltd.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' deficit and of
cash flows present fairly, in all material respects, the financial position of
Everest & Jennings International Ltd. and its subsidiaries at December 31, 1995
and 1994, and the 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. These consolidated financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which 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 consolidated
financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion expressed above.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the consolidated financial statements, the Company has suffered recurring
losses from operations and has a net capital deficiency that raise substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
PRICE WATERHOUSE LLP
St. Louis, Missouri
March 15, 1996, except as to the tenth
paragraph of Note 3, which
is as of June 4, 1996
F-2
<PAGE>
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per-share data)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Revenues ........................................... $ 74,627 $ 79,438 $ 94,459
Cost of sales ...................................... 58,597 65,888 83,825
----------- ----------- -----------
Gross profit .................................. 16,030 13,550 10,634
----------- ----------- -----------
Selling expenses ................................... 11,006 12,448 18,777
General and administrative expenses ................ 5,527 6,519 16,441
Research & development expenses (Note 5) ........... 1,123 1,885 10,764
Restructuring expenses (Note 2) .................... -- -- 15,104
----------- ----------- -----------
Total operating expenses ...................... 17,656 20,852 61,086
----------- ----------- -----------
Loss from operations .......................... (1,626) (7,302) (50,452)
----------- ----------- -----------
Other expense:
Interest expense, BIL (Note 7) ................ (1,669) (897) (2,585)
Interest expense, other ....................... (2,061) (1,722) (2,487)
----------- ----------- -----------
Other expense, net ................................. (3,730) (2,619) (5,072)
----------- ----------- -----------
Loss from operations before income taxes ...... (5,356) (9,921) (55,524)
Income tax provision (benefit) (Note 8) ............ 96 (162) 173
----------- ----------- -----------
Net loss ...................................... $ (5,452) $ (9,759) $ (55,697)
=========== =========== ============
Loss per share ..................................... $ (0.75) $ (1.35) $ (59.61)
=========== =========== ============
Weighted average number of Common Shares outstanding 7,227,281 7,220,121 934,387
=========== =========== ============
</TABLE>
The accompanying Notes are an integral part of these
Consolidated Financial Statements
F-3
<PAGE>
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
December 31 December 31
1995 1994
----------- ------------
Assets
CURRENT ASSETS:
Cash and cash equivalents .......................... $ 117 $ 513
Accounts receivable, less allowance for doubtful
accounts of $1,847 and $2,088, respectively
(Note 4) ......................................... 16,952 18,894
Inventories (Notes 4 and 9) ........................ 19,570 20,449
Assets held for sale (Notes 1 and 4) ............... -- 11,289
Other current assets ............................... 1,299 1,444
-------- --------
Total current assets .......................... 37,938 52,589
-------- --------
PROPERTY, PLANT AND EQUIPMENT (Note 4):
Land ............................................... 261 237
Buildings and improvements ......................... 4,500 4,056
Machinery and equipment ............................ 15,380 14,636
-------- --------
20,141 18,929
Less accumulated depreciation and amortization ..... (12,992) (10,994)
-------- --------
Property, plant and equipment, net ............ 7,149 7,935
NOTES RECEIVABLE (Note 4) ............................ 2,524 --
INTANGIBLE ASSETS, NET (Note 3) ...................... 402 710
OTHER ASSETS ......................................... 217 335
-------- --------
TOTAL ASSETS ......................................... $ 48,230 $ 61,569
======== ========
The accompanying Notes are an integral part of these
Consolidated Financial Statements
F-4
<PAGE>
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--(Continued)
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
December 31 December 31
1995 1994
----------- -----------
<S> <C> <C>
Liabilities and Stockholders' Deficit
CURRENT LIABILITIES:
Short-term borrowings and current installments of long-term debt of $1,089 and
$2,600, respectively (Note 7) .............................................. $ 4,473 $ 11,155
Short-term borrowings from BIL (Note 7) ...................................... -- 6,503
Accounts payable ............................................................. 8,361 11,958
Accrued payroll costs ........................................................ 6,327 7,900
Accrued interest, BIL (Note 7) ............................................... 2,629 960
Accrued expenses ............................................................. 5,310 9,612
Accrued restructuring expenses (Notes 1, 2 and 4) ............................ 659 4,476
--------- ---------
Total current liabilities ............................................... 27,759 52,564
--------- ---------
LONG-TERM DEBT, NET OF CURRENT PORTION (Note 7) ................................ 22,370 12,968
LONG-TERM BORROWINGS FROM BIL (Note 7) ......................................... 21,103 12,000
OTHER LONG-TERM LIABILITIES .................................................... 130 218
COMMITMENTS AND CONTINGENCIES (Notes 12 and 13) STOCKHOLDERS' DEFICIT (Notes 6
and 10):
Series A Convertible Preferred Stock ......................................... 13,175 12,087
Series B Convertible Preferred Stock ......................................... 1,317 1,317
Series C Convertible Preferred Stock ......................................... 20,000 20,000
Single Class Common Stock, par value: $.10; authorized 12,000,000 shares ..... 722 722
Additional paid-in capital ................................................... 105,608 105,595
Accumulated deficit .......................................................... (159,793) (153,228)
Minimum pension liability adjustment ......................................... (3,264) (1,812)
Cumulative translation adjustments ........................................... (897) (862)
--------- ---------
Total stockholders' deficit ............................................. (23,132) (16,181)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT .................................... $ 48,230 $ 61,569
========= =========
</TABLE>
The accompanying Notes are an integral part of these
Consolidated Financial Statements
F-5
<PAGE>
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE THREE-YEAR PERIOD ENDED DECEMBER 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
Series A Series B Series C
Convertible Convertible Convertible Class A *
Preferred Stock Preferred Stock Preferred Stock Common Stock
--------------------- ---------------------- --------------------- -----------------------
Shares Amount Shares Amount Shares Amount Shares Amount
---------- --------- --------- ----------- ---------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992...... 6,075,419 $ 10,174 786,357 $ 1,317 -- $ -- 679,285 $ 68
Common Stock Issued............... -- -- -- -- -- -- 5,333 --
Reclassification of Common
Stock*.......................... -- -- -- -- -- -- 235,342 24
Preferred Stock Issued--Debt
Conversion...................... -- -- -- -- 20,000,000 20,000 -- --
Common Stock Issued--Debt
Conversion...................... -- -- -- -- -- -- 5,500,000 550
Stock Issuance Costs--Debt
Conversion...................... -- -- -- -- -- -- -- --
Common Stock Issued--MCT
Acquisition..................... -- -- -- -- -- -- 800,000 80
Pay-in-kind dividends on Series A
Convertible Preferred Stock....... 546,787 915 -- -- -- -- -- --
Net loss.......................... -- -- -- -- -- -- -- --
Adjustment for Pension
Liability....................... -- -- -- -- -- -- -- --
Translation adjustments........... -- -- -- -- -- -- -- --
--------- --------- ------- --------- ---------- --------- --------- ---------
Balance at December 31, 1993...... 6,622,206 $ 11,089 786,357 $ 1,317 20,000,000 $ 20,000 7,219,961 $ 722
========= ========= ======= ========= ========== ========= ========= =========
<CAPTION>
Class B * Minimum
Common Stock Additional Accumu- Pension Cumulative
--------------------- Paid-in lated Liability Translation
Shares Amount Capital Deficit Adjustment Adjustments Total
---------- --------- ----------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992...... 2,353,427 $ 24 $ 43,708 $ (85,585) $ -- $ (504) $ (30,798)
Common Stock Issued............... -- -- -- -- -- -- --
Reclassification of Common
Stock*.......................... (2,353,427) (24) -- -- -- -- --
Preferred Stock Issued--Debt
Conversion...................... -- -- -- -- -- 20,000
Common Stock Issued--Debt
Conversion........................ -- 54,450 -- -- -- 55,000
Stock Issuance Costs--Debt
Conversion...................... -- (500) -- -- -- (500)
Common Stock Issued--MCT
Acquisition..................... -- 7,920 -- -- -- 8,000
Pay-in-kind dividends on Series A
Convertible Preferred Stock..... -- -- -- (1,167) -- -- (252)
Net loss.......................... -- -- -- (55,697) -- -- (55,697)
Adjustment for Pension
Liability....................... -- -- -- -- (2,606) -- (2,606)
Translation adjustments........... -- -- -- -- -- (155) (155)
---------- --------- --------- --------- --------- --------- ---------
Balance at December 31, 1993...... -0- $ -0- $ 105,578 $(142,449) $ (2,606) $ (659) $ (7,008)
========== ========= ========= ========= ========= ========= =========
</TABLE>
- ---------------
* Effective November 18, 1993, Class A Common Stock and Class B Common Stock
were combined into a single class Common Stock.
The accompanying Notes are an integral part of these
Consolidated Financial Statements
F-6
<PAGE>
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (Continued)
FOR THE THREE-YEAR PERIOD ENDED DECEMBER 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
Series A Series B Series C
Convertible Convertible Convertible
Preferred Stock Preferred Stock Preferred Stock
-------------------- ---------------------- ---------------------
Shares Amount Shares Amount Shares Amount
--------- --------- --------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993......................... 6,622,206 $ 11,089 786,357 $ 1,317 20,000,000 $ 20,000
Common Stock issued for Exercised Stock Options...... -- -- -- -- -- --
Pay-in-kind dividends on Series A Convertible
Preferred Stock.................................... 595,998 998 -- -- -- --
Net loss............................................. -- -- -- -- -- --
Adjustment for Pension Liability..................... -- -- -- -- -- --
Translation adjustments.............................. -- -- -- -- -- --
--------- --------- --------- ----------- ---------- ---------
Balance at December 31, 1994......................... 7,218,204 $ 12,087 786,357 $ 1,317 20,000,000 $ 20,000
========= ========= ======= ========= ========== =========
<CAPTION>
Minimum
Common Stock Additional Accumu- Pension Cumulative
----------------------- Paid-in lated Liability Translation
Shares Amount Capital Deficit Adjustment Adjustments
---------- ----------- ----------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993......................... 7,219,961 $ 722 $ 105,578 $(142,449) $ (2,606) $ (659)
Common Stock issued for Exercised Stock Options...... 5,820 -- 17 -- -- --
Pay-in-kind dividends on Series A Convertible
Preferred Stock.................................... -- -- -- (1,020) -- --
Net loss............................................. -- -- -- (9,759) -- --
Adjustment for Pension Liability..................... -- -- -- -- 794 --
Translation adjustments.............................. -- -- -- -- -- (203)
--------- --------- --------- --------- --------- ---------
Balance at December 31, 1994......................... 7,225,781 $ 722 $ 105,595 $(153,228) $ (1,812) $ (862)
========= ========= ========= ========= ========= =========
</TABLE>
Total
---------
Balance at December 31, 1993......................... $ (7,008)
Common Stock issued for Exercised Stock Options...... 17
Pay-in-kind dividends on Series A Convertible
Preferred Stock.................................... (22)
Net loss............................................. (9,759)
Adjustment for Pension Liability..................... 794
Translation adjustments.............................. (203)
---------
Balance at December 31, 1994......................... $ (16,181)
=========
The accompanying Notes are an integral part of these
Consolidated Financial Statements
F-7
<PAGE>
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (Continued)
FOR THE THREE-YEAR PERIOD ENDED DECEMBER 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
Series A Series B Series C
Convertible Convertible Convertible
Preferred Stock Preferred Stock Preferred Stock
-------------------- ---------------------- ---------------------
Shares Amount Shares Amount Shares Amount
--------- --------- --------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994......................... 7,218,204 $ 12,087 786,357 $ 1,317 20,000,000 $ 20,000
Common Stock issued for Exercised Stock Options...... -- -- -- -- -- --
Pay-in-kind dividends on Series A Convertible
Preferred Stock.................................... 649,638 1,088 -- -- -- --
Net loss............................................. -- -- -- -- -- --
Adjustment for Pension Liability..................... -- -- -- -- -- --
Translation adjustments.............................. -- -- -- -- -- --
--------- --------- ------- --------- ---------- ---------
Balance at December 31, 1995......................... 7,867,842 $ 13,175 786,357 $ 1,317 20,000,000 $ 20,000
========= ========= ======= ========= ========== =========
<CAPTION>
Minimum
Common Stock Additional Accumu- Pension Cumulative
----------------------- Paid-in lated Liability Translation
Shares Amount Capital Deficit Adjustment Adjustments
---------- ----------- ----------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994......................... 7,225,781 $ 722 $ 105,595 $(153,228) $ (1,812) $ (862)
Common Stock issued for Exercised Stock Options...... 2,283 -- 13 -- -- --
Pay-in-kind dividends on Series A Convertible
Preferred Stock.................................... -- -- -- (1,113) -- --
Net loss............................................. -- -- -- (5,452) -- --
Adjustment for Pension Liability..................... -- -- -- -- (1,452) --
Translation adjustments.............................. -- -- -- -- -- (35)
--------- --------- --------- --------- --------- ---------
Balance at December 31, 1995......................... 7,228,064 $ 722 $ 105,608 $(159,793) $ (3,264) $ (897)
========= ========= ========= ========= ========= =========
</TABLE>
Total
---------
Balance at December 31, 1994......................... $ (16,181)
Common Stock issued for Exercised Stock Options...... 13
Pay-in-kind dividends on Series A Convertible
Preferred Stock.................................... (25)
Net loss............................................. (5,452)
Adjustment for Pension Liability..................... (1,452)
Translation adjustments.............................. (35)
---------
Balance at December 31, 1995......................... $ (23,132)
=========
The accompanying Notes are an integral part of these
Consolidated Financial Statements
F-8
<PAGE>
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1995 1994 1993
--------- --------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss .................................................................. $ (5,452) $ (9,759) $(55,697)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization .......................................... 2,153 1,978 2,637
Charge for in-process R&D on MCT acquisition ........................... -- -- 9,764
Restructuring expenses (Note 2):
Reserve on disposition of Smith & Davis institutional business ......... -- -- 13,000
Net increase (decrease) in certain accrued expenses .................... (3,817) (2,262) 245
Changes in operating assets and liabilities, net of effects of the 1993 MCT
acquisition (Note 5):
Accounts receivable .................................................... 3,069 (1,800) (1,652)
Inventories ............................................................ (107) (2,329) 2,336
Accounts payable ....................................................... (1,357) 3,699 (9,268)
Accrued interest, BIL .................................................. 1,669 775 2,409
Accrued expenses ....................................................... (6,138) (2,277) 1,421
Other, net ........................................................... 319 (140) 817
-------- -------- --------
Cash used in operating activities ......................................... (9,661) (12,115) (33,988)
-------- -------- --------
Cash flows from investing activities:
Capital expenditures, net ................................................. (772) (1,463) (955)
MCT acquisition, net of cash acquired ..................................... -- -- (1,833)
Proceeds from sale of assets held for sale ................................ 4,518 -- --
Receipt of principal of notes receivable .................................. 309 -- --
-------- -------- --------
Cash provided by (used in) investing activities ........................... 4,055 (1,463) (2,788)
-------- -------- --------
Cash flows from financing activities:
Advances from BIL (Note 7) ................................................ 5,600 13,701 45,795
Repayments to BIL (Note 7) ................................................ (3,000) -- --
Increase (decrease) in short-term and long-term borrowings, net ........... 2,720 (1,371) (6,326)
Costs pertaining to equity conversion ..................................... -- -- (500)
Exercise of Common Stock Option ........................................... 13 17 --
Changes in other long-term liabilities .................................... (88) -- (311)
-------- -------- --------
Cash provided by financing activities ..................................... 5,245 12,347 38,658
-------- -------- --------
Effect of exchange rate changes on cash flows ............................... (35) (128) (155)
-------- -------- --------
Increase (decrease) in cash balance ......................................... (396) (1,359) 1,727
Cash and cash equivalents at beginning of year .............................. 513 1,872 145
-------- -------- --------
Cash and cash equivalents at end of year .................................... $ 117 $ 513 $ 1,872
======== ======== ========
</TABLE>
The accompanying Notes are an integral part of these
Consolidated Financial Statements
F-9
<PAGE>
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in thousands)
Year Ended December 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
Supplemental cash flow information:
Cash paid for interest................. $ 2,111 $ 1,675 $ 2,611
Cash paid for income taxes............. 216 142 164
Supplemental information for noncash financing and investing activities:
During 1995, the Company sold the Smith & Davis Institutional Business for
proceeds that included approximately $4.5 million in cash (which was used to
repay debt), $2.7 million in assumption of liabilities, and notes valued at
approximately $2.1 million.
Effective as of December 31, 1993, a Common Stock Note in the principal
amount of $55,000 was converted into 5,500,000 shares of Common Stock and a
Preferred Stock Note in the principal amount of $20,000 was converted into
20,000,000 shares of Series C Convertible Preferred Stock.
In accordance with SFAS No. 87, the Company recorded an additional minimum
pension liability for underfunded plans of $2,606 at December 31, 1993 (Note
11). This amount was adjusted to $1,812 at December 31, 1994. As of December 31,
1995 this amount was increased to $3,264 due to a decrease in the discount rate
utilized to determine the liability.
During 1993, the Company entered into new capital lease agreements of
$2,465 for a new computer and phone system.
The accompanying Notes are an integral part of these
Consolidated Financial Statements
F-10
<PAGE>
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except as noted and per-share data)
NOTE 1--CORPORATE RESTRUCTURING
Everest & Jennings International Ltd. ("E&J" or the "Company") through its
subsidiaries manufactures wheelchairs and distributes homecare beds. Effective
in the fourth quarter of 1993, the Company adopted a plan to dispose of Smith &
Davis' hospital and nursing home bed and institutional casegoods businesses (the
"Institutional Business") and recorded a reserve of $13 million to write down
the assets of the Institutional Business to their estimated net realizable
values and for the estimated operating losses during the phase out period and
the estimated costs of disposition. See Note 2-- Restructuring Expenses and Note
4--Assets Held for Sale. Pursuant to an Asset Purchase Agreement dated February
15, 1995, the Company sold the Institutional Business effective April 4, 1995.
The proceeds consisted of approximately $4.5 million in cash (which was used to
repay debt), $2.7 million in assumption of liabilities, and notes valued at
approximately $2.1 million. The reduction in accrued restructuring expense since
December 31, 1994 primarily reflects changes in estimates, adjustments and the
payment of disposal costs related to the sale.
Since 1989 the Company has incurred substantial financial losses in a
continuing effort to restructure its operations with the objective of improving
its competitive position within the durable medical equipment industry.
Restructuring activities to date have included asset sales, significant
reductions in headcount, salaries and fringe benefits, plant closures and
consolidations, product line rationalization, debt to equity conversion and
outsourcing of manufacturing operations. In 1992 the Company relocated its
corporate headquarters and principal wheelchair manufacturing operations from
California to Missouri. The relocation facilitated the consolidation of
corporate offices and other key administrative, sales/marketing, and technical
functions with existing Company operations in the St. Louis area. In October,
1993, the Company transferred its data processing operations from California to
Missouri, which represented the final step in the Company's relocation.
Additionally, the Company continues to analyze its cost structure and operating
efficiencies for potential savings.
On September 30, 1992, the Company finalized a $20 million revolving credit
facility with The Hongkong and Shanghai Banking Corporation Limited--Chicago
Branch ("HSBC"). The repayment of the HSBC facility has been guaranteed by
Brierley Investments Limited, an affiliate of BIL (Far East Holdings) Limited
("BIL"), currently the Company's majority shareholder. From the proceeds of the
HSBC facility, $11 million was utilized to repay advances previously made by
BIL. The remaining proceeds were used to fund restructuring expenses, to replace
existing letters of credit and for working capital purposes. In December 1995,
the revolving credit facility was amended to allow borrowings of up to $25
million. See Note 7--Debt.
Through September 30, 1993, BIL provided the Company with $43.3 of
additional funding beyond the amounts available under the HSBC credit line. As
of September 30, 1993, the Company and BIL entered into a Debt Conversion
Agreement, which provided, in part, for the conversion of $75,000,000 of
short-term indebtedness and accrued interest into equity. See Note 6--Debt
Restructuring and Conversion. From October 1, 1993 to December 31, 1995, BIL
advanced $27.4 million to the Company to fund operating losses and previously
accrued restructuring charges. See Note 7--Debt for details as to the Company's
indebtedness to BIL and other lenders. At December 31, 1995, the total amount of
outstanding advances from BIL was $21.1.
The Company's 1995 and 1994 revenues and operating results were negatively
impacted by ongoing price competition. Long lead times and shipping delays due
to start-up inefficiencies in manufacturing operations adversely impacted
customer confidence. Management continues to address
F-11
<PAGE>
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except as noted and per-share data)
NOTE 1--CORPORATE RESTRUCTURING--(Continued)
the Company's problems with manufacturing and shipment delays. Additionally, the
Company continues to address the rationalization of its production facilities in
the US, Canada and Mexico and the increased outsourcing of products and product
components, which the Company expects will lower its production costs. Order
rates, margins and market share must increase, production and operating costs
must be further reduced and customer confidence must continue to be restored if
the Company is to generate the cash flow necessary to fund its debt service and
operations on a continuing basis and to achieve profitability. Although the
Company has programs in place which are designed to address these issues, there
is no assurance that such programs will achieve their objectives.
The accompanying consolidated financial statements have been prepared under
the going concern concept. The going concern concept anticipates an entity will
continue in its present form and, accordingly, uses the historical cost basis to
prepare financial statements. The Company has incurred substantial restructuring
expenses and recurring operating losses and has a net capital deficiency at
December 31, 1995. No assurance can be made that the Company will successfully
emerge from or complete its restructuring activities.
NOTE 2--RESTRUCTURING EXPENSES
As disclosed in Note 1, the Company sold the Institutional Business of its
Smith & Davis subsidiary effective April 4, 1995. At December 31, 1993 the
Company had prepared estimates of the net realizable value of related assets to
be sold (see Note 4--Assets Held for Sale) and other costs directly associated
with the decision to dispose of such business along with operating losses
expected to be incurred until the business was sold. No additional provision was
required to the amount discussed below which was recorded in 1993 relative to
the disposal of the Institutional Business. The proceeds from the sale of the
Institutional Business were used primarily to reduce debt.
During the fourth quarter of 1993, the Company recorded $15.1 million of
restructuring expenses in connection with the consolidation of manufacturing and
distribution facilities in the United States and Canada ($2.1 million) and the
sale of the Smith & Davis Institutional Business ($13 million). The charge with
respect to the manufacturing and distribution facilities primarily relates to
the termination of various facilities leases. The amount recorded for the sale
of the Institutional Business was as follows:
Reduction of assets to estimated net realizable values........ $ 10.0 million
Estimated operating losses during phase-out period............ 1.3 million
Disposal costs, including transaction costs................... 1.7 million
---------------
$ 13.0 million
===============
The reduction of assets to estimated net realizable value is mainly
attributable to intangible assets and property, plant and equipment.
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements
F-12
<PAGE>
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except as noted and per-share data)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(Continued)
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of the Company and its subsidiaries. The Company's principal
subsidiaries include Everest & Jennings, Inc. located in St. Louis, Missouri;
Everest & Jennings Canadian Limited located in Toronto, Canada; Everest &
Jennings de Mexico, S.A. de C.V. located in Guadalajara, Mexico; and Smith &
Davis Manufacturing Company, also located in St. Louis, Missouri. Net assets of
the foreign subsidiaries totalled $3,154 as of December 31, 1995. All
significant intercompany accounts and transactions have been eliminated.
CASH AND CASH EQUIVALENTS: The Company considers all highly liquid
short-term investments with original maturities of three months or less to be
cash equivalents and, therefore, includes such investments as cash and cash
equivalents in its consolidated financial statements.
VALUATION OF INVENTORIES: Inventories are stated at the lower of cost,
determined by the first-in, first-out (FIFO) method, or market. Inventory costs
consist of material cost, labor cost and manufacturing overhead.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are carried at
cost except for certain assets held for sale which were written down in value in
anticipation of their being sold (see Note 2--Restructuring Expenses and Note
4--Assets Held for Sale). Provisions for depreciation and amortization are
determined using the straight-line method based upon the estimated useful life
of the asset, with asset lives ranging from one to forty years. Leasehold
improvements are amortized over the life of the related lease.
INVESTMENT IN JOINT VENTURE: On August 15, 1990, the Company entered into a
joint venture agreement with an Indonesian company. The Company contributed
fixed assets valued at $300 to the joint venture in exchange for 30% of the
joint venture's outstanding common stock. Due to continued losses experienced by
the joint venture, the Company wrote off this investment in 1993 and sold its
remaining interest in 1996, resulting in an immaterial impact on the
Consolidated Financial Statements.
EXCESS OF INVESTMENT OVER NET ASSETS ACQUIRED: Intangible assets, net,
includes primarily the excess of cost over net assets acquired (goodwill) of
Medical Composite Technology, Inc. of $900, which is being amortized using the
straight-line method over a period of three years. See Note 5--Acquisition.
INCOME TAXES: The Company utilizes an asset and liability approach in
accounting for income taxes and requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of events that have
been recognized in the Company's consolidated financial statements or tax
returns. Since it is unlikely that the Company will realize the future tax
benefits of the net deferred tax asset due to its substantial net operating
losses, a valuation allowance has been established for the full amount.
LOSS PER SHARE: Loss per share for each of the years in the three-year
period ended December 31, 1995 is calculated based on the weighted average
number of the combined shares of both
F-13
<PAGE>
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except as noted and per-share data)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(Continued) Class A and
Class B Common Stock outstanding during the periods, and the weighted average
number of shares of single class Common Stock outstanding after November 18,
1993.
On June 4, 1996, the Company's shareholders approved a one-for-ten reverse
stock split, effective June 6, 1996. The stated par value of one share of common
stock was changed from $.01 to $.10 as a result of the stock split. All
references in the consolidated financial statements to average number of shares
outstanding and related prices, per share amounts and stock option plan data
have been restated to reflect the reverse stock split.
CONCENTRATION OF CREDIT RISK: The Company sells its products to customers
in the healthcare industry, primarily in North America. Third party
reimbursement through private or governmental insurance programs and managed
care programs impacts a significant component of the Company's business.
Concentration of credit risk with respect to trade receivables is limited due to
the size of the customer base and its dispersion. The Company performs on-going
credit evaluations of its customers and generally does not require collateral.
The Company maintains reserves for potential credit losses and such losses have
been within management's expectations.
Net sales by product line for each year of the three year period ended
December 31, 1995 are as follows:
Year Ended December 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
Net sales, durable medical products:
Wheelchairs.................................. $ 59,762 $ 63,819 $ 61,750
Beds and Accessories......................... 10,265 9,098 29,266
Other........................................ 4,600 6,521 3,443
--------- --------- ---------
$ 74,627 $ 79,438 $ 94,459
========= ========= =========
Export sales to unaffiliated customers by domestic operations in the United
States are not significant. No single customer accounts for 10% or more of the
consolidated revenues.
The Company currently buys ready-to-assemble wheelchair kits, an important
component of its products, from one supplier. A change in suppliers could cause
a delay in manufacturing and a possible loss of sales, which would affect
operating results adversely. However, the Company believes that numerous
alternative supply sources are available for these materials.
FOREIGN CURRENCY TRANSLATION: The financial statements of the Company's
foreign subsidiaries are translated into U.S. dollars in accordance with the
provisions of SFAS No. 52, "Foreign Currency Translation." Assets and
liabilities are translated at year-end exchange rates. Revenues and expenses are
translated at the average exchange rate for each year. The resulting translation
adjustments for each year are recorded as a separate component of stockholders'
equity. All foreign currency transaction gains and losses are included in the
determination of income and are not significant.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT: In October 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123"), which addresses
accounting for stock option, purchase and award plans. The Company will adopt
SFAS 123 in 1996 and will then have the option of valuing stock compensation
using either the "fair value based method" or the "intrinsic value based
F-14
<PAGE>
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except as noted and per-share data)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(Continued)
method". The Company anticipates that, when adopted, SFAS 123 will have no
material effect on its financial position or results of operations.
RECLASSIFICATION: Certain reclassifications (beginning in 1994) including
the reclassification of shipping and distribution costs from operating expenses
to cost of sales have been made to prior period consolidated financial
statements to conform with current period presentation. The reclassifications
have no effect on loss from operations and net loss as previously reported.
NOTE 4--ASSETS HELD FOR SALE
Pursuant to an Asset Purchase Agreement dated February 15, 1995, the
Company sold the Smith & Davis Institutional Business effective April 4, 1995.
The proceeds consisted of approximately $4.5 million in cash (which was used to
repay debt), $2.7 million in assumption of liabilities, and notes valued at
approximately $2.1 million; $0.2 million of such notes were repaid in 1995 with
the remainder expected to be repaid in 1996.
Net assets held for sale of the Institutional Business consisted of the
items in the following table as of December 31, 1994 (stated at estimated net
realizable values). The value of these assets approximated the net proceeds from
the sale of the Institutional Business on the sale date of April 4, 1995.
December 31, 1994
------------------
Accounts receivable........................................ $ 4,099
Inventories................................................ 4,298
Land and buildings......................................... 1,350
Machinery & equipment...................................... 1,200
Other assets............................................... 342
----------
Total assets held for sale............................ $ 11,289
==========
Revenues of the Institutional Business and related costs were included in
the consolidated results of the Company in years prior to 1994. The 1993
restructuring provision included an estimate of losses to be incurred during the
phase-out period. During the phase out period commencing January 1, 1994 through
the disposal date (April 4, 1995), the results of the Smith & Davis
Institutional Business were included as a component of accrued restructuring
expenses on the consolidated balance sheet. The reduction in accrued
restructuring expense since December 31, 1994 primarily reflects changes in
estimates, adjustments and the payment of disposal costs related to the sale.
Revenues and net income (loss) from operations (unaudited) for the Institutional
Business were as follows:
For Year Ended
December 31,
January 1, 1995 ---------------------
through April 4, 1995 1994 1993
--------------------- --------- ----------
Revenues........................ $ 5,508 $ 21,220 $ 17,335
Net income (loss)............... $ 129 $ (1,400) $ (17,310)
Pursuant to an Asset Purchase Agreement dated July 24, 1995, the Company
sold the Smith & Davis Oxycon line of oxygen concentrator products. This
transaction was finalized effective August 9, 1995. The proceeds from the sale
consisted of a note valued at $0.6 million. This transaction did not result in a
material gain or loss.
F-15
<PAGE>
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except as noted and per-share data)
NOTE 5--ACQUISITION
In January 1994, the Company completed the acquisition (the "Acquisition")
of Medical Composite Technology, Inc. ("MCT"). The $10.6 million purchase price
consisted of the issuance of 800,000 shares of Common Stock, $2 million in the
form of pre-closing cash advances, and the assumption of $0.6 million of net
liabilities. Additionally, the Company assumed 10,761 unvested and 30,042 vested
stock options; such options are for the purchase of the Company's Common Stock.
MCT develops and designs state-of-the-art durable medical equipment, including
wheelchairs and other medical mobility products.
The Acquisition was accounted for as a purchase. Of the $10.6 million
purchase price, $9.7 million of the purchase price is attributable to in-process
research and development which was expensed in the fourth quarter of 1993. The
balance of the purchase price over the fair value of assets acquired, $0.9
million, was allocated to goodwill and is being amortized over a period of three
years.
For purposes of consolidated financial statement presentation, the
Acquisition was effective on December 31, 1993. Accordingly, the Company's
consolidated balance sheet as of December 31, 1995, 1994 and 1993 include the
assets and liabilities of MCT. MCT's results of operations are included in the
consolidated financial statements from the date of acquisition.
Pro forma combined results of operations (unaudited) of the Company and MCT
for the year ended December 31, 1993 are presented below. Pro forma results of
operations are not necessarily indicative of the results of operations if the
companies had constituted a single entity during the period combined (dollars in
millions except per share data).
Net sales.......................................................... $ 95.4
Net loss from continuing operations................................ (60.1)
Net loss per share (1,734,387 shares).............................. (34.70)
NOTE 6--DEBT RESTRUCTURING AND CONVERSION
As of September 30, 1993, the Company, Everest & Jennings, Inc. ("E&J
Inc."), Jennings Investment Co. and BIL entered into a Debt Conversion Agreement
to provide for the conversion (the "Debt Conversion Transaction") of
approximately $75 million in principal and accrued, unpaid interest (the
"Converted BIL Debt"), owed by the Company and E&J Inc. to BIL. Pursuant to the
Debt Conversion Transaction, the Company and E&J Inc. issued to BIL a
Convertible Promissory Note -- Common Stock (the "Common Stock Note") in the
initial principal amount of $45 million and a Convertible Promissory
Note--Preferred Stock (the "Preferred Stock Note") in the original principal
amount of $20 million. The Common Stock Note was subsequently increased to $55
million via a transfer of $10 million from the Revolving Promissory Note to the
Common Stock Note. The Common Stock Note was converted into 5.5 million shares
of Common stock and the Preferred Stock Note was converted into 20 million
shares of Series C Convertible Preferred Stock on January 12, 1994 upon the
satisfaction of certain preestablished conditions.
The Company held a Special Meeting of Stockholders on December 31, 1993, to
ratify and approve the Debt Conversion Transaction. Concurrent with ratification
and approval of the Debt Conversion Transaction, the Company's stockholders
approved and adopted amendments to the Company's Certificate of Incorporation to
increase the number of authorized shares of Common Stock from 2,500,000 to
F-16
<PAGE>
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except as noted and per-share data)
NOTE 6--DEBT RESTRUCTURING AND CONVERSION--(Continued)
12,000,000 and to increase the number of authorized shares of Preferred Stock
from 11,000,000 to 31,000,000 (the "Recapitalization Proposals").
The effects of the conversions of both the Common Stock Note and the
Preferred Stock Note have been reflected in the consolidated financial
statements as of December 31, 1995, 1994 and 1993. No gain or loss was
recognized as a result of the Debt Conversion Transaction.
NOTE 7--DEBT
The Company's debt as of December 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Revolving Promissory Note to BIL...................................... -0- $ 6,503
Loans payable to HSBC................................................. 18,700 10,000
Other domestic debt................................................... 2,622 8,913
Foreign debt.......................................................... 5,521 5,210
Long-term loan payable to BIL......................................... 21,103 12,000
--------- ---------
Total debt....................................................... 47,946 42,626
Less short-term debt and current installments of long-term debt 4,473 17,658
--------- ---------
Long-term debt, net of current installments, including Revolving
Promissory Note to BIL in 1994................................. $ 43,473 $ 24,968
========= =========
</TABLE>
Aggregate long-term debt maturities during each of the next five fiscal
years is as follows:
1996............................................................. $ 4,473
1997............................................................. 41,333
1998............................................................. 965
1999............................................................. 375
2000............................................................. 275
Thereafter....................................................... 525
---------
$ 47,946
=========
The weighted average interest rate at December 31, 1995 on outstanding
short-term borrowings of $4,473 was approximately 9%. The short-term borrowings
at December 31, 1995 are as follows:
Foreign Debt..................................................... $ 3,396
Other Short-term Debt............................................ 1,077
---------
$ 4,473
=========
In order to facilitate the relocation process by the Company from
California to Missouri, in February, 1992, BIL acquired all of Security Pacific
National Bank's rights (the "Bank Interest") in the First Amended and Restated
Credit Agreement that had been executed in 1991 ("Bank Loan"). The acquisition
of the Bank Loan by BIL resulted in BIL acquiring the Series B Convertible
Preferred
F-17
<PAGE>
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except as noted and per-share data)
NOTE 7--DEBT--(Continued)
Stock (786,000 shares). As a condition of the HSBC Revolving Credit Agreement,
BIL subordinated the repayment of the Bank Loan and the Amended 10.5% Note (as
defined below) to the repayment of the HSBC debt. As of September 30, 1993, the
Bank Loan was restructured as part of the Debt Conversion Transaction.
As of September 30, 1993, the Company entered into the Debt Conversion
Agreement with BIL whereby $75 million of the indebtedness due BIL was
restructured by the issuance of the Common Stock Note and the Preferred Stock
Note (see Note 6). The balance of the indebtedness owed BIL ($6.8 million) which
was not converted into the Common Stock Note and the Preferred Stock Note was
treated as advances under the Revolving Promissory Note.
In December 1995, HSBC and E&J Inc. agreed to amend the Revolving Credit
Agreement originally entered into on September 30, 1992 and extend its term
through September, 1997. The HSBC facility, as amended, provides up to $6
million of letter of credit availability and cash advances of up to $25 million
to E&J Inc. Advances under the Revolving Credit Agreement bear interest at the
prime rate plus 0.25%, as announced by Marine Midland Bank N.A. from time to
time (8.5% at December 31, 1995), and are guaranteed by Brierley Investments
Limited, an affiliate of BIL. Repayment of existing debt with BIL is
subordinated to the HSBC debt, and Brierley Investments Limited, an affiliate of
BIL, guaranteed its repayment.
On December 21, 1995, $3 million of the increased credit facility was
utilized to repay an advance from BIL made earlier in 1995. As of December 31,
1995, $18.7 million of the $25 million available for cash advances had been
utilized.
As part of the Debt Conversion Transaction, BIL agreed to provide to the
Company and E&J Inc. a revolving credit facility of up to $12.5 million, as
evidenced by the Revolving Promissory Note. At December 31, 1995, this facility
was completely utilized. BIL has advanced the Company an additional $8.6 million
under the Revolving Promissory Note, bringing the total outstanding advances
from BIL to the Company at December 31, 1995 to $21.1 million. The Revolving
Promissory Note and other advances mature on September 30, 1997, bear interest
at the rate of 8% per annum, and are secured by a lien on and security interest
in all assets of the Company and E&J Inc. The Revolving Promissory Note is
subordinated to all debt borrowed by the Company or E&J Inc. from, or the
payment of which has been guaranteed by the Company or E&J Inc. to HSBC, the
Pension Benefit Guaranty Corporation and any other financial institution
constituting a principal lender to the Company and/or E&J Inc. As of December
31, 1995, $2.6 million of accrued, unpaid interest is due BIL under the
Revolving Promissory Note.
In July 1991, the Company obtained a three-year secured credit facility in
the amount of up to $13 million at an interest rate of prime plus 3% for its
Smith & Davis subsidiary. The facility was secured by substantially all of the
assets of Smith & Davis. In February 1993, this credit line was amended to
increase the availability of funding to the Company, reduce the borrowing cost
to prime plus 2% and extend the term to December 31, 1995. The proceeds from the
sale of the Institutional Business were used to reduce this debt, and in
December 1995 the balance under this credit line was fully repaid utilizing
funds advanced from BIL. Additionally, Smith & Davis had other borrowings
primarily consisting of amounts owed under an industrial revenue bond totaling
$0.1 million at December 31, 1995, with an interest rate approximating 6%. The
remaining balance is due in March 1996.
F-18
<PAGE>
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except as noted and per-share data)
NOTE 7--DEBT--(Continued)
During May 1992, the Company's Canadian subsidiary renewed existing credit
facilities in the aggregate of $4.7 million, which was fully utilized as of
December 31, 1995 at interest rates ranging from prime plus 1% to prime plus 1
1/4%. The loans are secured by the assets of the Canadian subsidiary.
During June 1994, the Company's Mexican subsidiary obtained a credit
facility in the aggregate of $1.0 million, of which $0.7 million was borrowed as
of December 31, 1995 at interest rates approximating 13%. The loans are secured
by the assets of the Mexican subsidiary and are due in annual installments
through 1999.
At December 31, 1995, the Company was contingently liable under existing
letters of credit in the aggregate amount of approximately $5.75 million.
At December 31, 1995 the Company owed $24.7 million to banks and other
commercial lenders, $2.1 million under capitalized lease obligations, and $21.1
million to BIL.
NOTE 8--INCOME TAXES
The components of the income tax provision (benefit) from operations for
each of the years in the three year period ended December 31, 1995 are as
follows:
1995 1994 1993
--------- --------- ---------
Current:
Federal................................... $ -- $ -- $ --
Foreign................................... 160 97 197
State..................................... -- -- --
Deferred:
Federal................................... $ -- $ -- $ --
Foreign................................... (64) (259) (24)
State..................................... -- -- --
--------- --------- ---------
$ 96 $ (162) $ 173
========= ========= =========
A reconciliation of the provision (benefit) for taxes on loss from
operations and the amount computed using the statutory federal income tax rate
of 34% for each of the years in the three year period ended December 31, 1995 is
as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ----------
<S> <C> <C> <C>
Computed "expected" tax benefit.......................... $ (1,821) $ (3,373) $ (18,878)
Increases (reductions) due to:
State taxes, net of federal benefit.................... -- -- --
Foreign subsidiaries with different tax rates.......... (80) 52 319
Domestic losses with no tax benefit.................... 1,997 3,159 18,732
--------- --------- ----------
$ 96 $ (162) $ 173
========= ========= ==========
</TABLE>
The Company and certain subsidiaries file consolidated federal income and
combined state tax returns. For federal income tax purposes, as of December 31,
1995, the Company has net operating loss
F-19
<PAGE>
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except as noted and per-share data)
NOTE 8--INCOME TAXES--(Continued)
(NOL) carryforwards of approximately $143 million and tax credit carryforwards
of approximately $1 million that expire in 1997 through 2010. In accordance with
the Internal Revenue Code, when certain changes in company ownership occur,
utilization of NOL carryforwards is limited. The Company has determined that
there has been a change in ownership due to the various debt and equity
transactions consummated with BIL as described in Note 6--Debt Restructuring and
Conversion and Note 7-- Debt. As a result, approximately $88.5 million of the
Company's NOL carryforwards are subject to an annual limitation of approximately
$3 million. If the full amount of that limitation is not used in any year, the
amount not used increases the allowable limit in the subsequent year.
In addition, there are approximately $7 million and $6 million,
respectively, of preacquisition NOL carryforwards generated by Smith & Davis and
MCT with expiration dates through 2004. Annual utilization of these NOLs is
limited to $0.6 million for Smith & Davis and $0.5 million for MCT to reduce
that entity's future contribution to consolidated taxable income.
The Company's foreign source income is not material.
NOTE 9--INVENTORIES
Inventories at December 31, 1995 and 1994 consist of the following:
1995 1994
--------- ---------
Raw materials............................................ $ 10,365 $ 10,249
Work-in-process.......................................... 4,593 5,585
Finished goods........................................... 4,612 4,615
--------- ---------
$ 19,570 $ 20,449
========= =========
F-20
<PAGE>
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except as noted and per-share data)
NOTE 10--COMMON AND PREFERRED STOCK
At the March 17, 1992 meeting, the stockholders approved a resolution to
authorize a new class of preferred stock. Thereafter, approximately 5.9 million
shares of 9% Series A Convertible Preferred Stock were issued for conversion of
BIL debt and accrued interest as discussed in Note 7. Such preferred shares are
redeemable into one-tenth of one share of common stock at the Company's option
until the second anniversary of conversion of the debt, and thereafter at the
holder's option until the seventh anniversary of conversion of the debt except
for any in-kind dividends which would be redeemable at 15% of the market price
at the time of conversion. The preferred shares are also redeemable for cash at
the Company's option at a price of $1.67458437 per share until the second
anniversary of conversion of the debt and thereafter the seventh anniversary of
the conversion to cash at a price of $1.67458437 per share except for in-kind
dividends which would be redeemable at an amount equal to 15% of market price of
the common stock as of the redemption date. Upon notice of redemption, the
holder(s) of the preferred shares can convert such shares into one-tenth of one
share of common stock. Also as discussed in Note 7, a second series of preferred
stock (Series B, consisting of 786,000 shares) was issued to BIL, which is
redeemable at the Company's option into one-tenth of one share of Common Stock
(except for any unpaid interest owed) at any time prior to the seventh
anniversary of the issuance date of said preferred shares.
On March 17, 1992, the stockholders of the Company approved a Plan of
Reclassification. Under the Plan of Reclassification, the Certificate of
Incorporation of the Company was amended to replace the Company's authorized
Class A Common Stock and Class B Common Stock with a new single class of Common
Stock having 2,500,000 authorized shares, and reclassified each outstanding
Class A Common share and each outstanding Class B Common share into one share of
such new single class of Common Stock. The Plan of Reclassification became
effective as of the close of business on November 18, 1993.
On December 31, 1993, the Company's stockholders approved the Debt
Conversion Transaction (see Note 6), which resulted in the issuance of 5.5
million shares of Common Stock and 20 million shares of 7% Series C Convertible
Preferred Stock upon conversion of the Common Stock Note and the Preferred Stock
Note, respectively. Each share of Series A, B and C preferred shares is
convertible into one-tenth of one share of common stock and is entitled to vote
with the common stock on an as-converted basis. The Series A and B preferred
shares are callable at a price of $1.67458437. Such call option has been waived
by BIL through September 30, 1997. The Debt Conversion Transaction resulted in
an increase in the total shares outstanding, on a fully diluted basis, to 9.96
million (including shares issued for the MCT acquisition), and increased the
percentage ownership of the Company by BIL and its affiliates from approximately
60% at December 31, 1992 to approximately 85% at December 31, 1993.
The Company has three employee stock option plans that provide for the
grant to eligible employees of stock options to purchase shares of Common Stock.
The Everest & Jennings International Ltd. 1981 Employees Stock Option Plan
expired in 1991. Options are exercisable over a ten-year period. Stock options
were granted at prices which represent the fair market value of the Common Stock
on the
F-21
<PAGE>
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except as noted and per-share data)
NOTE 10--COMMON AND PREFERRED STOCK--(Continued)
date of grant. The changes in this stock option plan in each of the years in the
three year period ended December 31, 1995 are summarized as follows:
Year Ended December 31,
------------------------------------
1995 1994 1993
-------- -------- --------
Outstanding, beginning of year ....... 5,645 10,245 23,437
Granted .............................. -- -- --
Exercised ............................ -- -- --
Cancelled ............................ (1,405) (4,600) (13,192)
------- ------- -------
Outstanding, end of year ............. 4,240 5,645 10,245
======= ======= =======
Exercisable, end of year ............. 4,240 5,645 10,245
======= ======= =======
Options outstanding as of December 31, 1995 were granted at prices ranging
from $18.80 to $127.50 per share. As of December 31, 1995, 4,240 shares were
exercisable in the price range of $18.80 to $127.50 per share.
The Company also has an Omnibus Incentive Plan, which was adopted by the
Board of Directors during 1990. Options are exercisable over a ten-year period,
and were granted at prices which represent the fair market value of the Common
Stock on the date of grant. The changes in the Omnibus Incentive Plan in each of
the years in the three year period ended December 31, 1995 are summarized as
follows:
Year Ended December 31,
------------------------------------
1995 1994 1993
-------- -------- --------
Outstanding, beginning of year ....... 21,969 54,906 72,500
Granted .............................. -- -- 21,900
Exercised ............................ -- -- --
Cancelled ............................ (12,869) (32,937) (39,494)
------- ------- -------
Outstanding, end of year ............. 9,100 21,969 54,906
======= ======= =======
Exercisable, end of year ............. 8,400 20,091 30,794
======= ======= =======
At December 31, 1995, 80,000 shares have been reserved for issuance
pursuant to this plan, and 9,100 options were outstanding which were granted at
prices ranging from $12.50 to $23.80.
Effective April 25, 1994, the Company adopted the 1994 Everest & Jennings
Stock Option Plan (the "1994 Plan"), providing for the granting of nonqualified
stock options to purchase up to 440,000 shares of the Company's Common Stock to
selected full time employees of the Company. Under the
F-22
<PAGE>
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except as noted and per-share data)
NOTE 10--COMMON AND PREFERRED STOCK--(Continued)
1994 Plan, options become exercisable in 50% increments when the Company
achieves certain performance goals and are automatically exercisable five years
after the grant date, assuming continuous employment with the Company. Option
activity in the 1994 Plan is as follows:
Year Ended December 31,
-------------------------
1995 1994
-------- --------
Outstanding, beginning of year ............... 315,200 368,200
Granted ...................................... 100,900 --
Exercised .................................... -- --
Cancelled .................................... (96,800) (53,000)
-------- --------
Outstanding, end of year ..................... 319,300 315,200
======== ========
Options outstanding as of December 31, 1995 were granted at $8.50, which
approximates the fair market value of the Company's common stock at the date of
grant. No options were exercisable at December 31, 1995 pursuant to this Plan.
At December 31, 1995, 120,700 shares were available for the granting of
additional options.
As part of the MCT acquisition, the Company assumed 10,761 unvested and
30,042 vested stock options at exercise prices ranging from $.60 to $2.80. These
options are for the acquisition of the Company's Common Stock. Option activity
in the MCT Plan is as follows:
Year Ended December 31,
-------------------------
1995 1994
-------- --------
Options assumed .............................. -- 40,803
Outstanding, beginning of year ............... 31,683 --
Exercised .................................... (2,283) (5,820)
Cancelled .................................... -- (3,300)
------- -------
Outstanding, end of year ..................... 29,400 31,683
======= =======
Exercisable, end of year ..................... 28,419 28,419
======= =======
NOTE 11--EMPLOYEE BENEFIT PLANS
The Company has a non-contributory defined benefit pension plan covering
substantially all employees of its primary domestic subsidiary, Everest &
Jennings, Inc. and two non-contributory defined benefit pension plans for the
non-bargaining unit salaried employees ("Salaried Plan") and employees subject
to collective bargaining agreements ("Hourly Plan") at its Smith & Davis
subsidiary. The total pension expense (income) under these plans was $364, $(15)
and $40 for 1995, 1994 and 1993, respectively.
F-23
<PAGE>
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except as noted and per-share data)
NOTE 11--EMPLOYEE BENEFIT PLANS--(Continued)
The following table sets forth the status of these plans and the amounts
recognized in the Company's consolidated financial statements:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation .............................................. $ 17,678 $ 15,612 $ 17,695
======== ======== ========
Accumulated benefit obligation ......................................... $ 17,678 $ 15,621 $ 17,816
======== ======== ========
Projected benefit obligation for services rendered to date ............. $ 17,678 $ 15,621 $ 17,816
Plan assets at fair value, primarily listed stocks, bonds and investment
funds ................................................................ 13,513 12,100 12,763
-------- -------- --------
Projected benefit obligation in excess of plan assets .................. (4,165) (3,521) (5,053)
Unrecognized transition amount ......................................... (85) (98) (85)
Unrecognized loss from change in discount rate ......................... 3,420 1,960 3,043
-------- -------- --------
Pension liability included in Accrued payroll costs .................... $ (830) $ (1,659) $ (2,095)
======== ======== ========
The pension cost relating to these plans is comprised of the following:
Service cost--benefits earned during period ............................ $ -- $ -- $ --
Interest cost on projected benefit obligation .......................... 1,323 1,263 1,295
Actual return on plan assets ........................................... (2,396) (378) (872)
Net amortization and deferral .......................................... 1,437 (900) (223)
Curtailment gain ....................................................... -- -- (160)
-------- -------- --------
Net periodic pension cost .............................................. $ 364 $ (15) $ 40
======== ======== ========
</TABLE>
Effective May 1, 1991, benefits accruing under the Everest & Jennings, Inc.
Pension Plan were frozen. Due to a reduction in its weighted-average discount
rate, and in accordance with the provisions of SFAS No. 87, "Employees'
Accounting for Pensions", an additional minimum funding liability, representing
the excess of accumulated plan benefits over plan assets and accrued pension
costs of $2,606 was recorded for the Everest & Jennings, Inc. Pension Plan as an
increase in stockholders' deficit for the year ended December 31, 1993. As of
December 31, 1994, stockholders' deficit was credited for $794 to reduce the
minimum liability to $1,812. As of December 31, 1995, stockholders' deficit was
increased by $1,452 to reflect an increase in the minimum liability as a result
of a decrease in the discount rate used to determine the minimum liability.
Additionally, during 1991 the Company froze the Smith & Davis Hourly Plan
and purchased participating annuity contracts to provide for accumulated and
projected benefit obligations. The Company has also frozen the Smith & Davis
Salaried Plan effective January 1, 1993. Participants in the plan are eligible
to participate in the Company's 401(k) Savings and Investment Plan, as discussed
below. There was no material impact on the consolidated financial statements as
a result of these changes.
F-24
<PAGE>
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except as noted and per-share data)
NOTE 11--EMPLOYEE BENEFIT PLANS--(Continued)
The following assumptions were used to determine the projected benefit
obligations and plan assets:
<TABLE>
<CAPTION>
Everest & Jennings, Inc. Smith & Davis
Plan Plans
------------------------------------- -------------------------------------
1995 1994 1993 1995 1994 1993
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Weighted-average discount rate.................. 7.5% 8.5% 7.5% 8.0% 8.5% 7.5%
Expected long-term rate of return on assets..... 9.0% 9.0% 9.0% 9.0% 9.0% 8.5%
Long-term rate for compensation increases....... -- -- -- -- -- --
</TABLE>
In 1995, 1994 and 1993, no long term rates for compensation increases were
assumed for the defined benefit plans, as all participants are inactive and the
plans are frozen.
The Company also sponsored a 401(k) Savings and Investment Plan (the
"401(k) plan") covering all full-time employees of Everest & Jennings, Inc.
Contributions made by the Company to the 401(k) plan are based on a specified
percentage of employee contributions up to 6% of base salary. As of March 1,
1994, the Company suspended its contribution to the 401(k) Plan for all
non-bargaining unit employees. Employees may contribute between 1% and 15% of
base salary. Expense recorded for the 401(k) plan totaled approximately $20 in
1995, $35 in 1994 and $134 in 1993.
NOTE 12--LEASE COMMITMENTS
The Company is a party to a number of noncancelable lease agreements
involving buildings and equipment. The leases extend for varying periods up to
eight years and generally provide for the payment of taxes, insurance and
maintenance by the lessee. Certain of these leases have purchase options at
varying rates.
The Company's property held under capital leases, included in property,
plant and equipment, at December 31, 1995 and 1994 consists of the following:
December 31, December 31,
1995 1994
------------- -------------
Machinery and equipment.......................... $ 2,827 $ 2,784
Less accumulated amortization.................... (1,769) (1,168)
--------- ---------
$ 1,058 $ 1,616
========= =========
F-25
<PAGE>
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except as noted and per-share data)
NOTE 12--LEASE COMMITMENTS--(Continued)
Minimum future lease obligations on long-term noncancelable leases in
effect at December 31, 1995 are as follows:
Capital Operating
--------- -----------
1996.................................................... $ 970 $ 707
1997.................................................... 933 608
1998.................................................... 469 595
1999.................................................... -- 590
2000.................................................... -- 589
Thereafter.............................................. -- 1,206
--------- -----------
Net minimum lease payments.............................. $ 2,372 $ 4,295
========= =========
Less amount representing interest....................... (262)
---------
Present value of minimum lease payments................. 2,110
Less current portion.................................... (804)
---------
$ 1,306
=========
Rental expense for operating leases amounted to approximately $1,349,
$2,122 and $1,913 in 1995, 1994 and 1993, respectively.
NOTE 13--CONTINGENT LIABILITIES
In July, 1990, a class action suit was filed in the United States District
Court for the Central District of California by a stockholder of the Company
against the Company and certain of its present and former directors and
officers. The suit seeks unspecified damages for alleged non-disclosure and
misrepresentation concerning the Company in violation of federal securities
laws. The Company twice moved to dismiss the complaint on various grounds. After
the first such motion was granted, plaintiff filed a first amended complaint,
which subsequently was dismissed by order filed on September 20, 1991. Plaintiff
then notified the court that it did not intend to further amend the complaint,
and an order dismissing the complaint was entered in November 1991. Plaintiff
filed a notice of appeal to the Court of Appeals for the Ninth Circuit on
December 23, 1991. The case was briefed and oral argument heard in June, 1993.
Because of the precedent set by a Ninth Circuit decision in another case which
was decided after the district court's order of dismissal but before the Ninth
Circuit decided plaintiff's appeal, the Ninth Circuit reversed the district
court's dismissal of the case and remanded the case to the district court for
further proceedings in an opinion handed down by the Ninth Circuit on August 24,
1995. The district court directed plaintiff to file a new motion for class
certification and the plaintiff did so on February 29, 1996. The Company opposes
that motion, and it is set for hearing on March 25, 1996. The ultimate
liability, if any, cannot be determined at this time.
In December, 1992 ICF Kaiser Engineers, Inc. ("ICF Kaiser") filed a Demand
for Arbitration (the "Demand") against the Company before the American
Arbitration Association in Los Angeles, California. ICF Kaiser in its demand
claims breach of contract between the parties for consulting and clean up work
by ICF Kaiser at E&J's former facilities located at 3233 East Mission Oaks
Boulevard, Camarillo, California. The Arbitration Demand was in the sum of $1.1
million. In January, 1993 an answer and counter-claim were filed on behalf of
the Company. The answer denied breach of the
F-26
<PAGE>
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except as noted and per-share data)
NOTE 13--CONTINGENT LIABILITIES--(Continued)
contract and disputed the monetary claim asserted in the Demand. In the
counterclaim, the Company asserted that ICF Kaiser breached the contract, above
referenced, by inter alia failing to perform the services required under the
Agreement in a reasonably cost effective manner and in accordance with the terms
and conditions of the Agreement. In February, 1993 E&J made a payment without
prejudice to ICF Kaiser in the sum of approximately $0.6 million. This payment,
together with prior payments, brought the total paid to date by the Company to
ICF Kaiser to approximately $0.7 million. During June 1994 the Arbitrator ruled
in favor of ICF Kaiser against the Company in the amount of $1.3 million. This
case was settled during the fourth quarter of 1994 by payment to ICF Kaiser of
$1.0 million, and such payment was charged against existing Company reserves.
Die Cast Products, Inc. ("Die Cast Products"), a former subsidiary of the
Company, has been named as a defendant in a lawsuit filed by the State of
California pursuant to the Comprehensive Environmental Response, Compensation
and Liability Act 42 U.S.C. Sec.Sec. 9601 et sec. The Company was originally
notified of this action on December 10, 1992. The lawsuit seeks to recover
response and remediation costs in connection with the release or threatened
release of hazardous substances at 5619-21 Randolph Street, in the City of
Commerce, California ("Randolph Street Site"). It is alleged that the Randolph
Street Site was used for the treatment, storage and disposal of hazardous
substances. The Company anticipates being named as a defendant as a result of
its former ownership of Die Cast Products, which allegedly disposed of hazardous
waste materials at the Randolph Street Site. A settlement in principle between
the State of California and the various potentially responsible parties was
reached in October 1995. It is anticipated that the Company's portion of the
settlement will be less than was originally anticipated. Accordingly, the
previously recorded reserve for this matter was reduced in 1995.
In March, 1993, E&J Inc. received a notice from the United States
Environmental Protection Agency ("EPA") regarding an organizational meeting of
generators with respect to the Casmalia Resources Hazardous Waste Management
Facility ("Casmalia Site") in Santa Barbara County, California. The EPA alleges
that the Casmalia Site is an inactive hazardous waste treatment, storage and
disposal facility which accepted large volumes of commercial and industrial
wastes from 1973 until 1989. In late 1991, the Casmalia Site owner/operator
abandoned efforts to actively pursue site permitting and closure and is
currently conducting only minimal maintenance activities. The EPA estimates that
the Casmalia Site's closure trust fund, approximately $10 million, is
substantially insufficient to cover cleanup and closure of the site. Since
August, 1992, the EPA has undertaken certain interim stabilization actions to
control actual or threatened releases of hazardous substances at the Casmalia
Site. The EPA is seeking cooperation from generators to assist in the cleaning
up, and closing of, the Casmalia Site. E&J Inc. and 64 other entities were
invited to the organizational meeting. E&J Inc. is a member of a manufacturers'
group of potentially responsible parties which has investigated the site and
proposed a remediation plan to the EPA. To reflect E&J Inc.'s estimated
allocation of costs thereunder, a reserve of $1.0 million was recorded, which
was included in the Consolidated Statements of Operations for 1993. During 1995
an agreement in principle was reached with the EPA for a settlement of the
majority of the Casmalia site liability. The settlement provides for the work to
be completed in three phases. Phase I work, which is estimated to take three to
five years to complete, will require the Company, along with other responsible
parties, to participate in funding the water management, certain construction
projects and completion of the site investigation. Phase II work, consisting of
the remaining remedial construction activities and the first five years of
operation and maintenance, will be funded by other parties and is estimated to
take ten years. Subsequent to Phase II,
F-27
<PAGE>
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except as noted and per-share data)
NOTE 13--CONTINGENT LIABILITIES--(Continued)
additional operation and maintenance will be required for approximately 30
years. The estimated exposure of the Company under this agreement is less than
originally anticipated and the previously recorded reserve has been reduced
accordingly.
In 1989, a patent infringement case was initiated against E&J Inc. and
other defendants in the U.S. District Court, Central District of California. E&J
Inc. prevailed at trial with a directed verdict of patent invalidity and
non-infringement. The plaintiff filed an appeal with the U.S. Court of Appeals
for the Federal Circuit. On March 31, 1993, the Court of Appeals vacated the
District Court's decision and remanded the case for trial. Impacting the retrial
of this litigation was a re-examination proceeding before the Board of Patent
Appeals with respect to the subject patent. A ruling was rendered November 23,
1993 sustaining the claim of the patent which E&J Inc. has been charged with
infringing. Upon the issuance of a patent re-examination certificate by the U.S.
Patent Office, the plaintiff presented a motion to the District Court requesting
a retrial of the case. The Company presented a Motion for Summary Judgment of
Noninfringement based in part upon the November 23, 1993 decision of the Board
of Patent Appeals. The Motion was granted in follow-up conferences and an
official Judgment was entered November 17, 1994. The plaintiff filed a Notice of
Appeal on November 23, 1994, and a briefing schedule has been indicated by the
Appellate Court. A written opinion was filed March 21, 1995 and the appeal was
argued August 8, 1995. A decision has not yet been announced. E&J Inc. believes
that this case is without merit and intends to contest it vigorously. The
ultimate liability of E&J Inc., if any, cannot be determined at this time.
The Company and its subsidiaries are parties to other lawsuits and other
proceedings arising out of the conduct of its ordinary course of business,
including those relating to product liability and the sale and distribution of
its products. While the results of such lawsuits and other proceedings cannot be
predicted with certainty, management does not expect that the ultimate
liabilities, if any, will have a material adverse effect on the consolidated
financial position or results of operations of the Company.
F-28
<PAGE>
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except as noted and per-share data)
NOTE 14--QUARTERLY FINANCIAL INFORMATION
The following chart sets forth the highlights of the quarterly consolidated
results of operations in fiscal years 1995, 1994 and 1993:
Three Months Ended (Unaudited) (a)
-----------------------------------------------------------
March 31 June 30 September 30 December 31 Year
-------- ------- ------------ ----------- ----
Fiscal year 1995
Revenues....... $ 18,513 $ 18,449 $ 19,346 $ 18,319 $ 74,627
Gross profit... 4,207 4,404 4,126 3,293(d) 16,030
Net loss....... (1,170) (860) (924) (2,498)(d) (5,452)
Loss per share. (.20) (.08) (.10) (.37) (.75)
Fiscal year 1994
Revenues....... $ 20,213 $ 20,146 $ 19,829 $ 19,250 $ 79,438
Gross profit... 4,080 4,657 4,674 139(b) 13,550
Net loss....... (1,673) (940) (897) (6,249)(b) (9,759)
Loss per share. (.20) (.10) (.10) (.95) (1.35)
Fiscal year 1993
Revenues....... $ 24,752 $ 23,524 $ 23,458 $ 22,725 $ 94,459
Gross profit... 5,839 2,784 3,993 (1,982) 10,634
Net loss....... (2,977) (7,837) (5,236) (39,647)(c) (55,697)(c)
Loss per share. (3.30) (8.61) (5.70) (42.00) (59.61)
- ---------------
(a) In the fourth quarter of 1994, based on predominant industry practice, the
Company changed its method of classification of shipping and distribution
costs in the statement of operations. Such costs are now presented in cost
of sales versus operating expenses in prior years. For purposes of
quarterly financial information all gross profit amounts presented have
been revised to reflect such reclassification.
(b) Gross profit was adversely affected during the fourth quarter of 1994 by a
$3.0 million charge to reserves for product liabillity, workers'
compensation claims and inventory cost adjustments.
(c) Includes charges of $13 million for the Institutional Business disposition,
$2.1 million for the consolidation of manufacturing and distribution
facilities, and $9.7 million for MCT in-process R&D.
(d) Productivity at the Company's primary domestic manufacturing facility was
negatively impacted during the fourth quarter of 1995 as a result of a WARN
act notice issued pursuant to the layoff of 30% of the work force at that
facility. These layoffs, which were completed during the first quarter of
1996, were a result of the transfer of workload to lower-cost facilities
and the Company's continued manufacturing rationalization.
F-29
<PAGE>
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per-share data)
Six Months Ended June 30
--------------------------
1996 1995
----------- -----------
(Unaudited)
Revenues ........................................... $ 34,293 $ 36,962
Cost of sales ...................................... 27,108 28,351
----------- -----------
Gross profit ....................................... 7,185 8,611
Selling expenses ................................... 5,945 6,181
General and administrative expenses ................ 3,408 2,646
----------- -----------
Total operating expenses ........................... 9,353 8,827
----------- -----------
Loss from operations ............................... (2,168) (216)
Interest expense, BIL (Note 6) ..................... 854 748
Interest expense, other ............................ 1,370 1,054
----------- -----------
Loss before income taxes ........................... (4,392) (2,018)
Income tax provisions .............................. 21 12
----------- -----------
Net loss ........................................... $ (4,413) $ (2,030)
=========== ===========
Loss per share (Notes 5 and 7) ..................... $ (.61) $ (.28)
=========== ===========
Weighted average number of Common Shares outstanding 7,223,714 7,226,545
The accompanying Notes are an integral part of these
Consolidated Financial Statements
F-30
<PAGE>
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
June 30 December 31
1996 1995
------- -----------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents .......................... $ 12 $ 117
Accounts receivable, less allowance for doubtful
accounts of $1,355 in 1996 and $1,847 in 1995 .... 16,614 16,952
Notes receivable ................................... 1,642 252
Inventories (Note 8) ............................... 19,823 19,570
Other current assets ............................... 651 1,047
-------- --------
Total current assets .......................... 38,742 37,938
PROPERTY, PLANT AND EQUIPMENT:
Land ............................................... 354 261
Buildings and improvements ......................... 4,568 4,500
Machinery and equipment ............................ 15,914 15,380
-------- --------
20,836 20,141
Less accumulated depreciation and amortization ..... (13,648) (12,992)
-------- --------
Property, plant and equipment, net ................. 7,188 7,149
NOTES RECEIVABLE (Note 9) ............................ 509 2,524
INTANGIBLE ASSETS, NET ............................... 248 402
OTHER ASSETS ......................................... 222 217
-------- --------
TOTAL ASSETS .................................. $ 46,909 $ 48,230
======== ========
The accompanying Notes are an integral part of these
Consolidated Financial Statements
F-31
<PAGE>
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(Dollars in thousands)
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
June 30 December 31
1996 1995
--------- -----------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Short-term borrowings and current installments of long-term
debt of $1,609 in 1996 and $1,089 in 1995 (Note 6) ...... $ 4,142 $ 4,473
Accounts payable .......................................... 7,119 8,361
Accrued payroll costs ..................................... 6,086 6,327
Accrued interest, BIL (Note 6) ............................ 3,483 2,629
Accrued expenses .......................................... 5,341 5,310
Accrued restructuring expenses (Note 1) ................... 442 659
--------- ---------
Total current liabilities ............................ 26,613 27,759
--------- ---------
LONG-TERM DEBT, NET OF CURRENT PORTION (Note 6) ............. 27,010 22,370
LONG-TERM BORROWINGS FROM BIL (Note 6) ...................... 21,103 21,103
OTHER LONG-TERM LIABILITIES ................................. 98 130
COMMITMENTS AND CONTINGENCIES (Notes 1 and 10)
STOCKHOLDERS' DEFICIT: (Note 1)
Series A Convertible Preferred Stock ...................... 13,175 13,175
Series B Convertible Preferred Stock ...................... 1,317 1,317
Series C Convertible Preferred Stock ...................... 20,000 20,000
Common Stock, par value: $.10; authorized 12,000,000 shares 719 722
Additional paid-in capital ................................ 105,608 105,608
Accumulated deficit ....................................... (164,798) (159,793)
Minimum pension liability adjustment ...................... (3,264) (3,264)
Cumulative translation adjustments ........................ (672) (897)
--------- ---------
Total stockholders' deficit .......................... (27,915) (23,132)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT ............ $ 46,909 $ 48,230
========= =========
</TABLE>
The accompanying Notes are an integral part of these
Consolidated Financial Statements
F-32
<PAGE>
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Series A Series B Series C
Convertible Convertible Convertible
Preferred Stock Preferred Stock Preferred Stock
-------------------- ---------------------- ---------------------
Shares Amount Shares Amount Shares Amount
--------- --------- --------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995......................... 7,867,842 $ 13,175 786,357 $ 1,317 20,000,000 $ 20,000
Accrued Dividends on Series A Convertible Preferred
Stock................................................ -- -- -- -- -- --
Net loss............................................. -- -- -- -- -- --
Adjustment for one-for-ten Stock Split............... -- -- -- -- -- --
Translation Adjustments.............................. -- -- -- -- -- --
--------- --------- ------- --------- ---------- ---------
Balance at June 30, 1996............................. 7,867,842 $ 13,175 786,357 $ 1,317 20,000,000 $ 20,000
========= ========= ======= ========= ========== =========
<CAPTION>
Minimum
Common Stock Additional Accumu- Pension Cumulative
------------------------ Paid-in lated Liability Translation
Shares Amount Capital Deficit Adjustment Adjustments
----------- ----------- ----------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995......................... 72,280,646 $ 722 $ 105,608 $(159,793) $ (3,264) $ (897)
Accrued Dividends on Series A Convertible Preferred
Stock................................................ -- -- -- (592) -- --
Net loss............................................. -- -- -- (4,413) -- --
Adjustment for one-for-ten Stock Split............... (65,084,081) (3) -- -- -- --
Translation Adjustments.............................. -- -- -- -- -- 225
----------- --------- --------- --------- --------- ---------
Balance at June 30, 1996............................. 7,196,565 $ 719 $ 105,608 $(164,798) $ (3,264) $ (672)
=========== ========= ========= ========= ========= =========
</TABLE>
Total
---------
Balance at December 31, 1995......................... $ (23,132)
Accrued Dividends on Series A Convertible Preferred
Stock................................................ (592)
Net loss............................................. (4,413)
Adjustment for one-for-ten Stock Split............... (3)
Translation Adjustments.............................. 225
---------
Balance at June 30, 1996............................. $ (27,915)
=========
The accompanying Notes are an integral part of these
Consolidated Financial Statements
F-33
<PAGE>
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30
-------------------
1996 1995
-------- --------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................................. $(4,413) $(2,030)
Adjustment to reconcile net loss to cash used in operating activities:
Depreciation and amortization ..................................... 848 1,221
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable .................................................. 338 2,396
Notes receivable ..................................................... (1,390) --
Inventories .......................................................... (253) 1,559
Accounts payable ..................................................... (1,242) (1,933)
Accrued interest, BIL ................................................ 854 749
Accrued payroll costs, expenses and income taxes ..................... (241) (2,438)
Accrued restructuring expenses ....................................... (217) (3,223)
Other, net ........................................................... (208) (448)
------- -------
Cash used in operating activities .................................... (5,924) (4,147)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................................. (695) (452)
Proceeds from disposition of assets held for sale .................... -- 4,518
Cash received in payment of note receivable .......................... 2,015 --
------- -------
Cash provided by investing activities ................................ 1,320 4,066
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from BIL .................................................... -- 2,100
Increase (decrease) in short-term and long-term borrowings, net ...... 4,309 (2,532)
Proceeds from exercise of stock options .............................. -- 3
Changes in other long-term liabilities ............................... (32) (52)
Purchase of fractional shares of common stock ........................ (3) --
------- -------
Cash provided by financing activities ................................ 4,274 (481)
Effect of exchange rate changes on cash flow ......................... 225 146
Increase (decrease) in cash balance .................................. (105) (416)
Cash and cash equivalents balance at beginning of year ............... 117 513
------- -------
CASH AND CASH EQUIVALENTS BALANCE AT END OF PERIOD ..................... $ 12 $ 97
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest ................................................. $ 1,147 $ 1,352
Cash paid for income taxes ............................................. $ 143 $ 172
</TABLE>
The accompanying Notes are an integral part of these
Consolidated Financial Statements
F-34
<PAGE>
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per-share data)
NOTE 1--CORPORATE RESTRUCTURING
The Company has incurred substantial financial losses in a continuing
effort to restructure its operations with the objective of improving its
competitive position within the durable medical equipment industry.
Restructuring activities have included asset sales, significant reductions in
headcount, plant closures and consolidations, product line rationalization, debt
to equity conversion and outsourcing of manufacturing operations.
The Company's 1996 revenues and operating results have been negatively
impacted by ongoing price competition. Additionally, the Company continues to
address the rationalization of its production facilities in the US, Canada and
Mexico and the increased outsourcing of products and product components, the
effects of which are expected to lower the Company's production costs. On May
26, 1996 the Company issued a WARN Act Notice and announced a substantial
workforce reduction at its primary domestic wheelchair manufacturing facility.
Such reduction will be substantially completed during the third quarter of 1996.
When complete, US operations will be limited to distribution, certain custom
manufacturing and light assembly. A severance reserve of approximately $400 has
been included in the Company's results of operations for the three and six month
periods ended June 30, 1996. The Company anticipates recording additional
restructuring expenses during the third quarter 1996 when the workforce
reduction is substantially complete.
The accompanying consolidated financial statements have been prepared under
the going concern concept, which anticipates an entity will continue in its
present form and, accordingly, uses the historical cost basis to prepare
financial statements. The Company has incurred substantial restructuring
expenses and recurring operating losses and has a net capital deficiency at June
30, 1996. No assurance can be made that the Company will successfully emerge
from or complete its restructuring activities.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies followed for the three month and six month
periods ended June 30, 1996 are the same as those disclosed in the Notes to the
Company's December 31, 1995 Consolidated Financial Statements, which were
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995. All dollar amounts in these Notes to Unaudited Consolidated
Financial Statements are in thousands except per-share data or as otherwise
specified. In the opinion of management, all adjustments, consisting of normal
recurring adjustments necessary for a fair presentation of (a) the consolidated
results of operations for the three month and six month periods ended June 30,
1996 and 1995; (b) the consolidated financial position at June 30, 1996 and
December 31, 1995; and (c) the consolidated cash flows for the six month periods
ended June 30, 1996 and 1995 have been made. However, the consolidated financial
statements included herewith do not include any adjustments that might result
from the Company's inability to emerge from or complete its ongoing
restructuring activities and continue as a going concern--See Note 1 to the
Unaudited Consolidated Financial Statements.
NOTE 3--OWNERSHIP
80% of the Company's common shares and all of the Company's Series A, B and
C Preferred shares are owned by a wholly-owned subsidiary of Brierley
Investments Ltd ("BIL"), a New Zealand investment firm.
F-35
<PAGE>
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except per-share data)
NOTE 4--PROPOSED MERGER WITH GRAHAM-FIELD HEALTH PRODUCTS, INC.
On June 17, 1996, the Company announced an agreement in principle with
Graham-Field Health Products, Inc. for Graham-Field to acquire the Company in a
merger transaction. The terms of the proposed transaction announced on June 17,
1996 provided that the stockholders of the Company would receive one share of
common stock of Graham-Field in exchange for each four shares of common stock of
the Company and $2.00 for each share of common stock of the Company, or a total
of approximately 1.8 million shares of Graham-Field common stock and $14.4
million. On August 14, 1996, the Company and Graham-Field announced revised
terms pursuant to which the stockholders of the Company will receive one share
of common stock of Graham-Field for each 2.857 shares of the common stock of the
Company but no cash payment, or a total of approximately 2.5 million shares of
Graham-Field Common Stock. The exchange ratio will be reduced if the value of
the Graham-Field common stock to be issued in exchange for each share of common
stock of the Company exceeds $5.50. On August 12, 1996 the closing sale price of
Graham-Field Common Stock on the New York Stock Exchange was $8 per share.
BIL has agreed to purchase up to an additional 1.9 million shares of common
stock of Graham-Field at a price of $13.00 per share or the average market price
of the common stock of Graham-Field for the ten (10) consecutive trading days
prior to the closing date, whichever is higher, the proceeds of which will be
used by Graham-Field to repay all debt of the Company in the approximate amount
of $25 million to The Hongkong and Shanghai Banking Corporation Limited (see
Note 6--Debt). As part of the merger transaction, BIL will also receive (1)
Series B Convertible Preferred Stock with a liquidation value not to exceed $61
million in exchange for an approximately equal amount of debt owed by the
Company to BIL and Convertible Preferred Stock of the Company held by BIL, and
(2) $10 million of Graham-Field Series C Convertible Preferred Stock for $10
million in cash. The Graham-Field Series B and Series C Convertible Preferred
Stock will yield a dividend at the rate of 1.5% per year, which will be paid at
the option of Graham-Field either in cash or common stock. The Graham-Field
Series B Convertible Preferred Stock will be convertible into common stock of
Graham-Field during the five (5) year period following the closing (a) by BIL at
a conversion price of $20 per share and (b) if Graham-Field's common stock
trades at an average stock price of $15.50 per share or greater for a period of
ten (10) consecutive trading days during such period, by Graham-Field at such
average stock price at the time of conversion or $20.00 per share, whichever is
lower; if the Graham-Field Series B Convertible Preferred Stock has not been
converted during such period, it will automatically convert on the fifth
anniversary date of the closing at a conversion price of $15.50. The
Graham-Field Series C Convertible Preferred Stock will be automatically
converted into common stock of Graham-Field at a conversion price of $20.00 per
share on the fifth anniversary date of the closing unless Graham-Field elects to
redeem it at that time for $10 million plus accrued and unpaid dividends. BIL
has also lent Graham-Field $4 million on a short-term basis, which loan would be
exchanged for a $4 million 7.7% subordinated note of Graham-Field payable on
April 1, 2001. Immediately after the transaction and after giving effect to the
conversion of the Series B Convertible Preferred Stock at $15.50 per share and
the Series C Convertible Preferred Stock at $20.00 per share, BIL would own
approximately 34% of the common stock of Graham-Field on a fully diluted basis.
The transaction, which is currently anticipated to be completed in November
1996, is subject to, among other things, approval by the Boards of Directors of
Graham-Field and the Company, the negotiation and execution of definitive
documentation, the approval by the stockholders of Graham-Field and the Company,
the receipt of certain regulatory approvals, and the satisfaction of other
customary terms and conditions. Following execution of definitive documentation
and subject to
F-36
<PAGE>
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except per-share data)
NOTE 4--PROPOSED MERGER WITH GRAHAM-FIELD HEALTH PRODUCTS, INC.-- (Continued)
clearance by the Securities and Exchange Commission, the parties will mail to
stockholders a joint proxy statement/prospectus describing the terms of the
proposed transaction.
See Note 10 for a description of a class action complaint filed in Delaware
with respect to the proposed acquisition of the Company by Graham-Field.
NOTE 5--COMMON STOCK
On June 4, 1996 the Company's shareholders approved a one-for-ten reverse
stock split, effective June 6, 1996. The stated par value of one share of common
stock was changed from $.01 to $.10 as a result of the stock split. All
references in the consolidated financial statements to average number of shares
outstanding and related prices, per share amounts and stock option plan data
have been restated to reflect the reverse stock split.
NOTE 6--DEBT
The Company's debt as of June 30, 1996 and December 31, 1995 is as follows:
<TABLE>
<CAPTION>
June 30 December 31
1996 1995
-------- --------
(Unaudited)
<S> <C> <C>
Loans payable to HSBC ............................................... $24,240 $18,700
Other domestic debt ................................................. 2,015 2,622
Foreign debt ........................................................ 4,897 5,521
Long-term loan payable to BIL ....................................... 21,103 21,103
------- -------
Total debt .......................................................... 52,255 47,946
Less short-term borrowings and current installments of long-term debt 4,142 4,473
------- -------
Long-term debt, net of current portion, including BIL Credit Facility $48,113 $43,473
======= =======
</TABLE>
On September 30, 1992 E&J Inc., a wholly-owned subsidiary of the Company,
entered into a Revolving Credit Agreement with The Hongkong and Shanghai Banking
Corporation Limited ("HSBC"). This Agreement has been revised and extended
several times and currently expires September 30, 1997. Advances under the
Revolving Credit Agreement, as amended, bear interest at the prime rate as
announced by Marine Midland Bank, N.A. from time to time plus 0.25% per annum.
The HSBC facility, as amended, provides up to $6 million for letter of credit
availability and, additionally, cash advances of up to $25 million to E&J Inc.
Repayment of existing debt with BIL is subordinated to the HSBC debt, and an
affiliate of BIL has guaranteed repayment of the HSBC debt. As of July 31, 1996
this facility was fully utilized.
BIL has provided the Company a credit facility which allows advances up to
$21.1 million. At June 30, 1996 and December 31, 1995 this facility has been
fully utilized. The BIL credit facility has been extended to September 30, 1997,
bears interest at the rate of 8% per annum, and is secured by a lien on and
security interest in all assets of the Company and E&J Inc. As of June 30, 1996,
$3.5 million of accrued, unpaid interest was due BIL under the BIL credit
facility.
F-37
<PAGE>
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except per-share data)
NOTE 6--DEBT--(Continued)
The Company's Canadian subsidiary has credit facilities in the aggregate of
$5.5 million, of which $4.3 million was borrowed as of June 30, 1996 at interest
rates ranging from prime plus 1% to prime plus 1.25%. The loans are secured by
the assets of the Canadian subsidiary and certain Letters of Credit supplied by
HSBC and BIL.
The Company's Mexican subsidiary has a credit facility in the aggregate of
$1.0 million, of which $0.6 million was borrowed as of June 30, 1996 at interest
rates approximating 13%. The loan is secured by the assets of the Mexican
subsidiary.
At June 30, 1996, the Company was contingently liable to HSBC under
existing letters of credit in the aggregate amount of approximately $5.8
million.
NOTE 7--LOSS PER SHARE
Loss per share for the three month and six month periods ended June 30,
1996 and 1995 is calculated based on the weighted average number of shares of
Common Stock outstanding during the periods, giving effect to the reverse stock
split as discussed in Note 5.
NOTE 8--INVENTORIES
Inventories at June 30, 1996 and December 31, 1995 consist of the
following:
June 30 December 31
1996 1995
----------- ------------
(Unaudited)
Raw materials..................................... $ 10,492 $ 10,365
Work-in-process................................... 3,650 4,593
Finished goods.................................... 5,681 4,612
--------- ----------
$ 19,823 $ 19,570
========= ==========
NOTE 9--NOTES RECEIVABLE (LONG TERM)
The Company received notes of $2.1 million and $0.6 million upon the sale
of its institutional business and oxygen concentrator business, respectively, in
1995. The $2.1 million note was paid in full on April 2, 1996. The $0.6 million
note has been reduced to $0.4 million, bears interest at the rate of 6% after
August 15, 1996 and requires monthly installments, with the final payment due in
January, 1997.
NOTE 10--CONTINGENT LIABILITIES
In July, 1990 a class action suit was filed in the United States District
Court for the Central District of California by a stockholder of the Company
against the Company and certain of its present and former directors and
officers. The suit seeks unspecified damages for alleged non-disclosure and
misrepresentation concerning the Company in violation of federal securities
laws. The Company twice moved to dismiss the complaint on various grounds. After
the first such motion was granted, plaintiff filed a first amended complaint,
which subsequently was dismissed by order filed on September 20, 1991. Plaintiff
then notified the court that it did not intend to further amend the complaint,
and an
F-38
<PAGE>
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except per-share data)
NOTE 10--CONTINGENT LIABILITIES--(Continued)
order dismissing the complaint was entered in November 1991. Plaintiff filed a
notice of appeal to the Court of Appeals for the Ninth Circuit on December 23,
1991. The case was briefed and oral argument heard in June, 1993. Because of the
precedent set by a Ninth Circuit decision in another case which was decided
after the district court's order of dismissal but before the Ninth Circuit
decided plaintiff's appeal, the Ninth Circuit reversed the district court's
dismissal of the case and remanded the case to the district court for further
proceedings in an opinion handed down by the Ninth Circuit on August 24, 1995.
On March 25, 1996, the district court granted plaintiff's motion to certify a
class composed of purchasers of the Company's Common Stock during the period
from March 31, 1989 to June 12, 1990. The ultimate liability, if any, cannot be
determined at this time.
Die Cast Products, Inc. ("Die Cast Products"), a former subsidiary of the
Company, has been named as a defendant in a lawsuit filed by the State of
California pursuant to the Comprehensive Environmental Response, Compensation
and Liability Act 42 U.S.C. Sec.Sec. 9601 et sec. The Company was originally
notified of this action on December 10, 1992. The lawsuit seeks to recover
response and remediation costs in connection with the release or threatened
release of hazardous substances at 5619-21 Randolph Street, in the City of
Commerce, CA ("Randolph Street Site"). It is alleged that the Randolph Street
Site was used for the treatment, storage and disposal of hazardous substances.
The Company anticipates being named as a defendant as a result of its former
ownership of Die Cast Products, which allegedly disposed of hazardous waste
materials at the Randolph Street Site. A settlement in principle between the
State of California and the various potentially responsible parties was reached
in October 1995. A consent decree was signed in July 1996. The Company's portion
of the settlement was less than originally anticipated. Accordingly, the
previously recorded reserve for this matter was reduced in 1995 to the
settlement amount.
In March, 1993 E&J Inc. received a notice from the U.S. Environmental
Protection Agency ("EPA") regarding an organizational meeting of generators with
respect to the Casmalia Resources Hazardous Waste Management Facility ("Casmalia
Site") in Santa Barbara County, CA. The EPA alleges that the Casmalia Site is an
inactive hazardous waste treatment, storage and disposal facility which accepted
large volumes of commercial and industrial wastes from 1973 until 1989. In late
1991, the Casmalia Site owner/ operator abandoned efforts to actively pursue
site permitting and closure and is currently conducting only minimal maintenance
activities. The EPA estimates that the Casmalia Site's closure trust fund,
approximately $10 million, is substantially insufficient to cover cleanup and
closure of the site. Since August, 1992, the EPA has undertaken certain interim
stabilization actions to control actual or threatened releases of hazardous
substances at the Casmalia Site. The EPA is seeking cooperation from generators
to assist in the clean up and closing of the Casmalia Site. E&J Inc. and 64
other entities were invited to the organizational meeting. E&J Inc. is a member
of a manufacturers' group of potentially responsible parties which has
investigated the site and proposed a remediation plan to the EPA. To reflect E&J
Inc.'s estimated allocation of costs thereunder, a reserve of $1.0 million was
recorded, which was included in the Consolidated Statements of Operations for
1993. During 1995 an agreement in principle was reached with the EPA for a
settlement of the majority of the Casmalia site liability. A consent decree was
signed during July 1996, which provides for the work to be completed in three
phases. Phase I, which is estimated to take three to five years to complete,
will require the Company, along with other responsible parties, to participate
in funding the water management, certain construction projects and completion of
the site investigation. Phase II, consisting of the remaining remedial
construction activities and the first five years of operation and maintenance,
will be funded by other parties and is estimated to take ten years. Subsequent
to Phase II, additional operation and
F-39
<PAGE>
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except per-share data)
NOTE 10--CONTINGENT LIABILITIES--(Continued)
maintenance will be required for approximately 30 years. The estimated exposure
of the Company under this agreement is less than originally anticipated and the
previously recorded reserve has been reduced to the expected settlement amount.
In 1989 a patent infringement case was initiated against E&J Inc. and other
defendants in the U.S. District Court, Central District of California. E&J Inc.
prevailed at trial with a directed verdict of patent invalidity and
non-infringement. The plaintiff filed an appeal with the U.S. Court of Appeals
for the Federal Circuit. On March 31, 1993, the Court of Appeals vacated the
District Court's decision and remanded the case for trial. Impacting the retrial
of this litigation was a re-examination proceeding before the Board of Patent
Appeals with respect to the subject patent. A ruling was rendered November 23,
1993 sustaining the claim of the patent which E&J Inc. has been charged with
infringing. Upon the issuance of a patent re-examination certificate by the U.S.
Patent Office, the plaintiff presented a motion to the District Court requesting
a retrial of the case. The Company presented a Motion for Summary Judgment of
Noninfringement based in part upon the November 23, 1993 decision of the Board
of Patent Appeals. The Motion was granted in follow-up conferences and an
official Judgment was entered November 17, 1994. Following the appeal by the
plaintiffs, the case has been remanded to the US District Court, Central
District of California, for further consideration. E&J Inc. believes that this
case is without merit and intends to contest it vigorously. The ultimate
liability of E&J Inc., if any, cannot be determined at this time.
Following a jury trial on July 15, 1996, a verdict was rendered in the
District Court of the First Judicial District of the State of New Mexico in a
civil product liability law suit (Chris Trew et al. vs. Smith and Davis
Manufacturing Company, Inc., No. SF95-354) against Smith & Davis Manufacturing
Company, a wholly-owned subsidiary of the Company ("Smith & Davis"), in the
amount of $550,000 actual damages and $4 million punitive damages. The suit was
instituted on February 25, 1995 by the children and surviving heirs and personal
representatives of a nursing home patient in Carlsbad, New Mexico who died on
September 28, 1993 after her head became pinned between a bed rail allegedly
manufactured by Smith & Davis and her bed. The suit alleged that the bed rail in
question was defective and unsafe for its intended purpose, that Smith & Davis
was negligent in designing, manufacturing, testing and marketing such bed rails
and that the negligence of the nursing home in question was the proximate cause
of the decedent's injuries and death. The nursing home reached a settlement with
plaintiffs prior to trial. Smith & Davis has product liability insurance
coverage which provides $1 million per occurrence coverage in excess of a
$250,000 self insured retention and $5 million of umbrella coverage. Judgment
has not yet been entered on the jury verdict.
On June 18, 1996 a Class Action Complaint captioned Ron Kauffman v. Rodney
F. Hogg, et al. was filed in the Court of Chancery in New Castle County,
Delaware with respect to the proposed acquisition of the Company by Graham-Field
(see Note 4), naming as defendants the Company, its directors, BIL and
Graham-Field. The suit alleges that, as a result of the proposed acquisition of
the Company by Graham-Field, minority shareholders will not receive their
proportionate share of the value of the Company's assets and will be prevented
from obtaining a fair price for their stock. Plaintiff alleges that the
acquisition offers minority shareholders value which is less than the Company's
trading price prior to the announcement of the acquisition, and that BIL will
receive more value for its holdings than minority shareholders. The plaintiff
alleges that the directors breached their fiduciary duties to minority
shareholders by not exercising independent business judgment and by acting for
their own personal benefit. The plaintiff seeks certification of a class
consisting of minority shareholders of the
F-40
<PAGE>
EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands except per-share data)
NOTE 10--CONTINGENT LIABILITIES--(Continued)
Company. Plaintiff requests that the acquisition be enjoined or, alternatively,
that damages be awarded to the class. To date, no responsive pleading has been
filed by any of the defendants and no discovery has been taken.
The Company and its subsidiaries are parties to other lawsuits and other
proceedings arising out of the conduct of its ordinary course of business,
including those relating to product liability and the sale and distribution of
its products. While the results of such lawsuits and other proceedings cannot be
predicted with certainty, management does not expect that the ultimate
liabilities, if any, will have a material adverse effect on the consolidated
financial position or results of operations of the Company.
F-41
<PAGE>
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Balance at Charged to
Beginning of Costs and Balance at End
For the Year Ended Period Expenses Deductions of Period
- ------------------ ------ -------- ---------- ---------
<S> <C> <C> <C> <C>
December 31, 1995:
Allowance for doubtful accounts... $ 2,088 $ 577 $ 818 $ 1,847
Accrued restructuring expenses.... 4,476 123 3,940 3,140
December 31, 1994:
Allowance for doubtful accounts... $ 1,506 $ 1,630 $ 1,048 $ 2,088
Accrued restructuring expenses.... 6,292 -0- 1,816 4,476
December 31, 1993:
Allowance for doubtful accounts... $ 3,505 $ 1,515 $ 3,514(a) $ 1,506
Accrued restructuring expenses.... 6,047 5,074(b)(c) 4,829 6,292
</TABLE>
- ----------
(a) This includes amount related to the accounts of the Institutional Business
which have been reclassified as Assets Held for Sale.
(b) Accrued restructuring expenses include costs incurred in the process of
relocating the Company's primary domestic wheelchair manufacturing facility
from California to Missouri. $10,030 and $2,079 of restructuring expenses
were charged to other balance sheet accounts for 1993 and 1992,
respectively.
(c) Accrued restructuring expenses include costs related to the disposition of
the Institutional Business.
S-1
<PAGE>
ANNEX A
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
dated as of September 3, 1996
and amended as of October 1, 1996
by and among
GRAHAM-FIELD HEALTH PRODUCTS, INC.,
BIL (FAR EAST HOLDINGS) LIMITED,
E&J ACQUISITION CORP.
and
EVEREST & JENNINGS INTERNATIONAL LTD.
<PAGE>
TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to which it is attached
but is inserted for convenience only.
Page
No.
----
ARTICLE I
THE MERGER
1.01 The Merger........................................................... 2
1.02 Effective Time....................................................... 2
1.03 Certificate of Incorporation and Bylaws of the Surviving Corporation. 2
1.04 Directors and Officers of the Surviving Corporation.................. 2
1.05 Effects of the Merger................................................ 3
1.06 Further Assurances................................................... 3
ARTICLE II
CONVERSION OF SHARES
2.01 Conversion of Capital Stock.......................................... 3
2.02 Closing; Closing Deliveries.......................................... 5
2.03 Exchange of Certificates............................................. 8
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
3.01 Organization and Qualification....................................... 11
3.02 Capital Stock; Indebtedness.......................................... 12
3.03 Authority Relative to this Agreement................................. 13
3.04 Non-Contravention; Approvals and Consents............................ 14
3.05 SEC Reports and Financial Statements................................. 15
3.06 Absence of Certain Changes or Events................................. 16
3.07 Absence of Undisclosed Liabilities................................... 16
3.08 Legal Proceedings.................................................... 17
3.09 Information Supplied................................................. 17
3.10 Compliance with Laws and Orders...................................... 17
3.11 Compliance with Agreements; Certain Agreements....................... 18
3.12 Taxes................................................................ 19
3.13 Benefit Plans; ERISA................................................. 19
3.14 Labor Matters........................................................ 24
3.15 Environmental Matters................................................ 25
3.16 Intellectual Property Rights......................................... 27
3.17 Affiliate Transactions............................................... 28
3.18 Vote Required........................................................ 28
3.19 Opinion of Financial Advisor......................................... 29
3.20 Ownership of Parent Common Stock..................................... 29
3.21 Section 203 of the DGCL Not Applicable............................... 29
ARTICLE III-A
REPRESENTATIONS AND WARRANTIES OF BIL
3A.01 Organization and Qualification....................................... 29
3A.02 Authority Relative to this Agreement................................. 29
i
<PAGE>
3A.03 Non-Contravention; Approvals and Consents............................ 30
3A.04 Legal Proceedings.................................................... 30
3A.05 Purchase for Investment.............................................. 30
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
4.01 Organization and Qualification....................................... 31
4.02 Capital Stock........................................................ 32
4.03 Authority Relative to this Agreement................................. 33
4.04 Non-Contravention; Approvals and Consents............................ 34
4.05 SEC Reports and Financial Statements................................. 35
4.06 Absence of Certain Changes or Events................................. 36
4.07 Absence of Undisclosed Liabilities................................... 36
4.08 Legal Proceedings.................................................... 36
4.09 Information Supplied................................................. 37
4.10 Compliance with Laws and Orders...................................... 37
4.11 Compliance with Agreements; Certain Agreements....................... 38
4.12 Taxes................................................................ 38
4.13 Employee Benefit Plans; ERISA........................................ 39
4.14 Labor Matters........................................................ 43
4.15 Environmental Matters................................................ 43
4.16 Intellectual Property Rights......................................... 45
4.17 Vote Required........................................................ 46
4.18 Opinion of Financial Advisor......................................... 46
4.19 Parent Rights Agreement.............................................. 46
4.20 Ownership of Company Common Stock.................................... 46
4.21 Section 203 of the DGCL Not Applicable............................... 46
ARTICLE V
COVENANTS
5.01 Covenants of the Company and Parent.................................. 47
5.02 No Solicitations..................................................... 52
5.03 Conduct of Business of Sub........................................... 52
5.04 Third Party Standstill Agreements.................................... 53
5.05 Purchases of Common Stock of the Other Party......................... 53
ARTICLE VI
ADDITIONAL AGREEMENTS
6.01 Access to Information; Confidentiality............................... 53
6.02 Preparation of Registration Statement and Proxy Statement............ 54
6.03 Approval of Stockholders............................................. 55
6.04 Company Affiliates................................................... 55
6.05 Stock Exchange Listing............................................... 56
6.06 PBGC Waiver Payments................................................. 56
6.07 Regulatory and Other Approvals....................................... 56
6.08 Company Option Plans................................................. 57
6.09 Expenses............................................................. 57
6.10 Brokers or Finders................................................... 57
6.11 Takeover Statutes.................................................... 57
6.12 Conveyance Taxes..................................................... 58
6.13 [Intentionally Left Blank]........................................... 58
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6.14 Related Party Contracts and Transactions............................. 58
6.15 Benefit Arrangements................................................. 58
6.16 Indemnification of Directors and Officers............................ 58
6.17 Contributed Shares and Debt.......................................... 60
6.18 Excess HSBC Indebtedness............................................. 60
6.19 Mexican Subsidiary................................................... 60
ARTICLE VII
CONDITIONS
7.01 Conditions to Each Party's Obligation to Effect the Merger........... 60
7.02 Conditions to Obligation of Parent and Sub to effect the Merger...... 62
7.03 Conditions to Obligation of the Company to Effect the Merger......... 64
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.01 Termination.......................................................... 65
8.02 Effect of Termination................................................ 65
8.03 Amendment............................................................ 66
8.04 Waiver............................................................... 66
ARTICLE IX
GENERAL PROVISIONS
9.01 Non-Survival of Representations, Warranties, Covenants and Agreements 66
9.02 Notices.............................................................. 67
9.03 Entire Agreement; Incorporation of Exhibits.......................... 68
9.04 Public Announcements................................................. 68
9.05 No Third Party Beneficiary........................................... 69
9.06 No Assignment; Binding Effect........................................ 69
9.07 Headings............................................................. 69
9.08 Invalid Provisions................................................... 69
9.09 Governing Law........................................................ 69
9.10 Enforcement of Agreement............................................. 69
9.11 Certain Definitions.................................................. 70
9.12 Counterparts......................................................... 71
EXHIBITS
EXHIBIT A Form of Certificate of Designations of Parent Series B Cumulative
Convertible Preferred Stock
EXHIBIT B Form of Certificate of Designations of Parent Series C Cumulative
Convertible Preferred Stock
EXHIBIT C Term Sheet for Unsecured Subordinated Promissory Note
EXHIBIT D Parent Amendment
EXHIBIT E Form of Affiliate Agreement
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GLOSSARY OF DEFINED TERMS
The following terms, when used in this Agreement, have the meanings
ascribed to them in the corresponding Sections of this Agreement listed below:
"affiliate"............................................ Section 9.11(a)
"Affiliate Agreement".................................. Section 6.04
"Agreement"............................................ Preamble
"Alternative Proposal"................................. Section 5.02
"Antitrust Division"................................... Section 6.07
"Appraised Value"...................................... Section 2.02(b)(iii)
"beneficially"......................................... Section 9.11(b)
"BIL".................................................. Preamble
"BIL Company Preferred Shares"......................... Sections 2.02(b)(iii)
"BIL Debt"............................................. Section 2.02(b)(iii)
"business day"......................................... Section 9.11(c)
"CERCLA"............................................... Section 3.15(c)
"CERCLIS".............................................. Section 3.15(e)
"Certificate of Merger"................................ Section 1.02
"Certificates"......................................... Section 2.03(b)
"Claim"................................................ Section 6.16(a)
"Closing".............................................. Section 2.02(a)
"Closing Date"......................................... Section 2.02(a)
"Code"................................................. Section 2.03(g)
"Common Stock Trust"................................... Section 2.03(e)(iii)
"Company".............................................. Preamble
"Company Affiliates"................................... Section 6.04
"Company Benefit Plan"................................. Section 3.13(o)(i)
"Company Common Stock"................................. Preamble
"Company Defined Benefit Plan"......................... Section 3.13(o)(ii)
"Company Disclosure Letter"............................ Section 3.01
"Company ERISA Affiliate".............................. Section 3.13(o)(iii)
"Company Financial Statements"......................... Section 3.05
"Company Intellectual Property"........................ Section 3.16
"Company Option Plans"................................. Section 3.02(a)
"Company Pension Benefit Plan"......................... Section 3.13(o)(iv)
"Company Permits"...................................... Section 3.10
"Company Preferred Stock".............................. Section 2.01(d)
"Company Qualified Plan"............................... Section 3.13(o)(v)
"Company SEC Reports".................................. Section 3.05
"Company Series A Preferred Stock"..................... Section 2.01(d)
"Company Series B Preferred Stock"..................... Section 2.01(d)
"Company Series C Preferred Stock"..................... Section 2.01(d)
"Company Stockholders' Approval"....................... Section 6.03(b)
"Company Stockholders' Meeting"........................ Section 6.03(b)
"Company Stock Option"................................. Section 6.08
"Company Subject Defined Benefit Plan"................. Section 3.13(o)(vi)
"Confidentiality Agreement"............................ Section 6.01
"Constituent Corporations"............................. Section 1.01
"Contracts"............................................ Section 3.04(a)
"Contributed Debt"..................................... Section 2.02(b)(iii)
"Contributed Shares"................................... Section 2.02(b)(iii)
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"control," "controlling," "controlled by" and "under
common control with"................................ Section 9.11(a)
"Conversion Number".................................... Section 2.01(c)(i)
"DGCL"................................................. Section 1.01
"Dissenting Share"..................................... Section 2.01(e)(i)
"Effective Time"....................................... Section 1.02
"Environmental Law".................................... Section 3.15(g)(i)
"Environmental Permits"................................ Section 3.15(a)
"ERISA"................................................ Section 3.13(o)(vii)
"Excess Shares"........................................ Section 2.03(e)(ii)
"Exchange Act"......................................... Section 3.04(b)
"Exchange Agent"....................................... Section 2.03(a)
"Exchange Fund"........................................ Section 2.03(a)
"Fair Market Value".................................... Section 2.01(c)(ii)(A)
"FTC".................................................. Section 6.07
"GAAP"................................................. Section 3.13(o)(viii)
"Governmental or Regulatory Authority"................. Section 3.04(a)
"group"................................................ Section 9.11(e)
"Hazardous Material"................................... Section 3.15(g)(ii)
"HSBC"................................................. Section 6.06
"HSBC Debt Payment".................................... Section 2.02(b)(i)
"HSBC Indebtedness".................................... Section 2.02(b)(i)
"HSR Act".............................................. Section 3.04(b)
"Indemnified Parties".................................. Section 6.16(a)
"Industrial Property".................................. Section 3.16
"Intellectual Property"................................ Section 3.16
"Investment Assets".................................... Section 3.17
"laws"................................................. Section 3.04(a)
"Lien"................................................. Section 3.02(b)
"material", "material adverse effect" and "materially
adverse"............................................. Section 9.11(d)
"Merger"............................................... Preamble
"Merger Consideration Per Share"....................... Section 2.01(c)(i)
"Mexican Subsidiary"................................... Section 6.19
"NPL".................................................. Section 3.15(c)
"NYSE"................................................. Section 2.01(c)(ii)(B)
"Options".............................................. Section 3.02
"orders"............................................... Section 3.04(a)
"Original Agreement"................................... Preamble
"Outstanding Note"..................................... Section 2.02(b)(v)
"Parent"............................................... Preamble
"Parent Amendment"..................................... Section 6.03(a)
"Parent Benefit Plan".................................. Section 4.13(n)(i)
"Parent Common Stock".................................. Section 2.01(c)
"Parent Defined Benefit Plan".......................... Section 4.13(n)(ii)
"Parent Disclosure Letter"............................. Section 4.01
"Parent Employee Benefit Plans"........................ Section 4.13(b)
"Parent ERISA Affiliate"............................... Section 4.13(n)(iii)
"Parent Financial Statements".......................... Section 4.05
"Parent Incentive Program"............................. Section 4.02(a)
"Parent Intellectual Property"......................... Section 4.16
"Parent Pension Benefit Plan".......................... Section 4.13(n)(iv)
"Parent Permits"....................................... Section 4.10
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"Parent Preferred Stock"............................... Section 4.02(a)
"Parent Qualified Plan"................................ Section 4.13(n)(v)
"Parent Rights"........................................ Section 4.02(a)
"Parent Rights Agreement".............................. Section 4.02(a)
"Parent SEC Reports"................................... Section 4.05
"Parent Series A Preferred Stock"...................... Section 4.02(a)
"Parent Series B Preferred Stock"...................... Section 2.02(b)(iii)
"Parent Series C Preferred Stock"...................... Section 2.02(b)(iv)
"Parent Stockholders' Approval"........................ Section 6.03(a)
"Parent Stockholders' Meeting"......................... Section 6.03(a)
"Parent Subject Defined Benefit Plan".................. Section 4.13(n)(vi)
"PBGC"................................................. Section 3.13(o)(ix)
"PBGC Waiver".......................................... Section 3.13(m)
"person"............................................... Section 9.11(e)
"Plan"................................................. Section 3.13(o)(x)
"Plan Amendment"....................................... Section 6.03(a)
"Proxy Statement"...................................... Section 3.09
"Registration Rights Agreement"........................ Preamble
"Registration Statement"............................... Section 4.09
"Representatives"...................................... Section 9.11(f)
"Sales Price".......................................... Section 2.01(c)(ii)(B)
"SEC".................................................. Section 3.04(b)
"Secretary of State"................................... Section 1.02
"Securities Act"....................................... Section 3.04(b)
"Stock Amendment"...................................... Section 6.03(a)
"Stockholder Action Amendments"........................ Section 6.03(a)
"Stockholder Agreement"................................ Preamble
"Stockholders' Meetings"............................... Section 6.03(b)
"Sub".................................................. Preamble
"Sub Common Stock"..................................... Section 2.01(a)
"Subsidiary"........................................... Section 9.11(g)
"Surviving Corporation"................................ Section 1.01
"Surviving Corporation Common Stock"................... Section 2.01(a)
"taxes"................................................ Section 3.12(c)
"Trading Day".......................................... Section 2.01(c)(ii)(C)
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This AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER dated as of
September 3, 1996 and amended as of October 1, 1996 ("this Agreement") is made
and entered into by and among Graham-Field Health Products, Inc., a Delaware
corporation ("Parent"), E&J Acquisition Corp., a Delaware corporation wholly
owned by Parent ("Sub"), BIL (Far East Holdings) Limited, a Hong Kong
Corporation (together with its affiliates, "BIL"), and Everest & Jennings
International Ltd., a Delaware corporation (the "Company").
WHEREAS, Parent, Sub, BIL and the Company entered into an Agreement and
Plan of Merger dated as of September 3, 1996 (the "Original Agreement");
WHEREAS, Parent, Sub, BIL and the Company wish to amend and restate the
Original Agreement in its entirety;
WHEREAS, the Boards of Directors of Parent, Sub and the Company have each
determined that it is advisable and in the best interests of their respective
stockholders to consummate, and have approved, the business combination
transaction provided for herein in which Sub would merge with and into the
Company and the Company would become a wholly-owned subsidiary of Parent (the
"Merger");
WHEREAS, the respective Boards of Directors of Parent and the Company have
determined that the Merger is in furtherance of and consistent with their
respective long-term business strategies and is fair to and in the best
interests of their respective stockholders, and Parent has approved this
Agreement and the Merger as the sole stockholder of Sub;
WHEREAS, BIL is the majority stockholder of the Company;
WHEREAS, concurrently with the execution and delivery of the Original
Agreement, Parent and BIL entered into (i) a stockholder agreement dated as of
September 3, 1996 pursuant to which, among other things, BIL has agreed to vote
its shares of common stock, par value $0.10 per share, of the Company ("Company
Common Stock"), and its shares of Company Preferred Stock (as defined in Section
3.02) in favor of the Merger (as amended and restated as of September 19, 1996,
the "Stockholder Agreement"), and (ii) a registration rights agreement dated as
of September 3, 1996 pursuant to which the Company has agreed to register shares
of capital stock of Parent to be received by BIL in the Merger (the
"Registration Rights Agreement"); and
WHEREAS, Parent, Sub, BIL and the Company desire to make certain
representations, warranties and agreements in connection with the Merger and
also to prescribe various conditions to the Merger;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
THE MERGER
1.01 The Merger. Upon the terms and subject to the conditions of this
Agreement, at the Effective Time (as defined in Section 1.02), Sub shall be
merged with and into the Company in accordance with the General Corporation Law
of the State of Delaware (the "DGCL"). At the Effective Time, the separate
existence of Sub shall cease and the Company shall continue as the surviving
corporation in the Merger (the "Surviving Corporation"). Sub and the Company are
sometimes referred to herein as the "Constituent Corporations". As a result of
the Merger, the outstanding shares of capital stock of the Constituent
Corporations shall be converted or canceled in the manner provided in Article
II.
1.02 Effective Time. At the Closing (as defined in Section 2.02(a)), a
certificate of merger (the "Certificate of Merger") shall be duly prepared and
executed by the Surviving Corporation and
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thereafter delivered to the Secretary of State of the State of Delaware (the
"Secretary of State") for filing, as provided in Section 251 of the DGCL, as
soon as practicable on the Closing Date (as defined in Section 2.02(a)). The
Merger shall become effective at the time of the filing of the Certificate of
Merger with the Secretary of State (the date and time of such filing being
referred to herein as the "Effective Time").
1.03 Certificate of Incorporation and Bylaws of the Surviving Corporation.
At the Effective Time, (i) the Certificate of Incorporation of the Company as in
effect immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended as provided
by law and such Certificate of Incorporation, and (ii) the Bylaws of the Company
as in effect immediately prior to the Effective Time shall be the Bylaws of the
Surviving Corporation until thereafter amended as provided by law, the
Certificate of Incorporation of the Surviving Corporation and such Bylaws.
1.04 Directors and Officers of the Surviving Corporation. The directors of
Sub and the officers of Sub immediately prior to the Effective Time shall, from
and after the Effective Time, be the directors and officers, respectively, of
the Surviving Corporation, until their respective successors shall have been
duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the Surviving Corporation's
Certificate of Incorporation and Bylaws.
1.05 Effects of the Merger. Subject to the foregoing, the effects of the
Merger shall be as provided in the applicable provisions of the DGCL.
1.06 Further Assurances. Each party hereto will, either prior to or after
the Effective Time, execute such further documents, instruments, deeds, bills of
sale, assignments and assurances and take such further actions as may reasonably
be requested by one or more of the others to consummate the Merger, to vest the
Surviving Corporation with full title to all assets, properties, rights,
approvals, immunities and franchises of either of the Constituent Corporations
or to effect the other purposes of this Agreement.
ARTICLE II
CONVERSION OF SHARES
2.01 Conversion of Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of the holder thereof:
(a) Capital Stock of Sub. Each issued and outstanding share of the common
stock, par value $.01 per share, of Sub ("Sub Common Stock") shall be converted
into and become one fully paid and nonassessable share of common stock, par
value $.01 per share, of the Surviving Corporation ("Surviving Corporation
Common Stock"). Each certificate representing outstanding shares of Sub Common
Stock shall at the Effective Time represent an equal number of shares of
Surviving Corporation Common Stock.
(b) Cancellation of Treasury Stock and Stock Owned by Parent and
Subsidiaries. All shares of Company Common Stock that are owned by the Company
as treasury stock and any shares of Company Common Stock owned by Parent, Sub or
any other wholly-owned Subsidiary (as defined in Section 9.11) of Parent shall
be canceled and retired and shall cease to exist and no stock of Parent or other
consideration shall be delivered in exchange therefor.
(c) Conversion of Company Common Stock. (i) Each issued and outstanding
share of Company Common Stock (other than shares to be canceled in accordance
with Section 2.01(b) and other than Dissenting Shares (as defined in Section
2.01(e))) shall be converted into the right to receive .35 (as the same may be
adjusted pursuant to Section 2.01(c)(ii), the "Conversion Number") of a fully
paid and
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nonassessable share of common stock, par value $.025 per share, of Parent
("Parent Common Stock"), subject to reduction as provided in paragraph (ii)
below (the "Merger Consideration Per Share").
(ii) Notwithstanding the provisions of paragraph (i) above, if the Fair
Market Value (as defined below) of the Merger Consideration Per Share computed
in accordance with paragraph (i) above exceeds $5.50, the Conversion Number
shall be reduced to the extent necessary to cause the Fair Market Value of the
Merger Consideration Per Share to equal $5.50. For purposes of this Agreement,
(A) the "Fair Market Value" of each share of Parent Common Stock shall mean the
arithmetic average of the Sales Prices (as defined below) on each of the ten
(10) consecutive Trading Days (as defined below) ending on and including the
fifth Trading Day before the Closing Date; (B) "Sales Price" shall mean, on any
Trading Day, the closing sales price of a share of Parent Common Stock reported
on The New York Stock Exchange, Inc. ("NYSE") Composite Tape on such day; and
(C) "Trading Day" shall mean any day on which securities are traded on the NYSE.
(iii) If, prior to the Effective Time, Parent shall pay a dividend in,
subdivide, combine into a smaller number of shares or issue by reclassification
of its shares, any shares of Parent Common Stock, the Conversion Number shall be
multiplied by a fraction, the numerator of which shall be the number of shares
of Parent Common Stock outstanding immediately after, and the denominator of
which shall be the number of such shares outstanding immediately before, the
occurrence of such event, and the resulting product shall from and after the
date of such event be the Conversion Number, subject to further adjustment in
accordance with this paragraph.
(iv) All shares of Company Common Stock converted in accordance with
paragraph (i) of this Section 2.01(c) shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each holder
of a certificate representing any such shares (other than Dissenting Shares)
shall cease to have any rights with respect thereto, except the right to receive
the Merger Consideration Per Share to be issued or paid in consideration
therefor (determined in accordance with this Section 2.01), upon the surrender
of such certificate in accordance with this Article II, without interest.
(d) Company Preferred Stock. Each issued and outstanding share of Series A
Convertible Preferred Stock, par value $.01 per share, of the Company ("Company
Series A Preferred Stock"), Series B Convertible Preferred Stock, par value $.01
per share, of the Company ("Company Series B Preferred Stock"), and Series C
Convertible Preferred Stock, par value $.01 per share, of the Company ("Company
Series C Preferred Stock" and, together with the Company Series A Preferred
Stock and the Company Series B Preferred Stock, the "Company Preferred Stock"),
shall continue to be an issued and outstanding share of each such series of
Company Preferred Stock.
(e) Dissenting Shares. (i) Notwithstanding any provision of this Agreement
to the contrary, each outstanding share of Company Common Stock the holder of
which has not voted in favor of the Merger, has perfected such holder's right to
an appraisal of such holder's shares in accordance with the applicable
provisions of the DGCL and has not effectively withdrawn or lost such right to
appraisal (a "Dissenting Share"), shall not be converted into or represent a
right to receive the Merger Consideration Per Share, but the holder thereof
shall be entitled only to such rights as are granted by the applicable
provisions of the DGCL; provided, however, that any Dissenting Share held by a
person at the Effective Time who shall, after the Effective Time, withdraw the
demand for appraisal or lose the right of appraisal, in either case pursuant to
the DGCL, shall be deemed to be converted into, as of the Effective Time, the
right to receive the Merger Consideration Per Share pursuant to Section 2.01(c).
(ii) The Company shall give Parent (x) prompt notice of any written demands
for appraisal, withdrawals of demands for appraisal and any other instruments
served pursuant to the applicable provisions of the DGCL relating to the
appraisal process received by the Company and (y) the opportunity to direct all
negotiations and proceedings with respect to demands for appraisal under the
DGCL. The Company will not voluntarily make any payment with respect to any
demands for appraisal and will not, except with the prior written consent of
Parent, settle or offer to settle any such demands.
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(f) Stock Option Plans. The Company Option Plans (as defined in Section
3.02(a)), the stock option agreements executed pursuant thereto, and each option
to purchase Company Common Stock granted thereunder that is outstanding at the
Effective Time shall be cancelled and Parent shall grant to the holder of each
such option an option under the Parent Incentive Program (as defined in Section
4.02) to purchase shares of Parent Common Stock, as more fully described in
Section 6.08.
(g) Parent Rights. Each share of Parent Common Stock issued to holders of
Company Common Stock pursuant to this Agreement shall be issued together with
one associated Parent Right (as defined in Section 4.02(a)) in accordance with
the Parent Rights Agreement (as defined in Section 4.02(a)). References herein
to the shares of Parent Common Stock issuable pursuant to this Agreement shall
be deemed to include the associated Parent Rights.
2.02 Closing; Closing Deliveries.
(a) Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
8.01, and subject to the satisfaction or waiver (where applicable) of the
conditions set forth in Article VII, the closing of the Merger (the "Closing")
will take place at the offices of Milbank, Tweed, Hadley & McCloy, One Chase
Manhattan Plaza, New York, New York, at 10:00 a.m., local time, on the business
day following satisfaction of the condition set forth in Section 7.01.(a),
unless another date, time or place is agreed to in writing by the parties hereto
(the "Closing Date").
(b) Closing Deliveries. At the Closing:
(i) In exchange for the delivery by wire transfer of immediately available
funds from BIL to Parent in an amount equal to the HSBC Debt Payment (as defined
below), Parent shall deliver to BIL a certificate representing a number of
shares of Parent Common Stock (disregarding fractions) equal to the amount
determined by dividing (x) the amount of the HSBC Debt Payment by (y) the
greater of (A) $13.00 and (B) the Fair Market Value of each share of Parent
Common Stock. For purposes hereof, the term "HSBC Debt Payment" means an amount
equal to the aggregate amount of principal, interest and prepayment penalties or
premiums that would be required to be paid by the Company to Hong Kong and
Shanghai Banking Corporation Limited ("HSBC") in order to pay off and discharge
in full all indebtedness owing by the Company to HSBC (the "HSBC Indebtedness")
on and as of the Closing Date; provided that the HSBC Debt Payment shall in no
event exceed $25 million.
(ii) Parent shall apply the funds delivered to Parent by BIL pursuant to
the immediately preceding paragraph to pay off and discharge in full the HSBC
Indebtedness, and shall cause HSBC to deliver to BIL an instrument in form and
substance reasonably satisfactory to BIL evidencing HSBC's release of BIL from
its guarantee of the HSBC Indebtedness.
(iii) Parent shall deliver to BIL a certificate representing shares of
Series B Cumulative Convertible Preferred Stock, par value $.01 per share, of
Parent ("Parent Series B Preferred Stock") having an aggregate stated value
equal to the lesser of (A) the sum of (I) the aggregate unpaid principal of and
accrued and unpaid interest on the indebtedness of the Company owing to BIL on
the Closing Date (the "BIL Debt") and (II) the aggregate liquidation value of
the shares of Company Preferred Stock owned by BIL on the Closing Date (the "BIL
Company Preferred Shares") and (B) $61 million, in exchange for the delivery by
BIL to Parent of:
(x) an instrument reasonably satisfactory in form and substance to Parent
assigning to Parent BIL Debt, together with any and all security
interests and other Liens previously granted to BIL with respect
thereto, in an aggregate principal amount which, together with accrued
interest thereon, does not exceed the Appraised Value (as defined
below) of the Parent Series B Preferred Stock to be issued to BIL
hereunder; and
(y) certificates representing BIL Company Preferred Stock, duly endorsed
for transfer in blank or accompanied by duly executed stock powers in
blank, having an aggregate liquidation value
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which does not exceed the result obtained by subtracting (A) the
aggregate unpaid principal of and accrued interest on the BIL Debt
referred to in clause (x) above from (B) the Appraised Value of the
Parent Series B Preferred Stock to be issued to BIL hereunder.
For purposes hereof, "Appraised Value" means the fair market value as of
the Closing Date of the Parent Series B Preferred Stock to be issued to BIL
hereunder as determined by and set forth in a written report of an investment
banking or valuation firm designated by Parent and reasonably acceptable to BIL
delivered to Parent and BIL at least five (5) days prior to the Closing Date;
provided that the Appraised Value of such shares shall not exceed their
aggregate stated value.
In the event that the liquidation value of the Company Preferred Stock
owned by BIL on the Closing Date exceeds the resulting amount referred to in
clause (y) above, BIL shall contribute shares of Company Preferred Stock
representing such excess amount (the "Contributed Shares") to the capital of the
Company in accordance with Section 6.17. In the event that, after giving effect
to the contribution of the Contributed Shares, the unpaid principal of and
accrued interest on the BIL Debt held by BIL on the Closing Date exceeds the
amount referred to in clause (x) above, BIL shall contribute BIL Debt
representing such excess amount (the "Contributed Debt") to the capital of the
Company in accordance with Section 6.17.
The terms, limitations and relative rights and preferences of the Parent
Series B Preferred Stock will be as set forth in the form Certificate of
Designations of the Series B Convertible Preferred Stock of Parent attached as
Exhibit A hereto.
(iv) In exchange for the delivery by wire transfer of immediately available
funds from BIL to Parent in the amount of $10 million, Parent shall deliver to
BIL a certificate representing shares of Series C Cumulative Convertible
Preferred Stock, par value $.01 per share, of Parent ("Parent Series C Preferred
Stock") having an aggregate stated value equal to $10 million. The terms,
limitations and relative rights and preferences of the Parent Series C Preferred
Stock will be as set forth in the form of Certificate of Designations of the
Series C Convertible Preferred Stock of Parent attached as Exhibit B hereto.
(v) In exchange for the delivery by BIL to Parent of the Unsecured
Promissory Note dated July 18, 1996 evidencing the loan by BIL to Parent of U.S.
$4 million (the "Outstanding Note"), duly endorsed for transfer to Parent,
Parent shall deliver to BIL an unsecured subordinated promissory note reflecting
the terms set forth in Exhibit C hereto and such other terms not inconsistent
therewith as are customary for subordinated indebtedness, including covenants of
Parent (which shall in no event be more onerous to Parent than covenants
contained in Parent's senior indebtedness) and events of default, as Parent and
BIL shall mutually agree; provided that if BIL and Parent cannot agree on the
terms of such note, the Outstanding Note shall remain outstanding in accordance
with its terms.
(vi) There shall also be delivered to Parent, Sub and the Company the
certificates and other documents and instruments required to be delivered under
Article VII.
2.03 Exchange of Certificates.
(a) Exchange Agent. As of the Effective Time, Parent shall, or shall cause
the Surviving Corporation to, deposit with a bank or trust company designated
before the Closing Date by Parent and reasonably acceptable to the Company (the
"Exchange Agent"), certificates representing the number of duly authorized whole
shares of Parent Common Stock issuable pursuant to Section 2.01(c), which shall
be held for the benefit of and distributed to the holders of Company Common
Stock in accordance with this Section. The Exchange Agent shall agree to hold
such shares of Parent Common Stock (such shares of Parent Common Stock being
referred to herein as the "Exchange Fund") for delivery as contemplated by this
Section and upon such additional terms as may be agreed upon by the Exchange
Agent, the Company and Parent.
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(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Surviving Corporation shall cause the Exchange Agent to mail
or deliver to each holder of record of a certificate or certificates which
immediately prior to the Effective Time represented outstanding shares of
Company Common Stock (the "Certificates") whose shares are converted pursuant to
Section 2.01(c) into the right to receive the Merger Consideration Per Share (i)
a letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon delivery of
the Certificates to the Exchange Agent and shall be in customary form and have
such other provisions as the Surviving Corporation may reasonably specify) and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing the Merger Consideration Per Share and
cash in lieu of fractional shares in accordance with Section 2.03(e). Upon
surrender of a Certificate for cancellation to the Exchange Agent, together with
such letter of transmittal duly executed and completed in accordance with its
terms, the holder of such Certificate shall be entitled to receive in exchange
therefor (1) a certificate representing that number of whole shares of Parent
Common Stock which such holder has the right to receive pursuant to Section
2.01(c) and (2) the cash amount payable in lieu of fractional shares in
accordance with Section 2.03(e), and the Certificate so surrendered shall
forthwith be canceled. In no event shall the holder of any Certificate be
entitled to receive interest on any of the consideration to be received in the
Merger. In the event of a transfer of ownership of Company Common Stock which is
not registered in the transfer records of the Company, the aggregate Merger
Consideration Per Share may be issued to a transferee if the Certificate
representing such Company Common Stock is presented to the Exchange Agent
accompanied by all documents required to evidence and effect such transfer and
by evidence that any applicable stock transfer taxes have been paid. Until
surrendered as contemplated by this Section 2.03(b), each Certificate shall be
deemed at any time after the Effective Time for all corporate purposes of
Parent, except as limited by paragraph (c) below, to represent ownership of the
aggregate number of shares of Parent Common Stock into which the number of
shares of Company Common Stock represented thereby have been converted as
contemplated by this Article II. Notwithstanding the foregoing, Certificates
representing Company Common Stock surrendered for exchange by any person
constituting an "affiliate" of the Company for purposes of Section 6.04 shall
not be exchanged until Parent has received an Affiliate Agreement (as defined in
Section 6.04) as provided in Section 6.04.
(c) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the Effective Time with respect to Parent
Common Stock with a record date on or after the Effective Time shall be paid to
the holder of any unsurrendered Certificate with respect to the shares of Parent
Common Stock represented thereby and no cash payment in lieu of fractional
shares shall be paid to any such holder pursuant to Section 2.03(e) until the
holder of record of such Certificate shall surrender such Certificate in
accordance with this Section. Subject to the effect of applicable laws and to
the provisions of Section 2.03(e), following surrender of any such Certificate,
there shall be paid to the record holder of the certificates representing whole
shares of Parent Common Stock issued in exchange therefor, without interest, (i)
at the time of such surrender, the amount of cash payable with respect to any
fractional share of Parent Common Stock to which such holder is entitled
pursuant to Section 2.03(e) and the amount of dividends or other distributions,
if any, with a record date on or after the Effective Time which theretofore
became payable, but which were not paid by reason of the immediately preceding
sentence, with respect to such whole shares of Parent Common Stock, and (ii) at
the appropriate payment date, the amount of dividends or other distributions
with a record date on or after the Effective Time but prior to surrender and a
payment date subsequent to surrender payable with respect to such whole shares
of Parent Common Stock.
(d) No Further Ownership Rights in Company Common Stock. All shares of
Parent Common Stock issued upon the surrender for exchange of Certificates in
accordance with the terms hereof (and any cash paid pursuant to Section 2.03(e))
shall be deemed to have been issued at the Effective Time in full satisfaction
of all rights pertaining to the shares of Company Common Stock represented
thereby. From and after the Effective Time, the stock transfer books of the
Company shall be closed and there shall be no further registration of transfers
on the stock transfer books of the Surviving Corporation of
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the shares of Company Common Stock which were outstanding immediately prior to
the Effective Time. If, after the Effective Time, Certificates are presented to
the Surviving Corporation for any reason, they shall be canceled and exchanged
as provided in this Section.
(e) No Fractional Shares. (i) No certificate or scrip representing
fractional shares of Parent Common Stock to which holders of Company Common
Stock would otherwise be entitled pursuant to Section 2.01(c) will be issued in
the Merger upon the surrender for exchange of Certificates, and such fractional
share interests will not entitle the owner thereof to vote or to any rights of a
stockholder of Parent.
(ii) As promptly as practicable following the Effective Time, the Exchange
Agent shall determine the aggregate number of whole shares of Parent
Common Stock represented by fractional shares of Parent Common Stock
to which holders of Company Common Stock would be entitled but for the
provisions of clause (i) of this Section 2.03(e) (such number of
shares being herein called the "Excess Shares"). As soon after the
Effective Time as practicable, the Exchange Agent, as agent for the
holders of Company Common Stock, shall sell the Excess Shares at then
prevailing prices on the NYSE, all in the manner provided in paragraph
(iii) of this Section 2.03(e).
(iii) The sale of the Excess Shares by the Exchange Agent shall be executed
on the NYSE through a member firm of the NYSE and shall be executed in
round lots to the extent practicable. Until the net proceeds of such
sale or sales have been distributed to the holders of Company Common
Stock, the Exchange Agent will hold such proceeds in trust for the
holders of Company Common Stock (the " Common Stock Trust"). Parent
shall pay all commissions, transfer taxes and other out-of-pocket
transaction costs, including the expenses and compensation of the
Exchange Agent, incurred in connection with such sale of the Excess
Shares. In addition, Parent shall pay the Exchange Agent's
compensation and expenses in connection with such sale. The Exchange
Agent shall determine the portion of the Common Stock Trust to which
each holder of Company Common Stock shall be entitled, if any, by
multiplying the amount of the aggregate net proceeds comprising the
Common Stock Trust by a fraction, the numerator of which is the amount
of the fractional share interest to which such holder of Company
Common Stock is entitled and the denominator of which is the aggregate
amount of fractional share interests to which all holders of Company
Common Stock are entitled.
(iv) As soon as practicable after the determination of the amount of cash,
if any, to be paid to holders of Company Common Stock in lieu of any
fractional share interests in accordance with the immediately
preceding paragraph, the Exchange Agent shall make available such
amounts to such holders of Company Common Stock in a manner consistent
with paragraphs (b) and (c) of this Section 2.03.
(f) Termination of Exchange Fund and Common Stock Trust. Any portion of the
Exchange Fund and Common Stock Trust which remains undistributed to the
stockholders of the Company for six (6) months after the Effective Time shall be
delivered to the Surviving Corporation, upon demand, and any stockholders of the
Company who have not theretofore complied with this Article II shall thereafter
look only to the Surviving Corporation (subject to abandoned property, escheat
and other similar laws) as general creditors for payment of their claim for
Parent Common Stock, cash in lieu of fractional shares of Parent Common Stock
and any dividends or distributions with respect to Parent Common Stock. Neither
Parent nor the Surviving Corporation shall be liable to any holder of shares of
Company Common Stock for shares of Parent Common Stock (or dividends or
distributions with respect thereto) or cash payable in respect of fractional
share interests delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as follows:
3.01 Organization and Qualification. Each of the Company and its
Subsidiaries is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation, and has all
requisite corporate power and authority to conduct its business as and to the
extent now conducted and to own, use and lease its assets and properties, except
for such failures to be so incorporated, existing and in good standing or to
have such power and authority which, individually or in the aggregate, are not
having and could not be reasonably expected to have a material adverse effect
(as defined in Section 9.11) on the Company and its Subsidiaries taken as a
whole. Each of the Company and its Subsidiaries is duly qualified, licensed or
admitted to do business and is in good standing in each jurisdiction in which
the ownership, use or leasing of its assets and properties, or the conduct or
nature of its business, makes such qualification, licensing or admission
necessary, except for such failures to be so qualified, licensed or admitted and
in good standing which, individually or in the aggregate, are not having and
could not be reasonably expected to have a material adverse effect on the
Company and its Subsidiaries taken as a whole. Section 3.01 of the letter dated
the date hereof and delivered to Parent and Sub by the Company concurrently with
the execution and delivery of this Agreement (the "Company Disclosure Letter")
sets forth (i) the name and jurisdiction of incorporation of each Subsidiary (as
defined in Section 9.11) of the Company, (ii) its authorized capital stock,
(iii) the number of issued and outstanding shares of capital stock and (iv) the
record owners of such shares. Except for interests in the Subsidiaries of the
Company and as disclosed in Section 3.01 of the Company Disclosure Letter, the
Company does not directly or indirectly own any equity or similar interest in,
or any interest convertible into or exchangeable or exercisable for, any equity
or similar interest in, any corporation, partnership, joint venture or other
business association or entity. The Company has previously delivered to Parent
correct and complete copies of the certificate or articles of incorporation and
bylaws (or other comparable charter documents) of the Company and each of its
Subsidiaries.
3.02 Capital Stock; Indebtedness. (a) The authorized capital stock of the
Company consists solely of 12,000,000 shares of Company Common Stock and
31,000,000 shares of Company Preferred Stock, consisting of 10,000,000 shares of
Company Series A Preferred Stock, 1,000,000 shares of Company Series B Preferred
Stock and 20,000,000 shares of Company Series C Preferred Stock. As of August 1,
1996, 7,196,565 shares of Company Common Stock were issued and outstanding, no
shares were held in the treasury of the Company, 2,865,420 shares were reserved
for issuance upon conversion of the Company Preferred Stock and 380,887 shares
were reserved for issuance upon the exercise of stock options granted under the
Company employee stock option plans described in Section 3.02 of the Company
Disclosure Letter (the "Company Option Plans"). Since such date, except as set
forth in Section 3.02 of the Company Disclosure Letter, there has been no change
in the number of issued and outstanding shares of Company Common Stock or shares
of Company Common Stock held in treasury. As of the date hereof, there are
7,867,842 shares of Company Series A Preferred Stock issued and outstanding,
786,357 shares of Company Series B Preferred Stock issued and outstanding and
20,000,000 shares of Company Series C Preferred Stock issued and outstanding,
all of which are owned beneficially and of record by BIL. All of the issued and
outstanding shares of Company Common Stock and Company Preferred Stock are, and
all shares of Company Common Stock reserved for issuance will be, upon issuance
in accordance with the terms specified in the instruments or agreements pursuant
to which they are issuable, duly authorized, validly issued, fully paid and
nonassessable. Except pursuant to this Agreement, the Stockholder Agreement and
the Registration Rights Agreement and except as set forth in Section 3.02 of the
Company Disclosure Letter, there are no outstanding subscriptions, options,
warrants, rights (including "phantom" stock rights), preemptive rights or other
contracts, commitments, understandings or arrangements, including any right of
conversion or exchange under any outstanding security, instrument or agreement
(together, "Options"), obligating the Company or
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any of its Subsidiaries to issue or sell any shares of capital stock of the
Company or to grant, extend or enter into any Option with respect thereto.
(b) Except as disclosed in Section 3.02 of the Company Disclosure Letter,
all of the outstanding shares of capital stock of each Subsidiary of the Company
are duly authorized, validly issued, fully paid and nonassessable and are owned,
beneficially and of record, by the Company or a Subsidiary wholly owned,
directly or indirectly, by the Company, free and clear of any liens, claims,
mortgages, encumbrances, pledges, security interests, equities and charges of
any kind (each a "Lien"). Except as disclosed in Section 3.02 of the Company
Disclosure Letter, there are no (i) outstanding Options obligating the Company
or any of its Subsidiaries to issue or sell any shares of capital stock of any
Subsidiary of the Company or to grant, extend or enter into any such Option or
(ii) voting trusts, proxies or other commitments, understandings, restrictions
or arrangements in favor of any person other than the Company or a Subsidiary
wholly owned, directly or indirectly, by the Company with respect to the voting
of or the right to participate in dividends or other earnings on any capital
stock of any Subsidiary of the Company.
(c) Except as disclosed in Section 3.02 of the Company Disclosure Letter,
there are no outstanding contractual obligations of the Company or any
Subsidiary of the Company to repurchase, redeem or otherwise acquire any shares
of Company Common Stock or any capital stock of any Subsidiary of the Company or
to provide funds to, or make any investment (in the form of a loan, capital
contribution or otherwise) in, any Subsidiary of the Company or any other
person.
(d) As of the date of this Agreement, the HSBC Indebtedness is
approximately $25,350,000 and the principal amount of and accrued and unpaid
interest on the BIL Debt is approximately $24,875,000.
3.03 Authority Relative to this Agreement. The Company has the requisite
corporate power and authority to enter into this Agreement and, subject to
obtaining the Company Stockholders' Approval (as defined in Section 6.03(b)), to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby have been duly and validly approved by the Board of
Directors of the Company, the Board of Directors of the Company has recommended
adoption of this Agreement by the stockholders of the Company and directed that
this Agreement be submitted to the stockholders of the Company for their
consideration, and no other corporate proceedings on the part of the Company or
its stockholders are necessary to authorize the execution, delivery and
performance of this Agreement by the Company and the consummation by the Company
of the transactions contemplated hereby, other than obtaining the Company
Stockholders' Approval. This Agreement has been duly and validly executed and
delivered by the Company and, subject to the obtaining of the Company
Stockholders' Approval, constitutes a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
3.04 Non-Contravention; Approvals and Consents. (a) The execution and
delivery of this Agreement by the Company do not, and the performance by the
Company of its obligations hereunder and the consummation of the transactions
contemplated hereby will not, conflict with, result in a violation or breach of,
constitute (with or without notice or lapse of time or both) a default under,
result in or give to any person any right of payment or reimbursement,
termination, cancellation, modification or acceleration of, or result in the
creation or imposition of any Lien upon any of the assets or properties of the
Company or any of its Subsidiaries under, any of the terms, conditions or
provisions of (i) the certificates or articles of incorporation or bylaws (or
other comparable charter documents) of the Company or any of its Subsidiaries,
or (ii) except as described in Section 3.04 of the Company Disclosure Letter and
subject to obtaining the Company Stockholders' Approval in accordance with the
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DGCL, the Company's Certificate of Incorporation and Bylaws and the taking of
the actions described in paragraph (b) of this Section, (x) any statute, law,
rule, regulation or ordinance (together, "laws"), or any judgment, decree,
order, writ, permit or license (together, "orders"), of any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality of
the United States, any foreign country or any domestic or foreign state, county,
city or other political subdivision (a "Governmental or Regulatory Authority")
applicable to the Company or any of its Subsidiaries or any of their respective
assets or properties, or (y) except as described in Section 3.04 of the Company
Disclosure Letter, any note, bond, mortgage, security agreement, indenture,
license, franchise, permit, concession, contract, lease or other instrument,
obligation or agreement of any kind (together, "Contracts") to which the Company
or any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries or any of their respective assets or properties is bound, excluding
from the foregoing clauses (x) and (y) conflicts, violations, breaches,
defaults, terminations, modifications, accelerations and creations and
impositions of Liens which, individually or in the aggregate, could not be
reasonably expected to have a material adverse effect on the Company and its
Subsidiaries taken as a whole or on the ability of the Company to consummate the
transactions contemplated by this Agreement.
(b) Except (i) for the filing of a premerger notification report by the
Company under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations thereunder (the "HSR Act"), (ii) for the
filing of the Proxy Statement (as defined in Section 3.09) and the Registration
Statement (as defined in Section 4.09) with the Securities and Exchange
Commission (the "SEC") pursuant to the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder (the "Exchange Act"), and the
Securities Act of 1933, as amended, and the rules and regulations thereunder
(the "Securities Act"), the declaration of the effectiveness of the Registration
Statement by the SEC and filings with various state securities authorities that
are required in connection with the transactions contemplated by this Agreement,
(iii) for the filing of the Certificate of Merger and other appropriate merger
documents required by the DGCL with the Secretary of State and appropriate
documents with the relevant authorities of other states in which the Constituent
Corporations are qualified to do business, and (iv) as disclosed in Section 3.04
of the Company Disclosure Letter, no consent, approval or action of, filing with
or notice to any Governmental or Regulatory Authority or other public or private
third party is necessary or required under any of the terms, conditions or
provisions of any law or order of any Governmental or Regulatory Authority or
any Contract to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries or any of their respective assets
or properties is bound for the execution and delivery of this Agreement by the
Company, the performance by the Company of its obligations hereunder or the
consummation of the transactions contemplated hereby, other than such consents,
approvals, actions, filings and notices which the failure to make or obtain, as
the case may be, individually or in the aggregate, could not be reasonably
expected to have a material adverse effect on the Company and its Subsidiaries
taken as a whole or on the ability of the Company to consummate the transactions
contemplated by this Agreement.
3.05 SEC Reports and Financial Statements. The Company delivered to Parent
prior to the execution of this Agreement a true and complete copy of each form,
report, schedule, registration statement, definitive proxy statement and other
document (together with all amendments thereof and supplements thereto) filed by
the Company or any of its Subsidiaries with the SEC since December 31, 1992 (as
such documents have since the time of their filing been amended or supplemented,
the "Company SEC Reports"), which are all the documents (other than preliminary
material) that the Company and its Subsidiaries were required to file with the
SEC since such date. As of their respective dates, the Company SEC Reports (i)
complied as to form in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and (ii) did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The audited consolidated financial statements and unaudited interim
consolidated financial
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statements (including, in each case, the notes, if any, thereto) included in the
Company SEC Reports (the "Company Financial Statements") complied as to form in
all material respects with the published rules and regulations of the SEC with
respect thereto, were prepared in accordance with GAAP (as defined in Section
3.13(o)(viii)), except as may be indicated therein or in the notes thereto and
except with respect to unaudited statements as permitted by Form 10-Q of the
SEC, and, as of the respective dates thereof, fairly presented (subject, in the
case of the unaudited interim financial statements, to year-end audit
adjustments) the consolidated financial position of the Company and its
consolidated subsidiaries as at the respective dates thereof and the
consolidated results of their operations and cash flows for the respective
periods then ended. Except as set forth in Section 3.05 of the Company
Disclosure Letter, each Subsidiary of the Company is treated as a consolidated
subsidiary of the Company in the Company Financial Statements for all periods
covered thereby.
3.06 Absence of Certain Changes or Events. Except as disclosed in the
Company SEC Reports filed prior to the date of this Agreement or in Section 3.06
of the Company Disclosure Letter, (a) since December 31, 1995 there has not been
any change, event or development having, or that could be reasonably expected to
have, individually or in the aggregate, a material adverse effect on the Company
and its Subsidiaries taken as a whole, and (b) between June 30, 1996 and the
date hereof (i) the Company and its Subsidiaries have conducted their respective
businesses only in the ordinary course consistent with past practice and (ii)
neither the Company nor any of its Subsidiaries has taken any action which, if
taken after the date hereof, would constitute a breach of any provision of
clause (ii) of Section 5.01(a).
3.07 Absence of Undisclosed Liabilities. Except for matters reflected or
reserved against in the balance sheet as of June 30, 1996 included in the
Company Financial Statements or as disclosed in Section 3.07 of the Company
Disclosure Letter, neither the Company nor any of its Subsidiaries had at such
date, or has incurred since that date, any liabilities or obligations (whether
absolute, accrued, contingent, fixed or otherwise, or whether due or to become
due) of any nature that would be required by GAAP to be reflected on a
consolidated balance sheet of the Company and its consolidated subsidiaries
(including the notes thereto), except liabilities or obligations (i) which were
incurred in the ordinary course of business consistent with past practice or
(ii) which have not been, and could not be reasonably expected to be,
individually or in the aggregate, materially adverse to the Company and its
Subsidiaries taken as a whole.
3.08 Legal Proceedings. Except as disclosed in the Company SEC Reports
filed prior to the date of this Agreement or in Section 3.08 of the Company
Disclosure Letter, (i) there are no actions, suits, arbitrations or proceedings
pending or, to the knowledge of the Company, threatened against, relating to or
affecting, nor to the knowledge of the Company are there any Governmental or
Regulatory Authority investigations or audits pending or threatened against,
relating to or affecting, the Company or any of its Subsidiaries or any of their
respective assets and properties which, individually or in the aggregate, could
be reasonably expected to have a material adverse effect on the Company and its
Subsidiaries taken as a whole or on the ability of the Company to consummate the
transactions contemplated by this Agreement, and (ii) neither the Company nor
any of its Subsidiaries is subject to any continuing order of any Governmental
or Regulatory Authority which, individually or in the aggregate, could be
reasonably expected to have a material adverse effect on the Company and its
Subsidiaries taken as a whole or on the ability of the Company to consummate the
transactions contemplated by this Agreement.
3.09 Information Supplied. The joint proxy statement relating to the
Stockholders' Meetings (as defined in Section 6.03(b)), as amended or
supplemented from time to time (as so amended and supplemented, the "Proxy
Statement"), and any other documents to be filed by the Company with the SEC or
any other Governmental or Regulatory Authority in connection with the Merger and
the other transactions contemplated hereby will (in the case of the Proxy
Statement and any such other
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documents filed with the SEC under the Exchange Act or the Securities Act)
comply as to form in all material respects with the requirements of the Exchange
Act and the Securities Act, respectively, and will not, on the date of its
filing or, in the case of the Proxy Statement, at the date it is mailed to
stockholders of the Company and of Parent and at the time of the Stockholders'
Meetings, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading, except that no representation is made by the Company with respect to
information included therein with respect to Parent and its Subsidiaries,
including information incorporated by reference therein from documents filed by
Parent or any of its Subsidiaries with the SEC.
3.10 Compliance with Laws and Orders. The Company and its Subsidiaries hold
all permits, licenses, variances, exemptions, orders and approvals of all
Governmental and Regulatory Authorities necessary for the lawful conduct of
their respective businesses (the "Company Permits"), except for failures to hold
such permits, licenses, variances, exemptions, orders and approvals which,
individually or in the aggregate, are not having and could not be reasonably
expected to have a material adverse effect on the Company and its Subsidiaries
taken as a whole. The Company and its Subsidiaries are in compliance with the
terms of the Company Permits, except failures so to comply which, individually
or in the aggregate, are not having and could not be reasonably expected to have
a material adverse effect on the Company and its Subsidiaries taken as a whole.
Except as disclosed in the Company SEC Reports filed prior to the date of this
Agreement, the Company and its Subsidiaries are not in violation of or default
under any law or order of any Governmental or Regulatory Authority, except for
such violations or defaults which, individually or in the aggregate, are not
having and could not be reasonably expected to have a material adverse effect on
the Company and its Subsidiaries taken as a whole.
3.11 Compliance with Agreements; Certain Agreements.
(a) Except as disclosed in the Company SEC Reports filed prior to the date
of this Agreement or Section 3.11 of the Company Disclosure Letter, neither the
Company nor any of its Subsidiaries nor, to the knowledge of the Company, any
other party thereto is in breach or violation of, or in default in the
performance or observance of any term or provision of, and no event has occurred
which, with notice or lapse of time or both, could be reasonably expected to
result in a default under, (i) the certificate of incorporation or bylaws (or
other comparable charter documents) of the Company or any of its Subsidiaries or
(ii) any Contract to which the Company or any of its Subsidiaries is a party or
by which the Company or any of its Subsidiaries or any of their respective
assets or properties is bound, except in the case of clause (ii) for breaches,
violations and defaults which, individually or in the aggregate, are not having
and could not be reasonably expected to have a material adverse effect on the
Company and its Subsidiaries taken as a whole.
(b) Except as disclosed in Section 3.11 of the Company Disclosure Letter or
in the Company SEC Reports filed prior to the date of this Agreement or as
provided for in this Agreement, as of the date hereof, neither the Company nor
any of its Subsidiaries is a party to any oral or written (i) consulting
agreement not terminable on thirty (30) days' or less notice, (ii) union or
collective bargaining agreement, (iii) agreement with any executive officer or
other key employee of the Company or any of its Subsidiaries the benefits of
which are contingent or vest, or the terms of which are materially altered, upon
the occurrence of a transaction involving the Company or any of its Subsidiaries
of the nature contemplated by this Agreement, (iv) agreement with respect to any
executive officer or other key employee of the Company or any of its
Subsidiaries providing any term of employment or compensation guarantee or (v)
agreement or plan, including any stock option, stock appreciation right,
restricted stock or stock purchase plan, any of the benefits of which will be
increased, or the vesting of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement.
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3.12 Taxes. (a) Each of the Company and its Subsidiaries has filed all
material tax returns and reports required to be filed by it, or requests for
extensions to file such returns or reports have been timely filed or granted and
have not expired, and all such tax returns and reports are complete and accurate
in all respects, except to the extent that such failures to file, have
extensions granted that remain in effect or be complete and accurate in all
respects, as applicable, individually or in the aggregate, would not have a
material adverse effect on the Company and its Subsidiaries taken as a whole;
provided, however, the Company makes no representation or warranty with respect
to the availability to the Surviving Corporation of any net operating loss or
tax credit carryover of the Company and its Subsidiaries. The Company and each
of its Subsidiaries has paid or accrued (or the Company has paid on its behalf)
all taxes shown as due on such tax returns and reports. The most recent
financial statements contained in the Company SEC Reports reflect an adequate
reserve for all taxes payable by the Company and its Subsidiaries for all
taxable periods and portions thereof accrued through the date of such financial
statements, and no deficiencies for any taxes have been proposed, asserted or
assessed against the Company or any of its Subsidiaries that are not adequately
reserved for thereon, except for inadequately reserved taxes and inadequately
reserved deficiencies that would not, individually or in the aggregate, have a
material adverse effect on the Company and its Subsidiaries taken as a whole. No
requests for waivers of the time to assess any taxes against the Company or any
of its Subsidiaries have been granted or are pending, except for requests with
respect to such taxes that have been adequately reserved for in the most recent
financial statements contained in the Company SEC Reports, or, to the extent not
adequately reserved, the assessment of which would not, individually or in the
aggregate, have a material adverse effect on the Company and its Subsidiaries
taken as a whole.
(b) As used in this Section 3.13 and in Section 4.12, "taxes" shall include
all federal, state, local and foreign income, franchise, property, sales, use,
excise and other taxes, including obligations for withholding taxes from
payments due or made to any other person and any interest, penalties or
additions to tax.
3.13 Benefit Plans; ERISA. (a) Section 3.13(a) of the Company Disclosure
Letter (i) contains a true and complete list and description of each Company
Benefit Plan, (ii) identifies each Company Benefit Plan that is a Company
Qualified Plan, (iii) identifies each Company Benefit Plan which at any time
during the five-year period preceding the date of this Agreement was a Company
Defined Benefit Plan and (iv) lists, describes and identifies each other Plan
maintained, established, sponsored or contributed to by a Company ERISA
Affiliate, or any predecessor thereof, which, during the five-year period
preceding the date of this Agreement, was at any time a Company Defined Benefit
Plan. Neither the Company nor any of its Subsidiaries has scheduled or agreed
upon future increases of benefit levels (or creations of new benefits) with
respect to any Company Benefit Plan, and no such increases or creation of
benefits have been proposed, made the subject of representations to employees or
requested or demanded by employees under circumstances which make it reasonable
to expect that such increases will be granted. Except as disclosed in Section
3.13(a) of the Company Disclosure Letter, no loan is outstanding between the
Company or any of its Subsidiaries and any employee. No Company Benefit Plan
established by Everest & Jennings Canadian Limited is or was a defined benefit
plan under applicable Canadian laws and regulations, except for the Executive
Employee Pension Plan, which is fully funded in accordance with all applicable
Canadian laws and regulations and as to which all required contributions have
been made.
(b) Neither the Company nor any of its Subsidiaries maintains or is
obligated to provide benefits under any life, medical or health plan (other than
as an incidental benefit under a Company Qualified Plan) which provides benefits
to retirees or other terminated employees other than benefit continuation rights
under the Consolidated Omnibus Budget Reconciliation of 1985, as amended.
(c) Except as set forth in Section 3.13(c) of the Company Disclosure
Letter, each Company Benefit Plan covers only employees who are employed by the
Company or any of its Subsidiaries (or
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former employees or beneficiaries with respect to service with the Company or
any of its Subsidiaries), so that the transactions contemplated by this
Agreement will require no spin-off of assets and liabilities or other division
or transfer of rights with respect to any such plan.
(d) Except as disclosed in Section 3.13(d) of the Company Disclosure
Letter, neither the Company nor any of its Subsidiaries, any Company ERISA
Affiliate nor any other corporation or organization controlled by or under
common control with any of the foregoing within the meaning of Section 4001 of
ERISA has at any time contributed to any "multiemployer plan", as that term is
defined in Section 4001 of ERISA.
(e) Each of the Company Benefit Plans is, and its administration is and has
been since inception, in all material respects in compliance with, and neither
the Company nor any of its Subsidiaries has received any claim or notice that
any such Company Benefit Plan is not in compliance with, all applicable laws and
orders and prohibited transactions exemptions, including the requirements of
ERISA, the Code, the Age Discrimination in Employment Act, the Equal Pay Act and
Title VII of the Civil Rights Act of 1964. Each Company Qualified Plan has
received a favorable determination of qualification from the Internal Revenue
Service and there have been no plan amendments, events or circumstances
subsequent to the issuance of such determination of qualification that would
cause the Company Qualified Plan to lose its determination of qualification.
Each Company Benefit Plan which is intended to provide for the deferral of
income, the reduction of salary or other compensation or to afford other tax
benefits complies with the requirements of the applicable provisions of the Code
or other laws required in order to provide such tax benefits. In respect of any
Company Benefit Plan, neither the Company nor any of its Subsidiaries has
requested a closing agreement under the Employee Plans Closing Agreement Program
(set forth in Rev. Proc. 94-16, 1994-5 I.R.B. 22), a compliance statement under
the Voluntary Compliance Resolution program (set forth in Revenue Procedure
94-62, 1994-2 C.B. 778) or any other determination under any remedial program of
the Internal Revenue Service applicable to employee benefit plans, and neither
the Company nor any of its Subsidiaries has consulted with counsel, accountants,
employee benefits consultants or actuaries in regard to making a request under
any such remedial program.
(f) Neither the Company nor any of its Subsidiaries is in default in
performing any of its contractual obligations under any Company Benefit Plan or
any related trust agreement or insurance contract, except for such defaults
which, individually or in the aggregate, could not be reasonably expected to
have a material adverse effect on the Company and its Subsidiaries taken as a
whole. All contributions and other payments required to be made by the Company
or any of its Subsidiaries to any Company Benefit Plan with respect to any
period ending before or at or including the Closing Date have been made or
reserves adequate for such contributions or other payments have been or will be
set aside therefor and have been or will be reflected in financial statements in
accordance with GAAP. There are no material outstanding liabilities of any
Company Benefit Plan other than liabilities for benefits to be paid to
participants in such Company Benefit Plan and their beneficiaries in accordance
with the terms of such Company Benefit Plan. Neither the Company nor any of its
Subsidiaries has any express or implied commitment, whether legally enforceable
or not, to create, incur liability with respect to, or cause to exist any
employee benefit plan or to modify any Plan, other than as required by law.
(g) No event has occurred, and there exists no condition or set of
circumstances in connection with any Company Benefit Plan, under which the
Company or any of its Subsidiaries, directly or indirectly (through any
indemnification agreement or otherwise), could reasonably be expected to be
subject to any risk of material liability under Section 409 of ERISA, Section
502(i) of ERISA, Title IV of ERISA or Section 4975 of the Code.
(h) Except as provided in Section 6.06 of this Agreement, no transaction
contemplated by this Agreement will result in liability to the PBGC under
Section 302(c)(11), 4062, 4063, 4064 or 4069 of ERISA, or otherwise, with
respect to the Company or any of its Subsidiaries, Parent, Sub or any
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corporation or organization controlled by or under common control with any of
the foregoing within the meaning of Section 4001 of ERISA, and no event or
condition exists or has existed which could reasonably be expected to result in
any such liability with respect to Parent, Sub, the Company, any of its
Subsidiaries or any such corporation or organization. Except as disclosed in
Section 3.13(h) of the Company Disclosure Letter:
(i) no "reportable event" within the meaning of Section 4043 of ERISA
has occurred with respect to any Company Defined Benefit Plan;
(ii) no termination re-establishment or spin-off re-establishment
transaction has occurred with respect to any Company Subject Defined
Benefit Plan;
(iii) no Company Subject Defined Benefit Plan has incurred any
accumulated funding deficiency whether or not waived; and
(iv) no filing has been made and no proceeding has been commenced for
the complete or partial termination of, or withdrawal from, any Company
Benefit Plan which is a Company Pension Benefit Plan.
(i) Except as disclosed under Section 3.13(i) of the Company Disclosure
Letter, no benefit under any Company Benefit Plan, including, without
limitation, any severance or parachute payment plan or agreement, will be
established or become accelerated, vested, funded or payable by reason of any
transaction contemplated under this Agreement.
(j) To the knowledge of the Company, there are no pending or threatened
claims by or on behalf of any Company Benefit Plan, by any person covered
thereby, or otherwise, which allege violations of law which could reasonably be
expected to result in material liability on the part of Parent, Sub, the
Company, any of its Subsidiaries or any fiduciary of any such Company Benefit
Plan, nor is there any basis for such a claim.
(k) No employer securities, employer real property or other employer
property is included in the assets of any Company Benefit Plan. Except as
disclosed in Section 3.13(k) of the Company Disclosure Letter, each Company
Subject Defined Benefit Plan is a "frozen" Company Defined Benefit Plan and no
benefits under any such Company Subject Defined Benefit Plan have accrued after
December 31, 1992 in respect of any participants thereunder, active or
otherwise.
(l) Except as disclosed in Section 3.13(l) of the Company Disclosure
Letter, the fair market value of the assets of each Company Subject Defined
Benefit Plan, as determined as of the last day of the plan year of such plan
which coincides with or first precedes the date of this Agreement, was not less
than the present value of the projected benefit obligations under such plan at
such date as established on the basis of the actuarial assumptions applicable
under such Company Subject Defined Benefit Plan at said date and, to the
knowledge of the Company, there have been no material changes in such values
since said date.
(m) PBGC Liens. The Company is required to pay to the PBGC approximately
$494,000 on September 15, 1996, approximately $230,000 on October 15, 1996 and
approximately $230,000 on January 15, 1997 under the conditional waivers of
minimum funding standards granted by the Internal Revenue Service to the
Retirement Plan for Employees of the Company in letters dated September 1, 1992
and December 10, 1992 and/or any other Benefit Plan (the "PBGC Waiver").
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(n) Complete and correct copies of the following documents have been
furnished to Parent prior to the execution of this Agreement:
(i) each Company Benefit Plan and any predecessor plans referred to
therein, any related trust agreements, and service provider agreements,
insurance contracts or agreements with investment managers, including
without limitation, all amendments thereto;
(ii) current summary Plan descriptions of each Company Benefit Plan
subject to ERISA, and any similar descriptions of all other Company Benefit
Plans;
(iii) the most recent Form 5500 series filings and schedules thereto
for each Company Benefit Plan subject to ERISA reporting requirements;
(iv) the most recent determination of the Internal Revenue Service
with respect to the qualified status of each Company Qualified Plan;
(v) the most recent accountings with respect to any Company Benefit
Plan funded through a trust; and
(vi) the most recent actuarial report of the qualified actuary of any
Company Subject Defined Benefit Plan or any other Company Benefit Plan with
respect to which actuarial valuations are conducted.
(o) For purposes of this Agreement, the following terms have the following
meanings:
(i) "Company Benefit Plan" means any Plan established by the Company,
any Company Subsidiary, or any predecessor or affiliate of any of the
foregoing, existing at the Closing Date or prior thereto, to which the
Company or any Company Subsidiary contributes or has contributed, or under
which any employee, former employee or director of the Company or any
Company Subsidiary or any beneficiary thereof is covered, is eligible for
coverage or has benefit rights.
(ii) "Company Defined Benefit Plan" means each Company Benefit Plan
which is subject to Part 3 of Title I of ERISA, Section 412 of the Code or
Title IV of ERISA.
(iii) "Company ERISA Affiliate" means any person who is in the same
controlled group of corporations or who is under common control (within the
meaning of Section 414 of the Code) with the Company or, before the
Closing, the Company or any Subsidiary.
(iv) "Company Pension Benefit Plan" means each Company Benefit Plan
which is a pension benefit plan within the meaning of Section 3(2) of
ERISA.
(v) "Company Qualified Plan" means each Company Benefit Plan which is
intended to qualify under Section 401 of the Code.
(vi) "Company Subject Defined Benefit Plan" means each Company Defined
Benefit Plan listed and described in Section 3.13(a) of the Company
Disclosure Letter.
(vii) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations promulgated thereunder.
(viii) "GAAP" means generally accepted accounting principles,
consistently applied throughout the specified period and in the immediately
prior comparable period.
(ix) "PBGC" means the Pension Benefit Guaranty Corporation established
under ERISA.
(x) "Plan" means any bonus, incentive compensation, deferred
compensation, pension, profit sharing, retirement, stock purchase, stock
option, stock ownership, stock appreciation rights,
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phantom stock, leave of absence, layoff, vacation, day or dependent care,
legal services, cafeteria, life, health, accident, disability, workmen's
compensation or other insurance, severance, separation or other employee
benefit plan, practice, policy or arrangement of any kind, whether written
or oral, including, but not limited to, any "employee benefit plan" within
the meaning of Section 3(3) of ERISA.
3.14 Labor Matters. Except as disclosed in the Company SEC Reports filed
prior to the date of this Agreement or in Section 3.14 of the Company Disclosure
Letter, (i) there are no material controversies pending or, to the knowledge of
the Company, threatened between the Company or any of its Subsidiaries and any
representatives of its employees, except such as would not, individually or in
the aggregate, have a material adverse effect on the Company and its
Subsidiaries taken as a whole, (ii) to the knowledge of the Company, there are
no material organizational efforts presently being made involving any of the now
unorganized employees of the Company or any of its Subsidiaries and (iii) since
December 31, 1992, there has been no work stoppage, strike or other concerted
action by employees of the Company or any of its Subsidiaries except such as did
not, individually or in the aggregate, have a material adverse effect on the
Company and its Subsidiaries taken as a whole.
3.15 Environmental Matters. (a) Each of the Company and its Subsidiaries
has obtained all licenses, permits, authorizations, approvals and consents from
Governmental or Regulatory Authorities which are required under any applicable
Environmental Law (as defined below) in respect of its business or operations
("Environmental Permits"), except for such failures to have Environmental
Permits which, individually or in the aggregate, could not reasonably be
expected to have a material adverse effect on the Company and its Subsidiaries
taken as a whole. Each of such Environmental Permits is in full force and effect
and each of the Company and its Subsidiaries is in compliance with the terms and
conditions of all such Environmental Permits and with any applicable
Environmental Law, except for such failures to be in compliance which,
individually or in the aggregate, could not reasonably be expected to have a
material adverse effect on the Company and its Subsidiaries taken as a whole.
(b) Except as disclosed in Section 3.15(b) of the Company Disclosure
Letter, no notice, notification, demand, request for information, citation,
summons or order has been issued, no complaint has been filed, no penalty has
been assessed and no investigation or review is pending or threatened by any
Governmental or Regulatory Authority relating to any alleged failure by the
Company or any of its Subsidiaries to have any Environmental Permit or with
respect to any generation, treatment, storage, recycling, transportation,
discharge or disposal, or any release, of any Hazardous Materials generated by
the Company or any of its Subsidiaries which alleged failure, generation,
treatment, storage, recycling, transportation, discharge or disposal or release
could reasonably be expected to have a material adverse effect on the Company
and its Subsidiaries taken as a whole.
(c) Except as disclosed in Section 3.15(c) of the Company Disclosure
Letter, to the knowledge of the Company, (i) no site or facility now or
previously owned, operated or leased by the Company or any of its Subsidiaries
is listed or proposed for listing on the National Priorities List ("NPL")
promulgated pursuant to the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, and the rules and regulations thereunder
("CERCLA"), or on any similar foreign, provincial, state or local list of sites
requiring investigation or clean-up and (ii) neither the Company nor any of its
Subsidiaries has released a material amount of Hazardous Materials to any site
or facility now or previously owned, operated or leased by the Company or any of
its Subsidiaries (or to any neighboring site or facility).
(d) Except as described in Section 3.15(d) of the Company Disclosure
Letter, (i) no Liens have arisen under or pursuant to any Environmental Law on
any site or facility owned, operated or leased by the Company or any of its
Subsidiaries, other than any such site or facility not individually or in the
aggregate material to the Company and its Subsidiaries taken as a whole, (ii) no
action of any Governmental or Regulatory Authority has been taken or, to the
knowledge of the Company, is in
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process that could subject any such site or facility to such Liens, (iii)
neither the Company nor any of its Subsidiaries has been required to place any
notice or restriction relating to the presence of Hazardous Materials at any
such site or facility owned by it in any deed to the real property on which such
site or facility is located and (iv) the Company is not aware of any facts that
would require the Company or any of its Subsidiaries to place such a notice or
restriction in any such deed in the future.
(e) Except as disclosed in Section 3.15(e) of the Company Disclosure
Letter, neither the Company nor any of its Subsidiaries has transported or
arranged for the transportation of any Hazardous Material to any location that
is listed on the NPL, listed for possible inclusion on the NPL by the
Environmental Protection Agency in the Comprehensive Environmental Response and
Liability Information System, as provided for by 40 C.F.R. Sec. 300.5
("CERCLIS"), or on any similar state, local or foreign list or that is the
subject of Federal, state, local or foreign enforcement actions or other
investigations that could reasonably be expected to have a material adverse
effect on the Company and its Subsidiaries taken as a whole.
(f) Except as disclosed in Section 3.15(f) of the Company Disclosure
Letter, there have been no environmental investigations, studies, audits, tests,
reviews or other analyses conducted by, or which are in the possession of, the
Company or any of its Subsidiaries in relation to any site or facility now or
previously owned, operated or leased by the Company or any of its Subsidiaries.
(g) As used herein:
(i) "Environmental Law" means any law or order of any Governmental or
Regulatory Authority relating to the regulation or protection of human
health, safety or the environment or to emissions, discharges, releases or
threatened releases of pollutants, contaminants, chemicals or industrial,
toxic or hazardous substances or wastes into the environment (including,
without limitation, ambient air, soil, surface water, ground water,
wetlands, land or subsurface strata), or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, chemicals or industrial,
toxic or hazardous substances or wastes; and
(ii) "Hazardous Material" means (A) any petroleum or petroleum
products, flammable explosives, radioactive materials, asbestos in any form
that is or could become friable, urea formaldehyde foam insulation and
transformers or other equipment that contain dielectric fluid containing
levels of polychlorinated biphenyls (PCBs); (B) any chemicals or other
materials or substances which are now or hereafter become defined as or
included in the definition of "hazardous substances," "hazardous wastes,"
"hazardous materials," "extremely hazardous wastes," "restricted hazardous
wastes," "toxic substances," "toxic pollutants" or words of similar import
under any Environmental Law; and (C) any other chemical or other material
or substance, exposure to which is now or hereafter prohibited, limited or
regulated by any Governmental or Regulatory Authority under any
Environmental Law.
3.16 Intellectual Property Rights. The Company and its Subsidiaries have
all right, title and interest in, or a valid and binding license or right to
use, all Intellectual Property (as defined below) individually or in the
aggregate material to the conduct of the businesses of the Company and its
Subsidiaries taken as a whole (the "Company Intellectual Property"). All
Industrial Property included in the Company Intellectual Property has been and
currently remains duly registered with, filed in or issued by the appropriate
Governmental or Regulatory Authority. Except as disclosed in Section 3.16 of the
Company Disclosure Letter, (i) the Company or a Subsidiary of the Company has
the sole and exclusive right to use all of the Company Intellectual Property,
except for pending applications for any Industrial Property included within the
Company Intellectual Property; (ii) all Company Intellectual Property is valid
and subsisting and free and clear of any Liens, and none of the Company
Intellectual Property is subject to any outstanding order or Contract
restricting the scope of the use thereof; and (iii) there are no claims or
demands of any other person pertaining to the Company Intellectual Property or
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any license with respect thereto, and no actions or proceedings, judicial or
administrative or otherwise, have been instituted, are pending or to the
knowledge of the Company are threatened which challenge or affect the rights of
the Company or any of its Subsidiaries in respect thereof. Neither the Company
nor any Subsidiary of the Company is in default (or with the giving of notice or
lapse of time or both, would be in default) under any license to use such
Company Intellectual Property, such Company Intellectual Property is not being
infringed by any third party, and neither the Company nor any Subsidiary of the
Company is infringing any Intellectual Property of any third party, except for
such defaults and infringements which, individually or in the aggregate, are not
having and could not be reasonably expected to have a material adverse effect on
the Company and its Subsidiaries taken as a whole. For purposes of this
Agreement, "Intellectual Property" means Industrial Property (as defined below)
and inventions, invention studies (whether patentable or unpatentable), designs,
copyrights, mask works, trademarks, service marks, trade dress, trade names,
secret formulae, trade secrets, secret processes, computer programs, proprietary
databases, confidential information, whether technical or otherwise, and
know-how; and "Industrial Property" means patents, copyright registrations, mask
work registrations, trademark and service mark registrations, and pending
applications for any of the foregoing.
3.17 Affiliate Transactions. Except as disclosed in Section 3.17 of the
Company Disclosure Letter, (i) there is no indebtedness outstanding between the
Company or any of its Subsidiaries, on the one hand, and BIL or any of its other
affiliates, on the other hand, (ii) neither BIL nor any of its other affiliates
provides or causes to be provided any assets, services or facilities to the
Company or any of its Subsidiaries, (iii) neither the Company nor any of its
Subsidiaries provides or causes to be provided any assets, services or
facilities to BIL or any of its other affiliates and (iv) neither the Company
nor any of its Subsidiaries beneficially owns, directly or indirectly, any
Investment Assets (as defined below) issued by BIL or any of its other
affiliates. Except as disclosed in Section 3.17 of the Company Disclosure
Letter, each of the transactions disclosed thereon was incurred or engaged in,
as the case may be, on an arm's-length basis and, since December 31, 1995, all
settlements of liabilities between the Company or any of its Subsidiaries, on
the one hand, and BIL or any of its other affiliates, on the other hand, have
been made in the ordinary course of business consistent with past practice. For
purposes hereof, the term "Investment Assets" shall mean debentures, notes and
other evidences of indebtedness, stocks, securities (including rights to
purchase and securities convertible into or exchangeable for other securities),
interests in joint ventures and general and limited partnerships, mortgage loans
and other investment or portfolio assets.
3.18 Vote Required. Assuming the accuracy of the representation and
warranty contained in Section 4.20, the affirmative vote of the holders of
record of a majority of the outstanding shares of Company Common Stock and
Company Preferred Stock, voting together as a single class and separately as
classes, with respect to the adoption of this Agreement is the only vote of the
holders of any class or series of the capital stock of the Company required to
adopt this Agreement and approve the Merger and the other transactions
contemplated hereby.
3.19 Opinion of Financial Advisor. The Company has received the opinion of
Vector Securities International, Inc., dated the date hereof, to the effect
that, as of the date hereof, the consideration to be received in the Merger by
the holders of Company Common Stock is fair, from a financial point of view, to
such holders, and a true and complete copy of such opinion has been delivered to
Parent prior to the execution of this Agreement.
3.20 Ownership of Parent Common Stock. Except as disclosed in Section 3.20
of the Company Disclosure Letter, neither BIL, the Company nor any of their
respective Subsidiaries and other affiliates beneficially owns any shares of
Parent Common Stock.
3.21 Section 203 of the DGCL Not Applicable. The Company's Board of
Directors has taken all necessary actions so that the provisions of Section
203(a) of the DGCL will not apply to this Agreement, the Merger, the Stockholder
Agreement and the other transactions contemplated hereby or thereby, and has
approved Parent becoming an "interested stockholder" within the meaning of such
section.
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ARTICLE III-A
REPRESENTATIONS AND WARRANTIES OF BIL
BIL represents and warrants to Parent and Sub as follows:
3A.01 Organization and Qualification. BIL is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation.
3A.02 Authority Relative to this Agreement. BIL has the requisite corporate
power and authority to enter into this Agreement and to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The execution,
delivery and performance of this Agreement by BIL and the consummation by BIL of
the transactions contemplated hereby have been duly and validly approved by the
Board of Directors of BIL, and no other corporate proceedings on the part of BIL
or its stockholders are necessary to authorize the execution, delivery and
performance of this Agreement by BIL and the consummation by BIL of the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by BIL and constitutes a legal, valid and binding
obligation of BIL enforceable against BIL in accordance with its terms, except
as enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
3A.03 Non-Contravention; Approvals and Consents. (a) The execution and
delivery of this Agreement by BIL does not, and the performance by BIL of its
obligations hereunder and the consummation of the transactions contemplated
hereby will not, conflict with, result in a violation or breach of, constitute
(with or without notice or lapse of time or both) a default under, result in or
give to any person any right of payment or reimbursement, termination,
cancellation, modification or acceleration of, or result in the creation or
imposition of any Lien upon any of the assets or properties of BIL under, any of
the terms, conditions or provisions of (i) the certificate or articles of
incorporation or bylaws (or other comparable charter documents) of BIL, or (ii)
(x) any law or order of any Governmental or Regulatory Authority applicable to
BIL or any of its assets or properties, or (y) any Contracts to which BIL is a
party or by which BIL or any of its respective assets or properties is bound,
excluding from the foregoing clauses (x) and (y) conflicts, violations,
breaches, defaults, terminations, modifications, accelerations and creations and
impositions of Liens which, individually or in the aggregate, could not be
reasonably expected to have a material adverse effect on the ability of BIL to
consummate the transactions contemplated by this Agreement.
3A.04 Legal Proceedings. There are no actions, suits, arbitrations or
proceedings pending or, to the knowledge of BIL, threatened against, relating to
or affecting, nor to the knowledge of BIL are there any Governmental or
Regulatory Authority investigations or audits pending or threatened against,
relating to or affecting, BIL or any of its assets and properties which,
individually or in the aggregate, could be reasonably expected to have a
material adverse effect on the ability of BIL to consummate the transactions
contemplated by this Agreement, and (ii) BIL is not subject to any continuing
order of any Governmental or Regulatory Authority which, individually or in the
aggregate, could be reasonably expected to have a material adverse effect on the
ability of BIL to consummate the transactions contemplated by this Agreement.
3A.05 Purchase for Investment. The shares of Parent Common Stock and Parent
Preferred Stock to be issued to BIL pursuant to this Agreement, together with
any shares of Parent Common Stock issued upon conversion of or as a dividend on
such shares of Parent Preferred Stock, will be acquired by BIL for its own
account for the purpose of investment, it being understood that the right to
dispose of such shares shall be entirely within the discretion of BIL. BIL will
refrain from transferring or otherwise disposing of any of such shares of Parent
Common Stock or Parent Preferred Stock, or any interest therein, in such manner
as to cause Parent to be in violation of the registration requirements of
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the Securities Act, or applicable state securities or blue sky laws. BIL
acknowledges that each certificate representing such shares of Parent Common
Stock or Parent Preferred Stock shall bear a legend to the effect that the
shares represented by such certificate have not been registered under the
provisions of the Securities Act and may not be sold, transferred or otherwise
disposed of except pursuant to (i) an effective registration statement under the
Securities Act or (ii) a valid exemption from the registration requirements of
the Securities Act and such other legends as may be required by the Stockholder
Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub represent and warrant to the Company as follows:
4.01 Organization and Qualification. Each of Parent and its Subsidiaries
(including Sub) is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation, and has all
requisite corporate power and authority to conduct its business as and to the
extent now conducted and to own, use and lease its assets and properties, except
for such failures to be so incorporated, existing and in good standing or to
have such power and authority which, individually or in the aggregate, are not
having and could not be reasonably expected to have a material adverse effect on
Parent and its Subsidiaries taken as a whole. Sub was formed solely for the
purpose of engaging in the transactions contemplated by this Agreement, has
engaged in no other business activities and has conducted its operations only as
contemplated hereby. Each of Parent and its Subsidiaries is duly qualified,
licensed or admitted to do business and is in good standing in each jurisdiction
in which the ownership, use or leasing of its assets and properties, or the
conduct or nature of its business, makes such qualification, licensing or
admission necessary, except for such failures to be so qualified, licensed or
admitted and in good standing which, individually or in the aggregate, are not
having and could not be reasonably expected to have a material adverse effect on
Parent and its Subsidiaries taken as a whole. Section 4.01 of the letter dated
the date hereof and delivered by Parent and Sub to the Company concurrently with
the execution and delivery of this Agreement (the "Parent Disclosure Letter")
sets forth (i) the name and jurisdiction of incorporation of each Subsidiary of
Parent, (ii) its authorized capital stock, (iii) the number of issued and
outstanding shares of capital stock and (iv) the record owners of such shares.
Except for interests in the Subsidiaries of Parent and as disclosed in Section
4.01 of the Parent Disclosure Letter, Parent does not directly or indirectly own
any equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for, any equity or similar interest in, any
corporation, partnership, joint venture or other business association or entity.
Parent has previously delivered to the Company correct and complete copies of
the certificate or articles of incorporation and bylaws (or other comparable
charter documents) of Parent and each of its Subsidiaries.
4.02 Capital Stock. (a) The authorized capital stock of Parent consists
solely of 40,000,000 shares of Parent Common Stock and 1,000,000 shares of
preferred stock, par value $.01 per share ("Parent Preferred Stock"). As of
August 7, 1996, 14,175,608 shares of Parent Common Stock were issued and
outstanding, no shares were held in the treasury of Parent, 1,313,325 shares
were reserved for issuance in connection with Parent's Incentive Program, as
amended (the "Parent Incentive Program"), and 345,336 were shares reserved for
issuance in connection with the warrants held by John Hancock Mutual Life
Insurance Company. Since such date, except as set forth in Section 4.02 of the
Parent Disclosure Letter, there has been no change in the number of issued and
outstanding shares of Parent Common Stock or shares of Parent Common Stock held
in treasury or reserved for issuance since such date other than the exercise of
options outstanding under the Parent Incentive Program as of such date. As of
the date hereof, no shares of Parent Preferred Stock are issued and outstanding
and 300,000 shares are designated Series A Participating Preferred Shares
("Parent Series A Preferred
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Stock") and are reserved for issuance in accordance with the Rights Agreement
dated as of September 3, 1996 by and between Parent and American Stock Transfer
& Trust Company, as Rights Agent (the "Parent Rights Agreement"), pursuant to
which Parent has issued rights (the "Parent Rights") to purchase shares of
Parent Series A Preferred Stock. All of the issued and outstanding shares of
Parent Common Stock are, and all shares reserved for issuance will be, upon
issuance in accordance with the terms specified in the instruments or agreements
pursuant to which they are issuable, duly authorized, validly issued, fully paid
and nonassessable. All shares of Parent Common Stock, Parent Series B Preferred
Stock and Parent Series C Preferred Stock to be issued pursuant to the Agreement
and upon conversion of or as a dividend on the Parent Series B Preferred Stock
and the Parent Series C Preferred Stock will be, when so issued in accordance
with this Agreement or the terms of the Parent Series B Preferred Stock or the
Parent Series C Preferred Stock, as the case may be, duly authorized, validly
issued, fully paid and nonassessable. Except pursuant to this Agreement and the
Parent Rights Agreement and except as set forth in Section 4.02 of the Parent
Disclosure Letter, there are no outstanding Options obligating Parent or any of
its Subsidiaries to issue or sell any shares of capital stock of Parent or to
grant, extend or enter into any Option with respect thereto.
(b) Except as disclosed in Section 4.02 of the Parent Disclosure Letter,
all of the outstanding shares of capital stock of each Subsidiary of Parent are
duly authorized, validly issued, fully paid and nonassessable and are owned,
beneficially and of record, by Parent or a Subsidiary wholly owned, directly or
indirectly, by Parent, free and clear of any Liens. Except as disclosed in
Section 4.02 of the Parent Disclosure Letter, there are no (i) outstanding
Options obligating Parent or any of its Subsidiaries to issue or sell any shares
of capital stock of any Subsidiary of Parent or to grant, extend or enter into
any such Option or (ii) voting trusts, proxies or other commitments,
understandings, restrictions or arrangements in favor of any person other than
Parent or a Subsidiary wholly owned, directly or indirectly, by Parent with
respect to the voting of or the right to participate in dividends or other
earnings on any capital stock of any Subsidiary of Parent.
(c) Except as disclosed in Section 4.02 of the Parent Disclosure Letter,
there are no outstanding contractual obligations of Parent or any Subsidiary of
Parent to repurchase, redeem or otherwise acquire any shares of Parent Common
Stock or any capital stock of any Subsidiary of Parent or to provide funds to,
or make any investment (in the form of a loan, capital contribution or
otherwise) in, any Subsidiary of Parent or any other person.
4.03 Authority Relative to this Agreement. Each of Parent and Sub has the
requisite corporate power and authority to enter into this Agreement and,
subject to obtaining the Parent Stockholders' Approval (as defined in Section
6.03(a)), to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by each of Parent and Sub and the consummation by each of Parent
and Sub of the transactions contemplated hereby have been duly and validly
approved by its Board of Directors and by Parent in its capacity as the sole
stockholder of Sub, the Board of Directors of Parent has adopted a resolution
declaring the advisability of the Parent Amendment and the Plan Amendment (each
as defined in Section 6.03(a)) and directed that the Parent Amendment and the
Plan Amendment and the issuance of Parent securities to be issued pursuant to
this Agreement, upon conversion of or as a dividend on the Parent Series B
Preferred Stock and the Parent Series C Preferred Stock and under the Company
Option Plans after the Merger as contemplated by Section 6.08 be submitted for
consideration by the stockholders of Parent, and no other corporate proceedings
on the part of either of Parent or Sub or their stockholders are necessary to
authorize the execution, delivery and performance of this Agreement by Parent
and Sub and the consummation by Parent and Sub of the transactions contemplated
hereby, other than obtaining the Parent Stockholders' Approval. This Agreement
has been duly and validly executed and delivered by each of Parent and Sub and,
subject to the obtaining of the Parent Stockholders' Approval, constitutes a
legal, valid and binding obligation of each of Parent and Sub enforceable
against each of Parent and Sub in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors'
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rights generally and by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
4.04 Non-Contravention; Approvals and Consents. (a) The execution and
delivery of this Agreement by each of Parent and Sub do not, and the performance
by each of Parent and Sub of its obligations hereunder and the consummation of
the transactions contemplated hereby will not, conflict with, result in a
violation or breach of, constitute (with or without notice or lapse of time or
both) a default under, result in or give to any person any right of payment or
reimbursement, termination, cancellation, modification or acceleration of, or
result in the creation or imposition of any Lien upon any of the assets or
properties of Parent or any of its Subsidiaries under, any of the terms,
conditions or provisions of (i) the certificates or articles of incorporation or
bylaws (or other comparable charter documents) of Parent or any of its
Subsidiaries, or (ii) except as described in Section 4.04 of the Parent
Disclosure Letter and subject to obtaining the Parent Stockholders' Approval in
accordance with the DGCL, Parent's Certificate of Incorporation and Bylaws and
the taking of the actions described in paragraph (b) of this Section, (x) any
laws or orders of any Governmental or Regulatory Authority applicable to Parent
or any of its Subsidiaries or any of their respective assets or properties, or
(y) except as described in Section 4.04 of the Parent Disclosure Letter, any
Contracts to which Parent or any of its Subsidiaries is a party or by which
Parent or any of its Subsidiaries or any of their respective assets or
properties is bound, excluding from the foregoing clauses (x) and (y) conflicts,
violations, breaches, defaults, terminations, modifications, accelerations and
creations and impositions of Liens which, individually or in the aggregate,
could not be reasonably expected to have a material adverse effect on Parent and
its Subsidiaries taken as a whole or on the ability of Parent and Sub to
consummate the transactions contemplated by this Agreement.
(b) Except (i) for the filing of a premerger notification report by Parent
under the HSR Act, (ii) for the filing of the Proxy Statement and Registration
Statement with the SEC pursuant to the Exchange Act and the Securities Act, the
declaration of the effectiveness of the Registration Statement by the SEC and
filings with various state securities authorities that are required in
connection with the transactions contemplated by this Agreement, (iii) for the
filing of the Certificate of Merger and other appropriate merger documents
required by the DGCL with the Secretary of State and appropriate documents with
the relevant authorities of other states in which the Constituent Corporations
are qualified to do business, (iv) for any filings with the SEC required under
Section 13(d) of the Exchange Act and (v) as disclosed in Section 4.04 of the
Parent Disclosure Letter, no consent, approval or action of, filing with or
notice to any Governmental or Regulatory Authority or other public or private
third party is necessary or required under any of the terms, conditions or
provisions of any law or order of any Governmental or Regulatory Authority or
any Contract to which Parent or any of its Subsidiaries is a party or by which
Parent or any of its Subsidiaries or any of their respective assets or
properties is bound for the execution and delivery of this Agreement by each of
Parent and Sub, the performance by each of Parent and Sub of its obligations
hereunder or the consummation of the transactions contemplated hereby, other
than such consents, approvals, actions, filings and notices which the failure to
make or obtain, as the case may be, individually or in the aggregate, could not
be reasonably expected to have a material adverse effect on Parent and its
Subsidiaries taken as a whole or on the ability of Parent and Sub to consummate
the transactions contemplated by this Agreement.
4.05 SEC Reports and Financial Statements. Parent delivered to the Company
prior to the execution of this Agreement a true and complete copy of each form,
report, schedule, registration statement, definitive proxy statement and other
document (together with all amendments thereof and supplements thereto) filed by
Parent or any of its Subsidiaries with the SEC since December 31, 1992 (as such
documents have since the time of their filing been amended or supplemented, the
"Parent SEC Reports"), which are all the documents (other than preliminary
material) that Parent and its Subsidiaries were required to file with the SEC
since such date. As of their respective dates, the Parent SEC Reports (i)
complied as to form in all material respects with the requirements of the
Securities Act or
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the Exchange Act, as the case may be, and (ii) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The audited
consolidated financial statements and unaudited interim consolidated financial
statements (including, in each case, the notes, if any, thereto) included in the
Parent SEC Reports (the "Parent Financial Statements") complied as to form in
all material respects with the published rules and regulations of the SEC with
respect thereto, were prepared in accordance with GAAP, except as may be
indicated therein or in the notes thereto and except with respect to unaudited
statements as permitted by Form 10-Q of the SEC, and, as of the respective dates
thereof, fairly presented (subject, in the case of the unaudited interim
financial statements, to normal, recurring year-end audit adjustments (which, in
the case of the unaudited financial statements included in Parent's Report on
Form 10-Q for the period ended June 30, 1996, are not expected to be,
individually or in the aggregate, materially adverse to Parent and its
Subsidiaries taken as a whole)) the consolidated financial position of Parent
and its consolidated subsidiaries as at the respective dates thereof and the
consolidated results of their operations and cash flows for the respective
periods then ended. Except as set forth in Section 4.05 of the Parent Disclosure
Letter, each Subsidiary of Parent is treated as a consolidated subsidiary of
Parent in the Parent Financial Statements for all periods covered thereby.
4.06 Absence of Certain Changes or Events. Except as disclosed in the
Parent SEC Reports filed prior to the date of this Agreement or in Section 4.06
of the Parent Disclosure Letter, (a) since December 31, 1995 there has not been
any change, event or development having, or that could be reasonably expected to
have, individually or in the aggregate, a material adverse effect on Parent and
its Subsidiaries taken as a whole, and (b) except as disclosed in Section 4.06
of the Parent Disclosure Letter, between June 30, 1996 and the date hereof (i)
Parent and its Subsidiaries have conducted their respective businesses only in
the ordinary course consistent with past practice and (ii) neither Parent nor
any of its Subsidiaries has taken any action which, if taken after the date
hereof, would constitute a breach of any provision of clause (ii) of Section
5.01(b).
4.07 Absence of Undisclosed Liabilities. Except for matters reflected or
reserved against in the balance sheet as of June 30, 1996 included in the Parent
Financial Statements or as disclosed in Section 4.07 of the Parent Disclosure
Letter, neither Parent nor any of its Subsidiaries had at such date, or has
incurred since that date, any liabilities or obligations (whether absolute,
accrued, contingent, fixed or otherwise, or whether due or to become due) of any
nature that would be required by GAAP to be reflected on a consolidated balance
sheet of Parent and its consolidated subsidiaries (including the notes thereto),
except liabilities or obligations (i) which were incurred in the ordinary course
of business consistent with past practice or (ii) which have not been, and could
not be reasonably expected to be, individually or in the aggregate, materially
adverse to Parent and its Subsidiaries taken as a whole.
4.08 Legal Proceedings. Except as disclosed in the Parent SEC Reports filed
prior to the date of this Agreement or in Section 4.08 of the Parent Disclosure
Letter, (i) there are no actions, suits, arbitrations or proceedings pending or,
to the knowledge of Parent, threatened against, relating to or affecting, nor to
the knowledge of Parent are there any Governmental or Regulatory Authority
investigations or audits pending or threatened against, relating to or
affecting, Parent or any of its Subsidiaries or any of their respective assets
and properties which, individually or in the aggregate, could be reasonably
expected to have a material adverse effect on Parent and its Subsidiaries taken
as a whole or on the ability of Parent and Sub to consummate the transactions
contemplated by this Agreement, and (ii) neither Parent nor any of its
Subsidiaries is subject to any continuing order of any Governmental or
Regulatory Authority which, individually or in the aggregate, is having or could
be reasonably expected to have a material adverse effect on Parent and its
Subsidiaries taken as a whole or on the ability of Parent and Sub to consummate
the transactions contemplated by this Agreement.
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4.09 Information Supplied. The registration statement on Form S-4 to be
filed with the SEC by Parent in connection with the issuance of shares of Parent
Common Stock in the Merger, as amended or supplemented from time to time (as so
amended and supplemented, the "Registration Statement"), and any other documents
to be filed by Parent with the SEC or any other Governmental or Regulatory
Authority in connection with the Merger and the other transactions contemplated
hereby will (in the case of the Registration Statement and any such other
documents filed with the SEC under the Securities Act or the Exchange Act)
comply as to form in all material respects with the requirements of the Exchange
Act and the Securities Act, respectively, and will not, on the date of its
filing or, in the case of the Registration Statement, at the time it becomes
effective under the Securities Act, at the date the Proxy Statement is mailed to
stockholders of the Company and of Parent and at the time of the Stockholders'
Meetings, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading, except that no representation is made by Parent or Sub with respect
to information included therein with respect to the Company and its
Subsidiaries, including information incorporated by reference therein from
documents filed by the Company or any of its Subsidiaries with the SEC.
4.10 Compliance with Laws and Orders. Parent and its Subsidiaries hold all
permits, licenses, variances, exemptions, orders and approvals of all
Governmental and Regulatory Authorities necessary for the lawful conduct of
their respective businesses (the "Parent Permits"), except for failures to hold
such permits, licenses, variances, exemptions, orders and approvals which,
individually or in the aggregate, are not having and could not be reasonably
expected to have a material adverse effect on Parent and its Subsidiaries taken
as a whole. Parent and its Subsidiaries are in compliance with the terms of the
Parent Permits, except failures so to comply which, individually or in the
aggregate, are not having and could not be reasonably expected to have a
material adverse effect on Parent and its Subsidiaries taken as a whole. Except
as disclosed in the Parent SEC Reports filed prior to the date of this
Agreement, Parent and its Subsidiaries are not in violation of or default under
any law or order of any Governmental or Regulatory Authority, except for such
violations or defaults which, individually or in the aggregate, are not having
and could not be reasonably expected to have a material adverse effect on Parent
and its Subsidiaries taken as a whole.
4.11 Compliance with Agreements; Certain Agreements. (a) Except as
disclosed in the Parent SEC Reports filed prior to the date of this Agreement,
neither Parent nor any of its Subsidiaries nor, to the knowledge of Parent, any
other party thereto is in breach or violation of, or in default in the
performance or observance of any term or provision of, and no event has occurred
which, with notice or lapse of time or both, could be reasonably expected to
result in a default under, (i) the certificate of incorporation or bylaws (or
other comparable charter documents) of Parent or any of its Subsidiaries or (ii)
any Contract to which Parent or any of its Subsidiaries is a party or by which
Parent or any of its Subsidiaries or any of their respective assets or
properties is bound, except in the case of clause (ii) for breaches, violations
and defaults which, individually or in the aggregate, are not having and could
not be reasonably expected to have a material adverse effect on Parent and its
Subsidiaries taken as a whole.
(b) Except as disclosed in Section 4.11 of the Parent Disclosure Letter or
in the Parent SEC Reports filed prior to the date of this Agreement or as
provided for in this Agreement, as of the date hereof, neither Parent nor any of
its Subsidiaries is a party to any oral or written (i) consulting agreement not
terminable on thirty (30) days' or less notice, (ii) union or collective
bargaining agreement, (iii) agreement with any executive officer or other key
employee of Parent or any of its Subsidiaries the benefits of which are
contingent or vest, or the terms of which are materially altered, upon the
occurrence of a transaction involving Parent or any of its Subsidiaries of the
nature contemplated by this Agreement, (iv) agreement with respect to any
executive officer or other key employee of Parent or any of its Subsidiaries
providing any term of employment or compensation guarantee or (v) agreement or
plan, including any stock option, stock appreciation right, restricted stock
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or stock purchase plan, any of the benefits of which will be increased, or the
vesting of the benefits of which will be accelerated, by the occurrence of any
of the transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement.
4.12 Taxes. (a) Each of Parent and its Subsidiaries has filed all material
tax returns and reports required to be filed by it, or requests for extensions
to file such returns or reports have been timely filed or granted and have not
expired, and all such tax returns and reports are complete and accurate in all
respects, except to the extent that such failures to file, have extensions
granted that remain in effect or be complete and accurate in all respects, as
applicable, individually or in the aggregate, would not have a material adverse
effect on Parent and its Subsidiaries taken as a whole. Parent and each of its
Subsidiaries has paid (or Parent has paid on its behalf) all taxes shown as due
on such tax returns and reports. The most recent financial statements contained
in the Parent SEC Reports reflect an adequate reserve for all taxes payable by
Parent and its Subsidiaries for all taxable periods and portions thereof accrued
through the date of such financial statements, and no deficiencies for any taxes
have been proposed, asserted or assessed against Parent or any of its
Subsidiaries that are not adequately reserved for thereon, except for
inadequately reserved taxes and inadequately reserved deficiencies that would
not, individually or in the aggregate, have a material adverse effect on Parent
and its Subsidiaries taken as a whole. No requests for waivers of the time to
assess any taxes against Parent or any of its Subsidiaries have been granted or
are pending, except for requests with respect to such taxes that have been
adequately reserved for in the most recent financial statements contained in the
Parent SEC Reports, or, to the extent not adequately reserved, the assessment of
which would not, individually or in the aggregate, have a material adverse
effect on Parent and its Subsidiaries taken as a whole.
4.13 Employee Benefit Plans; ERISA. (a) Section 4.13(a) of the Parent
Disclosure Letter (i) contains a true and complete list and description of each
Parent Benefit Plan, (ii) identifies each Parent Benefit Plan that is a Parent
Qualified Plan, (iii) identifies each Parent Benefit Plan which at any time
during the five-year period preceding the date of this Agreement was a Parent
Defined Benefit Plan and (iv) lists, describes and identifies each other Plan
maintained, established, sponsored or contributed to by a Parent ERISA
Affiliate, or any predecessor thereof, which, during the five-year period
preceding the date of this Agreement, was at any time a Parent Defined Benefit
Plan. Neither Parent nor any of its Subsidiaries has scheduled or agreed upon
future increases of benefit levels (or creations of new benefits) with respect
to any Parent Benefit Plan, and no such increases or creation of benefits have
been proposed, made the subject of representations to employees or requested or
demanded by employees under circumstances which make it reasonable to expect
that such increases will be granted. Except as disclosed in Section 4.13(a) of
the Parent Disclosure Letter, no loan is outstanding between Parent or any of
its Subsidiaries and any employee.
(b) Neither Parent nor any of its Subsidiaries maintains or is obligated to
provide benefits under any life, medical or health plan (other than as an
incidental benefit under a Parent Qualified Plan) which provides benefits to
retirees or other terminated employees other than benefit continuation rights
under the Consolidated Omnibus Budget Reconciliation of 1985, as amended.
(c) Except as set forth in Section 4.13(c) of the Parent Disclosure Letter,
each Parent Benefit Plan covers only employees who are employed by Parent or any
of its Subsidiaries (or former employees or beneficiaries with respect to
service with Parent or any of its Subsidiaries), so that the transactions
contemplated by this Agreement will require no spin-off of assets and
liabilities or other division or transfer of rights with respect to any such
plan.
(d) Except as disclosed in Section 4.13(d) of the Parent Disclosure Letter,
neither Parent nor any of its Subsidiaries, any Parent ERISA Affiliate nor any
other corporation or organization controlled by or under common control with any
of the foregoing within the meaning of Section 4001 of ERISA has at any time
contributed to any "multiemployer plan", as that term is defined in Section 4001
of ERISA.
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(e) Each of the Parent Benefit Plans is, and its administration is and has
been since inception, in all material respects in compliance with, and neither
Parent nor any of its Subsidiaries has received any claim or notice that any
such Parent Benefit Plan is not in compliance with, all applicable laws and
orders and prohibited transactions exemptions, including the requirements of
ERISA, the Code, the Age Discrimination in Employment Act, the Equal Pay Act and
Title VII of the Civil Rights Act of 1964. Each Parent Qualified Plan has
received a favorable determination of qualification from the Internal Revenue
Service and there have been no plan amendments, events or circumstances
subsequent to the issuance of such determination of qualification that would
cause the Parent Qualified Plan to lose its determination of qualification. Each
Parent Benefit Plan which is intended to provide for the deferral of income, the
reduction of salary or other compensation or to afford other tax benefits
complies with the requirements of the applicable provisions of the Code or other
laws required in order to provide such tax benefits. In respect of any Parent
Benefit Plan, neither Parent nor any of its Subsidiaries has requested a closing
agreement under the Employee Plans Closing Agreement Program (set forth in Rev.
Proc. 94-16, 1994-5 I.R.B. 22), a compliance statement under the Voluntary
Compliance Resolution program (set forth in Revenue Procedure 94-62, 1994-2 C.B.
778) or any other determination under any remedial program of the Internal
Revenue Service applicable to employee benefit plans, and neither Parent nor any
of its Subsidiaries has consulted with counsel, accountants, employee benefits
consultants or actuaries in regard to making a request under any such remedial
program.
(f) Neither Parent nor any of its Subsidiaries is in default in performing
any of its contractual obligations under any Parent Benefit Plan or any related
trust agreement or insurance contract, except for such defaults which,
individually or in the aggregate, could not be reasonably expected to have a
material adverse effect on Parent and its Subsidiaries taken as a whole. All
contributions and other payments required to be made by Parent or any of its
Subsidiaries to any Parent Benefit Plan with respect to any period ending before
or at or including the Closing Date have been made or reserves adequate for such
contributions or other payments have been or will be set aside therefor and have
been or will be reflected in financial statements in accordance with GAAP. There
are no material outstanding liabilities of any Parent Benefit Plan other than
liabilities for benefits to be paid to participants in such Parent Benefit Plan
and their beneficiaries in accordance with the terms of such Parent Benefit
Plan. Neither Parent nor any of its Subsidiaries has any express or implied
commitment, whether legally enforceable or not, to create, incur liability with
respect to, or cause to exist any employee benefit plan or to modify any Plan,
other than as required by law.
(g) No event has occurred, and there exists no condition or set of
circumstances in connection with any Parent Benefit Plan, under which Parent or
any of its Subsidiaries, directly or indirectly (through any indemnification
agreement or otherwise), could reasonably be expected to be subject to any risk
of material liability under Section 409 of ERISA, Section 502(i) of ERISA, Title
IV of ERISA or Section 4975 of the Code.
(h) No transaction contemplated by this Agreement will result in liability
to the PBGC under Section 302(c)(11), 4062, 4063, 4064 or 4069 of ERISA, or
otherwise, with respect to Parent or any of its Subsidiaries or any corporation
or organization controlled by or under common control with any of the foregoing
within the meaning of Section 4001 of ERISA, and no event or condition exists or
has existed which could reasonably be expected to result in any such liability
with respect to Parent or any of its Subsidiaries or any such corporation or
organization. Except as disclosed in Section 4.13(h) of the Parent Disclosure
Letter:
(i) no "reportable event" within the meaning of Section 4043 of ERISA
has occurred with respect to any Parent Defined Benefit Plan;
(ii) no termination re-establishment or spin-off re-establishment
transaction has occurred with respect to any Parent Subject Defined Benefit
Plan;
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(iii) no Parent Subject Defined Benefit Plan has incurred any
accumulated funding deficiency whether or not waived; and
(iv) no filing has been made and no proceeding has been commenced for
the complete or partial termination of, or withdrawal from, any Parent
Benefit Plan which is a Parent Pension Benefit Plan.
(i) Except as disclosed under Section 4.13(i) of the Parent Disclosure
Letter, no benefit under any Parent Benefit Plan, including, without limitation,
any severance or parachute payment plan or agreement, will be established or
become accelerated, vested, funded or payable by reason of any transaction
contemplated under this Agreement.
(j) To the knowledge of Parent, there are no pending or threatened claims
by or on behalf of any Parent Benefit Plan, by any person covered thereby, or
otherwise, which allege violations of law which could reasonably be expected to
result in material liability on the part of Parent or any of its Subsidiaries or
any fiduciary of any such Parent Benefit Plan, nor is there any basis for such a
claim.
(k) No employer securities, employer real property or other employer
property is included in the assets of any Parent Benefit Plan.
(l) Except as disclosed in Section 4.13(l) of Parent Disclosure Letter, the
fair market value of the assets of each Parent Subject Defined Benefit Plan, as
determined as of the last day of the plan year of such plan which coincides with
or first precedes the date of this Agreement, was not less than the present
value of the projected benefit obligations under such plan at such date as
established on the basis of the actuarial assumptions applicable under such
Parent Subject Defined Benefit Plan at said date and, to the knowledge of
Parent, there have been no material changes in such values since said date.
(m) Complete and correct copies of the following documents have been
furnished to the Company prior to the execution of this Agreement:
(i) each Parent Benefit Plan and any predecessor plans referred to
therein, any related trust agreements, and service provider agreements,
insurance contracts or agreements with investment managers, including
without limitation, all amendments thereto;
(ii) current summary Plan descriptions of each Parent Benefit Plan
subject to ERISA, and any similar descriptions of all other Parent Benefit
Plans;
(iii) the most recent Form 5500 series filings and schedules thereto
for each Parent Benefit Plan subject to ERISA reporting requirements;
(iv) the most recent determination of the Internal Revenue Service
with respect to the qualified status of each Parent Qualified Plan;
(v) the most recent accountings with respect to any Parent Benefit
Plan funded through a trust; and
(vi) the most recent actuarial report of the qualified actuary of any
Parent Subject Defined Benefit Plan or any other Parent Benefit Plan with
respect to which actuarial valuations are conducted.
(n) For purposes of this Agreement, the following terms have the following
meanings:
(i) "Parent Benefit Plan" means any Plan established by Parent, any
Parent Subsidiary, or any predecessor or affiliate of any of the foregoing,
existing at the Closing Date or prior thereto, to which Parent or any
Parent Subsidiary contributes or has contributed, or under
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which any employee, former employee or director of Parent or any Parent
Subsidiary or any beneficiary thereof is covered, is eligible for coverage
or has benefit rights.
(ii) "Parent Defined Benefit Plan" means each Parent Benefit Plan
which is subject to Part 3 of Title I of ERISA, Section 412 of the Code or
Title IV of ERISA.
(iii) "Parent ERISA Affiliate" means any person who is in the same
controlled group of corporations or who is under common control (within the
meaning of Section 414 of the Code) with Parent or any Parent Subsidiary.
(iv) "Parent Pension Benefit Plan" means each Parent Benefit Plan
which is a pension benefit plan within the meaning of Section 3(2) of
ERISA.
(v) "Parent Qualified Plan" means each Parent Benefit Plan which is
intended to qualify under Section 401 of the Code.
(vi) "Parent Subject Defined Benefit Plan" means each Parent Defined
Benefit Plan listed and described in Section 4.13(a) of the Parent
Disclosure Letter.
4.14 Labor Matters. Except as disclosed in the Parent SEC Reports filed
prior to the date of this Agreement or in Section 4.14 of the Parent Disclosure
Letter, (i) there are no material controversies pending or, to the knowledge of
Parent, threatened between Parent or any of its Subsidiaries and any
representatives of its employees, except such as would not, individually or in
the aggregate, have a material adverse effect on Parent and its Subsidiaries
taken as a whole, (ii) to the knowledge of Parent, there are no material
organizational efforts presently being made involving any of the now unorganized
employees of Parent or any of its Subsidiaries and (iii) since December 31,
1992, there has been no work stoppage, strike or other concerted action by
employees of Parent or any of its Subsidiaries except such as did not,
individually or in the aggregate, have a material adverse effect on Parent and
its Subsidiaries taken as a whole.
4.15 Environmental Matters. (a) Each of Parent and its Subsidiaries has
obtained all Environmental Permits from Governmental or Regulatory Authorities
which are required under any applicable Environmental Law in respect of its
business or operations, except for such failures to have Environmental Permits
which, individually or in the aggregate, could not reasonably be expected to
have a material adverse effect on Parent and its Subsidiaries taken as a whole.
Each of such Environmental Permits is in full force and effect and each of
Parent and its Subsidiaries is in compliance with the terms and conditions of
all such Environmental Permits and with any applicable Environmental Law, except
for such failures to be in compliance which, individually or in the aggregate,
could not reasonably be expected to have a material adverse effect on Parent and
its Subsidiaries taken as a whole.
(b) Except as disclosed in Section 4.15(b) of the Parent Disclosure Letter,
no notice, notification, demand, request for information, citation, summons or
order has been issued, no complaint has been filed, no penalty has been assessed
and no investigation or review is pending or threatened by any Governmental or
Regulatory Authority relating to any alleged failure by Parent or any of its
Subsidiaries to have any Environmental Permit or with respect to any generation,
treatment, storage, recycling, transportation, discharge or disposal, or any
release, of any Hazardous Materials generated by Parent or any of its
Subsidiaries which alleged failure, generation, treatment, storage, recycling,
transportation, discharge or disposal or release could reasonably be expected to
have a material adverse effect on Parent and its Subsidiaries taken as a whole.
(c) Except as disclosed in Section 4.15(c) of the Parent Disclosure Letter,
to the knowledge of Parent, (i) no site or facility now or previously owned,
operated or leased by Parent or any of its Subsidiaries is listed or proposed
for listing on the NPL, or on any similar foreign, provincial, state or local
list of sites requiring investigation or clean-up and (ii) neither Parent nor
any of its Subsidiaries
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has released a material amount of Hazardous Materials to any site or facility
now or previously owned, operated or leased by Parent or any of its Subsidiaries
(or to any neighboring site or facility).
(d) Except as described in Section 4.15(d) of the Parent Disclosure Letter,
(i) no Liens have arisen under or pursuant to any Environmental Law on any site
or facility owned, operated or leased by Parent or any of its Subsidiaries,
other than any such site or facility not individually or in the aggregate
material to Parent and its Subsidiaries taken as a whole, (ii) no action of any
Governmental or Regulatory Authority has been taken or, to the knowledge of
Parent, is in process that could subject any such site or facility to such
Liens, (iii) neither Parent nor any of its Subsidiaries would be required to
place any notice or restriction relating to the presence of Hazardous Materials
at any such site or facility owned by it in any deed to the real property on
which such site or facility is located and (iv) Parent is not aware of any facts
that would require Parent or any of its Subsidiaries to place such a notice or
restriction in any such deed in the future.
(e) Except as disclosed in Section 4.15(e) of the Parent Disclosure Letter,
neither Parent nor any of its Subsidiaries has transported or arranged for the
transportation of any Hazardous Material to any location that is listed on the
NPL, listed for possible inclusion on the NPL by the Environmental Protection
Agency in the Comprehensive Environmental Response and Liability Information
System, as provided for by CERCLIS, or on any similar state, local or foreign
list or that is the subject of Federal, state, local or foreign enforcement
actions or other investigations that could reasonably be expected to have a
material adverse effect on Parent and its Subsidiaries taken as a whole.
(f) Except as disclosed in Section 4.15(f) of the Parent Disclosure Letter,
there have been no environmental investigations, studies, audits, tests, reviews
or other analyses conducted by, or which are in the possession of, Parent or any
of its Subsidiaries in relation to any site or facility now or previously owned,
operated or leased by Parent or any of its Subsidiaries.
4.16 Intellectual Property Rights. Parent and its Subsidiaries have all
right, title and interest in, or a valid and binding license or right to use,
all Intellectual Property individually or in the aggregate material to the
conduct of the businesses of Parent and its Subsidiaries taken as a whole (the
"Parent Intellectual Property"). All Industrial Property included in the Parent
Intellectual Property has been and currently remains duly registered with, filed
in or issued by the appropriate Governmental or Regulatory Authority. Except as
disclosed in Section 4.16 of the Parent Disclosure Letter, (i) Parent or a
Subsidiary of Parent has the sole and exclusive right to use all of the Parent
Intellectual Property, except for pending applications for any Industrial
Property included within the Parent Intellectual Property; (ii) all Parent
Intellectual Property is valid and subsisting and free and clear of any Liens,
and none of Parent Intellectual Property is subject to any outstanding order or
Contract restricting the scope of the use thereof; and (iii) there are no claims
or demands of any other person pertaining to the Parent Intellectual Property or
any license with respect thereto, and no actions or proceedings, judicial or
administrative or otherwise, have been instituted, are pending or to the
knowledge of Parent are threatened which challenge or affect the rights of
Parent or any of its Subsidiaries in respect thereof. Neither Parent nor any
Subsidiary of Parent is in default (or with the giving of notice or lapse of
time or both, would be in default) under any license to use such Parent
Intellectual Property, such Parent Intellectual Property is not being infringed
by any third party, and neither Parent nor any Subsidiary of Parent is
infringing any Intellectual Property of any third party, except for such
defaults and infringements which, individually or in the aggregate, are not
having and could not be reasonably expected to have a material adverse effect on
Parent and its Subsidiaries taken as a whole.
4.17 Vote Required. Assuming the accuracy of the representation and
warranty contained in Section 3.20, the affirmative vote of the holders of
record of a majority of the outstanding shares of Parent Common Stock with
respect to the adoption of the Parent Amendment and the affirmative vote of a
majority of the votes cast by the holders of record of shares of Parent Common
Stock with respect to the approval of the issuance of Parent Common Stock in
connection with the Merger and the
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adoption of the Plan Amendment are the only votes of the holders of any class or
series of the capital stock of Parent required to approve the Merger and the
other transactions contemplated hereby.
4.18 Opinion of Financial Advisor. Parent has received the opinion of
Jefferies & Company, Inc., dated the date hereof, to the effect that, as of the
date hereof, the consideration to be paid pursuant to the Merger Agreement by
Parent is fair, from a financial point of view, to the stockholders of Parent,
and a true and complete copy of such opinion has been delivered to the Company
prior to the execution of this Agreement.
4.19 Parent Rights Agreement. As of the date hereof and after giving effect
to the execution and delivery of this Agreement, each Parent Right is
represented by the certificate representing the associated share of Parent
Common Stock and is not exercisable or transferable apart from the associated
share of Parent Common Stock, and the consummation of the transactions
contemplated by this Agreement and the Stockholder Agreement will not result in
a "Stock Acquisition Date", a "Flip-In Event" or a "Separation Date" (as defined
in the Parent Rights Agreement), and Parent has taken all necessary actions so
that neither BIL nor any affiliate of BIL will be deemed an "Acquiring Person"
(as defined in the Parent Rights Agreement) as a result of its ownership or
acquisition of shares of Parent Common Stock or Parent Preferred Stock pursuant
to transactions contemplated by this Agreement or the Stockholder Agreement.
4.20 Ownership of Company Common Stock. Except as disclosed in Section 4.20
of the Parent Disclosure Letter, neither Parent nor any of its Subsidiaries or
other affiliates beneficially owns any shares of Company Common Stock.
4.21 Section 203 of the DGCL Not Applicable. Parent's Board of Directors
has taken all necessary actions so that the provisions of Section 203(a) of the
DGCL will not apply to this Agreement, the Merger, the Stockholder Agreement and
the other transactions contemplated hereby or thereby, and has approved BIL
becoming an "interested stockholder" within the meaning of such section.
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ARTICLE V
COVENANTS
5.01 Covenants of the Company and Parent. At all times from and after the
date hereof until the Effective Time (or earlier termination hereof), the
Company and Parent each covenants and agrees as to itself and its Subsidiaries
that (except as expressly contemplated or permitted by this Agreement or the
Stockholder Agreement, or to the extent that the other party shall otherwise
previously consent in writing):
(a) Ordinary Course. (i) In the case of the Company, the Company and each
of its Subsidiaries shall conduct their respective businesses only in, and
neither the Company nor any of such Subsidiaries shall take any action except
in, the ordinary course consistent with past practice.
(ii) Without limiting the generality of the immediately preceding
paragraph, (x) the Company and its Subsidiaries shall use all commercially
reasonable efforts to preserve intact in all material respects their
present business organizations and reputation, to keep available the
services of their key officers and employees, to maintain their assets and
properties in good working order and condition, ordinary wear and tear
excepted, to maintain insurance on their tangible assets and businesses in
such amounts and against such risks and losses as are currently in effect,
to preserve their relationships with customers and suppliers and others
having significant business dealings with them, to make all required
payments under the Company Benefit Plans and to comply in all material
respects with all laws and orders of all Governmental or Regulatory
Authorities applicable to them, and (y) the Company shall not, nor shall it
permit any of its Subsidiaries to, except as otherwise expressly provided
for in this Agreement:
(A) amend or propose to amend its certificate or articles of
incorporation or bylaws (or other comparable corporate charter
documents);
(B) (w) declare, set aside or pay any dividends on or make other
distributions in respect of any of its capital stock, except for the
declaration and payment of dividends by a wholly-owned Subsidiary
solely to its parent corporation, (x) split, combine, reclassify or
take similar action with respect to any of its capital stock or issue
or authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital
stock, (y) adopt a plan of complete or partial liquidation or
resolutions providing for or authorizing such liquidation or a
dissolution, restructuring, recapitalization or other similar
reorganization or (z) directly or indirectly redeem, repurchase or
otherwise acquire any shares of its capital stock or any Option with
respect thereto;
(C) issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock or any Option
with respect thereto (other than (x) the issuance of Company Common
Stock pursuant to Options outstanding on the date of this Agreement in
accordance with their present terms, and (y) the issuance by a
wholly-owned Subsidiary of its capital stock to its parent
corporation), or modify or amend any right of any holder of
outstanding shares of capital stock or Options with respect thereto;
(D) acquire (by merging or consolidating with, or by purchasing a
substantial equity interest in or a substantial portion of the assets
of, or by any other manner) any business or any corporation,
partnership, association or other business organization or division
thereof or otherwise acquire or agree to acquire any assets other than
in the ordinary course of its business consistent with past practice
which are material, individually or in the aggregate, to the Company
and its Subsidiaries taken as a whole;
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(E) other than in the ordinary course of its business consistent
with past practice, sell, lease, grant any security interest in or
otherwise dispose of or encumber any material amount of its assets or
properties;
(F) except to the extent required by applicable law, regulation
or GAAP, (x) permit any material change in (A) any pricing, marketing,
purchasing, investment, accounting, financial reporting, inventory,
credit, allowance or tax practice or policy or (B) any method of
calculating any bad debt, contingency or other reserve for accounting,
financial reporting or tax purposes or (y) make any material tax
election or settle or compromise any material income tax liability
with any Governmental or Regulatory Authority;
(G) (x) incur (which shall not be deemed to include entering into
credit agreements, lines of credit or similar arrangements until
borrowings are made under such arrangements) any indebtedness for
borrowed money or guarantee any such indebtedness other than HSBC
Indebtedness and BIL Debt and such other additional indebtedness in an
aggregate amount not to exceed $1 million; provided that after giving
effect to the incurrence of such additional indebtedness, the net
worth of the Company as of the Effective Time is equal to or greater
than the net worth of the Company as of June 30, 1996 as set forth in
the Company's Form 10-Q for the period ended June 30, 1996; provided
further that such additional indebtedness is incurred solely in the
ordinary course of the Company's business and used solely for the
purchase of working capital assets; and provided further that for
purposes of calculating the net worth of the Company as of the
Effective Time, the following items shall not be given any effect: (I)
any transactions contemplated or required pursuant to this Agreement,
including but not limited to, contributions to capital, contributions
of debt and the discharge of the HSBC Indebtedness and BIL Debt,
unless such transactions were previously given effect to as of June
30, 1996, and (II) extraordinary accounting reserves taken by the
Company, provided that any such reserves not required by GAAP shall be
subject to Parent's prior consent, which shall not be unreasonably
withheld; or (y) voluntarily purchase, cancel, prepay or otherwise
provide for a complete or partial discharge in advance of a scheduled
repayment date with respect to, or waive any right under, any
indebtedness for borrowed money other than in the ordinary course of
its business consistent with past practice;
(H) except as may be required by applicable law, enter into,
adopt, amend in any material respect or terminate any Company Employee
Benefit Plan or other agreement, arrangement, plan or policy between
the Company or one of its Subsidiaries and one or more of its
directors, officers or employees, or, except for normal increases in
the ordinary course of business consistent with past practice that, in
the aggregate, do not result in a material increase in benefits or
compensation expense to the Company and its Subsidiaries taken as a
whole, increase in any manner the compensation or fringe benefits of
any director, officer or employee or pay any benefit not required by
any plan or arrangement in effect as of the date hereof;
(I) enter into any Contract or amend or modify any existing
Contract, or engage in any new transaction outside the ordinary course
of business consistent with past practice or not on an arm's length
basis, with any affiliate of the Company or any of its Subsidiaries;
(J) make any capital expenditures or commitments for additions to
plant, property or equipment constituting capital assets;
(K) make any change in the lines of business in which it
participates or is engaged; or
(L) enter into any Contract, commitment or arrangement to do or
engage in any of the foregoing.
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(b) Ordinary Course. (i) In the case of Parent, except for the transactions
listed in Section 5.01(b) of the Parent Disclosure Letter and any additional
credit facilities (whether secured or unsecured) entered into by Parent or any
of its Subsidiaries, Parent and each of its Subsidiaries shall conduct their
respective businesses only in, and neither Parent nor any of such Subsidiaries
shall take any action except in, the ordinary course consistent with past
practice.
(ii) Without limiting the generality of the immediately preceding
paragraph, (x) Parent and its Subsidiaries shall use all commercially
reasonable efforts to preserve intact in all material respects their
present business organizations and reputation, to keep available the
services of their key officers and employees, to maintain their assets and
properties in good working order and condition, ordinary wear and tear
excepted, to maintain insurance on their tangible assets and businesses in
such amounts and against such risks and losses as are currently in effect,
to preserve their relationships with customers and suppliers and others
having significant business dealings with them and to comply in all
material respects with all laws and orders of all Governmental or
Regulatory Authorities applicable to them, and (y) Parent shall not, nor
shall it permit any of its Subsidiaries to, except as otherwise expressly
provided for in this Agreement:
(A) except for the Parent Amendment, amend or propose to amend
its certificate or articles of incorporation or bylaws (or other
comparable corporate charter documents);
(B) (w) declare, set aside or pay any dividends on or make other
distributions in respect of any of its capital stock, except for the
declaration and payment of dividends by a wholly-owned Subsidiary
solely to its parent corporation, (x) split, combine, reclassify or
take similar action with respect to any of its capital stock or issue
or authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital
stock, (y) adopt a plan of complete or partial liquidation or
resolutions providing for or authorizing such liquidation or a
dissolution, restructuring, recapitalization or other similar
reorganization or (z) directly or indirectly redeem, repurchase or
otherwise acquire any shares of its capital stock or any Option with
respect thereto;
(C) issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock or any Option
with respect thereto (other than (v) the issuance of Parent Common
Stock pursuant to options outstanding on the date of this Agreement
under the Parent Option Plans and in accordance with their present
terms, (w) the issuance of options pursuant to the Parent Option Plans
in each case in accordance with their present terms and the issuance
of shares of Parent Common Stock upon exercise of such options, (x)
the issuance by a wholly-owned Subsidiary of its capital stock to its
parent corporation, (y) the issuance of Parent Rights and reservation
of Parent Series A Preferred Stock pursuant to the Parent Rights
Agreement in accordance with the terms thereof and (z) the issuance of
Parent Common Stock or Parent Preferred Stock or Options with respect
thereto in connection with a transaction involving the acquisition of
assets or a business of any person, or modify or amend any right of
any holder of outstanding shares of capital stock or Options with
respect thereto); or
(D) enter into any Contract, commitment or arrangement to do or
engage in any of the foregoing.
(c) Advice of Changes. Each party shall confer on a regular and frequent
basis with the other with respect to its business and operations and other
matters relevant to the Merger, and shall promptly advise the other, orally and
in writing, of any change or event, including, without limitation, any
complaint, investigation or hearing by any Governmental or Regulatory Authority
(or communication indicating the same may be contemplated) or the institution or
threat of litigation, having, or which, insofar as can be reasonably foreseen,
could have, a material adverse effect on the Company or Parent, as the case may
be, and its Subsidiaries taken as a whole or on the ability of the Company or
Parent, as
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the case may be, to consummate the transactions contemplated hereby; provided
that no party shall be required to make any disclosure to the extent such
disclosure would constitute a violation of any applicable law.
(d) Notice and Cure. Each of Parent, BIL and the Company will notify the
other of, and will use all commercially reasonable efforts to cure before the
Closing, any event, transaction or circumstance, as soon as practicable after it
becomes known to such party, that causes or will cause any covenant or agreement
of Parent, BIL or the Company, as the case may be, under this Agreement to be
breached or that renders or will render untrue any representation or warranty of
Parent, BIL or the Company, as the case may be, contained in this Agreement.
Each of Parent, BIL and the Company also will notify the other in writing of,
and will use all commercially reasonable efforts to cure, before the Closing,
any violation or breach, as soon as practicable after it becomes known to such
party, of any representation, warranty, covenant or agreement made by Parent,
BIL or the Company, as the case may be. No notice given pursuant to this
paragraph shall have any effect on the representations, warranties, covenants or
agreements contained in this Agreement for purposes of determining satisfaction
of any condition contained herein, except to the extent any such violation or
breach is cured.
(e) Fulfillment of Conditions. Subject to the terms and conditions of this
Agreement, each of Parent and the Company will take or cause to be taken all
commercially reasonable steps necessary or desirable and proceed diligently and
in good faith to satisfy each condition to the other's obligations contained in
this Agreement and to consummate and make effective the transactions
contemplated by this Agreement, and neither Parent nor the Company will, nor
will it permit any of its Subsidiaries to, take or fail to take any action that
could be reasonably expected to result in the nonfulfillment of any such
condition.
5.02 No Solicitations. Prior to the Effective Time, the Company agrees (a)
that neither it nor any of its Subsidiaries shall, and it shall use its best
efforts to cause their respective Representatives (as defined in Section 9.11)
not to, initiate, solicit or encourage, directly or indirectly, any inquiries or
the making or implementation of any proposal or offer (including, without
limitation, any proposal or offer to its stockholders) with respect to a merger,
consolidation or other business combination including the Company or any of its
Subsidiaries or any acquisition or similar transaction (including, without
limitation, a tender or exchange offer) involving the purchase of all or any
significant portion of the assets of the Company and its Subsidiaries taken as a
whole or any outstanding shares of Company Common Stock or shares of the capital
stock of any Subsidiary of the Company (any such proposal or offer being
hereinafter referred to as an "Alternative Proposal"), or engage in any
negotiations concerning, or provide any confidential information or data to, or
have any discussions or enter into any agreements, arrangements or
understandings, whether written or oral, with, any person or group relating to
an Alternative Proposal (excluding the transactions contemplated by this
Agreement), or otherwise facilitate any effort or attempt to make or implement
an Alternative Proposal; (b) that it will immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any parties
with respect to any of the foregoing, and it will take the necessary steps to
inform such parties of its obligations under this Section; and (c) that it will
notify Parent immediately if any such inquiries, proposals or offers are
received by, any such information is requested from, or any such negotiations or
discussions are sought to be initiated or continued with, it or any of such
persons.
5.03 Conduct of Business of Sub. Prior to the Effective Time (or earlier
termination hereof), except as may be required by applicable law and subject to
the other provisions of this Agreement, Parent shall cause Sub to (a) perform
its obligations under this Agreement in accordance with its terms, (b) not incur
directly or indirectly any liabilities or obligations other than those incurred
in connection with the Merger, (c) not engage directly or indirectly in any
business or activities of any type or kind and not enter into any agreements or
arrangements with any person, or be subject to or bound by any obligation or
undertaking, which is not contemplated by this Agreement and (d) not create,
grant or
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suffer to exist any Lien upon its properties or assets which would attach to any
properties or assets of the Surviving Corporation after the Effective Time.
5.04 Third Party Standstill Agreements. During the period from the date of
this Agreement through the Effective Time (or earlier termination hereof),
neither the Company nor any of its Subsidiaries shall terminate, amend, modify
or waive any provision of any confidentiality or standstill agreement to which
it is a party. During such period, the Company shall enforce, to the fullest
extent permitted under applicable law, the provisions of any such agreement,
including, but not limited to, by obtaining injunctions to prevent any breaches
of such agreements and to enforce specifically the terms and provisions thereof
in any court having jurisdiction.
5.05 Purchases of Common Stock of the Other Party. During the period from
the date hereof through the Effective Time (or earlier termination hereof),
neither Parent nor any of its Subsidiaries or other affiliates will purchase any
shares of Company Common Stock, and neither the Company nor any of its
Subsidiaries or other affiliates will purchase any shares of Parent Common
Stock.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.01 Access to Information; Confidentiality. Each of the Company and Parent
shall, and shall cause each of its Subsidiaries to, throughout the period from
the date hereof to the Effective Time (or earlier termination hereof), (i)
provide the other party and its Representatives with full access, upon
reasonable prior notice and during normal business hours, to all officers,
employees, agents and accountants of the Company or Parent, as the case may be,
and its Subsidiaries and their respective assets, properties, books and records,
but only to the extent that such access does not unreasonably interfere with the
business and operations of the Company or Parent, as the case may be, and its
Subsidiaries, and (ii) furnish promptly to such persons (x) a copy of each
report, statement, schedule and other document filed or received by the Company
or Parent, as the case may be, or any of its Subsidiaries pursuant to the
requirements of federal or state securities laws and each material report,
statement, schedule and other document filed with any other Governmental or
Regulatory Authority, and (y) all other information and data (including, without
limitation, copies of Contracts, Company Employee Benefit Plans or Parent
Employee Benefit Plans, as the case may be, and other books and records)
concerning the business and operations of the Company or Parent, as the case may
be, and its Subsidiaries as the other party or any of such other persons
reasonably may request. No investigation pursuant to this paragraph or otherwise
shall affect any representation or warranty contained in this Agreement or any
condition to the obligations of the parties hereto. Any such information or
material obtained pursuant to this Section 6.01 that constitutes "Evaluation
Material" (as such term is defined in the letter agreement dated as of June 17,
1996 between the Company, BIL and Parent (the "Confidentiality Agreement"))
shall be governed by the terms of the Confidentiality Agreement.
6.02 Preparation of Registration Statement and Proxy Statement. The Company
and Parent shall prepare and file with the SEC as soon as reasonably practicable
after the date hereof the Proxy Statement and Parent shall prepare and file with
the SEC as soon as reasonably practicable after the date hereof the Registration
Statement, in which the Proxy Statement will be included as the prospectus.
Parent and the Company shall use their respective best efforts to have the
Registration Statement declared effective by the SEC as promptly as practicable
after such filing. Parent shall also take any action (other than qualifying as a
foreign corporation or taking any action which would subject it to service of
process in any jurisdiction where Parent is not now so qualified or subject)
required to be taken under applicable state blue sky or securities laws in
connection with the issuance of Parent securities pursuant to this Agreement,
upon conversion of or as a dividend on the Parent Series B Preferred Stock and
the Parent Series C Preferred Stock, and under the Company Option Plans after
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the Merger as contemplated by Section 6.08. If at any time prior to the
Effective Time any event shall occur that should be set forth in an amendment of
or a supplement to the Registration Statement, Parent shall prepare and file
with the SEC such amendment or supplement as soon thereafter as is reasonably
practicable. Parent, Sub and the Company shall cooperate with each other in the
preparation of the Registration Statement and the Proxy Statement and any
amendment or supplement thereto, and each shall notify the other of the receipt
of any comments of the SEC with respect to the Registration Statement or the
Proxy Statement and of any requests by the SEC for any amendment or supplement
thereto or for additional information, and shall provide to the other promptly
copies of all correspondence between Parent or the Company, as the case may be,
or any of its Representatives with respect to the Registration Statement or the
Proxy Statement. Parent shall give the Company and its counsel the opportunity
to review the Registration Statement and all responses to requests for
additional information by and replies to comments of the SEC before their being
filed with, or sent to, the SEC. Each of the Company, Parent and Sub agrees to
use its best efforts, after consultation with the other parties hereto, to
respond promptly to all such comments of and requests by the SEC and to cause
(x) the Registration Statement to be declared effective by the SEC at the
earliest practicable time and to be kept effective as long as is necessary to
consummate the Merger, and (y) the Proxy Statement to be mailed to the
stockholders of the Company and Parent entitled to vote at the stockholders'
meetings described in Section 6.03 at the earliest practicable time.
6.03 Approval of Stockholders. (a) Parent shall, through its Board of
Directors, duly call, give notice of, convene and hold a meeting of its
stockholders to be held as soon as reasonably practicable after the date hereof
(the "Parent Stockholders' Meeting") for the purpose of voting on (i) the
adoption of the amendments to Article FOURTH of Parent's Certificate of
Incorporation (the "Stock Amendment") and to Articles NINTH, ELEVENTH and
TWELFTH of Parent's Certificate of Incorporation (the "Stockholder Action
Amendments"), in each case as set forth on Exhibit D hereto (the Stock Amendment
and the Stockholder Action Amendments being referred to hereinafter collectively
as the "Parent Amendment"), (ii) the issuance of Parent securities pursuant to
this Agreement, upon conversion or as a dividend on the Parent Series B
Preferred Stock and the Parent Series C Preferred Stock and under the Company
Option Plans after the Merger as contemplated by Section 6.08 and (iii) the
adoption of an amendment (the "Plan Amendment") to increase the number of shares
of Parent Common Stock that may be issued under the Parent Incentive Program by
900,000 (the "Parent Stockholders' Approval"). Subject to the exercise of
fiduciary obligations under applicable law as advised in writing by outside
counsel (a copy of which will be provided promptly to the Company), Parent
shall, through its Board of Directors, include in the Proxy Statement the
recommendation of the Board of Directors of Parent that the stockholders of
Parent adopt the Parent Amendment and the Plan Amendment and approve such
issuances of Parent securities, and shall use its best efforts to obtain such
adoption and approval.
(b) The Company shall, through its Board of Directors, duly call, give
notice of, convene and hold a meeting of its stockholders to be held
simultaneously with the Parent Stockholders' Meeting (the "Company Stockholders'
Meeting" and, together with the Parent Stockholders' Meeting, the "Stockholders'
Meetings") for the purpose of voting on the adoption of this Agreement (the
"Company Stockholders' Approval"). Subject to the exercise of fiduciary
obligations under applicable law as advised in writing by outside counsel (a
copy of which will be provided promptly to Parent), the Company shall, through
its Board of Directors, include in the Proxy Statement the recommendation of the
Board of Directors of the Company that the stockholders of the Company adopt
this Agreement, and shall use its best efforts to obtain such adoption.
6.04 Company Affiliates. At least thirty (30) days prior to the Closing
Date, the Company shall deliver a letter to Parent identifying all persons who,
at the time of the Company Stockholders' Meeting, may, in the Company's
reasonable judgment, be deemed to be "affiliates" (as such term is used in Rule
145 under the Securities Act) of the Company ("Company Affiliates"). The Company
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shall use its best efforts to cause each Company Affiliate to deliver to Parent
on or prior to the Closing Date a written agreement substantially in the form
and to the effect of Exhibit E hereto (an "Affiliate Agreement"). Parent shall
be entitled to place legends as specified in such Affiliate Agreements on the
certificates evidencing any Parent Common Stock to be received by such Company
Affiliates pursuant to the terms of this Agreement, and to issue appropriate
stop transfer instructions to the transfer agent for the Parent Common Stock,
consistent with the terms of such Affiliate Agreements.
6.05 Stock Exchange Listing. Parent shall use its best efforts to cause the
shares of Parent Common Stock to be issued pursuant to this Agreement, upon
conversion of or as a dividend on the Parent Series B Preferred Stock and the
Parent Series C Preferred Stock and under the Company Option Plans after the
Merger as contemplated by Section 6.08 to be approved for listing on the NYSE,
subject to official notice of issuance, prior to the Closing Date.
6.06 PBGC Waiver Payments. The Company shall fully pay and satisfy all
payments scheduled to be made to the PBGC prior to the Closing Date arising out
of the PBGC Waiver.
6.07 Regulatory and Other Approvals. (a) Subject to the terms and
conditions of this Agreement and without limiting the provisions of Sections
6.02 and 6.03, each of the Company and Parent will proceed diligently and in
good faith to, as promptly as practicable, (a) obtain all consents, approvals or
actions of, make all filings with and give all notices to Governmental or
Regulatory Authorities or any other public or private third parties required of
Parent, the Company or any of their Subsidiaries to consummate the Merger and
the other matters contemplated hereby, and (b) provide such other information
and communications to such Governmental or Regulatory Authorities or other
public or private third parties as the other party or such Governmental or
Regulatory Authorities or other public or private third parties may reasonably
request in connection therewith. In addition to and not in limitation of the
foregoing, each of the parties will (x) take promptly all actions necessary to
make the filings required of Parent and the Company or their affiliates under
the HSR Act, (y) comply at the earliest practicable date with any request for
additional information received by such party or its affiliates from the Federal
Trade Commission (the "FTC") or the Antitrust Division of the Department of
Justice (the "Antitrust Division") pursuant to the HSR Act, and (z) cooperate
with the other party in connection with such party's filings under the HSR Act
and in connection with resolving any investigation or other inquiry concerning
the Merger or the other matters contemplated by this Agreement commenced by
either the FTC or the Antitrust Division or state attorneys general.
6.08 Company Option Plans. The Company will use its best efforts to cause
each holder of an option to purchase shares of Company Common Stock (a "Company
Stock Option") under the Company Option Plans outstanding at the Effective Time,
whether vested or unvested, to enter into an agreement with the Company and
Parent providing that, at the Effective Time, each Company Stock Option held by
such holder will be cancelled and, in exchange therefor, Parent will issue to
such holder a new option under the Parent Incentive Program to purchase a number
of shares of Parent Common Stock equal to the product (rounded down to the
nearest whole share) of (i) the number of shares of Company Common Stock
issuable upon exercise of the Company Stock Option immediately prior to the
Effective Time and (ii) the Conversion Number, and having an option exercise
price per share of Parent Common Stock equal to the Sales Price on the Trading
Day immediately prior to the Effective Time.
6.09 Expenses. Except as set forth in Section 8.02, whether or not the
Merger is consummated, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such cost or expense.
6.10 Brokers or Finders. Each of Parent and BIL represents, as to itself
and its affiliates, that no agent, broker, investment banker, financial advisor
or other firm or person is or will be entitled to any broker's or finder's fee
or any other commission or similar fee in connection with any of the
transactions contemplated by this Agreement, except Vector Securities
International, Inc., whose fees and expenses
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will be paid by the Company in accordance with the Company's agreement with such
firm (a true and complete copy of which has been delivered by the Company to
Parent prior to the execution of this Agreement), and Jefferies & Company, Inc.,
whose fees and expenses will be paid by Parent in accordance with Parent's
agreement with such firm (a true and complete copy of which has been delivered
by Parent to the Company prior to the execution of this Agreement), and each of
Parent and BIL shall indemnify and hold the other harmless from and against any
and all claims, liabilities or obligations with respect to any other such fee or
commission or expenses related thereto asserted by any person on the basis of
any act or statement alleged to have been made by such party or its affiliate.
6.11 Takeover Statutes. If any "fair price", "moratorium", "control share
acquisition" or other form of antitakeover statute or regulation shall become
applicable to the transactions contemplated hereby, the Company and the members
of the Board of Directors of the Company shall grant such approvals and take
such actions as are reasonably necessary so that the transactions contemplated
hereby may be consummated as promptly as practicable on the terms contemplated
hereby and thereby and otherwise act to eliminate or minimize the effects of
such statute or regulation on the transactions contemplated hereby and thereby.
6.12 Conveyance Taxes. The Company and Parent shall cooperate in the
preparation, execution and filing of all returns, questionnaires, applications
or other documents regarding any real property transfer or gains, sales, use,
transfer, value added, stock transfer and stamp taxes, any transfer, recording,
registration and other fees, and any similar taxes which become payable in
connection with the transactions contemplated by this Agreement that are
required or permitted to be filed on or before the Effective Time.
6.13 [Intentionally Left Blank].
6.14 Related Party Contracts and Transactions. Except as contemplated by
this Agreement and the transactions contemplated hereby and except as set forth
in Section 6.14 of the Company Disclosure Letter, any and all contracts and
transactions between the Company or any of its Subsidiaries, on the one hand,
and BIL or any of its other affiliates, on the other hand, shall be canceled by
the Closing Date (at no expense to the Company or its Subsidiaries) such that
the Company and its Subsidiaries will have no rights to any assets or properties
of BIL or any of its other affiliates or obligations whatsoever with respect to
such contracts and transactions, and BIL and its other affiliates will have no
rights to any assets or properties of the Company or any of its Subsidiaries or
obligations whatsoever with respect to such contracts or transactions.
6.15 Benefit Arrangements. For a period of one year from and after the
Effective Time or until such employee benefit plans or arrangements are
integrated with the Parent's employee benefit plans and arrangements, whichever
is earlier, Parent shall, or shall cause the Surviving Corporation to, provide
employee benefit plans and arrangements for the benefit of the employees of the
Surviving Corporation and its Subsidiaries that are reasonably comparable in the
aggregate to the employee benefit plans and arrangements of the Company and its
Subsidiaries currently in effect, except for such changes as are necessary to
comply with, or respond to, changes in applicable laws.
6.16 Indemnification of Directors and Officers. (a) From and after the
Effective Time, the Surviving Corporation shall indemnify, defend and hold
harmless the present and former officers and directors of the Company
(collectively, the "Indemnified Parties") against all losses, expenses, claims,
damages or liabilities arising out of actions or omissions occurring at or prior
to the Effective Time (including, without limitation, the transactions
contemplated by this Agreement) to the full extent permitted or required under
the DGCL (and shall also advance expenses as incurred to the fullest extent
permitted under the DGCL, provided that the person to whom expenses are advanced
provides the undertaking to repay such advances contemplated by Section 145(e)
of the DGCL); Parent hereby guarantees the performance by the Surviving
Corporation of its obligations under this Section 6.16(a)
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with respect to any Claim (as hereinafter defined) with respect to the
transactions contemplated by this Agreement, provided such Indemnified Party and
its affiliates is not a party benefited by the Claim indemnified. Parent and Sub
agree that all rights to indemnification, including provisions relating to
advances of expenses incurred in defense of any claim, action, suit, proceeding
or investigation (a "Claim") existing in favor of the Indemnified Parties as
provided in the Company's Certificate of Incorporation or By-Laws, as in effect
as of the date hereof, with respect to matters occurring through the Effective
Time, shall survive the Merger, and shall continue in full force and effect for
a period of not less than six years from the Effective Time; provided, however,
that all rights to indemnification in respect of any Claim asserted or made
within such period shall continue until the disposition of any such Claim.
(b) Without limiting the foregoing, in the event any Claim is brought
against any Indemnified Party (whether arising before or after the Effective
Time) after the Effective Time (i) the Indemnified Parties may retain counsel
satisfactory to them and the Surviving Corporation, (ii) the Surviving
Corporation shall pay all reasonable fees and expenses of such counsel for the
Indemnified Parties promptly as statements therefor are received, and (iii) the
Surviving Corporation will use all reasonable efforts to assist in the vigorous
defense of any such matter, provided that the Surviving Corporation shall not be
liable for any settlement of any Claim effected without its written consent,
which consent shall not be unreasonably withheld or delayed. Any Indemnified
Party wishing to claim indemnification under this Section, upon learning of any
such Claim, shall notify the Surviving Corporation (but the failure to so notify
the Surviving Corporation shall not relieve it from any liability which it may
have under this Section except to the extent the Surviving Corporation is
irreparably harmed thereby), and shall deliver to the Surviving Corporation the
undertaking contemplated by Section 145(e) of the DGCL. The Indemnified Parties
as a group may retain only one firm to represent them with respect to such
matter unless there is, under applicable standards of professional conduct, a
conflict on any significant issue between the positions of any two or more
Indemnified Parties.
(c) The Surviving Corporation shall use its best efforts to cause to be
maintained in effect for not less than two years after the Effective Time the
current policies of directors' and officers' liability insurance and fiduciary
liability insurance maintained by the Company with respect to matters occurring
prior to the Effective Time; provided, that (i) the Surviving Corporation may
substitute therefor policies of substantially the same coverage containing terms
and conditions which are substantially the same for the Indemnified Parties to
the extent reasonably available and (ii) in no event shall the Surviving
Corporation be obligated to expend in order to maintain or procure insurance
coverage pursuant to this paragraph any amount per annum more than 120% in
excess of the aggregate premiums currently payable by the Company and its
Subsidiaries for such purpose.
(d) This Section is intended to benefit the Indemnified Parties and shall
be binding on all successors and assigns of Parent, Sub, the Company and the
Surviving Corporation.
6.17 Contributed Shares and Debt. At all times from and after the date
hereof until the Effective Time, BIL will not contribute to the capital of the
Company, or otherwise transfer or dispose of, any BIL Debt or shares of Company
Preferred Stock held by BIL on the date hereof, except as contemplated by the
next succeeding sentence. Immediately prior to the Closing, BIL shall contribute
to the capital of the Company, first, any Contributed Shares and, second, any
Contributed Debt to the extent required by Section 2.02(b)(iii).
6.18 Excess HSBC Indebtedness. BIL will make such payments to HSBC as shall
be necessary to cause the HSBC Debt Payment not to exceed $25 million on and as
of the Closing Date.
6.19 Mexican Subsidiary. Prior to the Effective Time, the Company shall
purchase all shares of capital stock of Everest & Jennings de Mexico, S.A. de
C.V. (the "Mexican Subsidiary") owned by any
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person other than the Company or a wholly-owned Subsidiary of the Company, on
the terms set forth in Section 3.06 of the Company Disclosure Letter.
ARTICLE VII
CONDITIONS
7.01 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
fulfillment, at or prior to the Closing, of each of the following conditions:
(a) Stockholder Approval. This Agreement shall have been adopted by the
requisite vote of the stockholders of the Company under the DGCL. The
stockholders of Parent shall have adopted the Stock Amendment and the Plan
Amendment and approved the issuance of Parent securities pursuant to this
Agreement, upon conversion of or as a dividend on the Parent Series B Preferred
Stock and the Parent Series C Preferred Stock and under the Company Option Plans
after the Merger as contemplated by Section 6.08 in each case by the requisite
vote under applicable law or under the applicable regulations of any national
securities exchange, as the case may be.
(b) Registration Statement; State Securities Laws. The Registration
Statement shall have become effective in accordance with the provisions of the
Securities Act, and no stop order suspending such effectiveness shall have been
issued and remain in effect and no proceeding seeking such an order shall be
pending or threatened. Parent shall have received all state securities or "blue
sky" permits and other authorizations necessary to issue Parent Common Stock in
the Merger, upon conversion of or as a dividend on the Parent Series B Preferred
Stock and the Parent Series C Preferred Stock and under the Company Option Plans
after the Merger as contemplated by Section 6.08.
(c) Canadian Securities Laws. Parent shall have received all consents,
orders or approvals required from applicable Governmental or Regulatory
Authorities under the Securities Act (Ontario) or other applicable Canadian
securities laws, or there shall be a statutory exemption under the Securities
Act (Ontario) or other applicable Canadian securities laws permitting the
issuance to Canadian residents of Parent Common Stock pursuant to this
Agreement, upon conversion of or as a dividend on the Parent Series B Preferred
Stock and the Parent Series C Preferred Stock and under the Company Option Plans
after the Merger as contemplated by Section 6.08
(d) Exchange Listing. The shares of Parent Common Stock issuable pursuant
to this Agreement, upon conversion of or as a dividend on the Parent Series B
Preferred Stock and the Parent Series C Preferred Stock and under the Company
Option Plans after the Merger as contemplated by Section 6.08 shall have been
authorized for listing on the NYSE, upon official notice of issuance.
(e) HSR Act. Any waiting period (and any extension thereof) applicable to
the consummation of the Merger under the HSR Act shall have expired or been
terminated.
(f) No Injunctions or Restraints. No court of competent jurisdiction or
other competent Governmental or Regulatory Authority shall have enacted, issued,
promulgated, enforced or entered any law or order (whether temporary,
preliminary or permanent) which is then in effect and has the effect of making
illegal or otherwise restricting, preventing or prohibiting consummation of the
Merger or the other transactions contemplated by this Agreement.
(g) Governmental and Regulatory and Other Consents and Approvals. Other
than the filing provided for by Section 1.02, all consents, approvals and
actions of, filings with and notices to any Governmental or Regulatory Authority
or any other public or private third parties required of Parent,
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the Company or any of their Subsidiaries to consummate the Merger and the other
matters contemplated hereby, the failure of which to be obtained or taken could
be reasonably expected to have a material adverse effect on Parent and its
Subsidiaries or the Surviving Corporation and its Subsidiaries, in each case
taken as a whole, or on the ability of Parent or the Company to consummate the
transactions contemplated hereby shall have been obtained, all in form and
substance reasonably satisfactory to Parent and the Company.
(h) Litigation. There shall not be pending on the Closing Date any action,
suit or proceeding challenging the legality of or threatening the consummation
of, or otherwise arising out of this Agreement or any of the transactions
contemplated hereby or seeking an injunction in order to prevent the
consummation of the transactions contemplated hereby, other than litigation
pending on the date hereof.
7.02 Conditions to Obligation of Parent and Sub to Effect the Merger. The
obligation of Parent and Sub to effect the Merger is further subject to the
fulfillment, at or prior to the Closing, of each of the following additional
conditions (all or any of which may be waived in whole or in part by Parent and
Sub in their sole discretion):
(a) Representations and Warranties. The representations and warranties made
by the Company and BIL in this Agreement shall be true and correct as of the
Closing Date as though made on and as of the Closing Date or, in the case of
representations and warranties made as of a specified date earlier than the
Closing Date, on and as of such earlier date, except as affected by the
transactions contemplated by this Agreement, and the Company and BIL shall each
have delivered to Parent a certificate, dated the Closing Date and executed in
the name and on behalf of the Company and BIL by any authorized officer,
respectively, to such effect.
(b) Performance of Obligations. The Company and BIL shall have performed
and complied with, in all material respects, each agreement, covenant and
obligation required by this Agreement to be so performed or complied with by the
Company and BIL at or prior to the Closing, and the Company and BIL shall each
have delivered to Parent a certificate, dated the Closing Date and executed in
the name and on behalf of the Company and BIL by any authorized officer,
respectively, to such effect.
(c) Stockholder Agreement. The Stockholder Agreement shall remain in full
force and effect, and BIL shall have performed and complied with, in all
material respects, each agreement, covenant and obligation of BIL contained in
the Stockholder Agreement to be so performed or complied with by BIL prior to
the Closing.
(d) Dissenting Shares. The aggregate number of Dissenting Shares shall not
exceed 5% of the total number of shares of Company Common Stock outstanding on
the Closing Date.
(e) PBGC Consent. The PBGC shall have issued any required consents to the
consummation of the Merger and the other transactions contemplated hereby, all
in form and substance reasonably satisfactory to Parent.
(f) Real Property Title Searches. Parent shall have received reports of
title searches with respect to the real property on which the manufacturing
facilities of the Company and its Subsidiaries in Mexico and Canada are located,
demonstrating to the reasonable satisfaction of Parent that the Company and its
Subsidiaries have good and marketable fee simple title to each parcel of real
property owned by it, free and clear of all Liens other than any Lien identified
in Section 7.02(f) of the Company Disclosure Letter or any minor imperfection of
title or similar Lien which, individually or in the aggregate with other such
Liens, does not materially impair the value of the property subject to such Lien
or the use of such property in the conduct of the business of the Company or any
of its Subsidiaries.
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(g) HSBC Debt Payment. The HSBC Debt Payment shall not exceed $25 million
and, upon Parent's application of the proceeds from the issuance of Parent
Common Stock in accordance with Section 2.02(b)(ii), HSBC shall have issued
releases in form and substance reasonably satisfactory to Parent evidencing full
and complete discharge of the HSBC Indebtedness and the release by HSBC of any
and all security interests, guarantees and other Liens granted by the Company or
any of its Subsidiaries in respect of the HSBC Indebtedness.
(h) Mexican and Canadian Subsidiaries. Parent shall have received evidence
satisfactory to Parent that the Company beneficially owns, directly or through
wholly-owned Subsidiaries, 100% of the capital stock of each of the Mexican
Subsidiary and Everest & Jennings Canadian Limited.
(i) Product Liability Insurance. Parent shall have obtained a product
liability insurance policy in form and substance satisfactory to Parent
providing for reimbursement of all losses, judgments or amounts paid in
settlement, damages, liabilities, deficiencies, costs and expenses incurred by
the Company or any of its Subsidiaries arising out of or incident to any claim
relating to products manufactured or sold by the Company or any of its
Subsidiaries prior to the Effective Time, which policy shall be in full force
and effect, and shall have received reimbursement from BIL for up to $400,000 of
the costs incurred by Parent in obtaining such policy.
(j) Proceedings. All proceedings to be taken on the part of the Company and
BIL in connection with the transactions contemplated by this Agreement and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Parent, and Parent shall have received copies of all such documents
and other evidences as Parent may reasonably request in order to establish the
consummation of such transactions and the taking of all proceedings in
connection therewith.
7.03 Conditions to Obligation of the Company to Effect the Merger. The
obligation of the Company to effect the Merger is further subject to the
fulfillment, at or prior to the Closing, of each of the following additional
conditions (all or any of which may be waived in whole or in part by the Company
in its sole discretion):
(a) Representations and Warranties. The representations and warranties made
by Parent and Sub in this Agreement shall be true and correct as of the Closing
Date as though made on and as of the Closing Date or, in the case of
representations and warranties made as of a specified date earlier than the
Closing Date, on and as of such earlier date, except as affected by the
transactions contemplated by this Agreement, and Parent and Sub shall each have
delivered to the Company a certificate, dated the Closing Date and executed in
the name and on behalf of Parent by any authorized officer and in the name and
on behalf of Sub by any authorized officer, to such effect.
(b) Performance of Obligations. Parent and Sub shall have performed and
complied with, in all material respects, each agreement, covenant and obligation
required by this Agreement to be so performed or complied with by Parent or Sub
at or prior to the Closing, and Parent and Sub shall each have delivered to the
Company a certificate, dated the Closing Date and executed in the name and on
behalf of Parent by any authorized officer and in the name and on behalf of Sub
by any authorized officer, to such effect.
(c) Indebtedness and Guarantees. BIL shall have received an instrument in
form and substance reasonably satisfactory to BIL evidencing HSBC's release of
BIL from all guarantees of the HSBC Indebtedness, the HSBC letter of credit
facility described in the Company SEC Reports and all letters of credit issued
to secure obligations of the Company and its Subsidiaries.
(d) Proceedings. All proceedings to be taken on the part of Parent and Sub
in connection with the transactions contemplated by this Agreement and all
documents incident thereto shall be reasonably satisfactory in form and
substance to the Company, and the Company shall have received copies of all such
documents and other evidences as the Company may reasonably request in order to
establish the consummation of such transactions and the taking of all
proceedings in connection therewith.
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ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.01 Termination. This Agreement may be terminated, and the transactions
contemplated hereby may be abandoned, at any time prior to the Effective Time,
whether prior to or after the Company Stockholders' Approval or the Parent
Stockholders' Approval:
(a) By mutual written agreement of the parties hereto duly authorized by
action taken by or on behalf of their respective Boards of Directors;
(b) By either the Company or Parent upon notification to the
non-terminating party by the terminating party:
(i) at any time after December 31, 1996 if the Merger shall not have
been consummated on or prior to such date and such failure to consummate
the Merger is not caused by a breach of this Agreement by the terminating
party;
(ii) if the Company Stockholders' Approval or the Parent Stockholders'
Approval shall not be obtained by reason of the failure to obtain the
requisite vote upon a vote held at a meeting of such stockholders, or any
adjournment thereof, called therefor; or
(iii) if any court of competent jurisdiction or other competent
Governmental or Regulatory Authority shall have issued an order making
illegal or otherwise restricting, preventing or prohibiting the Merger and
such order shall have become final and nonappealable;
(c) By Parent, if there has been a material breach of any representation,
warranty, covenant or agreement on the part of the Company or BIL set forth in
this Agreement or (in the case of BIL) the Stockholder Agreement, which breach
is not curable or, if curable, has not been cured within thirty (30) days
following the receipt by the Company or BIL, as the case may be, of notice of
such breach from Parent; or
(d) By the Company or BIL, if there has been a material breach of any
representation, warranty, covenant or agreement on the part of Parent set forth
in this Agreement, which breach is not curable or, if curable, has not been
cured within thirty (30) days following the receipt by Parent of notice of such
breach from the Company or BIL.
8.02 Effect of Termination. (a) If this Agreement is validly terminated by
either the Company, BIL or Parent pursuant to Section 8.01, this Agreement,
including, without limitation, the provisions of Section 5.02, will forthwith
become null and void and there will be no liability or obligation on the part of
either the Company, Parent or BIL (or any of their respective Representatives or
affiliates), except that (i) the provisions of Sections 6.09 and 6.10 and this
Section 8.02 and of the Confidentiality Agreement will continue to apply
following any such termination and (ii) nothing contained herein shall relieve
any party hereto from liability for wilful breach of any of its representations,
warranties, covenants or agreements contained in this Agreement or the
Stockholder Agreement.
8.03 Amendment. This Agreement may be amended, supplemented or modified by
action taken by or on behalf of the respective Boards of Directors of the
parties hereto at any time prior to the Effective Time, whether prior to or
after the Company Stockholders' Approval or the Parent Stockholders' Approval
shall have been obtained, but after such adoption and approval only to the
extent permitted by applicable law. No such amendment, supplement or
modification shall be effective unless set forth in a written instrument duly
executed by or on behalf of each party hereto.
8.04 Waiver. At any time prior to the Effective Time any party hereto, by
action taken by or on behalf of its Board of Directors, may to the extent
permitted by applicable law (i) extend the time for
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the performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties of the
other parties hereto contained herein or in any document delivered pursuant
hereto or (iii) waive compliance with any of the covenants, agreements or
conditions of the other parties hereto contained herein. No such extension or
waiver shall be effective unless set forth in a written instrument duly executed
by or on behalf of the party extending the time of performance or waiving any
such inaccuracy or non-compliance. No waiver by any party of any term or
condition of this Agreement, in any one or more instances, shall be deemed to be
or construed as a waiver of the same or any other term or condition of this
Agreement on any future occasion.
ARTICLE IX
GENERAL PROVISIONS
9.01 Non-Survival of Representations, Warranties, Covenants and Agreements.
The representations, warranties, covenants and agreements contained in this
Agreement or in any instrument delivered pursuant to this Agreement shall not
survive the Merger but shall terminate at the Effective Time, except for the
agreements contained in Article I and Article II, in Sections 6.08, 6.09, 6.10,
6.11, 6.12, 6.15 and 6.16, in this Article IX and in the agreements of the
"affiliates" of the Company delivered pursuant to Section 6.04, which shall
survive the Effective Time.
9.02 Notices. All notices, requests and other communications hereunder must
be in writing and will be deemed to have been duly given only if delivered
personally or by facsimile transmission or mailed (first class postage prepaid)
to the parties at the following addresses or facsimile numbers:
If to Parent or Sub, to:
Graham-Field Health Products, Inc.
400 Rabro Drive East
Hauppauge, New York 11788
Facsimile No.: (516) 582-5608
Attn: Richard S. Kolodny, Esq.
with a copy to:
Milbank, Tweed, Hadley & McCloy
One Chase Manhattan Plaza
New York, New York 10005
Facsimile No.: (212) 530-5219
Attn: Robert S. Reder, Esq.
If to the Company, to:
Everest & Jennings International, Ltd.
4203 Earth City Expressway
Earth City, Missouri 63045
Facsimile No.: (314) 512-7225
Attn: Bevil J. Hogg
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with a copy to:
Bryan Cave LLP
One Metropolitan Square
211 North Broadway
Suite 3600
St. Louis, Missouri 63102
Facsimile No.: (314) 259-2020
Attn: John P. Denneen, Esq.
If to BIL, to:
BIL (Far East Holdings) Limited
c/o Brierley Investments Limited
10 Eastcheap, 3rd Floor
London EC 3M 1AJ
United Kingdom
Facsimile No.: 011-44-171-369-9112
Attn: Rodney F. Price, Chairman
with a copy to:
Brierley Investments Limited
22-24 Victoria Street
Level 6, Colonial Building
Wellington, New Zealand
Facsimile No.: 011-644-473-1631
Attn: Mark Horton, Corporate Secretary
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section, be deemed given upon receipt, and (iii) if delivered
by mail in the manner described above to the address as provided in this
Section, be deemed given upon receipt (in each case regardless of whether such
notice, request or other communication is received by any other person to whom a
copy of such notice, request or other communication is to be delivered pursuant
to this Section). Any party from time to time may change its address, facsimile
number or other information for the purpose of notices to that party by giving
notice specifying such change to the other parties hereto.
9.03 Entire Agreement; Incorporation of Exhibits. (a) This Agreement
supersedes the Memorandum of Agreement dated June 17, 1996 and the Term Sheet
dated as of August 13, 1996 by and among BIL, the Company and Parent, and all
prior discussions and other written or oral agreements among the parties hereto
with respect to the subject matter hereof, other than the Confidentiality
Agreement, which shall survive the execution and delivery of this Agreement in
accordance with its terms, and contains, together with the Confidentiality
Agreement, the Stockholder Agreement, the Registration Rights Agreement and the
other instruments contemplated hereby, the sole and entire agreement among the
parties hereto with respect to the subject matter hereof.
(b) The Company Disclosure Letter, the Parent Disclosure Letter and any
Exhibit attached to this Agreement and referred to herein are hereby
incorporated herein and made a part hereof for all purposes as if fully set
forth herein.
9.04 Public Announcements. Except as otherwise required by law or the rules
of any applicable securities exchange or national market system, so long as this
Agreement is in effect, Parent and the Company will not, and will not permit any
of their respective Representatives to, issue or cause the
A-46
<PAGE>
publication of any press release or make any other public announcement with
respect to the transactions contemplated by this Agreement without the consent
of the other party, which consent shall not be unreasonably withheld. Parent and
the Company will cooperate with each other in the development and distribution
of all press releases and other public announcements with respect to this
Agreement and the transactions contemplated hereby, and will furnish the other
with drafts of any such releases and announcements as far in advance as
practicable.
9.05 No Third Party Beneficiary. The terms and provisions of this Agreement
are intended solely for the benefit of each party hereto and their respective
successors or permitted assigns, and it is not the intention of the parties to
confer third-party beneficiary rights upon any other person.
9.06 No Assignment; Binding Effect. Neither this Agreement nor any right,
interest or obligation hereunder may be assigned by any party hereto without the
prior written consent of the other parties hereto and any attempt to do so will
be void, except that Sub may assign any or all of its rights, interests and
obligations hereunder to another direct or indirect wholly-owned Subsidiary of
Parent, provided that any such Subsidiary agrees in writing to be bound by all
of the terms, conditions and provisions contained herein. Subject to the
preceding sentence, this Agreement is binding upon, inures to the benefit of and
is enforceable by the parties hereto and their respective successors and
permitted assigns.
9.07 Headings. The headings used in this Agreement have been inserted for
convenience of reference only and do not define, modify or limit the provisions
hereof.
9.08 Invalid Provisions. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under any present or future law or order, and
if the rights or obligations of any party hereto under this Agreement will not
be materially and adversely affected thereby, (i) such provision will be fully
severable, (ii) this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof
and (iii) the remaining provisions of this Agreement will remain in full force
and effect and will not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom.
9.09 Governing Law. Except to the extent that the DGCL is mandatorily
applicable to the Merger and the rights of the stockholders of the Constituent
Corporations, this Agreement shall be governed by and construed in accordance
with the laws of the State of New York applicable to a contract executed and
performed in such State, without giving effect to the conflicts of laws
principles thereof.
9.10 Enforcement of Agreement. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement was
not performed in accordance with its specified terms or was otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of competent jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
9.11 Certain Definitions. As used in this Agreement:
(a) except as provided in Section 6.04, the term "affiliate", as applied to
any person, shall mean any other person directly or indirectly controlling,
controlled by, or under common control with, that person; for purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlling", "controlled by" and "under common control with"), as applied to
any person, means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of that person, whether
through the ownership of voting securities, by contract or otherwise;
(b) a person will be deemed to "beneficially" own securities if such person
would be the beneficial owner of such securities under Rule 13d-3 under the
Exchange Act, including securities which such
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<PAGE>
person has the right to acquire (whether such right is exercisable immediately
or only after the passage of time);
(c) the term "business day" means a day other than Saturday, Sunday or any
day on which banks located in the States of New York or Missouri are authorized
or obligated to close;
(d) any reference to any event, change or effect being "material" or
"materially adverse" or having a "material adverse effect" on or with respect to
an entity (or group of entities taken as a whole) means such event, change or
effect is material or materially adverse, as the case may be, to the business,
financial condition or results of operations of such entity (or of such group of
entities taken as a whole);
(e) the term "person" shall include individuals, corporations,
partnerships, trusts, other entities and groups (which term shall include a
"group" as such term is defined in Section 13(d)(3) of the Exchange Act);
(f) the "Representatives" of any entity means such entity's directors,
officers, employees, legal, investment banking and financial advisors,
accountants and any other agents and representatives; and
(g) the term "Subsidiary" means, with respect to any party, any corporation
or other organization, whether incorporated or unincorporated, of which more
than fifty percent (50%) of either the equity interests in, or the voting
control of, such corporation or other organization is, directly or indirectly
through Subsidiaries or otherwise, beneficially owned by such party.
9.12 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
A-48
<PAGE>
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be
signed by its officer thereunto duly authorized as of the date first above
written.
Attest: GRAHAM-FIELD HEALTH PRODUCTS, INC.
/s/ RICHARD KOLODNY By: /s/ IRWIN SELINGER
- --------------------------------- -------------------------------------------
Secretary Name: Irwin Selinger
Title: Chairman and Chief Executive Officer
Attest: E&J ACQUISITION CORP.
/s/ RICHARD KOLODNY By: /s/ IRWIN SELINGER
- --------------------------------- -------------------------------------------
Secretary Name: Irwin Selinger
Title: Chairman and Chief Executive Officer
Attest: EVEREST & JENNINGS INTERNATIONAL LTD.
/s/ TWC By: /s/ BEVIL HOGG
- --------------------------------- -------------------------------------------
Secretary Name: Bevil Hogg
Title: Chief Executive Officer
Attest: BIL (FAR EAST HOLDINGS) LIMITED
- --------------------------------- By: /s/ RODNEY PRICE
Secretary -------------------------------------------
Name: Rodney Price
Title: Director
A-49
<PAGE>
EXHIBIT A
Refer to Annex D of this Joint Proxy Statement/Prospectus
A-50
<PAGE>
EXHIBIT B
Refer to Annex E of this Joint Proxy Statement/Prospectus
A-51
<PAGE>
EXHIBIT C
Term Sheet for Unsecured
Subordinated Promissory Note
Principal Amount: $4,000,000
Interest Rate: 7.7% per annum
Maturity Date: April 1, 2001
Reduction of Principal Amount: To the extent that punitive damage awards in
any product liability actions involving a
death prior to the Effective Time of the
Merger are not reimbursed pursuant to any
insurance policies
Subordination: Principal interest payments subordinated to
Senior Indebtedness of Parent on terms
satisfactory to the holders of Senior
Indebtedness
Covenants and Events of Default: To be mutually agreed upon
A-52
<PAGE>
EXHIBIT D
Refer to Annex H of this Joint Proxy Statement/Prospectus
A-53
<PAGE>
EXHIBIT E
[Form of Affiliate's Agreement]
_________________, 1996
Graham-Field Health Products, Inc.
400 Rabro Drive East
Hauppauge, New York 11788
Ladies and Gentlemen:
I have been advised that as of the date hereof I may be deemed to be an
"affiliate" of Everest & Jennings International Ltd., a Delaware corporation
(the "Company"), as that term is defined for purposes of paragraphs (c) and (d)
of Rule 145 of the rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Act"). Neither my entering into this agreement, nor
anything contained herein, shall be deemed an admission on my part that I am
such an "affiliate".
Pursuant to the terms of the Agreement and Plan of Merger dated as of
September 3, 1996 (the "Merger Agreement"), among Graham-Field Health Products,
Inc., a Delaware corporation ("Parent"), E&J Acquisition Corp., a Delaware
corporation ("Sub"), the Company and BIL (Far East Holdings) Limited providing
for the merger of Sub with and into the Company (the "Merger"), and as a result
of the Merger, I will receive shares of Parent's common stock, par value $.025
per share (the "Parent Securities"), in exchange for the shares of common stock,
par value $.01 per share, of the Company owned by me at the Effective Time (as
defined in the Merger Agreement) of the Merger.
I represent and warrant to Parent that in such event:
A. I shall not make any sale, transfer or other disposition of the Parent
Securities in violation of the Act or the Rules and Regulations.
B. I have carefully read this letter and the Merger Agreement and discussed
its requirements and other applicable limitations upon my ability to sell,
transfer or otherwise dispose of Parent Securities, with my counsel or counsel
for the Company.
C. I have been advised that the issuance of Parent Securities to me
pursuant to the Merger has been registered with the Commission under the Act on
a Registration Statement on Form S-4. However, I have also been advised that,
since at the time the Merger was submitted for a vote of the stockholders of the
Company I may have been deemed to have been an affiliate of the Company and a
distribution by me of Parent Securities has not been registered under the Act,
the Parent Securities must be held by me indefinitely unless (i) a distribution
of Parent Securities by me has been registered under the Act, (ii) a sale of
Parent Securities by me is made in conformity with the volume and other
limitations of Rule 145 promulgated by the Commission under the Act or (iii) in
the opinion of counsel reasonably acceptable to Parent, some other exemption
from registration is available with respect to a proposed sale, transfer or
other disposition of the Parent Securities by me.
D. [Except for the Registration Rights Agreement (as defined in the Merger
Agreement),]* I understand that Parent is under no obligation to register the
sale, transfer or other disposition of Parent Securities by me or on my behalf
or to take any other action necessary in order to make compliance with an
exemption from registration available.
- ----------
* This provision will only apply to BIL's Affiliate Agreement.
A-54
<PAGE>
E. I also understand that stop transfer instructions will be given to
Parent's transfer agents with respect to the Parent Securities and that there
will be placed on the certificates for the Parent Securities, or any
substitutions therefor, a legend stating in substance:
"The shares represented by this certificate were issued in a
transaction to which Rule 145 promulgated under the Securities Act of 1933,
as amended, applies. The shares represented by this certificate may only be
transferred in accordance with the terms of an agreement dated , 1996,
between the registered holder hereof and Graham-Field Health Products, Inc.
(the "Corporation"), a copy of which agreement is on file at the principal
offices of the Corporation."
F. I also understand that unless the transfer by me of my Parent Securities
has been registered under the Act or is a sale made in conformity with the
provisions of Rule 145, Parent reserves the right to put the following legend on
the certificates issued to my transferee:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and were acquired from a
person who received such shares in a transaction to which Rule 145
promulgated under such Act applies. The shares have been acquired by the
holder not with a view to, or for resale in connection with, any
distribution thereof within the meaning of such Act and may not be sold,
pledged or otherwise transferred except in accordance with an exemption
from the registration requirements of such Act."
It is understood and agreed that the legends set forth in paragraph E and F
above shall be removed by delivery of substitute certificates without such
legend as permitted by Rule 145 or if the undersigned shall have delivered to
Parent a copy of a letter from the staff of the Commission, or an opinion of
counsel reasonably acceptable to Parent to the effect that such legend is not
required for purposes of the Act.
Very truly yours,
-----------------------------------------
Name:
Accepted this _________ day of
____________, 1996, by:
GRAHAM-FIELD HEALTH PRODUCTS, INC.
By_________________________________
Name:
Title:
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<PAGE>
ANNEX B
AMENDED AND RESTATED STOCKHOLDER AGREEMENT
by and among
BIL (FAR EAST HOLDINGS) LIMITED,
GRAHAM-FIELD HEALTH PRODUCTS, INC.
and
IRWIN SELINGER
Dated as of September 3, 1996, as amended
on September 19, 1996
<PAGE>
TABLE OF CONTENTS
This Table of Contents is not part of the Stockholder Agreement to which it
is attached but is inserted for convenience only.
Page
No.
----
ARTICLE I
DEFINITIONS
1.01 Definitions.......................................................... 2
ARTICLE II
BOARD OF DIRECTORS
2.01 Composition of Board of Directors................................... 5
2.02 Resignations and Designations....................................... 6
ARTICLE III
FIRST REFUSAL RIGHTS; TRANSFER OF SHARES
3.01 Restriction on Certain Transfers.................................... 7
3.02 Legend.............................................................. 9
ARTICLE IV
BIL'S RIGHTS TO PURCHASE ADDITIONAL
EQUITY SECURITIES; STANDSTILL
4.01 Limitation on Acquisition of Equity Securities...................... 10
4.02 Right to Purchase Equity Securities................................. 10
4.03 Standstill.......................................................... 11
ARTICLE V
COVENANTS OF BIL IN CONNECTION WITH THE MERGER
5.01 Ownership of E&J Shares; Approval of Merger Agreement............... 12
5.02 No Solicitation..................................................... 13
ARTICLE VI
INDEMNIFICATION
6.01 Indemnification of the Company...................................... 14
6.02 Waiver of Environmental Indemnity................................... 14
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF BIL
7.01 Incorporation of BIL................................................ 15
7.02 Authority........................................................... 15
7.03 No Conflicts........................................................ 15
7.04 Governmental Approvals and Filings.................................. 16
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
8.01 Incorporation....................................................... 16
8.02 Authority........................................................... 16
8.03 No Conflicts........................................................ 16
8.04 Governmental Approvals and Filings.................................. 17
i
<PAGE>
Page
No.
----
ARTICLE IX
GENERAL PROVISIONS
9.01 Survival of Representations, Warranties, Covenants and Agreements... 17
9.02 Termination......................................................... 17
9.03 Amendment and Waiver................................................ 17
9.04 Notices............................................................. 18
9.05 Entire Agreement.................................................... 19
9.06 No Third Party Beneficiary.......................................... 20
9.07 No Assignment; Binding Effect....................................... 20
9.08 Specific Performance; Legal Fees.................................... 20
9.09 Headings............................................................ 20
9.10 Invalid Provisions.................................................. 20
9.11 Governing Law....................................................... 21
9.12 Consent to Jurisdiction and Service of Process...................... 21
9.13 Counterparts........................................................ 21
SCHEDULES AND EXHIBITS
Schedule I E&J Shares Owned by BIL.......................................
Schedule II Indemnified Proceedings......................................
Exhibit A Irrevocable Proxy..............................................
ii
<PAGE>
This AMENDED AND RESTATED STOCKHOLDER AGREEMENT, dated as of September 3,
1996, as amended on September 19, 1996, is made and entered into by and among
BIL (Far East Holdings) Limited, a Hong Kong corporation ("BIL"), Graham-Field
Health Products, Inc., a Delaware corporation (the "Company"), and Irwin
Selinger, an individual residing at 73 Bacon Road, Old Westbury, New York ("Mr.
Selinger").
WHEREAS, the Company, E&J Acquisition Corp., a Delaware corporation
wholly-owned by the Company ("Sub"), BIL and Everest & Jennings International
Ltd., a Delaware corporation ("E&J"), have entered into an Agreement and Plan of
Merger of even date herewith (the "Merger Agreement"), which provides for the
merger of Sub with and into E&J and for E&J to become a wholly-owned subsidiary
of the Company (the "Merger");
WHEREAS, BIL is the majority stockholder of E&J and Mr. Selinger is the
Chairman and Chief Executive Officer and a 6.7% stockholder of the Company;
WHEREAS, at the Effective Time (as defined below) and in accordance with
the terms of the Merger Agreement, each share of common stock, par value $.10
per share, of E&J (the "E&J Common Stock") will be converted into .35 of a share
of common stock, par value $.025 per share, of the Company (the "Company Common
Stock"), subject to reduction under certain circumstances, all as more fully
described in the Merger Agreement;
WHEREAS, at the Effective Time and in accordance with the terms of the
Merger Agreement, BIL also, among other things, will (i) purchase shares of
Company Common Stock from the Company, the proceeds of which will be used to
repay certain indebtedness owing by E&J to Hong Kong and Shanghai Banking
Corporation Limited, (such shares, together with the shares BIL receives in
exchange for its shares of E&J Common Stock in the Merger, being referred to
herein as the "BIL Common Shares"), (ii) purchase shares of a new series of
Series B Cumulative Convertible Preferred Stock of the Company (the "BIL Series
B Preferred Shares") in exchange for indebtedness of E&J owing to BIL and shares
of convertible preferred stock of E&J owned by BIL and (iii) purchase shares of
a new series of Series C Cumulative Convertible Preferred Stock of the Company
(the "BIL Series C Preferred Shares", and together with the BIL Series B
Preferred Shares and BIL Common Shares, the "BIL Shares") for an aggregate
purchase price of $10 million, all as more fully described in the Merger
Agreement;
WHEREAS, simultaneously with the execution and delivery of this Stockholder
Agreement, BIL and the Company are entering into a registration rights agreement
providing for the registration for sale, under certain circumstances of its
shares of Company Common Stock (the "Registration Rights Agreement"); and
WHEREAS, as a condition to the Company's willingness to consummate the
Merger and to BIL's willingness to vote its shares of capital stock of E&J in
favor of the Merger, BIL, the Company and Mr. Selinger desire to establish in
this Stockholder Agreement certain terms and conditions concerning the
acquisition and disposition of securities of the Company by BIL and the
corporate governance of the Company after the Effective Time;
B-1
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Stockholder Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.01 Definitions. (a) Except as otherwise specifically indicated, the
following terms have the following meanings for all purposes of this Stockholder
Agreement:
"Affiliate" shall have the meaning assigned thereto in Rule 405, as
presently promulgated under the Securities Act.
"beneficially owns" (or comparable variations thereof) has the meaning set
forth in Rule 13d-3 promulgated under the Exchange Act.
"BIL's Pro Rata Share" means, as of the relevant Date of Issuance, the
percentage of the Voting Power of all of Outstanding Voting Securities
represented by the Outstanding Voting Securities then beneficially owned by the
Restricted Group, rounded to the nearest whole number of shares.
"Board of Directors" means the Board of Directors of the Company.
"Change of Control" means and shall be deemed to have occurred if after the
Effective Time individuals who qualify as Continuing Directors shall have ceased
for any reason to constitute at least a majority of the Board of Directors.
"Continuing Director" means (i) any individual serving as a member of the
Board of Directors at the Effective Time (including the two designees of BIL
pursuant to Section 2.01), for so long as such individual is a member of the
Board of Directors, and (ii) any individual who is recommended or elected to
serve as a member of the Board of Directors by at least a majority of the
Continuing Directors then in office, for so long as such individual is a member
of the Board of Directors.
"DGCL" means the General Corporation Law of the State of Delaware.
"Effective Time" means the time at which the Merger becomes effective under
the DGCL.
"Equity Securities" means Voting Securities, Convertible Securities and
Rights to Purchase Voting Securities.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Governmental or Regulatory Authority" means any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality of
the United States, any foreign country or any domestic or foreign state, county,
city or other political subdivision.
"Liens" means any lien, claim, mortgage, encumbrance, pledge, security
interest, equity or charge of any kind.
"Person" means any individual, corporation, partnership, trust, other
entity or group (with the meaning of Section 13(d)(3) of the Exchange Act).
"Representatives" of any entity means such entity's directors, officers,
employees, legal, investment banking and financial advisors, accountants and any
other agents and representatives of such entity.
B-2
<PAGE>
"Restricted Group" means (i) BIL, (ii) any and all Persons directly or
indirectly controlled by or under common control with BIL and (iii) any and all
groups (within the meaning of Section 13(d)(3) of the Exchange Act) of which BIL
or any Person directly or indirectly controlling, controlled by or under common
control with BIL is a member, other than any such group not acting for the
purpose of acquiring, holding or beneficially owning Equity Securities.
"Rule 144" means Rule 144 as presently promulgated under the Securities
Act.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Subsidiary" means any Person in which the Company or E&J, as the case may
be, directly or indirectly through Subsidiaries or otherwise, beneficially owns
more than fifty percent (50%) of either the equity interest in, or the Voting
Power of, such Person.
"Voting Power" means, with respect to any Outstanding Voting Securities,
the highest number of votes that the holders of all such Outstanding Voting
Securities would be entitled to cast for the election of directors or on any
other matter (except to the extent such voting rights are dependent upon events
of default or bankruptcy), assuming, for purposes of this computation, the
conversion or exchange into Voting Securities of Convertible Securities (whether
presently convertible or exchangeable or not) and the exercise of Rights to
Purchase Voting Securities (whether presently exercisable or not), in either
case to the extent that any such action would increase the number of such votes.
"Voting Securities" means the Company Common Stock and any other securities
of the Company of any kind or class having power generally to vote for the
election of directors; "Convertible Securities" means securities of the Company
which are convertible or exchangeable (whether presently convertible or
exchangeable or not) into Voting Securities; "Rights to Purchase Voting
Securities" means options and rights issued by the Company (whether presently
exercisable or not) to purchase Voting Securities or Convertible Voting
Securities; and "Outstanding Voting Securities" means at any time the then
issued and outstanding Voting Securities, Convertible Securities (which shall be
counted at the maximum number of Voting Securities for which they can be
converted or exchanged) and Rights to Purchase Voting Securities (which shall be
counted at the maximum number of Voting Securities for which they can be
exercised).
(b) In addition, the following terms are defined in the Sections set forth
below:
"Acceptance Notice"........................................ Section 3.01(b)
"Alternative Proposal"..................................... Section 5.02
"BIL"...................................................... Preamble
"BIL Common Shares"........................................ Preamble
"BIL Series B Preferred Shares"............................ Preamble
"BIL Series C Preferred Shares"............................ Preamble
"BIL Shares"............................................... Preamble
"Business Combination"..................................... Section 4.03
"Company".................................................. Preamble
"Company Common Stock"..................................... Preamble
"Confidentiality Agreement"................................ Section 9.05
"Date of Issuance"......................................... Section 4.02(a)
"Dispose" or "Disposition"................................. Section 3.01(a)
"E&J"...................................................... Preamble
"E&J Common Stock"......................................... Preamble
"E&J Shares"............................................... Section 5.01(a)
"E&J Stockholders' Meeting"................................ Section 5.01(c)
"Election Notice".......................................... Section 4.02(b)
B-3
<PAGE>
"Election Period".......................................... Section 4.02(b)
"Indemnified Proceedings".................................. Section 6.01(a)
"Issue Price".............................................. Section 4.02(a)
"Losses"................................................... Section 6.01(a)
"Merger"................................................... Preamble
"Merger Agreement"......................................... Preamble
"Mr. Selinger"............................................. Preamble
"Notice of Issuance"....................................... Section 4.02(a)
"Offer Notice"............................................. Section 3.01(b)
"Offer Period"............................................. Section 3.01(b)
"Offered Securities"....................................... Section 3.01(b)
"Offering Terms"........................................... Section 3.01(b)
"Offeror".................................................. Section 3.01(b)
"Registration Rights Agreement"............................ Preamble
"Selling Period"........................................... Section 3.01(b)
"Sub"...................................................... Preamble
(c) Unless the context of this Stockholder Agreement otherwise requires,
(i) words of any gender include each other gender; (ii) words using the singular
or plural number also include the plural or singular number, respectively; (iii)
the terms "hereof," "herein," "hereby" and derivative or similar words refer to
this entire Stockholder Agreement; and (iv) the terms "Article" or "Section"
refer to the specified Article or Section of this Stockholder Agreement.
Whenever this Stockholder Agreement refers to a number of days, such number
shall refer to calendar days unless business days are specified.
ARTICLE II
BOARD OF DIRECTORS
2.01 Composition of Board of Directors. (a) Effective at the Effective
Time, there shall be two vacancies on the Board of Directors either by (i) an
increase in the Board of Directors in accordance with the terms of the Company's
Certificate of Incorporation and Bylaws, (ii) director resignations or (iii) a
combination thereof. Effective at the Effective Time, the Board of Directors
shall elect two designees of BIL to fill the two vacancies on the Board of
Directors created in accordance with the preceding sentence, to serve from the
Effective Time until the end of their respective terms. The two designees of BIL
shall be elected to different classes of the Board of Directors. For so long as
one or more nominees of BIL is a director of the Company, one of such nominees
shall be designated as a member of the Executive Committee of the Board of
Directors.
(b) Thereafter, and subject to the next succeeding sentence, the Board of
Directors shall, at each meeting of stockholders of the Company at which the
term of any BIL director exiles, nominate for election as a director of the
Company, in accordance with the Company's procedures for nomination of directors
as provided for in its Bylaws, a designee of BIL to stand for election for a
succeeding term, and shall vote all management proxies in favor of such nominee,
except for such proxies that specifically indicate to the contrary.
Notwithstanding the foregoing, BIL shall cease to have the right to designate,
or cause the nomination or election of, (i) more than one member of the Board of
Directors from and after such date as the Restricted Group beneficially owns
Outstanding Voting Securities representing less than 15% of the Voting Power of
all Outstanding Voting Securities or (ii) any member of the Board of Directors
from and after such date as the Restricted Group beneficially owns Outstanding
Voting Securities representing less than 5% of the Voting Power of all
Outstanding Voting Securities. The obligation of the Board of Directors
hereunder to nominate for election as directors individuals designated by BIL
shall be subject to the foregoing limitation.
B-4
<PAGE>
(c) Until such time as the Restricted Group beneficially owns Outstanding
Voting Securities representing less than 5% of the Voting Power of all
Outstanding Voting Securities, if any director designated by BIL in accordance
with this Section 2.01 shall decline or be unable to serve for any other reason,
the Board of Directors shall promptly upon the request of BIL nominate or elect,
as the case may be, a qualified person recommended by BIL to replace such
designee; provided that BIL shall have such right only if and to the extent
consistent with the foregoing provisions of this Section 2.01.
(d) Until such time as the Restricted Group beneficially owns Outstanding
Voting Securities representing less than 5% of the Voting Power of all
Outstanding Voting Securities, at each meeting of stockholders of the Company,
(i) the Restricted Group shall vote the Voting Securities held by the Restricted
Group (x) for the nominees recommended by the Board of Directors (provided such
nominees include the nominees referred to in paragraphs (a) and (b) above), (y)
on all other proposals of the Board of Directors, as the Restricted Group
determines in its sole discretion, and (z) on all proposals of any other
stockholder of the Company, in accordance with the recommendation of the Board
of Directors; and (ii) Mr. Selinger shall vote all of his Voting Securities in
favor of the nominees referred to in clause (x) above.
(e) BIL shall promptly provide to the Company, as the Company may from time
to time reasonably request, information regarding BIL's designees for the Board
of Directors, for inclusion in any form, report, schedule, registration
statement, definitive proxy statement or other documents required to be filed by
the Company with the Securities and Exchange Commission.
2.02 Resignations and Designations. As necessary to establish or maintain
the composition of the Board of Directors contemplated by Section 2.01, the
Restricted Group will cause one or both of the directors designated by BIL, as
the case may be, to resign from the Board of Directors.
ARTICLE III
FIRST REFUSAL RIGHTS; TRANSFER OF SHARES
3.01 Restriction on Certain Transfers.
(a) Until such time as the Restricted Group beneficially owns Outstanding
Voting Securities representing less than 5% of the Voting Power of all
Outstanding Voting Securities, no member of the Restricted Group shall, directly
or indirectly, assign, sell, pledge, hypothecate or other transfer or dispose of
("Dispose" or a "Disposition") any Equity Securities beneficially owned by such
member of the Restricted Group, except (A) a Disposition to a member of the
Restricted Group who simultaneously with such Disposition agrees in a written
instrument in form and substance satisfactory to the Company to be bound by the
provisions of this Stockholder Agreement as though an original signatory hereto,
(B) a Disposition through a bona fide underwritten public offering registered
under the Securities Act effected in accordance with the provisions of the
Registration Rights Agreement, (C) a Disposition in a "brokers' transaction"
pursuant to Rule 144(f), provided that, until such time as the Restricted Group
beneficially owns Outstanding Voting Securities representing less than 5% of the
Voting Power of all Outstanding Voting Securities, any sales pursuant to this
clause (C) shall be subject to the volume limitations set forth in Rule 144(e)
(regardless of whether such volume limitations are applicable to such sale), (D)
pursuant to a merger or consolidation of the Company or a recapitalization of
any Equity Securities, (E) pursuant to a self-tender or exchange offer by the
Company or a third party tender offer recommended by the Board of Directors or
(F) a cash sale effected in accordance with the Company's right of first refusal
contained in paragraph (b) below; provided that in the case of and as a
condition to any cash sale pursuant to this clause (F) to a Person who, after
giving effect to such purchase, would own 5% or more of the Voting Power of all
Outstanding Voting Securities, such Person shall simultaneously with such
purchase and sale agree in a written instrument in form and substance
satisfactory to the Company to be bound by the provisions of Section 3.01,
Section 4.01 and Section
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4.03 (with references in such sections to the Restricted Group being changed to
references to such Person).
(b) (i) Until such time as the Restricted Group beneficially owns
Outstanding Voting Securities representing less than 5% of the Voting Power of
all Outstanding Voting Securities, in the event that any member of the
Restricted Group (an "Offeror") wishes to sell for cash any or all Equity
Securities owned by it in a transaction to which none of clauses (A) through (E)
of Section 3.01(a) is applicable, it shall first deliver a written notice (the
"Offer Notice") to the Company specifying the amount and type of Equity
Securities proposed to be sold (the "Offered Securities"), the identity of the
proposed transferee and the price and the other bona fide terms for such sale
(the "Offering Terms") and attaching a copy of the contract entered into with
such transferee, which contract shall be expressly subject to the Company's
right of first refusal hereunder. Such Offer Notice shall constitute an
irrevocable offer (subject to the satisfaction of all regulatory requirements)
to the Company, for the period of time set forth below, to purchase all or any
portion of the Offered Securities on the Offering Terms. The Company may elect
to purchase all, but not less than all, of the Offered Securities on the
Offering Terms by delivering an irrevocable written notice specifying the number
of Offered Securities it wishes to purchase (the "Acceptance Notice") to the
Offeree (subject to the satisfaction of all regulatory requirements) within
fifteen (15) days following receipt of the Offer Notice (the "Offer Period").
(ii) If an Offeror's offer is not accepted by the Company within the Offer
Period, the Offeror shall have a period of sixty (60) days (the "Selling
Period") in which it shall be free to sell all, but not less than all, of the
Offered Securities to the proposed transferee described in the Offer Notice at
the Offering Terms or at prices or terms more favorable to the Offeror than the
Offering Terms; provided that if such sale shall not have been consummated
within the Selling Period, none of such Equity Securities may be sold and all
such Equity Securities shall again be subject to the provisions of this Section
3.01 and may be Disposed of only in the manner provided in, and subject to the
provisions of, this Section 3.01.
(iii) Any purchase and sale pursuant to the provisions of Section
3.01(b)(i) shall occur on the date designated by the Company, which date shall
be within sixty (60) days following the date of delivery of the Acceptance
Notice, at the principal offices of the Company unless otherwise agreed, subject
to the satisfaction of all applicable regulatory requirements. At any closing of
a purchase and sale in accordance with this Section 3.01(b)(i), the Offeror will
deliver certificates evidencing the Offered Securities to be so purchased
against delivery by the Company of the price included in the Offering Terms.
Such amount will be payable in immediately available United States funds. The
Company and the Offeror will use their best efforts to accomplish the
satisfaction of all applicable regulatory requirements with respect to such
purchase, and the date on which such purchase and sale must be completed in
accordance with this Section 3.01(b)(i) will be extended automatically until
such time as each applicable Governmental or Regulatory Authority has given a
final determination permitting or prohibiting or otherwise denying necessary
authorization for such purchase and sale and, in the case of a favorable
determination, for an additional five (5) business days.
(c) The Company may not assign its right under Section 3.01(b) to purchase
Offered Securities without the consent of the Offeror, which consent shall not
be unreasonably withheld or delayed; provided that any such assignees agree in
writing (for the benefit of the Offeror) to purchase any of the Offered
Securities not being purchased by the Company in accordance with the provisions
of Section 3.01(b).
(d) The failure of the Company to exercise its right to purchase Offered
Securities under Section 3.01(b) in connection with any one Offer Notice
delivered by a member of the Restricted Group will not, in any manner, waive or
otherwise impair the rights of the Company to exercise its right to purchase
Offered Securities in connection with any other Offer Notice.
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3.02 Legend. Any Disposition of Equity Securities by any member of the
Restricted Group also shall be subject to the terms and conditions of this
Section 3.02. Each certificate representing Equity Securities beneficially owned
by any member of the Restricted Group shall be imprinted with a legend in the
following form until such time (subject to the provisions of the final sentence
of this Section 3.02) as all restrictions on the Disposition of such Equity
Securities hereunder are terminated:
"THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD,
TRANSFERRED, OR OTHERWISE DISPOSED OF UNLESS THEY ARE REGISTERED OR UNLESS
AN EXEMPTION FROM REGISTRATION IS AVAILABLE. SUCH SHARES MAY ONLY BE
TRANSFERRED PURSUANT TO THE PROVISIONS OF ARTICLE III OF A CERTAIN
STOCKHOLDER AGREEMENT DATED AS OF SEPTEMBER 3, 1996, BY AND AMONG
GRAHAM-FIELD HEALTH PRODUCTS, INC., A DELAWARE CORPORATION, IRWIN SELINGER
AND BIL (FAR EAST HOLDINGS) LIMITED, A HONG KONG CORPORATION, COPIES OF
WHICH AGREEMENT ARE ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY."
The Company shall not (i) give effect on its books to an attempted Disposition
of any Equity Securities which shall have been Disposed of in violation of any
provision of this Stockholder Agreement, or (ii) treat any transferee who
obtains any Equity Securities in violation of any provision of this Stockholder
Agreement as the owner of such Equity Securities or accord any transferee
thereof the right to vote or to receive dividends in respect of such Equity
Securities. The Company will issue new certificates not imprinted with the
foregoing legend to any holder of Equity Securities not subject to the
restrictions on Disposition contained in this Stockholder Agreement; provided
that the Company may require an opinion of counsel reasonably satisfactory to it
to the effect that no legend is required under the Securities Act or applicable
state securities or blue sky laws.
ARTICLE IV
BIL'S RIGHTS TO PURCHASE ADDITIONAL
EQUITY SECURITIES; STANDSTILL
4.01 Limitation on Acquisition of Equity Securities. Following the
Effective Time and until the Restricted Group beneficially owns Outstanding
Voting Securities representing less than 5% of the Voting Power of all
Outstanding Voting Securities, no member of the Restricted Group shall acquire
beneficial ownership of any Equity Securities without the prior consent of the
Board of Directors, which consent shall not be unreasonably withheld, except (i)
the acquisition of Equity Securities pursuant to the Merger Agreement or upon
the conversion of or as a dividend on the BIL Series B Preferred Shares or the
BIL Series C Preferred Shares in accordance with their terms, (ii) by way of
stock dividends, stock splits or other distributions or offerings made available
to holders of Equity Securities generally, (iii) pursuant to plans established
by the Company for members of the Board of Directors or (iv) pursuant to the
exercise of BIL's right to acquire Equity Securities directly from BIL as
provided for in Section 4.02.
4.02 Right to Purchase Equity Securities. (a) Following the Effective Time
and until such time as the Restricted Group beneficially owns Outstanding Voting
Securities representing less than 15% of the Voting Power of all Outstanding
Voting Securities, the Company shall not issue any Equity Securities (except by
way of stock dividends or other distributions or offerings made available to
holders of shares of Company Common Stock generally) after the Effective Time
unless, prior to such issuance, the Company offers BIL the right to participate
proportionately according to BIL's Pro Rata Share as of the date of issuance of
any such Equity Securities (the "Date of Issuance") and on the same terms and
conditions and at the same per unit price (the "Issue Price"). The Company shall
give written
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notice to BIL of any such issuance as far in advance of the Date of Issuance as
possible, but in no event less than 10 days in advance of the Date of Issuance
(a "Notice of Issuance"). The Notice of Issuance will describe in reasonable
detail the terms and conditions of the proposed issuance, including the Issue
Price, the maximum number of Equity Securities that BIL will be entitled to
purchase (assuming for this purpose only that BIL's Pro Rata Share does not
change between the date of the giving of such notice and the Date of Issuance)
on the Date of Issuance. Notwithstanding the foregoing, BIL's preemptive right
set forth above shall not apply to any Equity Securities issued (i) pursuant to
that certain Warrant, dated as of March 12, 1992, as amended, by and between the
Company and John Hancock Mutual Life Insurance Company, (ii) in connection with
a merger, acquisition or other business combination transaction approved by the
Board of Directors, (iii) in connection with any stock option or other employee
benefit plans and programs of the Company approved by the Board of Directors, or
(iv) in connection with any private debt financing in which the Equity
Securities to be issued represent less than 2% of the Voting Power of all
Outstanding Voting Securities.
(b) BIL shall have the option to elect to purchase all or part of BIL's Pro
Rata Share of the Equity Securities described in a Notice of Issuance at the
Issue Price and on the other terms contained in the Notice of Issuance by
notifying the Company in writing (an "Election Notice") at least two business
days prior to the Date of Issuance (the "Election Period"), at which time BIL
(or such designee) shall become irrevocably bound (subject to the satisfaction
of all regulatory requirements) to purchase such Equity Securities. Each
Election Notice will indicate the number of units that BIL elects to purchase.
(c) Any purchase and sale pursuant to the provisions of this Section 4.02
shall occur on the Date of Issuance at the principal offices of the Company
unless otherwise agreed, subject to the satisfaction of all regulatory
requirements. At any closing of a purchase and sale in accordance with this
Section 4.02, the Company will deliver certificates evidencing the Equity
Securities to be so purchased against delivery by BIL of an amount equal to the
number of units that BIL has elected to purchase multiplied by the Issue Price.
Such amount will be payable in immediately available United States funds. The
Company and BIL will use their best efforts to accomplish the satisfaction of
all regulatory requirements with respect to such purchase, and the date on which
such purchase and sale must be completed in accordance with this Section 4.02
will be extended automatically until such time as each applicable Governmental
or Regulatory Authority has given a final determination permitting or
prohibiting or otherwise denying necessary authorization for such purchase and,
in the case of a favorable determination, for an additional five (5) business
days.
(d) The failure of BIL to exercise its right to purchase Equity Securities
under this Section 4.02 in connection with any one issuance of Equity Securities
by the Company will not, in any manner, waive or otherwise impair the rights of
BIL to purchase BIL's Pro Rata Share in connection with any other proposed
issuance of Equity Securities to which this Section 4.02 is applicable.
(e) Notwithstanding anything contained in this Section 4.02 to the
contrary, the Company may at any time, regardless of whether an Election Notice
has been given, prior to the Date of Issuance abandon an offering as to which it
has given a Notice of Issuance, in which case BIL shall have no further right to
purchase the Equity Securities described in such Notice of Issuance.
4.03 Standstill. Following the Effective Time and thereafter until such
time as the Restricted Group beneficially owns Outstanding Voting Securities
representing less than 5% of the Voting Power of all Outstanding Voting
Securities, no member of the Restricted Group will, and they will not assist or
encourage others (including by providing financing) to, directly or indirectly
(i) acquire or agree, offer, seek or propose (whether publicly or otherwise) to
acquire ownership (including but not limited to beneficial ownership) of any
substantial portion of the assets or Equity Securities of the Company (other
than in a transaction permitted under Section 4.01 or 4.02), whether by means of
a negotiated purchase of assets, tender or exchange offer, merger or other
business combination, recapitalization, restructuring or other extraordinary
transaction ("Business Combination"), (ii) engage in any "solicitation" of
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"proxies" (as such terms are used in the proxy rules promulgated under the
Exchange Act, but disregarding clause (iv) of Rule 14a-1(1)(2) and including any
exempt solicitation pursuant to Rule 14a-2(b)(1) or (2)), or form, join or in
any way participate in a "group" (as defined under the Exchange Act) with
respect to any Equity Securities, (iii) subject to the obligation of BIL's
designees on the Board of Directors to exercise their fiduciary duties as
directors, otherwise seek or propose to acquire control of the Board of
Directors, (iv) take any action that could reasonably be expected to force the
Company to make a public announcement regarding any of the types of matters
referred to in clause (i), (ii) or (iii) above, or (v) enter into any
discussions, negotiations, agreements, arrangements or understandings with any
third party with respect to any of the foregoing. No member of the Restricted
Group will request the Company or any of its Representatives to amend or waive
any provision of this paragraph (including this sentence) during such period. If
at any time during such period a member of the Restricted Group is approached by
any third party concerning its participation in any of the types of matters
referred to in clause (i), (ii) or (iii) above, such member will promptly inform
the Company of the nature of such contact and the parties thereto.
ARTICLE V
COVENANTS OF BIL IN CONNECTION WITH THE MERGER
5.01 Ownership of E&J Shares; Approval of Merger Agreement. (a) BIL
represents and warrants to the Company that it owns, beneficially and of record,
as of the date hereof, the number of shares of each class of capital stock of
E&J listed on Schedule I hereto (the "E&J Shares"), subject to no rights of
others and free and clear of all Liens. BIL's right to vote or Dispose of the
E&J Shares is not subject to any voting trust, voting agreement, voting
arrangement or proxy and BIL has not entered into any contract, option or other
arrangement or undertaking with respect thereto.
(b) Until the Effective Time, BIL will not Dispose of any of the E&J Shares
or any interest therein, exercise any right of conversion with respect to any
E&J Shares, deposit any of the E&J Shares into a voting trust or enter into a
voting agreement or arrangement or grant any proxy with respect thereto or enter
into any contract, option or other arrangement or undertaking with respect to
the direct or indirect Disposition of any of the E&J Shares.
(c) BIL will, with respect to those E&J Shares that it owns of record on
the record date for voting at any annual or special meeting of E&J stockholders
to be held for the purpose of voting on the adoption of the Merger Agreement or
for granting any written consent in connection with the solicitation of written
consents in lieu of such a meeting (collectively, the "E&J Stockholders'
Meeting"), vote such shares (or execute written consents with respect to such
shares) (i) in favor of the adoption of the Merger Agreement and the approval of
the Merger and the other transactions contemplated by the Merger Agreement, (ii)
against any Alternative Proposal (as defined in Section 5.02) and (iii) in favor
of any other matter necessary for the consummation of the transactions
contemplated by the Merger Agreement, as any of the foregoing is considered and
voted upon at the E&J Stockholders' Meeting.
(d) BIL acknowledges that concurrently with the execution of this
Agreement, it has executed and delivered to the Company an Irrevocable Proxy,
the form of which is attached hereto as Exhibit A.
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5.02 No Solicitation. Prior to the Effective Time, BIL shall not, and it
shall use its best efforts to cause its Affiliates and Representatives not to,
initiate, solicit or encourage, directly or indirectly, any inquiries or the
making or implementation of any proposal or offer (including, without
limitation, any proposal or offer to the stockholders of E&J) with respect to a
merger, consolidation or other business combination including E&J or any of its
Subsidiaries or any acquisition or similar transaction (including, without
limitation, a tender or exchange offer) involving the purchase of all or any
significant portion of the assets of E&J and its Subsidiaries taken as a whole
or any outstanding shares of the capital stock of E&J or any Subsidiary of E&J
(any such proposal or offer being hereinafter referred to as an "Alternative
Proposal"), or engage in any negotiations concerning, or provide any
confidential information or data to, or have any discussions or enter into any
agreements, arrangements or understandings, whether written or oral, with, any
person or group relating to an Alternative Proposal (excluding the transactions
contemplated by the Merger Agreement), or otherwise facilitate any effort or
attempt to make or implement an Alternative Proposal. BIL will promptly notify
the Company if any such inquiries, proposals or offers are received by, any such
information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with, it or any of such persons.
ARTICLE VI
INDEMNIFICATION
6.01 Indemnification of the Company. (a) Following the Effective Time, BIL
shall indemnify and hold harmless the Company and its successors and assigns,
from and against any and all losses, claims, demands, liabilities, damages or
deficiencies, and all related costs and expenses, including, without limitation,
interest, penalties and attorneys' fees and disbursements (together "Losses"),
suffered, sustained or incurred by the Company and its Subsidiaries or to which
any of them becomes subject, resulting from, relating to or arising out of any
of the litigations, arbitrations and other proceedings set forth on Schedule II
hereto (the "Indemnified Proceedings"); provided that BIL shall not have any
obligation to provide indemnity with respect to any Indemnified Proceeding
unless and until, and only to the extent that, the amount of the Losses in
respect of all Indemnified Proceedings exceeds, in the aggregate, the applicable
amounts reserved with respect to such Indemnified Proceedings set forth on
Schedule II hereto.
(b) The Company will, through its ownership of E&J, control all aspects of
the defense and disposition of the Indemnified Proceedings; provided that the
Company will not consent to any settlement of an Indemnified Proceeding with
respect to which it intends to seek indemnity hereunder without the consent of
BIL, which consent shall not be unreasonably withheld or delayed. BIL shall have
the right to participate in and have the right to be consulted in connection
with the defense or settlement of any of the Indemnified Proceedings. BIL may
retain separate counsel to represent it in, but not to control, any defense or
settlement of any of the Indemnified Proceedings, and BIL shall bear its owns
costs and expenses with respect to such representation.
(c) BIL will make the indemnity payments provided for in this Section 6.01
promptly following demand therefor by the Company. If BIL disputes its
obligation to make any such payments, the parties will proceed in good faith to
negotiate a resolution of such dispute, and if not so resolved, such dispute
shall be resolved by litigation in a court of competent jurisdiction.
6.02 Waiver of Environmental Indemnity. BIL hereby irrevocably waives any
and all rights to indemnity that BIL and its affiliates may have against E&J or
any of its Subsidiaries under that certain Environmental Indemnity dated as of
August 30, 1991 by E&J and certain of its Subsidiaries in favor of the
Indemnitees referred to therein.
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ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF BIL
BIL hereby represents and warrants to the Company as follows:
7.01 Incorporation of BIL. BIL is a corporation duly incorporated, validly
existing and in good standing under the laws of Hong Kong. BIL has the requisite
corporate power and authority to execute and deliver this Stockholder Agreement
and to perform its obligations hereunder and to consummate the transactions
contemplated hereby.
7.02 Authority. The execution and delivery by BIL of this Stockholder
Agreement, and the performance by BIL of its obligations hereunder, have been
duly and validly authorized by all necessary corporate actions on the part of
BIL, no other corporate action on the part of BIL or its stockholders being
necessary. This Stockholder Agreement has been duly and validly executed and
delivered by BIL and constitutes a legal, valid and binding obligation of BIL
enforceable against BIL in accordance with its terms, except as enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally and by
general equitable principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
7.03 No Conflicts. The execution and delivery by BIL of this Stockholder
Agreement do not, and the performance by BIL of its obligations under this
Stockholder Agreement and the consummation of the transactions contemplated
hereby will not:
(a) conflict with or result in a violation or breach of any of the terms,
conditions or provisions of the corporate charter documents of BIL;
(b) conflict with or result in a violation or breach of any term or
provision of any law, statute, rule or regulation or any order, judgment or
decree of any Governmental or Regulatory Authority applicable to BIL or any of
its properties or assets; or
(c) (i) conflict with or result in a violation or breach of, (ii)
constitute (with or without notice or lapse of time or both) a default under,
(iii) require BIL to obtain any consent, approval or action of, make any filing
with or give any notice to any Person as a result or under the terms of or (iv)
result in the creation or imposition of any Lien upon BIL or any of its
properties or assets under any contract, agreement, plan, permit or license to
which BIL is a party.
7.04 Governmental Approvals and Filings. No consent, approval or action of,
filing with or notice to any Governmental or Regulatory Authority on the part of
BIL is required in connection with the execution, delivery and performance of
this Stockholder Agreement or the consummation of the transactions contemplated
hereby, other than filings under the Exchange Act in connection with BIL's
acquisition of Equity Securities.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to BIL as follows:
8.01 Incorporation. The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware. The
Company has the requisite corporate power and authority to execute and deliver
this Stockholder Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby.
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8.02 Authority. The execution and delivery by the Company of this
Stockholder Agreement, and the performance by the Company of its obligations
hereunder, have been duly and validly authorized by the Board of Directors of
the Company, no other corporate action on the part of the Company or its
stockholders being necessary. This Stockholder Agreement has been duly and
validly executed and delivered by the Company and constitutes a legal, valid and
binding obligation of the Company in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
8.03 No Conflicts. The execution and delivery by the Company of this
Stockholder Agreement do not, and the performance by the Company of its
obligations under this Stockholder Agreement and the consummation of the
transactions contemplated hereby will not:
(a) conflict with or result in a violation or breach of any of the terms,
conditions or provisions of the certificate of incorporation or bylaws of the
Company;
(b) conflict with or result in a violation or breach of any term or
provision of any law, statute, rule or regulation or any order, judgment or
decree of any Governmental or Regulatory Authority applicable to the Company or
any of its properties or asset; or
(c) (i) conflict with or result in a violation or breach of, (ii)
constitute (with or without notice or lapse of time or both) a default under,
(iii) require the Company to obtain any consent, approval or action of, make any
filing with or give any notice to any Person as a result or under the terms of
or (iv) result in the creation or imposition of any Lien upon the Company or any
of its properties or assets under, any contract, agreement, plan, permit or
license to which the Company is a party.
8.04 Governmental Approvals and Filings. No consent, approval or action of,
filing with or notice to any Governmental or Regulatory Authority on the part of
the Company is required in connection with the execution, delivery and
performance of this Stockholder Agreement or the consummation of the
transactions contemplated hereby, other than filings under the Exchange Act in
connection with BIL's voting agreement contained in this Stockholder Agreement.
ARTICLE IX
GENERAL PROVISIONS
9.01 Survival of Representations, Warranties, Covenants and Agreements.
Notwithstanding any right of any party (whether or not exercised) to investigate
the accuracy of the representations and warranties of the other party contained
in this Stockholder Agreement, BIL and the Company have the right to rely fully
upon the representations and warranties of the other contained in this
Stockholder Agreement. Except as provided in Section 9.02, the representations,
warranties, covenants and agreements of BIL and the Company contained in this
Stockholder Agreement will survive until the termination of this Stockholder
Agreement.
9.02 Termination. This Stockholder Agreement and all rights and obligations
of the parties hereunder, including, without limitation, the provisions of
Section 5.02, shall automatically terminate, and shall cease to be of any
further force and effect, upon (i) the termination of the Merger Agreement in
accordance with its terms, (ii) the mutual written agreement of BIL and the
Company and (iii) a Change of Control; provided that BIL's obligations under
Section 6.01 shall survive any termination of this Stockholder Agreement
pursuant to clause (iii) of this Section. Notwithstanding the termination of
this Stockholder Agreement, nothing contained herein shall relieve any party
hereto from liability for
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breach of any of its representations, warranties, covenants or agreements
contained in this Stockholder Agreement.
9.03 Amendment and Waiver. (a) This Stockholder Agreement may be amended,
supplemented or modified only by a written instrument duly executed by or on
behalf of each party hereto. In the event that (i) any Person (other than any
Person included in the Restricted Group) becomes the beneficial owner of
Outstanding Voting Securities representing more than 15% but less than 100% of
the Voting Power of all Outstanding Voting Securities with the approval of the
Board of Directors and (ii) the restrictions imposed by the Company on the
activities of such Person are less onerous in any respect than the comparable
restrictions imposed on the Restricted Group by the applicable provisions of
this Stockholder Agreement, such comparable provisions of this Stockholder
Agreement will be revised so that they provide for comparable restrictions which
are identical to the restrictions imposed on such Person, if any.
(b) Any term or condition of this Stockholder Agreement may be waived at
any time by the party that is entitled to the benefit thereof, but no such
waiver shall be effective unless set forth in a written instrument duly executed
by or on behalf of the party waiving such term or condition. No waiver by any
party of any term or condition of this Stockholder Agreement, in any one or more
instances, shall be deemed to be or construed as a waiver of the same or any
other term or condition of this Stockholder Agreement on any future occasion.
All remedies, either under this Stockholder Agreement or by law or otherwise
afforded, will be cumulative and not alternative.
9.04 Notices. All notices, requests and other communications hereunder must
be in writing and will be deemed to have been duly given only if delivered
personally or by facsimile transmission or mailed (first class postage prepaid)
to the parties at the following addresses or facsimile numbers:
If to BIL, to:
BIL (Far East Holdings) Limited
c/o Brierley Investments Limited
10 Eastcheap, 3rd Floor
London EC 3M 1AJ
United Kingdom
Facsimile No.: 011-44-171-369-9112
Attn: Rodney F. Price, Chairman
with a copy to:
Bryan Cave LLP
One Metropolitan Square
211 North Broadway
Suite 3600
St. Louis, Missouri 63102
Facsimile No.: (314) 259-2020
Attn: John P. Denneen, Esq.
and to:
Brierley Investments Limited
22-24 Victoria Street
Level 6, Colonial Building
Wellington, New Zealand
Facsimile: 011-644-473-1631
Attn: Mark Horton, Corporate Secretary
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If to the Company or to Irwin Selinger, to:
Graham-Field Health Products, Inc.
400 Rabro Drive East
Hauppauge, New York 11788
Facsimile No.: (516) 582-5608
Attn: Richard S. Kolodny, Esq.
with a copy to:
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, NY 10005
Facsimile No.: (212) 530-5219
Attn: Robert S. Reder, Esq.
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section, be deemed given upon receipt, and (iii) if delivered
by mail in the manner described above to the address as provided in this
Section, be deemed given upon receipt (in each case regardless of whether such
notice, request or other communication is received by any other person to whom a
copy of such notice, request or other communication is to be delivered pursuant
to this Section). Any party from time to time may change its address, facsimile
number or other information for the purpose of notices to that party by giving
notice specifying such change to the other parties hereto.
9.05 Entire Agreement. This Stockholder Agreement supersedes all prior
discussions and agreements (including the Term Sheet dated as of August 13,
1996) among the parties hereto with respect to the subject matter hereof (other
than the letter agreement dated as of June 17, 1996 between the Company, BIL and
E&J (the "Confidentiality Agreement"), which, except as provided below, shall
survive the execution and delivery of this Stockholder Agreement in accordance
with its terms), and contains, together with the Merger Agreement, the
Confidentiality Agreement and the Registration Rights Agreement, the sole and
entire agreement among the parties hereto with respect to the subject matter
hereof. Notwithstanding the foregoing, Section 9 of the Confidentiality
Agreement shall terminate and cease to have any further force or effect at the
Effective Time.
9.06 No Third Party Beneficiary. The terms and provisions of this
Stockholder Agreement are intended solely for the benefit of each party hereto,
and it is not the intention of the parties to confer third-party beneficiary
rights upon any other Person.
9.07 No Assignment; Binding Effect. Neither this Stockholder 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 Stockholder
Agreement is binding upon, inures to the benefit of and is enforceable by the
parties hereto and their respective successors and assigns.
9.08 Specific Performance; Legal Fees. The parties acknowledge that money
damages are not an adequate remedy for violations of any provision of this
Stockholder Agreement and that any party may, in its sole discretion, apply to a
court of competent jurisdiction for specific performance for injunctive or such
other relief as such court may deem just and proper in order to enforce any such
provision or prevent any violation hereof and, to the extent permitted by
applicable law, each party waives any objection to the imposition of such
relief. The parties hereto agree that, in the event that any party to this
Stockholder Agreement shall bring any legal action or proceeding to enforce or
to seek damages or other relief arising from an alleged breach of any term or
provision of this Stockholder Agreement by
B-14
<PAGE>
the other party, the prevailing party in any such action or proceeding shall be
entitled to an award of, and the other party to such action or proceeding shall
pay, the reasonable fees and expenses of legal counsel to the prevailing party.
9.09 Headings. The headings used in this Stockholder Agreement have been
inserted for convenience of reference only and do not define or limit the
provisions hereof.
9.10 Invalid Provisions. If any provision of this Stockholder Agreement is
held to be illegal, invalid or unenforceable under any present or future law,
and if the rights or obligations of any party hereto under this Stockholder
Agreement will not be materially and adversely affected thereby, (i) such
provision will be fully severable, (ii) this Stockholder Agreement will be
construed and enforced as if such illegal, invalid or unenforceable provision
had never comprised a part hereof and (iii) the remaining provisions of this
Stockholder Agreement will remain in full force and effect and will not be
affected by the illegal, invalid or unenforceable provision or by its severance
herefrom.
9.11 Governing Law. Except to the extent that the DGCL is mandatorily
applicable to the rights and obligations of the parties, this Stockholder
Agreement shall be governed by and construed in accordance with the laws of the
State of New York applicable to a contract executed and performed in such State,
without giving effect to the conflicts of laws principles thereof.
9.12 Consent to Jurisdiction and Service of Process. Each party hereby
irrevocably submits to the exclusive jurisdiction of the United States District
Court for the Southern District of New York or any court of the State of New
York located in the Borough of Manhattan in the City of New York in any action,
suit or proceeding arising in connection with this Stockholder Agreement, agrees
that any such action, suit or proceeding shall be brought only in such court
(and waives any objection based on forum non conveniens or any other objection
to venue therein to the extent permitted by law), and agrees to delivery of
service of process by any of the methods by which notices may be given pursuant
to Section 9.04, with such service being deemed given as provided in such
Section; provided, however, that such consent to jurisdiction is solely for the
purpose referred to in this Section 9.12 and shall not be deemed to be a general
submission to the jurisdiction of said courts or in the State of New York other
than for such purpose. Nothing herein shall affect the right of any party to
serve process in any other manner permitted by law or to commence legal
proceedings or otherwise proceed against the other in any other jurisdiction.
9.13 Counterparts. This Stockholder Agreement may be executed in any number
of counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
B-15
<PAGE>
IN WITNESS WHEREOF, each party hereto has caused this Stockholder Agreement
to be signed by its officer thereunto duly authorized as of the date first above
written.
BIL (FAR EAST HOLDINGS) LIMITED
By: /s/ RODNEY PRICE
----------------------------------
Name: Rodney Price
Title: Director
GRAHAM-FIELD HEALTH PRODUCTS, INC.
By: /s/ IRWIN SELINGER
----------------------------------
Name: Irwin Selinger
Title: Chairman and Chief Executive
Officer
/s/ IRWIN SELINGER
----------------------------------
Irwin Selinger
B-16
<PAGE>
SCHEDULE I
E&J Shares Owned by BIL
Class Number
- ----- ------
Common Stock............................................. 5,779,935
Series A Preferred Stock................................. 7,867,842
Series B Preferred Stock................................. 786,357
Series C Preferred Stock................................. 20,000,000
B-17
<PAGE>
SCHEDULE II
Indemnified Proceedings
Amount
Nature of Proceeding Reserved
-------------------- --------
I. July 1990, Class Action Law Suit filed in the U.S. District
Court for the State of California relating to certain $ 100,000
non-disclosures and misrepresentations in violation of
the Federal securities laws (as more fully-described in
E&J's Form 10-Q for the quarter ended March 31, 1996).
II. Die Cast Products Litigation, relating to Law Suit filed by
the State of California, pursuant to The Comprehensive $ 500,000
Environmental Response Compensation and Liability Act
(as more fully-described in E&J's Form 10-Q for the
quarter ended March 31, 1996).
III. March 1993, Casmalia Site, involving inactive hazardous waste
treatment and storage of commercial and industrial wastes $ 350,000
(as more fully-described in E&J's Form 10-Q for the
quarter ended March 31, 1996).
IV. 1989 Patent Infringement Case initiated against E&J in the
U.S. District Court, Central District of California $ 200,000
(as more fully-described in E&J's Form 10-Q for the
quarter ended March 31, 1996).
V. Comdisco Litigation. $ 250,000
VI. Chris Trew v. Smith & Davis Manufacturing Company. $ 170,000*
- ----------
* The establishment of this reserve shall not affect the reduction in the
principal amount of the unsecured subordinated promissory note provided for
in Exhibit C-1 of the Merger Agreement.
B-18
<PAGE>
EXHIBIT A
IRREVOCABLE PROXY
The undersigned stockholder of Everest & Jennings International Ltd., a
Delaware corporation (the "Company"), hereby irrevocably (to the fullest extent
provided by law, but subject to automatic termination and revocation as provided
below) appoints Graham-Field Health Products, Inc., a Delaware corporation
("Graham-Field"), or any designee of Graham-Field, the attorney and proxy of the
undersigned, with full power of substitution and resubstitution, to the full
extent of the undersigned's rights with respect to the shares of capital stock
of the Company owned beneficially or of record by the undersigned, which shares
are listed in Schedule I to the Stockholder Agreement referred to below, and any
and all other shares or securities of the Company issued or issuable with
respect thereof or otherwise acquired by stockholder on or after the date
hereof, until the termination date specified in the Stockholder Agreement (the
"Shares"). Upon the execution hereof, all prior proxies given by the undersigned
with respect to the Shares are hereby revoked and no subsequent proxies will be
given as to the matters covered hereby prior to the earlier of the date of
termination of the Stockholder Agreement pursuant to Section 9.02 thereof (the
"Termination Date") and the Effective Time of the Merger (such earlier date
being hereinafter referred to as the "Proxy Termination Date"). This proxy is
irrevocable (to the fullest extent provided by law, but subject to automatic
termination and revocation as provided below), coupled with an interest, and is
granted in connection with the Stockholder Agreement, dated as of September 3,
1996, among Graham-Field, Irwin Selinger and the undersigned stockholder, as the
same may be amended from time to time (the "Stockholder Agreement", capitalized
terms not otherwise defined herein being used herein as therein defined), and is
granted in consideration of the Company entering into the Merger Agreement
referred to therein.
The attorney and proxy named above will be empowered at any time prior to
the Proxy Termination Date to exercise all voting and other rights with respect
to the Shares (including, without limitation, the power to execute and deliver
written consents with respect to the Shares) of the undersigned at every annual,
special or adjourned meeting of stockholders of the Company held prior to the
Proxy Termination Date and in connection with every solicitation of written
consents in lieu of such a meeting prior to the Proxy Termination Date, or
otherwise, to the extent that any of the following matters is considered and
voted on at any such meeting or in connection with any such consent
solicitation: (i) in favor of the Merger, the execution and delivery by the
Company of the Merger Agreement and the approval of the terms thereof and the
Stockholder Agreement and each of the other actions contemplated by the Merger
Agreement and the Stockholder Agreement and any actions required in furtherance
thereof; (ii) against any action, any failure to act, or agreement that would
result in a breach in any respect of any covenant, representation or warranty or
any other obligation or agreement of the Company or the undersigned stockholder
under the Merger Agreement or the Stockholder Agreement (before giving effect to
any materiality or similar qualifications contained therein); and (iii) against
any Alternative Proposal.
The attorney and proxy named above may only exercise this proxy to vote the
Shares subject hereto in accordance with the preceding paragraph, and may not
exercise this proxy in respect of any other matter. The undersigned shareholder
may vote the Shares (or grant one or more proxies to vote the Shares) on all
other matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
This proxy is irrevocable, but shall automatically terminate and be revoked
and be of no further force and effect on and after the Proxy Termination Date.
Dated: September 3, 1996 BIL (FAR EAST HOLDINGS) LIMITED
BY: /S/ RODNEY PRICE
-------------------------------------
Name: Rodney Price
Title: Director
B-19
<PAGE>
ANNEX C
REGISTRATION RIGHTS AGREEMENT
dated as of September 3, 1996
between
GRAHAM-FIELD HEALTH PRODUCTS, INC.
and
BIL (FAR EAST HOLDINGS) LIMITED
<PAGE>
TABLE OF CONTENTS
This Table of Contents is not part of the Registration Rights Agreement to
which it is attached but is inserted for convenience only.
Page
No.
----
1. Requested Registrations ............................................... 2
(a) Registration Request .............................................. 2
(b) Registration Statement Form ....................................... 2
(c) Registration Expenses ............................................. 2
(d) Priority in Cutback Registrations ................................. 2
(e) Preemption of Requested Registration .............................. 3
2. Piggyback Registrations ............................................... 3
(a) Right to Include Registrable Securities ........................... 3
(b) Registration Expenses ............................................. 4
(c) Priority in Cutback Registrations ................................. 4
3. Registration Procedures ............................................... 5
4. Underwritten Offerings ................................................ 9
(a) Underwritten Requested Offerings .................................. 9
(b) Underwritten Piggyback Offerings .................................. 9
5. Holdback Agreements ................................................... 10
(a) By BIL ............................................................ 10
(b) By the Company .................................................... 10
6. Indemnification ....................................................... 10
(a) Indemnification by the Company .................................... 10
(b) Indemnification by BIL ............................................ 11
(c) Notices of Claims, etc ............................................ 12
(d) Contribution ...................................................... 13
(e) Other Indemnification ............................................. 13
(f) Indemnification Payments .......................................... 14
7. Covenants Relating to Rule 144 ........................................ 14
8. Other Registration Rights ............................................. 14
(a) No Existing Agreements ............................................ 14
(b) Future Agreements ................................................. 14
9. Definitions ........................................................... 14
10. Termination ........................................................... 19
11. Miscellaneous ......................................................... 19
(a) Notices ........................................................... 19
(b) Entire Agreement .................................................. 20
(c) Amendment ......................................................... 20
(d) Waiver ............................................................ 20
(e) No Third Party Beneficiary ........................................ 20
(f) No Assignment; Binding Effect ..................................... 20
(g) Headings .......................................................... 21
(h) Invalid Provisions ................................................ 21
(i) Remedies; Legal Expenses .......................................... 21
(j) Governing Law ..................................................... 22
(k) Counterparts ...................................................... 22
i
<PAGE>
This REGISTRATION RIGHTS AGREEMENT dated as of September 3, 1996 is made
and entered into by and between Graham-Field Health Products, Inc., a Delaware
corporation (the "Company"), and BIL (Far East Holdings) Limited, a Hong Kong
corporation ("BIL"). Capitalized terms not otherwise defined herein have the
meanings set forth in Section 9.
WHEREAS, the Company, E&J Acquisition Corp., a Delaware corporation
wholly-owned by the Company ("Sub"), BIL and Everest & Jennings International
Ltd., a Delaware corporation ("E&J"), have entered into an Agreement and Plan of
Merger of even date herewith (the "Merger Agreement"), pursuant to which Sub
will be merged with and into E&J and E&J will become a wholly-owned subsidiary
of the Company;
WHEREAS, at the Effective Time and in accordance with the terms of the
Merger Agreement, each share of common stock, par value $.10 per share, of E&J
(including shares owned by BIL, the majority stockholder of E&J) will be
converted into .35 of a share of Common Stock, subject to reduction under
certain circumstances, all as more fully described in the Merger Agreement;
WHEREAS, at the Effective Time and in accordance with the terms of the
Merger Agreement, BIL and BIL Securities (Offshore) Limited also, among other
things, will (i) purchase shares of Common Stock from the Company, the proceeds
of which will be used to repay certain indebtedness owing by E&J to Hong Kong
and Shanghai Banking Corporation Limited, (ii) purchase shares of a new series
of Series B Cumulative Convertible Preferred Stock of the Company in exchange
for indebtedness of E&J owing to BIL and shares of convertible preferred stock
of E&J owed by BIL and (iii) purchase shares of a new series of Series C
Cumulative Convertible Preferred Stock of the Company (such shares, together
with the shares of Series C Cumulative Convertible Preferred Stock, the
"Preferred Stock") for an aggregate purchase price of $10 million, all as more
fully described in the Merger Agreement;
WHEREAS, concurrently with the execution and delivery of the Merger
Agreement, the Company, BIL and Irwin Selinger have entered into a Stockholder
Agreement (the "Stockholder Agreement") of even date herewith; and
WHEREAS, as a condition to BIL's willingness to vote its shares of E&J
capital stock in favor of the Merger, the Company has agreed to enter into this
Registration Rights Agreement providing for the Company's registration for sale,
under certain circumstances, of Registrable Securities owned by BIL;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Registration Rights Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Requested Registrations. (a) Registration Requests. At any time after
the Effective Time, upon the written request of BIL requesting that the Company
effect the registration under the Securities Act of all or part of BIL's
Registrable Securities and specifying the number of Registrable Securities to be
registered and the intended method of disposition thereof, the Company thereupon
will use its best efforts to effect the registration under the Securities Act of
such Registrable Securities, all to the extent requisite to permit the
disposition (in accordance with the intended methods thereof) of the Registrable
Securities so to be registered. Notwithstanding the foregoing, the Company may
postpone taking action with respect to a Requested Registration for a reasonable
period of time after receipt of the original request (not exceeding ninety (90)
days) if, in the good faith opinion of the Company's Board of Directors,
effecting the registration would adversely affect a material financing,
acquisition, disposition of assets or stock, merger or other comparable
transaction or would require the Company to make public disclosure of
information the public disclosure of which would have a material adverse effect
upon the Company. Subject to paragraph (d), the Company may include in such
registration other securities of the same class as the Registrable Securities
for sale for its own account or for the account of any other Person.
Notwithstanding anything herein to the contrary, the Company shall not
C-1
<PAGE>
be required to honor a request for a Requested Registration if the Company shall
have previously effected three (3) Effective Registrations pursuant to Requested
Registrations.
(b) Registration Statement Form. Requested Registrations shall be on such
appropriate registration form promulgated by the Commission as shall be selected
by the Company and shall permit the disposition of such Registrable Securities
in accordance with the intended method or methods specified in the request for
such registration.
(c) Registration Expenses. The Company will pay all Registration Expenses
incurred in connection with any Requested Registration.
(d) Priority in Cutback Registrations. If a Requested Registration becomes
a Cutback Registration, the Company will include in any such registration to the
extent of the number which the Managing Underwriter advises the Company can be
sold in such offering (i) first,Registrable Securities requested to be included
in such registration by BIL and (ii) second, other securities of the Company
proposed to be included in such registration, allocated among the Company and
any holders thereof in accordance with the priorities then existing among the
Company and the holders of such other securities; and any securities so excluded
shall be withdrawn from and shall not be included in such Requested
Registration.
(e) Preemption of Requested Registration. Notwithstanding anything to the
contrary contained herein, at any time within thirty (30) days after receiving a
written request for a Requested Registration, the Company may elect to effect an
underwritten primary registration in lieu of the Requested Registration if the
Company's Board of Directors believes that such primary registration would be in
the best interests of the Company. If the Company so elects to effect a primary
registration, the Company shall give prompt written notice to BIL of its
intention to effect such a registration and shall afford BIL rights contained in
Section 2 with respect to Piggyback Registrations. In the event that the Company
so elects to effect a primary registration after receiving a request for a
Requested Registration, the request for a Requested Registration shall be deemed
to have been withdrawn and such primary registration shall not be deemed to be
an Effective Registration.
2. Piggyback Registrations. (a) Right to Include Registrable Securities.
Notwithstanding any limitation contained in Section 1, if the Company at any
time proposes after the Effective Time to effect a Piggyback Registration,
including in accordance with Section 1(e), it will each such time give written
notice (a "Notice of Piggyback Registration"), at least twenty (20) days prior
to the anticipated filing date, to BIL of its intention to do so and of BIL's
right under this Section 2, which Notice of Piggyback Registration shall include
a description of the intended method of disposition of such securities. Upon the
written request of BIL made within twenty (20) days after receipt of a Notice of
Piggyback Registration (which request shall specify the Registrable Securities
intended to be disposed of and the intended method of disposition thereof), the
Company will use its best efforts to include in the registration statement
relating to such Piggyback Registration all Registrable Securities which the
Company has been so requested to register. Notwithstanding the foregoing, if, at
any time after giving a Notice of Piggyback Registration and prior to the
effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register or to
delay registration of such securities, the Company may, at its election, give
written notice of such determination to BIL and, thereupon, (i) in the case of a
determination not to register, shall be relieved of its obligation to register
any Registrable Securities in connection with such registration (but not from
its obligation to pay the Registration Expenses in connection therewith) without
prejudice, however, to the right of BIL to request that such registration be
effected as a Requested Registration under Section 1, and (ii) in the case of a
determination to delay registering, shall be permitted to delay registering any
Registrable Securities for the same period as the delay in registering such
other securities. No registration effected under this Section 2 shall relieve
the Company of its obligations to effect a
C-2
<PAGE>
Requested Registration under Section 1. Notwithstanding anything herein to the
contrary, the Company shall not be required to honor a request to include
Registrable Securities in a Piggyback Registration if the Company shall have
previously effected three (3) Effective Registrations constituting Piggyback
Registrations in which Registrable Securities were included.
(b) Registration Expenses. The Company will pay all Registration Expenses
incurred in connection with each Piggyback Registration.
(c) Priority in Cutback Registrations. If a Piggyback Registration becomes
a Cutback Registration, the Company will include in such registration to the
extent of the amount of the securities which the Managing Underwriter advises
the Company can be sold in such offering:
(i) if such registration as initially proposed by the Company was
solely a primary registration of its securities, (x) first,the securities
proposed by the Company to be sold for its own account, (y) second, any
Registrable Securities requested to be included in such registration by BIL
and any Warrants and Warrant Shares requested to be included in such
registration by the Warrant Holders, to be allocated pro-rata among BIL and
the Warrant Holders based on their Piggyback Percentage, and (z) third, any
other securities of the Company proposed to be included in such
registration, allocated among the holders thereof in accordance with the
priorities then existing among the Company and such holders; and
(ii) if such registration as initially proposed by the Company was in
whole or in part requested by holders of securities of the Company other
than BIL pursuant to demand registration rights, (x) first, such securities
held by the holders initiating such registration and, if applicable, any
securities proposed by the Company to be sold for its own account,
allocated in accordance with the priorities then existing among the Company
and such holders, (y) second, any Registrable Securities requested to be
included in such registration by BIL and any Warrants and Warrant Shares
requested to be included in such registration by the Warrant Holders, to be
allocated pro-rata among BIL and the Warrant Holders based on their
Piggyback Percentage, and (z) third, any other securities of the Company
proposed to be included in such registration, allocated among the holders
thereof in accordance with the priorities then existing among the Company
and the holders of such other securities;
and any securities so excluded shall be withdrawn from and shall not be included
in such Piggyback Registration.
3. Registration Procedures. If and whenever the Company is required to use
its best efforts to effect the registration of any Registrable Securities owned
by BIL under the Securities Act pursuant to Section 1 or Section 2, the Company
will use its best efforts to effect the registration and sale of such
Registrable Securities in accordance with the intended methods of disposition
thereof. Without limiting the foregoing, the Company in each such case will, as
expeditiously as possible:
(a) prepare and file with the Commission the requisite registration
statement to effect such registration and use its best efforts to cause such
registration statement to become effective;
(b) prepare and file with the Commission such amendments and supplements to
such registration statement and any prospectus used in connection therewith as
may be necessary to maintain the effectiveness of such registration statement
and to comply with the provisions of the Securities Act with respect to the
disposition of all Registrable Securities covered by such registration
statement, in accordance with the intended methods of disposition thereof, until
the earlier of (i) such time as all of such securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof set forth in such registration statement and (ii) ninety (90) days after
such registration statement becomes effective;
C-3
<PAGE>
(c) promptly notify BIL and the underwriter or underwriters, if any:
(i) when such registration statement or any prospectus used in
connection therewith, or any amendment or supplement thereto, has been
filed and, with respect to such registration statement or any
post-effective amendment thereto, when the same has become effective;
(ii) of any written request by the Commission for amendments or
supplements to such registration statement or prospectus;
(iii) of the notification to the Company by the Commission of its
initiation of any proceeding with respect to the issuance by the Commission
of, or of the issuance by the Commission of, any stop order suspending the
effectiveness of such registration statement; and
(iv) of the receipt by the Company of any notification with respect to
the suspension of the qualification of any Registrable Securities for sale
under the applicable securities or blue sky laws of any jurisdiction.
(d) furnish to BIL such number of conformed copies of such registration
statement and of each amendment and supplement thereto (in each case including
all exhibits and documents incorporated by reference), such number of copies of
the prospectus contained in such registration statement (including each
preliminary prospectus and any summary prospectus) and any other prospectus
filed under Rule 424 promulgated under the Securities Act, and such other
documents, as BIL may reasonably request to facilitate the disposition of its
Registrable Securities;
(e) use its best efforts to register or qualify all Registrable Securities
covered by such registration statement under such other securities or blue sky
laws of such jurisdictions as BIL shall reasonably request, to keep such
registration or qualification in effect for so long as such registration
statement remains in effect, and take any other action which may be reasonably
necessary or advisable to enable BIL to consummate the disposition in such
jurisdictions of its Registrable Securities, except that the Company shall not
for any such purpose be required (i) to qualify generally to do business as a
foreign corporation in any jurisdiction wherein it would not but for the
requirements of this paragraph (e) be obligated to be so qualified, (ii) to
subject itself to taxation in any such jurisdiction or (iii) to consent to
general service of process in any jurisdiction;
(f) use its best efforts to cause all Registrable Securities covered by
such registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable BIL thereof
to consummate the disposition of such Registrable Securities;
(g) furnish to BIL a signed counterpart, addressed to BIL (and the
underwriters, if any), of
(i) an opinion of counsel for the Company, dated the effective date of
such registration statement (or, if such registration includes an
underwritten Public Offering, dated the date of any closing under the
underwriting agreement), reasonably satisfactory in form and substance to
BIL, and
(ii) a "comfort" letter, dated the effective date of such registration
statement (and, if such registration includes an underwritten Public
Offering, dated the date of any closing under the underwriting agreement),
signed by the independent public accountants who have certified the
Company's financial statements included in such registration statement, in
each case covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the
case of the accountants' letter, with respect to events subsequent to the
date of such financial statements, as are customarily covered in opinions
of issuer's counsel and in accountants' letters delivered to the
underwriters in underwritten Public Offerings of securities and, in the
case of the accountants' letter, such other financial matters, as BIL (or
the underwriters, if any) may reasonably request;
C-4
<PAGE>
(h) notify BIL, at any time when a prospectus relating thereto is required
to be delivered under the Securities Act, of the happening of any event as a
result of which any prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and at the request of BIL promptly prepare and furnish
to BIL a reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading;
(i) otherwise use its best efforts to comply with all applicable rules and
regulations of the Commission, and make available to its securityholders, as
soon as reasonably practicable, an earnings statement covering the period of at
least twelve (12) months, but not more than eighteen (18) months, beginning with
the first full calendar month after the effective date of such registration
statement, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act and Rule 158 promulgated thereunder;
(j) make available for inspection by BIL, any underwriter participating in
any disposition pursuant to such registration statement and any attorney,
accountant or other agent retained by BIL or any such underwriter (collectively,
the "Inspectors"), all financial and other records, pertinent corporate
documents and properties of the Company (collectively, the "Records") as shall
be reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors and employees to
supply all information reasonably requested by any such Inspector in connection
with such registration statement; providedthat records which the Company
determines, in good faith, to be confidential and which it notifies the
Inspectors are confidential shall not be disclosed by the Inspectors unless (i)
the disclosure of such Records is necessary to avoid or correct a misstatement
or omission in the registration statement, (ii) the release of such Records is
ordered pursuant to a subpoena or other order from a court of competent
jurisdiction or (iii) the information in such Records has been made generally
available to the public;
(k) provide a transfer agent and registrar for all Registrable Securities
covered by such registration statement not later than the effective date of such
registration statement; and
(l) use its best efforts to cause all Registrable Securities covered by
such registration statement to be listed, upon official notice of issuance, on
any securities exchange on which any of the securities of the same class as the
Registrable Securities are then listed.
In the event of the issuance of any stop order suspending the effectiveness
of a registration statement which includes Registrable Securities, or any order
suspending or preventing the use of any related prospectus or suspending the
qualification of any Registrable Securities included in such registration
statement for sale in any jurisdiction, the Company will use its reasonable best
efforts to promptly obtain the withdrawal of such order.
The Company may require BIL to, and BIL, as a condition to including
Registrable Securities in such registration, shall, furnish the Company with
such information and affidavits regarding BIL and the distribution of such
securities as the Company may from time to time reasonably request in writing in
connection with such registration.
BIL agrees by acquisition of such Registrable Securities that upon receipt
of any notice from the Company of the happening of any event of the kind
described in paragraph (h), BIL will forthwith discontinue its disposition of
Registrable Securities pursuant to the registration statement relating to such
Registrable Securities until BIL's receipt of the copies of the supplemented or
amended prospectus contemplated by paragraph (h) and, if so directed by the
Company, will deliver to the Company (at the
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Company's expense) all copies, other than permanent file copies, then in BIL's
possession of the prospectus relating to such Registrable Securities current at
the time of receipt of such notice. In the event the Company shall give any such
notice, the period referred to in paragraph (b) shall be extended by a number of
days equal to the number of days during the period from and including the giving
of notice pursuant to paragraph (h) and to and including the date when BIL shall
receive the copies of the supplemented or amended prospectus contemplated by
paragraph (h).
4. Underwritten Offerings. (a) Underwritten Requested Offerings. In the
case of any underwritten Public Offering being effected pursuant to a Requested
Registration, the Managing Underwriter and any other underwriter or underwriters
with respect to such offering shall be selected by the Company, provided such
underwriters are of recognized national standing and are reasonably acceptable
to BIL. Such underwriter or underwriters will be instructed to effect as broad a
distribution of the Registrable Securities to be sold by them as is reasonably
practicable and, in any event, to use their best efforts to refrain from selling
any Registrable Securities to any Person who beneficially owns, or as a result
of such purchase would beneficially own, more than 5% of the outstanding shares
of Common Stock. The Company shall enter into an underwriting agreement in
customary form with such underwriter or underwriters, which shall include, among
other provisions, indemnities to the effect and to the extent provided in
Section 6. BIL shall be a party to such underwriting agreement and may, at its
option, require that any or all of the representations and warranties by, and
the other agreements on the part of, the Company to and for the benefit of such
underwriters also be made to and for its benefit and that any or all of the
conditions precedent to the obligations of such underwriters under such
underwriting agreement also be conditions precedent to its obligations. BIL
shall not be required to make any representations or warranties to or agreements
with the Company or the underwriters other than representations, warranties or
agreements regarding BIL and its ownership of the securities being registered on
its behalf and its intended method of distribution and any other representation
required by law.
(b) Underwritten Piggyback Offerings. If the Company at any time proposes
to register any of its securities in a Piggyback Registration and such
securities are to be distributed by or through one or more underwriters, the
Company will, subject to the provisions of Section 2(c), arrange for such
underwriters to include the Registrable Securities to be offered and sold by BIL
among the securities to be distributed by such underwriters. If BIL elects to
have any of its Registrable Securities included in such Piggyback Registration,
BIL shall be obligated to sell its Registrable Securities in such Piggyback
Registration through such underwriters on the same terms and conditions as apply
to the other Company securities to be sold by such underwriters in connection
with such Piggyback Registration. BIL shall be a party to the underwriting
agreement between the Company and such underwriter or underwriters and may, at
its option, require that any or all of the representations and warranties by,
and the other agreements on the part of, the Company to and for the benefit of
such underwriters also be made to and for its benefit and that any or all of the
conditions precedent to the obligations of such underwriters under such
underwriting agreement also be conditions precedent to its obligations. BIL
shall not be required to make any representations or warranties to or agreements
with the Company or the underwriters other than representations, warranties or
agreements regarding BIL and its ownership of the securities being registered on
its behalf and its intended method of distribution and any other representation
required by law.
5. Holdback Agreements. (a) By BIL. In the case of an underwritten Public
Offering, unless the Managing Underwriter otherwise agrees, BIL, by acquisition
of such Registrable Securities, agrees not to effect any public sale or
distribution (including a sale under Rule 144) of such securities, or any
securities convertible into or exchangeable or exercisable for such securities,
during the seven (7) days prior to and the ninety (90) days after the effective
date of any registration statement filed by the Company in connection with a
Public Offering (or for such shorter period of time as is sufficient and
appropriate, in the opinion of the Managing Underwriter, in order to complete
the sale and distribution
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of the securities included in such registration), except as part of such
registration statement, whether or not BIL participates in such registration.
(b) By the Company. Unless the Managing Underwriter otherwise agrees, the
Company agrees not to effect any public sale or distribution of its equity
securities, or any securities convertible into or exchangeable or exercisable
for such securities, during the seven (7) days prior to and the ninety (90) days
after the effective date of the registration statement filed in connection with
an underwritten offering made pursuant to a Requested Registration or Piggyback
Registration (or for such shorter period of time as is sufficient and
appropriate, in the opinion of the Managing Underwriter, in order to complete
the sale and distribution of the securities included in such registration),
except as part of such underwritten registration and except pursuant to
registrations on Form S-4 or Form S-8 promulgated by the Commission or any
successor or similar forms thereto. The Company shall cause each holder of
shares of Common Stock, or any securities convertible into or exchangeable or
exercisable for shares of Common Stock, purchased from the Company at any time
after the Effective Time (other than in a registered public offering), who at
the time and after giving effect to such purchase owns shares of Common Stock
and securities convertible into or exchangeable for shares of Common Stock
representing at least 10% of the shares of Common Stock outstanding on a fully
diluted basis, to agree not to effect any public sale or distribution (including
sales pursuant to Rule 144) of any such purchased securities during any period
referred to in the preceding sentence (except as part of an underwritten
registration, if otherwise permitted).
6. Indemnification. (a) Indemnification by the Company. The Company shall,
to the full extent permitted by law, indemnify and hold harmless BIL, its
directors and officers, and each other Person, if any, who controls BIL within
the meaning of the Securities Act, against any Losses, claims, damages, expenses
or liabilities, joint or several (together, "Losses"), to which BIL or any such
director or officer or controlling Person may become subject under the
Securities Act or otherwise, insofar as such Losses (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any registration statement filed in connection with a Requested
Registration or a Piggyback Registration in which Registrable Securities of BIL
are included, any preliminary prospectus, final prospectus or summary prospectus
contained therein, or any amendment or supplement thereto, or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein (in the case of a prospectus, in the
light of the circumstances under which they were made) not misleading, and the
Company will reimburse BIL and each such director, officer and controlling
Person for all reasonable legal or any other expenses reasonably incurred by
them in connection with investigating or defending any such Loss (or action or
proceeding in respect thereof); provided that the Company shall not be liable in
any such case to the extent that any such Loss (or action or proceeding in
respect thereof) arises out of or is based upon (x) an untrue statement or
alleged untrue statement or omission or alleged omission made in any such
registration statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of BIL
specifically for use in the preparation thereof or (y) BIL's failure to send or
give a copy of the final prospectus to the Persons asserting an untrue statement
or alleged untrue statement or omission or alleged omission at or prior to the
written confirmation of the sale of Registrable Securities to such Person if
such statement or omission was corrected in such final prospectus. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of BIL or any such director, officer or controlling Person,
and shall survive the transfer of such securities by BIL. In connection with an
underwritten Requested Registration or Piggyback Registration, the Company will
indemnify such underwriters, their officers and directors and each other Person,
if any, who controls such underwriters within the meaning of the Securities Act,
to the same extent as provided above with respect to the indemnification of BIL.
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(b) Indemnification by BIL. BIL, as a condition to including Registrable
Securities in any registration statement filed in connection with a Requested
Registration or a Piggyback Registration in which Registrable Securities of BIL
are included, shall, to the full extent permitted by law, indemnify and hold
harmless the Company, its directors and officers, and each other Person, if any,
who controls the Company within the meaning of the Securities Act, against any
Losses to which the Company or any such director or officer or controlling
Person may become subject under the Securities Act or otherwise, insofar as such
Losses (or actions or proceedings, whether commenced or threatened, in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any such registration statement, any
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein (in the case of a prospectus, in the
light of the circumstances under which they were made) not misleading, if such
untrue statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with information furnished in writing to
the Company by or on behalf of BIL specifically for use in the preparation of
such registration statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of the Company
or any such director, officer or controlling Person and shall survive the
transfer of such securities by BIL.
(c) Notices of Claims, etc. Promptly after receipt by an Indemnified Party
of notice of the commencement of any action or proceeding involving a claim
referred to in the preceding paragraph (a) or (b) of this Section 6, such
Indemnified Party will, if a claim in respect thereof is to be made against an
Indemnifying Party pursuant to such paragraphs, give written notice to the
latter of the commencement of such action, provided that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under the preceding paragraphs of this
Section 6, except to the extent that the Indemnifying Party is actually
prejudiced by such failure to give notice. In case any such action is brought
against an Indemnified Party, the Indemnifying Party shall be entitled to
participate in and to assume the defense thereof, with counsel reasonably
satisfactory to such Indemnified Party, and after notice from the Indemnifying
Party to such Indemnified Party of its election so to assume the defense
thereof, the Indemnifying Party shall not be liable to such Indemnified Party
for any legal or other expenses subsequently incurred by the latter in
connection with the defense thereof; provided that the Indemnified Party may
participate in such defense at the Indemnified Party's expense. If the
Indemnifying Party is not entitled to, or elects not to, assume the defense of a
claim, it will not be obligated to pay the fees and expenses of more than one
counsel for the Indemnified Parties with respect to such claim, unless the
Indemnified Parties shall have been advised by counsel that representation of
any such Indemnified Parties by the same counsel would be inappropriate under
applicable standards of professional conduct due to actual or potential
differing interests between them, in which case such Indemnified Parties shall
have the right to select separate counsel the fees and expenses of which shall
be paid by the Indemnifying Party. No Indemnifying Party shall consent to entry
of any judgment or enter into any settlement without the consent of the
Indemnified Party, which consent will not be unreasonably withheld or delayed.
No Indemnifying Party shall be subject to any liability for any settlement made
without its consent, which consent shall not be unreasonably withheld or
delayed. The indemnification provided for under this Registration Rights
Agreement will remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnified Party or any officer, director or
controlling Person of such Indemnified Party and will survive the transfer of
securities.
(d) Contribution. If the indemnity and reimbursement obligation provided
for in any paragraph of this Section 6 is unavailable or insufficient to hold
harmless an Indemnified Party in respect of any Losses (or actions or
proceedings in respect thereof) referred to therein, then the Indemnifying Party
shall contribute to the amount paid or payable by the Indemnified Party as a
result of such Losses (or
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actions or proceedings in respect thereof) in such proportion as is appropriate
to reflect the relative fault of the Indemnifying Party on the one hand and the
Indemnified Party on the other hand in connection with statements or omissions
which resulted in such Losses, as well as any other relevant equitable
considerations, including the relative benefits received in connection with the
transaction. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Indemnifying Party or the Indemnified Party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The parties hereto agree that it
would not be just and equitable if contributions pursuant to this paragraph were
to be determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to in the
first sentence of this paragraph. The amount paid by an Indemnified Party as a
result of the Losses referred to in the first sentence of this paragraph shall
be deemed to include any legal and other expenses reasonably incurred by such
Indemnified Party in connection with investigating or defending any Loss which
is the subject of this paragraph.
No Indemnified Party guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from the Indemnifying Party if the Indemnifying Party was not
guilty of such fraudulent misrepresentation.
(e) Other Indemnification. Indemnification similar to that specified in the
preceding paragraphs of this Section 6 (with appropriate modifications) shall be
given by the Company and BIL with respect to any required registration or other
qualification of securities under any federal or state law or regulation of any
governmental authority other than the Securities Act. The provisions of this
Section 6 shall be in addition to any other rights to indemnification or
contribution which an Indemnified Party may have pursuant to law, equity,
contract or otherwise.
(f) Indemnification Payments. The indemnification required by this Section
6 shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as and when bills are received or Losses are
incurred.
7. Covenants Relating to Rule 144. The Company will file reports in
compliance with the Exchange Act, will comply with all rules and regulations of
the Commission applicable in connection with the use of Rule 144 and will take
such other actions and furnish BIL with such other information as BIL may
request in order to avail itself of such rule or any other rule or regulation of
the Commission allowing BIL to sell any Registrable Securities without
registration.
8. Other Registration Rights. (a) No Existing Agreements. The Company
represents and warrants to BIL that there is not in effect on the date hereof
any agreement by the Company (other than this Registration Rights Agreement)
pursuant to which any holders of securities of the Company have a right to cause
the Company to register or qualify such securities under the Securities Act or
any securities or blue sky laws of any jurisdiction that would conflict or be
inconsistent with any provision of this Registration Rights Agreement.
(b) Future Agreements. The Company shall not hereafter agree with the
holders of any securities issued or to be issued by the Company to register or
qualify such securities under the Securities Act or any securities or blue sky
laws of any jurisdiction that would conflict or be inconsistent with any
provision of this Registration Rights Agreement.
9. Definitions. (a) Except as otherwise specifically indicated, the
following terms will have the following meanings for all purposes of this
Registration Rights Agreement:
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"Business Day" means a day other than Saturday, Sunday or any other day on
which banks located in the State of New York are authorized or obligated to
close.
"Commission" means the United States Securities and Exchange Commission, or
any successor governmental agency or authority.
"Common Stock" means shares of Common Stock, par value $.025 per share, of
the Company, as constituted on the date hereof, and any stock into which such
Common Stock shall have been changed or any stock resulting from any
reclassification of such Common Stock.
"Company" has the meaning ascribed to it in the preamble.
"Cutback Registration" means any Requested Registration or Piggyback
Registration to be effected as an underwritten Public Offering in which the
Managing Underwriter with respect thereto advises the Company in writing that,
in its opinion, the number of securities requested to be included in such
registration (including securities of the Company which are not Registrable
Securities) exceed the number which can be sold in such offering without a
material reduction in the selling price anticipated to be received for the
securities to be sold in such Public Offering.
"DGCL" means the General Corporation Law of the State of Delaware.
"Effective Registration" means, subject to the last sentence of Section
1(e), a Requested Registration or a Piggyback Registration which includes
Registrable Securities, as the case may be, which (a) has been declared or
ordered effective in accordance with the rules of the Commission and (b) has
been kept effective for the period of time contemplated by Section 3(b).
Notwithstanding the foregoing, a Requested Registration that does not become
effective after it has been filed with the Commission solely by reason of BIL's
refusal to proceed shall be deemed to be an Effective Registration for purposes
of this Registration Rights Agreement.
"Effective Time" means the time at which the Merger becomes effective under
the DGCL.
"E&J" has the meaning ascribed to it in the preamble.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Indemnified Party" means a party entitled to indemnity in accordance with
Section 6.
"Indemnifying Party" means a party obligated to provide indemnity in
accordance with Section 6.
"Inspectors" has the meaning ascribed to it in Section 3(i).
"Losses" has the meaning ascribed to it in Section 6(a).
"Managing Underwriter" means, with respect to any Public Offering, the
underwriter or underwriters managing such Public Offering.
"Merger Agreement" has the meaning ascribed to it in the preamble.
"NASD" means the National Association of Securities Dealers.
"Notice of Piggyback Registration" has the meaning ascribed to it in
Section 2(a).
"Person" means any natural person, corporation, general partnership,
limited partnership, proprietorship, other business organization, trust, union
or association.
"Piggyback Percentage" means (a) in the case of BIL, the quotient obtained
by dividing (i) the number of Registrable Securities requested to be included in
a Piggyback Registration by BIL by (ii)
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the sum of (x) the number of Registrable Securities requested to be included in
a Piggyback Registration by BIL, (y) the number of Warrant Shares requested to
be included in a Piggyback Registration by the Warrant Holders and (z) the
number of shares of Common Stock for which the Warrants requested to be included
in a Piggyback Registration by the Warrant Holders are exercisable; and (b) in
the case of a Warrant Holder, the quotient obtained by dividing (i) the sum of
(x) the number of Warrant Shares requested to be included in a Piggyback
Registration by such Warrant Holder and (y) the number of shares of Common Stock
for which the Warrants requested to be included in a Piggyback Registration by
such Warrant Holder are exercisable by (ii) the sum of (x) the number of
Registrable Securities requested to be included in a Piggyback Registration by
BIL, (y) the number of Warrant Shares requested to be included in a Piggyback
Registration by the Warrant Holders and (z) the number of shares of Common Stock
for which the Warrants requested to be included in a Piggyback Registration by
the Warrant Holders are exercisable.
"Piggyback Registration" means any registration of securities of the
Company of the same class as the Registrable Securities under the Securities Act
(other than a registration in respect of a dividend reinvestment or similar plan
for stockholders of the Company or on Form S-4 or Form S-8 promulgated by the
Commission, or any successor or similar forms thereto), whether for sale for the
account of the Company or for the account of any holder of securities of the
Company (other than Registrable Securities), including a registration by the
Company under the circumstances described in Section 1(e).
"Preferred Stock" has the meaning ascribed to it in the preamble.
"Public Offering" means any offering of Common Stock to the public, either
on behalf of the Company or any of its securityholders, pursuant to an effective
registration statement under the Securities Act.
"Records" has the meaning ascribed to it in Section 3(i).
"Registrable Securities" means (i) the Shares and (ii) any additional
shares of Common Stock issued or distributed by way of a dividend, stock split
or other distribution in respect of the Shares, or acquired by way of any rights
offering or similar offering made in respect of the Shares. As to any particular
Registrable Securities, once issued such securities shall cease to be
Registrable Securities when (i) a registration statement with respect to the
sale of such securities shall have become effective under the Securities Act and
such securities shall have been disposed of in accordance with such registration
statement, (ii) they shall have been distributed to the public pursuant to Rule
144 or all Registrable Securities then owned by the Restricted Group can be sold
in any three-month period pursuant to Rule 144, (iii) they are transferred to or
become owned by a Person who is not a member of the Restricted Group or (iv)
they shall have ceased to be outstanding. Shares of Common Stock available upon
conversion of securities of the Company convertible into or exchangeable for
shares of Common Stock or upon the exercise of rights or options of the Company
to purchase shares of Common Stock shall not constitute "Registrable Securities"
for purposes of this Registration Rights Agreement, and shall not be eligible
for inclusion in a Requested Registration or a Piggyback Registration, until
such shares are actually obtained following the conversion or exchange of such
securities or the exercise of such rights or options.
"Registration Expenses" means all expenses incident to the Company's
performance of or compliance with its obligations under this Registration Rights
Agreement to effect the registration of Registrable Securities in a Requested
Registration or a Piggyback Registration, including, without limitation, all
registration, filing, securities exchange listing and NASD fees, all
registration, filing, qualification and other fees and expenses of complying
with securities or blue sky laws, all word processing, duplicating and printing
expenses, messenger and delivery expenses, the fees and disbursements of counsel
for the Company and for BIL and of the Company's independent public accountants,
including the expenses of any special audits or "cold comfort" letters required
by or incident to such performance and compliance, any fees and disbursements of
underwriters customarily paid by issuers of
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securities; but excluding underwriting discounts and commissions and transfer
taxes, if any, in respect of Registrable Securities and the fees and
disbursements of any legal counsel retained by BIL, which shall be payable by
BIL.
"Registration Rights Agreement" means this Registration Rights Agreement,
as the same shall be amended from time to time.
"Requested Registration" means any registration of Registrable Securities
under the Securities Act effected in accordance with Section 1.
"Restricted Group" has the meaning ascribed to it in the Stockholder
Agreement.
"Rule 144" means Rule 144 promulgated by the Commission under the
Securities Act, and any successor provision thereto.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Shares" means, collectively, (i) the shares of Common Stock received by
BIL or any other member of the Restricted Group pursuant to the Merger
Agreement, (ii) any shares of Common Stock obtained by BIL or any other member
of the Restricted Group upon conversion of the shares of Preferred Stock
received by BIL or any other member of the Restricted Group pursuant to the
Merger Agreement or as a dividend in respect of such shares of Preferred Stock
and (iii) any shares of Common Stock purchased by BIL or any other member of the
Restricted Group in accordance with Section 4.01 or 4.02 of the Stockholder
Agreement.
"Stockholder Agreement" has the meaning ascribed to it in the preamble.
"Sub" has the meaning ascribed to it in the preamble.
"Warrant Holders" means the holders of the Warrants (the "Warrants") issued
pursuant to the Warrant Agreement, dated as of March 12, 1992, as amended, by
and between the Company and John Hancock Mutual Life Insurance Company.
"Warrant Shares" means the shares of Common Stock issuable to the Warrant
Holders pursuant to the Warrants.
(b) Unless the context of this Registration Rights Agreement otherwise
requires, (i) words of any gender include each other gender; (ii) words using
the singular or plural number also include the plural or singular number,
respectively; (iii) the terms "hereof," "herein," "hereby" and derivative or
similar words refer to this entire Registration Rights Agreement; and (iv) the
term "Section" refers to the specified Section of this Registration Rights
Agreement. Whenever this Registration Rights Agreement refers to a number of
days, such number shall refer to calendar days unless Business Days are
specified.
10. Termination. This Registration Rights Agreement shall automatically
terminate, and shall cease to be of any further force or effect, upon the
termination of the Merger Agreement in accordance with its terms.
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11. Miscellaneous. (a) Notices. All notices, requests and other
communications hereunder must be in writing and will be deemed to have been duly
given only if delivered personally or by facsimile transmission or mailed (first
class postage prepaid) to the parties at the following addresses or facsimile
numbers: If to BIL, to:
BIL (Far East Holdings) Limited
c/o Brierley Investments Limited
10 Eastcheap, 3rd Floor
London EC 3M 1AJ
United Kingdom
Facsimile No.: 011-44-171-369-9112
Attn: Rodney F. Price, Chairman
with a copy to:
Bryan Cave LLP
One Metropolitan Square
211 North Broadway
Suite 3600
St. Louis, Missouri 63102
Facsimile No.: (314) 259-2265
Attn: John P. Denneen, Esq.
and to:
Brierley Investments Limited
22-24 Victoria Street
Level 6, Colonial Building
Wellington, New Zealand
Facsimile No.: 011-644-473-1631
Attn: Mark Horton, Corporate Secretary
If to the Company, to:
Graham-Field Health Products, Inc.
400 Rabro Drive East
Hauppauge, New York 11788
Facsimile No.: (516) 582-5608
Attn: Richard S. Kolodny, Esq.
with a copy to:
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005
Facsimile No.: (212) 530-5219
Attn: Robert S. Reder, Esq.
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the
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facsimile number as provided in this Section, be deemed given upon receipt, and
(iii) if delivered by mail in the manner described above to the address as
provided in this Section, be deemed given upon receipt (in each case regardless
of whether such notice, request or other communication is received by any other
Person to whom a copy of such notice is to be delivered pursuant to this
Section). Any party from time to time may change its address, facsimile number
or other information for the purpose of notices to that party by giving notice
specifying such change to the other parties hereto.
(b) Entire Agreement. This Registration Rights Agreement supersedes all
prior discussions and agreements between the parties with respect to the subject
matter hereof, and contains the sole and entire agreement between the parties
hereto with respect to the subject matter hereof.
(c) Amendment. This Registration Rights Agreement may be amended,
supplemented or modified only by a written instrument (which may be executed in
any number of counterparts) duly executed by or on behalf of each of the Company
and BIL.
(d) Waiver. Any term or condition of this Registration Rights Agreement may
be waived at any time by the party that is entitled to the benefit thereof, but
no such waiver shall be effective unless set forth in a written instrument duly
executed by or on behalf of the party waiving such term or condition. No waiver
by any party of any term or condition of this Registration Rights Agreement, in
any one or more instances, shall be deemed to be or construed as a waiver of the
same term or condition of this Registration Rights Agreement on any future
occasion.
(e) No Third Party Beneficiary. The terms and provisions of this
Registration Rights Agreement are intended solely for the benefit of each party
hereto and it is not the intention of the parties to confer third-party
beneficiary rights upon any other Person other than any Person entitled to
indemnity under Section 6.
(f) No Assignment; Binding Effect. Neither this Registration Rights
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; provided that BIL may assign its rights hereunder
with respect to any Registrable Securities transferred (i) to another member of
the Restricted Group and (ii) to any Person who purchases Registrable Securities
from any member of the Restricted Group who, pursuant to the requirements of
Section 3.01(a) of the Stockholder Agreement, concurrently with such purchase
delivers an instrument to the Company agreeing to be bound by the provisions of
Sections 3.01, 4.01 and 4.03 of the Stockholder Agreement. Notwithstanding any
such assignment and the preceding sentence, all rights of BIL under this
Registration Rights Agreement shall be exercised only by BIL and the Company
shall not be required to send notices to or take directions from any other
member of the Restricted Group or any such other assignee. In the event of any
such assignment, references herein to "BIL" shall mean BIL and any such
assignees. Subject to the foregoing, this Registration Rights Agreement is
binding upon, inures to the benefit of and is enforceable by the parties hereto
and their respective successors and assigns.
(g) Headings. The headings used in this Registration Rights Agreement have
been inserted for convenience of reference only and do not define or limit the
provisions hereof.
(h) Invalid Provisions. If any provision of this Registration Rights
Agreement is held to be illegal, invalid or unenforceable under any present or
future law, and if the rights or obligations of any party hereto under this
Registration Rights Agreement will not be materially and adversely affected
thereby, (i) such provision will be fully severable, (ii) this Registration
Rights Agreement will be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part hereof and (iii) the
remaining provisions of this Registration Rights Agreement will remain in full
force and effect and will not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom.
C-14
<PAGE>
(i) Remedies; Legal Expenses. Except as otherwise expressly provided for
herein, no remedy conferred by any of the specific provisions of this
Registration Rights Agreement is intended to be exclusive of any other remedy,
and each and every remedy shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law or in equity or
by statute or otherwise. The election of any one or more remedies by any party
hereto shall not constitute a waiver by any such party of the right to pursue
any other available remedies.
Damages in the event of breach of this Registration Rights Agreement by a
party hereto would be difficult, if not impossible, to ascertain, and it is
therefore agreed that each such party, in addition to and without limiting any
other remedy or right it may have, will have the right to an injunction or other
equitable relief in any court of competent jurisdiction, enjoining any such
breach, and enforcing specifically the terms and provisions hereof and the
Company and BIL each hereby waives any and all defenses it may have on the
ground of lack of jurisdiction or competence of the court to grant such an
injunction or other equitable relief. The existence of this right will not
preclude any such party from pursuing any other rights and remedies at law or in
equity which such party may have.
The parties hereto agree that, in the event that any party to this
Registration Rights Agreement shall bring any legal action or proceeding to
enforce or to seek damages or other relief arising from an alleged breach of any
term or provision of this Registration Rights Agreement by the other party, the
prevailing party in any such action or proceeding shall be entitled to an award
of, and the other party to such action or proceeding shall pay, the reasonable
fees and expenses of legal counsel to the prevailing party.
(j) Governing Law. This Registration Rights Agreement shall be governed by
and construed in accordance with the laws of the State of New York applicable to
a contract executed and performed in such State, without giving effect to the
conflicts of laws principles thereof.
(k) Counterparts. This Registration Rights Agreement may be executed in any
number of counterparts, each of which will be deemed an original, but all of
which together will constitute one and the same instrument.
IN WITNESS WHEREOF, this Registration Rights Agreement has been duly
executed and delivered by the duly authorized officer of each party hereto as of
the date first above written.
BIL (FAR EAST HOLDINGS) LIMITED
By: /s/ RODNEY PRICE
-------------------------------------
Name: Rodney Price
Title: Director
GRAHAM-FIELD HEALTH PRODUCTS, INC.
By: /s/ IRWIN SELINGER
-------------------------------------
Name: Irwin Selinger
Title: Chairman and Chief Executive
Officer
C-15
<PAGE>
ANNEX D
CERTIFICATE OF DESIGNATIONS
of
SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK
of
GRAHAM-FIELD HEALTH PRODUCTS, INC.
- --------------------------------------------------------------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
- --------------------------------------------------------------------------------
GRAHAM-FIELD HEALTH PRODUCTS, INC., a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), HEREBY CERTIFIES
that pursuant to the authority conferred upon the Board of Directors of the
Corporation by the provisions of the Certificate of Incorporation of the
Corporation (the "Certificate of Incorporation"), and in accordance with the
provisions of Section 151 of the General Corporation Law of the State of
Delaware, the following resolution creating a series of its Preferred Stock, par
value $.01 per share, designated as Series B Cumulative Convertible Preferred
Stock has been duly adopted by the Board of Directors of the Corporation:
RESOLVED, that a series of the class of authorized Preferred Stock, par
value $.01 per share, of the Corporation (the "Preferred Stock") be hereby
created, and that the designation and amount thereof and the voting powers,
preferences and relative, participating, optional and other special rights of
the shares of such series, and the qualifications, limitations or restrictions
of such series, are as follows:
SECTION 1. Designation and Amount.
The shares of such series shall be designated as the "Series B Cumulative
Convertible Preferred Stock" (the "Series B Preferred Stock") and the number of
shares initially constituting such series shall be , which number may be
decreased (but not increased) by the Board of Directors of the Corporation (the
"Board of Directors") without a vote of stockholders; provided, however, that
such number may not be decreased below the number of then currently outstanding
shares of Series B Preferred Stock. The stated value per share (the "Stated
Value") of the Series B Preferred Stock shall be $10,000.
SECTION 2. Definitions.
Capitalized terms used herein shall have the meanings set forth in this
Section 2:
"Average Market Price per share of Common Stock", with respect to any
Measuring Period, shall be the average of the Closing Prices per share of Common
Stock for such Measuring Period; provided, that the Average Market Price per
share of Common Stock shall in no event exceed the Maximum Conversion Price.
"Board of Directors" has the meaning ascribed to such term in Section 1.
"Business Day" means any day other than Saturday, Sunday or a day on which
banking institutions in the State of New York are authorized or obligated by law
or executive order to close.
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"Certificate of Incorporation" means the Certificate of Incorporation of
the Corporation, as it may be amended or restated from time to time.
"Closing Price per share of Common Stock" on any date shall be the last
sale price, regular way, or, in case no such sale takes place on such date, the
average of the closing bid and asked prices, regular way, of the Common Stock,
in either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock Exchange, Inc. (the "NYSE") or, if the Common Stock is not listed or
admitted to trading on the NYSE, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the principal
national securities exchange on which the Common Stock is listed or admitted to
trading or, if the Common Stock is not listed or admitted to trading on any
national securities exchange, the last quoted sale price on such date or, if not
so quoted, the average of the high bid and low asked prices in the
over-the-counter market on such date, as reported by the National Association of
Securities Dealers, Inc. Automated Quotations System or such other system then
in use, or, if on any such date the Common Stock is not quoted by any such
organization, the average of the closing bid and asked prices on such date as
furnished by a professional market maker making a market in the Common Stock
selected by the Board of Directors. If the Common Stock is not publicly held or
so listed or publicly traded, "Closing Price per share of Common Stock" shall
mean the Fair Market Value per share as determined in good faith by the Board of
Directors.
"Common Stock" means the common stock, par value $.025 per share, of the
Corporation.
"Conversion Price" shall be either (i) the Average Market Price per share
of Common Stock in the event of a Corporation Optional Conversion, (ii) the
Optional Conversion Price in the event of a Stockholder Optional Conversion, or
(iii) the Minimum Conversion Price in the event of a Mandatory Conversion, as
the case may be.
"Corporation Optional Conversion" has the meaning ascribed to such term in
Section 7.
"Current Market Price per share of Common Stock" on any date shall be the
average of the Closing Prices per share of Common Stock for the twenty (20)
consecutive Trading Days commencing thirty (30) Trading Days immediately prior
to such date.
"DGCL" means the General Corporation Law of the State of Delaware.
"Dividend Rate" means an annual rate of $150.00 per share of Series B
Preferred Stock.
"Employee Benefit Plans" means any employee benefit plan or arrangement of
the Corporation or any of its Subsidiaries approved by the Board of Directors or
its Executive Committee.
"Fair Market Value" means an amount determined in good faith by the Board
of Directors and certified in a resolution sent to all holders of shares of
Series B Preferred Stock.
"Issue Date" means the date on which the merger of Sub with and into E&J
becomes effective pursuant to the Merger Agreement.
"Junior Stock" means the Common Stock, the Series A Preferred Stock and any
other stock of the Corporation ranking junior to the Series B Preferred Stock
with respect to the payment of dividends and the distribution of assets, whether
upon liquidation or otherwise.
"Liquidation Preference" has the meaning ascribed to such term in Section
6(a).
"Mandatory Conversion" has the meaning ascribed to such term in Section 7.
"Maximum Conversion Price" shall be $20.00 on the Issue Date, as adjusted
from time to time pursuant to Section 7.
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<PAGE>
"Measuring Period" means any period of ten (10) consecutive Trading Days
ending on any day on or prior to the fifth anniversary of the Issue Date.
"Minimum Conversion Price" shall be $15.50 on the Issue Date, as adjusted
from time to time pursuant to Section 7.
"Merger Agreement" means the Agreement and Plan of Merger dated as of
September 3, 1996 by and among the Corporation, E&J Acquisition Corp., a
Delaware corporation wholly-owned by the Corporation ("Sub"), BIL (Far East
Holdings) Limited, a Hong Kong corporation, and Everest & Jennings International
Ltd., a Delaware corporation ("E&J").
"Optional Conversion Price" means either (i) the Maximum Conversion Price
or (ii) at any time at which dividends payable on shares of Series B Preferred
Stock pursuant to paragraph (a) of Section 3 shall have been in arrears and not
paid in full (in cash or by delivery of shares of Common Stock as permitted by
such paragraph) on two (2) previous Quarterly Dividend Payment Dates, until all
accrued and unpaid dividends payable pursuant to paragraph (a) of Section 3
shall have been paid in full, the Minimum Conversion Price.
"Parity Stock" means any stock of the Corporation ranking on a parity with
the Series B Preferred Stock either with respect to the payment of dividends or
the distribution of assets, whether upon liquidation or otherwise, including,
without limitation, the Series C Preferred Stock.
"Person" means any person or entity of any nature whatsoever, specifically
including an individual, a firm, a company, a corporation, a partnership, a
trust or other entity.
"Preferred Stock" means the preferred stock, par value $.01 per share, of
the Corporation.
"Quarterly Dividend Payment Date" has the meaning ascribed to such term in
paragraph (a) of Section 3.
"Quarterly Dividend Period" has the meaning ascribed to such term in
paragraph (a) of Section 3.
"Rights" means any rights to purchase Junior Stock issued pursuant to any
Rights Agreement.
"Rights Agreement" means the Rights Agreement dated as of September 3, 1996
between the Corporation and American Stock Transfer & Trust Company, as Rights
Agent, as it may be amended from time to time (the "Current Rights Agreement"),
and any similar rights agreement that may hereafter be adopted by the
Corporation.
"Series A Preferred Stock" means the Preferred Stock designated as the
Series A Participating Preferred Stock.
"Series B Preferred Stock" has the meaning ascribed to such term in Section
1.
"Series C Preferred Stock" means the Preferred Stock designated as the
Series C Cumulative Convertible Preferred Stock.
"Stated Value" has the meaning ascribed to such term in Section 1.
"Stockholder Optional Conversion" has the meaning ascribed to such term in
Section 7.
"Subsidiary" of any Person means any corporation or other entity of which a
majority of the voting power of the voting equity securities or equity interest
is owned, directly or indirectly, by such Person.
D-3
<PAGE>
"Trading Day" means a day on which the NYSE or any other national
securities exchange on which the Common Stock is then listed is open for the
transaction of business or, if the Common Stock is not listed or admitted to
trading on any national securities exchange, any Business Day.
"Trigger Price" has the meaning ascribed to such term in subparagraph (ii)
of paragraph (b) of Section 7.
SECTION 3. Dividends and Distributions.
(a) The holders of shares of Series B Preferred Stock, in preference to the
holders of shares of Common Stock, Series A Preferred Stock and any other
capital stock of the Corporation ranking junior to the Series B Preferred Stock
as to payment of dividends, shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds of the Corporation legally
available for the payment of dividends, cumulative dividends payable in cash at
the annual Dividend Rate per share, except that the Corporation may at its
option pay any such dividend in whole or in part in fully paid and nonassessable
full shares of Common Stock, valued at the average Closing Price per share of
Common Stock for the thirty (30) consecutive Trading Days ending on the Trading
Day immediately preceding the relevant Quarterly Dividend Payment Date.
Dividends shall be payable on the last day of March, June, September and
December (or if any of such days is not a Business Day, the Business Day next
preceding such day) in each year (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), in respect of the quarterly period ending on
such day (each such calendar quarter being referred to herein as a "Quarterly
Dividend Period") to the holders of record of the shares of Series B Preferred
Stock outstanding on such Quarterly Dividend Payment Date, so long as shares of
Series B Preferred Stock are outstanding; provided that the first Quarterly
Dividend Payment Date shall be the last day of the first full Quarterly Dividend
Period following the Issue Date in respect of the period from the Issue Date
through such day.
(b) Dividends payable pursuant to paragraph (a) of this Section 3 shall
begin to accrue and be cumulative from the Issue Date. The amount of dividends
payable per share of Series B Preferred Stock on any Quarterly Dividend Payment
Date shall be computed by dividing the Dividend Rate by four (4); provided that
with respect to the first Quarterly Dividend Payment Date, the amount of
dividends payable per share of Series B Preferred Stock shall be computed by
dividing the Dividend Rate by two (2) and multiplying the result by a fraction,
the numerator of which is the number of days from the Issue Date to the last day
of the applicable Quarterly Dividend Period and the denominator of which is one
hundred eighty (180). The amount of dividends payable for any period shorter or
longer than a full Quarterly Dividend Period, including the first Quarterly
Dividend Period, shall be determined on the basis of twelve 30-day months and a
360-day year. Dividends paid on the shares of Series B Preferred Stock in an
amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all shares of Series B Preferred Stock at the time outstanding.
(c) In case the Corporation shall at any time or from time to time declare,
order, pay or make a dividend or other distribution (including, without
limitation, any distribution of stock or other securities or property or rights
or warrants to subscribe for securities of the Corporation or any of its
Subsidiaries by way of dividend or spinoff) on the Junior Stock, other than (i)
dividends payable on the Common Stock in cash in an aggregate amount in any
fiscal year of the Corporation which, when declared, do not, together with all
other cash dividends previously paid on the Common Stock in such fiscal year,
exceed 100% of the total dividends payable in cash on the Series B Preferred
Stock and any outstanding shares of Parity Stock during such fiscal year at the
applicable dividend rate; or (ii) any dividend or distribution of shares of
Junior Stock, then, and in each such case, the holders of shares of Series B
Preferred Stock shall be entitled to receive from the Corporation, with respect
to each share of Series B Preferred Stock held, the same dividend or
distribution received by a holder of the number of shares of Common Stock into
which such share of Series B Preferred Stock is convertible on the record date
for
D-4
<PAGE>
such dividend or distribution. Any such dividend or distribution shall be
declared, ordered, paid or made on the Series B Preferred Stock at the same time
such dividend or distribution is declared, ordered, paid or made on the Common
Stock.
(d) The holders of shares of Series B Preferred Stock shall not be entitled
to receive any dividends or other distributions except as provided in this
Section 3.
(e) Unless all dividends on the outstanding shares of Series B Preferred
Stock that shall have accrued and be payable as of any date shall have been paid
in full, or declared and additional shares of Common Stock or funds, as
appropriate, set apart for payment thereof, no dividend or other distribution
shall be paid to holders of Junior Stock (other than dividends or distributions
payable in shares of Junior Stock) and no shares of Junior Stock shall be
purchased or redeemed by the Corporation.
SECTION 4. Voting Rights.
In addition to any voting rights provided elsewhere herein and in the
Certificate of Incorporation, and any voting rights provided by law, the holders
of shares of Series B Preferred Stock shall have the following voting rights:
(a) Each share of Series B Preferred Stock shall be entitled to a
number of votes equal to the result obtained (calculated to the nearest
1/10,000th of a vote) by dividing the Stated Value by the greater of (i)
the average Closing Price per share of Common Stock for the thirty (30)
consecutive Trading Days ending on the Trading Day immediately preceding
the applicable record date for the taking of stockholder action or (ii) the
Minimum Conversion Price. Except as otherwise provided by the Certificate
of Incorporation, or by law, the shares of Series B Preferred Stock, the
shares of Series C Preferred Stock and the shares of Common Stock (and any
other shares of capital stock of the Corporation at the time entitled
thereto) shall vote together as one class on all matters submitted to a
vote of stockholders of the Corporation.
(b) Except as provided in this Section 4 or in the Certificate of
Incorporation, or as required by law, the holders of shares of Series B
Preferred Stock shall have no special voting rights and their consent shall
not be required for the taking of any corporate action.
SECTION 5. Reacquired Shares.
Any shares of Series B Preferred Stock converted, purchased or otherwise
acquired by the Corporation in any manner whatsoever shall be retired and
canceled promptly after the acquisition thereof, and, if necessary to provide
for the lawful purchase of such shares, the capital represented by such shares
shall be reduced in accordance with the DGCL. All such shares shall upon their
cancellation become authorized but unissued shares of Preferred Stock and may be
reissued as part of another series of Preferred Stock.
SECTION 6. Liquidation, Dissolution or Winding Up.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of shares of Series B
Preferred Stock shall be entitled to receive out of the assets of the
Corporation available for distribution to its stockholders, an amount equal to
the Stated Value plus all accrued and unpaid dividends thereon to the date of
such payment ("Liquidation Preference"), and no distribution shall be made (i)
to the holders of shares of Common Stock, Series A Preferred Stock or any other
capital stock of the Corporation ranking junior to the Series B Preferred Stock
upon liquidation, dissolution or winding up, unless, prior thereto, the holders
of shares of Series B Preferred Stock shall have received an amount equal to the
Liquidation Preference per share, or (ii) to the holders of shares of any
capital stock of the Corporation (including the Series C Preferred Stock)
ranking on a parity with the Series B Preferred Stock upon liquidation,
dissolution or winding up, except distributions made ratably on the Series B
Preferred Stock and all such other capital stock in
D-5
<PAGE>
proportion to the total amounts to which the holders of all such shares are
entitled upon such liquidation, dissolution or winding up of the Corporation.
(b) In the event that the assets of the Corporation available for
distribution to the holders of the Series B Preferred Stock upon any voluntary
or involuntary liquidation, dissolution or winding up of the Corporation shall
be insufficient to pay in full all amounts to which such holders are entitled
pursuant to paragraph (a) of this Section 6, such assets of the Corporation
which are so available shall be allocated pro rata on a share-by-share basis
among all shares of Series B Preferred Stock at the time outstanding.
(c) Neither the consolidation, merger or other business combination of the
Corporation with or into any other Person or Persons nor the sale, lease,
exchange or conveyance of all or any part of the property, assets or business of
the Corporation, shall be deemed to be a liquidation, dissolution or winding up
of the Corporation for purposes of this Section 6.
SECTION 7. Conversion.
Any outstanding share of Series B Preferred Stock may, at the option of the
holder thereof by delivery of the notice referred to in paragraph (e) of this
Section 7 not later than the close of business on the fifth anniversary of the
Issue Date, be converted at the Optional Conversion Price into shares of Common
Stock, on the terms and conditions set forth in this Section 7 (a "Stockholder
Optional Conversion"). In the event the Average Market Price per share of Common
Stock for any Measuring Period equals or exceeds the Minimum Conversion Price,
without any further action on the part of the holder thereof (a "Corporation
Optional Conversion"), all, but not less than all, outstanding shares of Series
B Preferred Stock may, at the option of the Corporation by delivery of the
notice referred to in paragraph (d) of this Section 7 not later than the close
of business on the fifth anniversary of the Issue Date, be converted at the
Average Market Price per share of Common Stock for the applicable Measuring
Period into shares of Common Stock, on the terms and conditions set forth in
this Section 7. All outstanding shares of Series B Preferred Stock (other than
shares as to which a notice of conversion pursuant to a Stockholder Optional
Conversion or a Corporation Optional Conversion has been previously delivered)
shall automatically be deemed to have been converted at the Minimum Conversion
Price into shares of Common Stock, on the terms and conditions set forth in this
Section 7, without any further action on the part of the holder thereof or the
Corporation, on the day immediately following the fifth anniversary of the Issue
Date (a "Mandatory Conversion").
(a) Each share of Series B Preferred Stock converted in accordance with
this Section 7 shall be converted in the manner hereinafter set forth into a
number of fully-paid and nonassessable shares of Common Stock equal to the
result obtained (calculated to the nearest 1/10,000th of a share) by dividing
the Stated Value by the Conversion Price.
(b) Each of the Minimum Conversion Price and the Maximum Conversion Price
shall be adjusted from time to time as follows:
(i) In case the Corporation shall at any time after the Issue Date
declare a dividend, or make a distribution, on the outstanding shares of
Common Stock in shares of Common Stock or subdivide or reclassify the
outstanding shares of Common Stock into a greater number of shares of
Common Stock or combine or reclassify the outstanding shares of Common
Stock into a smaller number of shares of Common Stock, then, and in each
such case,
(A) each of the Minimum Conversion Price and the Maximum
Conversion Price as in effect immediately prior to such event shall be
adjusted by multiplying each such Conversion Price by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which is the
number of shares of Common Stock outstanding immediately after such
event; and
D-6
<PAGE>
(B) an adjustment made pursuant to this subparagraph (i) shall
become effective (I) in the case of any such dividend or distribution,
immediately after the close of business on the record date for the
determination of holders of shares of Common Stock entitled to receive
such dividend or distribution, or (II) in the case of any such
subdivision, reclassification or combination, at the close of business
on the day upon which such corporate action becomes effective.
(ii) In case the Corporation shall issue shares of Common Stock (or
rights, options or warrants to purchase or other securities convertible
into or exchangeable for shares of Common Stock) at any time after the
Issue Date without consideration or at a price per share less than the
Current Market Price per share of Common Stock on the date of issuance of
such shares (or the date of issuance of such rights, options, warrants or
other convertible or exchangeable securities) (such Current Market Price
shall hereinafter be referred to as the "Trigger Price"), other than (w) in
a transaction to which subparagraph (ii) of paragraph (c) of Section 3 or
subparagraph (i) of this paragraph (b) is applicable, (x) issuances of
shares of Common Stock pursuant to rights or options granted under any
Employee Benefit Plan, (y) upon conversion of or as a dividend on shares of
Series B Preferred Stock or Series C Preferred Stock or (z) pursuant to the
Rights, then, and in each such case
(A) each of the Minimum Conversion Price and the Maximum
Conversion Price as in effect immediately prior to such issuance shall
be adjusted by multiplying each such Conversion Price by a fraction,
(I) the numerator of which is the sum of (1) the number of shares of
Common Stock outstanding immediately prior to such event and (2) the
number of shares of Common Stock which the aggregate consideration, if
any, receivable by the Corporation for the total number of shares of
Common Stock so issued (or issuable upon the exercise or conversion of
any such rights, options, warrants or other convertible or
exchangeable securities) would purchase at the Trigger Price, and (II)
the denominator of which is the sum of (1) the number of shares of
Common Stock outstanding immediately prior to such event and (2) the
number of additional shares of Common Stock issued (or issuable upon
the exercise or conversion of any such rights, options, warrants or
other convertible or exchangeable securities); and
(B) such adjustment shall become effective immediately after the
date of such issuance.
For purposes of this subparagraph (ii), the aggregate consideration
receivable by the Corporation in connection with the issuance of shares of
Common Stock or of rights, options or warrants to purchase or other
securities convertible into or exchangeable for shares of Common Stock
shall be deemed to be equal to the sum of the net offering price (without
giving effect to deductions for underwriting discounts or commissions and
expenses payable to third parties, if any) of all such securities plus the
aggregate amount, if any, payable upon exercise of any such rights, options
or warrants or conversion or exchange of any such convertible or
exchangeable securities into or for shares of Common Stock.
(iii) In case the Corporation shall be a party to any transaction
(including, without limitation, a merger, consolidation, sale of all or
substantially all of the Corporation's assets or recapitalization of the
Common Stock and excluding any transaction to which subparagraph (i) or
(ii) of this paragraph (b) or subparagraph (ii) of paragraph (c) of Section
3 applies) in which the previously outstanding Common Stock shall be
changed into or, pursuant to the operation of law or the terms of the
transaction to which the Corporation is a party, exchanged for different
securities of the Corporation or common stock or other securities of
another corporation or interests in a noncorporate entity or other property
(including cash) or any combination of any of the foregoing, then, as a
condition of the consummation of such transaction, lawful and adequate
provision shall be made so that each holder of shares of Series B Preferred
Stock shall be entitled, upon
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<PAGE>
conversion, to an amount per share equal to (A) the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as the
case may be, into which or for which each share of Common Stock is changed
or exchanged times (B) the number of shares of Common Stock into which a
share of Series B Preferred Stock is convertible immediately prior to the
consummation of such transaction.
(c) In case the Corporation shall be a party to a transaction described in
subparagraph (iii) of paragraph (b) above, effective provision shall be made (in
form and substance reasonably satisfactory to the holders of a majority of the
then outstanding shares of Series B Preferred Stock), in the articles or
certificate of incorporation of the resulting or surviving corporation or other
corporation issuing or delivering such shares, other securities or property or
otherwise, so that the provisions set forth herein for the protection of the
conversion rights of the Series B Preferred Stock shall thereafter be
applicable, as nearly as reasonably may be, to any such other shares of stock
and other securities and property deliverable upon conversion of the Series B
Preferred Stock remaining outstanding or other convertible stock or securities
received by the holders in place thereof; and any such resulting or surviving
corporation or other corporation issuing or delivering such shares, other
securities or property shall expressly assume the obligation to deliver, upon
the exercise of the conversion privilege, such shares, securities or property as
the holders of the Series B Preferred Stock remaining outstanding, or other
convertible stock or securities received by the holders in place thereof, shall
be entitled to receive, pursuant to the provisions hereof, and to make provision
for the protection of the conversion right as above provided. In case shares,
securities or property other than Common Stock shall be issuable or deliverable
upon conversion as aforesaid, then all references to Common Stock in paragraph
(b) of this Section 7 shall be deemed to apply, so far as provided and as nearly
as is reasonable, to any such shares, other securities or property.
(d) In order for the Corporation to convert shares of Series B Preferred
Stock into shares of Common Stock pursuant to a Corporation Optional Conversion,
the Corporation shall give written notice thereof not later than the tenth
Business Day following the last day of the Measuring Period to each holder of
shares of Series B Preferred Stock, at such holder's address as it appears on
the transfer books of the Corporation. Not later than the third Business Day
following the day on which the Series B Preferred Stock shall have automatically
been converted into shares of Common Stock pursuant to a Mandatory Conversion,
the Corporation shall give written notice thereof to each holder of shares of
Series B Preferred Stock so converted, at such holder's address as it appears on
the transfer books of the Corporation. Failure to give such notice shall in no
way effect the automatic conversion of each outstanding share of Series B
Preferred Stock pursuant to a Mandatory Conversion.
(e) Any holder of any shares of Series B Preferred Stock may (x) exercise
such holder's right to convert such shares into shares of Common Stock pursuant
to a Stockholder Optional Conversion or (y) exchange such holder's certificates
representing Series B Preferred Stock for certificates representing the shares
of Common Stock into which such shares of Series B Preferred Stock have been
converted pursuant to either a Mandatory Conversion or a Corporation Optional
Conversion, by surrendering for such purpose to the Corporation, at its
principal office or at such other office or agency maintained by the Corporation
for that purpose, the certificate or certificates representing the shares of
Series B Preferred Stock to be converted or automatically converted, as the case
may be, accompanied by a written notice stating, in the case of a Stockholder
Optional Conversion, that such holder elects to convert all or a specified whole
number of such shares in accordance with the provisions of this Section 7 and,
in either case, specifying the name or names in which such holder wishes the
certificate or certificates for shares of Common Stock to be issued. In case
such notice shall specify a name or names other than that of such holder, such
notice shall be accompanied by payment of all transfer taxes payable upon the
issuance of shares of Common Stock in such name or names. Other than such taxes,
the Corporation will pay any and all issue and other taxes (other than taxes
based on income) that may be payable in respect of any issue or delivery of
shares of Common Stock on conversion of Series B Preferred Stock pursuant
hereto. As promptly as practicable after the surrender of such certificate or
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certificates and the receipt of such notice relating thereto and, if applicable,
payment of all transfer taxes (or the demonstration to the satisfaction of the
Corporation that such taxes have been paid), the Corporation shall deliver or
cause to be delivered (i) certificates representing the number of validly
issued, fully paid and nonassessable full shares of Common Stock to which the
holder of shares of Series B Preferred Stock so converted shall be entitled and
(ii) in the case of a Stockholder Optional Conversion, if less than the full
number of shares of Series B Preferred Stock evidenced by the surrendered
certificate or certificates are being converted, a new certificate or
certificates, of like tenor, for the number of shares evidenced by such
surrendered certificate or certificates less the number of shares converted.
(f) Any Stockholder Optional Conversion shall be deemed to have been
effected at the close of business on the date of giving of the notice by the
holder of shares of Series B Preferred Stock of the exercise of such holder's
conversion right and the surrender of the certificate or certificates
representing the shares of Series B Preferred Stock to be converted. Any notice
of a Stockholder Optional Conversion shall, with respect to the shares covered
thereby, supersede any earlier notice given by the Corporation of a Corporation
Optional Conversion. A Corporation Optional Conversion shall be deemed to have
been effected at the close of business on the date of giving of the notice by
the Corporation referred to in the first sentence of paragraph (d) of this
Section 7. A Mandatory Conversion shall be deemed to have been effected at the
close of business on the day immediately following the fifth anniversary of the
Issue Date. Upon the effectiveness of the conversion of any shares of Series B
Preferred Stock pursuant to this Section 7, the rights of the holder thereof as
to the shares being converted shall cease except for the right to receive shares
of Common Stock, and the person entitled to receive the shares of Common Stock
shall be treated for all purposes as having become the record holder of such
shares of Common Stock at such time.
(g) In any case in which paragraph (b) of this Section 7 shall require that
an adjustment as a result of any event becomes effective after a record date for
such event, the Corporation may elect to defer until after the occurrence of
such event (i) issuing to the holder of any shares of Series B Preferred Stock
converted after such record date and before the occurrence of such event the
additional shares of Common Stock issuable upon such conversion over and above
the shares of Common Stock issuable upon such conversion on the basis of the
conversion rate prior to adjustment and (ii) paying to such holder any amount in
cash in lieu of a fractional share of Common Stock pursuant to paragraph (i)
below; and, in lieu of the shares the issuance of which is so deferred, the
Corporation shall issue due bills or other appropriate evidence of the right to
receive such shares.
(h) The Corporation will pay to each holder of shares of Series B Preferred
Stock whose shares are converted the full amount of accrued and unpaid dividends
on such shares through but not including the effective date of such conversion,
which dividends shall be payable in cash out of funds of the Corporation legally
available for the payment of dividends or, at the option of the Corporation, in
whole or in part in fully paid and nonassessable full shares of Common Stock,
valued at the average Closing Price per share of Common Stock for the thirty
(30) consecutive Trading Days ending on the Trading Day immediately preceding
the effective date of such conversion.
(i) In connection with the conversion of any shares of Series B Preferred
Stock, no fractions of shares of Common Stock shall be issued, but in lieu
thereof the Corporation shall pay a cash adjustment in respect of such
fractional interest in an amount equal to such fractional interest multiplied by
the Current Market Price per share of Common Stock on the day on which such
shares of Series B Preferred Stock are deemed to have been converted.
(j) The Corporation shall at all times reserve and keep available out of
its authorized and unissued Common Stock, solely for the purpose of effecting
the conversion of the Series B Preferred Stock, such number of shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
shares of Series B Preferred Stock then outstanding. The Corporation shall from
time to time, subject to
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and in accordance with the DGCL, increase the authorized amount of Common Stock
if at any time the number of authorized shares of Common Stock remaining
unissued shall not be sufficient to permit the conversion at such time of all
shares of Series B Preferred Stock then outstanding. The Corporation shall cause
any shares of Common Stock issued upon conversion of Series B Preferred Stock to
be listed for trading on any national securities exchange on which the Common
Stock is at the time listed, and shall deliver such notices as may be required
by such exchange in connection with any such issuance.
(k) Notwithstanding anything to the contrary contained herein, if
adjustments of the Maximum Conversion Price or the Minimum Conversion Price have
caused the Conversion Price to be lower than the par value, if any, of the
Common Stock, upon any conversion of shares of Series B Preferred Stock the
Corporation shall, to the maximum extent it is legally able to do so, issue to
the converting holder the shares of Common Stock into which the shares of Series
B Preferred Stock being converted are convertible, and, in addition, the
Corporation shall pay the converting holder an amount in cash equal to the
Current Market Price per share of Common Stock multiplied by the number of
shares and fractions thereof of Common Stock which the converting holder would
have been entitled to receive except for the limitation on lawful issuance
described in this paragraph.
(l) Notwithstanding anything to the contrary contained herein, any
adjustment in either the Maximum Conversion Price or Minimum Conversion Price
pursuant to this Section 7 shall be made to the nearest $.01.
(m) Upon the expiration of any rights, options or warrants to purchase
shares of Common Stock or the termination of any right to convert or exchange
any convertible or exchangeable securities for shares of Common Stock without
such conversion or exchange having occurred, or upon any change in the amount
payable upon exercise of any such rights, options or warrants or conversion or
exchange of any such convertible or exchangeable securities, each of the Minimum
Conversion Price and the Maximum Conversion Price shall thereupon be readjusted
and shall thereafter be such as it would have been had it been originally
adjusted (or had the original adjustment not been required, as the case may be)
on the basis of (i) the only shares of Common Stock so issued were the shares of
Common Stock, if any, actually issued or sold upon the exercise of such rights,
options or warrants to purchase or securities convertible into or exchangeable
for shares of Common Stock, (ii) such shares of Common Stock, if any, were
issued or sold for the consideration actually received by the Corporation upon
such exercise plus the consideration, if any, actually received by the
Corporation for the issuance, sale or grant of all such rights, options or
warrants to purchase or securities convertible into or exchangeable for shares
of Common Stock, whether or not exercised and (iii) the changed amount so
payable; provided, however, that no such readjustment shall have the effect of
increasing either the Minimum Conversion Price or the Maximum Conversion Price
by an amount in excess of the amount of the adjustment initially made in respect
of the issuance, sale or grant of such rights, options or warrants to purchase,
or securities convertible into or exchangeable for, shares of Common Stock.
SECTION 8. Reports as to Adjustments.
Whenever the Minimum Conversion Price or the Maximum Conversion Price is
adjusted as provided in Section 7, the Corporation shall promptly mail to the
holders of record of the outstanding shares of Series B Preferred Stock at their
respective addresses as the same shall appear in the Corporation's stock records
a notice stating that each of the Minimum Conversion Price and the Maximum
Conversion Price has been adjusted and setting forth the new Minimum Conversion
Price and Maximum Conversion Price and the new number of shares of Common Stock
(or describing the new stock, securities, cash or other property) into which
each share of Series B Preferred Stock is convertible as a result of such
adjustment, a brief statement of the facts requiring such adjustment and the
computation thereof, and when such adjustment became effective.
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SECTION 9. Registration of Transfer.
The Corporation shall keep at its principal office a register for the
registration of Series B Preferred Stock. Upon the surrender of any certificate
representing Series B Preferred Stock at such place, the Corporation shall, at
the request of the record holder of such certificate, execute and deliver (at
the Corporation's expense) a new certificate or certificates in exchange
therefor representing in the aggregate the number of shares of Series B
Preferred Stock represented by the surrendered certificate. Each such new
certificate shall be registered in such name and shall represent such number of
shares of Series B Preferred Stock as is requested by the holder of the
surrendered certificate and shall be substantially identical in form to the
surrendered certificate, and dividends shall accrue on the Series B Preferred
Stock represented by such new certificate from the date to which dividends have
been fully paid on such Series B Preferred Stock represented by the surrendered
certificate.
SECTION 10. Replacement.
Upon receipt of evidence reasonably satisfactory to the Corporation (an
affidavit of the registered holder shall be satisfactory) of the ownership and
the loss, theft, destruction or mutilation of any certificate evidencing shares
of Series B Preferred Stock, and in the case of any such loss, theft or
destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation or, in the case of any such mutilation upon surrender of such
certificate, the Corporation shall (at its expense) execute and deliver in lieu
of such certificate a new certificate of like kind representing the number of
shares of Series B Preferred Stock represented by such lost, stolen, destroyed
or mutilated certificate dated the date of such lost, stolen, destroyed or
mutilated certificate, and dividends shall accrue on the Series B Preferred
Stock represented by such new certificate from the date to which dividends have
been fully paid on such lost, stolen, destroyed or mutilated certificate.
SECTION 11. Legal Expenses.
The Corporation agrees that, in the event that a holder or holders of
Series B Preferred Stock shall bring any legal action or proceeding to enforce
or to seek damages or other relief arising from an alleged breach of any term or
provision of the Series B Preferred Stock by the Corporation and such holder or
holders prevail in any such action or proceeding, such prevailing holder or
holders shall be entitled to an award of, and the Corporation shall pay, the
reasonable fees and expenses of legal counsel to such prevailing holder or
holders.
SECTION 12. Notices.
Except as otherwise expressly provided hereunder, all notices referred to
herein shall be in writing and shall be delivered by registered or certified
mail, return receipt requested and postage prepaid, or by reputable overnight
courier service, charges prepaid, and shall be deemed to have been given when so
mailed or sent (i) to the Corporation, at its principal executive offices, and
(ii) to any stockholder, at such holder's address as it appears in the stock
records of the Corporation (unless otherwise indicated in writing by any such
holder).
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IN WITNESS WHEREOF, Graham-Field Health Products, Inc. has caused this
Certificate of Designations of Series B Cumulative Convertible Preferred Stock
to be duly executed by its President and attested to by its Secretary and has
caused its corporate seal to be affixed hereto, this day of , 1996.
GRAHAM-FIELD HEALTH PRODUCTS, INC.
By: _____________________________________
Chairman of the Board and
Chief Executive Officer
[SEAL]
Attest:
By: _____________________________
Secretary
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<PAGE>
ANNEX E
CERTIFICATE OF DESIGNATIONS
of
SERIES C CUMULATIVE CONVERTIBLE PREFERRED STOCK
of
GRAHAM-FIELD HEALTH PRODUCTS, INC.
------------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
------------------------------
GRAHAM-FIELD HEALTH PRODUCTS, INC., a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), HEREBY CERTIFIES
that pursuant to the authority conferred upon the Board of Directors of the
Corporation by the provisions of the Certificate of Incorporation of the
Corporation (the "Certificate of Incorporation"), and in accordance with the
provisions of Section 151 of the General Corporation Law of the State of
Delaware, the following resolution creating a series of its Preferred Stock, par
value $.01 per share, designated as Series C Cumulative Convertible Preferred
Stock has been duly adopted by the Board of Directors of the Corporation:
RESOLVED, that a series of the class of authorized Preferred Stock, par
value $.01 per share, of the Corporation (the "Preferred Stock") be hereby
created, and that the designation and amount thereof and the voting powers,
preferences and relative, participating, optional and other special rights of
the shares of such series, and the qualifications, limitations or restrictions
of such series, are as follows:
SECTION 1. Designation and Amount.
The shares of such series shall be designated as the "Series C Cumulative
Convertible Preferred Stock" (the "Series C Preferred Stock") and the number of
shares initially constituting such series shall be , which number may be
decreased (but not increased) by the Board of Directors of the Corporation (the
"Board of Directors") without a vote of stockholders; provided, however, that
such number may not be decreased below the number of then currently outstanding
shares of Series C Preferred Stock. The stated value per share (the "Stated
Value") of the Series C Preferred Stock shall be $10,000.
SECTION 2. Definitions.
Capitalized terms used herein shall have the meanings set forth in this
Section 2:
"Board of Directors" has the meaning ascribed to such term in Section
1.
"Business Day" means any day other than Saturday, Sunday or a day on
which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
"Certificate of Incorporation" means the Certificate of Incorporation
of the Corporation, as it may be amended or restated from time to time.
"Closing Price per share of Common Stock" on any date shall be the
last sale price, regular way, or, in case no such sale takes place on such
date, the average of the closing bid and asked prices, regular way, of the
Common Stock, in either case as reported in the principal consolidated
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transaction reporting system with respect to securities listed or admitted
to trading on the New York Stock Exchange, Inc. (the "NYSE") or, if the
Common Stock is not listed or admitted to trading on the NYSE, as reported
in the principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on which
the Common Stock is listed or admitted to trading or, if the Common Stock
is not listed or admitted to trading on any national securities exchange,
the last quoted sale price on such date or, if not so quoted, the average
of the high bid and low asked prices in the over-the-counter market on such
date, as reported by the National Association of Securities Dealers, Inc.
Automated Quotations System or such other system then in use, or, if on any
such date the Common Stock is not quoted by any such organization, the
average of the closing bid and asked prices on such date as furnished by a
professional market maker making a market in the Common Stock selected by
the Board of Directors. If the Common Stock is not publicly held or so
listed or publicly traded, "Closing Price per share of Common Stock" shall
mean the Fair Market Value per share as determined in good faith by the
Board of Directors.
"Common Stock" means the common stock, par value $.025 per share, of
the Corporation.
"Conversion Price" shall be $20.00, as adjusted from time to time
pursuant to Section 8.
"Current Market Price per share of Common Stock" on any date shall be
the average of the Closing Prices per share of Common Stock for the twenty
(20) consecutive Trading Days commencing thirty (30) Trading Days
immediately prior to such date.
"DGCL" means the General Corporation Law of the State of Delaware.
"Dividend Rate" means an annual rate of $150.00 per share of Series C
Preferred Stock.
"Employee Benefit Plans" means any employee benefit plan or
arrangement of the Corporation or any of its Subsidiaries approved by the
Board of Directors or its Executive Committee.
"Fair Market Value" means an amount determined in good faith by the
Board of Directors and certified in a resolution sent to all holders of
shares of Series C Preferred Stock.
"Issue Date" means the date on which the merger of Sub with and into
E&J becomes effective pursuant to the Merger Agreement.
"Junior Stock" means the Common Stock, the Series A Preferred Stock
and any other stock of the Corporation ranking junior to the Series C
Preferred Stock with respect to the payment of dividends and the
distribution of assets, whether upon liquidation or otherwise.
"Liquidation Preference" has the meaning ascribed to such term in
Section 7(a).
"Mandatory Conversion" has the meaning ascribed to such term in
Section 8.
"Merger Agreement" means the Agreement and Plan of Merger dated as of
September 3, 1996 by and among the Corporation, E&J Acquisition Corp., a
Delaware corporation wholly-owned by the Corporation ("Sub"), BIL (Far East
Holdings) Limited, a Hong Kong corporation, and Everest & Jennings Ltd., a
Delaware corporation ("E&J").
"Parity Stock" means any stock of the Corporation ranking on a parity
with the Series C Preferred Stock either with respect to the payment of
dividends or the distribution of assets, whether upon liquidation or
otherwise, including, without limitation, the Series B Preferred Stock.
"Person" means any person or entity of any nature whatsoever,
specifically including an individual, a firm, a company, a corporation, a
partnership, a trust or other entity.
"Preferred Stock" means the preferred stock, par value $.01 per share,
of the Corporation.
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"Quarterly Dividend Payment Date" has the meaning ascribed to such
term in paragraph (a) of Section 3.
"Quarterly Dividend Period" has the meaning ascribed to such term in
paragraph (a) of Section 3.
"Rights" means any rights to purchase Junior Stock issued pursuant to
any Rights Agreement.
"Rights Agreement" means the Rights Agreement dated as of September 3,
1996 between the Corporation and American Stock Transfer & Trust Company,
as Rights Agent, as it may be amended from time to time (the "Current
Rights Agreement"), and any similar rights agreement that may hereafter be
adopted by the Corporation.
"Series A Preferred Stock" means the Preferred Stock designated as the
Series A Participating Preferred Stock of the Corporation.
"Series B Preferred Stock" means the Preferred Stock designated as the
Series B Cumulative Convertible Preferred Stock.
"Series C Preferred Stock" has the meaning ascribed to such term in
Section 1.
"Stated Value" has the meaning ascribed to such term in Section 1.
"Subsidiary" of any Person means any corporation or other entity of
which a majority of the voting power of the voting equity securities or
equity interest is owned, directly or indirectly, by such Person.
"Trading Day" means a day on which the NYSE or any other national
securities exchange on which the Common Stock is then listed is open for
the transaction of business or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, any Business Day.
"Trigger Price" has the meaning ascribed to such term in subparagraph
(ii) of paragraph (b) of Section 8.
SECTION 3. Dividends and Distributions.
(a) The holders of shares of Series C Preferred Stock, in preference to the
holders of shares of Common Stock, Series A Preferred Stock and any other
capital stock of the Corporation ranking junior to the Series C Preferred Stock
as to payment of dividends, shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds of the Corporation legally
available for the payment of dividends, cumulative dividends payable in cash at
the annual Dividend Rate per share, except that the Corporation may at its
option pay any such dividend in whole or in part in fully paid and nonassessable
full shares of Common Stock, valued at the average Closing Price per share of
Common Stock for the thirty (30) consecutive Trading Days ending on the Trading
Day immediately preceding the relevant Quarterly Dividend Payment Date.
Dividends shall be payable on the last day of March, June, September and
December (or if any of such days is not a Business Day, the Business Day next
preceding such day) in each year (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), in respect of the quarterly period ending on
such day (each such calendar quarter being referred to herein as a "Quarterly
Dividend Period") to the holders of record of the shares of Series C Preferred
Stock outstanding on such Quarterly Dividend Payment Date, so long as shares of
Series C Preferred Stock are outstanding; provided that the first Quarterly
Dividend Payment Date shall be the last day of the first full Quarterly Dividend
Period following the Issue Date in respect of the period from the Issue Date
through such day.
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<PAGE>
(b) Dividends payable pursuant to paragraph (a) of this Section 3 shall
begin to accrue and be cumulative from the Issue Date. The amount of dividends
payable per share of Series C Preferred Stock on any Quarterly Dividend Payment
Date shall be computed by dividing the Dividend Rate by four (4); provided that
with respect to the first Quarterly Dividend Payment Date, the amount of
dividends payable per share of Series C Preferred Stock shall be computed by
dividing the Dividend Rate by two (2) and multiplying the result by a fraction,
the numerator of which is the number of days from the Issue Date to the last day
of the applicable Quarterly Dividend Period and the denominator of which is one
hundred eighty (180). The amount of dividends payable for any period shorter or
longer than a full Quarterly Dividend Period, including the first Quarterly
Dividend Period, shall be determined on the basis of twelve 30-day months and a
360-day year. Dividends paid on the shares of Series C Preferred Stock in an
amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all shares of Series C Preferred Stock at the time outstanding.
(c) In case the Corporation shall at any time or from time to time declare,
order, pay or make a dividend or other distribution (including, without
limitation, any distribution of stock or other securities or property or rights
or warrants to subscribe for securities of the Corporation or any of its
Subsidiaries by way of dividend or spinoff) on the Junior Stock, other than (i)
dividends payable on the Common Stock in cash in an aggregate amount in any
fiscal year of the Corporation which, when declared, do not, together with all
other cash dividends previously paid on the Common Stock in such fiscal year,
exceed 100% of the total dividends payable in cash on the Series C Preferred
Stock and any outstanding shares of Parity Stock during such fiscal year at the
applicable dividend rate, or (ii) any dividend or distribution of shares of
Junior Stock, then, and in each such case, the holders of shares of Series C
Preferred Stock shall be entitled to receive from the Corporation, with respect
to each share of Series C Preferred Stock held, the same dividend or
distribution received by a holder of the number of shares of Common Stock into
which such share of Series C Preferred Stock is convertible on the record date
for such dividend or distribution. Any such dividend or distribution shall be
declared, ordered, paid or made on the Series C Preferred Stock at the same time
such dividend or distribution is declared, ordered, paid or made on the Common
Stock.
(d) The holders of shares of Series C Preferred Stock shall not be entitled
to receive any dividends or other distributions except as provided in this
Section 3.
(e) Unless all dividends on the outstanding shares of Series C Preferred
Stock that shall have accrued and be payable as of any date shall have been paid
in full, or declared and additional shares of Common Stock or funds, as
appropriate, set apart for payment thereof, no dividend or other distribution
shall be paid to holders of Junior Stock (other than dividends or distributions
payable in shares of Junior Stock) and no shares of Junior Stock shall be
purchased or redeemed by the Corporation.
SECTION 4. Voting Rights.
In addition to any voting rights provided elsewhere herein and in the
Certificate of Incorporation, and any voting rights provided by law, the holders
of shares of Series C Preferred Stock shall have the following voting rights:
(a) Each share of Series C Preferred Stock shall be entitled to a
number of votes equal to the result obtained (calculated to the nearest
1/10,000th of a vote) by dividing the Stated Value by the Conversion Price.
Except as otherwise provided by the Certificate of Incorporation, or by
law, the shares of Series B Preferred Stock, the shares of Series C
Preferred Stock and the shares of Common Stock (and any other shares of
capital stock of the Corporation at the time entitled thereto) shall vote
together as one class on all matters submitted to a vote of stockholders of
the Corporation.
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<PAGE>
(b) Except as provided in this Section 4 or in the Certificate of
Incorporation, or as required by law, the holders of shares of Series C
Preferred Stock shall have no special voting rights and their consent shall
not be required for the taking of any corporate action.
SECTION 5. Redemption.
(a) Upon written notice pursuant to paragraph (b) of this Section 5, the
Corporation may at its option redeem all, but not less than all, of the
outstanding shares of Series C Preferred Stock. Any redemption of shares of
Series C Preferred Stock shall be effected at a price per share in cash equal to
the Stated Value plus an amount equal to all accrued and unpaid dividends and
distributions thereon to the date of redemption. Except as provided in this
paragraph (a) or elsewhere in the Certificate of Incorporation, the Corporation
shall have no right or obligation to redeem any shares of Series C Preferred
Stock.
(b) (i) Notice of any redemption of shares of Series C Preferred Stock
shall be mailed not less than thirty (30) nor more than sixty (60) days prior to
the fifth anniversary of the Issue Date to each holder of shares of Series C
Preferred Stock, at such holder's address as it appears on the transfer books of
the Corporation. Each such notice shall state: (w) the date fixed for
redemption, which shall be the fifth anniversary of the Issue Date, (x) the
place or places where the redemption price will be paid (if other than the
principal office of the Corporation), (y) the current Conversion Price and (z)
that dividends on the shares of Series C Preferred Stock will cease to accrue on
the date fixed for redemption.
(ii) Notice having been given pursuant to subparagraph (i) of paragraph (b)
of this Section 5, from and after the date specified therein as the date of
redemption, unless default shall be made by the Corporation in providing for the
payment of the applicable redemption price, all dividends on the Series C
Preferred Stock thereby called for redemption shall cease to accrue, and all
rights of the holders thereof as stockholders of the Corporation, except the
right to receive the applicable redemption price (but without interest) and
except the right to exercise any right of conversion, shall cease and terminate.
SECTION 6. Reacquired Shares.
Any shares of Series C Preferred Stock converted, redeemed, purchased or
otherwise acquired by the Corporation in any manner whatsoever shall be retired
and canceled promptly after the acquisition thereof, and, if necessary to
provide for the lawful redemption or purchase of such shares, the capital
represented by such shares shall be reduced in accordance with the DGCL. All
such shares shall upon their cancellation become authorized but unissued shares
of Preferred Stock and may be reissued as part of another series of Preferred
Stock.
SECTION 7. Liquidation, Dissolution or Winding Up.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of shares of Series C
Preferred Stock shall be entitled to receive out of the assets of the
Corporation available for distribution to its stockholders, an amount equal to
the Stated Value plus all accrued and unpaid dividends thereon to the date of
such payment ("Liquidation Preference"), and no distribution shall be made (i)
to the holders of shares of Common Stock, Series A Preferred Stock or any other
capital stock of the Corporation ranking junior to the Series C Preferred Stock
upon liquidation, dissolution or winding up, unless, prior thereto, the holders
of shares of Series C Preferred Stock shall have received an amount equal to the
Liquidation Preference per share, or (ii) to the holders of shares of any
capital stock of the Corporation (including the Series B Preferred Stock)
ranking on a parity with the Series C Preferred Stock upon liquidation,
dissolution or winding up, except distributions made ratably on the Series C
Preferred Stock and all such other capital stock in proportion to the total
amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up of the Corporation.
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(b) In the event that the assets of the Corporation available for
distribution to the holders of the Series C Preferred Stock upon any voluntary
or involuntary liquidation, dissolution or winding up of the Corporation shall
be insufficient to pay in full all amounts to which such holders are entitled
pursuant to paragraph (a) of this Section 7, such assets of the Corporation
which are so available shall be allocated pro rata on a share-by-share basis
among all shares of Series C Preferred Stock at the time outstanding.
(c) Neither the consolidation, merger or other business combination of the
Corporation with or into any other Person or Persons nor the sale, lease,
exchange or conveyance of all or any part of the property, assets or business of
the Corporation, shall be deemed to be a liquidation, dissolution or winding up
of the Corporation for purposes of this Section 7.
SECTION 8. Conversion.
Each outstanding share of Series C Preferred Stock which has not been
redeemed pursuant to Section 5 shall automatically be deemed to have been
converted at the Conversion Price into shares of Common Stock, on the terms and
conditions set forth in this Section 8, without any further action on the part
of the holder thereof, on the day immediately following the fifth anniversary of
the Issue Date (a "Mandatory Conversion").
(a) Each share of Series C Preferred Stock converted in accordance
with this Section 8 shall be converted in the manner hereinafter set forth
into a number of fully-paid and nonassessable shares of Common Stock equal
to the result obtained (calculated to the nearest 1/10,000th of a share) by
dividing the Stated Value by the Conversion Price.
(b) The Conversion Price shall be adjusted from time to time as
follows:
(i) In case the Corporation shall at any time after the Issue
Date declare a dividend, or make a distribution, on the outstanding
shares of Common Stock in shares of Common Stock or subdivide or
reclassify the outstanding shares of Common Stock into a greater
number of shares of Common Stock or combine or reclassify the
outstanding shares of Common Stock into a smaller number of shares of
Common Stock, then, and in each such case,
(A) the Conversion Price as in effect immediately prior to
such event shall be adjusted by multiplying such Conversion Price
by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately prior to such event and the
denominator of which is the number of shares of Common Stock
outstanding immediately after such event; and
(B) an adjustment made pursuant to this subparagraph (i)
shall become effective (I) in the case of any such dividend or
distribution, immediately after the close of business on the
record date for the determination of holders of shares of Common
Stock entitled to receive such dividend or distribution, or (II)
in the case of any such subdivision, reclassification or
combination, at the close of business on the day upon which such
corporate action becomes effective.
(ii) In case the Corporation shall issue shares of Common Stock
(or rights, options or warrants to purchase or other securities
convertible into or exchangeable for shares of Common Stock) at any
time after the Issue Date without consideration or at a price per
share less than the Current Market Price per share of Common Stock on
the date of issuance of such shares (or the date of issuance of such
rights, options, warrants or other convertible or exchangeable
securities) (such Current Market Price shall hereinafter be referred
to as the "Trigger Price"), other than (w) in a transaction to which
subparagraph (ii) of paragraph (c) of Section 3 or subparagraph (i) of
this paragraph (b) is applicable, (x) issuances of shares of Common
Stock pursuant to rights or options granted under any Employee Benefit
Plan, (y)
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upon conversion of or as a dividend on shares of Series B Preferred
Stock or Series C Preferred Stock or (z) pursuant to the Rights, then,
and in each such case
(A) the Conversion Price as in effect immediately prior to
such issuance shall be adjusted by multiplying such Conversion
Price by a fraction, (I) the numerator of which is the sum of (1)
the number of shares of Common Stock outstanding immediately
prior to such event and (2) the number of shares of Common Stock
which the aggregate consideration, if any, receivable by the
Corporation for the total number of shares of Common Stock so
issued (or issuable upon the exercise or conversion of any such
rights, options, warrants or other convertible or exchangeable
securities) would purchase at the Trigger Price, and (II) the
denominator of which is the sum of (1) the number of shares of
Common Stock outstanding immediately prior to such event and (2)
the number of additional shares of Common Stock issued (or
issuable upon the exercise or conversion of any such rights,
options, warrants or other convertible or exchangeable
securities); and
(B) such adjustment shall become effective immediately after
the date of such issuance.
For purposes of this subparagraph (ii), the aggregate
consideration receivable by the Corporation in connection with the
issuance of shares of Common Stock or of rights, options or warrants
to purchase or other securities convertible into or exchangeable for
shares of Common Stock shall be deemed to be equal to the sum of the
net offering price (without giving effect to deductions for
underwriting discounts or commissions and expenses payable to third
parties, if any) of all such securities plus the aggregate amount, if
any, payable upon exercise of any such rights, options or warrants or
conversion or exchange of any such convertible or exchangeable
securities into or for shares of Common Stock.
(iii) In case the Corporation shall be a party to any transaction
(including, without limitation, a merger, consolidation, sale of all
or substantially all of the Corporation's assets or recapitalization
of the Common Stock and excluding any transaction to which
subparagraph (i) or (ii) of this paragraph (b) or subparagraph (ii) of
paragraph (c) of Section 3 applies) in which the previously
outstanding Common Stock shall be changed into or, pursuant to the
operation of law or the terms of the transaction to which the
Corporation is a party, exchanged for different securities of the
Corporation or common stock or other securities of another corporation
or interests in a noncorporate entity or other property (including
cash) or any combination of any of the foregoing, then, as a condition
of the consummation of such transaction, lawful and adequate provision
shall be made so that each holder of shares of Series C Preferred
Stock shall be entitled, upon conversion, to an amount per share equal
to (A) the aggregate amount of stock, securities, cash and/or any
other property (payable in kind), as the case may be, into which or
for which each share of Common Stock is changed or exchanged times (B)
the number of shares of Common Stock into which a share of Series C
Preferred Stock is convertible immediately prior to the consummation
of such transaction.
(c) In case the Corporation shall be a party to a transaction
described in subparagraph (iii) of paragraph (b) above, effective provision
shall be made (in form and substance reasonably satisfactory to the holders
of a majority of the then outstanding shares of Series C Preferred Stock),
in the articles or certificate of incorporation of the resulting or
surviving corporation or other corporation issuing or delivering such
shares, other securities or property or otherwise, so that the provisions
set forth herein for the protection of the conversion rights of the Series
C Preferred Stock shall thereafter be applicable, as nearly as reasonably
may be, to any such other shares of stock and other securities and property
deliverable upon conversion of the Series C Preferred Stock remaining
outstanding or other convertible stock or securities received by the
holders in place thereof; and any such resulting or surviving corporation
or other corporation issuing or delivering such shares,
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other securities or property shall expressly assume the obligation to
deliver, upon the exercise of the conversion privilege, such shares,
securities or property as the holders of the Series C Preferred Stock
remaining outstanding, or other convertible stock or securities received by
the holders in place thereof, shall be entitled to receive, pursuant to the
provisions hereof, and to make provision for the protection of the
conversion right as above provided. In case shares, securities or property
other than Common Stock shall be issuable or deliverable upon conversion as
aforesaid, then all references to Common Stock in paragraph (b) of this
Section 8 shall be deemed to apply, so far as provided and as nearly as is
reasonable, to any such shares, other securities or property.
(d) Any holder of any shares of Series C Preferred Stock may exchange
such holder's certificates representing Series C Preferred Stock for
certificates representing the shares of Common Stock into which such shares
of Series C Preferred Stock have been converted pursuant to a Mandatory
Conversion, by surrendering for such purpose to the Corporation, at its
principal office or at such other office or agency maintained by the
Corporation for that purpose, the certificate or certificates representing
the shares of Series C Preferred Stock to be automatically converted,
accompanied by a written notice specifying the name or names in which such
holder wishes the certificate or certificates for shares of Common Stock to
be issued. In case such notice shall specify a name or names other than
that of such holder, such notice shall be accompanied by payment of all
transfer taxes payable upon the issuance of shares of Common Stock in such
name or names. Other than such taxes, the Corporation will pay any and all
issue and other taxes (other than taxes based on income) that may be
payable in respect of any issue or delivery of shares of Common Stock on
conversion of Series C Preferred Stock pursuant hereto. As promptly as
practicable after the surrender of such certificate or certificates and, if
applicable, payment of all transfer taxes (or the demonstration to the
satisfaction of the Corporation that such taxes have been paid), the
Corporation shall deliver or cause to be delivered certificates
representing the number of validly issued, fully paid and nonassessable
full shares of Common Stock to which the holder of shares of Series C
Preferred Stock so converted shall be entitled. A Mandatory Conversion
shall be deemed to have been effected at the close of business on the day
immediately following the fifth anniversary of the Issue Date. Upon the
effectiveness of a Mandatory Conversion, the rights of the holder thereof
as to the shares being converted shall cease except for the right to
receive shares of Common Stock, and the person entitled to receive the
shares of Common Stock shall be treated for all purposes as having become
the record holder of such shares of Common Stock at such time.
(e) In any case in which paragraph (b) of this Section 8 shall require
that an adjustment as a result of any event becomes effective after a
record date for such event, the Corporation may elect to defer until after
the occurrence of such event (i) issuing to the holder of any shares of
Series C Preferred Stock converted after such record date and before the
occurrence of such event the additional shares of Common Stock issuable
upon such conversion over and above the shares of Common Stock issuable
upon such conversion on the basis of the conversion rate prior to
adjustment and (ii) paying to such holder any amount in cash in lieu of a
fractional share of Common Stock pursuant to paragraph (g) below; and, in
lieu of the shares the issuance of which is so deferred, the Corporation
shall issue due bills or other appropriate evidence of the right to receive
such shares.
(f) The Corporation will pay each holder of shares of Series C
Preferred Stock whose shares are converted the full amount of accrued and
unpaid dividends on such shares through but not including the effective
date of such conversion, which dividends shall be payable in cash out of
funds of the Corporation legally available for the payment of dividends or,
at the option of the Corporation, in whole or in part in fully paid and
nonassessable full shares of Common Stock, valued at the average Closing
Price per share of Common Stock for the thirty (30) consecutive Trading
Days ending on the Trading Day immediately preceding the effective date of
such conversion.
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(g) In connection with the conversion of any shares of Series C
Preferred Stock, no fractions of shares of Common Stock shall be issued,
but in lieu thereof the Corporation shall pay a cash adjustment in respect
of such fractional interest in an amount equal to such fractional interest
multiplied by the Current Market Price per share of Common Stock on the day
on which such shares of Series C Preferred Stock are deemed to have been
converted.
(h) The Corporation shall at all times reserve and keep available out
of its authorized and unissued Common Stock, solely for the purpose of
effecting the conversion of the Series C Preferred Stock, such number of
shares of Common Stock as shall from time to time be sufficient to effect
the conversion of all shares of Series C Preferred Stock then outstanding.
The Corporation shall from time to time, subject to and in accordance with
the DGCL, increase the authorized amount of Common Stock if at any time the
number of authorized shares of Common Stock remaining unissued shall not be
sufficient to permit the conversion at such time of all shares of Series C
Preferred Stock then outstanding. The Corporation shall cause any shares of
Common Stock issued upon conversion of Series C Preferred Stock to be
listed for trading on any national securities exchange on which the Common
Stock is at the time listed, and shall deliver such notices as may be
required by such exchange in connection with any such issuance.
(i) Notwithstanding anything to the contrary contained herein, if
adjustments of the Conversion Price have caused the Conversion Price to be
lower than the par value, if any, of the Common Stock, upon any conversion
of shares of Series C Preferred Stock the Corporation shall, to the maximum
extent it is legally able to do so, issue to the converting holder the
shares of Common Stock into which the shares of Series C Preferred Stock
being converted are convertible, and, in addition, the Corporation shall
pay the converting holder an amount in cash equal to the Current Market
Price per share of Common Stock multiplied by the number of shares and
fractions thereof of Common Stock which the converting holder would have
been entitled to receive except for the limitation on lawful issuance
described in this paragraph.
(j) Notwithstanding anything to the contrary contained herein, any
adjustment in the Conversion Price pursuant to this Section 8 shall be made
to the nearest $.01.
(k) Upon the expiration of any rights, options or warrants to purchase
shares of Common Stock or the termination of any right to convert or
exchange any convertible or exchangeable securities for shares of Common
Stock without such conversion or exchange having occurred, or upon any
change in the amount payable upon exercise of any such rights, options or
warrants or conversion or exchange of any such convertible or exchangeable
securities, the Conversion Price shall thereupon be readjusted and shall
thereafter be such as it would have been had it been originally adjusted
(or had the original adjustment not been required, as the case may be) on
the basis of (i) the only shares of Common Stock so issued were the shares
of Common Stock, if any, actually issued or sold upon the exercise of such
rights, options or warrants to purchase or securities convertible into or
exchangeable for shares of Common Stock, (ii) such shares of Common Stock,
if any, were issued or sold for the consideration actually received by the
Corporation upon such exercise plus the consideration, if any, actually
received by the Corporation for the issuance, sale or grant of all such
rights, options or warrants to purchase or securities convertible into or
exchangeable for shares of Common Stock, whether or not exercised and (iii)
the changed amount so payable; provided, however, that no such readjustment
shall have the effect of increasing the Conversion Price by an amount in
excess of the amount of the adjustment initially made in respect of the
issuance, sale or grant of such rights, options or warrants to purchase, or
securities convertible into or exchangeable for, shares of Common Stock.
SECTION 9. Reports as to Adjustments.
Whenever the Conversion Price is adjusted as provided in Section 8, the
Corporation shall promptly mail to the holders of record of the outstanding
shares of Series C Preferred Stock at their
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<PAGE>
respective addresses as the same shall appear in the Corporation's stock records
a notice stating that the Conversion Price has been adjusted and setting forth
the new Conversion Price and the new number of shares of Common Stock (or
describing the new stock, securities, cash or other property) into which each
share of Series C Preferred Stock is convertible as a result of such adjustment,
a brief statement of the facts requiring such adjustment and the computation
thereof, and when such adjustment became effective.
SECTION 10. Registration of Transfer.
The Corporation shall keep at its principal office a register for the
registration of Series C Preferred Stock. Upon the surrender of any certificate
representing Series C Preferred Stock at such place, the Corporation shall, at
the request of the record holder of such certificate, execute and deliver (at
the Corporation's expense) a new certificate or certificates in exchange
therefor representing in the aggregate the number of shares of Series C
Preferred Stock represented by the surrendered certificate. Each such new
certificate shall be registered in such name and shall represent such number of
shares of Series C Preferred Stock as is requested by the holder of the
surrendered certificate and shall be substantially identical in form to the
surrendered certificate, and dividends shall accrue on the Series C Preferred
Stock represented by such new certificate from the date to which dividends have
been fully paid on such Series C Preferred Stock represented by the surrendered
certificate.
SECTION 11. Replacement.
Upon receipt of evidence reasonably satisfactory to the Corporation (an
affidavit of the registered holder shall be satisfactory) of the ownership and
the loss, theft, destruction or mutilation of any certificate evidencing shares
of Series C Preferred Stock, and in the case of any such loss, theft or
destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation or, in the case of any such mutilation upon surrender of such
certificate, the Corporation shall (at its expense) execute and deliver in lieu
of such certificate a new certificate of like kind representing the number of
shares of Series C Preferred Stock represented by such lost, stolen, destroyed
or mutilated certificate dated the date of such lost, stolen, destroyed or
mutilated certificate, and dividends shall accrue on the Series C Preferred
Stock represented by such new certificate from the date to which dividends have
been fully paid on such lost, stolen, destroyed or mutilated certificate.
SECTION 12. Legal Expenses.
The Corporation agrees that, in the event that a holder or holders of
Series C Preferred Stock shall bring any legal action or proceeding to enforce
or to seek damages or other relief arising from an alleged breach of any term or
provision of the Series C Preferred Stock by the Corporation and such holder or
holders prevail in any such action or proceeding, such prevailing holder or
holder shall be entitled to an award of, and the Corporation shall pay, the
reasonable fees and expense of legal counsel to such prevailing holder or
holders.
SECTION 13. Notices.
Except as otherwise expressly provided hereunder, all notices referred to
herein shall be in writing and shall be delivered by registered or certified
mail, return receipt requested and postage prepaid, or by reputable overnight
courier service, charges prepaid, and shall be deemed to have been given when so
mailed or sent (i) to the Corporation, at its principal executive offices, and
(ii) to any stockholder, at such holder's address as it appears in the stock
records of the Corporation (unless otherwise indicated in writing by any such
holder).
* * *
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<PAGE>
IN WITNESS WHEREOF, Graham-Field Health Products, Inc. has caused this
Certificate of Designations of Series C Cumulative Convertible Preferred Stock
to be duly executed by its President and attested to by its Secretary and has
caused its corporate seal to be affixed hereto, this day of _______________,
1996.
GRAHAM-FIELD HEALTH PRODUCTS, INC.
By:______________________________________
Chairman of the Board and
Chief Executive Officer
[SEAL]
Attest:
By: _______________________________
Secretary
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<PAGE>
ANNEX F
[Jefferies & Company, Inc. Letterhead]
September 3, 1996
The Board of Directors
GRAHAM-FIELD HEALTH PRODUCTS, INC.
400 Rabro Drive East
Hauppauge, New York 11788
To the Members of the Board of Directors:
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to the common stockholders of Graham-Field
Health Products, Inc., a Delaware corporation (the "Company"), of the
consideration to be paid by the Company in connection with the acquisition of
Everest & Jennings International Ltd., a Delaware corporation ("Everest &
Jennings"), by means of a triangular merger (the "Merger"). The terms of the
Merger are presently set forth in an Agreement and Plan of Merger dated as of
September 3, 1996 by and among the Company, E&J Acquisition Corp., a Delaware
corporation wholly-owned by the Company, BIL (Far East Holdings) Limited, a Hong
Kong corporation ("BIL"), and Everest & Jennings (the "Agreement").
We understand that, pursuant to the Agreement, E&J Acquisition Corp. will
be merged with and into Everest & Jennings with the effect that Everest &
Jennings will become a wholly-owned subsidiary of the Company (the "Merger"). In
the Merger, each outstanding share of common stock, par value $.10 per share, of
Everest & Jennings ("E&J Common Stock"), other than shares to be canceled in the
Merger or as to which statutory appraisal rights are asserted, will be converted
into the right to receive .35 of a share of common stock, par value $.025 per
share, of the Company ("Company Common Stock"); provided that such conversion
number will be reduced to the extent necessary so that the maximum market value
of the fraction of a share of Company Common Stock into which each share of E&J
Common Stock is converted in the Merger will not exceed $5.50. In addition, at
the effective time of the Merger:
(i) BIL will purchase for cash additional shares of Company Common
Stock having a fair market value equal to the outstanding principal and
interest on indebtedness owed to Hong Kong and Shanghai Banking Corporation
Limited by Everest & Jennings, subject to a cap of $25 million. The
proceeds of such purchase will be contributed by the Company to Everest &
Jennings following the Merger and used to discharge such indebtedness.
(ii) The Company will issue up to $61 million stated value of a new
Series B Cumulative Convertible Preferred Stock to BIL in exchange for
certain indebtedness of Everest & Jennings owing to BIL and shares of
Everest & Jennings preferred stock owned by BIL.
(iii) BIL will purchase for cash $10 million stated value of a new
Series C Cumulative Convertible Preferred Stock of the Company.
(iv) Certain indebtedness in the amount of $4 million owing by the
Company to BIL will be exchanged for an equal amount of subordinated
indebtedness (the "Subordinated Indebtedness") of the Company maturing on
April 1, 2001 and bearing interest at an effective rate of 7.7% per annum.
In the event punitive damages are awarded which relate to any existing
product liability
F-1
<PAGE>
claim against Everest & Jennings involving a death prior to the effective
date of the Agreement and all or any part of such punitive damages are not
reimbursed pursuant to any insurance policies, then the principal amount of
the Subordinated Indebtedness will be reduced by the amount of such
unreimbursed punitive damages.
We also understand that, in connection with the Merger, the Company, BIL
and Irwin Selinger, the Chairman of the Board and Chief Executive Officer of the
Company and beneficial owner of approximately seven percent (7%) of the Company
Common Stock presently outstanding, will enter into a stockholder agreement (the
"Stockholder Agreement") pursuant to which, among other things, BIL agrees to
vote its shares of Everest & Jennings capital stock in favor of the Merger. BIL
also agrees in the Stockholder Agreement to grant the Company a right of first
refusal with respect to certain sales of Company securities acquired by BIL
pursuant to the Merger, to indemnify the Company against certain existing
actions and proceedings to which Everest & Jennings and its subsidiaries are
parties and, so long as BIL owns securities representing at least 5% of the
voting power of the outstanding capital stock of the Company, not to acquire
additional shares of Company Common Stock without the consent of the Board of
Directors of the Company, (which consent will not be unreasonably withheld),
seek to acquire ownership of the Company, engage in any solicitation of proxies
with respect to the Company or otherwise seek or propose to acquire control of
the Board of Directors of the Company. Pursuant to the Stockholder Agreement,
BIL will have the right to designate two members of the Company's Board of
Directors (subject to reduction if BIL reduces its ownership of Company Common
Stock), and will have the right to participate on a pro rata basis in certain
future stock issuances by the Company. The Stockholder Agreement will either
automatically terminate or be modified upon a change of control of the Company
or its Board of Directors.
We further understand that, in connection with the Merger, the Company and
BIL will enter into a registration rights agreement which will provide certain
demand and "piggyback" registration rights to BIL with respect to the securities
of the Company to be acquired by BIL pursuant to the Merger. The Company will be
required to pay the expenses incurred by BIL in connection with any such
registrations.
Jefferies & Company, Inc. ("Jefferies"), as part of its investment banking
business, is regularly engaged in the evaluation of capital structures, the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements, financial
restructurings and other financial services. In the ordinary course of our
business, we may trade the securities of the Company for our own account and for
the accounts of customers and, accordingly, may at any time hold a long or short
position in those securities. As you are aware, Jefferies did not participate in
structuring or negotiating the terms of the Merger, and has not heretofore
provided any investment banking services to the Company or any of its
subsidiaries or affiliates. As you are also aware, Jefferies will receive fees
for providing this opinion, a significant portion of which are contingent upon
delivery of this opinion.
In connection with our opinion, we have reviewed the Agreement (including
the Exhibits thereto) and certain financial and other information that was
publicly available or furnished to us by the Company, including, without
limitation, certain internal financial analyses, budgets, reports and other
information prepared by, or at the request of, the Company's management. We have
also discussed with representatives of the management of the Company the
business, properties and prospects of the Company and undertaken such other
reviews, analyses and inquiries relating to the Company as we deemed
appropriate. We also conducted discussions with representatives of Everest &
Jennings as to Everest & Jennings' business and properties.
In our review and analysis and in rendering the opinion contained herein,
we have relied upon, and have not independently verified, the accuracy,
completeness and fair presentation of, all financial and
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<PAGE>
other information (including, without limitation, financial projections prepared
by the Company regarding the estimated future performance of the Company after
giving effect to the Merger) that was provided to us by the Company or Everest &
Jennings, or that was publicly available, and such opinion is conditioned upon
such information (whether written or oral) being complete, accurate and fair in
all material respects. We further note that with respect to the aforesaid
financial projections, we have assumed such financial projections were
reasonably prepared on bases reflecting the best currently available estimates
and good faith judgments of the respective managers of the Company and Everest &
Jennings as to the future performance of each such company and that each such
company will perform in accordance with such projections for all periods
specified therein. We have not made an independent evaluation or appraisal or
conducted a comprehensive physical inspection of any of the assets of the
Company or Everest & Jennings, nor have we been furnished with any such
appraisals. Our opinion is based on economic, monetary, political, market and
other conditions existing and which can be evaluated as of the date of this
opinion; however, such conditions are subject to rapid and unpredictable change.
We have made no independent investigation of any legal matters affecting the
Company or Everest & Jennings, and we have assumed the correctness of all legal
and accounting advice given to such parties and their respective boards of
directors, including advice as to the accounting and tax consequences of the
Merger to the Company and its stockholders.
In conducting our analysis and arriving at the opinion expressed herein, we
have considered such financial and other factors as we have deemed appropriate
under the circumstances, including, among others: (i) the business and financial
aspects of the Merger; (ii) the historical and current markets for Everest &
Jennings' common stock; (iii) the historical and current markets for the
Company's common stock; (iv) the financial impact of the Merger upon the
Company; (v) the discussions with Everest & Jennings' management and
representatives and with the Company's management and representatives referred
to above; (vi) certain of Everest & Jennings' and the Company's operating and
financial information; (vii) Everest & Jennings' and the Company's Annual
Reports to Stockholders and Annual Reports on Form 10-K for their last three
full fiscal years and their Quarterly Reports on Form 10-Q filed since the date
of their most recent such Form 10-K; (viii) recent comparable acquisitions; (ix)
the historical and current valuations of publicly traded companies which we
believe are comparable to the Company and to Everest & Jennings; and (x) such
other information as we deemed to be appropriate. We also conducted such other
reviews, analyses and inquiries relating to Everest & Jennings and the Company
(in addition to those set forth above) as we considered proper.
With your permission, in rendering such opinion we have also assumed that:
(i) the conditions to the consummation of the Merger set forth in the Agreement
will be satisfied; (ii) there is not now, and there will not as a result of the
consummation of the transactions contemplated by the Agreement be, any default,
or event of default, under any indenture, credit agreement or other material
instrument to which the Company or any of its subsidiaries or affiliates is a
party; and (iii) the amount of outstanding net indebtedness (for borrowed money)
of Everest & Jennings immediately after the closing of the Merger will be
approximately $7.6 million, plus such other indebtedness as permitted under the
terms of the Agreement in an amount not to exceed $1 million.
Finally, in rendering the opinion set forth below we note that: (i) the
consummation of the Merger is conditioned upon the approval of the Company's and
Everest & Jennings' stockholders; (ii) in providing our opinion we are not
recommending any action the Company, its Board of Directors or any of its
security holders should take in connection with the Merger; (iii) our opinion
necessarily is based upon conditions as they exist and that can be evaluated on
the date hereof; (iv) our opinion does not constitute a recommendation of the
Merger over any other alternative transactions which may be available to the
Company; (v) our opinion does not address the Company's underlying business
decision to effect the Merger; and (vi) we are not opining as to the prices at
which any of the securities of the Company may trade upon and following the
consummation of the Merger.
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<PAGE>
Based upon and subject to the foregoing, and upon such other matters as we
consider relevant, it is our opinion as investment bankers that, as of the date
hereof, the consideration to be paid by the Company pursuant to the Merger is
fair to the holders of the Company Common Stock from a financial point of view.
It is understood and agreed that this opinion is provided for the use of
the Board of Directors of the Company as one element in such Board's
consideration of the Merger, and may not be used for any other purpose, or
otherwise referred to, relied upon or circulated, without our prior written
consent. This opinion may be reproduced in full in any proxy statement mailed to
holders of Company Common Stock in connection with the Merger but may not
otherwise be disclosed publicly in any manner without our prior written
approval.
Sincerely,
JEFFERIES & COMPANY, INC.
By: /s/ JEFFRY K. WEINHUFF
--------------------------------------
Name: Jeffry K. Weinhuff
Title: Executive Vice President and
Director of Corporate Finance
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<PAGE>
ANNEX G
[Letterhead of Vector Securities International]
August 29, 1996
The Board of Directors
Everest & Jennings International Ltd.
4203 Earth City Expressway
Earth City, MO 63045
Members of the Board:
You have requested our opinion as investment bankers with respect to the
fairness, from a financial point of view as of the date hereof, to the holders
common stock, par value $.10 per share (the "Common Stock"), of Everest &
Jennings International Ltd., a Delaware corporation, of the consideration to be
received by such stockholders pursuant to the terms of the August 26, 1996 draft
Agreement and Plan of Merger (the "Agreement") to be entered into by and among
(i) Everest & Jennings International Ltd., (ii) BIL (Far East Holdings) Limited,
a Hong Kong corporation, (iii) Graham-Field Health Products, Inc.
("Graham-Field"), a Delaware corporation and (iv) E&J Acquisition Corp., a
Delaware corporation wholly-owned by Graham-Field.
Under the terms and conditions of the Agreement, among other things, E&J
Acquisition Corp. will merge with and into Everest & Jennings International Ltd.
("E&J") and E&J will become a wholly-owned subsidiary of Graham-Field (the
"Merger"). As a result of the Merger, all of the issued and outstanding shares
of Common Stock will be converted into the right to receive 0.35 shares of
common stock, par value $.025 per share, of Graham-Field. The terms and
conditions of the Merger are more fully set forth in the August 26, 1996 draft
of the Agreement.
In arriving at the opinion set forth herein, we, among other things: (i)
reviewed the financial terms of the Merger as set forth in the August 26, 1996
draft of the Agreement; (ii) held discussions with the senior management of E&J
and Graham-Field concerning the business, operations, and prospects of E&J and
Graham-Field as well as other matters we believe relevant to our inquiry; (iii)
reviewed certain business and financial information on E&J and Graham-Field,
including certain financial projections of E&J prepared by the management of
E&J, certain financial projections of Graham-Field prepared by the management of
Graham-Field, and certain financial projections of E&J and Graham-Field on a
combined basis, including estimates of synergies prepared by Graham-Field in
conjunction with E&J; (iv) reviewed certain documents filed by E&J and
Graham-Field with the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934; (v) reviewed the price and trading history of
the Common Stock of E&J and the common stock of Graham-Field; (vi) compared
certain financial and securities data of E&J and Graham-Field to the data of
publicly-traded companies which we deemed comparable; (vii) compared the
financial terms of the Merger to those of other transactions which we deemed
comparable; and (viii) performed such other studies, analyses, investigations
and inquiries we deemed appropriate.
In connection with our opinion, we neither attempted independently to
verify nor assumed any responsibility for independent verification of any
information publicly available or supplied or otherwise made available to us
regarding E&J and Graham-Field and we have assumed and relied on such
information being accurate and complete in all respects. We have not made or
obtained, or assumed any responsibility for making or obtaining, any independent
evaluation or appraisal of the assets of E&J or Graham-Field. With respect to
the financial projections of E&J and Graham-Field referred to above,
G-1
<PAGE>
we have assumed that they have been reasonably prepared on bases reflecting the
best available estimates and judgments of the management of E&J and Graham-Field
as to the future financial performance of E&J and Graham-Field, respectively,
and that E&J and Graham-Field will perform substantially in accordance with such
projections. We assume no responsibility for and express no view as to such
forecasts or the assumptions under which they are prepared. We have also taken
into account our assessment of general economic, market and financial conditions
and our knowledge of the durable medical equipment industry, as well as our
experience in connection with similar transactions and securities valuation
generally. Our conclusions are based solely on information available to us on or
before the date hereof and reflect economic, market, and other conditions as of
such date. It should be understood that, although subsequent developments may
affect this opinion, we assume no responsibility and do not have any obligation
to update, revise, or reaffirm this opinion. In rendering our opinion, we
assumed that obtaining any necessary regulatory approvals for the transaction
will not have an adverse effect on E&J or Graham-Field. We are expressing no
opinion as to what the value of the common stock of Graham-Field to be issued to
E&J common stockholders will actually be when issued pursuant to the Merger or
the prices at which such common stock will actually trade at any time.
E&J has agreed to indemnify us for certain liabilities arising out of our
rendering of this opinion. In addition, Brierly International Ltd. ("Brierly"),
in connection with our engagement with E&J to render a fairness opinion
regarding the Merger, has agreed to release us from any liability to Brierly
which may result for our engagement. Vector Securities International, Inc. is a
full service securities firm and in the course of its normal trading activities
may from time to time effect transactions and hold positions in securities of
E&J and/or Graham-Field. Vector Securities International, Inc. has performed
investment banking services for E&J in the past and has received customary
compensation for such services.
Our opinion set forth below is directed to the Board of Directors of E&J
and does not address E&J's underlying business decision to effect the Merger or
constitute a recommendation to any stockholder of E&J with respect to the
approval of the Merger. Vector Securities International, Inc. was not requested
or authorized to solicit, and did not solicit, potential purchasers of E&J. Our
opinion is not to be reproduced, quoted or published in any manner without our
prior written consent, except that this letter may be reproduced in full in the
proxy statement to be filed with the Securities and Exchange Commission in
connection with the Merger.
On the basis of and subject to the foregoing, including the various
assumptions and limitations set forth herein, and based upon such other matters
as we consider relevant, it is our opinion as of the date hereof that the
consideration to be received by the holders of the Common Stock of E&J in the
Merger is fair to such stockholders from a financial point of view.
Very truly yours,
VECTOR SECURITIES INTERNATIONAL, INC.
By: /s/ ROBERT F. CAREY III
-------------------------------------
Robert F. Carey III
Managing Director
G-2
<PAGE>
ANNEX H
PARENT AMENDMENT
1. The first paragraph of Article FOURTH shall be amended in its entirety to
read as follows:
"FOURTH: the total number of shares of all classes of stock which the
Company is authorized to issue is 61,000,000 shares. All such shares are to have
a par value and are classified as 1,000,000 shares of Preferred Stock, each
share of such class having a par value of $.01, and 60,000,000 shares of Common
Stock, each share of such class having a par value of $.025."
2. Articles NINTH, ELEVENTH AND TWELFTH shall be amended and restated in their
entirety to read as follows:
"NINTH: Subject to the rights of the holders of shares of any series of
Preferred Stock or any other series or class of stock as set forth in this
Certificate of Incorporation to elect additional directors under specified
circumstances or to consent to actions taken by the Company which specifically
require the approval of such holders, any action required or permitted to be
taken by the stockholders of the Company must be affected at an annual or
special meeting of stockholders of the Company and may not be effected by any
consent in writing in lieu of a meeting of such stockholders. Special meetings
of stockholders, unless otherwise prescribed by statute, may be called at any
time by the Chief Executive Officer or the Secretary at the written request of a
majority of the Board of Directors.
Notwithstanding anything in this Certificate of Incorporation to the
contrary, the affirmative vote of at least 80 percent of the voting power of the
then outstanding Voting Stock (as defined below), voting together as a single
class, shall be required to alter, amend or repeal, or adopt any provision
inconsistent with, this Article NINTH. For purposes of this Certificate of
Incorporation, "Voting Stock" shall mean the outstanding shares of capital stock
of the Company entitled to vote generally in the election of directors."
"ELEVENTH: (A) Subject to the rights of the holders of shares of any series
of Preferred Stock or any other series or class of stock as set forth in the
Certificate of Incorporation to elect additional directors under specified
circumstances, the number of directors of the Company shall be fixed by the
by-laws of the Company and may be increased or decreased from time to time in
such manner as may be prescribed in the by-laws.
(B) Unless and except to the extent that the by-laws of the Company shall
so require, the election of directors of the Company need not be by written
ballot.
(C) The directors, other than those who may be elected by the holders of
shares of any series of Preferred Stock or any other series or class of stock as
set forth in this Certificate of Incorporation, shall be divided into three
classes, and designated as Class I, Class II and Class III. The term of office
of the first class shall expire at the next annual meeting of the Company after
their election, the term of office of the second class shall expire at the
second succeeding annual meeting and the term of office of the third class at
the third succeeding annual meeting. At each succeeding annual meeting of
stockholders of the Company, the successors of the class of directors whose term
expires at that meeting shall be elected for a term expiring at the annual
meeting of stockholders held in the third year following the year of their
election, and until their successors are elected and qualified.
(D) Advance notice of stockholder proposals and stockholder nominations for
the election of directors shall be given in the manner provided in the by-laws
of the Company.
H-1
<PAGE>
(E) Subject to the rights of the holders of shares of any series of
Preferred Stock or any other series or class of stock as set forth in this
Certificate of Incorporation to elect additional directors under specified
circumstances, any director may be removed from office at any time, but only for
cause and only by the affirmative vote of the holders of more than 50 percent of
the voting power of the then outstanding Voting Stock, voting together as a
single class.
(F) Notwithstanding anything contained in this Certificate of Incorporation
to the contrary, the affirmative vote of the holders of at least 80 percent of
the voting power of the then outstanding Voting Stock, voting together as a
single class, shall be required to alter, amend or repeal, or adopt any
provision inconsistent with, this Article ELEVENTH."
"TWELFTH: (A) Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, Sections 2 and 12 of Article I, Sections 2 and 11
of Article II and Article XI of the by-laws of the Company shall not be altered,
amended or repealed, and no provision inconsistent therewith shall be adopted,
by the stockholders without the affirmative vote of the holders of at least 80
percent of the voting power of the then outstanding Voting Stock, voting
together as a single class.
(B) Notwithstanding anything contained in this Certificate of Incorporation
to the contrary, the affirmative vote of at least 80 percent of the voting power
of the then outstanding Voting Stock, voting together as a single class, shall
be required to alter, amend or repeal, or adopt any provision inconsistent with,
this Article TWELFTH."
H-2
<PAGE>
PROXY PROXY
Everest & Jennings International Ltd.
4203 Earth City Expressway
Earth City, Missouri 63045
This Proxy is Solicited on Behalf of the Board of Directors.
The undersigned hereby appoints Bevil J. Hogg and Timothy Evans as Proxies,
each with the power to appoint his substitute, and hereby authorizes them, and
each of them, to represent and vote, as designated below, all the shares of
Common Stock of Everest & Jennings International Ltd., a Delaware corporation
(the "Company"), which the undersigned is entitled to vote at the Special
Meeting of Stockholders to be held at the St. Regis Hotel, 2 East 55th Street,
New York, New York, on Wednesday, November 27, 1996 at 9:00 A.M., local time and
any adjournment or adjournments thereof, with all the powers the undersigned
would possess if personally present, upon the matters noted below:
1. Adoption of the Amended and Restated Agreement and Plan of Merger dated as
of September 3, 1996 and amended as of October 1, 1996 (the "Merger
Agreement") by and among Graham-Field Health Products, Inc., E&J
Acquisition Corp., BIL (Far East Holdings) Limited and the Company.
|_| FOR |_| AGAINST |_| ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ADOPTION OF THE MERGER
AGREEMENT.
2. In their discretion, the Proxies are authorized to vote upon such other
matters as may properly be presented incident to the conduct of the
meeting.
This proxy, when properly executed, will be voted in the manner directed by
the undersigned stockholder. If no direction is made, this proxy will be voted
FOR the adoption of the Merger Agreement.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
(continued and to be signed and dated on the reverse side)
<PAGE>
Please sign exactly as name appears below.
When shares are held by joint tenants,
both should sign. When signing as
attorney, executor, administrator, trustee
or guardian, please give full title as
such. If a corporation, please sign in
full corporate name by the President or
other authorized officer. If a
partnership, please sign in partnership
name by authorized person.
________________________________ Signature
__________________________________________
Signature if held jointly
Dated: _____________________________, 1996
<PAGE>
PROXY PROXY
Graham-Field Health Products, Inc.
400 Rabro Drive East
Happauge, New York 11788
This Proxy is Solicited on Behalf of the Board of Directors.
The undersigned hereby appoints Irwin Selinger and Richard Kolodny as
Proxies, each with the power to appoint his substitute, and hereby authorizes
them, and each of them, to represent and vote, as designated below, all the
shares of Common Stock of Graham-Field Health Products, Inc., a Delaware
corporation (the "Company"), which the undersigned is entitled to vote at the
Special Meeting of Stockholders to be held at The Chase Manhattan Bank, 13th
Floor (the Auditorium), 55 Water Street, New York, New York, on Wednesday,
November 27, 1996 at 9:00 A.M., local time and any adjournment or adjournments
thereof, with all the powers the undersigned would possess if personally
present, upon the matters noted below:
1. Approval of the issuance of shares of Common Stock and Preferred Stock of
the Company as contemplated by the Amended and Restated Agreement and Plan
of Merger dated as of September 3, 1996 and amended as of October 1, 1996
(the "Merger Agreement") by and among the Company, E&J Acquisition Corp.,
Everest & Jennings International Ltd. and BIL (Far East Holdings) Limited.
|_| FOR |_| AGAINST |_| ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ADOPTION OF THE SHARE
ISSUANCES AS CONTEMPLATED BY THE MERGER AGREEMENT.
2. Approval of an amendment to Article FOURTH of the Company's Certificate of
Incorporation to increase the number of authorized shares of Common Stock
from 40,000,000 shares to 60,000,000 shares.
|_| FOR |_| AGAINST |_| ABSTAIN
3. Approval of an amendment to Article NINTH of the Company's Certificate of
Incorporation to restrict stockholder action by written consent.
|_| FOR |_| AGAINST |_| ABSTAIN
4. Approval of an amendment to Article ELEVENTH of the Company's Certificate
of Incorporation relating to removal of directors and related matters.
|_| FOR |_| AGAINST |_| ABSTAIN
<PAGE>
5. Approval of an amendment to Article TWELFTH of the Company's Certificate of
Incorporation relating to the vote required to amend certain of the
Company's Bylaws.
|_| FOR |_| AGAINST |_| ABSTAIN
THE BOARD RECOMMENDS A VOTE FOR THE ADOPTION OF THE FOREGOING AMENDMENTS TO
THE COMPANY'S CERTIFICATE OF INCORPORATION.
6. Approval of an amendment to the Company's Incentive Program to increase the
number of shares of Common Stock issuable under the Incentive Program by
900,000.
|_| FOR |_| AGAINST |_| ABSTAIN
THE BOARD RECOMMENDS A VOTE FOR THE ADOPTION OF THE FOREGOING AMENDMENT TO
THE COMPANY'S INCENTIVE PROGRAM.
7. In their discretion, the Proxies are authorized to vote upon such other
matters as may properly be presented incident to the conduct of the meeting
(including, without limitation, adjournment of the meeting in order to
allow for additional solicitation of stockholder votes in order to obtain a
quorum or in order to obtain more votes in favor of any of the proposals).
This proxy, when properly executed, will be voted in the manner directed by the
undersigned stockholder. If no direction is made, this proxy will be voted FOR
the adoption of Proposals 1, 2, 3, 4, 5 and 6.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
Please sign exactly as name appears below.
When shares are held by joint tenants,
both should sign. When signing as
attorney, executor, administrator, trustee
or guardian, please give full title as
such. If a corporation, please sign in
full corporate name by the President or
other authorized officer. If a
partnership, please sign in partnership
name by authorized person.
________________________________ Signature
__________________________________________
Signature if held jointly
Dated: _____________________________, 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Under Section 145 of the Delaware General Corporation Law (the "DGCL"), a
corporation may indemnify any of its directors and officers against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding (i) if such person acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation and (ii) in connection with any criminal action or proceeding if
such person had no reasonable cause to believe such conduct was unlawful. In
actions brought by or in the right of the corporation, however, Section 145
provides that no indemnification may be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless, and only to the extent that, the Court of Chancery of the
State of Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper. Article V of Graham-Field's bylaws requires that
Graham-Field indemnify its directors and officers for certain liabilities
incurred in the performance of their duties on behalf of Graham-Field to the
fullest extent permitted or required by the DGCL.
As permitted by Section 102(b)(7) of the DGCL, Graham-Field's certificate
of incorporation, as amended, provides that directors of Graham-Field shall not
be personally liable to Graham-Field or to its stockholders for monetary damages
for (i) any breach of the director's duty of loyalty to Graham-Field or its
stockholders, (ii) acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) any act or omission
where the liability of the director is expressly provided for by certain
statutes listed therein or (iv) any transaction for which the director derived
an improper personal benefit.
Graham-Field has a directors and officers liability insurance policy in
effect which covers certain claims against any officer or director of
Graham-Field by reason of certain breaches of duty, neglect, errors or omissions
committed by such person in his capacity as an officer or director.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits.
The exhibits to this Registration Statement are listed in the accompanying
Exhibit Index and are filed (except where otherwise indicated) as part of this
Registration Statement.
(b) No financial statement schedules are required to be filed.
Item 22. Undertakings.
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(b) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration
II-1
<PAGE>
Statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
(c) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (b) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the Registration Statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(e) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of Form S-4, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the Registration Statement through the date
of responding to the request.
(f) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Graham-Field
Health Products, Inc. has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Hauppauge, New
York, on October 18, 1996.
GRAHAM-FIELD HEALTH PRODUCTS, INC.
By: /s/ IRWIN SELINGER
-------------------------------------
Irwin Selinger, Chairman Of the
Board and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Irwin Selinger and Richard S. Kolodny, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and revocation for him in his name, place and stead in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ IRWIN SELINGER Chairman of the Board and Chief October 18, 1996
- ---------------------------- Executive Officer and Director
Irwin Selinger (Principal Executive Officer)
/s/ GARY M. JACOBS Vice President/Finance and Chief October 18, 1996
- ---------------------------- Financial Officer (Principal
Gary M. Jacobs Financial and Accounting Officer)
/s/ DAVID P. DELANEY, JR. Director October 18, 1996
- ----------------------------
David P. Delaney, Jr.
/s/ ANDREW A. GIORDANO Director October 18, 1996
- ----------------------------
Andrew A. Giordano
/s/ DR. HAROLD LAZARUS Director October 18, 1996
- ----------------------------
Dr. Harold Lazarus
/s/ STEVEN D. LEVKOFF Director October 18, 1996
- ----------------------------
Steven D. Levkoff
/s/ LOUIS A. LUBRANO Director October 18, 1996
- ----------------------------
Louis A. Lubrano
/s/ DONALD PRESS Director October 18, 1996
- ----------------------------
Donald Press
/s/ ROBERT SPIEGEL Director October 18, 1996
- ----------------------------
Robert Spiegel
II-3
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
2.1 Amended and Restated Agreement and Plan of Merger, dated as of
September 3, 1996, as amended on October 1, 1996, by and among
Graham-Field Health Products, Inc., E&J Acquisition Corp., BIL
(Far East Holdings) Limited and Everest & Jennings International
Ltd. (included as Annex A to the Joint Proxy Statement/Prospectus
that forms a part of this Registration Statement).
2.2 Amended and Restated Stockholder Agreement, dated as of September
3, 1996, as amended on September 19, 1996, by and among
Graham-Field Health Products, Inc., BIL (Far East Holdings)
Limited and Irwin Selinger (included as Annex B to the Joint Proxy
Statement/Prospectus that forms a part of this Registration
Statement).
2.3 Registration Rights Agreement, dated as of September 3, 1996,
between Graham-Field Health Products, Inc. and BIL (Far East
Holdings) Limited (included as Annex C to the Joint Proxy
Statement/Prospectus that forms a part of this Registration
Statement).
5.1 Opinion of Milbank, Tweed, Hadley & McCloy as to the legality of
the Graham-Field Common Stock being registered.
8.1 Opinion of Bryan Cave LLP as to certain federal income tax
consequences.
23.1 Consent of Milbank, Tweed, Hadley & McCloy (included in Exhibit
5.1).
23.2 Consent of Bryan Cave LLP (included in Exhibit 8.1).
23.3 Consent of Ernst & Young LLP.
23.4 Consent of Price Waterhouse LLP.
23.5 Consent of Jefferies & Company, Inc.
23.6 Consent of Vector Securities International, Inc.
24.1 Power of Attorney (included on signature page of this Registration
Statement)
II-4
EXHIBIT 5.1
[Letterhead of Milbank, Tweed, Hadley & McCloy]
October 18, 1996
Graham-Field Health Products, Inc.
400 Rabro Drive East
Hauppauge, NY 11788
Re: Registration Statement on Form S-4
Issuance of Shares of Common Stock
Ladies and Gentlemen:
We refer to the Registration Statement on Form S-4 (the "Registration
Statement") of Graham-Field Health Products, Inc., a Delaware corporation (the
"Company"), filed with the Securities and Exchange Commission today for the
purpose of registering under the Securities Act of 1933, as amended, a maximum
of 8,905,691 shares of common stock, par value $.025 per share, of the Company
(the "Shares"). The Shares are to be issued (a) to the holders of common stock,
par value $.10 per share, of Everest & Jennings International Ltd. (the "E&J
Common Stock"), a Delaware corporation ("E&J"), pursuant to the Amended and
Restated Agreement and Plan of Merger dated as of September 3, 1996 and as
amended as of October 1, 1996 (the "Merger Agreement"), by and among E&J, BIL
(Far East Holdings) Limited ("BIL"), E&J Acquisition Corp., a wholly-owned
subsidiary of the Company ("E&J Acquisition"), and the Company pursuant to which
E&J Acquisition will be merged with and into E&J and E&J will survive as a
wholly-owned subsidiary of the Company (the "Merger"), in exchange for their
shares of E&J Common Stock (the "Merger Shares"); (b) to BIL in exchange for the
delivery of funds in an amount equal to the amount of indebtedness owing by E&J
to Hong Kong and Shanghai Banking Corporation Limited (the "HSBC Indebtedness"),
subject to a maximum of $25 million, which funds will be contributed by the
Company to E&J following the Merger and used by E&J to discharge the HSBC
Indebtedness (the "BIL Shares"); and (c) upon the conversion of shares of Series
B Cumulative Convertible Preferred Stock, par value $.01 per share, of the
Company ("Company Series B Preferred Shares") and shares of Series C Cumulative
Convertible Preferred Stock, par value $.01 per share, of the Company ("Company
Series C Preferred Stock") being issued to BIL pursuant to the Merger Agreement
in connection with the Merger (the "Conversion Shares").
We are acting as special counsel for the Company and E&J Acquisition in
connection with the Registration Statement, the Merger and certain matters
contemplated thereby.
We have examined originals, or copies certified to our satisfaction, of
such corporate records of the Company and E&J Acquisition, certificates of
public officials, certificates of officers and representatives of the Company
and E&J Acquisition and other documents as we have deemed it necessary or
appropriate to review as a basis for the opinions hereinafter expressed. In such
examination, we have assumed the genuineness of all signatures, the authenticity
of all documents submitted to us as originals, the conformity with authentic
originals of all documents submitted to us as copies and the authenticity of the
originals of such latter documents. As to questions of fact material to the
opinions hereinafter expressed, we have, when relevant facts were not
independently established, relied upon the representations set forth in the
Merger Agreement, certificates of public officials and officers of the Company
and E&J Acquisition and other appropriate persons and statements of the Company
and E&J Acquisition contained in the Registration Statement.
Based upon and subject to the foregoing, and having regard to legal
considerations we deem relevant, we are of the opinion that upon (i) the
approval of (x) the issuance of the Shares pursuant to the Merger Agreement by
the requisite vote of the stockholders of the Company and (y) the Merger
Agreement by the requisite vote of the stockholders of E&J, (ii) the
consummation of the Merger pursuant to the Delaware General Corporation Law
("DGCL"), (iii) in the case of the Merger Shares,
<PAGE>
the issuance of the Merger Shares to the holders of E&J Common Stock in
accordance with the terms of the Merger Agreement, (iv) in the case of the BIL
Shares, the issuance of the BIL Shares to BIL in accordance with the terms of
the Merger Agreement and (v) in the case of the Conversion Shares, the issuance
of the Conversion Shares upon conversion of the Company Series B Preferred Stock
or the Company Series C Preferred Stock, as the case may be, in accordance with
its terms, the Shares will have been legally and validly issued and will be
fully paid and nonassessable.
The foregoing opinions are limited to the federal laws of the United States
of America and the DGCL, and we do not express any opinion as to the laws of any
other jurisdiction.
We hereby consent to the reference to us under the heading "Legal Matters"
in the Joint Proxy Statement/Prospectus forming a part of the Registration
Statement and to the filing of this opinion as Exhibit 5.1 to the Registration
Statement.
Very truly yours,
/s/ Milbank, Tweed, Hadley & McCloy
EXHBIT 8.1
[Letterhead of Bryan Cave LLP]
October 18, 1996
Board of Directors
Everest & Jennings International Ltd.
4203 Earth City Expressway
Earth City, Missouri 63045
Board of Directors
Graham-Field Health Products, Inc.
400 Rabro Drive East
Hauppauge, New York 11788
Dear Board of Directors:
These opinions are delivered in our capacity as counsel to Everest &
Jennings International Ltd., a Delaware corporation ("Everest & Jennings"), as
to certain of the material federal income tax consequences of the merger
("Merger") contemplated by the Agreement and Plan of Merger dated as of
September 3, 1996, as amended as of October 1, 1996 (the "Merger Agreement"), by
and among Everest & Jennings, Graham-Field Health Products, Inc., a Delaware
corporation ("Graham-Field"), E&J Acquisition Corp., a Delaware corporation and
a wholly-owned subsidiary of Graham-Field ("Acquisition Corporation"), and BIL
(Far East Holdings) Limited, a Hong Kong corporation ("BIL"), in connection with
the filing with the Securities and Exchange Commission of Graham-Field's
Registration Statement on Form S-4 (the "Registration Statement") with respect
to the issuances of its securities pursuant to the Merger Agreement. Capitalized
terms not otherwise defined herein shall have the meaning ascribed to them in
the Merger Agreement.
In rendering these opinions, we have reviewed copies of the Merger
Agreement, the Preliminary Joint Proxy Statement of Everest & Jennings and
Graham-Field filed with the Commission on September 20, 1996, and such other
documents as we have deemed necessary or relevant for purposes of these
opinions. In addition to these documents, we have relied on the written
representations of Everest & Jennings and Graham-Field as to certain factual
matters.
In rendering the opinions set forth herein, we have assumed (i) the
genuineness of all signatures on documents we have examined, (ii) the
authenticity of all documents submitted to us as originals, (iii) the conformity
to the original documents of all documents submitted to us as copies, (iv) the
authority and capacity of the individual or individuals who executed any such
documents on behalf of any person, (v) the accuracy and completeness of all
documents made available to us and (vi) the accuracy as to the facts of all
representations, warranties and written statements. We have also assumed,
without investigation, that all documents, warranties and covenants relating to
the Merger on which we have relied in rendering the opinions set forth below and
that were given or dated earlier than the date of this letter continue to remain
accurate, insofar as relevant to the opinions set forth herein, from such
earlier date through and including the date of this letter.
<PAGE>
OPINIONS
Based upon the foregoing, and assuming the Merger is consummated in
accordance with the Merger Agreement, and subject to the conditions and
limitations contained herein, we are of the opinion that: (1) the Merger, when
consummated in accordance with the terms of the Merger Agreement and as
described in the Registration Statement, will constitute a reorganization within
the meaning of either section 368(a)(1)(B) or sections 368(a)(1)(A) and
368(a)(2)(E) of the Internal Revenue Code of 1986, as amended; and (2) the
federal income tax consequences to the parties, as set forth in the Registration
Statement are true and complete in all material respects.
* * * * *
The foregoing opinions reflect our best professional judgment as to the
correct federal income tax treatment, under current law, of those aspects of the
proposed transactions to which the opinions relate. We note that our opinions
are based upon our review of the documents described above, the statements and
representations referred to above, the provisions of the Internal Revenue Code,
the regulations, published rulings and announcements thereunder, and the
judicial interpretations thereof, currently in effect. Any change in applicable
law or any of the facts and circumstances described in the Registration
Statement, or inaccuracy of any statements or representations on which we have
relied, may effect the continuing validity of our opinions.
We hereby consent to the filing of these opinions as an exhibit to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the prospectus filed as a part thereof. We also consent to your
filing copies of these opinions as an exhibit to the Registration Statement with
agencies of such state as you deem necessary in the course of complying with the
laws of such states regarding the Merger. In giving this consent, we do not
hereby admit that we are in the category of persons whose consent is required
under section 7 of the Act or the rules and regulations of the Securities and
Exchange Commission.
Very truly yours,
BRYAN CAVE LLP
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 8, 1996, included in the Joint Proxy Statement
of Graham-Field Health Products, Inc. and Everest & Jennings International Ltd.
that is made a part of the Registration Statement (Form S-4) and Prospectus of
Graham-Field Health Products, Inc. for the registration of up to 8,905,691
shares of the common stock of Graham-Field Health Products, Inc.
/s/ ERNST & YOUNG LLP
Melville, New York
October 17, 1996
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Graham-Field Health Products, Inc. of our
report dated March 15, 1996, except as to the tenth paragraph of Note 3, which
is as of June 4, 1996, relating to the consolidated financial statements of
Everest & Jennings International Ltd., which appears in such Prospectus. We also
consent to the application of such report to the Financial Statement Schedule
for the three years ended December 31, 1995 included in this Registration
Statement when such schedule is read in conjunction with the consolidated
financial statements referred to in our report. The audits referred to in such
report also included this schedule. We also consent to the reference to us under
the heading "Experts" in such Prospectus.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
St. Louis, Missouri
October 18, 1996
EXHIBIT 23.5
[Jefferies & Company, Inc. Letterhead]
October 18, 1996
We hereby consent to the use of our name and to the description of our
opinion letter dated September 3, 1996 under the caption "THE MERGER--Opinions
of Financial Advisors" in, and to the inclusion of our opinion letter dated
September 3, 1996, as Annex F to, the Joint Proxy Statement/Prospectus of
Graham-Field Health Products, Inc. and Everest & Jennings International Ltd.,
which Joint Proxy Statement/Prospectus is part of the Registration Statement on
Form S-4. By giving such consent, we do not thereby admit that we are experts
with respect to any part of such Registration Statement within the meaning of
the term "expert" as used in, or that we come within the category of persons
whose consent is required under, the Securities Act of 1933 or the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
JEFFERIES & COMPANY, INC.
By: /s/ DAVID LOSITO
-------------------------------------
David J. Losito
Exhibit 23.6
CONSENT OF VECTOR SECURITIES INTERNATIONAL, INC.
We hereby consent to the use of our name and to the description of our
opinion letter dated August 29, 1996 to the Board of Directors of Everest &
Jennings International Ltd. under the caption "THE MERGER--Opinions of Financial
Advisors" in, and to the inclusion of our opinion letter dated August 29, 1996,
as Annex G to the Joint Proxy Statement/Prospectus of Graham-Field Health
Products, Inc. and Everest & Jennings International Ltd., which Joint Proxy
Statement/Prospectus is part of the Registration Statement on Form S-4 of
Graham-Field Health Products, Inc. filed with the Securities and Exchange
Commission on October 18, 1996. By giving such consent, we do not thereby admit
that we are experts with respect to any part of such Registration Statement
within the meaning of the term "experts" as used in, or that comes within the
category of persons whose consent is required under, the Securities Act of 1933,
or the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
VECTOR SECURITIES INTERNATIONAL, INC.
By: /s/ D. THEODORE BERGHORST
-------------------------------------
D. Theodore Berghorst
Chairman and Chief Executive Officer
New York, New York
October 18, 1996
